Recent data from the Organization for Economic Cooperation and Development confirms what experts have long predicted: China has pulled ahead of the United States in research and development (R&D) investment. In 2024, China invested $1.03 trillion in R&D (adjusted for purchasing power parity), more than the United States’ $1.01 trillion. (See figure 1.)
R&D is a critical driver of competitiveness, boosting productivity, economic growth, and innovation, and for decades, the United States was the world’s largest investor. In 1960, the United States accounted for 69 percent of global R&D expenditures, meaning it invested more in R&D than the rest of the world combined. But between 1960 and 2023, the United States’ share fell to below 30 percent, while China’s R&D investment grew at unprecedented rates. Since 2004, China’s investment in R&D has grown by more than 12 percent annually (when adjusted for inflation), more than triple the U.S. growth rate over the same period.
Figure 1: Gross expenditures on R&D, current prices, 2000-2024 (billions of PPP-adjusted USD)
While China leads in total R&D investment, its R&D intensity—measured as R&D relative to gross domestic product (GDP)—lags behind leaders such as the United States, South Korea, and Japan. Still, China’s R&D intensity, which reached 2.7 percent of GDP in 2024, has also grown significantly over the past 20 years, increasing by 4.1 percent annually since 2004. By comparison, U.S. R&D intensity increased by just 1.6 percent annually over the same period, reaching 3.4 percent of GDP in 2024. (See figure 2.)
What’s more, U.S. R&D investment growth is slowing. Between 2014 and 2019, U.S. investment grew by an average of 5.7 percent annually, slower than China, but still relatively strong. In the subsequent five years, however, the pace slowed, falling to 4.4 percent annually. And the R&D intensity in the United States has also declined in recent years, falling from a peak of 3.5 percent of GDP in 2022.
Figure 2: R&D intensity, 2000-2024
With China now leading in R&D investment, it is critical that the federal government increase funding. However, President Trump’s FY 2027 Budget Request calls for nondefense R&D to be reduced by 4 percent, while defense R&D would increase by nearly 80 percent. But much of that increase is concentrated in development and late-stage testing—areas with relatively limited spillover into other research areas. Basic research at the Department of Defense faces a 9 percent cut, while applied research faces a 15 percent cut.
Losing U.S. leadership in research would significantly reduce American firms' competitiveness in advanced industries. Policymakers must prioritize increasing federal R&D funding and incentivizing private investment, first by rejecting proposed FY 2027 cuts, and second by tripling both the Alternative Simplified R&D Credit and the regular R&D credit.
