Can the US sustain its lead in the innovation race?

Earlier this year, the US Senate approved the United States Innovation and Competition Act – a $250 billion bill designed to ramp up semiconductor production, scientific research, development of artificial intelligence, and space exploration.

The bill, which largely received bipartisan support (68 votes to 32), was introduced amid heightened concerns over increased competitiveness from China, which according to Kapil Patil, a research associate at Research and Information System for Developing Countries (RIS), is “fast closing the gap”.

Patil writes that the Biden administration’s new bill signals a return to an “interventionist industrial strategy”, aimed at “overhauling the US manufacturing enterprise” and preserving the country’s competitive edge.  

“It commits US policymakers to revive and reshore manufacturing and spend about US$200 billion on research and development and innovation over the next five years,” he notes in ASPI’s The Strategist.

“In principle, the bill provides a roadmap for American industries to lead innovation in future technologies and signals America’s leadership resolve to be in the innovation race for the long haul.”

Patil argues that the decline in the US’ manufacturing capacity has spurred China’s growth over the past decades, enabling it to leverage “significant external technological input” to challenge traditional powerhouses.

He fears that Beijing’s ambitions, epitomised by its ‘Made in China 2025’ policies, could “overturn the very free-market principles” that triggered its growth.

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“China’s state-led market economy model – together with Beijing’s coercive trade and technology-acquisition practices, such as theft of intellectual property, cyber espionage and arm-twisting of international firms to part with cutting-edge technologies in return for market access – has stirred much anxiety among governments and business leaders across the Western world,” Patil continues.

Trade restrictions, including those imposed on semiconductors exported to China, have stifled the US’ trade and economic advantages, Patil claims.

The researcher acknowledges the impact of such restrictions on China’s access to innovation, but argues that they’ve had an equal impact on the US’ own progress.

“The US administration’s export ban on semiconductors is already hurting American firms as much as their Chinese counterparts,” he adds.

“The decline in revenues due to loss of access to Chinese markets is likely to impair the ability of American firms to invest in cutting-edge R&D and innovation.”

Patil therefore proposes the US “double down on indigenous R&D” and “revamp its industrial strategy” to stay ahead of China.

The US Innovation and Competition Act would support this revamp by filling funding gaps exposed by export bans.

But Patil expects renewed investment to intensify trade frictions at the global level.

“Nowhere will such frictions be more intense than in multilateral institutions such as the World Trade Organization and its appellate bodies,” he observes.

“Although the Trump administration’s decision to distance itself from the WTO and its dispute-settlement body has proved to be deeply problematic, the WTO’s future, for now, hangs in the balance as the US doles out subsidies to domestic companies and seeks to carve out new supply lines.

“The Biden administration faces a difficult road in convincing its allies in Europe of the need for reforming and strengthening the WTO and forcing China to abide by the rules of global free trade.”

Patil also notes challenges posed by an increase in cyber espionage.

“Safeguarding American intellectual property will require Washington to strengthen its cyber deterrence against Beijing and provide better protection of its critical infrastructure.

“As the bill undergoes modifications and amendments during the congressional approval process, lawmakers must consider adding provisions relating to cyber security R&D and innovation.”

Patil concludes by suggesting the US forge alliances with like-minded countries like India to offset risks, contributing to the development of production and innovation capacities in the region.

“As a counter to rapacious debt-trap schemes like Beijing’s Belt and Road Initiative, Washington can lead the way in global industrial development, especially in many middle- and low-income countries, and pull them out of Chinese dependence,” he writes.

“Forging an international economic order that is equitable, inclusive and environmentally sustainable will ultimately be critical for the wellbeing of human civilisation.”

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