A Techno-Industrial Strategy for National Competitiveness
Hello, I’m Ylli Bajraktari, CEO of the Special Competitive Studies Project. In this week’s edition of 2-2-2, SCSP’s Addis Goldman and Nicholas Furst discuss the necessary elements of a techno-industrial strategy to secure U.S. economic competitiveness in the twenty-first century. For a more detailed version of the strategy, see Pillar 3 of the Vision for Competitiveness, entitled “Catalyze Enduring Economic Advantage in the AI Era.”
A Techno-Industrial Strategy for National Competitiveness
A range of factors continue to underpin U.S. economic preeminence, from the world’s deepest, most liquid financial markets to extensive natural resources and a diverse and productive workforce. For all its economic advantages, however, the nation has a glaring deficiency: America’s advanced industries cannot produce enough high-tech goods to guarantee its economic competitiveness and national security. In 1980, the United States manufactured over 40 percent of global high-tech goods, compared to just 18 percent today. In roughly the same period, China went from producing low-end goods to capturing significant market share across a range of strategically important advanced industry verticals, from machine tools to wind turbines, electrical transformers, and many others.
In recent months, Beijing has doubled down on advanced industries as the key drivers of Chinese economic growth. Beijing is using its industrial might to flood international markets with subsidized exports, including batteries, photovoltaic cells, and electric vehicles. If successful, this strategy would entrench asymmetries in industrial base capacity between the United States and China, undermining the competitiveness of domestic firms and calling into question the ability of the United States to prevail in a protracted conflict.
In spite of the challenge to U.S. economic preeminence posed by China’s advanced manufacturing prowess, the United States has entered a unique moment. Policy and technology trends are converging to create opportunities for U.S. economic advantage. Efforts to counter China’s techno-economic strategy and reconstitute the U.S. industrial base align with broader national goals, from defense to decarbonization. At the same time, software-defined manufacturing paradigms are emerging that could help position the United States to compete with China for market share in advanced industries in ways that did not exist five to ten years ago.
Cutting-edge manufacturing firms are competing on cost and flexibility by building highly intelligent factories that harness a range of automation technologies and novel production methods, from Industrial AI to additive manufacturing, robotic sheet metal forming, and humanoid robots. More broadly, the AI-enabled software systems that power chatbots and image generators are beginning to impact the physical world, accelerating the pace of innovation across deep-technology sectors that depend on advanced industrial capabilities like biotechnology, quantum computing, advanced materials, and drug discovery: new markets behind innovation power.
As part of SCSP’s Vision for Competitiveness, organizing for strategic competition in advanced industries will require the United States to implement a coherent strategy encompassing three lines of effort: production, markets, and people.
Production
The United States can rebuild lost production capacity by making major investments in advanced manufacturing technologies. Leveraging technologies such as Industrial AI, robotics, digital twins, and 3-D printing to drive production in a direction that is more distributed, flexible, and sustainable can begin to offset China’s advantages in scale-based manufacturing. To turn the United States into an advanced industrial superpower, the nation must first resource its key manufacturing innovation programs, such as Manufacturing USA and the Manufacturing Extension Partnership, as strategic assets. Furthermore, the U.S. government should take a number of actions to encourage small- to medium-sized manufacturers to adopt advanced manufacturing technologies, de-risk private investment in capital-intensive industries, and reroute supply chains for digital infrastructure components (e.g., IoT modules) through trusted allies and partners.
Markets
The United States must foster the emergence of a new, tech-focused international economic order. Decades of outsourcing have left democratic market economies reliant on China for critical technology inputs and advanced industrial capacity. According to one estimate, the United States and its allies annually import $1 trillion worth of strategically critical goods from China and states in its orbit out of $5 trillion sourced globally. To reduce dependence on China and counter its “brute force” economic tactics, the United States must use economic statecraft tools to advance its techno-industrial objectives. Enacting tariffs to insulate critical industries from artificially cheap Chinese exports is a good start; however, these actions must be accompanied by complementary efforts to deepen strategic trade and investment partnerships with allies and partners focused on securing access to critical inputs, such as networking components and critical minerals, and aligning investments with allies and partners to ensure democratic leadership in battleground technologies. In addition, the United States, in collaboration with democratic market economies, should design a new approach to export controls and investment screening for the AI era. Finally, the United States should appoint a White House lead for economic security, who should be responsible for coordinating the use of economic statecraft tools across the interagency.
People
Despite America’s enduring status as the world’s top destination for technology talent, U.S. advantages are beginning to erode. For example, the United States’ share of top-tier AI researchers fell from 59 percent to 42 percent between 2019 and 2022, while China’s rose from 11 percent to 28 percent. High-skilled immigration reform — namely, expanding the H1-B and O-1 visa programs for foreigners with critical skills — can help reverse this trend. But the talent competition concerns more than just AI researchers. The United States must also integrate AI-enabled technology into all K-16 classrooms to teach students what AI is and how to use it. Finally, China’s push to dominate strategic technology sectors should be met with a national effort to enable prospective workers and engineers to find and fill advanced industry job opportunities. This includes making a national career entry network to scale pathways to careers in advanced industries, as well as standing up a National Commission on the Future of Work to address the complex challenges facing the U.S. workforce in the age of rapid technological advancement.
Conclusion
The U.S. economy grew faster than all other major developed economies in 2023 and is set to continue to outperform expectations in 2024. In particular, U.S. leadership in AI is creating economic value across industries and shows promising signs of boosting productivity. However, now is not the time to rest on our laurels. As China moves to secure leadership positions in a range of advanced industries, the United States must execute a strategy to guarantee its economic and technological superiority. The fate of our economy, society, and national security depends on it.
As always, great stuff from the SCSP!