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June 10, 2021

Massive US tech bill needs to aim for more than countering China

Experts warn that over-emphasising the competitive aims of the ICA could undermine its ability to catalyse innovation.

By Laurie Clarke

Legislation that would earmark huge federal funding for the US tech sector has won rare bipartisan approval in the Senate. If passed into law, it would channel hundreds of billions into areas such as semiconductor manufacturing, AI and quantum computing. The bill has been framed as a means of countering China’s soaring tech ambitions and maintaining a US lead in strategic areas, but experts say that it should aim for much more than that.

US president Joe Biden framed the ICA as part of “a competition to win the 21st century”. (Photo by Joe Giddens – WPA Pool/Getty Images)

One of the meatiest industrial policy bills in US history, the Innovation and Competition Act (ICA) would commit around $250bn in funding for scientific research, earmarking $52bn to shore up the US’s domestic semiconductor industry, and $120bn for investment in technologies such as AI and quantum computing, as well as overseeing an overhaul of the National Science Foundation (NSF).

“The ICA will dramatically increase R&D for basic and applied research in the US,” says Sarah Bauerle Danzman, assistant professor of International Studies at Indiana University Bloomington, pointing out that at present, R&D spending in the US is about .5% of GDP with the private sector contributing around 70% of that. “If passed, this bill will increase federal R&D spending by about 30% over the next five years.”

How will the Innovation and Competition Act impact chip supply?

Although the US is the world leader in semiconductor technologies, most of its manufacturing is outsourced to fabrication plants in Asia. A global chip shortage has highlighted the weakness in its supply chains, and China’s plans to bolster its own domestic production abilities have increased calls for the US to bring chip manufacturing back within its borders.

While the signposted federal funding was applauded by the Semiconductor Industry Association – which noted that the share of global semiconductor manufacturing capacity in the US has decreased from 37% in 1990 to 12% today – some remain sceptical that it will be sufficient.

“Even a couple of hundred billion US dollars is not enough to bring about a rapid turnaround of the situation as the US sees it,” says Jonathan Liebenau, associate professor in Technology Management at the London School of Economics. “Semiconductor fabrication plants are hugely expensive and the rest of the supply chain that China built up over the past 30 plus years cannot simply be bought off-the-shelf.”

He points out that the US doesn’t have the state-owned enterprises or the complex private-public business ecosystem that China does. “We can ramp up spending on research but under current legal, and treaty, conditions we cannot pick national technology champions anymore, we cannot boost chosen tech companies against their direct competitors, even foreign ones.”

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The US still narrowly leads in AI, but there are forecasts that China could soon take the edge. China itself has set the goal of becoming the world leader in AI by 2030. In quantum computing, an area considered to have important national security implications, China is said to be slightly ahead of the US. It has funnelled money into the sector, spending $10bn on setting up the world’s largest quantum research facility.

Innovation versus competition

In a statement welcoming its passage, President Biden framed the ICA in terms of global competition. “We are in a competition to win the 21st century, and the starting gun has gone off,” he said. “As other countries continue to invest in their own research and development, we cannot risk falling behind.” China objected to this framing: the foreign affairs committee of the National People’s Congress said the bill “seeks to exaggerate and spread the so-called China threat to maintain global American hegemony”.

The bill can be seen as a reaction to China’s announcement earlier this year that it would increase its R&D investment by an average of more than 7% per year in its five-year plan beginning in 2021, in areas such as AI, quantum and semiconductors.

But experts warn that overemphasising the competitive aims of the bill could undermine its ability to catalyse innovation. The sustained economic and technological successes of the US have been achieved with the participation of multiple actors who often have different goals, says Derrick Anderson, associate professor of Science and Technology Policy at Arizona State University.

“Some of those actors, especially commercial and industry actors, are intensely competitive. Others, such as academic and scientific actors, tend to be globally collaborative. The great paradox of the Innovation and Competition Act is that overemphasising competition may, in the long run, undermine US global technological competitiveness.”

The great paradox of the Innovation and Competition Act is that overemphasising competition may, in the long run, undermine US global technological competitiveness.
Derrick Anderson, Arizona State University

One way the bill emphasises innovation is by stipulating that R&D dollars will be allocated to projects through regional technology hubs, as well as existing NSF structures. “This model will expand the traditional approach in the US to seed private sector innovation rather than take big bets on specific companies in ways that emulate the state-led capitalism model of the People’s Republic of China,” says Danzman.

The regional hub model is an attempt to spread the fruits of the advanced economy beyond America’s two wealthy coasts, which although “a worthy policy goal”, “will need to be paired with careful education policy […] to make sure people around these hubs are developing compatible skills, and that these areas have the kinds of amenities and quality of life metrics that make them attractive for young people to move to,” says Danzman.

Sceptics say the bill may not be enough for the US to keep pace with China, and that the US needs to do more soul-searching about why it has lost speed relative to the emergent superpower. “Trade restrictions, cheap finance, and the Chinese equivalent of the ‘Buy American Act’ are not enough to explain the differences in success,” says Liebenau. “Nor is a focus on intellectual property theft, anti-competitive actions and other nefarious acts.”

Danzman says the biggest issue is that “the US economy has not been working for the lower-middle class and working class for a while now” – something she sees the ICA as attempting to redress. “The problem is framed as a security issue related to China because 1) there is a real competition there, but also 2) it is easier to reach agreement over the need to invest in technology when we face a shared threat.”

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