The United States is a powerhouse of innovation and the birthplace of countless technologies. But for decades, the U.S. has allowed countries like China to capture the value of its domestic innovations. While the U.S. invests talent and capital to create new breakthroughs, we have offshored the manufacturing of those breakthroughs to Chinese companies and then buy the product back from them. Today, China manufactures 85 percent of the world's photovoltaic cells and 79 percent of lithium-ion batteries—both innovations created in U.S. labs.
The United States will continue to fall behind in the critical technologies of the future unless the public and private sectors can come together to invest in the industrial commons that produce emerging technologies like AI, 5G, and semiconductors. The stakes are high—continuing to rely on authoritarian countries to produce key technologies could compromise U.S. national security and economic competitiveness for decades to come. We're entering a critical point in global technology and geoeconomic competition. The ability for the U.S. to remain a technology leader will define the future of global peace and stability.
The first step to reclaiming the value of U.S. innovation is to rebuild the U.S. industrial commons—assets like advanced manufacturing facilities, laboratories, a skilled technical workforce, supplier networks, and distribution channels—which have declined over the decades as American companies have moved offshore.
Capturing the value of emerging technologies by scaling from an idea to a product is a critical piece of the innovation puzzle. Currently, the U.S. government does not typically fund this type of scaling; instead, inventors are responsible for securing private venture capital to turn their ideas into profitable companies. Although the U.S. leads the world in venture capital investment, some innovations require larger-scale resources that private venture funding is unable to cover. For instance, a single semiconductor foundry that a U.S. startup may need for prototyping can cost more than $15 billion to construct. If that foundry does not already exist in the U.S., the company would have no choice but to offshore production.
China, on the other hand, has spent a staggering amount of government money on building up its industrial commons—so it should be no surprise that countless American innovations are now being manufactured in Chinese facilities. Over the past few years, nearly 2,000 Chinese government guidance funds have contributed $1 trillion to private capital markets in China. That government funding has been vital to building China's deep tech sectors. During the last quarter of 2022, 184 Chinese semiconductor startups raised close to $3 billion—compared with only 35 U.S. startups raising $1 billion.
Private industry must be prepared to lead the charge in reinvigorating the U.S. industrial commons. The public sector must do its part to incentivize this private investment. This is the second step toward reclaiming the value of our innovations. The CHIPS Act—legislation that invests $52.7 billion in U.S. semiconductor manufacturing—is undoubtedly a start. It will help to create jobs, boost U.S. economic competitiveness, and protect our supply chains. But additional incentives spanning favorable tax, regulation, and trade policies are needed to make the new industrial commons sustainable.
Specifically, policymakers would be wise to consider eliminating the tax penalty against capital-intensive industries like semiconductor fabrication by allowing firms to deduct 100 percent of their capital expenditures in the first year of purchase. This move would help make the United States a globally tax-competitive environment to operate manufacturing facilities.
In terms of regulation, the Environmental Protection Agency should consider implementing an expedited and simplified permit process for building manufacturing facilities.
Finally, the United States should build a unified front of allies who share the vision for a reformed global trade agenda to multilaterally counter China's market-distorting actions that undercut global manufacturing competitors and double down on global intellectual property standards.
The United States must stay technologically competitive in a world where authoritarian states are expending seemingly endless resources to stay at the cutting edge. That will require public and private actors to double down on the goal of capturing economic value from the fruits of our innovation. We can ensure U.S. competitiveness on an increasingly cutthroat world stage only through such alignment.
Dr. Edlyn V. Levine is the Chief Science Officer and co-founder of America's Frontier Fund. She serves as a faculty member for the executive education program at the Harvard Kennedy School of Government, where she teaches hardware and supply chain security, artificial intelligence, and the intersection of technology and national security.
The views expressed in this article are the writer's own.
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