Today, ITIF released its Hamilton Index of Advanced-Industry Performance examining the competitive position of the U.S. (and Canada, China, EU, Mexico, India Japan, Korea, and Taiwan) in 7 advanced industries, and trends over the last quarter century.
The research shows in no uncertain terms that global trade in those industries is like tug-of-war: for the most part, China’s gains have come at the expense of the U.S. and allied production.
The Index shows that show U.S. performance is declining and weak, both in global market share and relative to the size-adjusted global average (a ratio known as a location quotient).
- America is strongest in pharmaceuticals, other transportation equipment (principally aerospace), and IT and other information services (software and Internet companies).
- Significant growth in the latter limited the overall U.S. decline to 1.5 percentage points—from a 24 percent global market share in 1995 to 22.5 percent in 2018.
- U.S. global market share is quite low and falling in electrical equipment; machinery and equipment; and motor vehicles.
- Overall U.S. global market share in advanced industries has fallen since 1995 to 6 percent under the size-adjusted global average. Leaving out IT and information services (where the U.S. still performs well), U.S. output in the other 6 industries as a share of U.S. GDP is just 80 of the global average. In other words, the U.S. is significantly less specialized in advanced industry production than the rest of the world.
- China’s share in advanced industries is 34 percent higher than the global average, Japan’s 43 percent, Germany’s 74 percent, South Korea’s and Taiwan’s both more than double.
- There was a strong negative correlation (-0.78) between the change in the respective shares of global output that China and the United States held in advanced industries from 1995 to 2018.
- To match the advanced-industry share of China’s economy, U.S. output would have to expand by nearly $680 billion (42 percent).
Nations are in a fierce win-lose global competition for market share in advanced, traded-sector technology industries, because winning enables economic and national security. Winning—not only the competition for innovation leadership but also for production capacity—will boost wages, international competitiveness, and economic and national security.
When it comes to the U.S. national interest, innovation-based production is key. The United States has a long history of pioneering innovations only to see their production captured by other nations, including China, which reduces growth, weakens the terms of trade, and degrades the national security industrial base. Continuing to lose market share in these industries will mean a significant decline in U.S. economic power internationally.
While there are a host of policies the U.S. government should embrace, including reducing China’s advantage from its innovation mercantilist policies, we believe that given the importance of advanced industries to America, and its poor performance therein, Congress and the administration should set an ambitious national “moon shot” goal of increasing the relative concentration of advanced industries in the U.S. economy by 20 percentage points in a decade. This would mean increasing the country’s relative concentration in the sectors comprising the Hamilton Index from the most recent baseline figure (0.94) to at least 1.14 by 2032.
To do that Congress should pass and fully fund the competitiveness bills now on the table. But it should also establish a $25 billion annual “Super CHIPS Act” to incentivize U.S. and allied-country firms to build or expand advanced-industry production onshore.
Pasted below are a sampling of the graphics you’ll find in the report. There is also a separate interactive visualization will lets users map value-added production, market shares, and concentration levels in each of the industry sectors and the aggregated index, for almost 70 nations.
Should you have any comments or questions, please feel free to contact me.
Best wishes
Rob
Global production and market shares in Hamilton Index sectors, 2018
U.S. performance in the advanced industry sectors comprising ITIF’s Hamilton Index
Global market shares of Hamilton Index sectors, 1995–2018
Increasing U.S. specialization in advanced industries by 20 percentage points relative to the global average would bring their absolute share of U.S. GDP up to 9.51 percent by 2032
