The Hamilton Index, 2023: China Is Running Away With Strategic Industries

TheHamiltonIndex,2023:ChinaIsRunningAwayWithStrategicIndustries ROBERTD.ATKINSONANDIANTUFTS|DECEMBER2023 ChinanowdominatesthestrategicallyimportantindustriesinITIF’sHamiltonIndex,producingmorethananyothernationinabsolutetermsandmorethanallbutafewothersinrelativeterms.ItsgainsarecomingattheexpenseoftheUnitedStatesandotherG7andOECDeconomies,andtimeisrunningshortforpolicymakerstomountanindustrialcomeback. KEYTAKEAWAYS Asof2020,ChinawastheleadingproducerinsevenofthetenstrategicallyimportantindustriesinITIF’sHamiltonIndex.Overall,Chinawasproducingmorethananyothernation—andmorethanallothernationsoutsideofthetop10combined. HamiltonIndexindustriesaccountedforapproximatelythesameshareoftheglobaleconomyin2020(11.8percent)asin1995(11.9percent),underscoringhowtheraceforglobaladvantageintheseindustriesisazero-sumcompetition. China’sgainshavecomeattheexpenseoftheUnitedStatesandotherG7andOECDeconomies.From1995to2020,Chinaalsocapturedmorethan80percentofnon-OECDcountries’gains. Chinais70percentmorespecializedthanAmericainadvancedindustries.TomatchChina’sspecialization,U.S.outputwouldhavetoexpandby$1.5trillion(69percent),whichwouldrequiredoublingoutputfromallHamiltonindustriesexceptITservices. TimeisrunningshorttoturnaroundU.S.advancedindustryfortunes.The2020sarelikelytobethedecisivedecadebecauseonceChinacapturessufficientglobalmarketshare,U.S.andalliednations’productionrisksbeingpermanentlyweakened. Congressshouldmakeclosingthismassiveadvanced-industryoutputgapitsoverarchingeconomicpolicygoal,includingthroughtax,trade,andotherelementsofacomprehensivelyfocusednationalindustrystrategy. itif.org CONTENTS KeyTakeaways1 Introduction4 OverallFindings6 SpecializationRankings6 RelativeMomentum11 Top10Producers13 TheChinaJuggernaut14 IndustryProfiles19 ITandInformationServices19 Computers,ElectronicsandOpticalProducts25 Chemicals30 PharmaceuticalsandBiotechnology35 MachineryandEquipment40 FabricatedMetals45 MotorVehicles50 OtherTransportationEquipment55 BasicMetals60 ElectricalEquipment65 Top10ProducerProfiles70 No.1:China70 No.2:UnitedStates73 No.3:Japan78 No.4:Germany81 No.5:SouthKorea84 No.6:India87 No.7:UnitedKingdom90 No.8:France93 No.9:Italy96 No.10:Taiwan99 OtherNoteworthyProducers102 No.11:Russia102 No.13:Canada104 No.14:Mexico106 No.15:Brazil108 No.19:Australia110 No.32:Vietnam112 SelectRegionalGroupings114 TheGroupofSeven114 EU-17116 EU-10118 Quad120 CommonwealthCountries122 Belt&RoadMembers124 Appendices126 AppendixA:HamiltonIndexIndustries126 AppendixB:AdvancedIndustries’RelationshiptoNationalTradeBalances127 AppendixC:CountryGroupings128 AppendixD:HamiltonIndexCalculations129 Endnotes130 INTRODUCTION Nationsareinafiercewin-loseglobalcompetitionformarketshareinadvanced,traded-sectortechnologyindustriesbecause,formost,winningenableseconomicandnationalsecurity.Thatisespeciallytrueforalliednations,asChina’sgainusuallycomesatitslossandviceversa. Winning—notonlythecompetitionforinnovationleadershipbutalsoforproductioncapacity—willboostinternationalcompetitivenessandeconomicandnationalsecurity. WhenitcomestoU.S.nationalinterest,innovation-basedproductioniskey.TheUnitedStateshasalonghistoryofpioneeringinnovationsonlytoseeitsproductioncapturedbyothernations,includingChina.Thisreducesgrowth,weakensthetermsoftrade(creatingahighertradebalance,aweakerdollar,orboth),degradesthenationalsecurityindustrialbase,andmakesAmericavulnerabletoindustrialpressuretacticsfromChina. ToassessU.S.andothernations’performance,theInformationTechnologyandInnovationFoundation(ITIF)hasexaminedchangesinglobalsharesofvalue-addedoutputin10advancedindustrysectorsitsHamiltonCenteronIndustrialCompetitivenesshasaggregatedintotheHamiltonIndexofAdvanced-TechnologyPerformance:pharmaceuticals;electricalequipment;machineryandequipment;motorvehicleequipment;othertransportequipment;computer,electronic,andopticalproducts;informationtechnologyandinformationservices;chemicals(notincludingpharmaceuticals);basicmetals;andfabricatedmetals.Toconductthisanalysis,ITIFusesproductiondatafromtheOrganizationforEconomicCooperationandDevelopment’s(OECD’s)datasetontradeinvalueadded,coveringtheperiodfrom1995through2020,andITIF’sanalysisfocuseson40countriesincludedinthatdataset.1BecauseofproblemswithhowIreland’soutputisreported,itisnotincludedintheanalysisorinEU-wideaggregatedata.2 The10industriesincludedintheHamiltonIndextogetheraccountedformorethan$10trillioninglobalproductionin2020(figure1).Theinformationtechnology(IT)andinformationservicesindustry(includingsoftwareandInternetservices)isthelargestofthe10,accountingfor18percentofglobaladvancedindustryoutput. Figure1:GlobaloutputfromindustriesincludedintheHamiltonIndex,2020($10.1trillion,total) The10industries’collectiveproductionrepresented11.8percentoftheglobaleconomyin2020,aboutthesameas25yearsprior,havingreboundedfromadipto10.6percentfollowingtheglobalfinancialcrisisof2008thatsawsteeperdeclinesingoodsoutputthanoverallgrossdomesticproduct(GDP).(Seefigure2.)However,themixhaschanged,withtheITandinformationservicessharegrowing34