Reinforcing America’s Chip Design Leadership: The Urgent Need for Innovation-Centric Policy Agenda

When the CHIPS and Science Act was signed into law a year ago, it set in motion a series of policy actions to broadly enhance US leadership in semiconductors, mainly in chip manufacturing. The law aims to primarily address supply chain challenges highlighted by the recent COVID-induced global chip shortage that slowed the production of cars, laptops, TVs, gaming consoles, and smartphones.  

Since then, the global race for primacy in the semiconductor industry has ratcheted up. US semiconductor companies face intense competition from other countries’ chip industries, whose governments have aggressively prioritized growing their own chip manufacturing capabilities.

Despite the CHIPS Act providing billions of dollars for funding, with $39 billion specifically for manufacturing grants, the bill places less emphasis on one of America's strengths - chip design innovation. The US semiconductor industry outpaces the rest of the world in chip design and innovation.

A recent study by the Boston Consulting Group and the Semiconductor Industry Association (SIA) found that the US semiconductor industry is the global leader in chip design, with 46 percent of the worldwide market share in 2021—well over double the share of the next closest country competitor. That same report also concluded that chip design contributes a staggering 50 percent of overall industry value-add—more than any other stage of semiconductor fabrication, including manufacturing.  Innovation is fundamental to semiconductor industrial policy because chip innovation leadership is tied directly to technological competitiveness.    

The US needs new incentive strategies beyond the CHIPS and Science Act to further promote chip innovation and address challenges to the US semiconductor industry’s leadership. The CHIPS and Science Act was an important first step in developing a more comprehensive set of solutions that will continue driving our country’s technological competitiveness.

To maintain an innovation-centric semiconductor policy, the US must advance two key priorities: workforce development and R&D funding.

Although the CHIPS Act allocates $11 billion to R&D and workforce development, workforce incentives must be substantially increased to train the many highly-skilled workers needed for chip design and R&D.

A new study by Oxford Economics and SIA reveals a significant shortage of tech workers in the semiconductor industry. An estimated 67,000 jobs for technicians, computer scientists, and engineers risk going unfilled by 2030 of which over 40,000 jobs are for high-skilled computer scientists and engineers. Today, critical technologies heavily rely on semiconductors. To ensure economic growth and innovation, addressing the talent shortage in the chip industry is essential.

To address the STEM workforce issue, the US must train and improve the skills of current workers, expand the pool of future workers, and recruit talented individuals from across the world. Talent shortage should not be a bottleneck that inhibits US semiconductor industry innovation. All talent solutions, including high-skilled immigration reform, must be considered.

On the research side, decisions on the National Semiconductor Technology Center (NSTC) and advanced packaging programs in the Chips Act must be made expeditiously to get them stood up as soon as possible. These are long-horizon programs with a high upside to prototype the next generation of innovations in research and packaging.  Specifically, a semiconductor design center of excellence should be prioritized within the NSTC.

Furthermore, Congress must appropriate the agency R&D funding authorized in the CHIPS Act for the next five years. R&D funding is the chip industry's lifeblood. To maintain long-term American leadership in the industry, the government should increase its investment in pre-competitive basic R&D to keep pace with industry investments, as these two types of R&D work together synergistically. Federal R&D does not “crowd out” industry R&D; rather, it “crowds in” greater industry R&D.

Making a semiconductor requires both the know-how and R&D to design the chip coupled with a reliable supply chain to build it.  The CHIPS Act primarily addresses the supply chain challenge, but now the US must address the first half of the equation.  The US needs an accompanying innovation-centric policy agenda to ensure the US continues inventing the most advanced chip technologies in the world.

On the first anniversary of the CHIPS Act, we should remember that America is a country of inventors. Semiconductors themselves were created in the US. Let’s lean into that spirit of invention to establish policies that promote what matters most: continued global leadership in chip design and innovation.