So You Want to “Beat” China: Here are 3 Ways

In February 2021, Sen. Tom Cotton (R-AR) released a report entitled, simply, Beat China. In it, Sen. Cotton called for actions to “beat China in the economic theater of the conflict” with the United States.

Competing with China has since become a shared bipartisan priority. After passage of the CHIPS and Science Act by Congress in July (with 17 Senate Republicans voting for it), Senate Majority Leader Chuck Schumer (D-NY) lauded the bill as helping the United States “outcompete China.” Republicans—who at the time of this writing look set to take narrow control of the House of Representatives—intend to stand up a select committee focused on competing with China.

CHIPS and Science allocated tens of billions of dollars for incentives and subsidies targeted at semiconductor manufacturing. The legislation also authorized many billions more for increased R&D spending at a handful of federal agencies. For Republicans and Democrats looking to stay ahead of China economically and technologically, this was a commendable step.

Yet it’s far from enough. If policymakers take their own rhetoric about competing with China seriously, there is more work to do. Three areas should command immediate bipartisan attention and action.

First, the domestic workforce. The United States has one of the world’s most productive and skilled workforces. Yet continued investments and upgrading are necessary to help workers enhance their skills. In the 118th Congress, lawmakers will have two opportunities to ensure the American workforce is equipped for the “economic theater” of competition with China. Both the Workforce Innovation and Opportunity Act (WIOA) and Perkins Career and Technical Education Act (Perkins Act) will be due for reauthorization.

WIOA is the federal government’s flagship workforce training program, providing funds for states to develop workforce plans and build partnerships between employers and educational institutions. The Perkins Act supports career and technical education programs at secondary and postsecondary levels. Given that nearly two-thirds of adults do not have a bachelor’s degree, these programs are essential to connecting Americans to the workforce and supporting middle-skill jobs that are crucial for communities and competitiveness. There can be no thought of maintaining the United States’ economic edge relative to China without a workforce that not only has technical skills but also constantly upgrades those skills. Reauthorization of these bills is an opportunity to work with the private sector and design programs that do just that.

Second, global talent. China is losing its luster as a destination for corporate executives, startup founders, and students from around the world. So, unfortunately, is Hong Kong due to Beijing’s repressive actions there. The United States, especially compared to China, remains attractive to global talent, yet policymakers have done little in recent years to enhance that attraction and capitalize on China’s diminishing allure.

Two talent provisions were dropped from CHIPS and Science. One would have created an easier path to green cards for foreign-born STEM graduates of American universities. Another would have established a startup visa for foreign entrepreneurs to grow their companies in the United States. Such steps would be cheap, carry enormous economic impact, and create a permanent advantage for the country relative to China.

Third, small businesses and the defense industrial base. The “defense industrial base” refers to the tens of thousands of companies, large and small, that supply the U.S. military with weapons, conduct R&D, and explore new frontiers of innovation to maintain national security. The entrepreneurial vibrancy of the defense industrial base is a key competitive strength for the United States—small and young companies have long played an essential role in developing new ideas and enhancing the resilience of supply chains.

That vibrancy, however, is diminishing. The Department of Defense (DOD) utilized nearly 32,000 small businesses as prime contractors in fiscal year 2021. That was down 5% from 2020 and continued the decade-long decline in the number of small businesses participating in federal procurement at DOD and across the government. Persistent shrinkage of the number of small businesses in the defense industrial base means less innovation and more risk of disruption. Policymakers should act to reverse that decline, raising contracting thresholds, streamlining processes, and elevating small business procurement as a national security priority.

Most importantly, policymakers in Washington and around the country must approach these and other issues in a truly strategic manner. That means coordination, ensuring that public investments support private actions. The worst mistake that U.S. policymakers could make would be to believe that “beating” China means imitating China through overweening government action, heavy-handed industrial policy, and state direction of private companies.

What government can and should do is craft public policies that maximize the capacities of American individuals and businesses to create and innovate. The three areas outlined here are good places to start.