The relentless pursuit of technological leadership is creating unintended economic headwinds for American chipmakers, according to a new report detailing the risks of escalating semiconductor export controls. While Washington aims to limit China’s access to cutting-edge technology, these policies could inadvertently stifle U.S. innovation and market share in the $631 billion global semiconductor industry, projected to surpass $1 trillion by 2030. This analysis models the economic fallout of a hypothetical, broader decoupling from the Chinese market, revealing potentially staggering losses—estimated at $77 billion in initial sales—and significant reductions in crucial research and development investment, ultimately impacting hundreds of thousands of American jobs.
Semiconductor Export Controls & Potential Economic Risks
U.S. semiconductor export controls, particularly those aimed at limiting China’s access to advanced chips, carry significant economic risks for American companies. An ITIF economic model estimates a full decoupling—a complete ban on sales to China—could result in U.S. chipmakers losing $77 billion in revenue initially. This lost revenue doesn’t disappear; competitors in South Korea, the EU, Japan, and even China itself stand to gain market share, potentially shifting global industry leadership. The $631 billion semiconductor market (2024) and projected $1 trillion+ by 2030 is at stake.
These revenue losses directly impact innovation. The model projects a 24%—or $14 billion—decrease in U.S. semiconductor R&D investment following a full decoupling. Given that U.S. companies invested 17.7% of revenue into R&D in 2024, reduced funding jeopardizes the development of next-generation chips crucial for maintaining a competitive edge in fields like AI and cloud computing. This isn’t simply about corporate profits; it’s about long-term technological leadership and national security.
Beyond direct industry impacts, decoupling poses a substantial threat to U.S. employment. The ITIF model estimates over 80,000 fewer jobs within the semiconductor industry itself, plus nearly 500,000 fewer downstream jobs reliant on chip production. Every job in semiconductor supports 5.7 jobs elsewhere in the U.S. economy. These job losses would ripple through numerous sectors, highlighting the broad economic consequences of restrictive export policies.
Report Overview & Key Findings
This report models the economic impact of decoupling U.S. semiconductor firms from the Chinese market, estimating potential revenue, R&D investment, and job losses. The analysis uses four scenarios – full decoupling, 50%, 25%, and Entity List-based restrictions – to assess varying levels of export control. A full decoupling could result in U.S. firms losing approximately $77 billion in sales initially, while competitors in South Korea, the EU, and elsewhere stand to gain significant market share—roughly $21B, $15B, and $14B respectively.
The ITIF economic model projects a substantial decrease in U.S. semiconductor R&D investment following a full decoupling – around 24%, equating to $14 billion. This reduction stems directly from lost revenue and threatens long-term innovation and competitiveness. Furthermore, the report highlights the significant labor impact, estimating over 80,000 fewer direct U.S. semiconductor industry jobs and nearly 500,000 fewer downstream jobs across the broader economy.
The analysis leverages 2022 global market share data from BCG and SIA to model how lost U.S. revenue would redistribute to competitors. It assumes a consistent 17.7% R&D investment rate for U.S. firms and calculates downstream job impacts using a 1:5.7 ratio. These projections demonstrate that restricting access to the Chinese market doesn’t simply shift production—it actively weakens U.S. innovation, reduces employment, and ultimately harms the American economy.
Global Semiconductor Market & Baseline Data
The global semiconductor market reached $631 billion in sales in 2024 and is projected to exceed $1 trillion by 2030, underpinning over $7 trillion in downstream economic activity. This immense scale highlights the industry’s crucial role in modern technology, from AI and cloud computing to advanced manufacturing – representing roughly 7% of global economic activity. Recent analysis focuses on potential “decoupling” scenarios – specifically, the impact of U.S. export controls on semiconductor sales to China – and their potential ramifications for the entire industry.
Economic modeling by the Information Technology and Innovation Foundation (ITIF) estimates that a full decoupling of U.S. semiconductor firms from the Chinese market could result in $77 billion in lost sales initially. This loss isn’t contained within the U.S.; other nations—South Korea ($21B gain), the EU ($15B), Taiwan ($14B), and China itself ($9B)—are projected to capture significant portions of that revenue. Crucially, this redistribution of market share isn’t neutral; it impacts R&D investment and job creation across the globe.
A full decoupling scenario also forecasts a 24% decrease – roughly $14 billion – in U.S. semiconductor R&D investment. This reduction could lead to over 80,000 fewer U.S. industry jobs and nearly 500,000 fewer downstream jobs. The ITIF model accounts for varying degrees of decoupling (full, 50%, 25%, Entity List restrictions) to assess the potential financial and employment impacts, emphasizing the significant economic risks associated with restricting trade in this critical technology sector.
Economic Model Methodology & Scenarios
ITIF’s economic model assesses the impact of U.S. semiconductor export controls via four decoupling scenarios – from 10% revenue loss (Entity List restrictions) to full decoupling. The model forecasts revenue, R&D investment, and job impacts, building from 2024 market data and global shares sourced from BCG and SIA reports. A full decoupling scenario projects a $77 billion initial revenue loss for U.S. firms. Crucially, lost revenue isn’t simply gone; the model distributes it to competitors in South Korea, the EU, China, and elsewhere, demonstrating a shift in global market dominance.
The model links revenue directly to R&D investment, estimating a 24% ($14 billion) decrease for U.S. firms under full decoupling. This is significant because semiconductor innovation relies heavily on consistent R&D spending. Furthermore, the model accounts for downstream economic effects; each semiconductor job supports 5.7 additional jobs in the wider U.S. economy. Therefore, revenue declines aren’t isolated to chipmakers, but ripple through multiple sectors and potentially hinder long-term competitiveness.
Beyond immediate financial impacts, the ITIF model highlights the redistribution of market share. A full decoupling would see South Korean firms gain roughly $21 billion in sales, the EU gain $15 billion, and Chinese firms gain $9 billion, at the expense of U.S. companies. This isn’t simply a matter of lost profits; it represents a potential weakening of U.S. technological leadership and a strengthening of competitors – with long-term implications for national security and economic growth.
Full Decoupling: Initial Revenue Impact
A full decoupling of U.S. semiconductor firms from the Chinese market could result in an estimated $77 billion loss in sales within the first year, according to ITIF’s economic model. This substantial revenue decline wouldn’t be contained within the U.S.; competitors in South Korea, the EU, Taiwan, and China stand to gain, collectively absorbing approximately $59 billion of the lost U.S. revenue. This redistribution highlights the interconnected nature of the global semiconductor supply chain and demonstrates how restrictive trade policies can unintentionally benefit competing nations.
The financial impact extends beyond immediate sales figures. A full decoupling scenario projects a 24%—or $14 billion—decrease in U.S. semiconductor R&D investment. This reduction in innovation funding poses a long-term threat to U.S. competitiveness, potentially ceding leadership in next-generation chip technologies. Maintaining robust R&D is critical, as U.S. firms invested 17.7% of revenue into it in 2024 – a figure likely to fall with reduced income.
Job losses represent a significant consequence of decoupling. The model estimates over 80,000 fewer U.S. semiconductor industry jobs and nearly 500,000 fewer downstream jobs. Each job in semiconductor manufacturing supports 5.7 jobs elsewhere in the U.S. economy, amplifying the negative impact. These losses extend beyond the tech sector, affecting a broad range of industries reliant on chip technology and demonstrating the far-reaching economic consequences of trade restrictions.
R&D Investment Impacts of Decoupling
Economic modeling by ITIF estimates a full decoupling from the Chinese market could cost U.S. semiconductor firms approximately $77 billion in sales initially. This isn’t simply lost revenue; it directly impacts innovation. The model projects a 24% – or $14 billion – decrease in R&D investment by U.S. firms. Crucially, this diminished investment isn’t absorbed domestically; competitors in South Korea, the EU, and China stand to gain market share, potentially eroding the U.S.’s long-term leadership in critical semiconductor technologies.
The financial fallout extends beyond chip manufacturers. ITIF’s analysis reveals a potential loss of over 80,000 direct semiconductor industry jobs and nearly 500,000 downstream jobs within the U.S. economy. This impact is calculated using a multiplier of 5.7 downstream jobs supported per semiconductor industry position – highlighting the broad economic ripple effects. Reduced revenue, stemming from export controls, constrains firms’ ability to expand and hire, creating a negative feedback loop.
ITIF’s economic model examined various decoupling scenarios, ranging from full export bans to limited restrictions via entity lists. Even a 25% decoupling scenario—resulting in a significant, but not total, loss of the Chinese market—still carries substantial risks. The model leverages 2022 market share data from BCG and SIA to project how gains would be distributed among competitors, demonstrating that lost U.S. revenue isn’t simply ‘lost’ – it’s redirected, potentially strengthening foreign rivals.
Job Losses in U.S. Semiconductor Industry
U.S. semiconductor firms face significant job losses if export controls lead to full decoupling from the Chinese market. Economic modeling by ITIF estimates over 80,000 industry jobs and nearly 500,000 downstream jobs could be eliminated. This isn’t simply a revenue issue; reduced earnings directly impact R&D investment, projected to fall by 24% – or $14 billion – hindering innovation crucial for maintaining U.S. competitiveness in advanced chip design and manufacturing.
A full decoupling scenario could cost U.S. semiconductor companies approximately $77 billion in initial annual sales. While other nations – South Korea, the EU, Taiwan, and China itself – stand to gain market share, the overall impact is a shift away from U.S. dominance. The model accounts for this redistribution of revenue, demonstrating that losses for American firms aren’t absorbed but rather benefit international competitors, exacerbating the negative economic consequences within the U.S.
The ITIF model considers various decoupling levels, revealing a direct correlation between restricted access to the Chinese market and diminished U.S. economic performance. Even partial decoupling (25% revenue loss) significantly impacts R&D and employment. The analysis highlights the delicate balance within the semiconductor supply chain; export controls, while intended to address national security concerns, carry substantial economic risks potentially undermining long-term U.S. innovation and job growth.
Downstream Employment Effects of Decoupling
A full decoupling of the U.S. semiconductor industry from the Chinese market could result in $77 billion in lost sales for U.S. firms within the first year, according to ITIF’s economic model. These losses wouldn’t simply disappear; competitors in South Korea, the EU, Taiwan, and even China are poised to capture those market shares – gains estimated at $21, $15, $14, and $9 billion respectively. This redistribution highlights a core risk: export controls intended to disadvantage China could inadvertently strengthen competing nations’ semiconductor industries, impacting long-term U.S. competitiveness.
Reduced revenues from decoupling directly threaten innovation within the U.S. semiconductor industry. The model forecasts a potential 24% – or $14 billion – decrease in R&D investment following a full decoupling. Given that U.S. firms historically invest roughly 17.7% of revenue into R&D, diminished sales translate directly to fewer resources for next-generation chip development. This slowdown could cede technological leadership and hinder advancements in critical areas like AI and cloud computing.
Beyond direct industry impacts, decoupling carries significant downstream employment consequences. ITIF estimates over 80,000 U.S. semiconductor industry jobs and nearly 500,000 supporting jobs across the broader economy could be lost. The 5.7:1 ratio of downstream to direct jobs underscores the ripple effect of semiconductor industry health. These job losses represent a substantial economic cost, demonstrating that restricting access to the Chinese market isn’t merely a technical issue—it’s a workforce issue.
Market Share Shifts & Foregone Revenue
U.S. semiconductor export controls, particularly a full decoupling from the Chinese market, carry significant economic risks. ITIF’s economic model estimates initial revenue losses of $77 billion for U.S. chipmakers. These losses aren’t contained within the U.S.; competitors in South Korea ($21B gain), the EU ($15B), and China itself ($9B) stand to benefit, shifting global market share. This demonstrates that restrictions aimed at hindering one nation’s technological advancement could inadvertently bolster others, undermining the intended strategic advantage.
A key consequence of reduced revenue is diminished investment in crucial Research & Development (R&D). The model projects a 24% decrease—roughly $14 billion—in U.S. semiconductor R&D following a full decoupling. Given that innovation drives long-term competitiveness, this decline poses a serious threat to the U.S. industry’s leadership position. SIA data reveals U.S. firms invested 17.7% of revenue into R&D in 2024, highlighting the scale of potential impact.
Beyond revenue and R&D, decoupling directly threatens American jobs. The ITIF model forecasts over 80,000 fewer direct jobs within the U.S. semiconductor industry itself. Critically, this impact ripples outwards; for every job lost in semiconductor manufacturing, 5.7 downstream jobs are also at risk. This highlights the broad economic consequences of export controls, extending far beyond the immediate sector and impacting employment across numerous industries.
Short-Term & Long-Term Growth Impacts
A full decoupling of the U.S. semiconductor industry from the Chinese market could result in approximately $77 billion in lost sales for U.S. firms within the first year, according to ITIF’s economic model. This isn’t simply lost revenue; it represents a significant transfer of market share. Gains are projected for competitors in South Korea ($21B), the EU ($15B), Taiwan ($14B), and even mainland China ($9B). This redistribution highlights the interconnectedness of the global semiconductor supply chain and the potential for U.S. policy to inadvertently benefit rivals.
Reduced revenues directly impact innovation. The model estimates a 24% – or $14 billion – decrease in R&D investment by U.S. semiconductor firms following a full decoupling. Considering that U.S. companies invested 17.7% of revenue into R&D in 2024, this represents a substantial slowdown in next-generation chip development. Sustained innovation is crucial for maintaining U.S. competitiveness, meaning these cuts pose a long-term threat to industry leadership.
Beyond revenue and R&D, decoupling carries significant labor consequences. The ITIF model projects over 80,000 fewer U.S. jobs directly within the semiconductor industry, compounded by an additional loss of nearly 500,000 downstream jobs reliant on chip production. Each job in semiconductor supports 5.7 jobs elsewhere in the U.S. economy, demonstrating the broad economic ripple effect of restricting market access and hindering industry growth.
Impact on Specific ICT Industry Sectors
U.S. semiconductor export controls, particularly scenarios leading to full decoupling from China, pose significant risks to the ICT industry. ITIF’s economic model projects potential revenue losses of $77 billion for U.S. chipmakers in the first year alone. This isn’t simply lost profit; a 24% reduction—roughly $14 billion—in R&D investment is predicted. Reduced innovation directly impacts the development of next-generation technologies crucial for AI, cloud computing, and advanced manufacturing—sectors heavily reliant on cutting-edge semiconductors.
The financial impact extends beyond chip manufacturers themselves. The report estimates over 80,000 fewer direct U.S. semiconductor industry jobs and nearly 500,000 fewer downstream jobs could result from full decoupling. While competitors like South Korea (+ $21B sales), the EU (+ $15B), and Taiwan (+ $14B) stand to gain market share, the U.S. faces weakened competitiveness and potential supply chain vulnerabilities. This highlights the interconnectedness of the global semiconductor ecosystem.
The modeling extends to various decoupling levels; even a 25% restriction leads to substantial harm. The ITIF model utilizes 2022 market share data from BCG and SIA to project how lost U.S. revenue would redistribute globally. Notably, every job within the semiconductor industry supports an additional 5.7 jobs elsewhere in the U.S. economy, amplifying the negative consequences beyond the immediate sector. This underscores the broad economic ripple effects of export control policies.
Alternative Decoupling Scenarios Analyzed
The Information Technology and Innovation Foundation (ITIF) modeled the economic impact of decoupling U.S. semiconductor firms from the Chinese market, revealing potentially significant losses. A full decoupling scenario forecasts U.S. firms losing approximately $77 billion in sales within the first year. These losses aren’t contained within the U.S.; competitors in South Korea, the EU, Taiwan, and China stand to gain, collectively absorbing a substantial portion of the forfeited revenue – estimated at $21B, $15B, $14B, and $9B respectively. This redistribution highlights the global nature of the semiconductor supply chain.
Furthermore, ITIF’s model predicts a substantial decrease in U.S. semiconductor R&D investment following a full decoupling – a projected 24% reduction, equating to $14 billion. This diminished investment threatens long-term innovation and competitiveness. The analysis extends to job losses, estimating over 80,000 fewer direct positions within the U.S. semiconductor industry, and a staggering 500,000 fewer downstream jobs reliant on chip manufacturing and related technologies.
ITIF explored varying degrees of decoupling, from a full ban to scenarios involving 25% and 50% revenue loss. The model uses 2022 global market share data to project how revenue shifts would occur, suggesting that competitors would benefit from U.S. firms’ losses. These findings underscore that while export controls may be intended to address national security concerns, they carry substantial economic risks, potentially hindering U.S. innovation and job growth while benefiting foreign competitors.
