Industrial Policy in the Global Semiconductor Sector

The resurgence of subsidies and industrial policy has raised concerns about their efficiency and compatibility with multilateral principles. Critics argue that such policies may divert resources toward less efficient firms and trigger retaliation by other countries, potentially generating a wasteful “subsidy race.” At the same time, subsidies may generate global benefits in sectors characterized by dynamic economies of scale and cross-border effects. Assessing these competing arguments requires accurate measurement of the policies governments actually pursue. This paper undertakes that task for the semiconductor industry – a key driver of economic growth and innovation, with potentially important dynamic economies of scale and strategic significance arising from its dual-use applications.
We document and quantify recent industrial policies in the global semiconductor sector and examine the economic rationale underlying them. Combining historical analysis, natural language processing, and a model-based approach, we measure the extent and composition of government support across countries and over time. We find that government support has played an important role in the industry’s development, with subsidies constituting its predominant form. Although China provides substantial subsidies to its semiconductor sector, the scale of its support is not exceptional relative to that of other countries once differences in market size are taken into account.