Taking a Timeout This Early? Wake Me When Washington Gets Serious About China

Whether Washington sustains a policy response equal to the challenge China poses or takes a timeout while Xi runs up the score remains an open question.

It’s popular in Washington to say that industrial policy is back and that policymakers have started mobilizing against the PRC’s techno-economic and trade war on the West. Just look at the CHIPS and Science Act, export controls, the Office of Strategic Capital, and the formation of the House Select Committee on China.

Okay, sure. These efforts are a good start. But it’s still only the first inning of what will have to be a long ballgame if we don’t want to lose. Whether Washington will sustain a response equal to the challenge China poses remains an open question.

Congress has a short attention span. Too many lawmakers seem to think that because a few bills were passed and some tools were created, they can now move on to other matters. And while President Trump was tough on China in his first term, he has since softened his stance and now appears more interested in reaching a modus vivendi with Xi than in maintaining a long-term techno-economic strategy.

This would be the equivalent of the United States, facing the Soviet threat after the Korean War, passing a few bills, setting up a couple of new programs, and calling it a day. Thankfully, our leaders then did much more. They understood the challenge as generational, requiring persistent work, investment, and sacrifice.

Today, the danger of taking a timeout this early in the game is simple: It will give Xi even more time to dominate advanced industries globally.

So, what would convince me that Washington is taking the China challenge seriously? Not a sudden change of heart from think tanks and advocacy groups that pander to China or deny the severity of the threat. Given their entrenched interests, ideologies, and commitment to prior positions, that is not going to happen.

That said, it doesn’t have to happen. Those groups do not need to change their minds for decisionmakers to step up to the plate and start hitting singles. The following policy options, many of which are included in ITIF’s report on how to slow the PRC’s progress toward global dominance, would help put the United States on base.

1. Reform Section 337 of the Tariff Act of 1930 to protect U.S. firms by making it easier to keep goods and services from Chinese companies systematically supported by unfair trade practices out of the U.S. market for up to 10 years. This is a potentially powerful tool, but its current structure is not as effective as it should be. Congress could do this tomorrow with no significant fiscal impact, which should make it one of the rarest things in Washington: a no-brainer.

2. Enact serious permitting and environmental regulatory reform in ways that are less damaging to competitiveness. It’s clear to all but the most die-hard environmentalists that many current rules are a significant barrier to the industrial construction the nation needs if it is not going to deindustrialize further. Ideally, Congress would repeal the National Environmental Policy Act (NEPA), but that is a big lift. At a minimum, it should pass current bipartisan permitting reform bills to make the process less onerous, time-consuming, and costly.

3. Build an “inspection wall” against counterfeit and pirated imports from China. China accounts for 87 percent of counterfeit goods seized each year, with the combined value estimated at $30 billion to $40 billion. Yet too much still enters the U.S. market, undercutting American jobs, eroding public confidence, funding Chinese competitors, and supporting China’s economic growth.

4. Increase criminal penalties for U.S. IP theft by foreign adversaries. The punishment should be strong enough to serve as a real deterrent. Economic and technological espionage is not uncommon, including cases involving Chinese nationals working in the United States who then return to China. Increasing both penalties and the likelihood that state-backed actors are prosecuted is one attainable step.

5. Strengthen the Committee on Foreign Investment in the United States (CFIUS) screening and oversight. Expanding CFIUS’s review authority to cover joint ventures, minority investments, and technology-licensing agreements with Chinese entities would help limit “false flagging,” where Chinese firms obscure their ownership or strategic intent in the U.S. economy to gain access to the U.S. market, talent, IP, and subsidies.

6. Expand the R&D tax credit, which is anemic compared with China’s and the credits offered by many other nations. To better incentivize private-sector R&D investment in the United States and help prevent further losses in advanced industry market share, Congress should, at minimum, double the regular R&D tax credit from 20 to 40 percent and boost the Alternative Simplified Credit rate from 14 to 28 percent.

7. Pass a third “Morrill Act” to fundamentally restructure land grant universities around technical fields aligned with national power industry needs. The original goal of land grants was to provide practical, industrial-focused education to working-class students, helping advance agriculture, engineering, and industry. To support more education and research in key areas critical to national power today, a modern version should incentivize those institutions to return to that mission.

8. Increase the share of NSF research funding going to engineering, currently 8.2 percent, to at least 20 percent of new funding. Engineering research is central to the advances in industrial production needed to compete with China, and the imbalance between federal support for basic science and engineering should be reduced. If necessary, Congress should pay for a larger engineering portfolio by reducing NSF funding for the social sciences and geosciences.

9. Restrict the U.S.-China Science and Technology (S&T) Agreement and require disclosure by U.S. researchers collaborating with Chinese institutions in national power industry fields. To be sure, there may be areas where cooperation is reciprocal and does not advance key technologies, but Washington should limit the S&T Agreement to areas that do not support China’s national economic power industries. Endangered species research sharing, yes; EV research sharing, no.

10. Give the Department of Commerce authority to designate up to 100 projects per year as critical to national economic power industries. The United States will lose the techno-economic and trade war with China if Washington continues giving equal weight to potato chips and computer chips. This designation would qualify certain projects in strategically important industries for streamlined regulatory approval, limited legal challenges, and reduced compliance burdens.

Obviously, the 10 steps described above are only a fraction of the policy and programmatic changes needed if the United States is to stop losing global market share in advanced industries critical to national power. Additional actions that Washington and Western allies should take to prevent long-term decline as China seeks global hegemony are outlined in ITIF’s ongoing National Power Industry Series, which provides a comprehensive policy agenda and detailed recommendations across key domains.

Fundamental policy transformation grounded in a new bipartisan consensus may be difficult, but it is what this moment requires. If I had to bet, I would wager that Washington will remain mired in gridlock while China runs up the score. I hope I am wrong.