Ensuring U.S. Leadership and Innovation in Semiconductors

On Friday, January 6, 2017, the President’s Council of Advisors on Science and Technology (PCAST) released a report on semiconductor innovation, competitiveness, and security. This report is informed by a working group of senior executives and leading thinkers that was announced at the end of October. The report assesses the challenges facing the semiconductor industry and their consequences for the U.S. economy and national security, and outlines recommendations for action to address them.

Technologies based on semiconductor electronics are essential to modern life. Progress in semiconductors has opened up new frontiers for devices and services that use them, creating new businesses and industries, benefiting American workers and consumers as well as to the global economy. Cutting-edge semiconductor technology is also critical to defense systems and U.S. military strength, and the pervasiveness of semiconductor devices makes their integrity important to mitigating cybersecurity risk.

PCAST found that the U.S. semiconductor industry faces major challenges with broad implications for the economy and national security. Innovation is already slowing as the semiconductor industry faces fundamental technological limits and rapidly evolving markets. Now a concerted push by China to reshape the market to favor their needs threatens the competitiveness of U.S. industry and the national and global benefits that an innovative U.S. industry brings.

The report finds that promoting U.S. interests will ultimately require a strong core focus on advancing semiconductor innovation: only by continuing to innovate at the cutting edge will the United States be able to mitigate the threat posed by Chinese industrial policy and strengthen the U.S. economy. Thus, the report recommends a three pillar strategy to (i) help catalyze transformative semiconductor innovation over the next decade, (ii) push back against Chinese industrial policy, and (iii) improve the business environment for U.S.-based semiconductor producers. Delivering on this strategy will require strong cooperation among government, industry, and academia to be maximally effective.

The report identifies two key challenges:

1. Shifts in Technology and Markets: The semiconductor industry has long focused on doubling the number of transistors on a chip, and hence performance, roughly every 18-24 months—the so-called Moore’s Law—while maintaining or reducing cost. Performance improvements now face two fundamental challenges: physical limits make it harder to shrink silicon-based transistors further, and the growth in the range of major semiconductor applications requires an emphasis beyond just processing speed. Costs are also rising across the industry.
2. Chinese Industrial Policies: Chinese industrial policies aimed at achieving a global leadership position in semiconductor design and manufacturing are compounding challenges faced by shifts in technology and markets. The Chinese government, motivated by economic and national-security goals, has publicly asserted its desire to build a semiconductor industry that is far more advanced than today and less reliant on the rest of the world. Its strategy relies in particular on large-scale government spending, including $150 billion in public and state-influenced non-government funds over ten years. We concluded that, while not all Chinese tactics and developments are problematic, many of them could be.

Recommendations

PCAST emphasizes that the United States will not remain a semiconductor leader if it confines its efforts to making it cheaper and easier to build today’s semiconductors and to opposing damaging Chinese industrial policy. Ultimately, to maintain a strong and globally competitive semiconductor industry, the United States needs an economic and policy environment that fosters innovation and keeps the U.S. industry at the technological frontier. 

The report proposes pursuing a series of “moonshots”—for example, developing cutting-edge medical technologies and game-changing biodefense detection systems (these and other example moonshots are described in the report)—that have society-wide benefits and would require radical semiconductor advances of much broader applicability. The moonshots recognize that the future of semiconductors and computing lies in simultaneously innovating along multiple dimensions: new ways of performing calculations (such as non-von Neumann and approximate computing), utilization of materials other than silicon (such as carbon nanotubes and DNA for computation and storage), and novel approaches to integrating semiconductors into the devices we use (such as embedding into fabrics and the Internet of Things).  

Moonshots should focus on specific applications that may yield significant economic or strategic importance, catalyze breakthrough solutions within ten years, and look to reduce the ever-increasing cost of semiconductor chip design. The report also argues that the U.S. government should focus on areas where industry interest is unlikely to be sufficient alone to drive investment and where government contributions and coordination can be catalytic. 

The moonshots are crafted with an eye toward capturing the imagination and driving innovation along multiple dimensions, which should attract a wide range of players. To coordinate the selection, development, and execution of these moonshot challenges across academia, industry, and government, the report recommends the creation of a subcommittee on semiconductor moonshots underneath the National Science and Technology Council (NSTC). By helping to catalyze transformative semiconductor innovation over the next decade, these moonshots seek to invent the future by delivering radical technological advances across the economy.

Next, while the United States has a range of tools available to respond directly to Chinese industrial policy, the current set of strategies pursued by the Chinese government through its industrial policy brings into question the effectiveness of these tools going forward, as currently applied. The report recommends that the U.S. government revisit its tools to ensure that they are sufficiently able to protect against actions that may cause unacceptable harm. Steps include:

1. Work to improve transparency around Chinese policy through discussions in bilateral and multilateral forums. In doing so, the United States should also be open to increasing transparency around its own technology and investment controls.
2. Reshape the application of national security tools, as appropriate, to deter and respond to Chinese policies, including by placing individual transactions in the context of broader Chinese policy. In doing so, U.S. export and investment controls should continue to focus on national security concerns rather than be expanded to pursue economic goals. 
3. Respond directly to Chinese policies that violate trade rules and distort the global market. 
4. Work with allies to strengthen global export controls and inward investment security. 

Finally, PCAST also recommends that the U.S. government take steps to strengthen the U.S. business environment. These include:

1. Sustaining a world-class workforce through education and immigration policy.
2. Boosting government investment in general-purpose scientific research.
3. Enacting prudent business tax reform.
4. Responsibly speeding facility permitting while maintaining environmental protections.

Full report and working group list can be found here.

Craig Mundie and Paul Otellini are members of the PCAST Semiconductors Working Group.