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posted on 20 April 2017

Checking The Pulse Of American Tech

from STRATFOR

-- this post authored by Rebecca Keller and Matthew Bey

For most of its history, the United States' seat at the forefront of innovation has gone unrivaled. Thanks to its natural geographic strength, ample access to capital, top-tier education and expansive government-funded research, the nation has pushed the boundaries of science like no other. But as any bodybuilder will tell you, true strength requires upkeep. And the proposed budget cuts of the newest U.S. administration have many American scientists - and Washington's foreign rivals - questioning whether the United States is about to lose its competitive edge.

Above image: Uncertainty is building in the hallowed halls of America's finest research institutions -- about funding, about immigration, and about the next four years of policy under the new U.S. administration. (DAVID MCNEW/Getty Images)

Of course, America's executive branch doesn't have the authority to dictate government spending; Congress does. So as was true of most of his predecessors, President Donald Trump presented what was more of a policy wish list than a detailed accounting document to U.S. lawmakers in his March budget outline. Even so, his proposed cuts to the nearly $70 billion in research funding that the government provides each year have sent ripples of concern throughout the scientific and technical communities.

Investment in science and technology, along with supportive policies and a smart regulatory environment, is crucial to staying competitive in today's globalized world. Some factors determining a country's success, such as geography and infrastructure, are less malleable to the changes wrought by individual leaders. But others, such as the availability of funding, ebb and flow based on the party in power. And if Trump's suggested cuts are approved, they could disproportionately impact some sectors - climate science, alternative energy and biomedical research, to name a few - more than others.

The Losers

Though Trump's budget proposal isn't passable in its current form, it still provides a glimpse of the sectors most at risk under his tenure. The National Institutes of Health - the cornerstone of the United States' biomedical research endeavors - would see its funding cut by $1.2 billion this year, and again by nearly $6 billion in 2018 (a 20 percent reduction of its current budget). These cuts, along with others like them, would be particularly devastating to university researchers who rely on government financing to support their world-class programs. After all, basic research (which often doesn't have immediate applications but is vital to technological development nonetheless) routinely struggles to attract the interest of the private sector because it offers no obvious, rapid return on investment.

Despite having proposed cuts to other agencies that support U.S. research, including the National Science Foundation, Centers for Disease Control and Prevention, Food and Drug Administration, and National Oceanic and Atmospheric Administration, Trump's suggested trims to the Department of Energy stand to have the greatest geopolitical impact. The budget on the table eliminates the loan guarantees for the innovative technology and vehicle manufacturing programs of the Advanced Research Projects Agency-Energy. These projects support the development of several different technologies, including automated vehicles, green energy, batteries, cold fusion and upgrades to the electrical grid, that stand to change the face of geopolitics as we know it. Scaling back the government's support for these initiatives will not immediately set the United States back among its peers, but it will make maintaining its lead all the more difficult. That said, the budget is also based on the intention of reducing regulation and eliminating excess spending - inefficiencies and waste that certainly exist in the organizations in question.

The Winners

Not everyone would lose out under Trump's belt-tightening measures. In fact, some, such as the Defense Department, even stand to gain. Military research and fields with direct military applications such as materials science will no doubt continue to receive generous funding during the new president's tenure. Though the Defense Advanced Research Projects Agency - the departmental branch responsible for conducting cutting-edge research - wasn't specifically mentioned in the White House's proposal, its prospects are much rosier than those of other government organizations. The same may be true of the country's space programs; a number of NASA's planetary science and climate programs are on the list of cutbacks, but those focused on space exploration have gone untouched, and Trump has publicly declared his support for certain space programs before.

The Realities

When all is said and done, many of the White House's deepest cuts are unlikely to come to pass - at least to their fullest extent - because they have already generated substantial pushback from the very lawmakers whose buy-in is needed for their approval. But in this case, outcome may be less important than intent. The motives of Trump's budget are clear: to trim government excess and address long-standing inefficiencies. These goals were key talking points on the president's campaign trail last year, and the "skinny" budget they have yielded signals the new administration's plan to drastically shrink the U.S. bureaucracy.

The executive branch has more power to do that in some areas than in others. Departmental restructuring and staffing, for instance, are under the president's purview, even if funding appropriations are not. These avenues could certainly enable the White House to curb or even remove specific government-funded initiatives that don't align with its policy goals. (Climate science has been pinpointed as a particularly vulnerable field under the current administration.) The same could be said of executive orders, which Trump has already proved willing to wield in order to reshape regulation and immigration policy, albeit with varying degrees of success.

The Workers

Funding can't guarantee innovation, nor does its absence ensure failure. Countries also have to factor human capital into the equation, including their ability to bring the best and brightest to their shores. But Trump ran for the presidency on the promise of creating jobs for American workers, a priority that could blunt the United States' competitive edge in certain sectors such as technology.

For instance, early on in his term, Trump issued an executive order that eliminated the option of expediting H-1B visas, the bulk of which go to foreign computer programmers and software developers. The United States' software and hardware sectors rely most heavily on this specialized class of documentation to attract exceptional and highly educated employees. Yet with little fanfare, the U.S. Citizenship and Immigration Services sent a memo reiterating that entry-level computer programmers were ineligible for H-1B visas during its most recent round of applications. Trump then signed an executive order requiring the delivery of reports on changes meant to improve the H-1B visa program.

Ironically, though these measures were meant to protect the domestic workforce, they may end up doing more harm than good by pushing the affected jobs offshore. India's citizens and companies receive the most H-1B visas in the world; firms may relocate more of their programming and software jobs there as they adjust to stricter policies in Washington. Mexico and Canada have similarly positioned themselves to serve as alternative employment locations within the NAFTA market. It may not be long before the United Kingdom and Ireland follow suit, leaning more heavily on their status as English-speaking labor locales. (After all, most of the basic coding languages in computer science are in English.)

The Response

Uncertainty is building in the hallowed halls of the United States' finest research institutions - about funding, about immigration and about the next four years in general. At an individual level, researchers' jobs and programs are in jeopardy, as are the careers of many young graduate students as funding and teaching positions risk getting cut.

But this trepidation reaches well beyond the ivory towers and into national tech hubs such as Silicon Valley. Despite PayPal cofounder Peter Thiel's initial role in the Trump administration, there is a notable lack of tech representatives on the president's team of advisers. And at this crucial stage in the U.S. tech sector's development, delays and setbacks could leave the United States at a disadvantage down the line. The high barriers to entry that ensured exclusivity in the world of software 15 years ago no longer exist, and as costs of innovation have plummeted, the field of competitors has become much more crowded.

Easier access to the market, coupled with tighter U.S. restrictions on attracting talent from abroad, has increased the risk that innovation in tech will begin to center on other countries. As the political tides shift in the United States, other nations may take the opportunity to bolster research efforts of their own - though most will remain confined to certain sectors. As it stands, no other country has been able to replicate the massive, broad-based university system that draws students from around the globe to America. (According to The Best Schools' ranking, 85 of the world's top 100 universities are in the United States.) So while figures such as French presidential candidate Emmanuel Macron have pointed to their countries as alternative research hubs, they cannot even begin to compete with the vast educational and scientific foundation the United States has already built.

In fact, the only country that could feasibly hope to someday match the United States' pervasive success in technological development is China. In some areas, it has already begun to mount that challenge. But China's universities, state funding programs and labor pool still have a long way to go before they can be considered to be on par with the United States' - a process that will easily take more than four to eight years to complete.

And so, the United States will keep its wide lead over its rivals abroad, even if the lead narrows somewhat in specific fields. Because in the years ahead, changes to funding will mean changes to the priorities of the U.S. tech sector. Faced with less government financing, private U.S. companies will have to shoulder more of the costs of progress on their own. This will not bring innovation to a standstill, but it will bring the ability to turn a profit and recoup costs front and center in developmental decision-making. As a result, the United States may have little choice but to join its peers in focusing its attention on fewer scientific sectors - opening the door to other nations eager to close the gap.

"Checking the Pulse of American Tech" is republished with permission of Stratfor.

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