Economists and politicians continue to believe innovation is crucial for future American growth and competitiveness. Both Democratic and Republican administrations make the case that an innovation strategy is vital to our future.
In 2015, President Barack Obama said, “America’s future economic growth and international competitiveness depend on our capacity to innovate.” His plan, “The Strategy for American Innovation,” also said that innovation-based economic growth will bring greater income and higher-quality jobs and is the key to future prosperity.
On March 26, 2025, President Trump wrote, “Scientific progress and technological innovation were the twin engines that powered the American century. The Manhattan Project fueled the atomic era. The Apollo Program won us the space race. The internet connected us to a digital future. Today, we will usher in the Golden Age of American Innovation. We will make America safer, healthier, and more prosperous than ever before. We will create a future of American greatness for every citizen, restoring the American Dream.”
The Problems
A strategy of “innovation” is a noble idea, but its supporters ignore that most of the technologies invented in the U.S. since World War II are no longer manufactured in America. So, U.S. companies did the research and development of the original products, but then allowed them to be manufactured in foreign countries. The accepted premise is “innovate here, manufacture there.” We gave our competitors access to our technologies and allowed them to take over our products and markets.
Economists and other supporters of outsourcing didn’t realize, or didn’t accept, that when manufacturing is outsourced, the R&D goes with it. Another way of saying it is when manufacturing declines, innovation also declines, or “manufacture there, innovate there.” The two are inextricably linked.
When outsourcing began in the early 1980s, it was accepted that we could invent the new technology, manufacture it in foreign countries, and maintain our lead as the innovation leader. But outsourcing meant giving competitors our technology secrets. Outsourcing has led to a loss of control over engineering, design and development, allowing the contractor to develop their own competitive product and take over the market and customers. Outsourcing by American companies has destroyed our manufacturing base and our capacity to develop new products and technologies.
Forced technology transfer agreements require American companies in China to partner with domestic Chinese companies for market access, either by forming a joint venture or affording Chinese investors a controlling equity stake. So, in the end, the American company gets access to the Chinese markets, but the Chinese partner gets our technology secrets.
An article from the Information Technology and Innovation Foundation (ITIF), Wake Up, America: China Is Overtaking the United States in Innovation Capacity, shows how much we have lost to China. Based on key indicators of innovation and advanced-industry performance, the report shows that China has surpassed the U.S. in total innovation output and is getting close on a proportional basis. China has invested heavily in basic science research and has a growing pool of scientists.
A survey by the Australian Strategic Policy Institute (ASPI), the Critical Technology Tracker, is a data-driven project that covers 64 critical technologies across defense, space, energy, the environment, artificial intelligence, biotechnology, robotics, cyber, computing, advanced materials and quantum technologies. According to the Tech Tracker, from 2003 to 2007, the U.S. led in 60 of the 64 categories, while China led in just 3. From 2019 to 2023, China led in 57 of 64 categories. ASPI says, “China’s enormous investments and decades of strategic planning are now paying off.”
How do we stop technology from leaving the country?
On February 21, 2025, President Trump signed a memorandum directing the United States Trade Representative (USTR) to investigate foreign governments' discriminatory fines, taxes (such as Digital Service Taxes) and regulatory burdens that target American companies, characterizing these actions as extortion. The order serves to protect American companies from being pressured to turn over intellectual property or pay unjustified fines to foreign entities. The directive aims to protect U.S. national security by imposing retaliatory measures, including potential tariffs.
The key industries targeted with technology transfer restrictions, export controls, or heightened scrutiny include:
- Semiconductors and Semiconductor Manufacturing Equipment
- Artificial Intelligence (AI).
- Telecommunications and Video Surveillance.
- Quantum Computing and Biotechnology.
- Critical Minerals and Rare Earth Metals.
- Aerospace and Defense.
- Connected Vehicles and Drones.
Findings and Actions Taken
The Administration stated it would act against countries that impose "discriminatory, disproportionate" fines or demands for intellectual property (IP), using tools such as tariffs to correct imbalances and stop U.S. companies from subsidizing foreign governments. This is an aggressive stance that threatens competitors' enactment with the potential use of tariffs, but the U.S. Supreme Court ruled that broad reciprocal tariffs previously enacted under the International Emergency Economic Powers Act (IEEPA) were unlawful. These actions signal a shift toward punishing countries rather than a pre-emptive ban on all technology transfers, but without tariffs, the punishment will be minimal.
Why Doesn’t Trump Issue a Total Ban on Technology Transfer Agreements?
As of May 2026, Trump has not issued a ban on technology transfer agreements. Instead, Trump is a deal maker and wants to use them as strategic leverage in broader trade negotiations and to generate direct federal revenue. Rather than a blanket prohibition, his administration has shifted toward a "regulation by deal" approach, granting access to high-end U.S. technology in exchange for financial or diplomatic gains.
A good example is President Trump's decision to allow Nvidia to sell advanced AI chips (such as the H200) to approved customers in China. The reasoning was that it would allow the leading American chipmaker access to the world's largest AI market, thereby securing significant revenue. However, the risk is that granting Chinese firms access to these powerful GPUs could accelerate China’s development of highly strategic artificial intelligence models and military capabilities. In the end, while the U.S. approved the sale, Beijing ultimately blocked the imports to protect its domestic industry.
Trump is also opposed to a total ban on technology transfer because it might reduce corporate profitability, disrupt supply chains reliant on Chinese manufacturing, or trigger massive retaliation, such as against U.S. agriculture.
It is unlikely that the strategic leverage approach and supporting multinational profit goals will stop our competitors from obtaining our technology secrets. These are half-measures, and America should do a better job of enforcing export control laws to restrict the transfer of sensitive technologies to foreign entities and to stop or reduce specific technologies from being transferred under technology transfer agreements with foreign competitors.
Sanction Foreign Competitors
Congress needs to aggressively sanction foreign companies that continue to cheat and steal our technology secrets, as they did with the Chinese company Huawei for bank fraud and technology theft.
The U.S. government maintains and enforces several entity lists, including the Department of Commerce Entity List and the Treasury’s Specially Designated Nationals (SDN) List. Punishments include strict export bans, asset freezes and transaction prohibitions.
Protect IP Rights
The government needs to enforce robust intellectual property protection by expanding the list of technologies that are crucial to an innovation strategy and making them off-limits to technology transfer or foreign manufacturing, such as advanced semiconductors and chipmaking equipment, AI, quantum information systems, hypersonic weapons and space technology.
However, the government is not expanding the list or sanctioning more companies that steal our technology secrets because they fear supply chain disruption and economic retaliation, and they are trying to balance security with free enterprise. This lack of aggressive enforcement begs the obvious question, “How will we usher in Trump’s 'Golden Age of American Innovation' unless we can stop our foreign competitors from getting our technology secrets?” How can we stop or reduce technology transfer?
According to the ITIF, federal basic research has fallen from a high of 1.9 percent of GDP in 1964 to less than 0.8 percent in 2016. This is a serious red flag, as basic research is the foundation of applied research and fundamental to any innovation strategy.
Basic science is very expensive research, and many critics don’t see any payoff. But today, the cost-cutters and short-term investors are winning the battle of federal budgets and agencies. The Trump administration has taken aggressive steps to curb federal funding for universities. This includes slashing budgets for major research institutions—such as the National Institutes of Health (NIH) and the National Science Foundation (NSF) and restricting how federal funds can be utilized at the university level.
When you examine the problem of the loss of technological dominance and the rise of China's technological efforts, it does not seem to me that there is any alternative other than to increase investment in Basic Science Research if we want to stay in the technology game. I think it takes expanding basic science and a wide range of research projects, as the U.S. did after World War II, to lay the foundation for a real technology breakthrough.
As Willy Shih and Gary Pisano argue in their book “Producing Prosperity,” “There is an erosion of what they call America’s Industrial Commons—the set of manufacturing and technical capabilities that support innovation across a broad range of industries.” Their definition of the “Industrial Commons” includes knowledge and skills embedded in suppliers, skilled workers, and universities, which are sources of competitiveness. It also includes R&Dt, process development skills and know-how, engineering, and manufacturing competencies related to specific technologies.
Once the product's manufacturing is outsourced, the Industrial Commons are also lost, as these skills and processes require daily interaction with manufacturing. According to Shih and Pisano, “Without the ability to develop such new processes, they find they can no longer develop new products. In the long-term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.” This is perhaps the most important point of their book, because it throws cold water on the idea that America can have a national innovation strategy and, at the same time, outsource manufacturing.
Innovation and manufacturing are inextricably linked. When a country loses its manufacturing capacity, it also loses its ability to innovate. If innovation is the strategy that will keep the U.S. economy number one in the world, then the only real hope is to grow the manufacturing sector and protect our technologies.
Michael Collins is the author of a new book, "The Globalization Trap," available on Amazon. He can be reached at [email protected] or on mpcmgt.net.
