As Congress and the Biden administration consider how to address China’s drive for techno-economic dominance, there is no more important question for U.S. policymakers to resolve than the degree to which America’s response should be to speed up the pace of innovation and growth here, or slow both down in China. The Washington consensus holds that “slowing China down” is a bit unprincipled—perhaps because Trump tried it. Whereas “speeding us up” is as American as apple pie. But policymakers have never fully debated the question, which has resulted in a troubling policy drift. The reality is that if America does not do both—speed itself up, and slow China down—then it will likely lose the techno-economic race in the advanced, traded-sector industries that are most strategically important for the country’s dual-use industrial base and national security.
Make no mistake: That is where the current trend lines point. For example, U.S. performance has been weak and declining in four out of seven advanced industries that the Information Technology and Innovation Foundation (ITIF) examined in a global industry-concentration analysis covering the period from 1995 through 2018, the most recent year for which OECD data are available. The industries range from computers and electronics to motor vehicles, and America has been losing ground both in terms of absolute market share and relative to the global average industry-concentration level, a standardized ratio known as “location quotient.” The big winner in that period has been China, which enjoyed phenomenal growth—from less than 4 percent of global output in advanced industries in 1995 to 21.5 percent in 2018.
If the United States does not want to follow Great Britain’s path—with atrophied advanced-industry capabilities and increased dependency on Chinese imports for most advanced products—then the federal government need to get this question right. Instead, in the absence of a fulsome debate, reflexive responses fill the void, as when Larry Summers warned: “If we change our focus from building ourselves up to tearing China down, I think we will be making a very risky and very unfortunate choice.”