"The current U.S. domestic policy response to the Chinese advanced-technology challenge is disturbing and points to an increasingly difficult road ahead for American companies," wrote Preeg, a fellow at the Manufacturers Alliance/MAPI think tank and a former deputy assistant Secretary of State, in his book. "What is lacking most of all is a sense of national purpose in responding to a rapidly changing world."
He traces some of the loss of competitiveness to rapid Chinese expansion of spending on research and science in the past decade.
From 1995 to 2002, he says, China's r&d expenditures grew 22 percent a year, compared with 6 percent in the United States. In absolute terms, U.S. spending is much higher. But China is growing quickly.
Similar rapid growth is seen in what Preeg calls the other barometer of advanced technology development, doctoral degrees in science and engineering. He projects that the number of Chinese engineering graduates will be 70 percent higher in China than in the United States this year.
Chinese manufacturing exports used to be dominated by low-tech goods. In 1995, they accounted for 67 percent of what the country shipped out, but that figure fell to just under half by 2004, he wrote.
"The analogy keeps popping up to what happened in the 1950s, with the Soviet Union and Sputnik," Preeg says. "We responded with a man on the moon. That's not happening today."
In some ways, he says the opposite is happening: Preeg criticizes the U.S. government for cutting funding for one of its principal research groups, the National Science Foundation. Of course, he says, it's a complicated picture.
Previous decades have seen similar predictions about the rise of Russia and Japan in ways that never materialized as thought.
It's hard to get a picture of how much of China's trade includes sophisticated parts made elsewhere and only assembled in China, he says. And China needs to make changes of its own. Preeg says the Chinese government's policy of manipulating its currency by pegging it to the dollar is illegal under world trading rules and is a reason U.S. manufacturers are less competitive. That, Preeg says, makes Chinese goods 40 percent cheaper than if the market set the value of the Chinese yuan.
He predicts that if China moves to a market-based currency and takes strong steps to reform its banking system, its yuan will emerge, with the dollar and euro, as one of the three key world currencies.