Last week, the US Senate passed a monumental industrial policy bill (“US Innovation and Competition Act”) that authorized a whopping $250 billion in federal funding towards science and technology research, subsidies for chipmakers, and academic research. But the implications of this bill are likely to be far-reaching and in today’s Finshots we discuss this and more.


The Story

How did America become a superpower?

Different people will give you different answers. Some will tell you it’s because of their constitution. Some will tell you it’s because of their military. Even others will tell you it’s because of their culture — a culture that fosters innovation. And it’s this last bit that’s of particular concern right now because, many people believe America is slowly losing touch with this aspect of their life.

These were the people responsible for the Moon Landing, the MRI, and the Internet. The US has 388 Nobel Prizes to its name. This lead is so extraordinary that despite accounting for less than 5% of the global population they hold close to 40% of all the Nobel prizes ever awarded (mostly in the fields of science). And it didn’t just happen because people took initiative on their own. No, it happened partly due to government intervention.

At the height of the space race, US federal spending on Research and Development peaked at around 2.2% of their GDP. This was back in 1964. But as the cold war withered away, interest in science also took a backseat. Today, the country spends around 0.7% of its GDP, and funding has plummeted to its lowest levels yet.

Something had to be done and the Biden government is now all set to offer a renewed push in the hope of getting America back to its glory days.

On the big picture side of things, the new bill aims to boost scientific research by pouring money into research institutions. This includes funding support to the National Science Foundation (NSF) — its premier research body. $81 billion will be allocated to the NSF, including $29 billion towards establishing a new science directorate, whose 10 focus areas will include AI, robotics and biotechnology. The bill will also extend special support towards the development and manufacturing of semiconductors, including mobile broadband tech.

But there’s another element to the bill — The competition bit. And this is where things take an interesting turn.

There is a deep sense of insecurity or fear — call it what you will — among American policymakers about the rise of Chinese tech. They fear that America’s technological leadership is now at risk thanks to the Chinese juggernaut. They believe it threatens America’s way of life and they have a simple contention to back their argument — The competition coming from China is “asymmetric” in nature i.e. The Chinese do not play by any rules. Instead, they blatantly indulge in corporate espionage (spying) and illiberal surveillance. Large US tech companies are routinely mandated to partner with Chinese tech companies. And since the relationship between the state and China’s private sector is blurry at best, US companies were perhaps made to pass on this information directly to Chinese policymakers. They argue that allowing the relationship to exist in its current form would be akin to accepting China’s non-democratic approach. And so there’s been a lot of talk about stymying Chinese influence and the bill will provide the necessary ammunition.

The US secretary of state will soon be tasked with compiling a list of every Chinese state-owned enterprise that is suspected of having committed acts of industrial espionage or cyber-attacks. Once identified, the White House will have the authority to impose sanctions on the companies and the individuals associated with them. There will also be an inter-agency task force to investigate allegations of market manipulation by Chinese firms.

In the meantime, the US will also implement a strategy to ramp up investments in Latin America, South East Asia, and Africa. Why? you ask.

As one article in Council of Foreign Relations notes —

There are emerging forms of cooperation between Chinese and Latin American media that insert Beijing’s narrative organically into local news outlet’s content, sometimes without consumers realizing where the content comes from. In addition, Beijing has been successful in using fully funded trips to China, scholarships to prestigious Chinese universities, and exchange programs, to directly expose government officials, politicians, academics, journalists, and students from the region to China’s remarkable economic growth, poverty reduction, and innovation, all of which can make a positive impression on visitors…. Chinese companies such as Huawei, Xiaomi, Alibaba, and BYD are rapidly expanding in Latin America and the Caribbean, and Chinese giant Tencent is becoming an emerging source of finance for local startups

More importantly, as the article notes China is increasingly winning the public opinion battle with the United States and America has finally woken up to this threat. So with a combination of R&D, and investments in trade and foreign relations, the US government finally hopes to leapfrog competition and set themselves apart once again.

Until then…

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