By definition, countries that wish to successfully compete in the global economy must have highly competitive traded sectors. A nation’s traded sector comprises those industries and establishments which compete in international marketplaces and whose output is sold at least in part to nonresidents of the nation. Traded sectors include almost all of a nation’s manufacturing activity, some services (such as software, Internet, and engineering services, and entertainment content like music, movies, and video games), and some of the extraction sectors (e.g., farming or mining). Because these industries face market competition that is global in nature in a way that non-traded, local-serving industries (e.g., retail trade or personal services) do not, their success is by no means assured. For example, while we may not know whether Safeway, Giant, or Walmart are going to gain market share in the U.S. grocery store industry, we do know that the industry itself will be healthy, dependent only on the income and purchasing habits of American consumers. On the other hand, while we may not know whether Boeing or Airbus are going to gain market share in the global aircraft industry, we also do not know whether there will be aviation industry jobs in the United States, since this depends on the United States winning in global competition in this industry. Put differently, if a grocer goes out of business another will emerge to take its place to serve local demand, but if a traded sector enterprise such as a manufacturer or software company closes, the one that takes its place may well be located in another country.
This report presents 50 federal-level policy recommendations to help restore U.S. traded sector competitiveness (and an additional 13 state-level recommendations). The recommendations are organized around federal policies regarding the “4Ts” of technology, tax, trade, and talent as well as policies to increase access to capital, reduce regulatory burdens, and enable better analysis of the competitiveness of U.S. traded sectors.
While we believe all 50 recommendations are needed, we list what we believe are the most critical 10 recommendations here:
- Create a network of 25 “Engineering and Manufacturing Institutes” performing applied R&D across a range of advanced technologies.
- Support the designation of at least 20 U.S. “manufacturing universities.”
- Increase funding for the Manufacturing Extension Partnership (MEP).
- Increase R&D tax credit generosity and make the R&D tax credit permanent.
- Institute an investment tax credit on purchases of new capital equipment and software.
- Develop a national trade strategy and increase funding for U.S. trade policymaking and enforcement agencies.
- Fully fund a nationwide manufacturing skills standards initiative.
- Expand high-skill immigration, particularly that focused on the traded sector.
- Transform Fannie Mae into an industrial bank.
- Require the Office of Information and Regulatory Affairs (OIRA) to incorporate a “competitiveness screen” in its review of federal regulations.
Finally, while the report presents 50 specific recommendations, it also articulates four key themes that permeate the report and which should be viewed as essential thematic components of a U.S. traded sector competitiveness strategy. Beyond implementing specific policies, these are the key themes U.S. policymakers must embrace if the United States is to restore its traded sector competitiveness:
- The federal government must place strategic focus on its traded sectors, because it simply can’t rely entirely on its non-traded sectors to sustainably power the U.S. economy.
- The United States needs to embrace and reintegrate an engineering culture. While America has thrived on science-based innovation and has a strong science culture, it needs to become much more of an engineering economy. The notion that the United States can win through science alone is fallacious, because science is a public good that’s freely traded around the world, whereas gains from engineering-based innovation are capturable and appropriable within nations.
- The United States must move toward an economic system more focused on production than consumption. This means being willing to give short-term consumption less priority in our politics. Examples include raising the gasoline tax to invest more in roads and highways, pushing for a lower U.S. dollar, and raising taxes on individuals in order to cut them on businesses, particularly those in traded industries.
- There is a need to seriously rethink the structure of the global trading system and ensure that it is a trading system based on market-oriented principles. Unfortunately, the last decade in particular has seen a troubling rise in “innovation mercantilism,” which fundamentally hurts the U.S. competitive position while violating the spirit and often the letter of the World Trade Organization.