The United States at risk of losing its technological, economic, and national security lead to China. The Information Technology and Innovation Foundation’s “Hamilton Index of Advanced-Industry Performance” vividly illustrates the heart of the problem.
Consider two charts.
As figure 1 illustrates, China is rapidly capturing global market share in strategically important industries—and its gains are coming mostly at the expense of the United States, Europe, and Japan. (Here’s an animation with them in the picture, too.)
Figure 1: Global market shares of advanced industries, 1995–2018
Meanwhile, as figure 2 shows, America is becoming significantly less specialized in five of the seven advanced industries that make up ITIF’s Hamilton Index—meaning they make up shrinking shares of the U.S. economy relative to their shares of the global economy, a ratio known as a location quotient (LQ). The exceptions are information technology and the aerospace industry (categorized as “other transportation equipment”), which have been growing high performers for the United States. (Here’s an animation of the change from 1995 to 2018.)
Figure 2: Change in U.S. level of specialization in advanced industries, 1995–2018 (scaled to 2018 output)
Yet the U.S. response has been one of halting industrial policy confusion: Some policymakers remain wedded to the neoliberal creed of free markets and free trade while others champion various shades of green-equity redistributionism or national protectionism.
None of those formulas will work.
To win the techno-economic contest with China, U.S. policymakers should instead revive America’s long tradition of “national developmentalism,” championed by Alexander Hamilton among others, who understood the government must play a key supportive role in promoting industrial development.
On April 27, ITIF will host an important conference with leading experts and policymakers to take up that challenge. Please join us.
