US attempts to bridge competitive gap with China

Given its large investments in its scientific and innovation ecosystem over the past few decades, China is now troubling in the rear-view mirror of the American scientific community. The emerging superpower has built up an innovation powerhouse that began with the US vying for dominance in artificial intelligence, quantum computing, 5G and green technologies. Determined to keep China from overtaking the US on innovation, the US Competition Act proposes to pour billions of dollars into basic research in materials science, chemical engineering, advanced computing, microelectronics and more. Following the global semiconductor supply crisis, US lawmakers earmarked $52 billion to manufacture these chips at home.

The bill’s more liberal immigration provisions should please foreign students and researchers, especially those specializing in science, technology, engineering and mathematics (‘STEM’ subjects). Washington will pave the way for startup founders and foreign entrepreneurial talent to work and live in the US. Doctoral students focusing on STEM research will be exempted from country-specific visa caps that have long haunted Indian students who sought to make America their home. These are welcome improvements.

Few things drive contemporary American policymaking like the fear of exposed supply chains. With the US competing, the US has completely targeted its reliance on China for vital goods. It plans to set up a Supply Chain Resilience and Crisis Response Office, charged with monitoring US dependencies in critical industries and encouraging US firms to remodel their supply chains.

More controversially, the US Competition creates a committee that works to identify and secure key areas that are critical to US national security. Should US firms looking to invest in foreign countries of concern such as China jeopardize those interests, this new panel could review and block such outbound investments. As these policies are debated in the US Senate, these sanctions will likely lead to a fight between Democrats, Republicans and others who see its scope as too broad.

The bill also underscores the determination to eliminate Chinese influence in the American scientific and financial establishment. It calls for a comprehensive review of China’s presence in US financial systems and specifically targets entities involved in corporate espionage, theft of US intellectual property and those with close ties to the Chinese military. The Biden administration has made it clear that Washington will no longer turn a blind eye to Beijing’s often imperceptible but widespread presence in key US institutions.

For all its domestic focus, the bill also envisions a foreign-policy strategy. Even though it undermines institutions such as the WTO, Washington has outlined a strategy of engagement with older economic configurations such as the Asia Pacific Forum for Economic Cooperation, allies in Europe, and groups such as the Quad. For example, Bill urges the Biden administration to sign up to the Supply Chain Resilience Initiative that was designed and underwritten by India, Japan and Australia. It also envisions some diplomatic innovations to expand US influence at the expense of China. Given the revelations that Beijing has taken over the domestic politics of treaty allies such as Australia, the US will deploy “China Watchers” to key diplomatic missions to report on that creeping effect. It also plans to have economic-defense response teams to support the receiving countries. The end of Chinese economic coercion is a welcome feature, given China’s use of economic pressure on countries such as Australia and Canada.

For all its might, America’s competitiveness has been held back by one factor: institutional innovation. While America’s ‘innovation hardware’ (universities, scientific labs and talent pools) is broadly unmatched, its ‘innovation software’ is relatively weak in the form of new institutions. The bill funnels much-needed funding into scientific research, for example, through the over-bureaucratic National Science Foundation (NSF). Its leaner and more applied research-focused Directorate of Science and Technology (DST) has seen its funding dwindle. In an era where applied successes are critical to competitiveness, DST modeled itself on DARPA, a defense-research agency that propelled America to industrial domination by designing technologies such as the Internet and GPS. Between the backing of an innovative disruptor and an established but increasingly outdated NSF, Washington has chosen to protect and stagnate the latter.

America’s economic diplomacy suffers from a similar problem. Even as major trade agreements in Asia are rewriting the rules of the game, it is determined to ruin its status as a major trading power by staying away from them. More than a year after taking office, Biden’s signature plan, the Indo-Pacific Economic Framework, is still little more than a confusing group to discuss.

Even though America’s competition is propelling the world’s most powerful nation in the right direction, it will still need to give the nation’s innovation software a much-needed upgrade for America to truly compete with rivals in the 21st century .

Harsh V. Pant and Shashank Mattoo, respectively, Professors of International Relations, King’s College London; and Research Associate at Observer Research Foundation, New Delhi.