The United States economy is ending the first decade of the new millennium in much worse shape than experts expected when the decade began. Back then, the United States was generating a third of global output, the federal budget was in surplus, and American information technology was revolutionizing commerce and culture. Today, the U.S. generates less than a quarter of global output, the federal government borrows a billion more dollars every six hours, and China has surpassed the U.S. in the production of electronics. What went wrong?
Boeing Chairman and CEO W. James McNerney thinks he knows. Countries like China and South Korea have strategies for guiding their industry to success in the age of global integration, and America does not. McNerney laid out his thesis last week before an audience not likely to be sympathetic — the conservative American Enterprise Institute (AEI). AEI is one of those places favoring a hands-off approach to the economy by government. But McNerney stressed he wasn’t proposing that Washington pick winners and losers the way that Beijing does. He just wants the government to think more coherently about how it deals with industry.
Not surprisingly, McNerney invoked the example of Airbus, Boeing’s main rival in the commercial transport business. The Pentagon is likely to award a $35 billion tanker contract to Airbus early next year, picking a modified version of its A330 airliner over the more fuel-efficient Boeing 767. A big reason the Airbus plane will win is the government’s decision not to consider $5.7 billion in prohibited trade subsidies given to the Airbus plane by European governments — without which it probably never would have been built at all. The World Trade Organization has labeled those subsidies illegal, but because policymakers are ignoring the trade ruling, Airbus is free to price its tanker below cost, a tactic commercial companies like Boeing can’t match.
So the federal government is poised to reward Airbus for its predatory business strategy. You can understand why McNerney might be more sensitized to the stupidity of such a move than others. But the tanker controversy is just a microcosm of Washington’s broader disarray on trade and competitiveness. Look at some other examples. When the decade began, America was the biggest producer in the world of rare earths, vital compounds used in everything from Blackberrys to missile guidance systems. But a combination of lowball Chinese prices and tough environmental rules drove U.S. producers out of business, so now Washington imports all its rare earths from the Middle Kingdom.
Exxon just finished building the biggest refinery in the world — in China. Nobody has built a new refinery in America since the nation’s bicentennial year. In that year, America was the biggest steel producer in the world. Today, China out-produces the U.S. in steel seven-to-one. U.S. steel producers can’t even meet domestic demand in a normal year, much less compete with China in export markets. But Chairman McNerney isn’t blaming China or environmentalists for all this, he is blaming a federal government that can’t seem to get its act together on defining what America wants from its industrial base. Coming from the head of the nation’s biggest exporter, that’s a message worth heeding: we aren’t likely to slow America’s industrial decline until we have a plan that explains what needs to be preserved, any why.
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