Get Ready for the China versus U.S. Tech Wars

By on May 5th, 2020 in Ideas

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[Source: iStock]

Charles R. Goulding and Preeti Sulibhavi examine the competitive tech landscape in two leading economies.

On Monday, April 13, 2020, The Wall Street Journal (WSJ) published an interesting article titled “The U.S. vs. China: Who Is Winning the Key High-Tech Battles?” Hopefully recent events have made it clear to all Americans that China is our primary technology competitor and we need to have a Sputnik-like response in all key technology areas.  The WSJ sought to thoughtfully analyze each company’s comparative position in six key areas, and we have added 3D printing as the seventh focus area.

Technological Area of FocusWinnerComments
Telecommunication and 5GChina Here the WSJ emphasized that Ericsson of Sweden and Nokia of Finland were the only other players.
Artificial IntelligenceU.S. with a slight edge  
Quantum ComputingChina  
Quantum CommunicationsU.S.  
Semi-conductorsU.S. However, it should be noted that Samsung (Korea) and Taiwan are also strong on semi-conductors.
Autonomous CarsU.S. with a slight edge  
3D PrintingU.S. in the view of R&D Tax Savers  

The sobering reality is that even in areas where the U.S. leads it is often merely a slight lead.  We are glad that the WSJ lined up the battlefield scenarios so effectively.  Knowing strengths and weaknesses enables businesses, government research centers, universities and students to know where their opportunities and needs actually are. R&D tax credits are available to support initiatives in all of these technology areas. 

The Research & Development Tax Credit

Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • Must be technological in nature
  • Must be a component of the taxpayer’s business
  • Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
  • Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.

On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit has been used to offset Alternative Minimum Tax for companies with revenue below $50MM, and startup businesses can obtain up to $250,000 per year in cash rebates applied directly toward payroll taxes.

Closing In on the Tech Gap

When we are confronted with our weaknesses we have two options to select from: one is to deny the facts and continue on the same beaten path, while the alternative is to accept the facts and improve ourselves.  We must forge a new path.  One that is more efficient, more innovative and one that can help us arrive at the destination we seek.  To be the global tech giant we have the potential to be.

By Charles Goulding

Charles Goulding is the Founder and President of R&D Tax Savers, a New York-based firm dedicated to providing clients with quality R&D tax credits available to them. 3D printing carries business implications for companies working in the industry, for which R&D tax credits may be applicable.