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The decline of Japan’s once-formidable chip industry shows how quickly tech tides can turn

June 22, 2021, 11:16 AM UTC

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Japan must spend at least a trillion yen (about $9 billion) in the current fiscal year and trillions more in years to come to prevent the nation’s beleaguered semiconductor industry from falling further behind advanced chip producers in South Korea and Taiwan.

That’s the verdict of Tetsuro Higashi, former chairman of Tokyo Electron and leader of an expert panel advising the Japanese government on chip industry strategy, Bloomberg reported today.

“It will not be at all easy to stage a comeback,” Higashi said, according to the report. “If we miss this opportunity now, there may not be another one.”

Higashi’s warning follows the release of a June 4 report by Japan’s Ministry of Economy, Trade and Industry (METI) outlining a “national project” to revive domestic chip-making capabilities, which the ministry deems as important as securing food and energy. It comes amid a global chip shortage that has forced production delays at Japan’s biggest manufacturers, including Nissan Motor and Honda Motor.

Trillions of yen per year may sound like a hefty outlay. In fact, it’s just the ante given that the bill for building a single advanced wafer fab can top $10 billion—and that other governments are lavishing vast sums on homegrown chipmakers.

The U.S. Congress this month approved a bill earmarking $52 billion for domestic chip manufacturers. China has vowed to spend $1.4 trillion over the next six years in support of technological advances in chips, artificial intelligence and autonomous driving. South Korean companies including Samsung and SK Hynix will invest $450 billion over the next decade to boost chip research and production, while the world’s leading chipmaker, Taiwan’s TSMC, says it will invest $100 billion over the next three years.

Japan’s share of global semiconductor sales has slumped to 10%, down from 50% in 1988. The country still has 84 chip factories, more than any other economy in the world. But few produce high-end components. Japan makes no chips with the most sophisticated, sub-10 nanometer circuitry; that segment of the market is dominated by producers in Taiwan and South Korea. As a result, Japan now imports 64% of its semiconductors.

The story of how Japan rose from the ashes of surrender after World War II to overtake the U.S. as the world’s dominant manufacturer of semiconductors is one of the most remarkable in the history of the electronics industry, if not the modern global economy. It was driven partly by the explosive growth of Japan’s consumer electronics industry, which created homegrown demand for chips, and the fact that Japanese electronics firms were part of large industrial groups and had easier access than U.S. rivals to long-term financing. State-led industrial planning played a role, as did a variety of forms of protectionism. (You can read more in this excellent report by Chad Bown of the Peterson Institute of International Economics.)

In the mid-1980s, U.S. chipmakers sought relief from the Reagan administration, complaining that Japanese competitors were “dumping” chips on global markets and that Tokyo employed unfair trade practices to keep the U.S. share of Japan’s chip market below 10%. Under threat of crippling duties from its most important trade partner, Japan in 1986 agreed to “voluntarily” limit chip sales to the U.S., and, in a controversial side letter, acknowledged that the U.S. semiconductor industry expected to achieve a 20% share of Japan’s market within five years. Bown argues that the deal led to a global supply shortage in some forms of chips that ultimately created an opportunity for producers in Taiwan and South Korea.

The U.S.-Japan rivalry became a sideshow with the rise of China—whose share of total world semiconductor imports rose from 1% in 1995 to 23% in 2019—and the globalization of the chip industry.

China remains acutely dependent on imported chips and chipmaking technologies. In 2020, the nation imported a record $350 billion worth of semiconductors—more than it spent on importing oil. And in the first quarter of this year, China’s imports of integrated circuits soared to $94 billion, up 34% from the same period last year.

Chinese President Xi Jinping has made reducing that dependence a centerpiece of his economic policy. The consensus among industry experts remains that Chinese chipmakers are at least one or two generations behind the global standard in chipmaking technology, and are unlikely to reduce that gap soon, no matter how much money Beijing doles out on domestic producers.

But the rise and fall of Japan’s chipmakers suggests that leaders of the industry today have no room for complacence.

More Eastworld news below.

Clay Chandler

This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at


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$10 billion

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