Why US Lost the Semiconductor Race to Asia Despite innovating faster

One of the key factors in the US's decline was its failure to invest in manufacturing. In the 1980s, the US government began to withdraw support for the semiconductor industry, and many US companies moved their manufacturing operations overseas. This gave Japan and Taiwan a significant advantage, as they were able to build up their manufacturing capabilities and become major players in the global market.


The semiconductor industry has long been at the forefront of technological innovation, and its products are crucial for powering various modern applications, from smartphones and computers to artificial intelligence and cybersecurity systems. During the early years of its development, the United States was a major player and contributed significantly to the invention of breakthrough technologies like the transistor and CMOS chips. However, as the industry evolved, Japan and Taiwan emerged as formidable competitors, eventually overtaking the US in certain sectors. Despite innovating faster, the US struggled to maintain its dominance due to several critical factors that favored East Asian countries.

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Focus on Consumer Markets:

While US electronics firms were pioneers in inventing revolutionary technologies, they often focused on defense contracts and government support, which limited their incentives to commercialize these innovations for consumer markets. In contrast, Japanese and Taiwanese firms were driven by strong domestic and regional consumer demand. Their focus on satisfying consumer needs led to the successful integration of cutting-edge technologies into marketable products, such as pocket calculators and memory chips.

How Malaysia became a Superpower in Semiconductor Manufacturing – techovedas

Entrepreneurial Vision:

Entrepreneurship played a crucial role in the success of East Asian semiconductor industries. For instance, Tadashi Sasaki’s vision to use CMOS integrated circuits in calculators led to massive sales of calculators featuring American microchips. Similarly, Byung-Chull Lee of Samsung identified DRAM chips as a promising export sector and invested heavily in semiconductor manufacturing, ultimately becoming the leading DRAM producer in the 1990s. These visionary leaders drove their companies to success through strategic decision-making and a relentless pursuit of innovation.

Unitary Actor Model:

The survival imperative played a significant role in fostering cooperation and coordination among government officials, entrepreneurs, and workers in Japan and Taiwan. The unitary actor model, where agents work together for the common good during times of existential threat, motivated East Asian nations to prioritize economic development. In contrast, the interest group model, prevalent in peacetime democracies like the US, often resulted in divergent interests and less concerted efforts to promote domestic semiconductor manufacturing.

Education and Technology Transfer:

Asian countries recognized the importance of investing in education, resulting in a highly educated workforce capable of assimilating and applying foreign technologies effectively. Sasaki, for example, was well-trained and quickly identified the right technologies for his company’s investment. Korean and Taiwanese engineers also excelled in assimilating technology from American firms, enabling them to rapidly advance their semiconductor industries.

Counter-Productive Protectionism:

The US response to Japan’s semiconductor success in the 1980s included demands for protectionism, filing antidumping and Section 301 cases against Japan. However, these actions ultimately weakened both the US and Japanese semiconductor industries. Protectionist measures hindered collaboration and technological exchange, making it challenging for the US to keep up with the rapid pace of innovation in Japan and Taiwan.

High National Saving Rates:

East Asian economies boasted high private saving rates and disciplined fiscal policies, facilitating massive investments in research and development as well as capital formation. In contrast, the US, with its budget deficits, faced challenges in sustaining the necessary investment levels required to remain at the cutting edge.

Harnessing Incentives:

Successful semiconductor policies involved harnessing incentives effectively. For instance, Korea stopped extending loans to firms that failed at exporting, while Malaysia continued supporting indigenous firms even when their performance was poor. The former approach proved more effective in driving competitiveness and development.


In conclusion, the US semiconductor industry’s struggles against Japan and Taiwan in the past were not due to a lack of innovation or ingenuity. Rather, they stemmed from a combination of factors that favored East Asian nations, including a strong focus on consumer markets, visionary entrepreneurship, cooperation during times of threat, investment in education, and prudent industrial policies. To regain and maintain its semiconductor manufacturing strength, the US can draw valuable lessons from its Asian counterparts and align incentives, encourage entrepreneurship, invest in education, and implement judicious industrial policies to promote domestic semiconductor manufacturing.

Editorial Team
Editorial Team
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