The U.S. Finally Has a Sputnik Moment With China
Fear of Beijing’s technological prowess is driving deep policy shifts.
As I researched global innovation over the past four years, the more I looked into China’s amazing ascent as a technological power—amid growing U.S. angst and anti-China anger—the more one puzzling question constantly jumped out at me: Why has there been no “Sputnik moment” with China, as occurred early in the Cold War when the Soviet Union launched a satellite into space in 1957? Then, U.S. President Dwight D. Eisenhower elevated science and technology to a national mission, creating NASA and dramatically ramping up support for research and development.
True, there’s been no single Chinese achievement that made headlines—save perhaps Beijing’s recent victory over the coronavirus, muted by having helped spread the virus in the first place. The fields where China is ahead of the United States, such as financial technology, are largely matters of everyday life, not grand and singular achievements. But for all the febrile fear and loathing of China, a panoply of tariffs, tech bans, and an unraveling U.S.-China relationship, the United States has done far more whining about China than competing with it. Huawei as a national security threat, intellectual property theft, bans on Chinese apps—America’s (mostly legitimate) grievances against predatory Chinese industrial policies seem to mount by the day. Yet beyond sanctions and tariffs, there has been little idea how the United States would meet the challenge.
That’s no longer the case. Fears of the United States losing its competitive edge to China have proved so powerful that they have begun to transcend America’s bitter tribal politics, transforming traditional U.S. laissez-faire views into a fervent techno-nationalism that may end up looking like Beijing’s approach itself. Much of this exists only in potential at the moment, but it’s becoming the new norm.
Sinophobia has turned traditional free market Republicans into advocates, captured in Sen. Marco Rubio’s call for a “pro-American industrial policy.” This is evident in a flood of legislation in the U.S. Congress: 366 pieces of China-focused legislation filed in 2019-2020—much on trade, investment, and tech—though only a handful are likely to become law. The mostly bipartisan legislation is also mirrored in Democratic presidential candidate Joe Biden’s manufacturing plans that look a lot like President Donald Trump’s.
Major pending bipartisan tech legislation seeks to boost U.S. manufacturing, promote R&D in key tech sectors, diversify and expand U.S. tech hubs now concentrated on the East Coast and West Coast, and forge a national tech strategy. Most prominently, a bill likely to soon become law—the Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS for America Act)—aims to subsidize the semiconductor industry. The CHIPS bill passed as an amendment to the current Defense Authorization Act and may become law before the end of the year.
This is a very big deal. Why? Because semiconductors, a $470 billion global industry, are core drivers of all things digital, the foundation and lifeblood of the entire knowledge economy. China itself, currently dependent on imported chips (many from Taiwan), has been attempting to domesticize its own production—failing to make a 40 percent domestic target this year, but redoubling efforts to hit a 70 percent target by 2025.
The CHIPS bill aims to boost and reshore semiconductor manufacturing with a 40 percent tax credit to 2024 for investments in semiconductor equipment or manufacturing facilities; creates a $10 billion matching fund for states and cities to incentivize investment in advanced semiconductor manufacturing; includes measures for bolstering STEM workforce development; and parcels out $12 billion in R&D to the Defense Advanced Research Projects Agency, the Department of Energy, the Department of Commerce, and the National Science Foundation, as well as to establish an advanced manufacturing institute. It also mandates that the administration develop a semiconductor R&D strategy and a public-private national semiconductor technology center.
One provision in the CHIPS bill that moves beyond narrow techno-nationalism seeks to build multilateral cooperation among democracies in supply chain security. It creates a $750 million trust fund to be allocated upon reaching agreement with foreign governments to form a consortium to harmonize policies related to microelectronics, transparency in microelectronics, and greater alignment in policies toward non-market economies.
There is an array of other legislation designed to bolster U.S. tech competitiveness, beef up R&D in high tech, incentivize private sector investment, and change the geography of innovation—80 percent of venture capital and 90 percent of tech employment is concentrated in major tech hubs. For example, several bills would rename the National Science Foundation as the National Science and Technology Foundation, creating a center for technology and authorizing $100 billion in R&D funds to support work on artificial intelligence, boost semiconductors, and incentivize geographic diversity, with $80 billion for cities to compete to build tech innovation centers.
The flurry of legislation and the rhetoric of both presidential candidates underscore the degree to which the fear of Chinese tech dominance has animated a newfound bipartisan eagerness to sustain and advance the eroding U.S. innovation edge. While industrial policies have had mixed success in the United States, the sheer breadth and scope of new resources and public and private collaboration will no doubt have a considerable impact on U.S. tech capacity.
What unintended consequences all the positive and negative aspects of this energized techno-nationalism in the United States will have is another question. In the best-case scenario, the results of the new U.S. zeitgeist may better position Washington—if it can mobilize like-minded partners—to compete with China and pressure Beijing to move back toward promised economic reforms, rolling back many of its state-driven forms of capitalist measures. In the worst case, it may lead to a bifurcated global economy with conflicting rules, norms, and standards. One big fear is that the victim of the techno-nationalism trend will be global innovation, which thrives on openness and transparency.
The world is in the early stages of what has been dubbed the Fourth Industrial Revolution. The converging new technologies—AI, big data, robotics, biotech, nanoengineering, new materials, the Internet of Things, 3D printing—merge the digital and physical worlds and will drive economic growth and shape geopolitics in the decades ahead. It should have been obvious to U.S. officialdom long ago that tech innovation was the fulcrum of the future, but they mostly just paid lip service to it. Instead, it has taken an existential fear of being overtaken by China to create an impetus to get changes done. The price may be innovation constrained by techno-nationalism—but the next Sputnik moment is finally here.