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China, No. 1?
Wake Up, America!
by Kent Hughes
Few Americans greeted the above headline by happily chanting Were number 2! even while
economists and journalists quibbled over the meaning of the ranking, which had been announced by
the International Monetary Fund (IMF). The IMFs ranking is based on purchasing power paritywhat
the Chinese economy is worth in terms of purchases within Chinawithout accounting for
either the U.S. economys ongoing superiority in terms of value on the world market or the
generally higher U.S. standard of living.
No matter who is first, Chinas rise has been spectacular. For thirty
Meanwhile, Americans cannot ignore the glaring deficiencies of their own economy. The
United States has gone from being the worlds leading creditor to its largest debtor. A
decade ago, the United States led the world in the proportion of citizens with a four-year
degree; now, it is twelfth. On average, U.S. high school students lag badly in international
exams in math and science. In 2013, U.S. infrastructure received a D+ from the American
Society of Civil Engineers. The American commitment to spread democracy abroad is
hobbled by federal institutions that seem unable to develop a shared commitment to
investing in the future.
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Todays challenges
Japans strategy became known as the East Asian Miracle. Other Asian economies
followed. Chinas version adds a system of state capitalism and also aggressive pursuit
of foreign direct investment in a form that requires partnering companies from advanced
economies to share their technology.
In light of Chinas challenge, America must again rethink its approach to international
competition. The United States needs to promote effective rules by which different
economic systems can compete on a level playing field. For
undervalued currencies, the United States should press the
IMF to work with the World Trade Organization to let countries
and companies penalize offending countries. For state-owned
enterprises that have unfair advantages over private companies,
the United States should conclude negotiations for the Trans
Pacific Partnershipwhich does not include Chinaand try to
extend its rules to China. For those who violate trade rules, the
United States should turn to imposing fines, confiscating intellectual property, or restricting
certain financial transactions in place of the usual imposition of tariffs or withdrawal of tariff
concessions, which can hurt the punisher, too.
The United States needs to set a national goal of eliminating its trade deficit, which
has cost millions of manufacturing jobs and more than 60,000 factories. The federal
government should offer incentives for key high-tech industries to locate in the United
Statesstates often make such efforts, but their resources cannot compete with national
economies.
America should adopt strategies for growth, manufacturing, and innovation, the lack of
which sets America virtually alone among its major competitors. A revived manufacturing
base would foster the U.S. ability to translate inventions into growth-driving commercial
successes.
America also needs to retake the lead in supporting scientific and engineering research,
investing in infrastructure, and emphasizing education, resuming its tradition of making
these investments to spur long-term growth. These have included the land grant college
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system, created in the midst of the Civil War, and the interstate highway system and the
GI Bill, launched following World War II. Nationally supported science and engineering
research has sustained American leadership in health sciences, electronics, and advanced
materials since the end of World War II.
The United States should set national goals of eliminating its trade deficit, effectively
enforcing global trade rules, and responding to other practices that put America at
an economic disadvantage.
America needs to renew its commitment to investing in research and development,
infrastructure, and education, and promoting private sector investment and
entrepreneurship.
The United States must adopt an economic strategy that will drive the future:
scrutinizing its competitors strategies, engaging the full range of its institutions, and
maintaining flexibility in a rapidly changing global economy.
Kent H. Hughes
Public Policy Scholar
kent.hughes@wilsoncenter.org
Hughes is the author of Building the Next American Century: The Past and
Future of American Economic Competitiveness (Woodrow Wilson Center
Press 2005). He has served as associate deputy secretary of commerce,
and president of the Council on Competitiveness, and in a number of senior
positions with the U.S. Congress.
@TheWilsonCenter
facebook.com/WoodrowWilsonCenter
www.wilsoncenter.org
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