The Information Technology and Innovation Foundation (ITIF) has issued a warning that the United States and other G7 economies are rapidly losing ground to China in key industries. This information, according to ITIF's President Robert Atkinson, is based on data from the Institute's Hamilton Index.
The ITIF evaluated global performance across 10 advanced industry sectors, emphasizing their crucial role in shaping the economic landscape. These sectors contributed over $10 trillion to global production in 2020, including the information technology and information services industry, which alone represented a significant 18 percent of global advanced industry output. Collectively, these industries accounted for 11.8 percent of the global economy in 2020, maintaining a steady share since 1995. This consistency underscores the zero-sum competition among nations and highlights the critical importance of the coming decade for the U.S., as it risks permanent weakening in advanced industries due to China's market share gains.
Atkinson revealed that ITIF ranked 40 countries by their relative performance (LQ) using the composite Hamilton Index. Fourteen nations, including Taiwan, Korea, Singapore, China, Switzerland, Germany, Sweden, and Austria had above-average LQs driven by focused advanced industry policies. The United States' LQ was recorded at 0.87 - below the global average - indicating that these industries are smaller than their average share of GDP. To achieve an LQ of 1.0 would require a 15 percent expansion in advanced industry output or doubling the computer, electronics, and optical products industry output. Since 1995, while Taiwan, Korea and several European nations experienced growth in LQs; conversely, the U.S saw a decline.
As per ITIF's findings from its Hamilton Index for 2020, China led seven out of ten strategically crucial industries surpassing all other nations and exceeding combined outputs of countries outside the top ten. The index maintained a consistent global share of 11.8 percent in both 2020 and 1995, emphasizing the competitive, zero-sum nature of the race for global advantage in these sectors. China's progress has come at the expense of the United States and other G7 and OECD economies, with China capturing over 80 percent of gains among non-OECD countries from 1995 to 2020.
The ITIF report further noted that China surpasses the United States by 70 percent in specialization within advanced industries. To match China's level of specialization, the U.S. would need to expand its output by $1.5 trillion (69 percent), essentially doubling production in all Hamilton industries except IT services. The urgency for action is evident in the declining fortunes of U.S. advanced industries; failure to act promptly during this pivotal decade could lead to a permanent weakening of production for the U.S. and its allies once China secures sufficient global market share. Therefore, ITIF urged Congress to prioritize closing this advanced-industry output gap as its primary economic policy goal, incorporating tax, trade, and other elements into a comprehensive national industry strategy.
According to information on ITIF's website, the Hamilton Center on Industrial Strategy is dedicated to advancing a comprehensive framework and specific policy agenda to achieve this objective. The center is committed to economic research and offers practical policy analysis while facilitating discussions with policymakers aimed at redefining economic strategies as instruments for attaining US technological leadership.
