The semiconductor industry, America's symbol of technological superiority for two decades, may be one of the first special interest groups to lobby the Reagan administration for regulation and tax relief in an effort to stave off growing import competition.
The Japanese semiconductor industry is rapidly catching up with American technology and eroding the U.S. market share in the semiconductor business -- the manufacture of the tiny silicon chips that serve as the heart of the computer and telecommunications revolution. Japanese advances in the last five years have been so great that industry analysts may soom be asking the government for the same type of import relief being sought by the steel and auto industries.
It's not that U.S. semiconductor firms are in the same shape as the steel and auto industries with plant shutdowns, high unemployment, and millions of dollars in losses.
When the Reagan forces land in Washington, industry leaders will lobby for tax incentives for research and development, modified depreciation taxes, changes in the capital gains tax and requests that the government ask the Japanese to open up their markets to the U.S.
But Japanese semiconductor firms "are gradually penetrating the U.S. market while U.S. firms are losing market share in the international, particularly the Japanese market," said a report released last month for the House Ways and Means subcommittee on trade.
In the past, the U.S. had the edge in the semiconductor industry, said Warren Davis, director of government relations for the Semiconductor Industry Association. "But we no longer enjoy that. Japan has caught us." i
"The next wave of protection will be Silicon Valley," an area in Northern California where most of the semiconductor companies are located, said John L. Caldwell, a vice president for the U.S. Chamber of commerce. "They will go through other possibilities first."
It is these same firms in California's Silicone Valley that the state of Maryland has been strongly courting as part of its industrial development program. A spokesman for the state said, however, that the state is confident the industry will remain strong despite the Japanese threat.
"It's very different from what's happening in the auto industry," said Robert Sklar, a business development officer who coordinated the state's raid on Silicon Valley firms earlier this year. "The companies in Silicon Valley are very healthy. I think it's still a very healthy growth in this country and it will continue to be so."
Despite Sklar's optimism, Davis said the industry is gearing up for an intense lobbying effort to prevent the necessity of asking for any import relief.
"Protectionism is the very last thing we want to invoke," Davis said. "If everything we're doing fails," protectionist measures may be the last resort.
"But I don't think we're going to fail."
"A Reagan administration would be just as good" as Carter's administration was, Davis said. He noted that Reagan already assembled an innovation task force including the heads of two semiconductor industry executives. "Republicans are just as supportive as Democrats."
John Nesheim, treasurer for National Semiconductor Corp., said, "Our quarrel is not with the Japanese. It's with the American government."
Nesheim said he is optimistic about the new president's administration but that optimism depends on who the new president selects as Secretary of State and Commerce.
Reagan has learned the secret of taxation," Nesheim added. "If you tax something you get less of it."
The semiconductor and computer related industries are expected to be among the business leaders in the world during the 1980's as the Industrial revolution makes way for the electronics age. Semiconductors and the more advanced integrated circuits are the integral links in the revolutions in telecommunications, computers, and electronics industries. Semiconductor sales will rise from $3 billion in 1970 to $60 billion by 1990, Davis said. The whole electronics industry will reach $400 billion by the end of the decade, surpassed only by steel and chemicals, Davis said.
Although the U.S. is still the leader in this area, it is rapidly losing its market share because of insufficient research and development and capital outlay funds, in a world where technology constantly changes, the industry contends. Part of the problem lay with government regulation and tax laws, they said.
A report issued by the international Trade Commission last year said the U.S. semiconductor industry is suffering from limited production capabilities resulting from underinvestment after the 1974-1975 recession.
"Some firms do not appear to be able to fund capital investments at a rate required to keep pace with additional new world demand and technology needs and will lose new markets to competitors able to expand at faster rates and meet new product demand," the ITC report said.
The report added that Japan's low interest rates, government funded research and development programs and nontariff barriers seem to enable the Japanese industry to invest and grow at a greater rate than the U.S. industry.
Other countries, particularly Japan are gearing up for the computer age similar to "space age mobilization," Davis said. "In the U.S. it's the dark side of the moon."
"We're trying to sensitize Washington to the fact that we've got to be aware of this situation and be a strong player in the future of the industry," Davis continued. "An avalanche of integrated circuits in the 1980's (from Japan) and it will be hard for us not to go to protectionist measures or get swamped. We feel we've got some lead time within the industry to increase productivity and quality and sensitize Washington."
Davis said the industry has asked the government to persuade the Japanese to open their markets to U.S. firms. Davis stressed that the industry isn't looking for "direct grants and subsidies that would $99[WORDS OMMITTED] a company or bail it out. What we need are incentives such as 25% research and development tax credit, and relaxation of depreciation laws because semiconductor equipment generally lasts only two years, less time than allowed under current laws. They have also asked for a reduction in the capital gains tax.