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China Increasingly Competes with US in Manufacturing

A new report on the condition of manufacturing in the United States says America faces a substantial and growing competitive challenge from China.

The chief author of the report is Joel Kotkin, a Los Angeles-based fellow at the New America Foundation. The report, entitled Executive Leadership in the Industrial Economy, focuses on the implications of the structural decline of the American manufacturing sector. Manufacturing, as a share of U.S. economic output, has fallen from 17 percent to 14 percent in the past decade. U.S. manufacturing employment has similarly fallen from 17 million to 14 million since 1994.

Mr. Kotkin says historically when countries lose manufacturing dominance it is an early sign of a loss of economic leadership. He worries that China will eventually challenge and possibly overtake the United States economically.

"China has surpassed the United States as the largest recipient of foreign direct investment," he noted. "Its currency reserves have increased by a considerable amount. They now have enormous financial power. Anyone who studies history knows that countries that accumulate industrial power very soon have financial power."

Mr. Kotkin spoke on the day it was announced that American technology giant IBM had sold its personal computer business to the Chinese firm, Lenovo. He believes this transaction reveals China's intention to become a major player in the world economy.

"When you think that IBM PCs are now going to be owned by a Chinese company, if that doesn't tell you something, then you're a little bit out of it," he noted. "Transport yourself back 20 years and ask yourself if anyone would have thought a Chinese company could buy IBM's personal computer business. And think of all the things we get from companies that were obscure 20 years ago."

Mr. Kotkin spoke at a forum in Washington. He argues that to maintain its leadership in the world economy the United States must improve its education system, roll back its dependence on imported products, and keep control of advanced technologies.