The report, commissioned by the US Semiconductor Industry Association, pointed out that American leadership in this sector was based on a virtuous innovation cycle that depended on access to global markets to achieve the scale needed to fund the massive research and development investments to advance semiconductor technology.
China's semiconductor demand was about 23% in 2018 but the trade war between the two countries had created headwinds between the two giants, the BCG report, written by Antonio Varas, managing director and partner for the Silicon Valley Bay Area, and Raj Varadarajan, managing director and partner for Dallas, said.
They said from the time the trade war started, the median year-on-year revenue growth of the top 25 semiconductor firms in the US had fallen from 10% in the four quarters just before the tariffs were imposed, to about 1% in late 2018.
Most of these companies had blamed the trade stoush with China as a big factor for their showing, and even though the so-called phase one US-China trade agreement, signed in January 2020, tackled some aspects of disagreement over China's IP protection and technology transfer, the issue of state support for Beijing's domestic semiconductor industry was yet to be addressed.
The authors said they had considered two scenarios: one, in which the existing tariffs remained in place; and two, a situation in which there was a further escalation that could bring bilateral technology trade to a complete halt.
While the US Department of Commerce has been pushing for further curbs on Huawei, President Donald Trump has hinted that he may oppose such restrictions, saying he wanted to make it easier for other countries, China included, to buy US products.
Varas and Varadarajan said they had studied more than 30 semiconductor product lines and found that either of the two scenarios would affect the US much more than expected effect of the Made in China 2025 policy which Beijing had put in place a few years ago.
"We estimate that the Made in China 2025 plan could increase China’s semiconductor self-sufficiency to about 25% to 40% by 2025, reducing the US’s semiconductor share globally by 2 to 5 percentage points," they said.
"Broad unilateral restrictions on Chinese access to US technology would significantly deepen and accelerate US companies’ share erosion."
They said that if escalating tensions led to further restrictions on the bilateral semiconductor trade, then South Korea was very likely to emerge as the global leader in the semiconductor industry after a few years, with China becoming the leader in the long run.
"As experience in communications network equipment and other tech sectors has shown, once the US loses its global leadership position, the industry’s virtuous innovation cycle reverses direction, throwing US companies into a downward spiral of rapidly declining competitiveness and shrinking market share and margins," the two analysts wrote.
"Lower R&D investment would inhibit the US semiconductor industry’s ability to deliver the breakthroughs that US technology and defence sectors rely on to maintain global leadership; ultimately, it could force them to depend on foreign semiconductor suppliers."