On April 5^th 2022, American policymakers, firms and academics met at the IP Leadership Summit to discuss the key challenges at the intersection of industry, intellectual property and American national security. Sessions covered an array of topics but focused on the importance of R&D spending, emerging challenges faced by intellectual property-centric businesses, and the impact of global trade tensions, supply chain shocks and climate change.

The common thread uniting these topics is the belief that amid rising global instability, policymakers must work alongside industry to create an economic and regulatory environment where technology firms can thrive.

This blog is an excerpt of a longer report that subscribing clients can access.

An intellectual property summit that focused on national security

The central thrust of arguments made throughout the day was that regulatory changes were necessary to help Western technology firms compete with state-backed Chinese firms in a fracturing global economy. Strong intellectual property protections, securing second supply sources for key components, and changes to immigration and education policies were framed as critical to this struggle.

Not since the Cold War have national security and commerce been viewed as so intimately linked, and the boundaries between the two are even less distinct than they were in the past. Speakers noted that the US military is reliant on the private sector for key components, like semiconductors, but also that America’s technological predominance and economic might is a matter of national security in and of itself.

The ongoing impact of COVID-19 on supply chains also served as a clear example of the need for companies to balance “efficiency with security”, a refrain that stuck out during the sessions.

Extreme weather events related to climate change, such as the winter storm that knocked out the power grid in Texas and contributed to the chip shortage, were also highlighted as justification for more resilient supply chains.

Domestic policy remedies

Along with discussions about just how much the global business environment has changed due to trade tensions came suggestions for how to improve the US’ position. Policy remedies suggested for the short, medium and long terms included:

• Passage of the US Innovation and Competition Act (USICA).
• More visas for STEM (science, technology, engineering, and mathematics) graduate students looking to work in the US.
• Investment in education programs, especially in STEM fields.
• Tax credits for businesses that send representatives to standards bodies.

Passage of the USICA, the industrial policy proposed by the Senate that would include $52 billion in funding for expansion of semiconductor manufacturing in the US, was highlighted as a major goal. The chip shortage of the last year demonstrated the foundational role of chips in the global economy and countries are now pouring capital into the segment to create second sources for their chip supply. This will not alleviate the current supply problems as new foundries won’t come online for a couple of years. But these new sites will diversify the supply of chips geographically, a smart decision when leading manufacturers Taiwan and South Korea are in geopolitically unstable positions.

What this means for US, Chinese, and other firms

American firms should see new domestic opportunities due to the shifting geopolitical tectonics. Indeed, Intel, a major proponent of the USICA, is building new semiconductor facilities in Ohio worth $20 billion and which could grow to as much as $100 billion. Global Foundries, another American chip manufacturer would likely also see some money come its way if the USICA is passed due to its past contracts supplying the Department of Defense with semiconductors. Investment in the National Science Foundation and technology transfer from universities to businesses should spur innovation.

Chinese firms likely do not see the proposed investments being considered by the United States as being particularly threatening – the total amount being invested by the US government is much lower than investment from China. Chinese officials are bristling at the rhetoric surrounding the issue, however, seeing the US government as being hypocritical with its accusations of IP theft and unfair business practices. Instead, many Chinese officials and business leaders see this as yet another aggressive stance taken by the US as it tries to defend its place atop an unfair global order from a rising China.

Firms from other countries are eager to take advantage of state subsidies, granted they’re enough to make expanded business profitable. TSMC is expanding operations in the United States but will need assistance from the US government to make this possible – operating expenses are likely to be significantly higher due to higher costs of labor and more strenuous environmental regulations. Also, having a more diverse manufacturing base globally should help to make their business less susceptible to local shocks, regardless if they are caused by geopolitics, natural disaster, or other causes.

Conclusion

Increasingly, policymakers, industry insiders and academics are viewing commerce between the US and China through the prism of great power competition, and this was clearly demonstrated at the summit. Firms are recognizing that a fundamental shift has occurred in the international system and that they are caught in the middle. For American firms to remain competitive, policy must be aligned with their interests and supply chains made more resilient. In the short term, the USICA will help achieve this aim. In the medium to long term, investments in education and adjustments to immigration laws would help the US remain competitive.