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So far, the U.S. has lost neither its ability to produce semiconductors nor its capacity to manufacture other advanced and economically competitive high- technological goods. Last year the U.S. produced an estimated $227 billion worth of electronic products, including $580 million worth of supercomputers that are widely considered to be the world's most advanced machines.
The problem is that under the relentless technological advance of Japan, the once unquestioned U.S. dominance in those areas has been seriously eroded. In the semiconductor field, the U.S. in 1982 enjoyed a 49.1% world-market share, while Japan had 26.9%. Now Japan is the No. 1 producer, with 45.5% of the $45 billion world market, while the U.S. has 44%. In the overall area of high tech, the news for the U.S. has been even more depressing. In 1980 the U.S. ran a record $27 billion trade surplus in those advanced products. Last year, for the first time, the American high-tech balance became a deficit of $2.6 billion. Says the Woodrow Wilson Center's Prestowitz: "It used to be that we could say America should be moving into the future. Now we are finding out that we don't have a future."
That considerably overstates the case, but many others have taken even more alarmist positions. In February a high-level advisory panel, reporting to Defense Secretary Caspar Weinberger, issued a study that warned of the imminent demise of the U.S. semiconductor industry unless immediate action was taken to save it. Among other things, the panel called on the Defense Department to invest $2 billion during the next five years in microchip research and development.
None of that concern entirely explains the fireworks that have erupted over the complicated U.S.-Japanese microchip agreement. The crisis actually began in the early 1980s, when both U.S. and Japanese semiconductor manufacturers, anticipating a substantial jump in demand, vastly increased their capacity for production of the microchips that are used in small numbers in personal computers and in much greater numbers in more complex machines. Instead came a two-year slump that drove down the price of the industry's most important item, the 256K DRAM (dynamic random access memory) chip, from nearly $40 to as little as $2. U.S. manufacturers charged that the Japanese continued to advance their market share in the field by selling the chips at less than cost, a practice known as dumping (see box).
Under the July semiconductor pact, Tokyo agreed to abide by so-called fair market values for microchips set by the U.S. Department of Commerce. Japanese manufacturers could not undercut those prices in the U.S. market without violating American antidumping laws. Tokyo also made a commitment to prevent dumping by Japanese semiconductor producers in other, so-called third-country (non-U.S. and non-Japan) markets, and to encourage Japanese companies at home to buy more foreign-made chips, meaning, by and large, those made in the U.S.