Stay Ahead

INTRODUCTION

Resolving the Emerging Economic Security Trilemma

The United States is in the midst of a generational shift in economic policy and its role in national security planning. Even in these polarized times, there is surprising consensus across the American political spectrum that the economic policies and global institutions fostered since World War II are no longer adequate. They have left the United States vulnerable to competition with non-market actors, principally China; domestic economic dislocations; and global crises such as climate change and pandemics. These vulnerabilities persist and will await the next administration.

Global technology competition continues to gather pace. Earlier this year, U.S. secretary of commerce Gina Raimondo compared the contemporary chips race to the space race of the 1960s: a new Sputnik moment. Indeed, we may be living through five Sputnik moments at the same time across semiconductors, artificial intelligence (AI), quantum computing, climate technologies, and biotechnologies. Losing our edge in any one of these areas – especially, the triad of chips, AI, and quantum – could meaningfully diminish the United States’ economic prospects and national security. As Darío Gil, chair of the National Science Board and senior vice president and director at IBM Research, noted at the board’s 490th Meeting, “science and technology are the new currency of global power.”

Staying ahead of the technology race is more challenging than ever. The United States and its allies must contend with a primary competitor that uses its scale and prowess to weaponize innovation, flout fair competition, exercise control over vital value chains, and engage in economic coercion. Meanwhile, China continues to reap the benefits of having played the long game with countries around the world, particularly in the Global South. At stake for the United States and its allies is their long-term prosperity, the resilience and security of their markets and democracies, and the rules-based economic order they fostered for three generations.

As these realities have come into clearer view in recent years, the past two U.S. administrations have put their respective stamps – in design and tenor – on “economic security,” rewriting the implicit contract between governments and markets. Under the Biden administration, U.S. economic security policy evolved dramatically in pursuit of competitiveness, resilience, and national security goals. G7 and other allies followed suit, with policymakers in Japan and the European Union codifying formal economic security frameworks, creating mandates within their respective governments, and developing similar policies.

The United States, in pursuit of competitiveness and resilience goals, has implemented promote measures entailing unprecedented public and private investments in reviving U.S. chipmaking and building capabilities across clean tech and other technologies. A second set of measures has sought to align competitiveness and national security goals by protecting technologies and markets by expanding export controls, sanctions, and investment screening, as well as a continuation of strategic tariffs. A third, in part to counter China, has involved plurilateral economic cooperation agreements with partners on supply chain resilience and the energy transition, as well as bilateral initiatives on technology innovation.

Early implementation has shown signs of industrial revival across the United States: private sector investment commitments – domestic and foreign – in strategic sectors such as chips, clean power, clean-tech manufacturing, and others totaled over $900 billion over the past four years. And protect measures such as export controls have blunted Chinese and Russian acquisition of dual-use technologies. And yet, implemenation challenges have emerged, along with second-order effects.

While export controls on Russia degraded Putin’s war machine in the early days, their efficacy has been tested by transshipment from third countries and Russia’s continued reliance on Chinese chips and chipmaking materials. Similarly, while new U.S. export controls initiated in 2022 and 2023 blunted China’s access to sensitive AI chips, Beijing has responded with its own industrial policies to “design out” and circumvent U.S. controls and standards. It has also enacted tit-for-tat trade restrictions on processed critical minerals – a key chokepoint in the chips and electric vehicle value chains.

Tensions between the protect, promote, and partner strategies have emerged, particularly regarding the use of subsidies, tax breaks, and domestic sourcing requirements aimed at promoting U.S. chipmaking and clean technologies. These policies have sparked concerns among key allies – Japan, South Korea, and the European Union – over a subsidy race that could disadvantage their own industries. Similarly, the U.S. government has led efforts to engage partners via new economic cooperation agreements such as the Indo-Pacific Economic Framework (IPEF) and the Americas Partnership for Economic Prosperity (APEP). These agreements, however, do not come with either increased market access or meaningful financing benefits that partners seek, in part due to U.S. domestic political considerations. These do not fare well relative to China’s long-term play in the Global South, notwithstanding concerns about the Belt and Road Initiative’s flaws, including debt overhang and poor standards in some countries.

Given these limitations, the bigger question is whether the promote-protect-partner framework adds up to a long-term economic security strategy. The answer to that question will depend on how effectively the next administration navigates the emerging “economic security policy trilemma.” While not quite an impossible trinity, the trilemma means that policymakers will be able to pursue any two sets of measures (for example, promoting domestic industries and protecting dual-use technologies) but not without sacrificing the third (for example, deep integration with supply chain partners). This collection of essays from leading experts at CSIS’s newly formed Economic Security and Technology Department is our contribution to this debate.

▲ An Emerging Economic Security Trilemma. Source: Author’s own creation.

An immediate priority is to assess the impact of protect measures such as export controls, sanctions, investment screening, and strategic tariffs, including their second-order effects. Greg Allen and Barath Harithas underscore the importance of building the capabilities of the Department of Commerce and related departments. But that alone will not be enough: the United States must work effectively with allies, as James Andrew Lewis argues, on forging a post–Wassenaar Arrangement technology alliance with meaningful European and Asian buy-in. At some point, though, Scott Kennedy warns, the administration’s use of defensive measures will stretch the United States’ ability to militate the rules-based economic order that it has fostered for decades.

Ultimately, the most critical long-term path for the United States is to out-innovate China across advanced technologies. The CHIPS and Science Act as well as Inflation Reduction Acts put in place a number of building blocks of a strategy – investments in industrial infrastructure, research and development (R&D), and the workforce; a creative capital and investment attraction program; and partnerships with supply chain partners. As Sujai Shivakumar notes, the United States will need to finish the swing with investments in technology clusters and R&D cooperation that will require a sustained bipartisan effort to bear fruit. Adam Frost calls for a national security–focused approach to directing U.S. government financing in critical and emerging technologies. In addition, Joseph Majkut highlights the need for technology enablers such as access to clean power, along with a large transmission infrastructure, to fuel AI and advanced manufacturing.

Promote tools alone are limited: innovation does not happen in isolation, not to mention the cost of promote tools to the taxpayer amid already unprecedented levels of federal debt. Rather the time- and stress-tested drivers of innovation are competition in secure, trusted international technology markets and cooperation with allies, including on research and development and supply chains. Strong enforcement of intellectual property rights, Kirti Gupta argues, is essential if innovators are to enter markets. Given the global and distributed nature of technology value chains (from base materials to end products), Ilaria Mazzocco reminds us of the productivity benefits that will accrue to U.S. clean tech firms that take risks, compete in global markets, and integrate into value chains.

Nowhere are competitive markets and a favorable investment climate more important than in the Global South. Without meaningful market access or substantial financing commitments, Bill Reinsch and Erin Murphy argue, agreements such as IPEF are unlikely to attract long-term buy-in from partners. As a reminder of what is possible, Rick Rossow points out that the U.S.-India commercial partnership, including its focus on chips, critical minerals, and other critical and emerging technologies, could prove pivotal for both countries, with potential spillovers for others.

We are well into the era of economic security. The need for an allied approach is now axiomatic, but it will require the United States to lead and partner in equal measures. The challenge for the next administration is to build on the early lessons of recent years and devise a long-term, bipartisan economic security strategy that balances domestic goals with international cooperation and the complexities of the global markets.

Protecting Sensitive Technologies, Preserving U.S. Advantage

Mismatch of Strategy and Budgets in AI Chip Export Controls

Gregory C. Allen

Regardless of who wins the November 2024 election, export control represents a great deal of unfinished business for the next presidential administration to take on.

Two dates from 2022 are likely to echo in geopolitical history. The first, Russia’s full-scale invasion of Ukraine on February 24, hardly needs further explanation. The second is one that many Americans may not recognize. On October 7, 2022, the U.S. Department of Commerce issued new export control regulations that placed a de facto ban on U.S. sales to China of the most advanced computer chip hardware that powers modern artificial intelligence (AI) models.

The United States and China agree that leadership in AI technology is critical to the future of military power. For years, Chinese government and military procurement records openly advertised the desire for U.S. chips to power Chinese AI surveillance systems and new AI military supercomputing facilities. Since more than 90 percent of AI chips used in Chinese data centers are designed by U.S. semiconductor companies and are therefore subject to U.S. export controls, loss of access to the U.S. chip market could put China’s entire future as an AI superpower in jeopardy.

Grand historical turning points rarely take the form of long bureaucratic documents, but the October 7 export controls were one of those rare times. Ten days after the new regulations came out, Secretary of State Antony Blinken said: “We are at an inflection point. The post–Cold War world has come to an end, and there is an intense competition underway to shape what comes next. And at the heart of that competition is technology.”

Blinken is right. Even though the October 7 export controls were in many ways narrowly targeted on only the most advanced AI chips and chipmaking tools, as a whole, the policy marked a major reversal of over 25 years of trade and technology policy toward China in at least three ways.

First, the controls were targeted at multiple chokepoints across the semiconductor supply chain, blocking sales not only of the advanced AI chips being used by the Chinese military but also the advanced software and equipment required to make them. The United States is trying to ensure that China cannot replace what the United States is no longer willing to sell.

Second, the export controls apply on a geographic basis for China as a whole, not just to the Chinese military. That is a response to China’s strategy of military-civil fusion, which has worked to deepen and obscure the linkages between China’s commercial technology companies and China’s military.

Third, previous U.S. export controls were designed to allow China to progress technologically but to restrict the pace so that the United States and its allies retained a durable lead. The new policy, by contrast, in some cases aims to actively degrade China’s technological capabilities. Without access to the United States’ enabling technology, many leading Chinese semiconductor firms have been set back years.

It took a long time for the United States to get here. After decades of ratcheting Chinese government provocations, the Biden administration basically said, “enough is enough.”

This is not a policy of decoupling (yet), but it is proof of the United States’ unwillingness to remain tightly coupled to the Chinese technology sector under previous conditions. Subsequent policies, such as the Treasury Department’s outbound investment restrictions on China’s AI and semiconductor industries, hint at the United States’ desire for more comprehensive economic security and technology.

But there is a critical gap between the strategic importance and sophistication of the policy’s design and the resources that the government is allocating to enforce it.

The Bureau of Industry and Security (BIS) at the U.S. Department of Commerce is the agency charged with enforcing export controls, not just on semiconductors bound for China but for all U.S. dual-use technology exports that might end up in Russia, Iran, North Korea, or other restricted destinations. To implement its work overseeing trillions of dollars in economic activity and policing smuggling operations worldwide, BIS has fewer than 600 employees and a relatively paltry budget of just under $200 million. Semiconductors are just one technology category out of hundreds that this organization is responsible for enforcing.

Reporting by The Information found at least eight Chinese AI chip-smuggling networks, with each engaging in transactions valued at more than $100 million. China is betting that its network of smugglers and shell companies can find the leaks in the BIS export control enforcement barrier. As long as Congress continues to neglect BIS by providing grossly inadequate resources compared to the size and importance of its mission, China has a reasonable expectation of success. BIS needs not only more money, but also more skilled staff, more enforcement agents, and better enabling technology, especially for data analysis.

Moreover, the Department of Commerce needs more help from the rest of the government, in particular the U.S. intelligence community. Declassified Central Intelligence Agency documents show that the intelligence community was deeply involved in assisting export control enforcement during the Cold War and delivered solid results by doing so. These are capabilities and priorities that have significantly atrophied in the post–Cold War era but urgently need to be restored.

Regardless of who wins the November 2024 election, export control represents a great deal of unfinished business for the next presidential administration to take on.

Finally, the United States cannot do this alone. U.S. allies need to take a good look at their own export controls and broader economic security toolboxes. There are some innovative economic security policy experiments going on in places like Taiwan, South Korea, and Japan. Allies need to share information on best practices, align approaches, and devote appropriate resources to have a reasonable chance of success.

From Reaction to Strategy

A New Framework for U.S. Export Control Enforcement

Barath Harithas

It is critical that the U.S government does not engage in a reactive dance that leads to overstretch and inevitable failure. Crucially, the United States must more effectively rally allies to join the fray, transforming a fragmented response into a united front.

The United States has relied on a “siege wall” of export controls to keep critical technologies (e.g., advanced semiconductors) out of Chinese hands. There have been increasing reports highlighting the leakiness of export controls, calling into question the efficacy of what increasingly appears to be a technology Maginot Line for the United States. In light of selective failures, critics have rushed to declare export controls ineffective, overlooking the complexities that inform their enforcement and impact.

The effectiveness of export controls cannot be reduced to a simple binary assessment; it is contingent upon the specific product categories in question. For instance, the smuggling of chips has proven alarmingly straightforward. In 2023, NVIDIA shipped over a million leading-edge chips, each valued at approximately $40,000 and portable enough that 609 units can fit into a single freight box. Conversely, ASML sold only 53 state-of-the-art extreme ultraviolet (EUV) lithography machines in 2023, each costing $350 million and requiring 13 truck-sized containers and 250 crates for transportation, with extensive logistics and post-sales support needed. The latter product category has shown far less evidence of smuggling compared to chips, which have reportedly been smuggled in bulk orders valued over $100 million.

This essay offers three recommendations for improving export control enforcement:

1. Enforcement efforts must prioritize areas where compliance is most tractable. This requires a clear-eyed understanding of the objectives behind export controls. The goal is not merely to prevent specific end products from reaching China; rather, the true litmus test of these controls lies in their ability to impede China’s indigenization campaign.

   For instance, while preventing advanced semiconductors from reaching China is crucial, the greater concern is ensuring that China cannot manufacture these technologies at scale. Controls should target more strongly critical chokepoints such as semiconductor manufacturing equipment, especially EUV machines, service and repair components, and electronic design software. Given the inherent leakiness of export controls for chips, it is crucial to recognize that these measures are at best a tool to increase acquisition costs for China in the short run. The ultimate long-term objective, however, must focus on undermining China’s efforts toward technological indigenization and self-sufficiency.

2. The current approach to export control enforcement resembles a game of “whack-a-mole,” where smuggling networks emerge, vanish, and reemerge faster than they can be addressed. To overcome this cycle, regulators need to move from the reactive blacklisting of suspicious entities to implementing a preapprovals regime. In other words, instead of fixating on whom to bar from the game, authorities should shift their focus toward who gets to play. By so doing, regulators can more effectively limit the avenues available for smuggling.

   This can be operationalized through: (1) establishing a certification process during initial procurement to create a marketplace of trusted sellers and to enhance compliance knowledge among stakeholders; (2) implementing digital waybills to reduce documentation fraud and improve traceability, thereby addressing customs evasion; and (3) mandating the use of preapproved logistics providers who are required to report any consignments not received within a specified timeframe to the Bureau of Industry and Security (BIS) at the Department of Commerce. This measure will help identify suspicious entities and facilitate timely spot checks, creating a more effective feedback loop for detection and enforcement.

3. The United States must work more closely with allied partners to multilateralize export controls. U.S. export restrictions on their own are insufficient. They must be the portcullis of the castle, not its keep. The current stalemate stems from the United States expecting allies to mirror its controls, while partners have been overly cautious, fearing such actions might set a precedent for future expectations. This dynamic is unsustainable. The United States must acknowledge the economic concerns of its allies, while allies must recognize that failure to act could result in the United States imposing stricter measures in bilateral settings. There is common interest on both sides to accept a “highest-common-denominator” approach to multilateral controls. By aligning interests, even imperfectly, the United States can enhance collective enforcement capabilities, thereby flushing out the smuggling quarry from remaining avenues.

In conclusion, as any middling tactician knows, eventually all walls are outflanked. The real question is how easily, and therefore which ones truly deserve our focus. Moreover, given the leanness of BIS, it is critical that the U.S government does not engage in a reactive dance that leads to overstretch and inevitable failure. Crucially, the United States must more effectively rally allies to join the fray, transforming a fragmented response into a united front. By clarifying objectives, refining enforcement strategies, and fostering multilateral cooperation, the United States can reclaim control over the rules of the game and tilt the odds in favor of success against slippery evasion strategies. These recommendations not only address the immediate challenges posed by export control enforcement but also contribute to a more coherent and effective strategy in the long term against technology transfer to adversarial nations.

Defensive Measures Against China

Time for a Reevaluation

Scott Kennedy

If current trends continue, the U.S. and Chinese economies will be decoupled in many areas, not just advanced technologies with military applications. And it is just as likely that the result of this division will be either global fragmentation or an isolated United States.

On a recent trip to China, I visited a Chinese firm that is on the U.S. Department of Commerce’s Entity List. When discussion turned to their designation, they claimed utter disbelief and surprise; they could not fathom what prompted Washington’s action. It is possible that their claims of innocence are genuine, but given their place in an important high-tech sector, likely links to the Chinese party-state, and the nature of some of their customers, one can also see why the U.S. government would have taken this step.

In fact, it may be difficult to disagree with most, if not every, individual decision the U.S. government has taken in the last five years to protect itself in the face of the broad national security challenge China presents to the United States, its allies, and the rules-based global order. Nevertheless, the cumulative effect of all of this action deserves careful evaluation. And where the result is not as intended, Washington needs to recalibrate its policy approach.

There are now around 1,000 Chinese companies and institutions blacklisted by the United States for national security or human rights reasons. The list of “controlled items” that require a license to be exported to China has ballooned, and in the case of advanced semiconductors and semiconductor equipment, the restrictions are country-wide. Extremely high U.S. tariffs – far above standard most favored nation (MFN) levels – are now applied to most Chinese goods, even those with no strategic value. The coverage of sectors in which screening of inward investment deals apply has expanded dramatically, while the United States and its allies have started developing new regulations for outward investment to China. As a result of a law passed in the spring of 2024, social media app TikTok will be banned in the United States unless ByteDance, its parent company, sells the platform to a non-Chinese owner. The Biden administration recently adopted a draft executive order that would ban Chinese connected and autonomous vehicles and their components from the U.S. market starting with the 2027 model year. The administration and Congress are considering a wide range of other defensive measures as well.

What does all of this activity add up to? Is it worth it? And might there be a better way? It is time to ask – and answer – these and many other questions. There are at least four potential negative consequences that emerge from this tidal wave.

The Biden administration argues that it is pursuing a “small yard, high fence strategy,” meaning that it aims to protect national security while having as limited an impact on commerce as possible. Mitigating national security vulnerabilities from commerce with China – known as de-risking – may have been the original goal and still may be the overall purpose. But the breadth of the actions and the tit-for-tat, action-reaction by Washington, Beijing, and others is resulting in a far greater reduction of bilateral business and rerouting of supply chains than is reflected in the official policy framing. If current trends continue, the U.S. and Chinese economies will be decoupled in many areas, not just advanced technologies with military applications. And it is just as likely that the result of this division will be either global fragmentation or an isolated United States.

Second, and relatedly, while individual measures, such as those on advanced semiconductors and equipment, may initially work or be effective for several years, this is far from guaranteed. Although China has long aimed for greater technological self-reliance, there is ample evidence that the industries it has prioritized, the extent of its financial support and other measures, and the willingness of Chinese industry to actively participate has in part been in reaction to this U.S.-led technology boycott. It is possible that in some areas China will advance faster than it otherwise would have in individual technologies and in occupying the leadership of technology ecosystems. Moreover, as a result of less connectivity with Chinese industry and researchers, U.S. innovation may also suffer. If so, instead of mitigating national security risks, the United States may end making the problem worse.

Third, less connectivity with China means a slower energy transition. Yes, China has unfairly subsidized clean-energy products such as solar panels, wind turbines, batteries, and electric vehicles. And, yes, it sold a substantial portion of overproduction on global markets, threatening competitors in many countries. That said, a straight-out ban of such goods from other markets will necessarily mean less products in the short term. Additionally, if protection is not made conditional on the rapid development of high-quality domestic alternatives at prices the middle class can afford, these restrictions will be for naught.

And fourth, the U.S. approach is changing the nature of the international economic order in front of our eyes. In the 1960s, in the face of growing competition from Japan and other East Asian countries, the United States and its allies developed the rules and tools for anti-dumping and countervailing duties, and with them the underlying principles of “fair trade.” Although these tools have various biases and are subject to widespread abuse, they did provide compensation to industries that were suffering from greater international competition and, as a result, kept the greater project of globalization alive. The expansion of export controls and other defensive measures is fundamentally challenging the notion – embedded in the original General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) – that national security justifications to restrict international commerce should be limited and the exception to the rule. The rise of “economic security” as a rationale for policy even more directly threatens to make open commerce and financial flows a thing of the past.

The seriousness of the Chinese challenge to the United States and the rules-based order requires definitive policies, but it does not justify any and all policies. The United States and its allies need to reassess their approach and adapt as needed. Here are three recommendations:

1. The United States needs to decide precisely what kind of outcomes it wants and what kind of outcomes it is unwilling to accept. Is bifurcation of the global economy, even if the United States is relatively isolated, acceptable simply because it means less connectivity with China? Would it be acceptable for the United States to maintain technological advantage over China if it means the elimination of a rules-based order and a race to the bottom in the use of tools to restrict global commerce?

2. Washington needs to include cost-benefit analysis for its overall approach and for each policy initiative. The presence of a national security risk does not mean the costs of any one policy are irrelevant. In fact, there are usually multiple possible options to address a risk, and their relative costs and benefits should be weighed, and done so with transparency.

3. And finally, because this overall shift is so consequential to the U.S. national security and economy, more information about individual cases and the broader national security threat China poses to the United States needs to be shared with the U.S. public. The U.S. government should consider how much more information could be shared without compromising U.S. intelligence methods and sources. The Chinese interlocutors I met during a recent trip may not deserve a clearer explanation, but as a part of a democracy, the American people deserve to know more.

It is possible that taking these steps could yield the conclusion that substantial changes in policy are needed. But it is also possible that the current approach could be reaffirmed. Hence, there should be a consensus in favor of being more careful, deliberate, and transparent.

The Investing in America Agenda

Clustering for Innovation

Sujai Shivakumar

By fostering the growth of thick regional ecosystems, partnerships encourage more Americans to connect to and have a stake in the nation’s economic future – securing the nation from within.

Last month, the Elevate Quantum Tech Hub broke ground on the new Quantum Tech Park in Arvada, Colorado. It is one of 31 Tech Hubs designated by the U.S. Department of Commerce to stimulate innovation-based regional economic growth. This initiative is one part of a larger effort across the federal government to expand and connect innovation networks across the nation.

The Push from the CHIPS and Science Act

The CHIPS and Science Act of 2022 established a suite of grant programs designed to catalyze technology cluster development, including the Tech Hubs Program through the Economic Development Administration at the Department of Commerce, the Microelectronics Commons Hubs through the Department of Defense (DOD), and the Innovation Engines through the National Science Foundation (NSF):

• The Department of Commerce’s Tech Hubs envisions 31 regional consortia that focus on specific emerging technologies. Starting in July 2024, 12 hubs have each received “implementation funding” between $19 million and $51 million for workforce development and manufacturing initiatives.

• The DOD’s Microelectronics Commons Hubs consists of eight networks that aim to close the “lab-to-fab” gap in microelectronics for commercial and defense applications, each receiving between $15 million and $40 million.

• The NSF’s Innovation Engines include 10 regions that each have received an initial $15 million in grants covering multiple technology domains, such as robotics, advanced materials, and artificial intelligence.

The largest awards, at $51 million each, went to four of the Department of Commerce’s Tech Hubs: Heartland Bioworks in Indianapolis, Indiana; iFAB TechHub in Champaign-Urbana, Illinois; Sustainable Polymers Tech Hub in Akron, Ohio; and Tulsa Hub for Equitable and Trustworthy Autonomy in Tulsa, Oklahoma.

▲ Federal Investments in Regional Emerging Technology Hubs Under the CHIPS Act, 2024. Source: “Regional Technology and Innovation Hubs (Tech Hubs),“ U.S. Economic Development Administration, accessed October 22, 2024; “The Microelectronics Commons: A National Network of Prototyping Innovation Hubs,“ Microelectronics Commons, accessed October 22, 2024; and “Regional Innovation Engines,“ U.S. National Science Foundation, accessed October 22, 2024.

Drawing in Additional Investments

These federal awards are expected to induce investment from the private sector and local governments, and in some cases already have. In addition to their $40.5 million implementation grant from the Department of Commerce, Elevate Quantum received $77 million from the state of Colorado and $10 million from New Mexico, including a portion dedicated to a loan guarantee program. Additionally, Elevate Quantum has attracted over $1 billion in private and venture capital investment. These stacked investments facilitate the creation and expansion of innovation and industrial networks that connect researchers, designers, manufacturers, equipment suppliers, materials suppliers, and end users.

Fostering Workforce Training and Development

Next, by centering workforce development and training, these hubs also help meet the high demand for a skilled technical workforce while ensuring that regional and local communities benefit from their activities. With a sustained focus on education, including vocational training at community colleges, as well as the development of pathways to high-quality jobs, these investments are needed to sustain more inclusive growth within local and regional ecosystems. The new National Science and Technology Council Workforce Center of Excellence, supported by a $250 million investment from the U.S. Department of Commerce, plays a similar role in prioritizing workforce development.

Connecting Resources

Finally, these grant programs actively connect existing and new public and private resources. Some programs span several consortia, allowing for synergies to form across firms, universities, and research organizations engaged in a variety of emerging technologies. For example, the Elevate Quantum Tech Hub is just down the road from the Rocky Mountain Innovation Engine, easing potential collaboration across teams working on quantum, AI, renewable energy, and robotics. Likewise, both the Southwest Advanced Prototyping Microelectronics Commons Hub and Southwest Sustainability Innovation Engine will be hosted by Arizona State University, accelerating mutual advances in fields including advanced manufacturing, 5G/6G, disaster mitigation, and products for end users.

Going Beyond Proximity

This all-of-government strategy to develop a network of connected regional innovation ecosystems recognizes that economically dynamic innovation clusters are an outcome of active and interlinked networks of cooperation among entrepreneurs, investors, educational and research organizations, small and large firms, public agencies, and philanthropies. While successful technology clusters are one outcome of networking, collaboration requires more than simply locating assets in proximity to one another. Multiple actors spread across different organizations need incentives to work together in complex ways to fund, research, develop, scale up, and bring new products and services to the marketplace.

A suite of public-private partnerships that address the specific challenges of cooperation provides this alignment. The programs discussed above will need to work in complement with other federal and state programs – including partnerships such as the Small Business Innovation Research program, the Manufacturing USA centers, and the Manufacturing Extension Partnership – to grow connective tissue across the innovation ecosystem.

Need for Continuity

By fostering the growth of thick regional ecosystems, partnerships encourage more Americans to connect to and have a stake in the nation’s economic future – securing the nation from within. They are also essential to drive the nation’s technological competitiveness in global markets and ensure security from external threats.

To be successful, partnerships must address the challenges of collaboration across multiple actors, operate at sufficient scale, and be seen as dependable and durable. This means that partnerships need to be evaluated and recalibrated regularly to ensure that they are well focused operationally. It is also important to recognize that innovation partnership programs work in complement with each other, forming mutually reinforcing networks of institutions that solve diverse problems requiring collective action. Moreover, if partnerships are to grow this connective tissue of collaboration, it requires policy patience. Long-term, sustained investments are needed for connections to take root. In this regard, policymakers need to recognize that the CHIPS and Science Act is not a one-and-done deal. Especially in this era of intense innovation-based competition for markets and national power, securing technological leadership must be a substantial and sustained bipartisan effort.

Meeting the Energy Demands of Economic Competition

Joseph Majkut

By pursuing immediately available options today and zero-carbon options in the medium term, the United States can realize progress toward strategic goals and improve its competitiveness without sacrificing climate outcomes.

As the United States adopts a more assertive approach to economic security and technological competition, it must adapt its energy policy. These efforts promise an economy that will be better able to weather global challenges, revitalizing regions with innovative technology and productive jobs and establishing a strong lead in twenty-first-century technologies. However, realizing the potential of these industries will require more energy, placing demands on the electric grid and necessitating a smart approach in order to be successful.

Under current policies, the United States is building a new industrial base in strategic technologies. Enabled by recent legislation – the CHIPS and Science Act and the Inflation Reduction Act – semiconductor fabs and battery factories now account for 60 percent of manufacturing investment. As these factories come online, they will introduce substantial new power requirements, as documented in a recent report from CSIS. The new TSMC semiconductor fabrication facility in Arizona will require more than a gigawatt of power. In Georgia, where manufacturing is a key driver of economic growth, planners are expecting six gigawatts of additional demand, more than twice what was added by the recently finished Units 3 and 4 at the Vogtle nuclear plant.

For a sector that has seen negligible growth over the past two decades, these are substantial increases, and they do not even account for the rapidly growing power demands involved in artificial intelligence (AI). Akin to factories, AI datacenters transform data and electricity into valuable tokens. The more value AI creates, the greater its associated power demands become. Optimistic projections suggest AI datacenters could consume up to 10 percent of grid capacity by the end of the decade. Such an expansion has the potential to generate immense value but could be hindered by an inability to provide sufficient energy.

To achieve these goals, it is important to continue reducing greenhouse gas emissions. The companies driving growth in AI and advanced manufacturing are committed to clean power. And policymakers, on a bipartisan basis, recognize the advantages of producing goods with lower emissions. Compared to adversaries like Russia and China, the United States produces key strategic goods with fewer emissions. As global markets increasingly prioritize sustainability, cleanliness will become synonymous with competitiveness.

The next administration will be well-positioned to build upon recent industry innovations and policy developments, leveraging U.S. natural resources and ingenuity. Three key areas are particularly important to unlocking the United States’ economic and strategic potential:

• Transmission: Building extensive transmission infrastructure reduces power grid costs by increasing efficiency and better utilizing assets. Transmission infrastructure connects markets to geographically diverse power plants, reducing costs during normal operations, keeping the lights on during emergencies, and delivering renewable power from remote regions to manufacturing hubs, thereby reducing both costs and emissions while also contributing to carbon competitiveness. Accelerating the build out of transmission capability requires political leadership to create urgency for delivering these complicated projects, particularly at the state level and through federal permitting reform, which will pay off in future economic opportunities. The Bipartisan Infrastructure Law authorized the Department of Energy (DOE) $2.5 billion for transmission, which will spur a few projects, but the large societal benefits from increased transmission justify tax credit support akin to what is already offered for wind and solar projects.

• Nuclear Energy: Expanding the nuclear fleet is a medium-term option for meeting new demand. Nuclear power emits no greenhouse gas emissions and is highly reliable, making it a key target for technology companies, which are already contracting to restart old reactors. Building new nuclear power plants will be challenging, and potentially expensive, but necessary to achieve national goals. New projects face substantial costs and the risk of budget overruns, but new subsidies are meant to solidify the business case for nuclear energy production and to support project development. As new ventures are deployed, the consequent supply chains and worker experience will reduce costs for later projects and also decrease the timeline and project uncertainty that has plagued projects in the past.

• Natural Gas: Following the shale revolution, natural gas has become the mainstay of the U.S. energy mix. High supplies and low prices mean that at least part of new demand will be met by new gas power plants, the building of which can be left to the market. However, to ensure the gas industry’s longevity and to address related climate concerns, policymakers will need to prioritize carbon capture technology, especially by supporting the development of CO2 pipelines linking new generators with storage reservoirs. Congress has already created the 45Q tax credits to incentivize the capturing of carbon, and the DOE is supporting first-of-a-kind projects to reduce costs. Getting ahead on this infrastructure will enable the United States to meet immediate demands for natural gas in a way that supports longer-term ambitions for sustainability.

To seize these new opportunities, the United States must confront familiar challenges: maintaining affordability, reducing emissions, and protecting reliability. By pursuing immediately available options today and zero-carbon options in the medium term, the United States can realize progress toward strategic goals and improve its competitiveness without sacrificing climate outcomes. By uniting bipartisan support and implementing smart, regionally adaptable solutions, the United States can seize this opportunity to ensure a sustainable and prosperous future for all.

Intellectual Property Rights and the Future of U.S. Technological Leadership

Kirti Gupta

Policymakers face the challenge of striking the appropriate balance between incentivizing investment in risky R&D while ensuring that any social cost due to potential misuse of the IP system is minimized.

The global competition for leadership in technologies critical for the economic and national security of nation states – from semiconductors to artificial intelligence and quantum computing – is well understood. A less well-known pillar is the intellectual property (IP) system, which is crucial for incentivizing and enabling the innovation necessary for this technological leadership. This article sheds a spotlight on why and how IP plays that essential role.

The IP system is designed to incentivize innovation by granting the investor temporary property rights for an invention or a creation. The patent system is critical to incentivizing research and development (R&D) in some areas that require massive upfront investment and have uncertain prospects for success. One example is biopharmaceuticals, which requires years of R&D for discovery, in addition to a long regulatory process to get approval for a new drug to enter the market. The design of semiconductor chips is another example, as it requires highly skilled and specialized workers and large upfront costs to develop new and improved cutting-edge circuit design for specific functionalities.

If an invention is finally successful in the marketplace, the patent owner enjoys a temporary right to exclude others from making, using, or selling that invention. Patent owners can also license their invention and grant these rights to another, thereby generating revenues from the initial R&D investment and enabling the diffusion of new technology. On the flip side, there have been concerns about misuse of the patent system by patent aggregators who allegedly amass a number of patents that may not be valid (i.e., erroneously granted in the first place), invoke patent protections in instances where they do not apply, or amass patents of limited value. These patent aggregators are not seeking to develop or market inventions but rather aim to extract quick monetary settlements from the patent implementers, who are seeking to avoid litigation costs or a temporary disruption of their products.

Policymakers face the challenge of striking the appropriate balance between incentivizing investment in risky R&D while ensuring that any social cost due to potential misuse of the IP system is minimized. The United States’ IP system goes through phases. It is sometimes characterized as too strong, granting property rights for “weak” inventions and creating unnecessary costs and uncertainty for implementers. At other times, it is seen as too weak, lacking the tools for proper enforcement of the property rights that incentivize innovation.

If history serves as a guide, it is pointing in the direction of a revival of the IP regime in the United States. The U.S. Chamber of Commerce maintains the Global IP Index, which ranks countries based on the robustness of their IP system; in recent years, the United States slid to number 13, before climbing back up again to first position. A 2011 study on the economic cost to the United States of IP infringement from China received a lot of attention. Moreover, injunctive relief – sought by patent owners in courtrooms to stop infringers from copying their inventions or copyrighted material – has become increasingly rare. The U.S. Patent and Trademark Office (USPTO), responsible for granting patents, can also invalidate patents via serial rounds of challenges on the validity of a patent while such litigation is pending. In response to this environment, several legislative proposals are currently in different phases of markup in Congress. These pieces of legislation involve expanding the eligibility of patentable subject matter, strengthening the enforceability of patents, and limiting serial challenges to a granted patent while it is in the process of a legal challenge based on potential infringement.

The U.S. IP regime does not exist in isolation. Recently, the European Union established the Unified Patent Court, with one of its goals being fast-tracking patent-challenge trials. China has been strengthening its IP regime, including by establishing four specialized IP courts in the last two decades. Since IP rights are often licensed on a global basis to reduce transaction costs, how one country enforces those rights directly impacts others. The IP enforcement regime of the United States needs to become stronger and faster to avoid litigation of disputes around global IP portfolios moving to other jurisdictions.

The United States is currently a leader in several critical technologies that rely on revenues generated from the licensing of IP rights in global markets. Most of the innovation in the United States is driven by R&D investments from the private sector, which must be incentivized to invest in long-term R&D. Technological leadership is the result of long-term, consistent R&D investment, and the United States must continue incentivizing the private sector so that the country remains a technological leader going forward.

If the United States has an innovation agenda – that is, if it aims to invest and lead in critical emerging technologies to bolster U.S. economic and national security – IP must have a prominent role. A strong IP enforcement regime, with clear boundaries around IP rights and which can ensure quality inventions are granted those rights, helps the inventors and implementers, who are both needed for an innovation ecosystem to thrive. The next administration should consider IP as a part of the broader innovation agenda and not view it as an issue of technical obscurity to be treated in isolation. A strong IP system works for everyone. The United States can continue to lead in R&D-intensive innovation and product development and minimize infringement, especially outside of U.S. borders, by pursuing three key actions: (1) strengthening the USPTO with resources to ensure that only quality (and valid) inventions get the appropriate IP protection; (2) streamlining the system of repeat validity challenges on already granted inventions; and (3) making progress on the legislative proposals for enhancing the enforceability of legitimate IP rights.

The Necessity of a National Interest Account

Adam Frost

The next administration should therefore make a counterintuitive move and immediately propose structural changes that increase its options for execution. This is where a National Interest Account should be a top priority.

It is no surprise that the next administration will immediately confront a knot of challenges at the intersection of economic growth, technological advantage, national security, and foreign policy. Right now, excellent thinkers are searching for new frameworks to conceptualize this complexity and to inform the strategies and policies of the next president. This is important intellectual work.

The more urgent work for the next administration, however, involves immediately proposing reforms that increase the government’s options for executing its strategies, whenever they are determined.

And a National Interest Account should be proposal number one.

Execution Before Strategy?

The “usual path” of strategy development is well travelled. After a new administration takes office, it formally begins translating the president’s platform into specific strategies, plans, and policies.

How you define the question dictates the answer. And how the next administration conceptualizes and then articulates a strategic approach to the complex and interdependent challenges of competition for economic growth, technological advantage, national security, and foreign influence is no easy task. This is far from settled, and the task of getting the ideas right should not be underestimated.

But in government, ideas are insufficient and federal strategy development is a long process. Beneath every national security strategy or executive order lie months of intellectual and bureaucratic work. Moreover, for new officials, there is the addition of discovery – learning the myriad stakeholders that require coordination, which adds months of meetings and memos.

In the end, the “usual path” will produce the way ahead. And the president will endorse or sign the bureaucratic manifestations of their will.

Then the usual thing will happen. An authority will call a meeting synonymous with “next steps” and begin to inventory all the interagency “tools” – existing authorities and resources – needed to execute the just-signed strategy. These will inevitably include existing innovations such as the CHIPS Act Program Office; the rechartered Development Finance Corporation (DFC); the reauthorized Export–Import Bank (EXIM), with its China and Transformational Exports Program (CTEP); the revitalized Loan Program Office at the Department of Energy; and the always-included Defense Production Act (DPA).

The laws, policies, and regulations that govern how the executive branch executes its authorities and allots the funds granted are, to put it mildly, labyrinthine. Every “tool” has its own independent constraints, and months will be spent divining workarounds or exceptions, all of which carry risks. Thus, execution inevitably becomes a compromise between the ideas and what can actually be done or, worse, a mere rebranding of what is already being done.

To explicitly state the open secret: good ideas are hard, but executing is harder.

The next administration should therefore make a counterintuitive move and immediately propose structural changes that increase its options for execution.

This is where a National Interest Account should be a top priority.

What Is a National Interest Account?

The concept is simple, and shamelessly plagiarized from Australia, a close U.S. ally.

Were Congress to authorize a tightly scoped, time-limited, and dollar-capped National Interest Account with strenuous reporting requirements, a president could direct government agencies, like those listed above, to support loans deemed in the national interest.

Why? Restrictive laws and Office of Management and Budget (OMB) regulations govern the lending of the various federal departments and agencies. Every loan carries the risk of nonpayment, and those who approve the loans must be conservative in the credit risks they accept on behalf of the taxpayers. This is right and proper.

But many regulations were created in a different time, and for different problems. In today’s competition for economic growth, technological advantage, national security, and foreign influence, our challenges cross old models, while our tools do not – yet.

With a good interagency process, a National Interest Account responsibly shifts approving riskier loans and their related issues to the wider perspectives of Senate-confirmed Cabinet members, including the Department of the Treasury and OMB, from the more insular individual agencies. With a National Interest Account, both determinations – whether a loan actually is in the national interest and whether the risk of that loan is acceptable – would be made with the larger policy and national-interest pictures in mind. Meanwhile, the government lenders would remain within their remit and simply execute their authorities – providing credit assessments, portfolio management, and finance.

For example, if China’s economic coercion of an ally or partner is to be effective, the impact of refusal must be severe enough to coerce the political outcome. This affects the macroeconomic outlook of the coerced, thereby raising the risk of any loan to that market. Today, good credit analysis would likely tell the lender to walk away. And I frequently had to tell my colleagues at the Departments of State and Defense precisely that. But a National Interest Account could allow agencies like EXIM to refer such cases to the cabinet, where the merits and risks could be deliberated, thereby creating an option for action that today simply does not exist.

The Urgency of Optionality

It is counterintuitive to prioritize reforming the ways and means before we know the ends. But whatever an administrations strategy, it will rise or fall on execution. Concepts such as a National Interest Account create options to achieve the president’s ends where today there are few. Thus, the next administration should urgently prioritize structural reforms that affect implementation concurrent with the development of strategy – or the best of ideas risk remaining only that.

Technology Cooperation, Competition, and Economic Relations

India’s Ascending Role for U.S. Economic Security

Richard Rossow

The next U.S. administration should take the time to meet with international partners such as India before staking out policy positions related to domestic industrial and trade policy. Ignoring U.S. partners in the early days could have repercussions when U.S. officials engage on vital global issues later.

While U.S. elections are primarily driven by domestic issues, the policy positions taken by the winner are relevant for a wide array of global partners. In the case of India, for example, the United States and India share concerns about overreliance on China as a dominant supplier of manufactured goods. Consequently, Indian firms have been ramping up investments in the United States, actions significant for both countries moving forward. The next U.S. administration should take the time to meet with international partners such as India before staking out policy positions related to domestic industrial and trade policy. Ignoring U.S. partners in the early days could have repercussions when U.S. officials engage on vital global issues later.

A deeper economic relationship with India is in the United States’ interests for several reasons. First, India is expected to continue growing faster than any other large nation in the foreseeable future, with growth expected to top 7 percent in 2024. BlackRock recently predicted that India will leap over Japan and Germany to become the world’s third-largest economy in just three years. In 2023, Goldman Sachs predicted that the Indian economy will be the world’s second-largest by 2075, at an estimated $52.5 trillion. For U.S. companies looking to grow, India’s topline numbers draw attention – even if the practicalities of doing business in India remain challenging at times.

Second, Indian companies compose a growing source of investment into the United States. As the Confederation of Indian Industry highlighted in their Indian Roots, American Soil report in 2023, India has invested $80 billion into the United States, employing over 400,000 people. In 2023 alone, India added $4.7 billion in fresh foreign direct investment (FDI) into the United States, about 3 percent of inward FDI from all sources that year. In the coming years, as the Indian economy continues to grow, this number will also likely grow substantially as well. Indian firms are even taking advantage of U.S. industrial programs like the Inflation Reduction Act. India’s Vikram Solar, for example, last year announced plans for a $1.5 billion solar-manufacturing footprint in the United States. Policy stability is key to ensuring that investment plans can be executed, and continue to be made.

Securing a strong commercial relationship with India is vital for another critical reason. Akin to how the U.S. defense industrial base has looked at ways to improve India’s domestic defense production to help India wean itself off Russian equipment, the United States can support India’s interests in weaning its technology sector off of Chinese imports. China (plus Hong Kong) is India’s largest goods trade partner, with $148 billion in bilateral trade in FY 2023, resulting in a trade deficit for India of nearly $100 billion. Paired with India’s expected growth rates outlined above, helping India reduce imports from China will impair China’s industrial expansion significantly. To Chinese officials, India must be considered a vital economic engine to maintain export-led growth in the future. The United States can be a strong partner to “Make in India” and avoid this fate.

Finally, U.S. policymakers should seek new platforms to share practical experiences, and possibly some level of policy equivalence, in screening Chinese investments in advanced technologies. While India may be years away from becoming a significant producer of advanced technologies – such as quantum computers, robotics, leading-edge semiconductors, and 6G communications equipment – India is already at the forefront of the research and engineering that fuels these sectors. For example, India’s information technology services exports are expected to reach $199 billion this year. The U.S. government continues to build new programs with India that will further enhance a shared research and development agenda in key technologies such as the 2023 collaboration between the U.S. National Science Foundation and India’s Department of Biotechnology. While such steps expand bilateral cooperation, they may also introduce new vulnerabilities without appropriate oversight measures.

Successive U.S. administrations have built a unique architecture of high-level dialogues that provide a vital platform for discussing trade and technology issues, including the U.S.-India initiative on Critical and Emerging Technologies and the many workstreams under the Quad framework. These forums have resulted in important agreements such as the 2023 U.S.-India Semiconductor Supply Chain and Innovation Partnership memorandum of understanding.

India is not the only fast-growing, nontraditional U.S. partner that will require the attention of policymakers as U.S. industrial strategy and trade policy is reviewed. For example, Vietnam, Indonesia, and the Philippines – large and fast-growing countries – together have nearly 500 million people and a combined GDP that is over 60 percent of India’s.

The next U.S. administration will likely enjoy a full four-year term with its counterpart government in India, which has its next national election in 2029. According to the Pew Research Center, the economy continues to be the primary concern for supporters of both presidential candidates. Initial policy pushes would understandably seek to further improve domestic economic prospects, particularly in manufacturing. Yet foreign policy also ranks relatively high for supporters of both candidates. With key partners across the Indo-Pacific, policy stability, particularly in ways that encourage two-way economic integration with key partners, is important. The last four years have seen a range of important new agreements and robust commercial announcements that both widen and deepen the United States’ economic partnership, ranging from microchips to vaccines. While the days of free trade agreements may not be returning any time soon, the United States can forge meaningful linkages with like-minded nations by avoiding protectionism and encouraging bilateral investment.

Making Infrastructure in the Indo-Pacific a Success

Erin Murphy

Infrastructure requires patient capital and investing. The lifecycle of an infrastructure project can take years and does not follow the neat timelines of summits and high-level meetings that crave big announcements.

Though U.S. administrations have continuously railed against China’s Belt and Road Initiative (BRI), they have been very slow in offering a clear alternative to the quick contracts and massive financing offered by China to infrastructure projects globally. Recently, however, a proliferation of initiatives and partnerships have been introduced that aim to bring together partners and allies, leverage their respective tools and strengths, and convince the private sector to mobilize their own capital into developing economies. Though laudable, the United States – and the Biden administration in particular – will have to ensure a politically transition-proof strategy that is concerted, committed, focused, and continuous in order to provide the trillions of dollars in infrastructure funding needed in just the Indo-Pacific alone, as well as to future-proof these economies from debt sustainability, climate change, and labor and industry transformations.

Inducive economic tools and strategic investments are now key elements in engaging in economic security in the Indo-Pacific. The Indo-Pacific Economic Framework (IPEF), the G7’s Partnership for Global Infrastructure and Investment (PGI), the Quad, and the Trilateral Infrastructure Partnership (TIP), to name just a few, all feature efforts to target collaborative infrastructure financing, manifest tangible U.S. commitment to the region, and compete effectively with the BRI.

But the United States is contending with an actor that does not play by the rules. China can offer projects and products at attractive prices and speeds, directing its state-owned companies and banks to strategic markets. Though the BRI has had some initial successes in the race for infrastructure, the United States need not mimic the way China does business. Yet the United States does need to reform its own operations. The BRI’s ballooning debt and unhappy customers reveal why that approach is problematic, and those issues are pushing China to change how it invests. In contending with the challenge offered by China in infrastructure project investments globally, the United States must maintain standards and act with transparency, especially with taxpayer (or anyone’s) dollars.

Sustaining the continuity and efficacy of the infrastructure initiatives that the Biden administration has begun requires a change in mindset and the deployment of the tapestry of tools available in a coordinated and cohesive way.

Infrastructure requires patient capital and investing. The lifecycle of an infrastructure project can take years and does not follow the neat timelines of summits and high-level meetings that crave big announcements. Feasibility studies, permitting, due diligence, securing financing, and then getting the actual project started and completed all take a lot of time and money. There are ways to speed up the process, including ensuring transparency; lowering costs around undertaking environmental and social impact assessments in developing countries; and ensuring the host country has clear rules and regulations. Some of that work is already being done – working with IPEF signatories on tax and rule-of-law transparency and encouraging the Blue Dot Network that promotes high-quality standards in infrastructure – and the United States should double down on these efforts.

This leads to another aspect in need of attention: trade and market access. Though the pendulum on trade in the United States has swung against it, this – especially market access – is what Asian countries want, particularly IPEF signatories. Trade with market access can be provided to those that meet IPEF standards and thus encourage domestic regulatory and governance reforms. This is a more inducive carrot than providing capacity building for tax reform. IPEF’s Latin American counterpart, the Americas Partnership for Economic Prosperity (APEP), mirrors much of IPEF. Though it also does not offer market access, the United States has bilateral free trade agreements (FTAs) with 8 of the 11 APEP countries, making economic partnerships more holistic and durable. Although former president Trump has threatened to get rid of IPEF and could do the same with APEP, the FTAs will remain in place, thereby guaranteeing ongoing economic engagement. These agreements shape the framework for addressing developments in critical sectors, such as decarbonization and digital trade, but in order to be politically transition-proof, they will have to include more tangible carrots and durability.

Another obstacle to the U.S. initiatives involves debt sustainability, particularly as the majority of BRI recipient countries are in debt distress. Indebted countries do not want to take on hundreds of millions of dollars in additional debt financing, even with concessional lending or generous repayment terms. In order to address these debt sustainability issues and critical infrastructure needs, the United States will need to work with the Paris Club through various multilateral debt treatment initiatives and via blended financing opportunities.

Concerns about debt and debt sustainability also influence how the Export-Import Bank of the United States (EXIM) is able to build out its pipeline and be more competitive in the telecommunications, renewable energy, and semiconductor arenas. EXIM so far has come up short in maximizing its China and Transformational Exports Program (CTEP), partly hampered by statutory requirements to (1) ensure that loans will have a “reasonable assurance of repayment” and (2) maintain a 2 percent statutory default cap. For EXIM to be more competitive, take on greater risks, and not self-select out of deals, the default cap should be raised on critical industries, or at least on those projects that fall under the CTEP umbrella.

Cofinancing or collaborative financing is nice on paper but nearly impossible in practice. No host government or project lead wants to sign multiterm contracts with governments and multilateral financing agencies. There is also competition for a small number of viable projects. Overcoming this concern involves aligning due diligence practices and deploying single joint-term sheets to cut down on paperwork and bureaucracy. The United States and its partners should also find where they best fit along the project lifecycle. As noted above, infrastructure projects have multiple phases and angles, each of which could play to the different strengths of each player.

Mobilizing private sector capital has been, and will continue to be, a challenge. The U.S. government needs to more deeply engage with the private sector to determine what it would take for private actors to invest in strategic markets, instead of focusing solely on implementing policy it thinks will move that capital. Private sector financing already is being carried out in the energy transition space, most notably in Indonesia’s Just Energy Transition Partnership (JETP), with potential JETP programs extending to Vietnam and the Philippines. The partnership intends to mobilize an initial $20 billion in public and private financing over a three-to-five-year period using a mix of grants, concessional loans, market-rate loans, guarantees, and private investments. The JETP includes $10 billion in public sector pledges and a $126 million commitment from the U.S. International Development Finance Corporation to an Indonesian geothermal company. The signatories of the JETP also committed to help mobilize and facilitate $10 billion in private investments from an initial set of private financial institutions, including some of the world’s largest private banks. Since the launch, a total of approximately $281.6 million has been allocated as grants or technical assistance across roughly 40 programs, managed across five financial institutions and implemented by eight different executing agencies.

Even if a project, an initiative, or even a policy is a strategic imperative for the U.S. government, the same may not be true for the private sector. Some markets will still be too risky and the return on investment too unlikely for the private sector, which looks to ensure its investments are repaid and profitable. Working with the private sector, either locally or multinationally, on their needs in undertaking these projects is a critical step in shaping the correct tools to pursue infrastructure investments globally.

Pieces of the foundation for addressing critical infrastructure needs are there, but it will take sustained focus, leadership, and telling a good story to get it done.

Can the United States Have a Trade Policy Without Market Access?

William A. Reinsch

More market access for U.S. products can only be obtained by providing more access for imports into the United States. There is no free lunch in trade negotiations.

A hallmark of the Biden administration’s trade policy has been its refusal to negotiate trade agreements that include market access – the reduction of tariffs or non-tariff barriers to facilitate trade. The administration has occasionally said it supports more market access for U.S. products, but it has failed to accept the reality that trade negotiations are inevitably reciprocal. More market access for U.S. products can only be obtained by providing more access for imports into the United States. There is no free lunch in trade negotiations.

When asked what they wanted out of the Indo-Pacific Economic Framework for Prosperity (IPEF) agreement, Asian participants in CSIS’s research responded politely that they were looking for “tangible benefits.” This is code for “what’s in it for us?,”which is exactly what every experienced trade negotiator asks. The answer from the Biden administration has been “very little.” The same thing has happened with other ongoing regional negotiations – the Americas Partnership for Economic Prosperity (APEP) and the U.S.-EU Trade and Technology Council (TTC).

There are two reasons for this reluctance to take up market access. One is political – a desire to avoid intraparty warfare between the Democratic left and center. (The former sees trade as imports that harm U.S. workers. The latter views it as exports that promote growth and jobs.) The second reason is philosophical – past trade agreements are perceived as having primarily benefited large corporations and their executives at the expense of workers.

Both arguments lead to the same safe choice: pursuing trade agreements that do not contain “tangible benefits.” The dilemma for the current administration has been that trade agreements are not just about trade – they are symbols of the relationship between the participants, and symbols have power. An ambitious, binding agreement is proof that the United States is committed to ongoing engagement with the other party (or parties) on equitable terms, proof that would be welcomed in Asia, Latin America, and Europe. That was the rationale for the Trans-Pacific Partnership agreement, and the Trump administration’s rejection of it was widely seen in Asia as indicating a lack of interest in and commitment to the region on the part of the United States. That action left the United States without a policy and led to pressure on the Biden administration to develop a new economic approach to Asia, and subsequently to the Americas.

Caught between demands for a policy that demonstrated U.S. commitment and reluctance to pursue an agreement that involved any meaningful market concessions, the administration came up with IPEF and APEP, both of which have been derided as unambitious agreements. The situation was made worse in November 2023 when the administration pulled back its support for the trade pillar of the IPEF agreement in the face of opposition from progressive Democratic members of Congress. While the trade pillar is technically not dead; it is on life support, and it appears that only the other three pillars – supply chains, decarbonization and sustainability, and anti-corruption and taxation – will survive. Those are not unimportant, but they are also not trade agreements. The origin story of the TTC is different, but the result is the same – much talk about cooperation with few tangible results beyond an impressive display of unity in sanctioning Russia.

Meanwhile, China is not standing still in the competition for regional influence. It has applied to join the Comprehensive and Progressive Trans-Pacific Partnership and is using its membership in the Regional Comprehensive Economic Partnership to expand its market access while the United States is, essentially, “just watching.”

What does this mean for the future? Neither presidential candidate is likely to return to conventional trade agreements, although, ironically, Trump may be more willing to start new negotiations than Harris. Instead, there is discussion about alternatives to what is currently on the table. One possibility is to focus negotiations on regulatory harmonization or mutual recognition on the theory that aligning regulations on commerce will increase trade. There is something to that. Standards conformance would make it easier for products to cross borders. Moreover, such mutual recognition could allow professionals like lawyers and accountants to work in partner countries and thus increase services trade. The problem is that those negotiations are not easy. Regulators in every country like the way they do things and resist being told that they must do them differently, or that they have to recognize that someone else’s rules are as good as theirs.

A second alternative is to focus on individual sectors – such as critical minerals – when making trade agreements. This is also a good idea, but like the first, it will be more difficult in practice than in theory. Countries that have minerals are, of course, interested in selling them, but they also want to capture more of the value added by processing the resources and manufacturing the products that contain them. If the United States is only interested in extraction, the negotiations may not get far.

Ultimately, success on any of these fronts will require an attitude change. If the United States only wants to receive and not give, any negotiation is doomed. The important word here is an old one – reciprocity. It was popular in trade debates in the 1980s when it meant that the United States should insist that other countries match concessions with its own. Today, the situation is reversed: other countries are demanding that the United States match their concessions with some of its own. Until the United States is willing to do that, progress on trade agreements will remain elusive.

Rethinking Competition with China on Clean Technologies

Ilaria Mazzocco

While China’s industrial policy does create significant market distortions, policymakers should spend more resources identifying gaps in the U.S. innovation ecosystem and focus more on U.S. competitive advantages.

U.S.-China technological competition is widespread and complex, but there is one technological sphere with a clear leader: Chinese companies are increasingly outperforming competitors in cost and quality when it comes to established clean technologies ranging from solar panels and lithium-ion batteries to electric vehicles (EVs). While the United States erects more barriers to keep out Chinese firms, it also needs to avoid technological isolation, contend with more competition on the international stage, and be prepared to compete in emerging and next-generation clean technologies.

Many of Washington’s current policies vis-à-vis Chinese clean technology companies assume thattheir rise is predominantly, if not solely, driven by subsidies. However, this overlooks the broader context that enabled the development of these companies and technologies, including China’s massive effort to create markets for these goods over the past two decades and the role played by innovative companies integrated into global value chains. Focusing solely on overcapacity, for example, might lead observers to miss that it is the most successful and competitive manufacturers that are leading the export boom – such as EV maker BYD.

While China’s industrial policy does create significant market distortions, policymakers should spend more resources identifying gaps in the U.S. innovation ecosystem and focus more on U.S. competitive advantages. As it implements its own industrial policy strategy, the United States should learn from its main competitor. For example, few policymakers focus on the high levels of automation in Chinese factories as a source of advantage even though the Chinese government has been explicitly supporting a shift toward more automation and the digitalization of manufacturing – and encouraging the use of Chinese-made industrial robots in the process. Talent, financing, and regional clusters also matter, as does stable policy committed to creating demand for these emerging technologies.

The demand piece will be crucial moving forward for the technologies where the U.S. government hopes to compete with incumbent Chinese firms, such as batteries and next-generation technologies like green hydrogen and carbon capture and storage. There are ways to bolster demand in the United States, for example, by building out more infrastructure for charging, promoting grid modernization and expansion, and engaging in permitting reform. Yet, a protected market often lacks incentives for innovation and efficiency, which is why Washington should encourage U.S. companies to engage in head-to-head competition with Chinese firms.

Chinese cleantech companies are already rapidly expanding internationally both in terms of exports and, increasingly, investment in third markets. Chinese firms are establishing factories beyond China’s borders for refined minerals, components, and final goods, including solar panels and EVs. Far from a hostile takeover, these types of investments are often in direct response to demands by host countries.

The United States is not unique in deploying tariffs against Chinese-made goods, but it looks more isolated in seeking to contain, rather than attract, Chinese investment. European, Southeast Asian, Latin American, and various other governments have explicitly invited Chinese companies to localize their production, something firms are eager to do in order to access these countries’ markets or to export to third markets, including the United States.

Another trend is also at play internationally. To improve their competitiveness, international companies are seeking to access Chinese clean technology through joint ventures, licensing deals, and even by acquiring shares in Chinese startup companies (as in the case of Stellantis and Volkswagen). This raises the possibility that much of the world, including some U.S. allies, may become more technologically integrated with China, not least because Chinese firms have some of the most advanced clean technologies on the market.

Ultimately, if the United States wants to compete with China, it will need to draw the correct lessons from history. The successes of clean technology today owe much to globalized value chains that took advantage of China’s manufacturing ecosystem and large market in the past. If national security demands the exclusion of China from some or all of the United States’ clean technology value chains, policymakers will need to be clear-eyed about the costs and trade-offs and must identify strategic priorities. In some technologies, derisking may be possible in a limited fashion; in others, Washington may need to strengthen its linkages with other countries. Sectoral agreements on steel or critical minerals may provide interesting formats for potential partnerships on a sectoral basis. Still, the United States will need to think strategically about concessions over market access or joint research and development. Finally, a world where the largest economies engage in green industrial policy may eventually require finding a credible multilateral platform to discuss potential solutions to increasing trade disputes and distortions.

Technology Statecraft and Global Governance

Building a Tech Alliance

James A. Lewis

Europe is the crux of the tech-alliance problem. Countries like Japan and Australia are ready to work together with the United States, but there is a degree of ambivalence in Europe.

Calls to create some kind of technology alliance among democracies can be grounded in experience. We can identify requirements for developing an alliance and the actions needed to turn proposals into agreement. However, while alliances are easy to propose, they are hard to build.

The first, and most important, of these requirements is there must be a shared problem that potential partners wish to address through collective action. Maintaining U.S. technological dominance is not a shared problem and probably not the best appeal for partnership. Similarly, calling for a crusade against China is not universally appealing in Europe or Asia.

Europe is the crux of the tech-alliance problem. Countries like Japan and Australia are ready to work together with the United States, but there is a degree of ambivalence in Europe. There is also a degree of envy over U.S. technological success. European political culture is still shaped by the traumas of the twentieth century, and one explanation for extraterritorial regulation of U.S. technology companies is that Americans should “remember Europe’s history” and how it creates deep concerns for fundamental rights such as privacy. Others say that the purpose of technology regulation is, at least partially, to slow down U.S. companies so that European companies can catch up.

Two phrases from Brussels highlight the problem: “European values” and “tech sovereignty” (or “digital sovereignty”). The first implies somewhat simplistically that there are different values in the United States and Europe. The second is more problematic. European sources say that tech sovereignty means not only independence from China, but also from the United States. Any proposal for a new alliance needs to show how it aligns with this EU goal of increased sovereignty.

One way to overcome sovereignty issues is to build a new technology alliance upon existing structures such as the G7 or the Wassenaar Arrangement, but both would need to be modified – the G7 by adding counties like Australia, South Korea, and the Netherlands and Wassenaar by removing Russia and perhaps Hungary. Other groups, including AUKUS, the Quad, and the U.S.-EU Trade and Technology Council, are too narrow to serve as a foundation.

Wassenaar, the current tech regime, has shortcomings. It is 30 years old, technological change challenges the scope of its controls, and it now lacks the strategic underpinnings that led to its creation (and Russia’s membership). Wassenaar was a response to the end of the Cold War and was designed for that context. While it is not in Western interests to dismantle Wassenaar, it does need to be supplemented by measures that go beyond export controls. Judging from past experience, the best route might start with the G7 and then add additional countries, since the Wassenaar Arrangement itself grew out of G7 talks.

Who in the U.S. government makes the appeal for an alliance is also important. It must be a senior political figure from either the White House (preferably the president) or the secretary of state or treasury. In the past, the Department of Commerce has not been considered by other countries to have sufficient heft, although this may have changed in the Biden administration. In addition, many countries do not consider the Department of Defense the right counterpart for economic security issues. Other departments or staff-level proposals will not be taken seriously (remember that every government starts its review of a proposal by asking its embassy if the Americans are serious, and the embassies look for signs like senior-level interest, funding, and follow-through). Working an announcement into a presidential speech, even a single sentence, would help kickstart a technology alliance.

A formal proposal must immediately follow a presidential announcement. It must lay out initial thinking on which technologies are covered and the security rationale for the alliance, as well as provide details on membership criteria, frequency of meetings, secretarial functions, and what a commitment would entail in terms of time, money, and personnel. The proposal cannot be set in stone but rather should be presented as a discussion paper, open to amendment by other participants. Further, the United States must go into discussions knowing the minimum it can accept and what is essential. Ideally this would be joint effort, specifically, a joint proposal coming from the United States, Japan, and a G7 European member.

A technology alliance may need to have both positive and defensive goals to attract wide support, but combining these two ends can be difficult. For example, managing technology transfer to China is a central strategic consideration, but so is coordinating policies and promoting the development of emerging technologies. While AUKUS is too focused on defense to easily translate into a broader tech alliance, Pillars 1 (advanced capabilities, including cyber, AI, and quantum and 2 (industrial base cooperation) could provide useful precedent. The most challenging issue in any joint effort to jointly create new technologies is how the members will share funding and intellectual property rights.

A final point to bear in mind is that it will take months, perhaps years, to create a new tech regime. An ideal time to start such an initiative is at the start of a new administration. The spring of 2025 could be the launch point.

Navin Girishankar is president of the Economic Security and Technology Department at the Center for Strategic and International Studies (CSIS). He leads a bipartisan team of over 40 resident staff and an extensive network of non-resident affiliates dedicated to providing independent research and strategic insights on economic and technology policies and their critical role in competitiveness as well as national security.

Gregory C. Allen is the director of the Wadhwani AI Center at CSIS. Mr. Allen’s expertise and professional experience spans AI, robotics, semiconductors, space technology, and national security.

Adam Frost is the former senior vice president for the China and Transformational Exports Program at the Export-Import Bank of the United States.

Kirti Gupta is a noted economist and expert specializing in global matters related to technology, antitrust, and intellectual property (IP). Dr. Gupta’s diverse expertise spans engineering, product, litigation, and policy issues in the technology sector. She currently serves as vice president and chief economist of global technology at Cornerstone Research, leading their technology, digital economy, and artificial intelligence practice.

Barath Harithas is a senior fellow with the Economics Program and Scholl Chair in International Business at CSIS, focusing on issues at the intersection of national security, trade, and technology. He has held diverse public service roles in Singapore spanning the U.S.-China relationship, international trade, and AI standards.

Scott Kennedy is senior adviser and Trustee Chair in Chinese Business and Economics at CSIS. A leading authority on Chinese economic policy and U.S.-China commercial relations, Kennedy has traveled to China for 36 years. Ongoing focuses include China’s innovation drive, Chinese industrial policy, U.S.-China relations, and global economic governance.

James Lewis writes on technology and strategy at CSIS. Lewis has a track record of being among the first to identify new tech and security issues and devise polices to address them. He leads a long-running track 2 dialogue with the China Institutes of Contemporary International Relations. His current work looks at how countries innovate and at digitalization and its political, economic, and security effects.

Joseph Majkut is director of the Energy Security and Climate Change Program at CSIS. In this role, he leads the program’s work understanding the geopolitics of energy and climate change and working to ensure a global energy transition that is responsive to the risks of climate change and the economic and strategic priorities of the United States and the world. Joseph is an expert in climate science, climate policy, and risk and uncertainty analysis for decisionmaking.

Ilaria Mazzocco is a deputy director and a senior fellow with the Trustee Chair in Chinese Business and Economics at CSIS. She has over a decade of experience researching industrial policy, Chinese climate policy, and the intersection between the energy transition and economic and national security.

Erin Murphy is deputy director and a senior fellow for emerging Asia economics with the Chair on India and Emerging Asia Economics at CSIS. She has spent her career in several public and private sector roles, including as an analyst on Asian political and foreign policy issues at the Central Intelligence Agency, director for the Indo-Pacific at the U.S. International Development Finance Corporation, founder and principal of her boutique advisory firm focused on Myanmar, and an English teacher with the Japan Exchange and Teaching (JET) Program in Saga, Japan.

William Alan Reinsch holds the Scholl Chair in International Business at CSIS. He is also an adjunct assistant professor at the University of Maryland School of Public Policy, teaching a course in trade policy and politics.

Richard Rossow is a senior adviser and holds the Chair on India and Emerging Asia Economics at CSIS. In this role, he helps frame and shape policies to promote greater business and economic engagement between the two countries, with a unique focus on tracking and engaging Indian states.

Sujai Shivakumar directs Renewing American Innovation (RAI) at CSIS, where he also serves as a senior fellow. Dr. Shivakumar brings over two decades of experience in policy studies related to U.S. competitiveness and innovation.