Can Semiconductors be Japan’s New Auto Industry?

If there is an upside to the pandemic and its effect on economic policy, then it is the fact that systemic weaknesses of global economic integration and chokepoints of supply chain networks worldwide in particular have become all too apparent. What’s more, governments are now motivated to address those risks, backed with political will. The race to enhance resilience and competitiveness through new initiatives and reinvigorating ties between like-minded nations is certainly welcome in principle. But as countries look to develop strategies to give them an edge in the longer term, Japan may be taking a far more pragmatic approach to leveraging the pandemic to jump-start competitiveness in the technology sphere.

Tokyo’s vision for the semiconductor industry is particularly striking. Just as the United States has identified chips together with large-power batteries, pharmaceuticals, and critical minerals as sectors that are not only essential for the country’s economic as well as broader security moving forward, Japan too has put semiconductors at the top of the list of priority sectors to invest in. Yet Tokyo’s focus is as much about addressing the shifting needs of the demand side as much as the supply side. That is to say that whilst Japan too wants to boost domestic chip production in an effort to enhance resilience, it is also looking at systemic shifts in the global semiconductor supply chain network as an opportunity to redefine Japan’s economic focus.

Rather, Amari argued that Japan should concentrate on lowering the cost of advanced chips, and focus on furthering the end use of cutting edge chips. 

Questioned about how Tokyo expects to foot the costs of the heated global chips race recently, Japan’s former economy minister Akira Amari argued that simply investing in producing ever more powerful and smaller chips at home in itself is not a strategic vision for competing in the semiconductor sector. Rather, Amari argued that Japan should concentrate on lowering the cost of advanced chips, and focus on furthering the end use of cutting edge chips.  That plan may actually play far more to Japan’s strength as a hub of technology application rather than research.

Certainly, the Japanese auto sector has benefited from that end-user approach. After all, cars were not invented in Japan, and yet once automobiles became more of a necessity rather than a luxury item, it was companies like Toyota and not Ford that excelled in mass producing affordable high-quality cars. Given the track record of Japanese companies improving existing technologies, the plan to have Japan improve the way semiconductors are used to enhance living standards and deal with some of the most pressing global issues of the day including climate change could be part of a broader roadmap for Japan’s future growth.

That vision, however, depends very much on close cooperation and sharing of technology with the United States and the European Union as well as South Korea,Taiwan, and other like-minded governments. It’s clear that the long and complex chain of semiconductor research, design, development, and manufacturing is ripe for multilateral cooperation, if only to be more cost-effective. At the same time, a global approach is also necessary to withstand the competition and technology influence posed by China. Tokyo’s bid to focus on enhancing the use and improving the production cycle of semiconductors can further Japan’s position not only in the global supply chain, but also reinvigorate not only Japan’s technology sector but economic foundation more broadly. The role Tokyo can and should play in overcoming the global trend of unilateralism and press for further cooperation in securing the future of supply chains is only increasing.

Follow Shihoko Goto, deputy director for geoeconomics and senior associate for Northeast Asia, on Twitter @GotoEastAsia.

The views expressed are the author's alone, and do not represent the views of the U.S. Government or the Wilson Center. Copyright 2020, Asia Program. All rights reserved.