The United States government is reportedly on track to pass a massive suite of legislation aiming to crack down on China and to promote US technological dominance in the 21st century.
US politics has long been characterised by bitter partisanship. It's very rare these days to see a law passed that has the support of both President Joe Biden's Democratic Party and former President Donald Trump's Republican Party. This was epitomised by the passage of the massive US$1.9 trillion COVID relief package back in March. This package, which included direct stimulus cheques, managed to pass through Congress despite zero Republican support.
US-China competition heating up
But today, it looks as though American politicians have put down their partisan tendencies. Even if temporarily. According to a report in The Sydney Morning Herald (SMH) today, the US Senate has just passed a substantial US$250 billion suite of legislation targeting China. It aims to propel American economic and technological dominance in the face of strong Chinese competition. This bill is titled the US Innovation and Competition Act.
The Democratic Senate Majority Leader, Chuck Schumer, said this on the floor of the US Senate on the bill:
The bill will go down as one of the most important things this chamber has done in a very long time, a statement of faith in America's ability to seize the opportunities of the 21st century… Whoever wins the race to the technologies of the future is going to be the global economic leader. With profound consequences for foreign policy and national security as well.
Importantly, the bill passed the Senate with bipartisan support in a 68-32 vote. It now heads to the House of Representatives for final approval. This is expected to be granted with minimal modification. The bill earmarks US$50 billion over 5 years to support domestic manufacturing of semiconductor chips. This is an industry that America views as critical to 21st-century dominance.
Another US$81.5 billion will be allocated to research and development. This will target the fields of artificial intelligence, robotics, biotechnology as well as 5G and 6G wireless technology. Additionally, it also reportedly instructs the US Secretary of State to list Chinese state-owned companies that have engaged in intellectual property theft and forced technology transfers.
What does this mean for ASX shares?
Australia and China have been locked in a deteriorating diplomatic relationship over the past year. This has resulted in a number of economic consequences for Australian business. These include import restrictions on many Australian goods entering China. This has curtailed export access for many ASX companies. Some of the ASX shares that have felt the pain of these restrictions include Bubs Australia Ltd (ASX: BUB), Blackmores Limited (ASX: BKL) and Treasury Wine Estates Ltd (ASX: TWE).
Since Australia is a close ally of the United States, it's possible that these companies may not be too happy with this news today. It's unlikely to lessen international tensions, to say the least. We'll have to wait and see if this bill, upon its likely passage, results in any changes to economic relations between the US, China and Australia over the next year and beyond. But it certainly gives us an insight into where things may be going.
