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The State of the Union? Uncompetitive

United State President Donald TrumpTonight’s State of The Union Speech a Great Opportunity for President Donald Trump

By Robert D. Atkinson

In the decades following World War II, the U.S. economy was by almost any measure the world’s most competitive. It boasted the highest manufacturing output, the highest productivity, a huge trade surplus — and, consequently, the highest living standards. But that’s no longer the case. President Trump should focus on this issue like a laser in his second annual address to Congress. To “Make America Great Again,” he needs to articulate a clear vision and detailed agenda for restoring U.S. economic competitiveness.

A competitiveness agenda should be right up President Trump’s alley, since it will require confronting the nation’s elites with some painful truths. When it comes to competitiveness, too many in Washington assume that since we were once the most competitive economy, then surely we must still be competitive today and evermore. Many even dismiss the very concept of competitiveness. Economist and pundit Paul Krugman set the tone for this camp when he argued in a 1994 Foreign Affairs article:

It is simply not the case that the world’s leading nations are to any important degree in economic competition with each other, or that any of their major economic problems can be attributed to failures to compete on world markets.

The president would be doing everyone a favor if he skewered this view as the elitist, globalist hokum it is. Most other nations understand very well that they are in fierce competition — especially for high-wage, innovation-based industries, from semiconductors, robotics, and artificial intelligence to aerospace, advanced batteries, and biopharmaceuticals — and favor aggressive policies to win. (See, for example, China’s “Made in China 2025” program.) Just about every U.S. governor — Democrat or Republican — realizes it, too, which is why they have state-level competitiveness policies to attract and grow high-value-added businesses. Only Washington persists in denying reality. 

Trump is right: For too long, Americans have been losing. Despite some modest recent growth in manufacturing jobs, America is still 1.2 million manufacturing jobs short of where it stood in December 2007. Manufacturing output is still lower than it was then, too. Moreover, manufacturing productivity growth — a key enabler of competitiveness — is in the tank; it has grown at an anemic rate of just 2.8 percent since 2011. Compare that to the period from 1989 to 1995 when productivity grew 114 percent — 39 times faster. No wonder the United States lost a greater share of manufacturing jobs and output in the 2000s than almost any other advanced economy. No wonder it runs the largest trade deficit in the world — one that would be even larger if not for the gusher of new oil and gas in the last decade. And no wonder that, for the last 15 years, America has been running a growing trade deficit in advanced-technology goods. 

If the United States is to turn around this dismal state of affairs, President Trump will need to rally both parties to the cause. It is not a hopeless one. In the last few years, Congress on a bipartisan basis has taken some encouraging steps forward. For example, it has made permanent the innovation-inducing research and experimentation tax credit, passed legislation to protect trade secrets, enacted the Revitalize American Manufacturing and Innovation Act, and established a new Manufacturing Engineering Education Grant program. And the Senate took a noteworthy step in creating the bipartisan Senate Competitiveness Caucus, co-chaired by Senators Chris Coons (D-DE) and Jerry Moran (R-KS).

Of course, Republicans now also have taken the important step of lowering the U.S. corporate tax rate from 35 percent to 21 percent and allowing firms to expense investments — two measures that will help both attract foreign investment and spur exports. But while tax reform is a move in the right direction, it is not enough.

America’s major competitors, including China, Germany, and Japan, are investing 10, 20, even 40 times more on a per-capital basis in competitiveness programs to help their firms become more productive and innovative. So, the president and Congress should ensure budget increases, not cuts, for key programs supporting the ability of large and small U.S. companies to compete. That includes the Export-Import Bank, the Manufacturing Extension Partnership and Manufacturing USA programs, the Department of Energy’s ARPA-E program, workforce training programs, and others. And while there is much uncertainty and disagreement over trade policy in both parties today — including over major agreements like NAFTA — President Trump is right to get tougher in confronting recalcitrant “innovation mercantilists,” most notably China, who systematically cheats to gain global market share in advanced industries. 

The health of the U.S. economy and the well-being of its firms and workers depend in large part on whether America wins or loses the competitiveness race. Winning requires a smart, well-funded national competitiveness strategy. And that, in turn, requires both the political will and the bureaucratic means.

Robert D. Atkinson (@RobAtkinsonITIF) is President of the Information Technology and Innovation Foundation.

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