Reforming Skilled Immigration for an Era of Great Power Competition

Two years since the signing of the chips and Science Act, the United States still finds itself in a highly contested race across a broad range of strategic technologies, particularly against China. Congress has allo­cated billions in subsidies for critical industries like semiconductors, biotechnology, and artificial intelligence, while the Biden administration has escalated export controls to counter Chinese rivals. Nevertheless, such measures only partially address the challenges these sectors face. The industrial policy portfolio is far from complete.

Building leading-edge production in critical industries like semiconductors provides obvious, first-order economic and strategic benefits. But industrial policy is not simply about subsidies and trade measures. At bottom, it involves acquiring and maintaining leadership in key sectors through innovation. The effectiveness of export controls, for instance, relies upon U.S. ownership of the intellectual property under­lying critical technologies like semiconductors.

Moreover, the broader defense industrial base is mired in a productivity crisis, hampering our ability to project power and defend allies in regions like the Taiwan Strait. As such, industrial policy must also in­volve developing, attracting, and maintaining top talent in key industries.

Without cutting-edge domestic capabilities, our strategic maneuvers against Chinese advances lose their potency. Taking this challenge seriously requires a national strategy for talent attraction and development.

Our own industrial and technological sclerosis looks all the more dire in light of the sheer scale of new STEM talent entering key indus­tries in China. Chinese universities graduate twice as many PhDs, twice as many master’s degree recipients, and four times as many undergraduates as those in the United States. Over time, this disparity will shift the balance of innovation and military power toward the PRC, if it has not already.

America cannot match the scale of the PRC’s industrial or talent policy drives, but it does have one enormous competitive advantage to harness: the ability to attract and integrate talent from abroad. Industrial subsidies and protective measures should, therefore, be complemented by a massive domestic workforce training effort and enhanced by the strategic attraction of the world’s top minds and key technical talents.

To truly compete—not just reactively but proactively—we must consider our industrial and immigration policies together. They must be cohesively designed to reinforce each other, ensuring that the United States not only remains at the technological frontier but also determines its own trajectory. Thus, as we mark two years since the enactment of the chips Act, it is critical to reflect on and reform our high-skilled immigration policies to match the ambitious scale of our industrial objectives.

In the long run, it is talent that drives technological supremacy. Yet as we recognize the vulnerabilities in our strategic industries—where even substantial subsidies and stringent export controls are insufficient without leading-edge production capabilities—it becomes clear that the very bedrock of innovation, our human capital, needs fortification.

Our Counterproductive Immigration System

Our current skilled-immigration system falls critically short of supporting a robust industrial policy. It is too restrictive, badly fo­cused, and misaligned with the strategic needs of pivotal sectors like advanced man­ufacturing, semiconductors, and artificial intelligence, which are essen­tial for maintaining competitive edges against geopolitical rivals like China.

Currently, U.S. Citizenship and Immigration Services (uscis) issues only 140,000 employment-based green cards annually, comprising a mere fraction of the overall total. Further, less than half of these go to workers themselves; the remainder are allocated to their family mem­bers. Considering the immense demand for high-skilled technical talent, and the geopolitical imperative to rebuild our strategic industries, the size of our skilled-immigration system is starkly inadequate.

Claims of labor shortages are often overblown. Indeed, the consensus among economists in the mid-2010s, regarding when the national econo­my had returned to full employment, was badly wrong; tight labor markets pull in new workers.¹ Yet that does not mean that the talent challenges in advanced STEM fields can be wholly discounted. Sectors like artificial intelligence or semiconductor engineering have vanishingly little labor market slack: even in early 2021, long before the national labor market had recovered from the pandemic’s economic shock, the unemployment rate for American-trained science and engineering PhDs was 1.6 percent.

Over time, labor markets with such little spare capacity tend to attract new workers, but this process is by no means inevitable, espe­cially on timelines friendly to national industrial policy goals. Consider that the United States has the highest STEM wage premium—the relative difference in pay between STEM and non-STEM jobs—in the OECD, which has persisted for many years.² It should be no surprise, then, that in the defense industrial base, a majority of firms are reporting difficulties in meeting their long-term workforce needs.³

Complicating matters further are the per-country caps that disproportionately impact highly skilled workers from countries like India, a partner nation that is also a major player in the global tech landscape. Indian-born workers often face interminable waits for permanent resi­dency, creating a disincentive to contribute to the U.S. innovation ecosystem. Such barriers discourage the long-term settlement of high-skilled immigrants who are pivotal for technological advancements and for maintaining a competitive edge in critical fields.

The H-1B visa program, despite being the primary vehicle for skilled foreign workers to enter the United States, is fraught with inefficiencies and restrictions that do not align with the strategic goals of national in­dustrial policy. The program’s random lottery system fails to prioritize the most valuable candidates whose skills directly contribute to national interests. Moreover, the stringent regulations imposed on H-1B visa holders restrict job mobility and professional growth, significantly ham­pering their potential contributions to the U.S. economy. These restrictions deter talent and create vulnerabilities by discouraging the retention of skilled workers during economic downturns or company-specific layoffs, with visa holders often having to leave the country abruptly if they lose their jobs.

The H-1B program makes no effort whatsoever to prioritize the highest earners or greatest skills, and yet foreign-born workers in STEM fields still earn more than their native counterparts. Contrary to popular belief that skilled immigrants are broadly undercutting wages in white-collar professions, the median full-time, foreign-born worker in a STEM field earns $17,000 more than natives in those fields, according to Cur­rent Population Survey data. After controlling for characteristics like age and education, foreign-born STEM workers still earn a premium over peers born in the United States. The fact that these earnings remain so impressive—even as outsourcing and staffing firms that really do depress wages account for nearly half of new H-1Bs, dragging down average pay substantially—hints at the enormous potential of the program if visa allocation were rationalized.⁴

Critics of the H-1B program are right in many of their diagnoses. The random visa lottery enables outsourcing and staffing firms to ex­ploit the program. Further, restricting visa holders’ mobility really does create unfair competition with other workers. But prescriptions that add further restrictions and regulations on visa holders’ choices fail to address these problems. Such changes would only exacerbate the great irony of our immigration system: those with the most sought-after skills face the tightest labor market rules. A skilled immigration system de­signed in the national interest would instead put the most skilled appli­cants in the front of the line and allow their skills to be put to their highest uses by American industry.

Outdated perceptions of skilled immigration’s purpose ignore its strategic importance and leave many across the political spectrum unsat­isfied with programs like the H-1B. Rather than viewing skilled immi­gration as a resource for filling generic labor shortages, we must see it as part of a broader strategy to foster innovation, economic growth, and technological leadership. The current system, with its bureaucratic hurdles and lack of strategic focus, fails to identify key skills gaps, stifles the poten­tial economic contributions of skilled immigrants and, by extension, diminishes the effectiveness of our national industrial policy.

The inadequacies of our current immigration system represent a significant strategic liability. If the United States intends to remain at the forefront of global technology, a comprehensive overhaul of how we attract and integrate skilled talent into our workforce is essential. Such reforms will ensure that our strategic industries are not simply protected but primed to lead and innovate on the global stage.

Knowledge Spillovers and Industrial Policy

Tracking research output in forty-four strategic technology areas, the Australian Strategic Policy Institute finds China is ahead of the United States in thirty-three of them.⁵ For the first time in decades, the United States is in the uncomfortable position of lagging behind an adversary in a host of key technologies, or at least having its broad technological su­premacy threatened. While the United States has long pursued policies to advance the scientific and technological frontiers it already dominates, new thinking on industrial policy is now motivated by a realization that, across many technologies and industries, we need to catch up. The long history of industrial policy provides some lessons.

Catching up to the technological frontier is ultimately about firms learning the methods and processes of global leaders. Industrial policies that facilitate the transfer of knowledge from one set of institutions, or one group of innovators, to others, therefore, are as important as invest­ment subsidies or trade measures.

Relevant knowledge can be divided into two categories. “Explicit” knowledge, or easily codified plans or processes, is accessible to anyone who can download the full text of a U.S. patent or watch industrial organization lectures on structuring large manufacturing firms. Yet rote copying of blueprints does not build firms at the technological frontier. The internet has made this knowledge more accessible than ever, but only a few nations lead in the manufacturing of advanced technological products.

The second type of industrial knowledge is “tacit” knowledge, or the kind of knowledge that is hard to codify and often only comes from hands-on experience. Think of the intuition that a factory floor manager or engineer builds over time from seeing patterns in thousands of mistakes. Tacit knowledge is much harder to quickly transfer to some­body else, which is why companies like TSMC send American engineers to shadow counterparts in foreign plants before investing in the United States.

Indeed, beneath many industrial policy success stories, one will find examples of countries tapping global networks of expertise to acquire tacit knowledge and catch up to the technological frontier. From the outset of Japan’s Meiji Restoration, for instance, the imperial government hired thousands of high-ranking international experts and entre­preneurs to industrialize the economy and modernize its military. At first, Japan invested in turnkey projects largely operated by foreign nationals at state-owned enterprises. Some foreign advisers were paid more than the prime minister of the country.

Over time, Imperial Japan climbed the manufacturing value chain. Management of state-backed industrial firms was transferred to native Japa­nese workers, while many who gained experience in SOEs brought new skills to the private sector. The central government also invested heavily in translating technical manuals from European languages into Japanese, undertaking an enormous effort to create and standardize new technical terms. While there were virtually no technical manuals in Japanese in 1870, by 1910 there were more manuals in Japanese than in English.⁶ Concurrent with on-the-job training at turnkey FDI projects, Japan scaled up domestic engineering programs for native workers, dra­matically expanding its skilled workforce.⁷ Through its relentless effort to absorb technical know-how from abroad, Japan was transformed, over fifty years, from a closed agricultural economy to one capable of going toe-to-toe with European powers. (Japan famously repeated such rapid industrialization in the aftermath of the Second World War, albeit with a somewhat different policy mix.)

Elsewhere in Northeast Asia is the famous example of the now dominant Taiwanese semiconductor industry. TSMC founder Morris Chang was recruited in the mid-1980s by the Taiwanese government to build a chipmaking industry on the island. Chang had fled China during its civil war, moving to the United States to pursue studies at Harvard, then MIT. He later spent twenty-five years at Texas Instruments, rising to lead the company’s global semiconductor division. He brought with him fellow U.S.-trained members of the Chinese and Taiwanese dias­pora, who made up the early core of Taiwan’s chipmaking industry. Another Taiwanese engineer, Rick Tsai, got his start at Hewlett-Packard in Colorado before succeeding Chang atop TSMC. Tsai now leads MediaTek, Taiwan’s top semiconductor design firm.

Neither are examples of immigration policy as we would think of it today—Japan welcomed experts temporarily, while Taiwan recruited its diaspora to return—but the mechanism through which they operated was ultimately the same. Both countries rapidly learned how to effec­tively compete with the West by embracing global engagement and foreign expertise, rather than shunning it.

We do not, however, need to go abroad to find examples of immigration policy successfully being used to reinforce the aims of industrial policy. Indeed, it is well within the American tradition. In the waning days of World War II, the United States scrambled to identify and capture leading figures in German science and technology before the Soviet Union. Quickly recognizing the contributions such experts could offer for both future military capabilities and domestic industry, Opera­tion Paperclip took thousands of German scientists and their families into custody and onward to resettlement in the United States.

Many captured Germans would go on to form the backbone of America’s postwar aerospace industry, most famously Wernher von Braun at NASA. While previous operations to steal detailed technical plans from German industry had failed, “stealing” top minds wildly succeeded. As Brian Balkus writes in Palladium:

As for FIAT, which stuck to gathering German technical data, the intelligence proved of almost no value and the operation was con­sidered a failure. The contrast between the outcomes of Opera­tions FIAT and Paperclip tells us something about the nature of technical knowledge. There are huge chunks of technical knowledge that cannot be acquired by reading texts. And history has shown that it is only possible to access this knowledge through the humans who possess it.⁸

In the final years of the Cold War, a new era of international talent recruitment emerged as Soviet mathematicians and scholars sought opportunities beyond the collapsing Iron Curtain. American universities found themselves in an advantageous position, able to select from the cream of Soviet scientific talent, engaging in competitive bids for the most distinguished figures. A 1990 New York Times article captured this sentiment, quoting an American mathematician who noted that these Soviet academics were “replenishing the mathematical juices of the United States.”⁹ Another Soviet émigré reported almost daily inquiries from fellow scholars eager to relocate to the United States. Proposals even surfaced to subsidize employers of these scientists, aiming to assim­ilate them as quickly as possible.¹⁰

Strategic recruitment of international science and technology talent proved a major boon to American science. Between 1901 and 1933, Americans won only three of thirty Nobel Prizes in physics. From 1934 to 2020, Americans won or shared two-thirds of all such awards, in large part thanks to either first- or second-generation immigrants.

Given this history, it should be no surprise that China views the competition for top talent within and outside the Chinese diaspora as a major economic and national security priority. In key areas like AI, the CCP is offering Western-trained returnees enormous cash bonuses. Un­fortunately, early evidence suggests such generous subsidies might be working. China’s global share of top AI researchers and the share of those returning to China are growing.

An Immigration Policy for Great Power Competition

As a free and open society with a dynamic economy offering high wages, the United States has an enormous head start in the race for strategic talent; there is no need to offer lucrative bonuses. These advantages can be squandered, however, if the American immigration system is not realigned for a new era of economic competition and industrial policy.

America’s primary skilled worker visa, the H-1B, is perhaps the piece of the skilled immigration system most badly in need of updating. Rather than allocate visas randomly among applicants from the private sector, workers with the highest salary offers should be put at the front of the line. Further, given what we know about the advantages of labor mobility, visa holders should be able to easily change jobs or get promo­tions. The most skilled arrivals to the United States should not be those whose labor market decisions are most tightly regulated.

Reformers should also take care not to make the H-1B unusable for recent graduates. Much younger applicants with slightly lower salary offers are likely to contribute more, economically and fiscally, to the United States over the long term. The United States already loses nearly 60 percent of international graduates of its universities.¹¹ Bungling H-1B reform could worsen this brain drain.

To address the challenges of industrial policy, Congress should create new, sector-specific visa pathways that align with its previous industrial policy measures. The Economic Innovation Group’s proposed Chipmaker’s Visa, for example, would enable semiconductor manufacturers investing in the United States to source key engineers or managers from wherever they need.¹² Further, distributing the visas through an auction could accelerate the training of native-born workers by earmarking revenues for workforce development programs.

At the agency level, the next administration can act both to attract more talent and to make the immigration process less of a nightmare. The Biden administration has made greater use of the O-1 visa for extraordinary talents, particularly in STEM. The incoming administration should further streamline the application process for this visa, which remains uncapped.

The Department of Labor should also work to expand and update the occupations included in the Schedule A shortage list, which exempts employment-based green card applicants from the PERM labor market test. This list has not been updated in decades. The PERM process itself has spiraled out of control; simply getting a verdict from the Department of Labor now takes more than three hundred days. While nominally meant to push firms to seek out Americans first for an open job, the program rarely works like this in practice; most workers spon­sored for an employment-based green card already work for their sponsoring employer.

The next administration can also further expand the use of EB-2 National Interest Waivers and accelerate the sponsorship process for workers in fields critical to economic and national security. Such waivers enable applicants to bypass the burdensome PERM process if sponsored for a role with “both substantial merit and national importance.” Target­ed expansions of the National Interest Waiver can help retain researchers working on research of strategic value.

Beyond agency-level action and changes to temporary visa programs, we also need to consider broader reforms of our employment-based green card system in order to retain talent on a permanent basis. Ulti­mately, we are operating under a system that Congress designed before the internet was invented, and that must change.

Abolishing per-country limits on employment-based green cards is the lowest-hanging fruit, and one with broad bipartisan support. Green card applicants from India, for instance, are forced to wait decades on temporary visas, as individuals born in a particular country are limited to 7 percent of employment-based green cards issued each year. As backlogs grow so long that workers’ children age out of legal status, this problem risks making the United States an unattractive destination for workers from countries that together account for one-third of the global population. Given significantly higher wages among applicants from these nations, this arbitrary discrimination even reduces the pay of the average employment-based green card recipient by more than $10,000.¹³

But a self-interested immigration system that prioritizes the best and brightest should go further, easing the way for workers with the highest salaries. Congress should consider a new green card for work­ers with consistently high earnings. If workers are consistently earning in the top, say, 5 percent of the income distribution, it is in America’s interest to retain them long-term. A semiconductor design engineer making $200,000 not only advances an industry of key strategic importance, but pays far more in taxes than the value of public services he or she uses.

As we confront the reality of the Chinese Communist Party’s ambitious science and technology strategy, the United States must respond with a vigorous and strategic enhancement of our skilled immi­gration system. If we had approached global talent recruitment with inaction during the Cold War, it might have ended with Soviet hegemony. This historical contingency underscores the critical urgency we face today: the Chinese Communist Party’s goals to dominate in fields like artificial intelligence and quantum computing represent a formidable challenge, with profound implications for both national security and individual privacy.

Bold reform of our skilled immigration system, aligning with the goals of industrial policy and out-competing China, has broad bipartisan appeal. In a poll this spring, 78 percent of voters, including 71 percent of self-identified Trump voters, said they support increasing high-skilled immigration. More than 75 percent of self-described moderates and more than 85 percent of self-described liberals agreed.¹⁴ Despite an overwhelmingly unpopular immigration system and an out-of-control border, voters still understand the economic and strategic value of high-skilled immigration.

Inaction could cost us dearly, leaving exceptional talent, vital tech­nologies, and their vast implications under Chinese control. None of this will be easy, but it is essential if we are to continue leading the world in science and technology. The alternative—ceding ground in this critical arena—is simply too costly to contemplate. Now is the time for decisive action, ensuring that America has the talent to maintain global technological dominance.

This article originally appeared in American Affairs Volume VIII, Number 4 (Winter 2024): 106–15.

Notes