A robust traded sector economy is essential to U.S. global competitiveness, and a strong manufacturing base is central to traded sector strength, as I have  noted previously.

Unfortunately, manufacturing in the United States has lost competitive advantage in the last 15 years and unless this turns around significantly it will continue to be a drag on our efforts to fully recover from the Great Recession.

There is no inherent reason the United States could not run a significant trade surplus in manufacturing.  America possesses the tools, talent, and resources to revive industrial production and our innovation economy.

But to do so we need a national strategy for manufacturing renewal that focuses on a cohesive set of polices, as opposed to the hodgepodge of disjointed and often contradictory efforts currently being undertaken by multiple levels of government.

We need a game plan that helps American manufacturers compete and win in the global economy.

There are three main reasons a comprehensive manufacturing strategy is essential to long term economic health. First, manufacturing generates spillover effects that benefit the rest of the economy. The knowledge needed to create new products, processes, and organizational forms cannot be contained completely within an individual establishment. It inevitably spills over to other businesses and individuals, who can use it without paying the costs of creating it.

While this provides broader social value, it also causes businesses to underinvest in R&D because they cannot capture all of the benefits. Government investments can close this research gap while boosting private sector investment in innovation.

In addition, government programs like the Manufacturing Extension Partnership can boost innovation at small and medium sized enterprises (SMEs), which are less likely than larger establishments to take advantage of innovation spillovers through the implementation of new technology, adoption of modern manufacturing processes, and investment in workforce training. In fact, every $1 of investment in the MEP program leads to $32 in economic growth.