United States Innovation and Competition Act
The United States Innovation and Competition Act (S. 1260) is a legislative initiative aimed at significantly boosting U.S. technological advancement and semiconductor production over the next five years, with an authorization of more than $200 billion in funding. This act emerged as a response to global challenges, particularly highlighted by the semiconductor shortages during the COVID-19 pandemic, which exposed vulnerabilities in the U.S. supply chain and heightened concerns about dependence on Chinese technology. Key goals include reducing reliance on China, enhancing competitiveness in various tech sectors, and strengthening national security against potential cyber threats.
The bill allocates substantial financial resources to specific areas, including $52 billion for domestic semiconductor manufacturing and $80 billion for research in robotics, biotechnology, and artificial intelligence. Additionally, significant funding is earmarked for space exploration and the development of advanced wireless technologies. The act also incorporates measures to counter foreign espionage and safeguard U.S. trade secrets, positioning it as a robust response to perceived threats from China's technological rise.
While the bill has garnered bipartisan support in Congress, it has triggered criticism from China, which views it as a reflection of Cold War mentality and as an unjust portrayal of its intentions. Within the U.S., opinions are divided; some advocate for government investment in technology, while others argue for a more market-driven approach to innovation. Overall, the act represents a strategic effort to reinforce American leadership in technology and secure its economic future amidst evolving global dynamics.
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United States Innovation and Competition Act
The United States Innovation and Competition Act of 2021 (USICA), also known as S. 1260, is a bill in the US Congress, authorizing more than $250 billion for technological research over five years. Versions of the bill were passed by both the House and Senate. The massive spending package was influenced by the global semiconductor shortage and its consequences, which were caused by a reduction in Asian semiconductor manufacturing during the global COVID-19 pandemic.
The bill aimed to reduce American dependence on Chinese technology and allow the United States to better compete with China by increasing the production speed of semiconductors, advancing space exploration, and facilitating the development of new technologies. The bill also contained a variety of new security rules and powers to reduce the threat of Chinese cyberattacks and the theft of American industrial and technological secrets. The Chinese government heavily criticized the bill, arguing that it erroneously portrayed China as an imagined enemy.
Many politicians praised the bipartisan bill, claiming that the continued investment in American technology industries is essential for the nation’s future. However, others cautioned against the bill, suggesting America cannot compete with China in any type of state funding race.
Background
During the late 2010s, several events led to an unusually fragile state for the global semiconductor and computer chip supply chain. In 2018, two separate trade wars developed over the semiconductor industry. One war took place between the United States and China.
The United States was aware that China intended to become a world leader in the manufacturing of semiconductors and electric vehicles, positioning itself as the world’s most powerful economy. American leaders viewed these goals as a direct threat to US dominance and began taking measures to reduce US dependency on the Chinese semiconductor industry. Most prominently, the United States began instituting severe tariffs on the raw materials necessary for Chinese superconductor construction, resulting in a significant chip shortage in 2019. The following year, the United States blocklisted SMIC, the largest Chinese chip manufacturer. A similar semiconductor trade war occurred between Japan and South Korea.
In late 2020, the COVID-19 pandemic swept across the globe. To combat the infectious disease, many global economies were temporarily shut down. Factories had temporarily closed to prevent the spread of COVID-19. While such shutdowns were underway, the global demand for semiconductors and computer chips continued to rise, and demand outpaced supply. This caused prices for semiconductors to skyrocket globally. Because of the tariffs and the pandemic, the international semiconductor industry could not meet global demand. These shortages were particularly harsh in China, where companies struggled to recover from the national lockdown.
Reduced Chinese semiconductor production caused a massive shortage of semiconductors on the global market. Serious problems in the American supply chain also came to light during the pandemic. Many American politicians were concerned that such dependence might place America at an economic or diplomatic disadvantage in future negotiations with the Asian superpower.
Overview
Escalating trade wars with China caused the US government to act. Democratic and Republican members of Congress noted the rapid growth of the Chinese technological sector. To ensure American dominance for subsequent generations, US senators worked together to write and propose S. 1260, the United States Innovation and Competition Act. It was a 2,400-page bill authorizing over $250 billion in government funds. It was intended to boost semiconductor production in the United States, reducing Chinese economic power. At the time of the bill’s passage, roughly 75 percent of the world’s semiconductor chips were manufactured in Asia, with a significant portion manufactured in China. Just 12 percent of the world’s supply of semiconductors was manufactured in the United States, compared to 37 percent in 1990.
The bill also acknowledged China’s technological advancement in various other sectors. The Innovation and Competition Act aimed to speed the progress of US scientific research, particularly in the development of artificial intelligence and space exploration. US senators hoped that by these industries with additional funding, American scientists would be able to outpace their Chinese counterparts.
The Innovation and Competition Act was co-sponsored by Democratic Senate Majority Leader Charles Schumer and Republican Senator Todd Young. Schumer called the bill a “once-in-a-generation investment in American science and American technology.” During the legislative process, Schumer and Young actively sought bipartisan support and contributions, leading to the bill’s passage in the Senate on June 8, 2021. An amended version was passed in the House of Representatives on January 31, 2022, and another amended variation was passed in the Senate on March 28, 2022, called the CHIPS and Science Act.
The massive bill authorized the investment of more than $280 billion in US scientific and technological innovation over a five-year period. Experts hoped this would spur the country's technology development, advance the US semiconductor manufacturing industry, and help the United States better compete with China in future economic and technological endeavors. The bill included numerous provisions, allotting a set amount of money to specific industries.
The bill allotted $52 billion to spur the advancement of the domestic semiconductor production industry. Eighty billion dollars was allotted to institutions for the acceleration of research on robotics, biotechnology, and artificial intelligence. Twenty-three billion dollars was allotted for the advancement of the field of space exploration, and $10 billion was allotted for general investment in technological hubs throughout the United States. One-and-a-half billion dollars was allotted for new innovations in wireless technologies, including the expansion and development of 5G and 6G networks. The bill also included the Endless Frontier Act, which overhauls the National Science Foundation, invests billions of dollars in the organization, and establishes a Directorate for Technology and Innovation.
In addition to investing in technology, the United States Innovation and Competition Act included a significant overhaul of national security measures. These measures were intended to give the United States a stronger defense against foreign espionage and cyberattacks, particularly against agents from China. It involved provisions to ban the Chinese social media application TikTok from use on any government devices because of its potential to harvest metadata for the Chinese government.
The bill required the administration of the sitting president to impose economic sanctions on Chinese entities that engage in the theft of US trade secrets. This is a much harsher stance than the government previously took toward China. Additionally, the bill created the same requirement for any Chinese entities working to undermine US cybersecurity. The bill also alloted $1.5 billion in funding to the Countering Chinese Influence Fund, which promotes transparence and accountability in projects associated with China.
The bill also granted additional powers to the secretary of state, allowing them to deny an alien entry into the United States if evidence exists that they entered the country to steal emerging technologies on behalf of a foreign government. This was intended to allow the government the power to quickly remove foreign agents from the United States, securing state secrets and granting America a technological and industrial edge over its rivals. Lastly, the bill required the Committee on Foreign Investment to review certain foreign contracts with institutions of higher learning and certain foreign gifts in continued efforts to limit foreign influence in America.
Many American politicians supported the bill, stating that continued investment in America’s technological sector is necessary to maintain its globally dominant economic position. However, others believed that such innovation should come from the private sector, not from government funding. They argued that the United States should not attempt to compete with China in a race of state-backed investments.
The Chinese government has repeatedly criticized the United States Innovation and Competition Act. China’s parliament stated that it held “strong indignation and resolute opposition” to the bill, and the legislation showed a “paranoid delusion of wanting to be the only winner.” When asked about the bill, Wang Wenbin, spokesperson for the Chinese foreign ministry, stated, “We firmly object to the United States seeing China as an imaginary enemy.”
In 2024, the Commerce Department reported the bill had funded twenty-three projects in fifteen states.
Bibliography
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