The United States has fallen behind China and numerous other countries in its global share of key industrial sectors, according to several experts in technology and industrial policy.
“We’re below the global average…,” said ITIF founder Robert Atkinson. “We’re moving in the wrong direction.”
“We’re almost a developing nation.”
The industries measured in the so-called “Hamilton Index” include pharmaceuticals, electrical equipment, machinery, motor vehicles, computer equipment, and other key sectors that play an outweighted role in determining the nation’s competitive advantage.
While the United States had garnered a massive share in low-value added sectors like IT and information services, it had steadily lost its global share of advanced, high-value industries over the course of the last three decades, Atkinson said.
Moreover, Atkinson added, Washington policy makers seemed largely to blame for this trend.
“Public policy in Washington is intentionally trying to decrease our position [in these industries],” Atkinson said.
US Must Reject ‘Progressive Economics’
To that end, Atkinson said that many American policy makers believed that all industrial sectors were essentially equal in economic promise, and that that belief rendered them incapable of crafting meaningful legislation to enhance and fortify the nation’s most critical technologies.He referenced the now infamous quote from Michael Boskin, an economic adviser to President George H.W. Bush, who once said “Potato chips, computer chips, what’s the difference?”
That failure to recognize that some industries play a greater role in securing the nation’s competitive edge persists in Washington now, he said. Changing that thinking among political leadership is the key struggle that will determine the future of American competitiveness.
“The single-most battle we have to fight is an intellectual battle, not a political battle,” Atkinson said.
“Computer chips are more important than potato chips.”
Atkinson added that the nation’s competitive advantage was “not given,” but “fought for,” and that abandoning the “progressive” and “neoliberal” economic theories that have been ensconced in Washington for decades was crucial.
“This is about competition,” Atkinson said.
G7 Nations Losing High-Value Industries to China
David Sainsbury, former Minister of Science and Innovation for the UK, agreed with the assessment, saying that a new theory of growth and competitiveness was necessary to break China’s growing economic domination and forge a path forward for the United States, UK, and other G7 nations.Indeed, he said, all of the G7 nations faced declining rates of economic growth since around 1990, when their approximately ⅔ of global GDP plateaued and entered a period of dramatic decrease correlating with China’s true entry into the international marketplace.
The loss of high value-added industries like energy, mining, and advanced manufacturing, and their replacement with lower value-added services, he said, had drastically hindered the G7’s economic development.
“We have a poor rate of innovation in advanced industries, which are really the engine of economic growth,” Sainsbury said.
“It’s a race to the top and to get into the more advanced areas.”
Moreover, he said, the United States faces a $250 billion trade deficit in advanced sectors like those listed in the Hamilton Index, and would need to deploy new strategies to deliberately grow those sectors including through subsidizing or incentivizing research and development, skills training, and financial resources.
Ultimately, he said, American leadership would need to accept that it can only improve its own industrial capacity at China’s expense, or else allow China’s communist regime to advance at its expense.
Boosting American Competitive Advantage
Securing competitive advantage over China in the long term will require much larger investments both into the depth and breadth of the United States’ innovation ecosystem, according to David Adler, an economist who wrote a book on industrial policy.Adler noted that senior Chinese Communist Party (CCP) officials already regarded industry as “the main battlefield of technology innovation” and industrial policy as the ultimate “foundation for winning the competition [with the United States].”
To counter the regime’s own push to topple the U.S. economy, he said, the United States should learn from Japan’s new economic security strategy, which he considered to be a framework to deal with the China challenge.”
Under the strategy, he said, Japan’s entire political system is being reintegrated to counter CCP predation by funding supply chain resiliency, promoting critical industrial sectors, and aligning the corporate sector with key government goals.
The United States could pursue a similar path, he said, strategically investing not in single companies, but whole sectors deemed to be of vital importance to national security.
“The key to industrialization is competition,” he said, adding that the nation should grow critical sectors at home or in allied nations while removing them from strategic competitors like the CCP.
Michael Brown, former director of the Pentagon’s Defense Innovation Unit, agreed, but added that the United States would need to spend more to align U.S. companies to strategic goals in the long term.
“I think the capitalist system we have today is optimized for short-term results,” Brown said.
“We’re not actually spending enough because the companies… are fragile… and we have to make the commitment [over a long period].”
Whereas a few companies like SpaceX might have an eccentric billionaire willing to put money on the line and take risks, he said, most corporations did not have that luxury, and were incentivized to put short-term gains before long-term corporate interests, much less national ones.
By providing incentives, he said, the U.S. government could help to support moderate risk-taking and long-term capital growth while convincing key industries to pull back from China.
“How did we win [the first Cold War]?” Brown said. “A consistent policy of containment.”
Slowing China’s Ascent
The issue of the new Cold War between the CCP and United States also complicated the decision-making for how to best boost American economic advantage, said Jonathan Ward, Founder of the Atlas Organization advisory firm.The CCP, Ward said, is pursuing a “post-American world.” Speeding up American industrial capabilities, therefore, is not enough to ensure the future. Rather, the United States, must also actively work to limit the CCP’s power and innovation.
“They have a very clear geopolitical vision that is essentially about the destruction of the American-led order,” Ward said.
“We do want to restrict the growth of China as long as the Communist Party is in power.”
Ward explained that much of the CCP’s long-term vision viewed the United States as essentially “being in the way,” and, as a result, the regime is building a military meant for the explicit purpose of fighting the United States in the Pacific and ejecting it from the region.
To that end, Ward suggested retaining trade with China in certain fundamental areas like agriculture, while strategically decoupling sectors critical to U.S. competitive advantage like AI and biosynthetics.
Sen. Todd Young (R-Ind.) said that accomplishing such a goal would require incentivizing the growth of some industries because China “weaponizes” industrial policy against the United States.
Young confessed it felt like an “unnatural act for a limited government Republican” to support such industrial policy, but that the threat posed to the nation by the CCP through industrial planning created the necessity of an exception to the goal of an otherwise limited government.
“If we want to be the world’s leader across the range of strategic industries, that means making strategic decisions,” Young said.
“We need to incentivize.”
