1、 itif.org Not Again:Why the United States Cant Afford to Lose Its Biopharma Industry SANDRA BARBOSU|FEBRUARY 2024 Americas leadership in advanced-technology industries can never be taken for granted,as evidenced by its losses in telecommunications equipment,semiconductors,televisions,solar panels,an

2、d chemicals.Policymakers must recognize what went wrong in those cases to avoid a similar industrial decline in the biopharmaceutical industry.KEY TAKEAWAYS The biopharmaceutical industry is crucial to the U.S.economy.America leads this sector globally thanks to its large domestic market,robust IP p

3、rotections,limits on government drug price setting,supportive science policies,and supportive innovation clusters.But as China commits to achieve biopharmaceutical leadership,the United States is neglecting its position,hamstringing the industry with government-imposed price controls and policies th

4、at weaken foundational IP protections.Absent sustained policies that provide a supportive environment for pharmaceutical research and innovation,it is likely the United States will decline and China will advance.The United States has a long history of initially leading in advanced industries,only to

5、 subsequently lose its competitive advantage to other countries with more effective industrial policies and more patient private sector capital.Policymakers should heed the lessons of U.S.decline in five such industries telecommunications equipment,semiconductors,television,solar panels,and chemical

6、s and apply them to bolster the U.S.biopharmaceutical industry.To maintain leadership in biopharmaceuticals,the United States should continue robust federal R&D investments,restore a strong IP environment,and avoid government drug price controls.Rather than attacking“Big Pharma,”policymakers should

7、instead focus on how to win the global battle for pharmaceutical industry competitiveness.INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 2 CONTENTS Key Takeaways.1 Introduction.3 U.S.Advanced Technology Industry Losses.3 The U.S.Telecommunications Equipment Industry.5 The Rise of U.

8、S.Telecom Equipment Leadership.5 The Decline of the U.S.Telecom Equipment Industry.5 Chinas Industrial Policy in the Telecom Equipment Industry.7 The U.S.Telecom Equipment Industry Today.8 The U.S.Semiconductor Industry.9 The Rise of U.S.Semiconductor Leadership.9 Foreign Challenges to the U.S.Semic

9、onductor Industry.10 The U.S.Semiconductor Industry Today.12 The U.S.Television Industry.15 The Rise of the U.S.TV Industry.15 Japans Challenge to the U.S.TV Industry.15 The Decline of the U.S.TV Industry.16 The U.S.Television Industry Today.17 The U.S.Solar Panel Industry.20 The Rise of the U.S.Sol

10、ar Panel Industry.20 Chinas Challenge to the U.S.Solar Panel Industry.21 The U.S.Solar Panel Industry Today.23 The U.S.Chemical Industry.24 The Rise of the U.S.Chemical Industry.24 Environmental Regulations.25 Chinas Chemical Industry.26 The U.S.Chemical Industry Today.28 The U.S.Biopharmaceutical I

11、ndustry.29 Chinas Challenge to the U.S.Biopharmaceutical Industry.30 Reasons for U.S.Biopharmaceuticals Leadership.38 Recently Proposed Damaging Policy Changes.41 Conclusion.47 Endnotes.49 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 3 INTRODUCTION The United States has a long and

12、 rich tradition of pioneering the development of innovative industries,but later losing scaleup and production to countries with more effective government policies and companies with longer time horizons.In time,this loss erodes Americas early advantage,leaving out hollowed industries and lost jobs.

13、Such industries include the telecommunications equipment,semiconductor,television,solar panels,and chemicals industries.America no longer has the luxury,or capability,of generating new industries only to lose them to competitors.As such,if American policymakers want to avoid a deindustrialized econo

14、my dependent on raw materials,tourism,and financial services,they need to learn lessons from the experiences of these sectors to prevent its still strong advanced and emerging industries,including,among others,the biopharmaceutical industry,from experiencing the same fate.To maintain competitiveness

15、 in the still strong biopharma sector,policymakers need to stop taking for granted U.S.capabilities and jobs in the industry and instead create a supportive policy environment that stimulates private-sector domestic biopharmaceutical innovation and production.Consistent policies attacking the indust

16、ry will lead to significantly reduced domestic production and competitiveness,and in this case,the likely emergence of China as the global leader.America no longer has the luxury,or capability,of generating new industries only to lose them to competitors.This report starts by exploring the factors t

17、hat have contributed to the decline of five advanced industries in which the United States once led the world only to lose market share and jobs to other countries.It discusses the significance of American leadership in biopharmaceuticals and explains the factors that have contributed to achieving a

18、nd maintaining this position.The report then explores lessons that can be learned from other industries and applies them to show how to maintain U.S.competitiveness in biopharmaceuticals in light of current trends in the global biopharmaceutical industry,particularly the rapid growth of Chinas secto

19、r.It provides recommendations for policymakers to create a supportive environment that will enable the United States to maintain its future leadership in biopharmaceutical innovation and manufacturing,a sector critical for U.S.competitiveness,good jobs,and technology strength vis-vis China.U.S.ADVAN

20、CED TECHNOLOGY INDUSTRY LOSSES After World War II(WWII),America emerged as the worlds leading industrial country,in large part due to the core technology strengths it had built up with considerable financial support from the federal government.1 The United States led the world in a plethora of advan

21、ced industries through the 1960s,but that leadership has eroded in several important industries over the ensuing decades,with other countries taking over that lead.There are many reasons for this loss of competitiveness,including mistakes made by companies,but a common thread is that American policy

22、makers took an overly laissez-faire approach to these industries,often leaving them to the free market alone without providing adequate policy support to the sectors,such as protecting them from foreign predatory trade practices,INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 4 recog

23、nizing they require scale to compete in global markets,investing in their innovation potential,or supporting them with research and development(R&D)funding.Meanwhile,in many cases,foreign governments developed sophisticated industrial strategies to support their industries,often intentionally target

24、ed to siphon market share from the United States,and over time these policies successfully chipped away at the market share of U.S.firms.And while the competition from countries such as Germany,Japan,and Korea was fierce enough in the 1980s and the 1990s,China has emerged today as an intense competi

25、tive threat across virtually all advanced-technology industries.For instance,a recent Information Technology and Innovation Foundation(ITIF)report,“The Hamilton Index,2023,”which examines 40 countries share of global output across 10 strategically important industries,finds China to be the leading p

26、roducer in 7 of those industries.Moreover,it finds that,overall,China is producing more than any other nationand more than all other nations outside the top 10 combined.2 Turbocharged Chinese competitiveness in advanced-technology industries has only further intensified the global contest for leader

27、ship in these industries,and more than ever,it means that no country,not even the United States,can take its leadership in these industries for granted.The United States led the world in a plethora of advanced industries through the 1960s,but that leadership has eroded in several important industrie

28、s over the ensuing decades,with other countries sometimes taking over that lead.This report explores how the United States lost its lead across five advanced-technology industries:telecommunications equipment,semiconductors,television,solar panels,and chemicals.(Case studies could have been written

29、for several others,including machine tools,steel,and motor vehicles.)It shows that failure to sustain a supportive policy environment has been a core contributing reason for U.S.loss of leadership in these sectors.However,over the past four decades,the United States has come to be the global leader

30、in biopharmaceutical innovation,in no small part due to supportive public policies,such as robust federal funding for biomedical R&D,R&D tax credits,effective technology transfer and commercialization policies,robust intellectual property(IP)protections,substantial exit opportunities,and a drug pric

31、ing system that enables companies to capture a share of the profits from successful products to reinvest in future generations of biomedical innovation.But,as this report shows,policies recently made or proposed by the Biden administration put Americas successful life-science innovation environment

32、at serious risk,and may put the United States on the same path its suffered on in many other advanced industries:unnecessarily losing leadership in an industry vital to U.S.economic competitiveness.The experience of the U.S.semiconductor industry should be a vital lesson to policymakers.Once the Uni

33、ted States loses advanced industry share globally,it becomes much more expensive and more difficult to get it back.The U.S.biopharmaceutical sector is still strong,and therefore policymakers have time to preserve and even expand its global position,but only if they sustain,and not compromise,the ver

34、y policies that made the U.S.industry a global leader in the first place.INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 5 THE U.S.TELECOMMUNICATIONS EQUIPMENT INDUSTRY Telecommunications equipment manufacturers are companies that produce the hardware and software that enable wired a

35、nd wireless communications.3 The Rise of U.S.Telecom Equipment Leadership The telecom equipment industry traces its roots to the invention of the telephone by Alexander Graham Bell in 1876.The patent for the novel telephone design became the basis for the Bell Telephone Company,which was established

36、 in 1877 to commercialize the telephone and build telecommunication services throughout the United States and Canada.4 Bell turned to manufacturing company Western Electric for its equipment needs,and by 1882,it had a controlling interest in the manufacturer.In 1885,Bell became American Telephone&Te

37、legraph(AT&T),and Western Electric remained a wholly owned subsidiary for the next 120 years,producing telecommunications equipment.By 1913,Western Electric commanded 59 percent of the global equipment market.5 In 1925,AT&T and Western Electric combined resources to launch Bell Laboratories,which wo

38、uld go on to become the worlds most successful industrial laboratory,producing numerous inventions,including cellular technology,fiber optics,and the UNIX operating system.6 By 1997,the United States was producing one-third of the worlds telecom equipment,and had a trade surplus of$3 billion.7 The D

39、ecline of the U.S.Telecom Equipment Industry After WWII,the U.S.government,in its mission to rebuild Japan,pressured Western Electric to help modernize Japans electronics industry by offering technical courses to its companies,including Fujitsu,Hitachi,NEC,Sanyo,and Toshiba.At the same time,“governm

40、ent procurement activities in other countries resulted in much more closed communications equipment markets than in the United States,”leaving Western Electric with less access to foreign markets and more competition from imports.8 While the United States left the fate of its telecom equipment indus

41、try solely to the free market,foreign countries provided direct financial support to their domestic telecom industries and followed protectionist policies.9 At the same time,the American government also took antitrust regulatory action against major players in the telecom equipment industry,diminish

42、ing their innovation capabilities.In the 1949 case United States v.Western Electric,the Department of Justice(DOJ)accused AT&T of illegally excluding other manufacturers by buying equipment only from Western Electric,itself a part of AT&T.As part of the 1956 settlement,AT&T was allowed to retain own

43、ership of Western Electric but agreed to license its existing patents for free to domestic companies and its new patents at reasonable rates.While sharing AT&Ts IP helped advance domestic innovation,it also provided a significant boost to foreign companies.For example,after Bell Labs invented the tr

44、ansistor,one of the most important technological breakthroughs of the 20th century,in 1947,antitrust regulators pushed AT&T to license the technology.In 1952,35 companies,including 10 foreign firms such as Siemens,Ericsson,and Sony,gained valuable information to enable core advances,allowing them to

45、 take market share from leading American companies.10 A 1991 U.S.International Trade Commission(ITC)report notes that requiring AT&T and Western Electric to license their patents opened“the door for new entrants to commercialize AT&Ts technology while at the same time INFORMATION TECHNOLOGY&INNOVATI

46、ON FOUNDATION|FEBRUARY 2024 PAGE 6 precluding AT&T from entering other markets Such technological diffusion enabled other firms,including foreign manufacturers,to narrow the technological gap and even advance ahead of U.S.firms in some areas.”11 In 1974,DOJ initiated a second major antitrust lawsuit

47、 that impacted the telecom equipment industry:United States v.AT&T.At the time,the United States boasted the best phone system in the world and the most advanced telecom equipment manufacturer in Western Electric.The lawsuit alleged both that AT&Ts association with Western Electric was illegal and t

48、hat AT&T was monopolizing the long-distance market.DOJ asked AT&T to divest its manufacturing and long distance operations from local service,though there were calls against this breakup on national security grounds.12 The settlement,a decade later,required AT&T to divest its local telephone compani

49、es(Regional Bell Operating Companies,or RBOCs),but allowed AT&T to continue manufacturing telephone equipment.This meant that the RBOCs were free to purchase equipment from anyone,not only Western Electric,and enabled several foreign manufacturers to gain American market share in the telecom equipme

50、nt industry.13 The breakup of AT&T also had a negative impact on Bell Labs.A report from the National Research Council notes:Prior to the restructuring of the telecommunications industry in 1984,Bell Labs played a dominant role in long-term,fundamental telecommunications research for the United Stat

51、es.Post-restructuring,industrial support for such research has declined,become more short-term in scope,and become less stable.A diverse array of competing telecommunications firmstelephone,cable,Internet,and wirelessemerged,leaving most research to equipment vendors,which increasingly focused on sh

52、ort-term goals.14 While there are many instances in which competition can help spur innovation,the decades of antitrust action against AT&T have hindered it in Americas telecom equipment industry.15 In 1996,Congress passed the Telecommunications Act in an attempt to restructure the American telecom

53、market to promote competition and safeguard against companies leveraging monopoly power.The act mandated“interconnection of telecommunications networks,unbundling,non-discrimination,and cost-based pricing of leased parts of the network,so that competitors can enter easily and compete component by co

54、mponent as well as service by service.”16 The act financed hundreds of entrants that raised billions of dollars to compete with AT&T,but those companies largely went bankrupt shortly thereafter.Without government support or major technological changes,the United States will find it difficult to rega

55、in competitiveness in the telecom equipment industry,but it can learn important lessons that are timely and relevant for other advanced industries,such as biopharmaceuticals.Also in 1996,AT&T spun off Bell Labs and Western Electric into Lucent Technologies.By 1999,Lucent had become the worlds larges

56、t telecom equipment company,earning$38.3 billion in revenue,making$4.8 billion in profits,and employing 153,000 workers.But the burst of the dot-com bubble in 2000 led to a huge reduction in telecom equipment spending,and Lucents stock price dropped from$65 in September 1999 to$0.76 cents in Septemb

57、er 2002.Even after the market rebounded,Lucent could not recover due to fierce competition,notably from INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 7 Chinese company Huawei.In 2006,a struggling Lucent was sold to the French company Alcatel,and in 2015,the Finnish company Nokia ac

58、quired Alcatel-Lucent.17 From the 1970s to the 1990s,the United States had the two largest telecom equipment manufacturers in the world(first Western Electric and International Telephone&Telegraph(ITT),followed by Lucent and Nortel,which was Canadian but had tens of thousands of U.S.-based employees

59、).But within two decades,as Lucent was sold and Nortel declared bankruptcy,the United States lost its leadership in the telecom equipment industry.While managerial reasons were partly to blame,the failures also stemmed from the U.S.governments blind trust in free-market policies and decades of antit

60、rust action,coupled with strong industrial policies from foreign nations,which weakened both Western Electric,Lucents predecessor,and Bell Labs.Without government support or major technological changes,the United States will find it difficult to regain competitiveness in the telecom equipment indust

61、ry,but it can learn important lessons that are timely and relevant for other advanced industries,such as biopharmaceuticals.18 Chinas Industrial Policy in the Telecom Equipment Industry ITIF comprehensively explained the loss of U.S.leadership in the global telecommunications equipment industry in a

62、 2020 American Affairs article entitled“Who Lost Lucent?:The decline of Americas telecom equipment industry.”19 But in addition to the factors described previously,including such U.S.government policy decisions as overly aggressive antitrust actions,top-down restructuring of markets,a lack of a dome

63、stic industrial strategy,and a resulting climate that discourages long-term investments by U.S.telecommunications companies,there is also the emergence of Chinas telecommunications industry and the failure,until recently,of the United States to challenge Chinese technological mercantilism.20 Huaweis

64、 founder,Ren Zhengfei,noted in 2002,“If there had been no government policy to protect nationally owned companies,Huawei would no longer exist.”While the United States generally left the telecom equipment industry to its own devices,other countries embraced strategies to protect and support their do

65、mestic companies.In October 2002,the Chinese government announced the Ministry of Information Industrys(MIIs)support to expand TD-SCDMA,Chinas 3G standard,to promote and protect its own industry from foreign competitors.Soon after,seven major Chinese telecom equipment companies,including Huawei and

66、ZTE,formed the government-backed TD-SCDMA Industrial Alliance.The TD-SCDMA standard enabled Chinese manufacturers to use TD-SCDMA freely and to receive lower fees to use other standards.Noting the impact of these actions on the industry,Huaweis founder,Ren Zhengfei,noted in 2002,“If there had been n

67、o government policy to protect nationally owned companies,Huawei would no longer exist.”21 To further nurture its fledgling domestic industry,China promoted the establishment of joint ventures for any foreign companies seeking to enter the large Chinese market.This scheme had several requirements:Th

68、e Chinese side would hold a majority share of the venture,custom equipment would be produced in China,and,importantly,the foreign side would transfer technology to the Chinese side.This approach enabled domestic firms to both acquire knowledge and create local jobs.Bell was the first to establish su

69、ch a joint venture,named Shanghai Bell.22 The Chinese government provided subsidies to buyers of Shanghai Bell equipment and lowered INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 8 Shanghai Bells taxes and tariffs on imported parts.Many companies soon followed suit and established

70、joint ventures in China,including Ericsson,Siemens,Fujitsu,Lucent,Motorola,NEC,and Nortel.Leveraging the expertise gained from these ventures,China financially supported the development of domestic companies,and set up protective import barriers.23 Chinese telecom equipment companies have long been

71、eligible for preferential interest rates on export credits from Chinas Export-Import Bank and the China Development Bank.24 As the U.S.Export-Import Bank concluded,“Most of the terms and conditions of their China Exim Banks financing did not and do not fit within the OECD Organization for Economic C

72、ooperation and Development guidelines.”25 Chinese banks have also made loans to bail out foreign telecom service providers that buy equipment from Chinese companies.One study finds that“since 2015 China has provided more funding each year to support its exports than the OECDs 36 member-nations combi

73、ned.”26 As China rolled out its Belt and Road Initiative to support Chinese exports in emerging markets and parts of Europe,Huawei benefited substantially.Indeed,in a 2016 speech a senior Chinese official,Zhang Yansheng,noted that“without the Belt and Road Initiative,there wouldnt be Huawei.”27 Furt

74、her,Bloomberg noted,“By the 2000s,Huawei was taking its strategy overseas,with the help of$10.6 billion in credit from China Development Bank and the Export-Import Bank of China,both controlled by Beijing.Its credit line would reach$100 billion over the next decade.”28 The U.S.Telecom Equipment Indu

75、stry Today The U.S.telecom equipment industry has experienced substantial losses since the late 1990s in both annual output and employment.According to annual output and employment data from the Bureau of Labor Statistics(BLS),the sectors output dwindled from$120 million in 2000 to less than$40 mill

76、ion by 2022,and employment declined from more than 240,000 to 86,000 over the same period.(See figure 1 and figure 2.)Figure 1:U.S.communications equipment manufacturing,annual output(billions)29$0$20$40$60$80$100$12019871992199720022007201220172022INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUA

77、RY 2024 PAGE 9 Figure 2:U.S.communications equipment manufacturing,employment(thousands)30 The loss of the U.S.telecom equipment industry entailed several factors,and managerial errors should be understood in the context of U.S.government policies such as aggressive antitrust actions,a lack of domes

78、tic industrial strategy,and a failure to respond to foreign nations policies.Shifting the focus to competitiveness in antitrust regulation and devising a thoughtful domestic industrial strategy could help other advanced industries in the United States,including biopharmaceuticals,avoid the fate of t

79、he telecom equipment industry.31 THE U.S.SEMICONDUCTOR INDUSTRY Semiconductors,which consist of transistors that control electrical currents,are critical for the operation of most electronic devices,from laptops and smartphones to medical devices and avionics.32 Analysts expect the semiconductor ind

80、ustry to reach$588 billion in revenues in 2024,driven by rising demand for semiconductors from technologies such as 5G,cloud computing,and artificial intelligence(AI).33 The Rise of U.S.Semiconductor Leadership The foundation for semiconductor development began in the 1930s in response to a need to

81、create radar technology due to impending war.After the end of WWII,in 1946,a team of scientists,including John Bardeen,Walter Brattain,and William Shockley,convened at Bell Labs.34 In December 1947,the trio invented the transistor,a small semiconductor device,for which they later won the Nobel Prize

82、 in Physics.The device could amplify or switch electronic signals and electrical power.35 In those days,Bell Labs,still a part of AT&T,had ample resources to support such long-term,fundamental research projects.It received its first military contract to support transistor technology R&D in 1949,and“

83、by the early 1950s,Bell Labs had become the worlds richest source of technical and scientific information about transistors and semiconductor materials.”36 05010015020025030019871992199720022007201220172022INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 10 As part of the 1956 AT&T an

84、titrust settlement,Bell Labs agreed to organize a symposium for military personnel,as well as academic and private sector contractors.This was part of the governments mission to disseminate scientific information about semiconductors throughout industry and academia.Further,the complex nature of the

85、 militarys technological demands required multi-entity cooperation,shaping the culture and structure of the semiconductor industry.For example,the Minuteman I and II missile programs during the 1960s required collaboration across many firms,including Autonetics,Fairchild Semiconductor Corporation,Be

86、ll Labs,and Motorola.37 American industrial policies supported the expansion of the nascent semiconductor industry.The Department of Defense used procurement contracts to ensure demand,prompting many firms to invest in R&D,and its backing of semiconductor research in university and industry labs als

87、o helped cultivate scientific and technical expertise.38 Historian Daniel Holbrook has noted,“For early semiconductor technology,the United States government helped provide an environment conducive to both high flows of technical and scientific information and diversity in approaches to innovation.”

88、39 While the industry relied heavily on military purchases in the late 1940s,by the end of the 1960s,the sector had experienced significant growth,and military contracts comprised less than one-quarter of the market.40 By 1972,the U.S.semiconductor industry was a global leader,accounting for 60 perc

89、ent of market value.41 Foreign Challenges to the U.S.Semiconductor Industry By the 1980s,Japans semiconductor industry was growing rapidly due in large part to government support in the form of R&D investments,subsidies,tax incentives,and protectionist trade policies restricting foreign competitors,

90、as well as its growing technical engineering expertise.42 Meanwhile,production subsidies and cheap labor in South Korea,Taiwan,and Southeast Asia,led most American semiconductor firms to open manufacturing plants overseas in the 1970s and into the 1980s.43 By the late-1980s,across all memory,logic,a

91、nd analog chips in the global semiconductor market,Japans global market share in terms of sales eclipsed 50 percent while the United States fell to less than 40 percent.44(See figure 3.)In 1987,an analysis by the U.S.Defense Science Boards Task Force on Semiconductor Dependency found that the United

92、 States was losing semiconductor manufacturing capacity and technological leadership to foreign competitors,particularly from Japan.The task force recommended the launch of a federally funded industry-government consortium to regain competitiveness.45 This led 14 U.S.semiconductor firms to found SEM

93、ATECH(Semiconductor Manufacturing Technology),a public-private research consortium based in Austin,Texas,committed to supporting advances in manufacturing technology.Over the next eight years,Congress,through the Defense Advanced Research Projects Agency(DARPA),provided$870 million to SEMATECH.46 By

94、 1994,the American industry share in the global semiconductor market was growing again,supported by public-private partnerships and other U.S.government actions,such as the 1986 U.S.-Japan Semiconductor Agreement,which called for an end to Japanese dumping and an opening of Japans market to foreign

95、firms,incentivizing American companies to invest in R&D.47 Policy intervention in the 1980s may have saved much of the U.S.semiconductor industry at the time,and the industry flourished through the start of the 2000s,especially as U.S.firms came to lead in fabless chip design,that is,firms such as A

96、pple,AMD,Qualcomm,and NVIDIA that INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 11 design application-specific chips in-house,usually to be manufactured at foundries such as TSMC.(This is called the“fabless-foundry”business model.)But in the ensuing decades,U.S.competitiveness in s

97、emiconductor manufacturing began to falter again,due in no small part to aggressive foreign government incentives seeking to attract globally mobile semiconductor industry investment,as the following section elaborates.Figure 3:Global semiconductor market share,by revenues,1984201948 Foreign Investm

98、ent Incentives While other countries have been willing to subsidize the building of semiconductor fabrication facilities(“fabs”),the United States largely has not.This helps explain much of the U.S.decline in semiconductor manufacturing.Other nations help companies defray the high fixed costs of bui

99、lding a fab,with incentives to reduce up-front capital expenditures on land,construction,and equipment and that can also extend to recurrent operating expenses such as utilities and labor.49 Foreign government incentives may offset from 15 to 40 percent of the gross total cost of ownership(TCO)(pre-

100、incentives)of a new fab,depending on the country.50 The 10-year TCO of U.S.-based semiconductor fabs is 25 to 50 percent higher than in other locations,with government incentives accounting for 40 to 70 percent of the U.S.TCO gap.51 While other countries have been willing to subsidize the building o

101、f semiconductor fabs,the United States largely has not.This helps explain much of the U.S.decline in semiconductor manufacturing.Over the past two decades,China has become a far more significant competitor in the global semiconductor industry.Chinas semiconductor industry has received over$170 billi

102、on worth of government subsidies,which China has used both to launch entirely new companies and to finance the acquisition of foreign competitors.In fact,China invested$290.8 billion in 0%10%20%30%40%50%60%19841989199419992004200920142019United StatesSouth KoreaEuropeJapanTaiwanChinaINFORMATION TECH

103、NOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 12 semiconductor projects between 2021 to 2022 alone.52 Between 2010 and 2020,the time required to build a new fab declined from 747 to 675 days in China,while it rose from roughly 700 to over 900 days in the United States.53 Elsewhere,Japan announced$

104、21 billion in funding in 2023 to support its semiconductor industry,including a$3.5 billion subsidy for a new 10 nanometer(nm)to 20 nm fab in the Kumamoto prefecture.Taiwans Chips Act,passed in January 2023,offers investment tax credits of 25 percent on R&D and 5 percent on equipment.54 South Koreas

105、 K-Belt strategy seeks to build the worlds best semiconductor supply chain by 2030 with a$450 billion investment plan.It offers semiconductor manufacturers tax credits that cover up to 25 percent of facility costs and 30 to 40 percent of R&D expenditures.55 In April 2023,the European Union approved

106、its$47 billion European Chips Act,which includes investment incentives,R&D funding,and talent building measures.56 And in July 2023,Germany allocated$20 billion for semiconductor incentives.57 In short,other nations are competing fiercely for semiconductor manufacturing activity.The U.S.Semiconducto

107、r Industry Today When considering nations global semiconductor market share(by industry sales of firms headquartered in nations),the United States does clearly continue to lead the world.In fact,in 2022,U.S.-headquartered semiconductor enterprises held a 48 percent market share of global semiconduct

108、or industry sales(down about 4 percent from the 51.8 percent share they held in 2012),followed by South Korean firms with 19 percent,Japanese and European firms with 9 percent each,Taiwanese firms with 8 percent,and Chinese enterprises with 7 percent.(See figure 4.)This especially reflects the stren

109、gth of the U.S.fabless semiconductor companies.Figure 4:2022 Global semiconductor industry sales market share by nationally headquartered company58 48%19%9%9%8%7%United StatesSouth KoreaJapanEuropeTaiwanChinaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 13 However,production shares

110、 are different,as many semiconductors are produced for U.S.customers in places such as Taiwan and China.Indeed,as of 2019,the United States possessed just 11 percent of global semiconductor fabrication capacity,whereas South Korea held 28 percent,Taiwan 22 percent,Japan 16 percent,China 12 percent,a

111、nd Europe 3 percent.(See figure 5.)And in fact,from 1990 to 2021,the U.S.share of global semiconductor production fell from 37 percent to 12 percent.59 Chinas share of global semiconductor fabrication capacity doubled from 2015 to 2019.As of year-end 2020,there were just 20 semiconductor fabs operat

112、ing in the United States.60 Figure 5:Global semiconductor fabrication capacity by country61 In total,according to a report from the Boston Consulting Group,from 1990 to 2020,the U.S.share of global semiconductor production fell by approximately 70 percent,from a 37 percent share in 1990 to 12 percen

113、t by 2020.(See figure 6 for an illustration of the U.S.drop in global semiconductor production share.)That report finds that,absent effective policy intervention,the U.S.share of global semiconductor manufacturing would continue to wither,to about 10 percent,by 2030.Americas loss of semiconductor ma

114、nufacturing activity was a critical motivating factor behind congressional and Biden administration passage of the CHIPS and Science Act in August 2022.The legislation provides a substantial boost to the semiconductor industry by offering$39 billion in incentives,$13 billion for semiconductor R&D an

115、d workforce training,and a 25 percent investment tax credit to promote domestic chip manufacturing.62 To be sure,several other factors motivated the CHIPS Acts passage,including a global chip shortage in 2021 and 2022,which was worsened by the COVID-19 pandemica shortage that exposed vulnerabilities

116、 in semiconductor supply chains,which span numerous countries and entail a long,expensive,and complex process.0%5%10%15%20%25%30%South KoreaTaiwanJapanChinaUnited StatesEuropeOther20152019INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 14 Figure 6:Global semiconductor manufacturing c

117、apacity,by location,19902030 forecast63 As a 2022 study notes,“Supply disruptions included the forced closure of chip manufacturing plants due to global lockdowns,resulting in the depletion of semiconductors production and inventory.Other supply disruptions were due to logistic-related issues.”64 Ge

118、opolitical conflicts,including trade tensions between the United States and China,have further disrupted supply chains,creating challenges for Chinese semiconductor manufacturing and aggravating the shortage.These conditions have led the United States to reevaluate its policies to support an increas

119、e in domestic semiconductor chip production.65 The CHIPS and Science Act also spurred the creation of the National Semiconductor Technology Center(NSTC),a public-private consortium dedicated to supporting semiconductor research,design,engineering,and advanced manufacturing.Erica Fuchs,professor in t

120、he Department of Engineering and Public Policy at Carnegie Mellon University,director of The National Network for Critical Technology Assessment(NNCTA),and a member of the inaugural board of trustees overseeing the NSTC,noted:Semiconductor chips are the driving force behind our economy,national secu

121、rity and an infinite number of systems that ensure societal well-being.To maintain our national sovereignty and way of life,we must invest in the manufacturing capability necessary to lead not only in the production of todays chips,but also to innovate,commercialize and lead in the manufacturing of

122、the chips of the future.Executed smartly,the NSTC holds the potential to be a pivotal first step toward getting the country where it needs to be.66 The act represents an effort on the part of the government to uphold American leadership in critical industries,such as semiconductors.The government ha

123、s engaged experts across 0%10%20%30%40%50%60%70%80%90%100%19901995200020052010201520202025F2030FChinaTaiwanSouth KoreaJapanUnited StatesEuropeOthersINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 15 academia and industry to ensure effective investments.For example,the National Scienc

124、e Foundation(NSF)allocated nearly$4 million in 2022 to the NNCTA for a year-long academic effort to identify critical challenges facing the United States and to recommend areas of strategic government investment in important sectors such as semiconductors,AI,biopharmaceuticals,and energy and critica

125、l minerals.The resulting report,“Securing Americas Future:A Framework for Critical Technology Assessment,”identifies specific technological areas in these sectors where funding could be most effective at bolstering U.S.competitiveness.67 Since the enactment of the CHIPS act in 2022,companies have al

126、ready announced investments exceeding$220 billion in semiconductor and electronics manufacturing across 22 states.68 A total of 70 new semiconductor projects are underway,with initiatives including the construction of new semiconductor fabs,the expansion of existing sites,and facilities that supply

127、the materials and equipment used in chip manufacturing.These projects are expected to lead to the creation of 44,000 new jobs.69 A study jointly conducted by The Semiconductor Industry Association(SIA)and Oxford Economics finds that for each American worker employed by the semiconductor industry,5.7

128、 more jobs are created in the wider U.S.economy.70 Such industrial policies intended to resuscitate domestic manufacturing are critical for the long-term competitiveness of the United States in the critical semiconductor industry.THE U.S.TELEVISION INDUSTRY The Rise of the U.S.TV Industry During WWI

129、I,the American electrical industry shifted to war production,and television research pivoted toward military applications such as guided missiles and long-range reconnaissance.Companies such as Western Electric,Bell Labs,Eastman Kodak,and Radio Corporation of America(RCA)all redirected their R&D to

130、support the war effort.At the start of the war,David Sarnoff,president of RCA,telegraphed President Franklin Roosevelt,stating,“All our facilities and personnel are ready and at your instant service.We await your commands.”71 RCAs large base of scientists and engineers leveraged their experience wor

131、king on airborne reconnaissance television systems since 1935 to develop critical radar,sonar,and electronic navigation systems.Most wartime advances in television weaponry resulted from collaborations between RCA and the Office of Scientific Research and Development(OSRD)of the U.S.military.72 In 1

132、946,enhanced by innovations developed during WWII,television emerged significantly improved.73 While in 1948 about 800,000 television receivers were sold,by 1950,this figure had surged to 7.5 million.The postwar years were a time of remarkable growth for U.S.television manufacturing and programming,

133、and RCA generated substantial revenue from its patents and manufacturing.74 Japans Challenge to the U.S.TV Industry Meanwhile,the Japanese electronics industry began to recover in 1953,as American forces allowed it to resume production of radios and television transmissions.The Japanese television i

134、ndustry underwent swift growth from the mid-1950s to the mid-1970s,spurred by rising personal incomes,widespread acceptance of Japanese consumer electronics,and government policies.75 Measures included support from the Japanese Ministry of International Trade and Industry(MITI)for consumer electroni

135、cs,import restrictions to protect nascent local television INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 16 producers,and the creation of the Japan Metal and Machinery Institute in 1957 to set quality standards for exports.One project sponsored by MITI resulted in Hitachis producti

136、on of the first all-transistor color television set in 1969.By 1970,the Japanese domestic television industry was booming.Domestic manufacturers enjoyed cheap local labor,a large network of component suppliers,and access to new MITI-supported technology.76 Japan protected its domestic television ind

137、ustry through tariffs,quotas,and import restrictions.Tariffs on color TV imports were 30 percent in Japan until 1968,compared with 7.510 percent in the United States over the same period.77 In the 1950s,Japan prevented imports by denying the distribution of foreign company products through the count

138、rys extensive network of dealers.Import restrictions forced foreign companies to license their television technology to Japanese companies to enter the market.The U.S.government encouraged this technology transfer from American companies,such as RCA and General Electric,to their Japanese counterpart

139、s in an effort to help rebuild Japan after the war.Licensing brought short-term profits to American companies,but the knowledge acquired by Japanese companies was much more valuable.78 The Decline of the U.S.TV Industry During the 1950s,RCA was the leading American color TV producer,and DOJ took agg

140、ressive antitrust actions against RCA due to its dominant market share in this sector.However,research shows that RCAs“monopoly”had raised the price of TVs by only 2.26 percent,while RCA supplied most product and process innovations in the industry thanks to its scale and scope.79 Economist Steven K

141、lepper argued in his book Experimental Capitalism:The Nanoeconomics of American High-Tech Industries that such action was one of the triggers that led to the eventual demise of the American color TV industry.80 DOJ required RCA to share its patents freely with domestic competitors,and to only charge

142、 royalties from foreign competitors.RCA,reliant on licensing revenue,was forced to license its technologies to foreign companies,primarily ones from Japan.Technology historian James Abegglen wrote,“Unwittingly,RCA actually assisted the Japanese by selling them whatever technology licenses they requi

143、red.It was a highly profitable exercise Japan was dependent on foreign sources for virtually all of the technology employed even to the stage of color television RCA licenses made Japanese color television possible.”81 The Japanese government,aware of the value of this licensing,awarded RCA presiden

144、t Sarnoff the Order of the Rising Sun in 1960 for his contributions to the Japanese electronics industry.Historian John Steele Gordon wrote,“To protect an American industry from the dominance of one company,antitrust had killed off the entire industry.Thats a bit like using a guillotine to cure a he

145、adache.”82 By the 1960s,Japanese televisions were flooding the American market,sold at cheaper prices than their American counterparts.This was made possible by lower labor costs and technology transfer,as well as the practice of“dumping,”which involved pricing below cost in the United States but pr

146、icing high in Japan,where the industry was protected from foreign competition.83 In 1975,Japan sold 5.5 million of its own TV sets in domestic markets,but imported only 11,644 units,which decreased to 485 by 1978.84 In 1963,Japanese companies,including Hitachi,Matsushita,Sharp,and Toshiba,formed the

147、 Television Export Council.The Council developed the“Five-Company Rule,”which required each INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 17 Japanese exporter to specify five U.S.companies as its only,exclusive customers.This distribution of American retailers aimed to reduce intra

148、-Japanese competition for American firms.It also set common minimum prices for exports,in an attempt to prevent Japanese companies from being accused of dumping under the U.S.Antidumping Act of 1921,which prohibits exports to the United States at prices lower than those charged at home if such expor

149、ts cause substantial injury to an American industry.85 Still,American companies complained about dumping violations by Japanese companies,and the first legal proceedings began in March 1968.86 In 1971,the U.S.Department of Treasury found Japanese companies guilty,but duties were not collected until

150、1979 when the antidumping duty law was overhauled.By that time,the American television industry had incurred substantial damage.87 In another case brought against Japanese companies,American companies Zenith Radio Corporation and National Union Electric Corporation(NUE)filed a lawsuit against Japane

151、se TV manufacturers in 1974,alleging they had engaged in an illegal predatory pricing conspiracy“to raise,fix and maintain artificially high prices in Japan and to fix and maintain low prices for television receivers exported to and sold in the United States,”resulting in large losses and reduced ma

152、nufacturing investments by American firms.88 Twelve years later,in 1986,the U.S.Supreme Court ruled that Zenith and NUE had failed to provide sufficient admissible evidence to prove that Japanese companies had engaged in a predatory pricing conspiracy to monopolize the American consumer electronics

153、market.This ruling raised the standard of proof required to show evidence of a conspiracy,and further harmed the American television industry.89 One of the reasons the Court ruled this way is that it did not take the time to understand the Japanese industrial policy system and the role of“administra

154、tive guidance”provided by Japans MITI,which coordinated foreign markets,including pricing policies,of major Japanese companies in particular industries.In the 1970s,imports accounted for over 50 percent of Americas consumer electronics market,and many American companies had exited due to competition

155、 from Japan.90 The U.S.Television Industry Today Japans support of its television industry enabled its companies to grow to dominate the global television market while American television manufacturing collapsed,in part due to a failure of the U.S.government to protect the industry from aggressive a

156、nd unfair foreign practices.91 Over almost three decades,from 1952 to the late 1970s,the Japanese share of Americas consumer electronics product market rose from 20 percent to almost 50 percent.By 1986,U.S.manufacturers sold only 37 percent of the TVs and radios in the United States.92 Zenith,the la

157、st well-known U.S.television manufacturer,was acquired by Koreas LG Electronics in the late 1990s,following a trend by other American companies,including Philco,Sylvania,Emerson,Motorola,RCA,Westinghouse,Admiral,GE,and Magnavox,to leave the television manufacturing business or be acquired by foreign

158、 companies.93 Today,only two U.S.television manufacturers remain:Vizio,which was founded in 2002 to provide high-quality,low-cost flat-panel televisions but produces primarily in countries such as China,Mexico,and Taiwan,and South Carolina-based Element Electronics,founded in 2006 to manufacture bud

159、get-friendly LCD and LED TVs.94 According to 2022 market data,foreign competitors such as Samsung,LG,TCL,Hisense,Xiaomi,Skyworth,Sony,and AOC lead the world in the industry.95(See figure 7.)INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 18 Figure 7:Market share of top TV manufacture

160、rs globally,20192022,by sales volume96 Moreover,according to The Observatory of Economic Complexity,in 2021,China was the top exporter of broadcasting equipment in the world.It held a$231 billion export value,representing 48.8 percent of the world market,while the United States had an export value o

161、f$25.1 billion,representing only 5.31 percent.97 According to trade data from the U.S.Census Bureau,the United States has a massive trade deficit in the radio/TV broadcast and wireless communication equipment industry,which widened between 2002 and 2022.(See figure 8 and figure 9.)98 0%5%10%15%20%25

162、%SamsungLGTCLHisenseXiaomiSkyworthSonyAOCVizioSharpPhilips2019202020212022INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 19 Figure 8:U.S.imports and exports of radio/TV broadcast and wireless communication equipment,world total99 Figure 9:U.S.imports and exports of radio/TV broadcas

163、t and wireless communication equipment,U.S.and China100 0%10%20%30%40%50%60%70%80%90%100%200220062010201420182022Domestic ExportsCustoms Imports0%10%20%30%40%50%60%70%80%90%100%200220062010201420182022Domestic ExportsCustoms ImportsINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 20 T

164、HE U.S.SOLAR PANEL INDUSTRY Solar power resources,abundant and accessible,are a renewable energy source with considerable potential.The primary solar power technology in current use is solar photovoltaics(PVs).Commonly known as solar panels,these devices absorb energy from sunlight and convert it in

165、to electricity through semiconducting materials.101 The Rise of the U.S.Solar Panel Industry Charles Fritts invented the first solar panel in 1883,coating selenium with a thin layer of gold and placing it on a New York City rooftop.While electrically inefficient,his invention laid the groundwork for

166、 the future of solar panels.In 1954,three Bell Labs scientistsDaryl Chapin,Calvin Fuller,and Gerard Parsonpioneered the first practical solar cell,using silicon material that had served as the foundation for the transistor seven years earlier.102 Dubbed the“Bell Solar Battery,”the silicon cell was c

167、apable of a 6 percent energy conversion rate,and received a patent in 1957.103 Western Electric began licensing the solar cell patent in the 1950s as part of its antitrust settlement policy to share its patent portfolio.In 1962,AT&T also used the cells to launch the Telstar satellite that relayed TV

168、 signals across the United States.However,solar cells were expensive and had limited applications in the first few decades.104 Instead,aerospace,including unmanned space probes and satellites,represented the primary market for solar cells,providing crucial early demand to jump-start the industry.To

169、meet this demand,the U.S.government supported the solar cell space industry in the 1960s through federal procurement contracts.The successful launch of the Vanguard I satellite in March 1958 marked the first use of solar cells in space.The solar cells lasted six years,a significant increase over the

170、 four-month life span of chemical batteries previously used by the National Aeronautics and Space Administration(NASA).105 NASA itself supported the launch of the solar industrys first professional society,the Institute of Electrical and Electronics Engineers(IEEE)Photovoltaic Specialists Conference

171、,hosting the conference at its headquarters from 1961 to 1968.106 Energy Crises The 1973 and 1979 oil crises spurred the U.S.governments interest in using solar energy beyond space missions for terrestrial applications to power homes and businesses.107 The industry advocated for increased federal fu

172、nding to adapt the solar cells used in space for broader markets.This task required making them smaller,cheaper,and flexible to changing weather conditions.In response,the U.S.government launched a large-scale R&D project to tailor solar cells to more cost-sensitive markets.From 1975 to 1986,the Ene

173、rgy Research and Development Administration,and later the Department of Energy(DOE),invested$235 million to fund the Low-Cost Silicon Solar Array(LSSA)project,a consortium for university and industry research.108 In the late 1980s,the U.S.government supported several pioneering experiments in Califo

174、rnias Mojave Desert,which laid the foundation for utility-scale solar power generation.At the time,the United States boasted the largest grid-connected solar facilities in the world,and American firms were the largest global suppliers of solar technology.Yet,a decline in fossil fuel prices reduced c

175、onsumer,commercial,and utility interest in expensive solar cells to replace traditional energy sources,and prompted an end to government subsidies.In the United States,solar interest waned during the 1990s,but in countries with higher energy prices,heightened environmental INFORMATION TECHNOLOGY&INN

176、OVATION FOUNDATION|FEBRUARY 2024 PAGE 21 awareness,and proactive industrial policies,particularly Japan and Germany,domestic solar panel industries were on the rise.By the late 1990s,the global solar panel industry was roughly evenly divided between the United States,Japan,and Europe.109 Chinas Chal

177、lenge to the U.S.Solar Panel Industry As with telecommunications equipment,ITIF comprehensively documented the competitive challenge to the United States from Chinas solar industry in our report,“The Impact of Chinas Production Surge on Innovation in the Global Solar Photovoltaics Industry.”The foll

178、owing again summarizes some of the key dynamics.Before 2000,Chinas domestic solar panel industry was small and had few domestic applications.However,a rise in global demand prompted the Chinese government to implement a series of incentives,including direct subsidies for solar cell installations,and

179、 a national Feed-in Tariff(FIT)scheme,which led to rapid industry growth.110 One report finds that“the dramatic increase in demand for PV by European countries since 2004,especially Germany has led China to a huge solar production ramp on all fronts of the domestic supply chain,from polysilicon,wafe

180、rs to cells and modules.”111 In 2008,China became the largest solar cell manufacturing nation,contributing one-third of worldwide total cell shipments.112 China has enacted a number of policies to support the expansion of its domestic solar industry.Two early measures were the Brightness Program in

181、1996 and the Township Electrification Program in 2002.They provided financial support to companies building solar stations and wind systems in remote areas of Western China to address rural electrification needs,stimulating rapid development of Chinas domestic solar industry.113 Later measures,inclu

182、ding The Renewable Energy Law in 2006,which created the first national framework for the promotion of renewable energy,The Rooftop Subsidy Program,and the Golden Sun Demonstration Program of 2009,provided subsidies for rooftop systems and the supply of critical components of solar panels.Recently,th

183、e first national FIT scheme for solar cell development,enacted in 2012,aimed to support Chinas industry by providing a guaranteed,above-market price for producers.114 These measures were introduced to boost domestic PV production and reduce Chinas reliance on international markets for solar industry

184、 needs amidst escalating trade tensions.115 In total,Chinas share of global solar panel exports grew from just 5 percent in the mid-2000s to 67 percent today,with Chinese solar output turbocharged by at least$42 billion of subsidies from 2010 to 2012 alone.116 This instigated a global glut that saw

185、world prices for solar panels crash by 80 percent from 2008 to 2013,bankrupting most of the more-innovative foreign competitors and setting up Chinese producers for a final coup de grace:using their government-enabled profits to try to buy bankrupt U.S.solar firms in order to strip out their remaini

186、ng technology and send it back to China.117 Indeed,the decimation of PV manufacturing outside China drove many innovative firms out of the business,in large part because they could not match the predatory prices offered by government-subsidized Chinese competitors.118 As Ben Santarris of SolarWorld,

187、a German solar panel manufacturer,explained,“Pervasive and all-encompassing Chinese subsidies are decimating our industry.”119 According to the Renewables 2023 Global Status Report,Energy Supply Module,in 2022,China had nearly three times the solar cell capacity of the United States.(See figure 10.)

188、China also led the world in solar cell capacity installation in 2022,installing more than five times as much solar cell capacity as did the United States.(See figure 11.)INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 22 Figure 10:Cumulative solar PV capacity globally in 2022,by coun

189、try(GW)120 Figure 11:Top countries based on new solar PV capacity additions in 2022(GW)121 050100150200250300350400450ChinaUnited StatesJapanIndiaGermanyAustraliaSpainBrazilNetherlandsPoland020406080100120ChinaUnited StatesIndiaBrazilSpainGermanyJapanPolandAustraliaNetherlandsINFORMATION TECHNOLOGY&

190、INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 23 Based on survey data from Energy Digital,as of 2023,the largest solar panel power plants in the world were located in China,India,Egypt,and the United Arab Emirates.As of 2022,the top five PV module manufacturers in the world by production were Chinese com

191、panies Longi Green Energy Technology,Trina Solar,Ja Solar Technology,and JinkoSolar,followed by Canada-based Canadian Solar(See figure 12.)122 Figure 12:Leading solar companies based on production,2022(GW)123 According to the U.S.Energy Information Administration(EIA),China controls over 80 percent

192、of the global solar panel supply chain and has the worlds top 10 suppliers of solar cell manufacturing equipment.124 While the United States has critical raw materials for solar panels,it lacks manufacturing capacity.As of 2021,the United States was the top exporter of silica sand($476 million),the

193、primary mineral used for solar generation,and China was the worlds largest importer.125 To regain competitiveness in the solar panel industry,the U.S.government has recently prioritized building up its supply chain.The U.S.Solar Panel Industry Today The Inflation Reduction Act(IRA),enacted in August

194、 2022,seeks to expedite the shift toward clean energy,committing$370 billion in tax incentives and procurement funding for such programs.126 The act could serve as a catalyst for the U.S.solar panel industry,as it contains incentives to boost solar panel installations and tax credits for manufacturi

195、ng solar components in the United States.It includes a 30 percent tax credit for renewable energy facilities such as solar and wind farms,and an additional 10 percent for the use of domestic content.127 The Solar Energy Industries Association(SEIA)states that the IRA has had a profound impact on Ame

196、ricas domestic solar industry.128 Since its passage,domestic companies have made over$100 billion in new private sector investments,with 51 new solar manufacturing facilities announced or 0102030405060Longi Green Energy Technology(China)Trina Solar(China)Ja Solar Technology(China)JinkoSolar(China)Ca

197、nadian Solar(Canada)INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 24 expanded,constituting 155 gigawatts(GW)of new production capacity.129 First Solar,Americas top solar panel manufacturer,has pledged$1.2 billion to increase its domestic manufacturing capacity,creating hundreds of

198、domestic jobs.130 SEIA forecasts that over the next decade,the IRA will lead to 48 percent more solar deployment than what would be expected in the absence of the IRA.131 In May 2023,the DOE announced$26 million through the Bipartisan Infrastructure Law to support eight projects that seek to demonst

199、rate how solar,wind,and other clean energy sources can support a reliable and resilient clean energy power grid.For example,The Portland General Electric Company received$4.5 million for a project to develop the first center to combine solar,wind,and energy storage systems in one location.132 More g

200、enerally,DOE,through its Solar Energy Technologies Office(SETO),has played an important role in supporting efforts to integrate more solar energy into the grid,enhance the use and storage of solar energy,and lower solar electricity costs.133 In 2011,SETO launched the SunShot Initiative seeking to ma

201、ke solar-generated electricity cost competitive with conventional energy sources by 2020.SETO has invested hundreds of millions of dollars in projects to reduce this cost.A 2014 SETO report shows that the projects in the SETO solar cell portfolio represent a$200 million investment in areas such as n

202、ext-generation PVs,PV efficiency,and cross-cutting PV efforts.134 SunShot achieved its original cost targets in 2017,three years early.Its success led the DOE to renew the program,with novel targets proposed for 2030,and renewed support for efforts by companies,universities,and national labs to make

203、 solar electricity affordable.Achieving the 2030 goals could position solar energy as one of the most economical sources of electricity in much of the United States,accounting for 30 to 50 percent of the countrys electricity supply as part of the Biden administrations“100%Clean Energy by 2035”target

204、.135 Such measures undertaken by the U.S government aim to restore lost domestic competitiveness in the solar panel industry.THE U.S.CHEMICAL INDUSTRY As Thomas Ilgen wrote in the early 1980s,the chemical industry is“the handmaiden of other sectors,industrys industry,improving products or discoverin

205、g substitutes and helping to develop better manufacturing processes.”136 The industry has supplied numerous sectors,including textiles,agriculture and food,construction,automobiles,and pharmaceuticals.Top companies in the global chemical industry,such as Hoechst,BASF,Bayer,DuPont,Imperial Chemical I

206、ndustries,and Rhone-Poulenc,produce thousands of products.The Rise of the U.S.Chemical Industry Advances in the chemical industry historically occurred primarily during wartime,due to pressing needs for chemical substitutes.These include the production of gunpowder,synthetic dyes,and synthetic rubbe

207、r.137 Prior to World War I(WWI),the United States had depended on Germany for organic chemicals,especially dyestuffs.But when Germany stopped shipments in 1914,American companies began production.Throughout the 1930s,American chemical companies,including Union Carbide,Allied Chemical,and DuPont,spec

208、ialized around distinct processing technologies,being each others best customers.138 But when the Japanese cut off Americas supply of natural rubber during WWII,the U.S.government committed extensive support to the development of synthetic rubber substitutes,INFORMATION TECHNOLOGY&INNOVATION FOUNDAT

209、ION|FEBRUARY 2024 PAGE 25 including an assured market and funding to build plants,and most chemical companies pivoted to polymer production.Historian John Kenly Smith,Jr.,noted,“The chemical equivalent of the Manhattan Project was the wartime creation of an American synthetic-rubber industry.In Amer

210、ica there was no incentive for developing a general-purpose synthetic rubber;until the Japanese shut off the flow of natural rubber,there was plenty of it.”139 Government support during the development and commercialization stages was critical for the industrys advances in petrochemistry and the dev

211、elopment of polymer technology,which had applications to radar and nuclear fission.140 Advances in the chemical industry historically occurred primarily during wartime,due to pressing needs for chemical substitutes.Kenly Smith,Jr.,added,“In technologically centered industries the capital required,th

212、e financial risks,and the technological expertise necessary to produce some innovations are so great that not even the largest firms have sufficient resources to undertake the task alone.During the war the U.S.government removed the obstacles to technological change by providing capital,buying the p

213、roducts,and promoting cooperation between companies.”141 After WWII,polymers derived from petrochemicals emerged as the driving force behind the chemical industrys growth,and polymer knowledge diffused through the industry through collaborative wartime projects.In the 1940s,the chemical industry dou

214、bled its investments and tripled its sales;and in 1950,Fortune magazine declared it Americas premier industry.142 Environmental Regulations The U.S.chemical industry has made vast contributions to the national and global economy,including improvements to economic growth,employment,health,living cond

215、itions,and life expectancy.143 The chemical industry provides essential goods used in daily life and ingredients for other industries.144 A 1996 report by the Department of Commerces Office of Technology Policy observes:The U.S.chemical industry is vital to the U.S.economy chemicals is a keystone in

216、dustry,one critical to the global competitiveness of other U.S.industries.Because so many modern products depend on chemicals,the international competitiveness of other U.S.industries requires a high-tech,globally competitive U.S.chemical industry that can supply new products at prices that give U.S

217、.producers an edge The 70,000 products produced by the industry range from chemicals such as benzene,toluene,and chlorine that are vital to other production,to finished consumer products such as medicines,soap,and toothpaste that are seldom associated with the chemical industry.145 At the same time,

218、chemical manufacturing processes also emit substances that can harm the environment,meaning the industry creates both clear benefits and also potential health and environmental challenges.146 In the 1970s,environmental consciousness grew in the United States,leading to a series of environmental meas

219、ures that impacted the industry,such as limiting the release of toxic substances from the production of synthetic organic chemicals.Actions included The Clean Air Act(CAA)of 1963 and its subsequent amendments in 1970,1977,and 1990 aimed to limit chemical discharges,especially air pollutants,from che

220、mical INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 26 plants,and the establishment of the Environmental Protection Agency(EPA)in 1970 to develop and enforce environmental regulations.147 Stringent environmental regulations have increased compliance costs for U.S.chemical manufactu

221、rers.By 1992,the chemical industry was spending nearly 10 percent of its capital expenditures on environmental compliance,compared with an industry average of less than 2 percent.148 Several studies have explored the impact of environmental regulations on industrial activity.For example,since the 19

222、77 CAA amendment,an important policy lever has been the annual designation of county air quality status,through which every county in the United States receives nonattainment or attainment status for several pollutants.Nonattainment-status counties have air concentrations of pollutants that exceed t

223、he federal standard,and industrial plants in nonattainment areas face more stringent regulatory oversight and equipment requirements.149 A 2000 study finds that nonattainment status reduces the establishment of new plants in industries whose processes cause pollution by 40 to 50 percent,and shifts s

224、uch industrial activity to attainment areas.150 Using comprehensive data on clean air regulations and manufacturing activity,a 2002 study shows that in the first 15 years after the amendment,nonattainment counties(relative to attainment ones)lost 590,000 jobs,$37 billion in capital stock,and$75 bill

225、ion of output in pollution-intensive industries,hindering industrial activity.151 A 2002 study further finds that,in the period between 1977 and 1994,a 10 percent increase in relative manufacturing pollution abatement costs(the cost associated with removing negative byproducts created during product

226、ion)is associated with a 1.98 percent decrease in foreign direct investment in the chemical industry,suggesting that such regulations can harm the chemical industry.152 Chinas Chemical Industry Chinas chemical industry has been growing rapidly and has been the largest in the world by revenue since 2

227、011.Moreover,the Chinese governments Made in China 2025 policy has prioritized several high-tech industries,including aerospace,electric vehicles(EVs),and batteries,which could lead to increased production of sophisticated chemical products.Chinese chemical companies R&D investments have also surged

228、.At the same time,the industrys development has prioritized growth over environmental concerns,but new environmental policies are seeking to restructure the chemical industry,consolidating thousands of plants currently spread across mixed urban industrial and residential areas into special chemical

229、parks where wastewater and hazardous waste treatment equipment is centralized and shared across companies.153 Data from ITIFs aforementioned 2023 Hamilton Index,which ranks 40 countries on their performance across 10 advanced industries,shows that China leads the world in terms of output in the chem

230、ical industry.In 2020,China had 29.1 percent of chemicals production,substantially higher than its 3.8 percent in 1995.The United States was second,with 18.3 percent,down from 23.2 percent in 1995.(See figure 13.)154 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 27 Figure 13:Histor

231、ical shares of global output in chemicals155 Moreover,according to data from Oxford Economics and the International Council of Chemical Associations,as of 2017,the leading countries based on chemical R&D investments were China,with$14.6 billion,followed by the United States with$12.1 billion,Japan w

232、ith$6.9 billion,and Germany with$4.6 billion.(See figure 14.)156 Further,data from the German Chemicals Industry Association(VCI)shows that the United States is also trailing China in terms of number of employees in the chemical industry.In 2022,China had nearly 12 times as many workers in the chemi

233、cal sector as did the United States.(See figure 15.)157 Figure 14:Global chemical R&D investment by country,2017(billions)158 0%5%10%15%20%25%30%35%199520002005201020152020ChinaUnited States$0$2$4$6$8$10$12$14$16ChinaUnited StatesJapanGermanySouth KoreaFranceIndiaUnited KingdomNetherlandsSwitzerland

234、INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 28 Figure 15:Number of chemical industry employees by country,2022(millions)159 The U.S.Chemical Industry Today In May 2023,the Biden administration proposed the first new rules in decades to restrict or ban toxic chemicals widely used

235、in chemical manufacturing processes.160 The reforms seek to expand EPAs authority to regulate toxic chemicals,initially granted under the 1976 Toxic Substances Control Act(TSCA).The act had sought to regulate chemicals of significant environmental concern,but was widely seen to have failed to meet i

236、ts goals of assessing and controlling such chemicals,and of motivating industry investment in cleaner technologies.161 The proposed reforms constitute a challenging tradeoff between the Biden administrations economic and public health objectives,as many of the chemicals identified are critical in in

237、dustries such as semiconductors and EVs,the very industries the Biden administration is supporting through other policies to uphold U.S.competitiveness and national security.Semiconductor and EV manufacturers argue that the repercussions of the new restrictions could cripple these advanced industrie

238、s.In a letter to EPA objecting to the proposed rules,American battery manufacturer Eagle Pitcher,which specializes in batteries essential for military,space,and medical uses,claims that the new rules would significantly disrupt national security,the economy,and critical infrastructure.162 As the abo

239、ve case studies document,U.S.leadership eroded in several important industries since the 1960s.Among the reasons for this loss,a common thread is that American policymakers took an overly laissez-faire approach,often leaving industries to the free market alone without providing adequate policy suppo

240、rt,such as protecting them from foreign predatory trade practices,recognizing they require scale to compete in global markets,investing in their innovation potential,or supporting them with R&D funding.It is imperative for the United States 01234567ChinaIndiaUSAGermanyRussian FederationJapanBrazilFr

241、anceRepublic of KoreaItalyTurkeyPolandUnited KingdomSpainNetherlandsINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 29 not to repeat similar mistakes with the biopharmaceutical industry,but instead to create a supportive policy environment that upholds the sectors competitiveness.THE

242、 U.S.BIOPHARMACEUTICAL INDUSTRY The biopharmaceutical industry represents a key traded sector in the U.S.economy,employing 1,233,300 workers at significantly higher wages than the U.S.average.163 While the United States stands as a global leader in this sector,this leadership is at risk without a mo

243、re supportive domestic policy environment amidst robust foreign competition.New Drugs Americas new drug development has been substantially higher than that of the rest of the world.While biopharmaceutical R&D,scientific publications,and patents represent starting points,the real test of nations and

244、enterprises investments is whether they translate into new-to-the-world drugs.On this score,the United States excels,with a growing lead over Europe and Japan.From 2014 to 2018,U.S.-headquartered enterprises produced almost twice as many new chemical or biological entities as European ones,and nearl

245、y four times as many as Japan.(See figure 16.)However,at least in percentage terms,new drugs from other nations,such as China,have been growing even faster(albeit from a smaller base).Figure 16:Number of new chemical or biological entities164 The United States also leads in drug availability.Most ne

246、w molecular entities(NMEs)novel active ingredientsapproved by the U.S.Food and Drug Association(FDA)between 2015 and 2021 were approved in the United States before other countries(74 percent on average across these years).(See figure 17.)165 02040608010012014019992003200420082009201320142018United S

247、tatesEuropeJapanAll othersINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 30 Figure 17:Annual total NME approvals,and approvals in United States,before other countries,20152022166 The FDA has developed different regulatory-approval pathways over time in an effort to expedite biopharm

248、aceutical innovation.In 1983,the Orphan Drug Act introduced the first such designation,orphan status,to support the development of treatments for rare diseases.In 1988,in the wake of the AIDS epidemic,the fast track designation was introduced to speed up drug development for serious diseases.In 1992

249、,the Prescription Drug User Fee Act(PDUFA)created the accelerated category to expedite approval by substituting surrogate endpoints(e.g.,tumor size)for clinical endpoints(e.g.,death).The PDUFA also developed a two-tiered review time system:standard and priority review.In 2012,the Food and Drug Admin

250、istration Safety and Innovation Act(FDASIA)created the breakthrough label for drugs whose preliminary evidence suggests they represent a substantial improvement over existing therapeutics.167 The rationale for these pathways was to expedite the availability of medicines that treat serious conditions

251、 and respond to significant unmet medical need.Research shows that out of the 312 NMEs approved between 2002 and 2013,174(56 percent)used at least one pathway to expedite development and review,and many drugs used multiple pathways.168 The priority review program is also associated with a decrease i

252、n drug review times,from more than 30 months in the 1980s to 9.9 months in 2011.169 These findings suggest that these new approval pathways have substantially reduced drug development and approval times.Chinas Challenge to the U.S.Biopharmaceutical Industry Pharmaceutical Production ITIFs 2023 Hamil

253、ton Index shows that the global biopharmaceutical industry experienced a 223 percent growth from 1995 to 2020 in nominal U.S.dollars,compared with 174 percent for global gross domestic product(GDP).170 The report finds that the United States ranks first in the 010203040506070201520162017201820192020

254、20212022NMEsNMEs approved in the United States firstINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 31 world for pharmaceutical production(28.4 percent of global production),followed by China with 17.4 percent.But while U.S.pharmaceutical companies,including Amgen,Eli Lilly,Johnson&J

255、ohnson,Merck,and Pfizer,are world leaders,Chinas industry is growing rapidly.From 1995 to 2020,Chinas global share of the industry increased 14.4 percentage points,compared with the United States 2.2 percentage point increase.(See figure 18.)171 Figure 18:Global shares of value-added output in pharm

256、aceuticals,19952020172 API Manufacturing Moreover,the United States has also been losing domestic pharmaceutical manufacturing capacity,particularly for manufacturers of active pharmaceutical ingredients(APIs),the components in medications that are biologically active,directly contributing to the th

257、erapeutic effects used to treat,diagnose,or prevent diseases.173 As in the case of other industries,production subsidies,cheaper labor,and less-stringent environmental regulations have attracted API manufacturers to build plants overseas.Data from the FDA shows that in 2019,only 28 percent of API ma

258、nufacturers were in the United States,while 72 percent were overseaswith 13 percent in China.(See figure 19.)Heavy dependence on foreign sourcing for critical ingredients can leave American pharmaceutical companies exposed to supply disruptions and quality control problems that could put the United

259、States at risk of drug shortages.174 0%5%10%15%20%25%30%35%40%199520002005201020152020United StatesChinaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 32 Figure 19:API manufacturers for U.S.pharmaceutical market by location,2019175 Out of the 461 drugs listed in the 2019 World Healt

260、h Organizations(WHOs)Essential Medicines List,FDA data further shows that 1,079 API manufacturers worldwide make these drugs,with 15 percent in China,21 percent in the United States,and 64 percent in the rest of the world.Three essential medicines have API manufacturers that are all based in China.I

261、n congressional testimony in October 2019,Dr.Janet Woodcock,director of the Center for Drug Evaluation and Research(CDER)at the FDA,explained how the agency is supporting the growth of advanced manufacturing(innovative technologies)to reduce U.S.dependence on overseas manufacturers,improve the resil

262、ience of American manufacturing,and mitigate the potential risk of drug shortages in the United States.176 In 2020,the Biden administration directed the FDA to identify an“Essential Medicines”list.The FDA selected drugs“that are medically necessary to have available in adequate supply which can be u

263、sed for the widest populations to have the greatest potential impact on public health.”177 In September 2022,the administration announced new investments to support the resilience of domestic pharmaceutical manufacturing,committing$40 million to expand the role of advanced manufacturing,namely,bioma

264、nufacturingthe use of biological systems to produce drugsto support domestic production of APIs,antibiotics,and other critical materials needed to produce essential medications.178 In November 2023,the administration took further measures to reduce reliance on high-risk foreign suppliers by invoking

265、 the use of the Defense Production Act to expand the Department of Health and Human Services(HHSs)authority to invest in domestic manufacturing of essential medicines.HHS will commit$35 million to efforts to bolster the strength of the domestic supply chain for essential medicines.179 28%26%18%13%2%

266、13%United StatesEuropean UnionIndiaChinaCanadaRest of the worldINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 33 Value Added The global value added of the pharmaceutical industry increased 156 percent between 2002 and 2019.Some of the global increase reflects the growth of domestic

267、markets and associated production in developing nations.Notably,Chinese value added grew almost 11 times,from roughly$14 billion to$158 billion,while U.S.value added grew nearly 2 times,from$97 billion to$182 billion.(See figure 20.)Figure 20:Value-added output of pharmaceutical industry by region,2

268、0022019(billions,constant dollars)180 Patenting Data from the NSF Science&Engineering Indicators report show that in 2020,the United States held 4,667 pharmaceutical patents and 3,251 biotechnology patents,compared with Chinas 413 and 238 patents,respectively.These figures suggest that the United St

269、ates had more than 10 times as many patents as China did in 2020.However,from 2011 to 2020,Chinas growth rate in patenting far surpassed the U.S.rate.During that time,China had a 22.2 percent increase in pharmaceutical patents(versus Americas 4 percent increase)and a 19.1 percent in biotechnology(co

270、mpared with Americas 2.6 percent).(See figure 21 and figure 22.)$0$50$100$150$200$250$300$350$400200220042006200820102012201420162018ChinaUnited StatesINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 34 Figure 21:Annual change in U.S.&Chinese United States Patent and Trademark Office(

271、USPTO)utility patents granted in pharmaceuticals181 Figure 22:Annual change in U.S.&Chinese USPTO utility patents granted in biotechnology182 -20%-10%0%10%20%30%40%50%60%70%2011201220132014201520162017201820192020United StatesChina-10%-5%0%5%10%15%20%25%30%35%40%2011201220132014201520162017201820192

272、020United StatesChinaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 35 Drug Development According to IQVIA data,in 2020,drugs from U.S.biopharma companies represented 42 percent of the entire early-stage drug pipeline,down from 47 percent in 2010,while the share of drugs originating

273、 from Chinese pharma companies increased from 2 to 10 percent over the same time period.(See figure 23.)In oncology,the share of drugs in the early-stage pipeline from U.S.companies decreased from 55 to 45 percent between 2010 and 2020,while this figure increased from 3 to 18 percent for Chinese-pro

274、duced drugs.(See figure 24.)183 Figure 23:Shares of new drugs under development,by select region,20052020184 Figure 24:Shares of new oncology drugs under development,by select region,20052020185 0%5%10%15%20%25%30%35%40%45%50%2005201020152020United StatesChina0%10%20%30%40%50%60%2005201020152020Unit

275、ed StatesChinaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 36 And in Alzheimers disease,analysis from Vital Transformation,a health care economics consultancy,shows there were 23 Chinese clinical trials in 2023,a sharp increase from just one in each of the three years prior.(See f

276、igure 25.)186 Figure 25:Alzheimers disease clinical trials originating from Chinese pharma companies,20202023(count)187 Trade Balance According to trade data from the U.S.Census Bureau,between 2010 and 2022,Americas trade deficit in the biopharmaceutical industry grew significantly,from$37.2 billion

277、 in 2010 to billion in 2022.(See figure 26.)During the same period,Americas trade deficit with China also worsened,from$959 million to$4.07 billion.(See figure 27.)A 2020 ITIF report argues that there are a number of likely reasons for the poor U.S.trade performance,including low wages in certain co

278、untries such as India and China,strong national manufacturing and engineering systems in developed countries such as Switzerland and Germany,and price controls by other countries on pharmaceuticals,which lead to mismeasurement of the value of exports and imports,since countries imposing price contro

279、ls on drugs are likely to lead American companies to value exported drugs at the lower prices constrained by those policies.188 Figures 26 and 27 indicate that while the United States is currently a global leader in the biopharmaceutical industry,Chinas domestic sector has accelerated rapidly in rec

280、ent years,presenting a growing competitive threat to U.S.leadership at a time when the U.S.policy environment supporting the sector is weakening.Without a more supportive policy environment,the U.S.biopharmaceutical industry could follow the downward trends previously seen in the telecommunications

281、equipment,semiconductor,television,solar panels,and chemicals industries.If this were to happen,policymakers might need to pass a DRUGS Act(similar to the CHIPS Act)several decades from now to restore U.S.leadership in the sector.Thats certainly a situation the United States should never find itself

282、 in,but it did in semiconductorsand if the country continues to weaken its policy environment supporting life-sciences innovation,then its certainly not inconceivable it could happen again.05101520252020202120222023INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 37 Figure 26:U.S.glob

283、al trade balance in pharmaceutical manufacturing,20102022(billions)189 Figure 27:U.S.trade balance with China in pharmaceutical manufacturing,20102022(billions)190 -$120-$100-$80-$60-$40-$20$02010201220142016201820202022-$5-$4-$3-$2-$1$0$1$2$32010201220142016201820202022INFORMATION TECHNOLOGY&INNOVA

284、TION FOUNDATION|FEBRUARY 2024 PAGE 38 Reasons for U.S.Biopharmaceuticals Leadership Besides the large size of the U.S.domestic market,which accounts for 42 percent of global drug sales,a number of other factors have contributed to America becoming the worlds leader in biopharmaceutical innovation.St

285、rong Institutions One reason is the existence of many strong research universities and institutions such as the National Institutes of Health(NIH)to support their scientists.With a nearly$48 billion budget in 2022,up from$11 billion in 1996,NIH supports 300,000 scientists at more than 2,500 universi

286、ties,medical schools,and other research institutions in every state in its mission to“foster fundamental creative discoveries,innovative research strategies,and their applications as a basis for ultimately protecting and improving health.”191 Moreover,the Advanced Research Projects Agency for Health

287、(ARPA-H),an independent entity within NIH with a current budget of$1.5 billion,was founded in 2022 to“accelerate better health outcomes for everyone by supporting the development of high-impact solutions to societys most challenging health problems”by supporting scientists who are developing complet

288、ely new ways to tackle some of the toughest health challenges.192 Pharmaceutical Legislation Other policies favorable to the U.S.biopharmaceutical industry include the Orphan Drug Act,enacted in 1983,and the Prescription Drug User Fee Act(PDUFA)of 1992(and its subsequent reauthorizations).The Orphan

289、 Drug Act aimed to incentivize the development of drugs for rare diseases,which may not be economically viable without special incentives,through benefits such as tax credits,grants,and market exclusivity to pharmaceutical companies that develop and bring to market drugs for these rare diseases.193

290、From 1983 to 2022,there were 1,122 approvals of orphan-designated products,including new molecules,indication,and formulation approvals.194 The passage of PDUFA in 1992 specified performance goals for the FDA in the form of quicker drug application review times in exchange for authorizing the FDA to

291、 collect fees from drug manufacturers to enhance resources that would expedite the review process.A 2005 study finds that PDUFA substantially accelerated the FDAs drug review process.Instead of a counterfactual 16 percent reduction in approval times in the absence of PDUFA from 24.2 to 20.4 months,a

292、pproval times decreased 42 percent,from 24.2 to 14.2 months,between 1991 and 2002.Therefore,PDUFA accounted for approximately 62 percent of the decline during this period.195 In addition,the U.S.market has a robust IP protection regime and historically limited drug government drug price regulation,w

293、hich have also spurred domestic pharmaceutical innovation and greater availability of medicines for patients in the United States.196 Robust IP Protection Regime The drug development and approval process is expensive,lengthy,and risky.197 According to a recent study,it costs$2.6 billion to develop a

294、 new drug.198 Drug development also takes 1015 years,and few drugs ever reach the market.A pharmaceutical company developing a new drug incurs the full costs of R&D,but it often does not capture the full benefits because as soon as the new drug is released,other firms can quickly replicate it.The ex

295、istence of such knowledge spillovers means that incentives need to be created for a pharmaceutical company to invest in INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 39 the necessary R&D to create a drug in the first place.To encourage socially desirable levels of R&D,a commonly us

296、ed policy tool is patent protection.199 Patents,a form of IP protection,grant exclusive rights to commercialization of an invention for a specific period,typically 20 years.In the pharmaceutical industry,where drug development is lengthy and costly,patents are especially important to stimulate R&D i

297、nvestments.Patents enable pharmaceutical companies to recover their R&D investments and generate profits to sustain future R&D efforts.200 Using data from the Carnegie Mellon Survey on Industrial R&D,a 2008 study provides evidence that patent protection leads to higher private returns on R&D,which i

298、n turn stimulates future R&D investments in the pharmaceutical industry.201 Another study of 60 countries from 2000 to 2013 finds that patents are associated with earlier release of new drugs.202 And a third study using data on the launches of 642 drugs in 76 countries from 1983 to 2002 finds that a

299、 higher length and strength of patent protection significantly accelerates drug diffusion,spurring market entry in high-income countries.203 It also appears that IP protection on research tools in biomedical innovation seldom hinders the pursuit of scientifically promising projects,meaning that pate

300、nts do not impede future innovation.204 A paper in the American Economic Review studying cancer clinical trial investments reveals that lags in commercialization tend to cause pharmaceutical R&D investments to be redirected away from drugs targeting early-stage cancers.There are more incentives to f

301、ocus on the development of late-stage,rather than early-stage,cancer drugs due to shorter clinical trials for late-stage drugs and the fixed-term nature of the patent system,which provides a longer effective patent protection for drugs with a shorter time between invention and commercialization.Whil

302、e patents provide a fixed period of market exclusivity,“since in many industries firms file patents at the time of discovery(invention)rather than first sale(commercialization),effective patent terms vary:inventions that commercialize at the time of invention receive a full patent term,whereas inven

303、tions that have a long time lag between invention and commercialization receive substantially reducedor in extreme cases,zeroeffective patent terms.”205 Since it takes a longer time for early-stage cancer drugs to reach the market,their effective patent terms are shorter than those of late-stage dru

304、gs,so this combination of clinical trial length and patent system design may under-incentivize longer projects.To stimulate more long-term cancer research,the authors endorse:1)policies to allow pharmaceutical companies to rely on surrogate endpoints in clinical trials,2)a restructuring of the paten

305、t system to start the clock at commercialization(i.e.,time of FDA approval rather than time of invention),and 3)R&D subsidies for projects with long commercialization lags.206 Moreover,unclear patent subject matter eligibility is a challenge for the U.S.life sciences innovation system.A recent study

306、 shows that although 17,743 patent applications were rejected in the United States as ineligible for patent protection,1,694 of those were granted by the European Patent Office,by China,or both.This suggests that U.S.courts have been interpreting patent subject matter eligibility more narrowly than

307、other countries.207 Therefore,as it considers patent reform,Congress should make clearer that innovative diagnostic and screening tools in the life sciences arena should be viewed as novel and patentable.INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 40 Limited Drug Price Regulation

308、s There is an inherent linkage between biopharmaceutical companies ability to earn profits and their ability to invest in R&D toward future generations of innovation.Indeed,just like in the semiconductor industry,where the profits from the 10 nm chip line beget the revenues to invest in 7 nm and the

309、n 5 and 3 nm chips,the profits from a cholesterol drug,for instance,beget the revenues to invest in solutions for challenges at the forefront of biomedical innovation and the next generation of cures,for diseases such as pancreatic cancer,Alzheimers disease,or COVID-19.This is why,as Joe Kennedy wro

310、te in the ITIF report“The Link Between Drug Prices and Research on the Next Generation of Cures,”most academic assessments find strong links between industry returns and R&D investments.208 For instance,academic research shows a statistically significant relationship between a biopharma enterprises

311、profits from the previous year and its R&D expenditures in the current year.209 Likewise,Gambardella found that sales revenue from previous periods has a significant,positive impact on current-period biopharma R&D.210 Henderson and Cockburn found that the pharmaceutical firms with the greatest sales

312、 are also the ones with the largest R&D investments.211 Dubois et al.made this dynamic quite evident,finding that every$2.5 billion of additional biopharmaceutical revenue leads to one new drug approval.212 The pharmaceutical market in the United States has historically been characterized by limited

313、 price regulations set by the government,instead relying on private sector mechanisms.Rather than centrally determined,drug prices in the United States are determined by market forces,competition,and the negotiation between drug developers and various purchasers.Other countries,including Canada,Engl

314、and,and EU members have instituted processes or agencies to impose drug price limits,which contribute to delays in the availability of new drugs in those markets.A recent report from the Fraser Institute finds that drugs are approved an average of 15 months later in Canada than in the United States.

315、213 A study by the Galen Institute shows that out of 290 new drugs released between 2011 and 2018,89 percent were available in the United States,compared with 62 percent in Germany and 48 percent in France and Switzerland.A 2016 paper provides further evidence that strong or even moderate price regu

316、lation dissuades pharmaceutical entry into a market.The analysis also finds that new drugs launch much more quickly in countries with health policy institutions that promote drug availability,especially those that adopt WHOs Essential Drug List and those that have a national formulary.214 If the Uni

317、ted States were to impose drug price controls of similar magnitude to those in Europe,pharmaceutical companies would reduce R&D investments,leading to fewer important treatments and cures being invented.Research shows that the long-term societal costs of those lost drugs outweigh the short-term bene

318、fits of reduced drug prices.A study published in Pharmacoeconomics shows that EU price controls have reduced European pharmaceutical firms R&D investments compared with American companies,resulting in 46 fewer new drugs and 1,680 fewer research jobs in the EU between 1986 and 2004.Estimates show tha

319、t had the United States adopted similar price controls,it would have cost the United States 117 new drugs and 4,368 research jobs.215 Moreover,a study in Health Affairs estimates that such a measure would hurt future generations of Americans and cost the United States$8 trillion.216 INFORMATION TECH

320、NOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 41 Recently Proposed Damaging Policy Changes While policies such as a robust IP protection regime and the general absence of government-imposed price controls have encouraged U.S.biopharmaceutical innovation,recent proposed measures to dictate drug pri

321、ces and weaken IP protection risk hurting American innovation and leadership in this industry.The motivation for these policies is a desire for cheaper drugs in the United States and abroad.But these particular measures suggest either that policymakers do not value U.S.biopharmaceuticals competitive

322、ness or they are unaware that the measures will hurt this position.Such policies contrast with a coherent industry advancement strategy.For example,if the CHIPS Act were to also come with rules to reduce patent length on U.S.semiconductors and price regulations,it would suggest that the act helps wi

323、th one hand and hurts with the other.But in the case of biopharmaceuticals,the proposed policies hurt with one hand and do nothing with the other.Drug Price Controls Policymakers in the United States have been under increasing pressure to make health care more affordable for the American public,trig

324、gering fervent debates about the best ways to do so.At the core of these discussions lies a trade-off between providing affordable drugs to the current generation and ensuring access to new drugs for future generations of Americans.217 While medicines account for just 14 percent of national health c

325、are spending,proponents of drug price controls argue that consumers need to be protected from rising drug prices.218 This argument ignores that drug prices after discounts and rebates,which do not go to the developers of innovative medicines,have decreased for years,but discounts are rarely passed o

326、n to patients,going instead to middlemen such as pharmacy benefits managers owned by insurance companies.A 2023 ITIF report shows that the share of each dollar spent in the United States on drugs going to manufacturers declined over 17 percentage points from 2013 to 2020,from 66.8 to 49.5 percent,as

327、 middlemen in the supply chain captured a greater share of revenues.219 To the extent that policymakers wish to meaningfully lower spending,they need to consider the costs that are introduced by all actors across the pharmaceutical supply chain and compare the nature of profits in all relevant healt

328、h care subsectors.In January 2024,the FDA approved Floridas“first-in-the-nation”plan to import prescription drugs from Canada,where prices are lower,and other states are also seeking FDA approval to purchase medicines in bulk from Canadian wholesalers.Aside from logistical and supply challenges,impo

329、rting drugs from other countries because of cheaper prices also implies importing those countries price controls,which may signal race to the lowest price and fewer innovation incentives.220 In August 2022,Congress passed the IRA,the first law in American history to grant the Centers for Medicare&Me

330、dicaid Services the ability to control the prices of certain drugs.In August 2023,Medicare released a list of the first 10 drugs to become subject to price negotiations.The drugs target a wide range of diseases,including diabetes,heart disease,and cancer.221 Studies show that such regulations can ha

331、rm the development of important treatments and cures in the long run.A 2021 University of Chicago paper estimates that the impact of price controls proposed by the IRA would result in a 45 percent decrease in pharmaceutical R&D between 2021 and 2039,254 fewer new drugs,and a loss of life in the next

332、 decade that is 20 times INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|FEBRUARY 2024 PAGE 42 larger than that from COVID-19 in the United States between March 2020 and September 2021.222 When RAND studied the effects of different approaches to price regulation on consumer costs and life expectancy,it

333、 found that price controls that reduce pharmaceutical company revenues by 20 percent result in a negative long-term per capita net present value(as measured by the monetary value of life expectancy minus the value of medical and drug spending).The report argues that decreasing patient copayments without reducing pharmaceutical revenues would better serve both current and future generations.Simulat