How to Build American Science Back Better

Which approach makes more sense?

Probably the one that magnifies existing American strengths in basic research and in key areas like semiconductors rather than trying to conjure new supply chains or restrict trade more. In other words, one that really invests in competitiveness at home, rather than focusing on bludgeoning China or trying to completely insulate the U.S. economy from it. The latter approach was tried under the previous administration and failed to boost U.S. manufacturing. On this count, the Senate bill scores better.

Investing large sums in supply chain resilience—the House bill stipulates $45 billion—may sometimes be less productive than proponents assume. China’s dominance in the lithium and rare-earth processing industries could cause headaches for the U.S. But if electric vehicle and renewable power demand grow as massively as many predict, that will create huge incentives for new processing and mining investment, both in and out of China. Lithium carbonate prices are up several hundred percent during the past year alone.

Moreover, spending billions of tax dollars now to build domestic mining or processing operations risks creating stranded assets if new technologies—research funded, perhaps, by one of these two bills—make them obsolete. It is one thing to subsidize cutting-edge industries like advanced microchips where expansion entails ancillary benefits like more top-notch engineering talent and additional R&D. It is another thing to splash out large amounts of government cash on mature mining or chemical processing industries.

On the question of how to spend research dollars, some of the harsh rhetoric on Capitol Hill looks overdone. While there is certainly a case for bolstering areas like quantum computing where a durable Chinese lead could have disastrous security implications, the idea that spending more cash researching energy or climate technologies is somehow “soft on China” is silly. If U.S. researchers end up creating, for example, new battery or solar technologies that render China’s existing dominance in those areas obsolete, it would be a devastating blow to Beijing, which has spent years and enormous amounts of money subsidizing the expansion of those industries.

Finally, grafting new trade restrictions onto a science bill is probably counterproductive—particularly in a period of high inflation. The unilateral trade tariffs instituted against China under former President Donald Trump were unsuccessful in reducing America’s persistent overall trade deficit but very good at raising costs for U.S. companies and damaging growth. A December 2019 Federal Reserve industry-by-industry analysis, for example, found that the 2018 and early 2019 tariffs reduced employment in U.S. manufacturing sectors exposed to trade with China by about 0.8%, even before accounting for the impact of the retaliatory tariffs from China. The Senate bill would restore a Trump-era tariff exclusion process to reduce some of this burden. The House bill, on the other hand, would cancel a separate import duty exemption for shipments of less than $800 for nonmarket economies like China and Vietnam. That might seem fair in principle, but it adds up to higher costs at a time when both companies and consumers are struggling with inflation.

U.S. government funding for research as a percentage of gross domestic product has been stagnant for decades and other countries haven’t been standing still. Fixing that makes economic sense. Getting bogged down in new trade restrictions—especially ones not directly related to human rights concerns like Xinjiang—doesn’t.

Write to Nathaniel Taplin at [email protected]