US global dominance in science was no accident, but a product of a far-seeing partnership between public and private sectors to boost innovation and economic growth.
Since 20 January, US science has been upended by severe cutbacks from the administration of US President Donald Trump. A series of dramatic reductions in grants and budgets — including the US National Institutes of Health (NIH) slashing reimbursements of indirect research costs to universities from around 50% to 15% — and deep cuts to staffing at research agencies have sent shock waves throughout the academic community.
These cutbacks put the entire US research enterprise at risk. For more than eight decades, the United States has stood unrivalled as the world’s leader in scientific discovery and technological innovation. Collectively, US universities spin off more than 1,100 science-based start-up companies each year, leading to countless products that have saved and improved millions of lives, including heart and cancer drugs, and the mRNA-based vaccines that helped to bring the world out of the COVID-19 pandemic.
These breakthroughs were made possible mostly by a robust partnership between the US government and universities. This system emerged as an expedient wartime design to fund weapons research and development (R&D) in universities. It has fuelled US innovation, national security and economic growth.
But, today, this engine is being sabotaged in the Trump administration’s attempt to purge research programmes in areas it doesn’t support, such as climate change and diversity, equity and inclusion, and to rein in campus protests. But the broader cuts are also dismantling the very infrastructure that made the United States a scientific superpower. At best, US research is at risk from friendly fire; at worst, it’s political short-sightedness.
Researchers mustn’t be complacent. They must communicate the difference between eliminating ideologically objectionable programmes and undermining the entire research ecosystem. Here’s why the US research system is uniquely valuable, and what stands to be lost.
Unique innovation model
The backbone of US innovation is a close partnership between government, universities and industry. It is a well-calibrated ecosystem: federally funded research at universities drives scientific advancement, which in turn spins off technology, patents and companies. This system emerged in the wake of the Second World War, rooted in the vision of US presidential science adviser Vannevar Bush and a far-sighted Congress, which recognized that US economic and military strength hinge on investment in science (see ‘Two systems’).
It need not have been this way. Before the Second World War, the United Kingdom led the world in many scientific domains, but its focus on centralized government laboratories rather than university partnerships stifled post-war commercialization. By contrast, the United States channelled wartime research funds into universities, enabling breakthroughs that were scaled up by private industry to drive the nation’s post-war economic boom. This partnership became the foundation of Silicon Valley and the aerospace, nuclear and biotechnology industries.
The US government remains the largest source of academic R&D funding globally — with a budget of US$201.9 billion for federal R&D in the financial year 2025. Out of this pot, more than two dozen research agencies direct grants to US universities, totalling $59.7 billion in 2023, with the NIH and the US National Science Foundation (NSF) receiving the most.
The agencies do this for a reason: they want professors at universities to do research for them. In exchange, the agencies get basic research from universities that moves science forward, or applied research that creates prototypes of potential products. By partnering with universities, the agencies get more value for money and quicker innovation than if they did all the research themselves.
This is because universities can leverage their investments from the government with other funds that they draw in. For example, in 2023, US universities received $27.7 billion from charitable donations, $6.2 billion in industrial collaborations, $6.7 billion from non-profit organizations, $5.4 billion from state and local government and $3.1 billion from other sources — boosting the $59.7 billion up to $108.8 billion (see ‘US research ecosystem’). This external money goes mostly to creating research labs and buildings that, as any campus visitor has seen, are often named after their donors.
Source: US Natl Center for Science and Engineering Statistics; US Congress; US Natl Venture Capital Assoc; AUTM; Small Business Administration
Thus, federal funding for science research in the United States is decentralized. It supports mostly curiosity-driven basic science, but also prizes innovation and commercial applicability. Academic freedom is valued and competition for grants is managed through peer review. Other nations, including China and those in Europe, tend to have more-centralized and bureaucratic approaches.
But what makes the US ecosystem so powerful is what then happens to the university research: it’s the engine for creating start-ups and jobs. In 2023, US universities licensed 3,000 patents, 3,200 copyrights and 1,600 other licences to technology start-ups and existing companies. Such firms spin off more than 1,100 science-based start-ups each year, which lead to countless products.
Since the 1980 Bayh–Dole Act, US universities have been able to retain ownership of inventions that were developed using federally funded research (see go.nature.com/4cesprf). Before this law, any patents resulting from government-funded research were owned by the government, so they often went unused.
Closing the loop, these technology start-ups also get a yearly $4-billion injection in seed-funding grants from the same government research agencies. Venture capital adds a whopping $171 billion to scale those investments.
It all adds up to a virtuous circle of discovery and innovation.
Facilities costs
A crucial but under-appreciated component of this US research ecosystem is the indirect-cost reimbursement system, which allows universities to maintain the facilities and administrative support necessary for cutting-edge research. Critics often misunderstand the function of these funds, assuming that universities can spend this money on other areas, such as diversity, equity and inclusion programmes. In reality, they fund essential infrastructure: laboratory space, compliance with safety regulations, data storage and administrative support that allows principal investigators to focus on science rather than paperwork. Without this support, universities cannot sustain world-class research.
Reimbursing universities for indirect costs began during the Second World War, and broke ground, just as the weapons development did. Unlike in a typical fixed-price contract, the government did not set requirements for university researchers to meet or specifications for them to design their research to. It asked them to do research and, if the research looked like it might solve a military problem, to build a prototype they could test. In return, the government paid the researchers for their direct and indirect research costs.
Vannevar Bush (right) led the US Office of Scientific Research and Development during the Second World War.Credit: Bettmann/Getty
At first, the government reimbursed universities for indirect costs at a flat rate of 25% of direct costs. Unlike businesses, universities had no profit margin, so indirect-cost recovery was their only way to pay for and maintain their research infrastructure. By the end of the war, some universities had agreed on a 50% rate. The rate is applied to direct costs, so that a principal investigator will be able to spend two-thirds of a grant on direct research costs and the rest will go to the university for indirect costs. (A common misconception is that indirect-cost rates are a percentage of the total grant, for example a 50% rate meaning that half of the award goes to overheads.)
After the Second World War, the US Office of Naval Research (ONR) began negotiating indirect-cost rates with universities on the basis of actual institutional expenses. Universities had to justify their overhead costs (administration, facilities, utilities) to receive full reimbursement. The ONR formalized financial auditing processes to ensure that institutions reported indirect costs accurately. This led to the practice of negotiating indirect-cost rates, which is still used today.
Since then, the reimbursement process has been tweaked to prevent gaming the system, but has remained essentially the same. Universities negotiate their indirect-cost rates with either the US Department of Health and Human Services (HHS) or the ONR. Most research-intensive universities receive rates of 50–60% for on-campus research. Private foundations often have a lower rate (10–20%), but tend to have wider criteria for what can be considered a direct cost.
In 2017, the first Trump administration attempted to impose a 10% cap on indirect costs for NIH research. Some in the administration viewed such costs as a form of bureaucratic bloat and argued that research universities were profiting from inflated overhead rates.
Congress rejected this and later added language in the annual funding bill that essentially froze most rates at their 2017 levels. This provision is embodied in section 224 of the Consolidated Appropriations Act of 2024, which has been extended twice and is still in effect.
In February, however, the NIH slashed its indirect reimbursement rate to an arbitrary 15% (see go.nature.com/4cgsndz). That policy is currently being challenged in court.
If the policy is ultimately allowed to proceed, the consequences will be immediate. Billions of dollars of support for research universities will be gone. In anticipation, some research universities are already scaling back their budgets, halting lab expansions and reducing graduate-student funding. This will mean fewer start-ups being founded, with effects on products, services, jobs, taxes and exports.
Race for talent
The ripple effects of Trump’s cuts to US academia are spreading, and one area in which there will be immediate ramifications is the loss of scientific talent. The United States has historically been the top destination for international researchers, thanks to its well-funded universities, innovation-driven economy and opportunities for commercialization.
US-trained scientists — many of whom have historically stayed in the country to launch start-ups or contribute to corporate R&D — are being actively recruited by foreign institutions, particularly in China, which has ramped up its science investments. China has expanded its Thousand Talents Program, which offers substantial financial incentives to researchers willing to relocate. France and other European nations are beginning to design packages to attract top US researchers.
Erosion of the US scientific workforce will have long-term consequences for its ability to innovate. If the country dismantles its research infrastructure, future transformative breakthroughs — whether in quantum computing, cancer treatment, autonomy or artificial intelligence — will happen elsewhere. The United States runs the risk of becoming dependent on foreign scientific leadership for its own economic and national-security needs.
History suggests that, once a nation loses its research leadership, regaining it is difficult. The United Kingdom never reclaimed its pre-war dominance in technological innovation. If current trends continue, the same fate might await the United States.
University research is not merely an academic concern — it is an economic and strategic imperative. Policymakers must recognize that federal R&D investments are not costs but catalysts for growth, job creation and national security.
Policymakers need to reaffirm the United States’ commitment to scientific leadership. If the country fails to act now, the consequences will be felt for generations. The question is no longer whether the United States can afford to invest in research. It is whether it can afford not to.
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Filed under: Science and Industrial Policy |
Very interesting Steve, thank you for sharing
Well said!
I am a fiscally conservative moderate and generally support the efforts to reduce the bloat in our federal government. I am also a career tech guy who has seen from the inside the value of academic research that leads to important scientific breakthroughs and is the catalyst for economic development in the US. I see the partial public funding of this research – in collaboration with private funding, as a critical priority for tax payer dollars. The Trump administration’s broad brush attack on federally funded research is the proverbial tossing of the baby with the bath water.
Great article ! Perhaps we need to some research into how to convince intransigent lawmakers, bent only on furthering a political agenda, that facts and critical thinking matter. I am not hopeful that that will come to pass. The core question then is how much damage the Trump administration and the so-called congress can inflict in 4 years, and how long it will take to recover.
Great article, Steve! This is a must-read for every member of Congress and the Trump administration, especially those in DOGE. If we lose our scientific edge, China, moreso than Europe, will see to it that we won’t get it back. The amount of money that they are offering US scientists is crazy (I was going to say obscene), enabling them to live like multi-millionaires in China. The Chinese take the Long View, we need to do the same! If the Trump administration doesn’t take action soon to reverse this disastrous policy, we will reach the point of no return.
An eye-opening analysis. It’s concerning to see how long-term underinvestment in education, political polarization, and the undervaluing of scientific expertise have contributed to the U.S. losing its edge. Rebuilding a strong science culture will require renewed public trust, funding, and a national commitment to STEM innovation.
For decades, the United States reigned supreme in science and technology, powered by elite universities, vast R&D investments, and an unparalleled ability to attract global talent. Yet, the landscape is demonstrably shifting. Evidence increasingly suggests a gradual relative decline in US technological dominance, particularly in critical applied fields like chemicals and pharmaceuticals, while China ascends with remarkable momentum. This transition isn’t accidental; it stems from fundamental differences in education systems and talent cultivation strategies.
The Engine of Innovation: Education and Talent
China’s Systemic Scale and Focus: China’s education system prioritizes STEM (Science, Technology, Engineering, Mathematics) with extraordinary scale and intensity. Millions of graduates flood the STEM pipeline annually, far exceeding US output. This focus begins early, with rigorous curricula emphasizing core technical skills. Government initiatives aggressively fund top universities and research institutes, explicitly targeting strategic sectors like advanced materials and biotech. The “Thousand Talents Plan,” despite controversy, exemplifies the systematic effort to attract top global Chinese scientists back home, accelerating knowledge transfer.
The US Challenge: Access, Cost, and Focus: While possessing world-leading research universities, the US system faces significant headwinds. K-12 STEM education quality is uneven, often failing to prepare a diverse talent pool adequately. Soaring university costs create massive debt burdens, deterring potential talent from pursuing lengthy PhDs essential for deep R&D. Political polarization undermines stable science funding and erodes trust in expertise. American college students tend to choose majors with high graduate salaries, such as finance and software, while basic majors such as chemistry, physics, and engineering rarely have local students enrolled, and most of them recruit international students. Immigration policies have become more restrictive, hindering the traditional inflow of top international researchers and students – a cornerstone of past US innovation strength.
Case in Point: Chemicals and Pharmaceuticals – Where Strategy Meets Scale
The contrasting trajectories are starkly visible in the chemical and pharmaceutical industries:
Chemical Industry: Building the Foundations:
China: Leveraging massive state investment and integrated industrial policies, China now dominates global production of basic chemicals, intermediates, and increasingly, advanced materials (e.g., batteries, polymers). Its focus is on vertical integration, cost efficiency, and rapid scaling. Domestic giants, often state-backed or supported, invest heavily in R&D for next-generation materials crucial for electronics, renewables, and advanced manufacturing. The education system directly feeds this industry with a vast pool of process and chemical engineers. In recent years, China has seen the emergence of many large chemical companies such as Wanhua Chemical, WuXi AppTec and CATL. China also welcomes multinational chemical companies such as BASF to invest tens of billions of dollars to establish production bases. More importantly, millions of small and medium-sized enterprises such as Sinofi Ingredients are engaged in technology research and development and engineering applications in subdivided industries.
US: While retaining leadership in high-value specialty chemicals, the US faces challenges. High domestic energy costs (compared to China’s subsidized inputs), aging infrastructure, and the offshoring of bulk chemical production have eroded its industrial base. A relative shortage of domestic chemical engineers focused on large-scale production and process optimization hinders rebuilding this capacity. R&D remains strong but often lacks the seamless connection to large-scale manufacturing seen in China.
Pharmaceutical Industry: The Innovation Race:
China: Once primarily a producer of generics, China’s pharma sector is undergoing a profound transformation. Government mandates prioritize drug innovation (“National Essential Drug List,” “Volume-Based Procurement” pushing for novel drugs). Unprecedented funding floods into biotech startups and R&D. While still trailing the US in novel drug discovery output, China is rapidly closing the gap. Its vast talent pool of chemists, biologists, and data scientists, coupled with enormous patient datasets (accelerated by AI applications), provides unique advantages. Companies are becoming major players in complex biologics and gene therapies.
US: The US still leads in novel drug discovery and boasts the world’s largest biotech ecosystem. However, its model faces unsustainable pressures. Skyrocketing R&D costs, inefficient clinical trial systems, complex regulations, and an opaque pricing model leading to public backlash create friction. While venture capital is abundant, it often prioritizes shorter-term returns over foundational, long-term research. Talent remains world-class, but the pipeline faces constraints from education access issues and immigration barriers.
Why the Trajectory Points Towards China:
Long-Term, Strategic Commitment: China views S&T dominance as a core national security and economic imperative, backed by consistent, high-level strategic planning (e.g., Made in China 2025) and sustained funding over decades, regardless of election cycles.
Integration is Key: China excels at integrating education, state-funded research, and industrial policy. Graduates flow into strategically prioritized industries supported by state capital and market access. The focus is on applied science and rapid commercialization at scale.
Scale Advantage: In fields like chemicals and biopharma, the ability to deploy vast resources (capital, talent, manufacturing capacity) rapidly is crucial. China’s system is optimized for this.
US Systemic Friction: The US model, reliant on private capital, market forces, and elite universities, remains potent but is hampered by increasing systemic friction – educational inequality, political instability affecting science funding, costly healthcare models impacting pharma, and restrictive immigration policies. This hinders its ability to respond cohesively to the scale and strategic focus of China’s challenge.
Conclusion: A Changing Balance, Not Sudden Collapse
Predicting the immediate “demise” of US science is inaccurate; its capacity for breakthrough innovation remains immense. However, the relative balance is shifting demonstrably. China’s systemic, state-driven approach to cultivating vast STEM talent and strategically directing it towards critical industrial sectors like chemicals and pharmaceuticals, combined with massive, sustained investment, is yielding powerful results. The US, facing internal challenges in education access, talent retention, and political cohesion around science funding, is experiencing a relative erosion of its dominance, particularly in the complex, capital-intensive, and strategically vital fields where scale and long-term commitment matter most. The 21st-century technological landscape is being reshaped, and China’s focused engine of talent and industry is a primary force driving this change. The future belongs not necessarily to the sole inventor in a garage, but increasingly to the nation that can mobilize the most talented legions, build the most efficient factories for innovation, and execute a coherent strategy with unwavering commitment.