June 22, 2021 | Policy Brief

Fixing Shortcomings in the Senate’s Endless Frontier Legislation

June 22, 2021 | Policy Brief

Fixing Shortcomings in the Senate’s Endless Frontier Legislation

The Senate passed legislation earlier this month aimed at boosting U.S. technological competitiveness with China; however, last-minute changes resulted in significant funding reductions for several of the bill’s signature initiatives, including planned investments in artificial intelligence (AI) and quantum computing. While the bill represents a rare bipartisan victory for legislators alarmed by China’s hostility, it nevertheless falls well short of the actions needed to counter key pillars of China’s 14th Five-Year Plan.

At 2,376 pages, the U.S. Innovation and Competition Act (USICA), known as the Endless Frontier Act, aims to mirror the Chinese Communist Party’s multibillion-dollar investments in scientific research. It also seeks to arm the U.S. government with new tools to engage in a protracted geopolitical competition with Beijing. USICA’s focus on enhancing American supply chain resiliency echoes a study the White House released earlier this month, which advocated for expanding the production of lithium batteries and rare earth minerals.

USICA represents a modern-day parallel to Cold War-era legislation such as the 1958 National Defense Education Act, which sought to reinvigorate research and development following the shock of Sputnik. Notable USICA provisions include Section 3312, which bars U.S. diplomats from attending the 2022 Beijing Olympics on account of China’s persecution of Uighur Muslims. Sections 6124 and 4495, respectively, enable the government to fine universities that fail to disclose certain foreign funding, and to deny visas to individuals who are deemed a risk of misappropriating “sensitive or emerging technologies.”

Nevertheless, several of the draft’s other provisions, and key omissions, deserve additional scrutiny. For instance, the bill authorizes less than $5 billion for National Science Foundation (NSF) research and development in applied sciences and “future technologies,” such as AI. This figure is down from the $100 billion envisioned in the bill’s original version.

While semiconductor demand has ballooned, it is unclear whether the bill’s $52 billion in U.S. government subsidies for the semiconductor industry is the best way to increase chip production, since the sector already enjoys not only access to cheap capital, but also a high market valuation. Similar subsidies in the 1980s did little to improve America’s market position, nor have similar investments in Europe or even China resulted in a highly competitive chip industry.

Furthermore, the bill fails to address China’s exploitation of U.S. capital markets. USICA does not include a blanket ban on investment by American investors or financial services companies in Chinese military companies or their affiliates or subsidiaries, including those already listed on the U.S. Commerce Department’s Entity List. Nor does it prevent, or enhance oversight of, decisions by federal retirement-savings account administrators to invest in Chinese companies with ties to Beijing’s national security apparatus. Likewise, the bill does not ban Chinese companies from publicly listing on U.S. stock exchanges without first complying with routine U.S. regulatory oversight. Such measures protect U.S. citizens from making risky investments in foreign companies with questionable accounting practices.

Moreover, the bill contains few stringent security-screening processes to prevent sensitive technological research from falling victim to Chinese intellectual property theft. Nor does USICA expressly prohibit the provision of grant money to U.S. universities hosting Chinese government-funded Confucius Institutes, entities that both CIA Director William Burns and FBI Director Christopher Wray have cited as major counterintelligence threats.

Having passed in the Senate, USICA now moves to the House, where its fate is unclear. In drafting their own bill, House legislators would be wise to reassess proposed NSF investments, to ensure taxpayer dollars are spent advancing cutting-edge science, in keeping with China’s planned investments in strategic sectors. The House should also revisit the security-related gaps in USICA’s current language, with the goal of strengthening transparency and accountability surrounding U.S. research funding and intellectual property. Ignoring these critical issues sets a troubling precedent and will do little to enhance America’s long-term comparative advantage over Beijing – sustained economic performance based on genuine competition.

Craig Singleton, a national security expert and former U.S. diplomat, is an adjunct China fellow at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s China Program, Center on Cyber and Technology Innovation (CCTI), and Center on Economic and Financial Power (CEFP). For more analysis from Craig, the China Program, CCTI, and CEFP, please subscribe HERE. Follow FDD on Twitter @FDD and @FDD_CCTI and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


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