Why University Research Is Crucial to US Competitiveness

If the United States wants to stay ahead of China, it must invest more, not less, in basic and applied research to build the foundational knowledge needed for innovation.

In recent months, the Trump administration has slashed direct funding to research universities while cutting the budget for key government agencies that provide university research grants. For instance, the federal government recently froze over a billion dollars in federal funding to Cornell University and other research universities. Moreover, budget cuts to key science and technology agencies, such as the National Institute of Health, have also led universities to lose research grants. This is problematic because the higher education sector continues to be the leader in R&D investments for basic research.

Indeed, recent data from the National Center for Science and Engineering Statistics shows that the higher education sector has historically been the top contributor to R&D spending for basic research. From 2003 to 2023, the higher education sector consistently contributed between 45 and 60 percent of the total R&D expenditure on basic research. Although the business sector is quickly catching up, higher education remains the leader in R&D investments for basic research. (See figure 1.)

Figure 1: Total basic research R&D spending by sector from 2003 to 2023

In 2023, the United States’ R&D expenditure for basic research totaled $138 billion. The higher education sector contributed $64 billion, accounting for 46.7 percent of the total. Business contributed $46 billion, or 33.1 percent. The remaining $28 billion came from federal institutions, nonprofit organizations, and nonfederal government combined. (See figure 2.)

Figure 2: U.S. total R&D expenditures for basic research by sector in 2023

Concerningly, the federal government funds over 50 percent of the higher education sector’s R&D spending on basic research. In comparison, 28 percent of the funding came from higher education, while 19 percent came from nonfederal government, business, and nonprofit organizations. (See figure 3.) This is troublesome because the federal funding cuts to universities mean that R&D for basic research will be reduced, harming the foundational knowledge base the United States relies on to remain competitive against China.

Figure 3: Sources of funding for higher education research and development from 2003 to 2023

The Trump administration—particularly its Office of Management and Budget director—appears to hold a strong bias against both government and higher education, the latter due in part to past excesses in DEI programs. As a result, it will probably continue cutting direct funding for higher education. Nonetheless, the administration and Congress should encourage businesses to increase their funding for university research. In 2023, the business sector only contributed $3.3 billion, or just 5 percent, of the higher education sector’s total R&D spending on basic research. (See figure 4.)

Figure 4: Sources of funding for higher education research and development in 2023

Policymakers should therefore provide stronger incentives for the business sector to fund university research. Congress should modify the existing tax credit provided to businesses that contribute to energy research through a consortium to apply to all research activities and expand the credit from 20 percent to 40 percent. Doing so will not only boost U.S. innovation-driven competitiveness but also strengthen the nation’s university research base.