Congress is moving closer to trying to direct the power of the federal government to bolster industries deemed necessary to compete with China in technology, a form of economic competition that is a reversal from the approach of the 1990s and 2000s.
The House of Representatives last week advanced legislation to boost scientific research, subsidize semiconductor manufacturing, and generally buttress the tech sector. It follows legislation that passed last year in the Senate on a bipartisan basis.
President Joe Biden supports the legislation. By signing a version of it, he would place the United States in a more confrontational posture with China. In doing so, he would be following the direction set by his predecessor, former President Donald Trump, who sought to rearrange the terms of trade with China and signed major legislation intended to counter China’s “Belt and Road” global infrastructure initiative.
The legislation would be one more bipartisan step away from the direction of the Clinton and Bush years, when the U.S. government pursued trade liberalization with China and greater integration between the two countries. Since, under Trump and now Biden, both parties have favored preparing for a future in which the U.S. is forced into conflict with China.
The Senate passed its version of the bill, the United States Innovation and Competition Act, in a 68-32 vote last June. It was sponsored by Republican Sen. Todd Young of Indiana and Democratic Majority Leader Chuck Schumer, long an advocate of honing the country’s competitive edge against Beijing.
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The New Yorker said on passage that the vote represented the importance of “outcompeting our adversaries, especially the Chinese Communist Party.”
The House this week introduced its version, the America COMPETES Act, which differs significantly and is so far backed only by Democrats, meaning that the bill has a long way to go before it reaches Biden’s desk.
Still, the overarching goal for both bills is for the U.S. to stay ahead of China in key technologies, such as artificial intelligence and quantum computing, said Denis Simon, executive director of the Center for Innovation Policy at the Duke University School of Law.
“There was the sense that with the rise of China and some complacency in the United States that we simply had not attended to improving the performance of our innovation system. So this is all designed to do that,” Simon told the Washington Examiner.
One of USICA’s most significant proposals is funding for the CHIPS for America Act, which would bolster domestic semiconductor manufacturing and research programs. USICA includes $52 billion for domestic semiconductor production, which has been flagging domestically in recent years.
The U.S. produces about one-third less of the world’s share of chips than it did in the 1990s, according to industry officials. The global chip shortage during COVID-19 has laid bare the importance and need for increased U.S. production, proponents of the act contend.
“Obviously, semiconductors are the building block technology for what is going to happen in AI, in quantum computing, etc. in the future, and so if you don’t have leadership in semiconductors, you’re going to be in a very difficult spot,” Simon said.
Biden has also spoken about his desire to build out U.S. production of chips in an effort to outcompete China.
“Today, 75% of production takes place in East Asia,” Biden recently said. “Ninety percent of the most advanced chips are made in Taiwan. China is doing everything it can to take over the global market so they can try to outcompete the rest of us and have a lot of applications — including military applications.”
Another major facet of USICA and the COMPETES Act is the creation and funding of a “Technology Directorate” within the National Science Foundation.
“There’s a belief that the U.S. has to maintain its strength in basic research because that is what has got us here, but there is also a need to take the research outcomes that are coming from these NSF-sponsored projects and to make sure that some of this gets commercialized into R&D,” Simon said.
The terms of the funding and authority of the NSF directorate have been debated and changed since the original version of the Senate bill, known as the Endless Frontier proposal.
Supporters of the original version of the bill hoped that the directorate would help the U.S. avoid some of the bureaucratization that now afflicts scientific agencies such as the NSF and National Institute of Health — a problem that authoritarian China does not have in the same way.
Samuel Hammond, director of poverty and welfare policy at the Niskanen Center, said he hoped the directorate would amount to a “civilian DARPA model” for tech, a reference to the Defense Advanced Research Projects Agency, which is the Pentagon’s cutting-edge research and development agency for national security and military technology.
The version of the bill that passed the Senate, though, significantly scaled down funding for the directorate and attached strings to much of the remaining money, which Hammond says dims hopes that the office would have the necessary agility to help innovation in artificial intelligence, quantum computing, robotics, and more.
Another major component of the legislation is the formation of several regional innovation hubs across the country. These hubs would remove concentration from Silicon Valley and grow innovation in parts of the country not traditionally associated with technological development.
The legislation would empower the Department of Commerce to use tax and regulatory incentives, workforce development, public-private partnerships, and other methods to found and nurture the hubs, according to the Bipartisan Policy Center.
The major hurdle facing the bill is division in the House and differences between USICA and the COMPETES Act. House members will begin bringing amendments to the COMPETES Act next week. Senate leadership will have a better sense of how conference negotiations will look after the House finishes its work.
Whatever the end result, though, the legislative push speaks to the direction of relations between the two world powers — toward less integration and more competition.
Beijing’s detailed multiyear plans for economic policy have undercut interest in further integration, Hammond said. The Made in China 2025 plan makes clear that China intends to lessen dependence on foreign technology and emphasize self-sufficiency.
China’s most recent five-year plan, the 14th such iteration, emphasized research and development as well as self-resiliency. It aimed to increase the country’s public and private R&D investment by 7% annually.
Hammond said he thinks the broader decoupling that’s taking place isn’t just the U.S. decoupling from China but rather the world and China decoupling. He noted China’s human rights abuses and the chilling effect that has had on economic relationships with other developed economies.
Despite China’s own moves to decouple from the U.S. by pursuing economic independence, Beijing is still not pleased with U.S. legislative proposals like USICA. China has menaced retaliation should USICA or similar legislation be signed into law, although it has not offered specifics.
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“Given our mutual dependency, it’s impossible to completely insulate [U.S.] businesses and consumers from [Chinese] reprisals in the near term,” said Young of the threats last year.
“Ultimately, passing USICA and ensuring U.S. leadership in these critical areas is the best way we can insulate our businesses and consumers in the longer term … and demands that we assume some risk in the short term,” he added.
