To Outcompete China, New Report Urges Dual-Track U.S. Economic Policy With New Track Focused on Strategically Important Industries

January 3, 2022

WASHINGTON—The federal government needs to adopt a new economic policy approach focused on ensuring the competitive advantage of select industries that are strategically important because of their dual roles in economic and national security if the United States is to remain the world’s leading power in the face of a rising China, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy. 

Conventional economics will no longer suffice, nor will even ad hoc competitiveness policies, according to ITIF’s report. Outcompeting China economically, technologically, and militarily will require a fundamentally new, dual-track approach to U.S. economic policy: Market forces should continue to guide non-strategic industries such as retail and finance, but the federal government should adopt explicit sector-based strategies to spur innovation and production in key dual-use areas of technology such as aerospace, semiconductors, and quantum computing. 

“In a fiercely competitive global economy, it is no longer assured that the United States will have the domestic production and innovation capabilities it needs in key industries, nor will it necessarily be able to buy what it requires from other nations,” said ITIF President Robert D. Atkinson, who authored the report. “It’s time to end the stale argument about free markets versus industrial policy. We need both—market-based policy for most of the economy, and strategic-industry policy for select sectors.” 

ITIF will host a webinar, January 11 at 10:00 a.m., featuring Atkinson and a panel of experts who will discuss what a national strategic-industry policy should look like.

As proposed in the new report, a U.S. strategic-industry policy would entail identifying critical sectors and technologies, continually monitoring U.S. and foreign capabilities in those areas, and implementing targeted policies to bolster the competitive positions of the sectors. The report argues such an approach would not mean favoring U.S. firms over allied nations’ firms that produce or do research in the United States, nor would it mean picking industries in which America has few capabilities or picking individual firms as “winners.” It should entail identifying industries where the United States must have adequate security capabilities. It would mean analyzing the strengths and weaknesses of each sector and implementing the correct policy interventions to spur competitive advantage. It would also mean adding new institutional capacity in Congress and the administration, akin to what Congress did after WWII, but this time in order to effectively enact and implement strategic-industry policy.

“It’s time to put an end to the ‘know-nothingness’ in the debate around strategic-industry policy and once and for all acknowledge that the United States cannot be indifferent to the economy’s composition when it comes to industry and technology,” said Atkinson. “Economists need to either get on board and start studying industries and technologies or get out of the way and at least acknowledge that the discipline of economics does not have all the answers and that there is a need for sector-based economic analysis and policy.”