Japan’s bold move to reclaim semiconductor dominance

Japan's strategic shift in its approach to semiconductor manufacturing in a recent article by The New York Times, underscores a broader trend of government intervention aimed at revitalizing national industries.

China's impressive use of industrial policy to bolster its economy and support green manufacturing has sparked a global scramble among nations to foster and protect their own domestic industries. It has been four decades since similar competitive fears about an Asian power prompted major free-market economies to embrace government intervention, but back then, it was Japan, not China, that was the focus of concern.  

In the early 1990s, Michael Crichton's thriller Rising Sun portrayed Japan's aggressive economic tactics, while nonfiction books highlighted the formidable financial and technological power wielded by Japan's government trade ministry. A 1990 survey revealed that nearly two-thirds of Americans viewed Japanese investment in the US as a threat to national economic independence.   However, the peak of this anxiety coincided with Japan's economic downturn following the collapse of its real estate and stock market bubbles.

After what Japan’s economy ministry terms “the lost three decades,” Tokyo is now engaged in a multibillion-dollar industrial policy to revitalize its economy and regain its status as a technology leader. This time, Japan is collaborating with technology leaders in the U.S. and other nations—an approach that would have been unimaginable decades ago.   Despite Japan’s shift towards more collaborative policies, recent political debates, such as those surrounding a Japanese-led acquisition of US Steel, highlight the growing trend of the U.S. protecting key industries from foreign influence.

Currently, Japan's industrial policy is focused on advancing technologies like batteries and solar panels, with a significant emphasis on reclaiming a larger share of the global semiconductor market. The Japanese government has allocated over $27 billion in the past three years to this end. As Akira Amari, a senior Japanese official, puts it, “In the future, the world will be divided into two groups: those that can supply semiconductors and those that only receive them. Those are the winners and the losers.” Drawing on lessons from recent decades, Japan is adopting a new approach to semiconductor production, according to Mr. Amari: "We are collaborating with international partners from the outset."  

While many nations are investing billions to gain a competitive edge, Japan's efforts are notable due to its historical use of industrial policy for rapid development post-World War II. “Japan isn’t starting from scratch,” said Alessio Terzi, an economist at the European Commission. “This unique historical advantage sets it apart from other countries.”   The focus of Japan’s latest industrial strategy is evident at a year-old construction site on Hokkaido, Japan’s northernmost island, renowned for its winter skiing, summer floral displays, and volcanic hot springs. Here, the framework of Rapidus Corporation’s new semiconductor plant is taking shape, still enveloped in a large silver scaffold.