The Future of American Competitiveness

The U.S. Needs to Fund Research to Be Competitive

Michael Schiffer, Senior Advisor at Scalare Advisors, Senior Fellow at the Center for American Progress, and APP Member.

First Published August 19, 2026 on the American Leadership Initiative Substack.

The United States is in the midst of a fundamental reconsideration of its economic relationship with the rest of the world. Tariffs, export controls, investment screening, supply-chain diversification and efforts to bring manufacturing back to American soil have moved from the margins of economic policy to its center. The rationale is straightforward: in a world of geopolitical competition and vulnerable supply chains, the United States cannot afford to depend on foreign sources for technologies and products that are essential to its economic and national security.

While this premise has broad support, there is a legitimate debate over how tariffs should be designed, how broadly they should be applied, and what costs Americans should be willing to bear in pursuit of greater economic resilience. But there is a more fundamental question that has received less attention: what happens if the United States uses trade policy to encourage production at home without maintaining the scientific, technological and industrial capabilities needed to make that production competitive?

Trade policy can change the incentives facing American companies. It cannot, by itself, create the engineers, scientists, technicians, factories, research institutions and supply chains that allow those companies to compete.

Much of American innovation has its roots in government funded research. The land-grant universities that trained generations of engineers, DARPA’s investments that helped produce the internet, and the NIH research infrastructure that has generated generations of medical discoveries were all the products of Americans making long-term bets on the country’s productive capacity and backing those bets with public resources to build the infrastructure, knowledge and human capital on which private enterprise could flourish.

That model of public investment is more important now than ever because the nature of international economic competition has changed. China and other countries are investing heavily in advanced manufacturing, artificial intelligence, biotechnology, energy and the infrastructure that supports them. Companies are reconsidering where they manufacture and source critical inputs. Governments are competing for investment and technological talent. Supply chains are being reorganized not only according to cost and efficiency, but according to resilience and national security. The result is a new economic landscape in which trade policy and domestic investment are inseparable. And success will require combining open markets with technological leadership, industrial policy, and worker training with secure economic partnerships.

The semiconductor industry provides perhaps the clearest example. The CHIPS and Science Act reflected a recognition that advanced semiconductor manufacturing is not simply another industry. Chips underpin virtually every modern economy, from automobiles and telecommunications to artificial intelligence and defense. The program’s early results suggested that targeted industrial policy could generate tangible benefits: CHIPS-funded projects created tens of thousands of jobs and raised wages in affected communities. Semiconductor manufacturing jobs now average $57.78 an hour, demonstrating that investments in advanced manufacturing can anchor high-value economic activity in American communities while strengthening capabilities essential to national security.

The engineers and scientists who develop new technologies do not appear when policymakers decide that a particular supply chain has become strategically important. They emerge from universities, laboratories and research programs that require years of sustained investment.

This is why reductions or uncertainty in federal research funding matter to economic competitiveness even when the immediate objective is fiscal restraint. The damage is rarely visible in a single budget year. It appears later, in the technology that is never developed, the company that is never founded, the researcher who takes a position elsewhere, or the manufacturing facility that chooses a different country because the surrounding ecosystem is stronger. In addition to growing investment in federal R&D, we must increase investment in U.S. STEM education, as well as reopen immigration to high skilled workers from around the world.

The United States has seen this dynamic before. Google’s origins, for example, can be traced in part to a National Science Foundation grant to two Stanford graduate students. The lesson is not that every government-funded research project produces a Google. It is that the economic returns from public investment in science are often unpredictable, long-term and vastly larger than the original investment.

That makes the current debate over trade policy particularly consequential. The administration has increasingly used tariffs and other trade measures to encourage domestic production, including in semiconductors and critical materials. The logic is understandable: if foreign dependence creates strategic vulnerability, changing the price and availability of imports can encourage companies to build capacity in the United States. Recent trade measures on semiconductors and polysilicon explicitly connect import policy with strengthening domestic supply chains.

But a tariff is an instrument, not a strategy. It can change relative prices. It can discourage dependence on a foreign supplier. It can give domestic producers greater room to compete. What it cannot do is determine whether American companies have the technology, workers, energy, infrastructure and supplier networks needed to take advantage of that opportunity.

If policymakers want companies to manufacture more in America, the country must also have the research institutions, skilled workforce, infrastructure, energy, component suppliers and technological ecosystems necessary to support it, and invest in the capabilities that allow American companies and workers to compete when market incentives change.

A serious American industrial strategy does not require Washington to decide which individual companies should succeed. It requires government to build the conditions in which strategically important industries can succeed: world-leading research, a skilled workforce, reliable and affordable energy, modern infrastructure, access to capital, predictable investment incentives and trade relationships that expand markets while reducing dangerous dependencies. Tariffs and trade policy are one component of that strategy, not a substitute for the entirety of it.

For decades, the argument was that trade policy, technology policy and economic statecraft had direct consequences for American wages, jobs and communities. That connection remains real. A semiconductor factory creates jobs not only inside the fab but throughout a regional network of suppliers. A research university trains the scientists and engineers those companies will eventually need. A federal research grant can generate technologies that become the foundation of entirely new industries.

The reverse is also true. Weakening those ecosystems can make otherwise sensible trade and industrial policies less effective.

Nor should industrial strategy stop at the water’s edge. The United States does not need to produce every important input domestically. But it does need to ensure that America and its allies collectively possess the capacity to produce the technologies, materials and components on which our prosperity and security depend. Building resilient economic partnerships with trusted countries should be treated as part of industrial strategy itself.

Americans can disagree about tariffs and the appropriate role of government in the economy. They can disagree about how much protection domestic industries should receive and how quickly supply chains should be reshaped. But if the United States is going to ask American workers to compete in a more contested global economy there should be consensus that we need to make sure they have the tools to do so.

The objective is not simply to return to an era when efficiency and low consumer prices were the only measures of a successful trading system. The objective should be capacity: the ability to innovate, manufacture, adapt and compete when circumstances change.

And that is ultimately how today’s trade policies should be judged. Tariffs can change the terms on which Americans trade with the world. Export controls can limit access to sensitive technologies. Supply-chain policies can reduce dangerous dependencies.

But none of those tools can substitute for the underlying capabilities of a competitive economy.

The United States has spent generations building those capabilities. The challenge now is to make sure that, even as we rethink how America trades with the world, we do not neglect the investments that determine whether America can continue to lead.