As the United States engages in what the Biden administration has referred to as “strategic competition” with China over economic leadership, a newly released House bill seeks to secure America’s role on the global stage by promoting technological innovation. The America COMPETES Act both stimulates investment in research and revitalizes industrial capabilities in the American technology sector. From funding research in new network technologies to eliminating green card caps for recipients of doctoral degrees in STEM fields, the bill acknowledges that the key to facilitating long term economic growth is investment in scientific development. It is promising to see Democrats encourage innovation as a driver of growth and, while not perfect, the bill provides much needed resources to address numerous areas where the American economy has fallen behind.
Over the past two decades, American domestic expenditure on research and development as a share of GDP has risen only slightly while other major economic rivals have experienced significant gains. In 2003, American investment in R&D made up approximately 2.6% of gross domestic product, compared to 3.1% in 2019. Over the same period, China and South Korea effectively doubled their own R&D spending as a share of GDP, with South Korea boasting 4.6% of GDP being attributed to R&D spending compared to 2.3% in 2003, and China seeing an increase from 1.1% to 2.2%. Additionally, between 2012 and 2021, the Chinese government made significant investments into higher education, increasing the number of PhD graduates in the country by 40%. To keep up, it is essential for the U.S. to support STEM programs at every level of education, from K-12 to those pursuing advanced degrees. The House seeks to accomplish this with this bill, prioritizing research across STEM fields to facilitate purpose-driven R&D to address pressing societal challenges such as environmental sustainability, while also supporting a new generation of teachers, researchers and professionals trained in STEM. These are worthy investments in domestic talent which can drive long run growth.
Another notable aspect of the bill is the focus on domestic manufacturing of tech-sector inputs, such as microchips, to address shortages of input goods which currently threaten to interrupt production of products such as cars, medical equipment, and consumer tech devices. Included is an allocated $52 billion to support the domestic production of semiconductors, a product market which has faced shortages heavily exacerbated by the ongoing pandemic. The Department of Commerce reported this week that demand for chips increased 17% from 2019 to 2021 with no comparable increase in supply. In 2019, buyers of semiconductor products had a median inventory of 40 days, compared to just five days in 2021 — meaning a week-long disruption in the supply chain has the potential to cripple high-tech industries reliant on microchips the short term, an especially daunting threat in the era of pandemic shutdowns. The Department of Commerce found that a driving force behind the issue was a lack of production capacity, and with the U.S. currently accounting for just 12% of global production. Funding to expand this has the potential to go a long way in addressing supply shortages while also opening new opportunities for domestic production and trade.
The bill enjoys wide support among House Democrats as well as President Biden, who applauded the bipartisan effort to promote America’s ability to compete in the global economy. The Senate version — the United States Innovation and Competition Act — passed with 68 votes in May of 2021, highlighting the bipartisan nature of the issue.
However, one controversial difference between the House and Senate bills as they impact the American tech sector is the inclusion of the SHOP SAFE Act in the House bill. The SHOP SAFE Act was introduced last September and sought to reduce the prevalence of counterfeit products sold online by imposing legal liability on e-commerce platforms for the sale of counterfeit goods. However, because many e-commerce platforms rely on the presence of third-party sellers, this would force small and large platforms to scrutinize even the smallest sellers to avoid penalties. This well-intentioned provision will likely hurt smaller e-commerce platforms who lack the tools to moderate listings on their sites to the level required to avoid penalty. Companies are given avenues to avoid liability if moderation procedures for listings follow certain practices, but the vague standard given will make it difficult for smaller platforms to compete with large e-commerce sites which can do so effectively at a relatively low cost. While much of the bill promotes the American technology industry’s ability to compete, this type of penalty will undermine the ability for U.S. companies to compete with Chinese giants such as Alibaba in the e-commerce space, running counter to the legislations intended purpose.
Ultimately, the America COMPETES Act has the potential to spur long term growth through significant investment in scientific innovation and emerging technology. Though imperfect, the sentiment behind the bill is a positive one. The American technology sector has long been a leading global innovator and by investing in the future of the industry Congress can promote both global competition and a robust domestic economy driven by new technologies.
