Sino-American Technological Competition: National Innovation Systems and the Case of Semiconductors
By Rúbia Marcussi Pontes
States have been a key actor in promoting research and development (R&D) and National Innovation Systems (NIS), which are an ensemble of elements and multiple actors that produce, diffuse, and use new and economically useful knowledge. This has been especially true in the United States (U.S.), where the state, in close cooperation with universities and industries, invested heavily in R&D during World War II and the Cold War, in efforts that consolidated the U.S. NIS.
However, other states also aspired to craft their own NIS. In this sense, China has invested in its NIS since the political and economic reforms of the late 1970s and has become one of the largest investors in R&D. Now, the country has a consolidated innovation system and a clear path for its development, with the semiconductor industry at the center of it.
Bearing this in mind, this essay poses the following question: How is the U.S. responding to China’s technological rise? It argues that U.S. administrations in the 21st century have been legislating to constrain China’s NIS, employing a two-fold strategy that has crystallized a technological competition, particularly in the semiconductor arena, potentially reshaping the international economic and political order.
The U.S. National Innovation System and semiconductors
As defined by Lundvall (2010: 2), a system of innovation is “constituted by elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge and that a national system encompasses elements and relationships, either located within or rooted inside the borders of a nation state (…)”. Therefore, the NIS is a social system that encompasses traditional institutions that promote innovation and R&D, such as laboratories and research centers, as well as agents, such as entrepreneurs, politicians, and researchers, and various mechanisms, such as public funding policies (Lundvall, 2010; Moraes, 2020, p. 148).
Each NSI is created within social, political, economic, and juridical contexts and relations. No natural force or tendency constitutes a NIS, which is, essentially, a nexus between national relations and actors aiming to develop, finance, and protect new technologies through knowledge. Therefore, the velocity and content of each innovation process and system vary amongst multiple states and over time (Moreira Jr. 2015; Mazzucato 2018).
The state is critical in counterbalancing risks, market failures, and fostering NIS elements and relationships. But it cannot act alone. The interaction between the state, academy, and industry is vital for any NIS, as these actors are institutionally relevant and interdependent in the making, diffusion, and capitalization of knowledge of new technologies and processes (Etzkowitz 2002).
The U.S. NIS is rooted in the early days of the Republic, with government investments in technological expertise for economic and military purposes. However, it was the war efforts and investments during World Wars I and II that expanded the U.S. NIS elements and relationships (Landau and Rosenberg 1986). Finally, the Cold War solidified the U.S. NIS, with federal R&D investments reaching new peaks, as shown in the figure below, from which the NIS benefited.
Figure 1 – Summary of outlays for the conduct of research and development (1949-2023) (as percentages of GDP)
The U.S. NIS is also known as the academic-military-industrial complex, which allowed for closer ties between military and civilian researchers, particularly through public funding for scientific research. This led to the development of diverse technologies used for military and civilian purposes (Moreira Jr. 2015). A series of domestic agencies, such as the Defense Advanced Research Projects Agency (DARPA), were created to conceive these dual technologies, as was the case with the internet and GPS. Therefore, this was a golden period for the U.S. NSI, hegemony, and technological leadership in the International System (IS).
The semiconductor industry was developed in this context. A semiconductor is a substance, usually a solid chemical, that can conduct electricity. It controls the electric current in information and communication devices, such as radios and smartphones, and systems, such as computing, transportation, clean energy, healthcare, and military, among many others. Thus, semiconductors are increasingly essential to economic growth and development, as these chips are used for almost everything, improving productivity integration, and military power.
From the beginning, the U.S. led the semiconductor industry: Elkus Jr. (2024) states that the country dominated 98% of its domestic market and about 70% of the international market in the 1970s and was responsible for almost 100% of semiconductor manufacturing capacity. Today, that capacity is at an astonishing 8%. How did this come about?
First, new actors such as South Korea, Japan, and Brazil implemented catching-up policies mainly during the 1970s and 1980s (Moreira Jr. 2015), in the broader context of the informational revolution in three grand areas: Computing, microelectronics, and telecommunications (Borelli 2022). Those decades also presented external and domestic challenges for the U.S., such as the 1973 and 1979 oil crises, and the expenses and backlash of the Vietnam War, impacting the state’s financing capacity.
Therefore, in an environment of dismantling industrial capacities, the U.S. NIS underwent neoliberal reforms that granted greater participation by private companies in creating and commercializing technologies. This was made possible by two critical pieces of legislation of 1980: the Stevenson-Wydler Act, which was the first law to facilitate technology transfer from the government to private entities, and the Bayh-Dole Act, which allowed recipients of federal government-funded research to own, patent, and commercialize their inventions (Moreira Jr. 2015).
A financialized globalization accumulation regime was consolidated in the 1980s and 1990s (Chesnais 1998). In a world dominated by financial capital, the role of governments and public authorities in investment decisions was reassessed (Moreira Jr. 2015): The state lost much autonomy, especially in determining industrial and technological policy, and this was not different in the U.S. Nevertheless, as mentioned earlier, the U.S. was not the sole state to develop an NIS or to invest in semiconductors during the 20th century. China also invested in semiconductors, but in a system that did not conform to the neoliberal precepts and policies that underpinned the new accumulation regime.
Semiconductors and the technological rise of China
The People’s Republic of China (PRC) was founded in 1949 with communism as its model of socioeconomic organization. The Truman administration did not recognize its sovereignty, and a policy of isolationism and containment was set in motion by the U.S. during the early Cold War period. To strengthen its position in the IS and develop its rural society, China organized quinquennial plans for its industrialization. For that, the rapprochement with its neighbor, the USSR, was crucial, with technology transfers in the 1950s. Nevertheless, ideological divergences grew during the next decade, and, after the 1969 Sino-Soviet split and changes in the domestic context, the U.S. started a rapprochement with China during the Nixon administration (Pontes 2020).
The 1970s were a decade of profound domestic changes for China, as its modernization political and economic reforms aimed at integrating the country into the IS and making it capable of competing with its neighboring dynamic economies. High levels of state investment combined with a devalued exchange rate helped China’s rise, especially in the manufacturing sector (Corsi 2013; Pontes 2020).
These were also key years for the Chinese NIS, with greater integration between military and civilian technologies, and the fostering of relationships between multiple actors, as universities gained space in the research system and enterprises’ role in R&D grew (Song, 2013). There was a focus on technological imports and the opening of industries such as electronics. This guided China’s NIS development in the following decades. Now, in the 21st century, China has overtaken the U.S. as the leading global producer of high-tech goods, producing 250 million computers, 25 million cars, and 1.5 billion smartphones in 2020, in addition to being a key contender in critical technologies, such as artificial intelligence, 5G, quantum information science, biotechnology, and semiconductors (Allison et al. 2021: 2).
Semiconductors lie at the center of the now-called fourth industrial revolution (4.0 industry), which “is being instrumentally mobilized by major states in the pursuit of comprehensive industrial policies to defend or, in China’s case, to subvert the hierarchical status quo in global manufacturing production and value appropriation in a context of increased global competition” (Majerowicz and Medeiros 2018: 6).
The Chinese semiconductor industry had roots in the 1950s, but the government raised its investments in the 1980s and 1990s. China’s World Trade Organization accession in 2001 was pivotal for its integration into the semiconductor global value chain and for facilitating chips imports (Majerowicz and Medeiros 2018: 6). From then onwards, the industrial policies focused on semiconductors increased China’s participation in this industry’s revenues from 2% in 2000 to 17.8% in 2016. Moreover, China’s semiconductor consumption in the world market grew exponentially, from 18.5% in 2003 to 56% in 2014 (Majerowicz and Medeiros 2018: 8-10).
Even though this historical process has led China to become the largest consumption market for semiconductors and the largest electronics producer and exporter, the country still depends heavily on the imports of chips and foreign equipment. China is working to overcome these challenges, which go against the strategic interests of the U.S. and its allies, as the global semiconductor industry remains concentrated in a few American companies, whose production chains are primarily located in the U.S. or on allies’ territories (Borelli 2022: 162).
Figure 2 – Share of the global semiconductor industry (as percentage by country/region, 2018-2019)
U.S. responses: The Sino-American technological competition in the 21st century
The 2000s were a key moment for the U.S.: It had to revitalize its NIS to maintain its leading technological power. After all, as demonstrated in the first figure, U.S. investments in R&D continued to fall after the 1964 peak.
Even though the War on Terror guided most of U.S. foreign policy during the Bush administrations, domestic investments in R&D and innovation were seen as key for sustaining U.S. power in an IS where multiple actors were rising. In this sense, it is possible to underline two programs: The 2004 A New Generation of American Innovation, focused on increasing investments in R&D and nanotechnology research, and the 2007 Technology Innovation, aiming to develop critical U.S. needs in areas such as health care, communications, and civil infrastructure (Moreira Jr. 2015).
Nevertheless, the U.S. suffered a heavy blow with the 2008 economic crisis, in a context of a growing trade deficit with China, now its largest external Treasury financier and largest holder of foreign reserves. Obama was elected and took office in 2009, with the promise to rebuild the domestic foundations of American power and international legitimacy, after years of the War on Terror. For that, the regeneration of the U.S. economy and its NIS was essential. In this sense, the 2009 American Recovery and Reinvestment Act earmarked more than US$21 billion for investments in science and technology (The White House 2009).
Obama also pivoted to Asia and articulated the Transpacific Partnership, seeking to strengthen its trade ties in Asia through a multilateral mechanism that excluded China (Van Apeldoorn and De Graaff 2016: 217-218). In this sense, it is important to highlight that Obama’s efforts “were not only intended to reduce the U.S. trade deficit [with China] but are part of a larger strategy aimed at containing China’s influence globally, slowing down its economy, affecting its exports of technological content and retarding its innovation projects[1]” (Colombo et al. 2021: 97).
Trump’s rhetoric brought new challenges to Sino-American relations, with a more rigid approach pursued: The 2017 National Security Strategy stated that China was the U.S. competitor and systemic rival. During Trump’s first administration, Chinese investments were scrutinized by the Committee on Foreign Investment in the United States (CFIUS), an Executive branch agency committee that keeps track of foreign direct investment in the U.S. and its implications for national security. To illustrate it: “CFIUS’s activism during this period is remarkable. In the comparison between 2016 and 2017, there was a 137% increase in the number of transaction reviews and 218% in the number of transaction reviews that later became the object of investigation” (Bojikian and Pontes 2022: 139).
This scrutiny gained traction in semiconductors, focusing on the supply chain and technical knowledge held by the U.S. private sector. Trump suspended a transaction in March 2017 with the Lattice Semiconductor Corporation, an American chipmaker company that Canyon Bridge Capital Partners would acquire. The assessment was that this sale, which the Chinese government supported, would pose a risk to U.S. national security regarding supply chain integrity and intellectual property transfer (Bojikian and Pontes 2022). This tendency continued, and the importance of technology was again highlighted with the conclusion of the first phase of a commercial agreement signed between the U.S. and China on 15 January 2020. The ninety-page document addressed topics such as protecting intellectual property and transferring technology (Colombo et al. 2021: 97).
The Biden administration did not alter course. Right from its beginning, it adopted a series of measures and policies – whether through executive orders or packages with legislative support – to rescue the American economy from the effects of the COVID-19 pandemic and to guarantee the American lead against China in innovation with massive investments in its NIS. Amongst these measures was the U.S. Innovation and Competition Act (USICA), approved by the Senate and forwarded to the House in June 2021. It authorized more than US$190 billion to be invested in strengthening American research and technology, with US$52 billion destined exclusively for research and manufacturing of semiconductors and other high-tech equipment (United States Congress 2021).
A two-fold strategy was solidified: On the one hand, the U.S. government resumed investments in its NIS; on the other, it restricted Chinese companies and individuals from accessing U.S. technology and markets. Besides adopting measures that limited the circulation of technology leaving the U.S. for China, the U.S. government signed into law, in August 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act. It guaranteed more than US$280 billion in R&D investments, with emphasis on US$52 billion in subsidies for semiconductor manufacturing and US$24 billion in exemptions for new chip manufacturing industries in the country (United States Congress 2022).
These are but a few examples of how U.S. administrations legislated to constrain China’s NIS in the 21st century, with policies that have crystallized a technological competition, especially on semiconductor-related matters. The U.S. is at a critical juncture, and decisions are being made to keep its leadership in an industry still dominated by the country and its companies. More than ever, it is also clear that the relations between the state, academia, and industry are vital to sustaining U.S. power.
However, China has a consolidated NIS and a clear path towards its own development and innovation policies. Its semiconductor industry lies at the heart of it, as Beijing pledged a support package of more than 1 trillion yuan, or US$143 billion, for its semiconductor industry (Zhu 2022), which will have profound implications for the global semiconductor industry and may thwart U.S. policies aiming at preventing China from changing the game.
Furthermore, the second Trump administration reignited trade tensions with many countries, including China (De Guzman 2025), and began a series of attacks on domestic universities and researchers in what is being called a war with science (Camargo Jr. 2015). This contradicts the historical U.S. NIS foundations and jeopardizes the connections between state, academia, and industry, which are essential for innovation. It may not be long until the consequences of this trajectory are seen in the American economy and society.
Keywords: United States; China; National Innovation Systems; Semiconductors.
About the author
Rúbia Marcussi Pontes is a Ph.D. Candidate in Political Science at the State University of Campinas (UNICAMP), in Brazil, from where she also holds a Master’s Degree in Political Science. She is also an Associate Professor of International Relations at the College of Campinas (FACAMP) and Director of the Center of Studies and Research in International Relations (CERI-FACAMP). Ms. Pontes is also an Associate Researcher at the National Institute of Science and Technology for Studies on the United States (INCT-INEU). You can contact her via e-mail: rubiamarcussi@gmail.com or LinkedIn: www.linkedin.com/in/rúbia-marcussi-pontes
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Header Image: Martijn Boer, Wikimedia, Click here
[1] From the original: “Estas medidas no tuvieron como objetivo únicamente disminuir el déficit comercial estadounidense, sino que son parte de una estrategia mayor destinada a contener la influencia de China en el plano global, ralentizando su economía, afectando sus exportaciones de contenido tecnológico y retardando sus proyectos de innovación” (Colombo et al. 2021: 97).
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Rúbia Marcussi Pontes (August 6, 2025). Sino-American Technological Competition: National Innovation Systems and the Case of Semiconductors. HCA Graduate Blog. Retrieved May 11, 2026 from https://doi.org/10.58079/14gnm
