How to finish the competitiveness debate that Trump started
It has become almost a full-time job for pundits to explain Donald Trump’s lead in the Republican presidential field, especially given his, shall we say, unconventional nature. But certainly one reason for his popularity is that Mr. Trump is virtually alone among candidates from either party when it comes to talking about the challenges the United States faces from globalization.
Trump repeatedly points to some very real difficulties that America faces, from too much low-skilled immigration (which drives down wages for low-skilled US workers) to too much foreign mercantilism (which discourages innovation and kills good US jobs). The solutions Trump offers — namely, building a physical wall along the Mexican border and a trade wall with the rest of the world — will never work, despite their crude political appeal. But at least his unconventional campaign to “Make America Great Again” (presumably meaning the way it was 30 years ago, before pervasive globalization) is giving voice to genuine concerns in a full-throated way.
This stands in significant contrast to the prevailing rhetoric and policy substance coming from official Washington. As Stephen Ezell and I wrote in “Innovation Economics: The Race for Global Advantage,” with the exception of the period from 1985 to 1995 when America was dealing with a rising Japan, US policymakers have mostly failed to take the country’s competitiveness seriously.
When economist Paul Krugman wrote in the mid-1990s that competitiveness is a “dangerous obsession” — “it is simply not the case that the world’s leading nations are to any important degree in economic competition with each other” — he was reflecting a view that continues to hold sway. For 20 years now, competitiveness has been kept off the table as an issue for legitimate debate, and that helps explain the populist fervor and appetite for simplistic solutions that Trump is catering to.
This is too bad, because an effective economic growth policy must tackle America’s flagging competitiveness head on, and the basic elements of a robust agenda are clear. The Information Technology and Innovation Foundation spelled them out in a strategy memo to all presidential campaigns.
The first step has to be rebalancing our foreign policy, because all too often it sacrifices the interests of American workers and businesses for the sake of other goals. The country can no longer afford to do that. It’s time to recognize that US national security begins with strengthening US economic security.
Second, policymakers need to open up more markets for US exporters. Beyond the Pacific trade deal that the administration is in the process of finalizing, this includes completing a major trade agreement with Europe, a comprehensive Trade in Services Agreement, and an expansion of the Information Technology Agreement.
But more trade agreements will be for naught if the United States doesn’t also put trade enforcement at the center of US trade and foreign policy. Too often, America signs trade agreements to open up markets and then finds out that our trading partners are not living up to their end of the deals. It’s time to redefine success in US trade policy. It shouldn’t be about the number of trade agreements we sign. It should be about the overall results we achieve.
Just as important, we need to see real, concrete reductions in foreign mercantilism and protectionism. This is critical if we want to make sure average Americans get all the benefits of globalization. We need to significantly increase resources for the office of the US Trade Representative, the International Trade Administration, and Customs and Border Protection — and create posts that are specifically dedicated to trade enforcement.
Third, we need to impose real costs on countries that use unfair practices to undermine US industries and effectively steal American jobs. We should exclude those who engage in this kind of mercantilism from the World Trade Organization’s Generalized System of Preferences and cut off US aid and other cooperation. The clear message to the world should be: “If you play by the global rules of trade and investment, America wants to trade with you and help you. If you don’t, then we won’t.” As a prime example, America must take foreign currency manipulation seriously, rather than ignoring it as administrations have done for so long.
Fourth, it’s time to recognize that the postwar system of managing global trade isn’t working the way it should. As constituted, the WTO isn’t up to the task of effectively combating the growing mercantilism among many of our major competitors, especially China. For too long, we have relied on a legalistic framework in the WTO to prosecute nations that violate specific WTO trade rules, especially related to tariffs. But many countries have become savvier than that. They rely instead on an array of non-tariff barriers, and they put in place protectionist policies that are often not strictly speaking against the written rules.
We need to restructure the WTO to make it more effective in the fight against this kind of mercantilism. And if the WTO cannot come up with a viable plan quickly, then the United States needs to lead a coalition to create a new trading organization that is grounded in and committed to the idea that markets should drive global trade and investment. No one should be allowed to manipulate their currency prices for competitive advantage or look for other unfair ways of sustaining trade surpluses or driving growth in advanced technology industries, such as systemically stealing valuable know-how from other nations, excluding US companies from markets, or massively subsidizing their own companies.
Regardless of how that effort goes, one of America’s top trade priorities has to be to more aggressively confronting China’s market-fixing practices in innovation-based industries. It is clear that the Chinese government’s goal is to supplant the United States as the world’s leader in biotechnology, computers, semiconductors, and aerospace, among others. When China joined the WTO, the hope was that its legal system would improve, it would stop stealing intellectual property, and it would stop forcing companies to hand over the keys to their technology as the price of doing business in China. But none of that has come to pass. Instead, we see backsliding. At the end of the day, the United States needs to raise the costs to China if it continues to pursue these types of market-distorting policies and not shy away from threats of a trade war that may come from the Chinese government in response.
But as much as we have to use US leadership to drive a shift to a more market-based global trading system, it’s not going to be enough. We can’t maximize our competitive advantage without the right policies at home, particularly related to tax, technology, and talent. And that has to start with our corporate tax rate. It is the highest among developed countries, and we apply it to all income earned worldwide, which puts American companies at a further disadvantage. We need corporate tax reform that lowers the top rate to no more than 25 percent while at the same time moving to a territorial tax system that taxes domestic income, not foreign income. And we need to do this while also strengthening, not weakening, investment incentives such as the research and development tax credit, and creating a new “innovation box” that taxes income from innovation-based products at a lower rate.
We also need to significantly increase federal funding for industry-led advanced research consortia to help US companies better develop and adopt the best technology in the world. Policymakers also need to do much more to ensure more Americans have skills in science and engineering, including by providing real incentives to universities to do a better job at training domestic workers in these skills. It is also imperative that we open our borders to the world’s best science and engineering talent.
For all his bluster and political incorrectness, Donald Trump may have succeeded in bringing much-needed attention to the issue of US global economic competitiveness. The real question now is whether other candidates will embrace the substance of a competitiveness agenda that would actually work.
Robert D. Atkinson is the founder and president of the Information Technology and Innovation Foundation, a think tank focusing on a host of critical issues at the intersection of technological innovation and public policy. Its mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.
