By Eric Vandenbroeck and co-workers

And China Will Reap the Benefits

Over the last few months, an elaborate plan to ensure China prevails in the global economic competition has taken shape. The plan’s chief architects, however, are not China’s leaders - they are U.S. politicians. The Trump administration’s cuts to federal agencies are undermining the United States’ ability to innovate, the driver of its economic growth. Hostile immigration policies are making it harder for U.S. firms, industries, and universities to attract the best ideas and talent from around the world and leverage them to boost America’s prosperity. Wild threats of tariffs and restrictions on foreign supply chains are terrifying investors, who are beginning to sit on their capital and look for new opportunities away from the chaos. China, meanwhile, is becoming more competitive in the very fields the United States is kneecapping.

Washington needs to rediscover the value of innovation. Every area of future economic growth in which the United States is poised to lead, such as software, AI, oil and gas drilling, robotics, and electric vehicle production - depends on innovations that are impossible to nurture without reliable, long-term support from the federal government. Both U.S. political parties once saw public investment in scientific education, training, and innovation as central to the country’s future prosperity. Today, neither party reliably understands nor champions that message. Instead, they adopt well-intentioned but misguided bipartisan policies aimed at cutting the United States’ dependence on China and join together to bash Beijing, driving the rest of the world toward greater reliance on China.

Walling off the Chinese economy from the West will fail. Washington has no choice but to participate in a globalized economy; it can no longer unilaterally control. The United States has spent decades and trillions of dollars to build the world’s best innovation system. That system, in turn, has become the primary source of the country’s economic and military strength. Stripping it for parts just as China is seeking to build an innovation apparatus that rivals the United States’ would be suicidal.

 

One Simple Trick

When economies are young, they have lots of ways to grow. Some herd massive numbers of low-paid workers into fields and factories; others tap into natural resources. Once an economy is mature, however, there is only one dependable recipe for sustained growth: innovation. As labor and natural resources become scarcer and more costly, innovation makes it possible to do more with less. Since World War II, at least a quarter of all U.S. economic growth has been driven by innovations that make it possible for the economy to deploy capital and labor more effectively.

The U.S. economy is a prime example of how recipes for growth change over time. In the eighteenth and nineteenth centuries, the country grew by cutting trees, expanding to occupy western lands, and marshaling huge numbers of workers (including immigrants and enslaved people) into agriculture and then factories. When the frontiers of cheap land and labor closed by the late nineteenth century, innovation started to fill the void. As the U.S. economy moved toward manufacturing, innovations such as electric power grids, perfected through decades of investment, tinkering, and research often backed by government funding, helped expand the United States’ industrial output. And as the economy later shifted to emphasize services, which today accounts for 80 percent of the United States’ economic output, revolutionary innovations in, for example, computing kept the country competitive.

During World War II, the United States made significant innovations in various fields, including military technology, medicine, and everyday life, which greatly influenced the war's outcome and had lasting impacts on society. Key innovations included the atomic bomb, radar, penicillin, and the jeep. These advancements were often driven by wartime needs and government funding, and they led to significant progress in science, industry, and technology. 

Today, money from Washington is spent by research universities, national labs, and institutes; the ideas generated are spun into companies that power economic growth and competitiveness. The private sector has stepped in to supplement federal funding for R&D, especially in industries such as biotech and computing. Yet in nearly every industry, the United States’ most transformative innovations over the last eight decades depended on government funding, because the government was the most patient and reliable actor willing to take on risks for the public benefit.

This federal-funding system worked well because it married the government’s prodigious resources to a relatively stable vision. On top of that, the government has proved reasonably good at determining how to best allocate those resources. Even as the United States’ two main political parties differed on the ideal size and role of government, both saw immense value in backing innovation. When the Reagan administration tried to slash government spending, for example, total federal support for R&D stayed largely unchanged. Even during his first administration, when President Donald Trump proposed budgets that would have eviscerated R&D funding, Democratic and Republican lawmakers restored the money, keeping the nation’s innovation system intact.

This continuity of intent seems a lot less likely during Trump’s second term. Republicans have chosen to align with the president to shrink the size of government and slash budgets, including for innovation. Democrats, reeling from their election loss, seem to care more about funding priorities other than science. Just in the past few months, with barely any oversight from Congress, federal funding for innovation has fallen off a cliff. The administration has terminated about a thousand grants awarded by the National Institutes of Health, the nation’s most important funder of biomedical research, with more to come. Cuts are so severe that federally funded biological research labs are euthanizing animals used to investigate worthy topics such as the safety of new drugs and the effects of pollution on workers. Some of the nation’s leading research universities have seen their federal research funding targeted for reasons that have nothing to do with research.

 

How To Blow Up a Pipeline

This funding chaos has particularly imperiled the second key ingredient of a functioning innovation system: people. Science is an enterprise steeped in hope and characterized by delayed gratification. The typical scientist, after earning an undergraduate degree, spends another four to six years in Ph.D. training, followed by a few years of poorly paid postdoctoral employment. Despite the lack of short-term financial incentives, many of the world’s best minds pursue science because their training—from tuition for advanced coursework through research apprenticeships - is largely paid for by research grants and universities themselves.

When grants dry up, so does the well of talented people pursuing innovation. Since late February, university and government labs uncertain about their future funding have been forced to make layoffs. Most of the burden of this uncertainty has fallen on young scientists. The catastrophic possibility of a lost generation of scientists now looms over the country’s innovation system.

Magnifying the loss is the government’s hostility to foreigners, especially Chinese. The success of the American innovation system has made it highly dependent on imported talent to perform much of the basic fieldwork of modern science. U.S. high schools and universities do not produce enough fledgling scientists and engineers to fully stock the country’s innovation system, and to maintain the United States’ research edge, the country must draw foreign talent. At the University of California, San Diego, where I work, about five percent of the undergraduate population, 25 percent of engineering master’s students, and 45 percent of students enrolled in engineering Ph.D. programs are not U.S. citizens. Across the United States, about half of all graduate students in STEM fields hail from other countries; in engineering, there are twice as many foreign graduate students as there are U.S. citizens and permanent residents.

The U.S. innovation system needs the best foreign talent, and until recently, it got it. In 2023, a study by the Organization for Economic Cooperation and Development ranked the United States as the most attractive place for foreign university students to study. Of all the world’s footloose international students, 15 percent come to the United States, the largest share of any country in the world. China has been the United States’ most important supplier of scientific talent. Throughout the 2010s, in any given year, nearly 400,000 Chinese students were studying in the United States, mostly in STEM fields. (By comparison, a paltry 12,000 young U.S. scientists and engineers studied in China in a given year.) Although the COVID-19 pandemic reduced these numbers, 300,000 Chinese students still currently attend U.S. universities. There are already signs, however, that this vital exchange is drying up. Co-authorship on papers in science and engineering among U.S. and Chinese scientists, for example, has been declining slowly since its 2020 peak.

The United States does need to reduce its dependence on Chinese talent: in any market, overreliance on any single supplier is almost always a recipe for insecurity. But it will take a couple of generations to rebalance the contribution of Chinese students to U.S. research. Meanwhile, harassment of Chinese citizens, including scientists, at U.S. borders and on campuses has become more prevalent, a phenomenon that anecdotally has led Chinese families to be more wary of sending their children to the United States. Such reluctance would be a catastrophe for U.S. research universities - and a gift to rival high-quality English-language universities such as in Australia, Canada, the Netherlands, and the United Kingdom. Both rivals and partners of the United States are adopting new policies to woo foreign scientists such as boosting employment and startup visas. Meanwhile, the Trump administration is ramping up efforts to limit the enrollment of international students at U.S. universities.

 

Tear Down That Wall

A third key component for a successful innovation system is access to big markets. Because innovation seeks to boost production with fewer inputs, it nearly always benefits from scale. Big markets offer cumulatively greater opportunities for innovation that makes products better through experience. In clean energy technology, for instance, the globalization of markets has been a catalyst for advancements. Early innovations in solar power, backed by the United States and Japan in the 1970s in an attempt to reduce their dependence on imported oil, helped make solar energy viable in a few niche applications. In the first decade of this century, support from the German government (which was keen to cut dependence on nuclear power and imported energy and build local industries while also cutting emissions) created another big market for solar power. As the German and global markets grew, innovations led to even better-performing solar panels. The frontier of the solar industry then moved to China, where massive innovations in manufacturing drove down costs even further and helped make solar energy even more competitive with coal and gas. Over the decades, this global approach has allowed solar panels, once a fringe technology, to become the cheapest way to generate electricity in many places.

But just as it has exemplified the benefits of globalized markets, the solar industry demonstrates the damage that nationalism can do to technological innovation. Rising tariffs and bottlenecks in supply chains created, in part, by chaotic trade policies are driving up solar costs in the United States. Although onshoring policies may eventually bring more solar production to the United States, as recently as 2023, about 80 percent of the equipment used for U.S. solar projects was imported, mainly from China.

Investors now have to fear the arbitrary cancellation of their projects, too: in April, for instance, the Trump administration halted the energy giant Equinor’s previously approved offshore wind project in New York. A month later, it reversed the order after pressuring New York state to greenlight an unrelated natural gas pipeline project; by then, the damage to the credibility of U.S.-based contracts had already been done. Clean energy hinges on investment. And these risks for investors explain why, according to a Bloomberg tracking service, half the planned projects to build clean energy technology factories in the United States are now getting delayed or frozen outright.

 

Losing Ground

Mounting political and legal opposition may be able to roll back many of the administration’s most noxious policies. But the signal to the rest of the world is clear: across the board, including as a backer of innovation, the U.S. government has suddenly become a lot less reliable. European governments’ attempts to reckon with this reality has inspired myriad political and economic reforms, including increased defense spending, more coordinated and less costly green energy policy, and trade agreements enabling access to new markets, all of which will make the continent more competitive.

While the United States eviscerates its innovation system, China is staying the course. Starting in the 1990s, Beijing adopted an innovation strategy aimed at transforming its economy and, since 2000, has expanded its total spending on R&D by a factor of 20. Much of that investment flows through state-connected institutions, but the private sector’s role has increased, as well. When all the sources of public and private funding are added together, the United States remains the world’s biggest spender on R&D, but China is poised to pull ahead. In 2025, China’s total R&D spending could surpass the United States for the first time. In the early 1990s, Chinese university programs did not rank at the top of any major STEM field. Today, according to U.S. News and World Report rankings, eight of the world’s top ten engineering programs are in China.

Chinese scientists are already revealing where they see their postgraduate future: at home. Two decades ago, about 95 percent of Chinese graduate students who studied in the United States stayed stateside for their first job after graduate school. Today, that “stay rate” has dropped to around 80 percent and is likely to fall further, possibly quickly.

Chinese returnees are going back to a country whose economy has been fine-tuned to turn innovation into production. Analysts who study innovation have often disparaged China for its focus on process improvements—for example, finding more efficient ways to use robots on production lines—rather than the invention of entirely new concepts. But process innovations have helped turn Chinese auto and battery factories into world leaders in those industries, just as they did when China’s solar industry began to boom. These less lauded achievements play a key role in making the economy more productive, which is crucial as skilled labor gets more scarce and costly in China. Moreover, they are the stepping stones to more revolutionary technologies. For example, Chinese manufacturers of nuclear plants are world leaders in process improvements that make it possible to build nuclear reactors at low cost, even though the original innovations for most Chinese commercial reactors trace back to the United States. China is now building more reactors than the rest of the world combined by applying those innovations at scale. The economy, it turns out, cares less about who was first and more about where technologies get built.

 

Chaos Is Cancer

It is not too late to save the U.S. innovation system. But doing so will take a concerted effort across the public and private sectors. Universities are pushing back against the onslaught of cuts and federal intrusion into their research programs, which has helped. But although trust in science remains high among the highly educated, it is much lower in the rest of the U.S. public. Scientists cannot be one another’s only advocates.

U.S. policymakers have not taken innovation seriously as a national priority. Just seven percent of congressional legislators belong to the High Tech Caucus, the only group in Congress dedicated to innovation. Reviving government support for science and technology requires far more than boosting membership in caucuses, however. In the absence of any credible strategy for reducing U.S. dependence on China, the prevailing anti-China consensus will continue to reward politicians who are hostile to foreign contact rather than managers who can make the most of it.

Both parties instead must make the case that federal funding for research is not a partisan hobbyhorse but a source of long-term economic and political strength. Republican Party leaders’ unwillingness to break with Trump to defend the U.S. innovation apparatus has been particularly damaging, but there is still time for them to reverse course by listening more to business leaders—who themselves must organize to advocate for the long-term economic health of the country and not just short-term priorities such as tax cuts.

Those who want to salvage the United States’ innovation agenda must not make the same error that the architects of globalization did. Successful innovation often causes imbalances in how the spoils are distributed, and when important segments of the country feel left behind, they can turn against innovation itself. As U.S. leaders work to promote innovation, they must respond to these imbalances with adjustments to limit China’s outsize role as a global supplier. In some cases, carefully coordinated voluntary restrictions on exports, such as batteries from China to the United States and cars from China to Europe, will be necessary. At the same time, leaders must also find ways to keep the two innovation engines of the U.S. and China more closely connected, including by encouraging scientific collaboration in safe areas that are unlikely to raise national security concerns—something that leading Chinese and U.S. scientists already favor.

China is making great strides in innovation. For now, the United States remains the global leader, thanks to the extraordinary innovation apparatus it has painstakingly built since World War II. Defending it will not be easy. Reconstituting it from ruins will be even harder.

 

 

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