How the U.S. Can Win the Global Semiconductor Race | Opinion

The passage of the CHIPS Act, which provides $52.7 billion in federal subsidies to revitalize the domestic semiconductor industry, was a major bipartisan accomplishment. But without a bold strategy to break down barriers to innovation, it won't be enough to ensure U.S. semiconductor leadership.

A winning long-term U.S. semiconductor strategy would position the U.S. as the most attractive place in the world for entrepreneurs to pursue disruptive new chip innovations that will define the global industry's future. It is not enough just to bring semiconductor manufacturing back to America's shores. We must create an environment that lowers the cost and decreases the time it takes to develop next-generation chips, so that American entrepreneurs can take the lead in building the innovations that will reshape the industry.

Right now, the U.S. is losing that race. Since 2021, China has outpaced the U.S. in new semiconductor startup formation by nearly six to one. During that time, Chinese semiconductor startups raised three times more venture capital than American semiconductor startups, according to Pitchbook data. Even worse, according to that data, more than 50 percent of the CEOs from those Chinese startups were trained in the U.S., which means those entrepreneurs could not or would not create their companies in America.

Why is China creating more chip startups than the U.S.? Because over the past two decades, China has made it easy to build hardware-based technologies, while the U.S. has made it increasingly difficult.

China has invested heavily to build new pipelines of high-skilled talent for the semiconductor industry. The regime has also directed hundreds of billions in state-backed funds into semiconductor venture capital, enticing Chinese and foreign entrepreneurs into the sector. While these efforts have faced challenges—developing hardware is difficult—they represent a strong commitment to catalyzing and building a foundation for startups to quickly scale, which will have compounding benefits for China's economy and domestic manufacturing base for decades.

In contrast, the U.S. has neglected its semiconductor innovation ecosystem over the past 20 years. Due in part to the off-shoring of manufacturing, new chip startups in the U.S. require hundreds of millions of dollars in capital and 10 to 12 years to get from idea to scaled production. As a result, few private investors are willing to fund new chip startups, which in turn deters talented entrepreneurs from founding new companies. With fewer startups, engineers are less likely to go into the industry. In 2019, studies showed just 24 percent of workers in the semiconductor industry were under age of 35—a notably low mark for such a critical industry.

So how can we regain our position as the world's innovation capital for chip startups? Here are three ways the U.S. can leverage both the CHIPs Act and our dynamic innovation sector to create a winning national strategy.

First, the U.S. should focus on strengthening regional innovation hubs by coordinating manufacturing incentives with research programs, educational institutions, and workforce development programs to create globally competitive end-to-end innovation ecosystems. We need to be able to train 70,000 to 90,000 additional semiconductor workers by 2025. We also do not have enough skilled trade talent—such as plumbers, welders, electricians, and technicians—to build and operate next-generation chip fabrication facilities. These are high-paying jobs that could lead to promising careers.

Second, we must lower the barriers to entry for chip startups by building next-generation prototyping lines, fabrication facilities, and design tools. New advances in digital design and experimental prototyping can reduce design costs and time by a factor of 10. The federal government should use the CHIPs Act to catalyze investment into next-generation digital and physical innovation infrastructure co-located with regional innovation hubs to shift the economic balance in favor of U.S. startups. We must be able to take groundbreaking ideas for new microelectronics from the laboratory to commercial products right here in the United States.

Above all, we need to bring new venture investment, the lifeblood of any startup, into the semiconductor ecosystem. The government can help de-risk the lab-to-market transition for promising research and development. This will create more attractive market opportunities for private and institutional investors. One way the government can do this is by using federal purchasing power to catalyze demand for new, innovative technologies, just as NASA and Operation Warp Speed did for the U.S. commercial space industry and mRNA vaccines, respectively. This type of approach can work for semiconductors as well.

Despite the progress China has made by implementing a top-down model, it's a losing strategy in the long term. A free market with diverse ideas, entrepreneurs, and approaches has been proven to outperform central planning. The U.S. should double down on its unique strengths by unleashing the full power of its entrepreneurial free market. That starts by once again empowering the entrepreneur here at home.

Hon. Gilman Louie is CEO of America's Frontier Fund. Dr. Edlyn Levine is Chief Science Officer at America's Frontier Fund.

The views expressed in this article are the writers' own.