Search the archive.

It’s easy to construct climate disasters. You just find a current, disconcerting trend and project it into the future, while ignoring everything humanity could do to adapt. For instance, one widely reported study found that heat waves could kill thousands more Americans by the end of the century if global warming continues apace—but only if you assume people won’t use more air conditioning. Yes, the climate is likely to change, but so is human behavior in response.

Adaptation doesn’t make the cost of global warming go away entirely, but it does reduce it dramatically. Higher temperatures will shrink harvests if farmers keep growing the same crops, but they’re likely to adapt by growing other varieties or different plants altogether. Corn production in North America has shifted away from the Southeast toward the Upper Midwest, where farmers take advantage of longer growing seasons and less-frequent extreme heat. When sea levels rise, governments build defenses—like the levees, flood walls and drainage systems that protected New Orleans from much of Hurricane Ida’s ferocity this year.

There are a number of formidable restraints in place to keep the peace. The United States has worked hard over the decades to build these barriers—often as part of the very engagement strategy that Mearsheimer criticizes. These bulwarks have helped preserve peace and promote prosperity for the last 70 years, and they are still strong enough to prevent a U.S.-Chinese conflict. Although accidents or incidents connected to military brinkmanship may occur, they would almost certainly not lead to a wider war. That would require something exceedingly unlikely: the simultaneous failure of every restraint.

First, bilateral diplomacy would have to break down. Engagement is the opposite of estrangement, which describes the absence of U.S.-Chinese relations from 1949 to 1972. The purpose of engagement is to forestall misperceptions, provide reassurance, and prevent conflict. It is true that diplomacy and communication between China and the United States have been anemic for the past five years. And it is difficult to discern authoritative policy amid the current cacophony of diplomatic posturing on Twitter and elsewhere, creating an environment ripe for confusion and overreaction. But these deficiencies are not structural; they can be remedied. If top-level leaders in both countries consistently communicate and work to reduce public posturing, as they should, then the diplomatic barriers to war can be reinforced.

True, throughout history, when a rising power has challenged a ruling one, war has often been the result. But there are notable exceptions. A war between the US and China today is no more inevitable than was war between the rising US and the declining United Kingdom a century ago. And in today’s context, there are four compelling reasons to believe that war between the US and China can be avoided.

First and foremost, any military conflict between the two would quickly turn nuclear. The US thus finds itself in the same situation that it was in vis-à-vis the Soviet Union. Taiwan could easily become this century’s tripwire, just as the “Fulda Gap” in Germany was during the Cold War. But the same dynamic of “mutual assured destruction” that limited US-Soviet conflict applies to the US and China. And the international community would do everything in its power to ensure that a potential nuclear conflict did not materialize, given that the consequences would be fundamentally transnational and – unlike climate change – immediate.

Even if China is willing to fulfill its mission by launching a war with the U.S., can China afford it? First, the top Chinese leader is not ready for war with U.S. China will not be able to take a risk without internal coordination and support. The voice of China’s foreign policy comes from different departments. They are not well coordinated and lack a strategy with a long-term vision. China does not have a system for making consistent and workable foreign policy, and the top leader has not gained sufficient power to manage foreign relations. China is facing a mountain of domestic problems, including corruption in the military. The Chinese government has learned the lesson that a combination of internal violence and external conflict can contribute to the collapse of the regime. Now Xi Jinping is more likely to focus on China’s domestic issues especially the pandemic and its consequences in economic and financial areas. Xi’s top priority before the 20th Congress of the CCP is to carefully manage the power balance among factions in the party, attempting to ensure his third term of presidency. After the 20th Congress, Xi will take some time to reorganize the system and put new policies in place. It is not wise for the CCP to take military risks in dealing with territorial disputes with various countries at the same time as it tries to maintain domestic social stability. China cannot afford to fight against multiple countries at the same time because the U.S. has military treaties with several allies in the region. Taking military actions could possibly destroy Xi’s China Dream, his lifelong presidency, his domestic agenda and China’s global ambitions eventually. Considering all these challenges, Chinese leaders may continue their efforts to rebalance the relationship between China and the U.S. while boosting the economic growth and preparing the unification with Taiwan after the 20th National Congress of the CCP in 2022.

Second, China has understood that any conflict between China and the U.S. would be a global disaster, especially between the two nuclear powers.78 A war between the two giants is unthinkable.79 It could be a Third World War if the U.S. had a war with China.80 China now has 260 nuclear weapons in its stockpile, while the U.S. has 4670 or more. China promised that it would implement a “No first use” nuclear policy, implying that the country possesses nuclear weapons only to deter other states from a nuclear attack and expresses the purely self-defensive nature of China’s nuclear strategy. More fundamentally, it has demonstrated a viable path toward international nuclear disarmament.81 Many China experts “appear not to be worried by China’s rapidly growing nuclear capabilities, because Beijing’s official policy promises that China will not be the first to employ nuclear weapons in a conflict. Beijing promises that its nuclear forces are for deterrence and retaliation only, not for aggression.”82 However, China continues to develop its nuclear weapons. China is likely to double the size of its nuclear stockpile in a few years.83 U.S. military leaders are not as naïve as academics about China’s “no first use” pledge. Charles Richard, chief of U.S. Strategic Command, testified to the Senate Armed Services Committee that he could “drive a truck through China’s ‘no first use’ policy, because China’s unprecedented rapid expansion of its nuclear and missile capabilities is not consistent with a belief in ‘minimum deterrence’ and ‘no first use.’”84 In January 2022, five global nuclear powers who are the permanent members of the U.N. Security Council, the U.S., the UK, Russia, China, and France, signed a joint statement and agreed to prevent nuclear weapons from spreading and to ensure a nuclear war would not happen. The agreement itself is a positive sign, indicating that nuclear deterrence is working and there will be no massive war between China and the U.S.85 Practically, it is hard to trust a dictator’s words. In March 2022, Putin already put nuclear deterrent forces on high alert and attacked Europe’s largest nuclear plant just a month after Russia signed the joint statement.

Nor does technological “leadership” guarantee military advantage. Other factors determine military success, the most important being political will, leadership, and strategy. An opponent that has an advantage in these areas will be able to resist and thwart a more technologically advanced opponent (the Taliban, for example). Advanced technology in the service of flawed strategy will not change outcomes. There is an assumption that technology provides an advantage and, in a contest, where other factors are equal, technological leadership can be critical, but in most situations this technological advantage is only one factor among many in determining effectiveness. Specific quantitative measures may not actually measure what we want to assess. It may be better to ask what nations want (wealth, international influence, military power) to determine the contribution of a basket of technologies.

China is good at manufacturing what others have invented but no longer so good at innovation itself. This is the result of political change. China was becoming a leading innovator when it was politically open, before 2012. It still has advantages, but now that it is becoming politically closed, idea creation has slowed, entrepreneurs, investors and researchers are leaving, foreign investment is in decline (because of a perception of increased political risk), and geopolitics frays connections to global research and tech. Under different political leadership, China would be a much more formidable competitor, but China made a political decision that values continued party control over innovation and its ability to innovate is at risk.

Similarly, the EU spends significantly on R&D and has excellent research facilities, but its regulations are a powerful disincentive to entrepreneurship and commercialization. Europe’s major economies have shown flat income growth for more than a decade. It is not positioning itself to compete in a digital economy, since this requires a willingness to accept risk and allow entrepreneurship. Europe values privacy over innovation.

A better question might be who cares. The number of shoes is not a good indicator of national power. In fact, no single technology is a good indicator of national power. The U.S. economy is vast, decentralized, continental in size, and is guided by actively competitive markets. It has been exceptionally innovative for decades. Leading in a single technology (like railroads in the 19th century or semiconductors today) reflects a common analytical error that misjudges how economies and technology actually create national power. The concept of a “race” itself is a questionable legacy of Cold War thinking – the Cold War had a finish line (identified by Eisenhower and Dulles at the onset), while the current situation does not.

Stories about the United States falling behind are so predictable that they form a literary genre. In 1957, the President’s Science Advisor predicted that Soviet performance in math and science education would give it global leadership in a decade. In 1969, the Departments of Treasury, Commerce and Agriculture warned President Nixon that a powerful new economic entity, the European Union, would displace the United States. Starting the 1980s, assorted pundits announced that Japan would dominate the global economy. And until recently, there were routine predictions that China would displace the United States, predictions that still make regular appearances.

Exhibit 1: Categories of clean energy startups assessed in this analysis

<GRAPH OMITTED>

In the first three months of 2024 investors injected $5.1bn into biotech startups, the most in seven quarters. Eight companies have launched initial public offerings (IPOs) since January, raising a combined $1.5bn, compared with $2.5bn for all those that listed in 2023. Another nine have sold themselves to larger drugmakers for $1bn or more—the busiest start to a year in a decade. In February Novartis, a Swiss pharmaceutical titan, said it intended to buy MorphoSys, a German cancer specialist, for $2.9bn. The following month AstraZeneca, a British-Swedish giant, acquired two biotech firms for over $3bn. IQVIA, a research firm, expects $180bn-200bn in biotech and pharma deals this year, up from $85bn in 2022.

One reason for the revival is the painful triage of the past two years. Many firms with bleak prospects were eliminated; the number of biotech bankruptcies in 2023 was the highest in a decade. Those that remain are sturdier on average. Their more down-to-earth valuations also make them more appealing takeover targets for cash-rich big pharma. Fifteen of the world's largest drugmakers have a collective $800bn at their disposal for mergers and acquisitions, IQVIA calculates.

For two years, many unprofitable tech start-ups have cut costs, sold themselves or gone out of business. But the ones focused on artificial intelligence have been thriving.

Now the A.I. boom that started in late 2022 has become the strongest counterpoint to the broader start-up downturn.

While policymakers often assume venture capital has a profound impact on innovation, that premise has not been evaluated systematically. We address this omission by examining the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that the amount of venture capital activity in an industry significantly increases its rate of patenting. While the ratio of venture capital to R&D has averaged less than 3% in recent years, our estimates suggest that venture capital accounts for about 15% of industrial innovations. We address concerns that these results are an artifact of our use of patent counts by demonstrating similar patterns when other measures of innovation are used in a sample of 530 venture-backed and non-venture-backed firms.

Since the second quarter of 2022, the venture capital space has lacked good news. Quarter after quarter of dire data has left the sector gasping for some positive news to cling to. Although we won’t be able to determine whether the data released in the Q2 2024 PitchBook-NVCA Venture Capital First Look is truly a turning of the tides until data for subsequent quarters is released, it certainly hints at the signs of recovery that the venture space so desperately needs. From exit value, fund size, deal activity, and the number of new funds, the data in this quarter’s report looks set to insert wind into deprived sails! Indeed, without getting ahead of ourselves, this is the most positive we at Juniper Square have been about the venture capital space in the past two years.

Q2 2024 saw 155 venture capital funds record a successful close. This is the first quarter over 150 since Q4 2022. This number is even more noteworthy because the average fund size in this past quarter was $181.3MM. As a comparison, in Q4 2022, the average fund size was only $66.5MM. Indeed, the $28.1B raised by GPs in Q2 is over a 200% increase compared to Q1 and the highest total raised since Q3 2022.

In the first quarter of 2024, global venture capital funding grew by approximately 16% quarter over quarter, reaching $89 billion distributed over 4,600 deals (see Figure 1). The US experienced the most substantial spike, with a 72% quarter-over-quarter increase in funding, aided by large investments in technology, AI, energy, and healthcare. China saw a 13% increase in quarter-over-quarter funding, bolstered by investments in the automotive and AI sectors. In contrast, Europe reported a 28% decline in funding, primarily because of ongoing macroeconomic uncertainty and the UK’s technical recession.

Average deal sizes grew across all funding stages, with early-stage deals recording 43% quarter-over-quarter growth, followed by seed- and late-stage deals with sequential growth of 17% and 21%, respectively (see Figure 2). In particular, Series B deals surged, propelled by sectors such as generative AI, clean energy, and healthcare.

Venture capitalist Garry Tan is working to create a new front in the influence battle over artificial intelligence and rally his startup allies into a force he hopes can challenge the tech industry’s biggest voices in Washington.

The president and CEO of influential tech startup incubator Y Combinator is trying to build a lobbying operation that fights on behalf of “Little Tech,” the thousands of venture-backed firms competing for a place in the emerging AI economy.

Nearly a decade later, however, the Green Technology Pilot Program was replaced with the “Climate Change Mitigation Program” in 2022.104 The USPTO expanded the Climate Change Mitigation Program in 2023 to allow “qualifying applications involving technologies that reduce, remove, prevent, and/or monitor greenhouse gas emission [to] be advanced out of turn (made special),” similar to its predecessor. 105 Notably, to qualify under the Climate Change Mitigation Program, “[a]pplications must contain … claims to a product or process that mitigates climate change by being designed to: (a) remove greenhouse gases already present in the atmosphere; (b) reduce and/or prevent additional greenhouse gas emissions; and/or (c) monitor, track, and/or verify greenhouse gas emission reductions.” 106

It is not entirely clear whether ocean plastic remediation technologies would qualify for accelerated examination under the definitions provided. Arguably, the USPTO’s repeated emphasis on “greenhouse gas” suggests a preference for technologies that directly interact with the carbon cycle or influence the processes of energy production and consumption.107 Examples such as renewable energy sources (e.g., solar, wind, hydroelectric power) and carbon capture and storage (CCS) methods may align more closely with technologies “designed to … reduce and/or prevent additional greenhouse gas emissions” as compared to ocean plastic remediation innovations which, while critically important for marine health and capable of indirectly influencing lifecycle greenhouse gas emissions through the reduction of plastic degradation, for example,108 typically do not directly address the sources of greenhouse gas emissions or their sequestration from the atmosphere.109 This distinction may place ocean plastic remediation outside the primary scope of the USPTO’s Climate Change Mitigation Program and limit its effectiveness in encouraging such innovations.

While the minutia of the patent system has changed through the years, the current system relies on the same property- and incentive-based rationale that served as the foundation for its inception.56 Under the current system, inventors who create a new and useful “machine, manufacture, or composition of matter” may be granted a patent, which confers a right to exclude others from practicing that invention for a certain period.57 The limited monopoly conferred by this exclusive right suppresses competition from “free riders,” who seek to exploit the work of other inventors despite making no investment themselves, and thus encourages the R&D necessary for the production of socially valuable inventions.58 There is no separate patent system for “green” technologies, and these innovations are generally treated equally to other inventions during patent prosecution and thereafter.

E. Why the Current System May Not Provide Adequate Incentives

Lawmakers are now taking action to support the U.S. semiconductor industry and remedy its supply chain shortages. On June 8, the Senate passed a bipartisan bill set to invest $52 billion over five years on incentivizing domestic research and development efforts as well as manufacturing in the chipmaker industry. This bill specifically incentivizes items such as alternatives to Chinese 5G telecommunication gear. Just over a week later, a bipartisan group of senators “proposed a 25 percent tax credit for investments in semiconductor manufacturing as Congress works to increase U.S. chip production,” .

The world's top chipmakers still can't manufacture chips fast enough to satisfy the market's insatiable appetite. The global semiconductor shortage is causing headaches for many industries. Manufacturers of PCs, mobile devices, gaming consoles, vehicles, networking devices, and industrial machines are all scrambling to buy enough chips to use in their products amid surging demand for those same products. Investors looking to navigate this situation and avoid a problematic stock trade would be smart to know what's going on. That starts with being familiar with the six root causes of this ongoing crisis. 1. Intel's big mistakes Intel ( INTC 2.12% ), the world's largest manufacturer of x86 CPUs for PCs and data centers, suffered a chip shortage in 2018 after its troubled development of new 10nm chips impacted its production of 14nm chips. It hadn't resolved that shortage when it stumbled again last year by delaying the launch of its new 7nm chips. Intel's missteps caused more PC makers to buy AMD's ( AMD 3.82% ) CPUs, putting a strain on its supply. Unlike Intel, which manufactures its own chips with its internal foundry, AMD outsources the production of most of its chips to Taiwan Semiconductor Manufacturing ( TSM -0.58% ), the world's most advanced chip foundry. As a result, AMD's growth and market share gains applied more pressure to TSMC's plants prior to the pandemic. 2. Declining memory chip prices Meanwhile, memory chip prices soared in 2017 and 2018, but declined in 2019 and 2020 amid sluggish demand from the PC and smartphone markets. In response, top DRAM and NAND chipmakers -- including Samsung, SK Hynix, and Micron Technology ( MU 1.43% ) -- curbed their output before the pandemic. 3. The COVID-19 crisis In short, the market was already wobbly when the pandemic started last year. However, the pandemic temporarily disrupted semiconductor shipments as global demand for new mobile devices, PCs, and data center upgrades surged in response to remote work, online learning, and other stay-at-home trends. Most chipmakers recovered from their initial disruptions, and TSMC stayed online because its most advanced plants in Taiwan weren't affected. Memory chipmakers also quickly ramped up their production again in response to that rising demand. But the chip sector still couldn't satisfy the market's appetite for new chips. TSMC's fabs have already been running at over-100% utilization over the past 12 months, and it recently announced it would spend $100 billion over the next three years to expand its operations. Intel also recently warned that the global chip shortage could last two more years and would require "immense" investments to resolve. 4. Secular tailwinds Global demand for chips has generally been cyclical over the past few decades. However, the secular growth of new technologies -- including cloud services, 5G networks, and AI services -- is feeding a "super cycle" of chip upgrades that could last much longer than a traditional cycle. Connected devices, such as smartphones and cars, require a growing number of chips. Skyworks Solutions ( SWKS 0.35% ), which produces wireless chips for a wide range of industries, expects each 5G smartphone to use $25 worth of front-end chips, compared to $18 per 4G devices and just $8 per 3G device. Skyworks also expects nearly three-quarters of all cars to ship with cellular connectivity by 2024. IHS and Deloitte estimate the costs of all electronic components in cars accounted for 45% of their costs in 2020, up from just 18% in 2000, and that ratio could keep rising. Many chipmakers expected this supercycle to significantly boost their sales prior to the pandemic, but the crisis accelerated many of those trends while temporarily disrupting their shipments. That pressure will likely cause the global chip shortage to drag on. 5. The ongoing tech war The tech war between the U.S. and China, which intensified under President Donald Trump and is continuing under President Joe Biden, is another pressing issue. The U.S. has already levied sanctions against several big Chinese companies, including SMIC and Huawei, amid national security concerns. Those sanctions are exacerbating the shortage of advanced chips in China, but they're also spurring the Chinese government to aggressively invest in its domestic chipmakers to reduce its overall dependence on overseas technologies -- which could cause a messy decoupling of the U.S. and Chinese markets. 6. More challenges ahead The Biden administration recently proposed spending $50 billion to strengthen America's chipmaking sector, but fresh cash probably won't resolve the current chip shortage. That's because most of the global semiconductor market still relies on overseas companies like the Dutch semiconductor equipment maker ASML ( ASML 1.57% ), Taiwan's TSMC, and South Korea's Samsung -- which are all arguably more important than most American chipmakers. Moreover, several recent setbacks -- including a power outage at TSMC, a production pause at Samsung, and a fire at the Japanese auto chipmaker Renesas -- all highlight the fragility of the semiconductor supply chain and its overwhelming dependence on overseas gatekeepers. What does this shortage mean for investors? As the semiconductor shortage continues, investors should buy shares of essential companies like ASML and TSMC -- which will profit from elevated demand for their products and services -- while avoiding chip-starved sectors like the auto industry. Investors should also stick with better-run fabless chipmakers like AMD and NVIDIA instead of Intel, which could still struggle with R&D and production issues for the foreseeable future.

COVID-19 is having a large impact on both people and companies. As of mid-February, millions of people are under some degree of travel restriction across China.3 In addition, critical electronics manufacturing hubs were temporarily idled to limit COVID-19’s spread.4 This confluence of events is hitting the global supply chain, impacting both suppliers—via shortages of materials, components, and finished goods—and consumers—by creating reduced spending in China on semiconductor-dependent products (e.g., consumer electronics, automobiles).5

While there are different perspectives on how damaging COVID-19 will become, the fact remains COVID-19 is spreading across the globe. New cases have been reported in locations including, but not limited to, the United States of America, Canada, Europe, Africa, the Middle East, India, South Korea, Australia, and Japan.

One challenge faced by many entrepreneurs is to convince the investors, mostly angels and venture capitalists, that their startup is investment worthy. A lack of track record obviously does not help. So, it is often the case that when it is time to attract external investors, entrepreneurs look for possible ways to signal their quality. Patents are one popular signal that founders pursue.

In fact, many founders who I have interviewed in the past several years of teaching entrepreneurship and working with startups strongly believe that patents play a crucial role in attracting financing from angels and VCs. This is especially more prevalent among first-time founders.