US computer chip firms rebounding. Upswing began before Reagan slapped penalties on Japan
San Francisco — America's computer-chip industry, the flash point in an ongoing trade struggle between the United States and Japan, is rebounding. After 2 years in the doldrums and several false starts, the semiconductor industry - the symbol of America's technological strength - is finally getting back on its feet. Signs of recovery coincide somewhat with Reagan administration easing of trade sanctions imposed against Japan in April at the urging of the beleaguered chip industry.
President Reagan said this week he will partly lift the tariffs to reward Japan for its efforts to halt ``dumping,'' the practice of selling computer chips on the world market at below-cost prices. Dumping is prohibited under a semiconductor trade agreement reached by the two nations last July. While most industry analysts agree that Japanese companies have curbed dumping, they attribute the domestic recovery to other factors.
``The current expansion is not so much an effect of the semiconductor trade agreement, but a result of increased demand for semiconductor products,'' says Charles Ferguson of the Massachusetts Institute of Technology. New and better personal computers are fueling the demand, he says, along with booming sales in telecommunications equipment.
``US demand is returning, which goes beyond any international misunderstandings on trade issues,'' agrees Sheila Sandow, spokeswoman for the Semiconductor Industry Association, which represents manufacturers of the tiny silicon wafers. Although the first signs of improvement were spotted eight months ago, the SIA wanted to see a steady, sustained recovery before it would say ``anything bullish,'' she adds.
The turnaround, however, does not mean the trade agreement with Japan should be scrapped, Ms. Sandow says. ``While everybody's going to be doing better business, this industry is cyclical - and it will cycle back down again, unfortunately.''
During these downturns, American companies will continue to need the trade agreement to prevent dumping by Japanese firms, Sandow says.
In addition, progress remains to be seen regarding the second major provision of the semiconductor agreement - US access to the Japanese market. The Japanese chip market is the largest in the world, but American manufacturers are still having trouble selling products there, industry representatives report.
Some industry analysts question not only the effectiveness of the punitive tariffs (imposed against selected Japanese electronics products such as television sets and personal computers), but also the value of the trade agreement itself. Besides bordering on protectionism, the agreement has other flaws, they say:
Japan benefits most. The Japanese were loathe to cut production of D-RAMs, a widely used type of memory chip. But once they did, the price began to firm. Now that demand for chips is rebounding, Japanese companies - which have cornered 80 percent of the D-RAM market - have the most to gain. ``Makes you wonder who this agreement is for,'' says Mark Giudici, a semiconductor industry analyst for the research firm Dataquest.
Few US companies gain. Only two US manufacturers still make D-RAMs. A few others produce EPROMs, another type of memory chip subjected to fierce competition from the Japanese. ``The agreement really has benefited just a handful of [US] companies,'' Mr. Giudici says.
US chip users are hard-hit. The American electronics industry, which uses the tiny chips to make everything from home appliances to office equipment, is now paying up to three times more for chips than before the US-Japan agreement. While the $12 billion semiconductor industry may gain as a result of the agreement, the $250 billion electronics industry may lose. Still, semiconductor manufacturers say the trade pact has stopped much of the Japanese dumping. The tariffs are important, too, says John Greenagel of Advanced Micro Devices in Sunnyvale, Calif., because they ``show the Japanese that the American market will be used as a tool, the most powerful tool we have, to enforce the agreement.''