Obama's Tech Advisors Craft Response to China's Semiconductor Ambitions

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brooks7 1/19/2017 | 11:32:59 AM

Re: Reducing innovation?

@ky4ym,

Imagine that all semiconductors are made in China. Including those used in US military equipment. Now say that China wants to blackmail the US and cuts off all semiconductor shipments to the US military so that no new or replacment equipment can be manufactured. That is the ad absurdum case and is used to illustrate a point.

Now reverse the situation and imagine you are China and want to ensure that communications equipment (Huawei) and semiconductors (TBD) are available to you no matter what happens in conflict with the Western world. The worst case scenario for this lies in North Korea - assuming they can actually make an ICBM work.

seven

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kq4ym 1/19/2017 | 11:16:54 AM

Re: Reducing innovation? Noting that Chinese industrial policies may "subtract from U.S. market share, and put U.S. national security at risk," I can see the market share changing, but not so sure that the security risk is quite so. If we place "national security" as a point, it seems to me that may be more hype and scare than a reality. Sure, there's some danger that can be found as other nations get a leap ahead of the U.S., but not sure we need to worry so much about being number one in everything?

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inkstainedwretch 1/12/2017 | 1:33:09 PM

Re: Reducing innovation? There is a large body of research on the subject, and I'm not going to pretend I've read it, but if you do a quick scan of summary results (gotta love Google), there is evidence that subsidies to a specific company can sometimes support R&D at that company -- although some dispute that that's true for every company -- some cite evidence that some companies inflate the prospects for R&D just to get R&D subsidies.

Meanwhile, the majority of most frequently-cited research on the market-wide effects of subsidization (that I saw) is skeptical of subsidization, suggesting that it does reduce innovation.

Again, I haven't read the specifica case studies, but from a philosophical standpoint it's axiomatic that it's hard to prove a negative.

-- Brian Santo

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Mitch Wagner 1/12/2017 | 12:58:18 PM

Re: Reducing innovation? Is there evidence to suggest subsidized industries are less innovative? Or is this simply an article of faith?

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brooks7 1/11/2017 | 12:30:47 AM

Re: Reducing innovation? "It's worse when the subsidies are so great that the company being subsidized can sell goods & services below cost.* They end up stealing market share, crippling or even killing competitors that would prefer to compete on functionality/features"

So, suppose you decided that this was a critical industry....it might be interesting to drive every single other competitor out of key markets this way. So, that everybody must buy their technology from you. Then when there are startups, you just give away their products and eliminate them regardless of their technology.

seven

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inkstainedwretch 1/10/2017 | 5:24:47 PM

Re: Reducing innovation? I didn't see an explicit explanation in the report. Part of the philosophical argument however goes like this: A company recieving subsidies has less incentive to innovate to compete -- with the subsidization it can compete more on price, less on functionality/features.

It's worse when the subsidies are so great that the company being subsidized can sell goods & services below cost.* They end up stealing market share, crippling or even killing competitors that would prefer to compete on functionality/features. So not only do the subsidized companies have less incentive to innovative, it might make it harder for other companies to continue to innovate, depending on the extent of the subsidization.

Without the subsidies, you get this virtuous circle -- innovation (which serves the market) can result in better (or at least consistent) profits, which can be plowed back into more innovation.

The counter to that is: If the market is only concerned with price, then it is indicating that it isn't interested in increased functionality/features. The response to that is those functions and features might be of benefit to consumers. You can go around and around on that...

-- Brian Santo

* When you think about it, this is part of the network neutrality argument. Is it fair for a service provider to "subsidize" services on their own networks? You might not use the word subsidization in context, but for some that's just a semantic argument.

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Mitch Wagner 1/10/2017 | 4:43:58 PM

Reducing innovation? How does government subsidy reduce innovation? Does the report say?

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danielcawrey 1/8/2017 | 3:51:08 PM

Re: Wonderful information. One of the things China has done to be competitive in certain markets is provide low-cost solutions. It does this by subsidizing pricing. We've seen this in networking with Huawei and I think they will do this with M&A in the semiconductor industry.

Can the likes of Intel compete with that?

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