The trillions of dollars that Washington is throwing at beleaguered American industries could have unforeseen consequences in the longer term viability of domestic investment opportunities. Washington’s handouts may come at the expense of funding important R&D projects that could give the U.S. a long-term competitive edge that it appears to be losing to Asia.

If in fact this scenario plays out, emerging markets in Asia could prove to be the superior play in the coming decades as they surpass America’s R&D investments.

R&D is the cornerstone of sustained growth. For example, China recognizes this by launching a branding campaign that turns the pejorative “made in China” to a higher value added “created in China.”

While some of the R&D numbers coming out of Asia today still may pale compared to the U.S., the important criteria is the percentage of GDP and overall growth that these emerging markets are investing in innovation.

For example, South Korea said last week it will allocate $8.3 billion on R&D in 2009. While that’s a drop in the bucket when measured against Washington’s $99 billion budget, the bottom line is that South Korea’s budget is an increase of 11% while the American budget is a decline of 0.34%.

A recent article in The Economist said that approximately $1 trillion is spent on R&D every year in computing, telecommunications and electronics of which the U.S. accounts for over 30%. But while corporate R&D in America and Europe grew by 1-2% between 2001 and 2006, in China’s R&D soared 23%, The Economist reported.  And as a percentage of GDP, China’s corporate R&D spending is almost on a par with the European Union’s (around 1%).

The Economist said that in 2007, South Korea’s Samsung spent more on R&D than IBM. The company has jumped to second place in the number of patents granted by America’s patent office (just behind IBM).

The trend could become irreversible if Washington favors bailouts over innovation.

The Georgia Institute of Technology’s bi-annual “High-Tech Indicators” study concluded that China improved its “technological standing” by 9 points over the period of 2005 to 2007, with the U.S. declining to of 6.8. In Georgia Tech’s scale of one to 100, China’s technological standing is pegged at 82.8, versus the U.S. at 76.1. The U.S. peaked at 95.4 in 1999. China has increased from 22.5 in 1996 to 82.8 in 2007.

Innovation is the fuel for growth and generates profits for investors. That could make Asia a better long-term play than the U.S. for investors.