To Outrun China, Senate to Consider Groundbreaking Legislation

What to Know

• Key US Senate committee took major bipartisan step to counter China in era of increasing technological rivalry
• Senate likely to expand and pass Endless Frontier Act in coming weeks, but Biden Administration may seek to slow process down while it formulates own China-related policies
• House likely to draft and push separate version of China legislation this summer

The Senate Committee on Commerce, Science, and Transportation held a business meeting on the bipartisan Endless Frontier Act on May 11, 2021, and voted 24-4 to advance the bill. The Endless Frontier Act is a major legislative package that aims to better position the U.S. for a decades-long economic and technological competition with China that some thought leaders have appropriately dubbed the “superpower marathon.” At the heart of the bill, which is co-authored by Senate Majority Leader Chuck Schumer (D-NY) and Senator Todd Young (R-IN), is an effort to significantly boost federal funding for U.S. research and development. Going forward, the Endless Frontier Act will also serve as the legislative vehicle for the Senate’s upcoming consideration of an array of bipartisan legislation to counter China in a variety of areas.

Background

Chuck Schumer announced back on February 23 that he had directed the chairs of multiple committees of the U.S. Senate to “start drafting a legislative package to outcompete China and create new American jobs.” He laid out three ambitious goals for the legislation:

1. “enhance American competitiveness with China by investing in American innovation, American workers and American manufacturing;”
2. “invest in strategic partners and alliances: NATO, Southeast Asia and India;” and
3. “expose, curb, and end once and for all China’s predatory practices which have hurt so many American jobs.”

To those ends, for the past several months multiple Senate committees have been drafting and internally negotiating bipartisan legislative contributions to this effort. These separate pieces are likely to be merged into one China-centric bill on the Senate floor and passed before the Memorial Day recess. The Endless Frontier Act will serve as both the centerpiece of this bipartisan legislative package and also the legislative vehicle for the Senate’s floor debate on it.

Many Chefs in the Senate Kitchen

When the Endless Frontier Act reaches the Senate floor, one of the most significant additions will likely be the Senate Foreign Relations Committee’s Strategic Competition Act, which was marked up by the Committee on April 21 and reported out on an overwhelming 21-1 bipartisan vote (more details on that bill are below).

In addition, the leaders of the Senate Banking Committee, Chairman Sherrod Brown (D-OH) and Ranking Republican Member Pat Toomey (R-PA), have unveiled an aggressive proposal that includes new mandatory sanctions on “Chinese actors engaged in cyberattacks against the U.S., or in the theft of intellectual property from U.S. firms.” Chairman Brown characterized the amendment as enabling the U.S. to “hold China accountable by imposing real economic costs and responding directly to aggressive Chinese behavior with a broad range of political, diplomatic, and economic – including sanctions – tools.”

Likewise, the leaders of the Senate Finance Committee, Chairman Ron Wyden (D-OR) and Ranking Republican Member Mike Crapo (R-ID), are working cooperatively on their own legislative contribution, which they have yet to unveil. However, Chairman Wyden suggested at a recent hearing on U.S.-China trade relations that the package would likely include an ambitious array of provisions: “Cracking down on the use of forced labor. Fighting censorship. Protecting U.S. jobs by rooting out counterfeits. Shoring up supply chains, including semiconductors and medical products. Stepping up trade enforcement and oversight.”

Lastly, the Senate Homeland Security and Governmental Affairs Committee is also expected to make a bipartisan contribution to the overall legislative package on the Senate floor. The Committee held a markup on May 12 and advanced 11 different bills – including some on cyber breaches, artificial intelligence, and restrictions on government procurement of Chinese-made drones, as well as several on “Buy America” – and it is expected to offer at least some of these proposals for the broader Senate package. When viewed together, the various committee proposals represent a multi-pronged legislative approach to more aggressively counter China’s effort to overtake the U.S. as the top global superpower.

Emergency Funding

As part of the overall package, Schumer has also stated an intention to “make serious investments in strengthening the U.S. semiconductor industry to outcompete China and stop depending on foreign sources.” He has suggested the overall package will include emergency funding for semiconductor programs, partly to address the recent global chip shortage that has hampered the U.S. economic recovery. 

Senator John Cornyn (R-TX), one of the Senate’s strongest proponents of denying China access to U.S. technology and bolstering U.S. capabilities, has played a key role in the semiconductor funding push. Last year, Cornyn championed the bipartisan CHIPS for America Act (CHIPS Act), which was enacted as part of the Fiscal Year 2021 National Defense Authorization Act in January. This year, he has been pushing hard for robust funding to implement the CHIPS Act, which created new incentives for domestic manufacturing of semiconductors. Cornyn suggested recently that $50 billion in emergency funding for those programs will be added via amendment to the Endless Frontier Act package on the Senate floor, and that the move would receive broad bipartisan support, including from the White House.

In addition, with an eye on the buildout of 5G mobile telecommunications networks both in the United States and in allied and partner nations, the Senate may also add emergency funding for implementation of new programs created by the USA Telecommunications Act, which was also enacted as part of the most recent National Defense Authorization Act. The new programs aim to support and expand the ecosystem of companies that can supply Open Radio Access Network (OpenRAN) solutions, which are a key piece of the transition to 5G, as well as reduce reliance on risky foreign suppliers from China or elsewhere.

A Multi-Pronged Approach to Tackling the China Challenge – Legislative Details

A) The Endless Frontier Act

The Endless Frontier Act was originally introduced in the last Congress. Schumer and Young re-introduced the bill in expanded form on April 20 (summary), ahead of the recent Senate Commerce Committee markup, proposing billions of dollars in new programs to be run by the National Science Foundation and the Commerce Department to reinvigorate the United States’ advanced technological research, development, and production capabilities. At the same time, a House companion bill was introduced by Representatives Ro Khanna (D-CA-17) and Mike Gallagher (R-WI-8).

The Endless Frontier Act, according to Schumer, “will enhance American competitiveness with China and other countries by investing in American innovation, building up regions across the country to lead in the innovation economy, creating good-paying American manufacturing and high-tech jobs, and strengthening America’s research, development, and manufacturing capabilities.” Complementing the Strategic Competition Act, the Endless Frontier Act approaches the competition with China from a domestic and technological perspective.

Specifically, the legislation would create a new Directorate for Technology and Innovation at the National Science Foundation. The Directorate would focus on funding research, commercialization, and innovation related to 10 key technology areas with global strategic implications for the United States:

1. Artificial intelligence, machine learning, and other software advances;
2. High-performance computing, semiconductors, and advanced computer hardware;
3. Quantum computing and information systems;
4. Robotics, automation, and advanced manufacturing;
5. Natural or anthropogenic disaster prevention or mitigation;
6. Advanced communications technology;
7. Biotechnology, medical technology, genomics, and synthetic biology;
8. Cybersecurity, data storage, and data management technologies;
9. Advanced energy, batteries, and industrial efficiency; and
10. Advanced materials science, engineering, and exploration relevant to the other focus areas.

While the final text of the Endless Frontier Act (as reported out of Committee) has not yet been publicly released, the earlier April 20 bill would have authorized $100 billion for the new Directorate to invest in these key areas over a period of five years. However, this funding level appears to have been reduced by both the Cantwell-Wicker substitute amendment and also by a major amendment from Senator Ben Ray Luján (D-NM), diverting upwards of $17 billion from the National Science Foundation funding pots to the Department of Energy’s National Laboratories, which address large-scale, complex research and development challenges.

In addition, the bill would authorize $10 billion in spending by the Department of Commerce to invest in 10 regional technology hubs with the intention of positioning these communities as global centers for the research and development of new key technologies.

Importantly, the Endless Frontier Act would also establish a “Supply Chain Resiliency and Crisis Response Program” at the Department of Commerce, intended to strengthen domestic “critical technology supply chains” for products with a national security nexus. The Biden Administration has signaled an intent to reduce reliance on foreign-made inputs needed by critical U.S. industries, and this provision of the Endless Frontier Act can be seen as the legislative branch preparing to get on board with that effort. Finally, the Endless Frontier Act also authorizes a $2.4 billion investment in the Manufacturing USA Network, a collection of domestic research institutes focused on developing advanced manufacturing.

Ahead of the May 12 markup in the Commerce Committee, a slew of over 230 bipartisan amendments to the Endless Frontier Act was filed. Nearly 100 of those were agreed to prior to the markup, and during the markup 53 additional amendments were adopted by the Committee. Among them were amendments on new incentives for production of “mature” semiconductor technology, artificial intelligence, research security (including assistance from the National Institute of Standards and Technology for colleges and universities to strengthen their cybersecurity), critical minerals mining research, workforce development in quantum networking, precision agriculture capabilities, new requirements for online sellers to provide country-of-origin information on their products, and new limitations on U.S. nuclear cooperation with China.

B) The Strategic Competition Act of 2021

As mentioned above, Senators Bob Menendez (D-N.J.) and Jim Risch (R-Idaho), Chairman and Ranking Republican Member of the Senate Foreign Relations Committee, teamed up on the bipartisan Strategic Competition Act. The Committee advanced the bill on April 21 in an effort to “mobilize all United States strategic, economic, and diplomatic tools for an Indo-Pacific strategy that enables the U.S. government to compete effectively with the People’s Republic of China and the challenges it poses to our national and economic security for decades to come.” 

Chairman Menendez called the bill “the first of what we hope will be a cascade of legislative activity for our nation to finally meet the China challenge across every dimension of power, political, diplomatic, economic, innovation, military and even cultural.” It primarily approaches the China challenge through increased commitment to diplomatic, economic engagement, and security assistance in the Indo-Pacific, greater emphasis on economic statecraft tools aimed at China, and the bolstering of international relationships. The bill attempts to establish a robust competitive posture against China using a wide range of means. Its most noteworthy provisions would:

• Call for hundreds of millions of dollars in funding for foreign military sales and Indo-Pacific security initiatives, as well as a closer relationship with Taiwan.
• Introduce measures to counter intellectual property violations and Chinese governmental subsidies.
• Provide measures to monitor Beijing’s attempts to circumvent U.S. export controls through Hong Kong and to track the presence of Chinese firms listed on U.S. exchanges.
• Expand the role of the Committee on Foreign Investment in the United States (CFIUS) in countering Chinese attempts to conduct influence and malign operations through the provision of certain gifts and contracts to American universities.
• Mandate reports on Chinese ballistic, hypersonic glide, and cruise missiles, as well as conventional military forces, nuclear, space, cyberspace, and other capabilities.
• Impose sanctions related to forced labor, forced sterilization, and other human rights abuses in the Xinjiang Uyghur Autonomous Region (XUAR).
• Confront Beijing’s “brand of hyper-nationalism” by authorizing a broad range of human rights and civil society measures, including supporting democracy in Hong Kong.

Next Steps

The House is also getting into the China game and is likely to pursue its own unified legislative package. It is reasonable to expect at least some overlap with the Senate legislative package, though the extent of that remains unclear at this early stage. Speaker Nancy Pelosi has directed House committees to draft a legislative package on China, and it is expected that the House may be ready to consider this legislation at some point prior to the July 4 recess.

The Endless Frontier Act’s strong emphasis on the National Science Foundation has also drawn the attention of the House Committee on Science, Space, and Technology, which has jurisdiction over this area. On March 26, Chairwoman Eddie Bernice Johnson (D-TX-30) and Ranking Republican Member Frank Lucas (R-OK-3) introduced their own National Science Foundation bill, called the NSF for the Future Act (summary), which has some similarities to the Endless Frontier Act but provides much more modest levels of funding. Some members and staff of the House Science Committee apparently view the Endless Frontier Act’s intense focus on the China challenge and technology development as misplaced. The House Foreign Affairs Committee is also likely to play a leading role in the formulation of the House legislative package, and the House Financial Services Committee is also expected to be involved. 

The Arent Fox team will continue to closely track the complex policy issues and processes involved in these legislative efforts, including the Senate floor debate that is likely to unfold in the weeks to come. Though the relevant legislative proposals from several Senate committees have not been publicly released, we can conclude from the Endless Frontier Act and the Strategic Competition Act alone (and the senators who are playing leadership roles here) that this is a serious and coordinated effort to counter China and is likely to result in the enactment of landmark bipartisan legislation that will help shape U.S. policy in these areas for decades to come.