FAS

Agenda for an American Renewal

05.15.25 | 13 min read | Text by Jan Jaro & Daniel Correa

Imperative for a Renewed Economic Paradigm

So far, President Trump’s tariff policies have generated significant turbulence and appear to lack a coherent strategy. His original tariff schedule included punitive tariffs on friends and foes alike on the mistaken basis that trade deficits are necessarily the result of an unhealthy relationship. Although they have been gradually paused or reduced since April 2, the uneven rollout (and subsequent rollback) of tariffs continues to generate tremendous uncertainty for policymakers, consumers, and businesses alike. This process has weakened America’s geopolitical standing by encouraging other countries to seek alternative trade, financial, and defense arrangements. 

However, notwithstanding the uncoordinated approach to date, President Trump’s mistaken instinct for protectionism belies an underlying truth: that American manufacturing communities have not fared well in the last 25 years and that China’s dominance in manufacturing poses an ever-growing threat to national security. After China’s admission to the WTO in 2001, its share of global manufacturing grew from less than 10% to over 35% today. At the same time, America’s share of manufacturing shrank from almost 25% to less than 15%, with employment shrinking from more than 17 million at the turn of the century to under 13 million today. These trends also create a deep geopolitical vulnerability for America, as in the event of a conflict with China, we would be severely outmatched in our ability to build critical physical goods: for example, China produces over 80% of the world’s batteries, over 90% of consumer drones, and has a 200:1 shipbuilding capacity advantage over the U.S. While not all manufacturing is geopolitically valuable, the erosion in strategic industries, which went hand-in-hand with the loss of key manufacturing skills in recent decades, poses potential long-term challenges for America.

In addition to its growing manufacturing dominance, China is now competing with America’s preeminence in technology leadership, having leveraged many of the skills gained in science, engineering, and manufacturing for lower-value add industries to compete in higher-end sectors. DeepSeek demonstrated that China can natively generate high-quality artificial intelligence models, an area in which the U.S. took its lead for granted. Meanwhile, BYD rocketed past Tesla in EV sales and accounted for 22% of global sales in 2024 as compared to Tesla’s 10%. China has also been operating an extensive satellite-enabled secure quantum communications channel since 2016, preventing others from eavesdropping. 

China’s growing leadership in advanced research may give it a sustained edge beyond its initial gains: according to one recent analysis of frontier research publications across 64 critical technologies, global leadership has shifted dramatically to China, which now leads in 57 research domains. These are not recent developments: they have been part of a series of five year plans, the most well known of which is Made in China 2025, giving China an edge in many critical technologies that will continue to grow if not addressed by an equally determined American response.

An Integrated Innovation, Economic Foreign Policy, and Community Development Approach 

Despite China’s growing challenge and recent self-inflicted damage to America’s economic and geopolitical relationships, America still retains many ingrained advantages. The U.S. still has the largest economy, the deepest public and private capital pools for promising companies and technologies, and the world’s leading universities; it has the most advanced military, continues to count most of the world’s other leading armed forces as formal treaty allies, and remains the global reserve currency. Ordinary Americans have benefited greatly from these advantages in the form of access to cutting edge products and cheaper goods that increase their effective purchasing power and quality of life – notwithstanding Secretary Bessent’s statements to the contrary.

The U.S. would be wise to leverage its privileged position in high-end innovation and in global financial markets to build “industries of the future.” However, the next economic and geopolitical paradigm must be genuinely equitable, especially to domestic communities that have been previously neglected or harmed by globalization. For these communities, policies such as the now-defunct Trade Adjustment Assistance program were too slow and too reactive to help workers displaced by the “China Shock,” which is estimated to have caused up to 2.4 million direct and indirect job losses. 

Although jobs in trade-affected communities were eventually “replaced,” the jobs that came after were disproportionately lower-earning roles, accrued largely to individuals who had college degrees, and were taken by new labor force entrants rather than providing new opportunities for those who had originally been displaced. Moreover, as a result of ineffective policy responses, this replacement took over a decade and has contributed to heinous effects: look no further than the rate at which “deaths of despair” for white individuals without a college degree skyrocketed after 2000.

Nonetheless, surrendering America’s hard-won advantages in technology and international commerce, especially in the face of a growing challenge from China, would be an existential error. Rather, our goal is to address the shortcomings of previous policy approaches to the negative externalities caused by globalization. Previous approaches have focused on maximizing growth and redistributing the gains, but in practice, America failed to do either by underinvesting in the foundational policies that enable both. Thus, we are proposing a two-pronged approach that focuses on spurring cutting-edge technologies, growing novel industries, and enhancing production capabilities while investing in communities in a way that provides family-supporting, upwardly mobile jobs as well as critical childcare, education, housing, and healthcare services. By investing in broad-based prosperity and productivity, we can build a more equitable and dynamic economy.

Our agenda is intentionally broad (and correspondingly ambitious) rather than narrow in focus on manufacturing communities, even though current discourse is focused on trade. This is not simply a “political bargain” that provides greater welfare or lip-service concessions to hollowed-out communities in exchange for a return to the prior geoeconomic paradigm. Rather, we genuinely believe that economic dynamism which is led by an empowered middle-class worker, whether they work in manufacturing or in a service industry, is essential to America’s future prosperity and national security – one in which economic outcomes are not determined by parental income and one where black-white disparities are closed in far less than the current pace of 150+ years.

Thus, the ideas and agenda presented here are neither traditionally “liberal” nor “conservative,” “Democrat” nor “Republican.” Instead, we draw upon the intellectual traditions of both segments of the political spectrum. We agree with Ezra Klein’s and Derek Thompson’s vision in Abundance for a technology-enabled future in which America remembers how to build; at the same time, we take seriously Oren Cass’s view in The Once and Future Worker that the dignity of work is paramount and that public policy should empower the middle-class worker. What we offer in the sections below is our vision for a renewed America that crosses traditional policy boundaries to create an economic and political paradigm that works for all.

Policy Recommendations 

Investing in American Innovation

Given recent trends, it is clear that there is no better time to re-invigorate America’s innovation edge by investing in R&D to create and capture “industries of the future,” re-shoring capital and expertise, and working closely with allies to expand our capabilities while safeguarding those technologies that are critical to our security. These investments will enable America to grow its economic potential, providing fertile ground for future shared prosperity. We emphasize five key components to renewing America’s technological edge and manufacturing base:

Invest in R&D. Increase federally funded R&D, which has declined from 1.8% of GDP in the 1960s to 0.6% of GDP today. Of the $200 billion federal R&D budget, just $16 billion is allocated to non-healthcare basic science, an area in which the government is better suited to fund than the private sector due to positive spillover effects from public funding. A good start is fully funding the CHIPS and Science Act, which authorized over $200 billion over 10 years for competitiveness-enhancing R&D investments that Congress has yet to appropriate. Funding these efforts will be critical to developing and winning the race for future-defining technologies, such as next-gen battery chemistries, quantum computing, and robotics, among others.

Capability-Building. Develop a coordinated mechanism for supporting translation and early commercialization of cutting-edge technologies. Otherwise, the U.S. will cede scale-up in “industries of the future” to competitors: for example, Exxon developed the lithium-ion battery, but lost commercialization to China due to the erosion of manufacturing skills in America that are belatedly being rebuilt. However, these investments are not intended to be a top-down approach that selects winners and losers: rather, America should set a coordinated list of priorities (leveraging roadmaps such as the DoD’s Critical Technology Areas), foster competition amongst many players, and then provide targeted, lightweight financial support to industry clusters and companies that bubble to the top.

Financial support could take the form of a federally-funded strategic investment fund (SIF) that partners with private sector actors by providing catalytic funding (e.g., first-loss loans). This fund would focus on bridging the financing gap in the “valley of death” as companies transition from prototype to first-of-a-kind / “nth-of-a-kind” commercial product. In contrast to previous attempts at industrial policy, such as the Inflation Reduction Act (IRA) or CHIPS Act, they should have minimal compliance burdens and focus on rapidly deploying capital to communities and organizations that have proven to possess a durable competitive advantage.

Encourage Foreign Direct Investment (FDI). Provide tax incentives and matching funds (potentially from the SIF) for companies who build manufacturing plants in America. This will bring critical expertise that domestic manufacturers can adopt, especially in industries that require deep technical expertise that America would need to redevelop (e.g., shipbuilding). By striking investment deals with foreign partners, America can “learn from the best” and subsequently improve upon them domestically. In some cases, it may be more efficient to “share” production, with certain components being manufactured or assembled abroad, while America ramps up its own capabilities.

For example, in shipbuilding, the U.S. could focus on developing propulsion, sensor, and weapon systems, while allies such as South Korea and Japan, who together build almost as much tonnage as China, convert some shipyards to defense production and send technical experts to accelerate development of American shipyards. In exchange, they would receive select additional access to cutting-edge systems and financially benefit from investing in American shipbuilding facilities and supply chains.

Immigration. America has long been described as a “nation of immigrants.” Their role in innovation is impossible to deny: 46% of companies in the Fortune 500 were founded by immigrants and accounted for 24% of all founders; they are 19% of the overall STEM workforce but account for nearly 60% of doctorates in computer science, mathematics, and engineering. Rather than spurning them, the U.S. should attract more highly educated immigrants by removing barriers to working in STEM roles and offering accelerated paths to citizenship. At the same time, American policymakers should acknowledge the challenges caused by illegal immigration. One such solution is to pass legislation such as the Border Control Act of 2024, which had bipartisan support and increased border security, supplemented by a “points-based” immigration system such as Canada’s which emphasizes educational credentials and in-country work experience.

Create Targeted Fences. Employ tariffs and export controls to defend nascent, strategically important industries such as advanced chips, fusion energy, or quantum communications. However, rather than employing these indiscriminately, tariffs and export controls should be focused on ensuring that only America and its allies have access to cutting-edge technologies that shape the global economic and security landscape. They are not intended to keep foreign competition out wholesale; rather, they should ensure that burgeoning technology developers gain sufficient scale and traction by accelerating through the “learn curve.”

Building Strong Communities

Strong communities are the foundation of a strong workforce, without which new industries will not thrive beyond a small number of established tech hubs. However, strengthening American communities will require the country to address the core needs of a family-sustaining life. Childcare, education, housing, and healthcare are among the largest budget items for families and have been proven time and again to be critical to economic mobility. Nevertheless, they are precisely the areas in which costs have skyrocketed the most, as has been frequently chronicled by the American Enterprise Institute’s “Chart of the Century.” These essential services have been underinvested in for far too long, creating painful shortages for communities that need them most. As such, addressing these issues form the core pillars of our domestic reinvestment plan. Addressing them means grappling with the underlying drivers of their cost and scarcity. These include issues of state capacity, regulatory and licensing barriers, and low productivity growth in service-heavy care sectors. A new policy agenda that addresses the fundamental supply-side issues is needed to reshape the contours of this debate.

Expand Childcare. Inadequate childcare costs the U.S. economy $122 billion in lost wages and productivity as otherwise capable workers, especially women, are forced to reduce hours or leave the labor force. Access is further exacerbated by supply shortages: more than half the population lives in a “childcare desert,” where there are more than three times as many children as licensed slots. Addressing these shortages will alleviate the affordability issue, enabling workers to stay in the workforce and allow families to move up the income ladder.

Fund Early Education. Investments in early childhood education have been demonstrated to generate compelling ROI, with high-quality studies such as the Perry preschool study demonstrating up to $7 – $12 of social return for every $1 invested. While these gains are broadly applicable across the country, they would make an even greater difference in helping to rebuild manufacturing communities by making it easier to grow and sustain families. Given the return on investment and impact on social mobility, American policymakers should consider investing in universal pre-K.

Invest in Workforce Training and Community Colleges. The cost of a four-year college education now exceeds $38K per year, indicating a clear need for cheaper BA degrees but also credible alternatives. At the same time, community colleges can be reimagined and better funded to enable them to focus on high-paying jobs in sectors with critical labor shortages, many of which are in or adjacent to “industries of the future.” Some of these roles, such as IT specialists and skilled tradespeople, are essential to manufacturing. Others, such as nursing and allied healthcare roles, will help build and sustain strong communities.

Build Housing Stock. America has a shortage of 3.2 million homes. Simply put, the country needs to build more houses to address the cost of living and enable Americans to work and raise families. While housing policy is generally decided at lower levels of government, the federal government should provide grants and other incentives to states and municipalities to defray the cost of developing affordable housing; in exchange, state and local jurisdictions should relax zoning regulations to enable more multi-family and high-density single-family housing. 

Expand Healthcare Access. American healthcare is plagued with many problems, including uneven access and shortages in primary care. For example, the U.S. has 3.1 primary care physicians (PCPs) per 10,000 people, whereas Germany has 7.1 and France has 9.0. As such, the federal government should focus on expanding the number of healthcare practitioners (especially primary care physicians and nurses), building a physical presence for essential healthcare services in underserved regions, and incentivizing the development of digital care solutions that deliver affordable care.

Allocating Funds to Invest in Tomorrow’s Growth

Investment Requirements

While we view these policies as essential to America’s reinvigoration, they also represent enormous investments that must be paid for at a time when fiscal constraints are likely to tighten. To create a sense of the size of the financial requirements and trade-offs required, we lay out each of the key policy prescriptions above and use bipartisan proposals wherever possible, many of which have been scored by the Congressional Budget Office (CBO) or another reputable institution or agency. Where this is not possible, we created estimates based on key policy goals to be accomplished. Although trade deals and targeted tariffs are likely to have some budget impact, we did not evaluate them given multiple countervailing forces and political uncertainties (e.g., currency impacts).

Allocating Funds to Invest in Tomorrow’s Growth | Investment Requirements
Core PillarPolicy ProposalsLow Estimate (amortized per annum)High Estimate (amortized per annum)
Increase R&DIncrease of 10 – 25% of 2024 baseline federal R&D budget of ~$200B, with greater focus on basic science, healthcare, energy, and next-gen computing. At minimum, Congress should appropriate the $200 billion that has been authorized for R&D over the next 10 years, but could earmark further increases for additional R&D, translation, and commercialization support$20 billion (10% increase in the budget)$50 billion (25% increase in the budget)
FDI SubsidiesIn an ideal world, the amount of FDI subsidies would adapt to the size of the investment required. However, a more practical approach would set aside funding each year for strategic purposes using creative financing structures (e.g., first-loss financing) that crowds in other market participants. These private-public partnerships would be much more focused than existing approaches, which take a “peanut butter” approach to allocating fundingCongress could reallocate capital from other sources (e.g., the Export Import Bank, which expects to disburse $11.7 billion in 2025)$10 – $15 billion
Childcare InvestmentsThe original House version of Build Back Better included provisions that would have capped childcare payments to 7% of income for families under 75% of state median income. Furthermore, it would have provided funding to expand the supply of care.$20 – $30B for “supply side” provisions (based on FY22 apportionment of funding)$50 – $60B for all provisions, including demand-side direct assistance
Universal Pre-KUniversal pre-K for children of 3 – 4 years of age. The 10-year window for the budget estimate includes build costs for new facilities$20 billion for only 4-year olds$35 billion for 3 and 4-year olds
Higher Ed InvestmentsUniversal community college for individuals who are attending for the first time or re-skilling. “Last dollar” refers to using federal funds after all other sources, while “first dollar” refers to using federal funds before other sources$4.5 billion on a last dollar basis (assumes 50% ratio)$9.0 billion on a first-dollar basis
Housing SupplyAt minimum, Congress should pass several bipartisan bills, including the Yes In My Backyard Act, Affordable Housing Credit Improvement Act, and the Choice in Affordable Housing Act. These bills would require community development grantees to adopt high-density zoning, expand the low-income housing tax credit, and support landlords who accept housing vouchers by reducing administrative burdens$630 million for low-income tax credit (based on similar bill). Voucher bill includes a $500 million upfront fund investment for voucher adminMore ambitious approaches could further subsidize housing builds. $67 billion was appropriated for affordable housing in 2024; a 10% increase would add ~$7 billion
Primary Care ExpansionCongress could pass the Senate Bipartisan Primary Care and Health Workforce Act, which would build additional community health centers and expand the PCP workforce by 4,800 doctors and 60,000 nurses. In addition, Congress could pass the House Medicaid Primary Care Improvement Act would allow Medicaid beneficiaries to access primary care for a flat fee$1.6 billion for the Primary Care and Health Workforce ActThe Primary Care Improvement Act has not yet been scored by the CBO, but is likely to cost several billion per year
Immigration ReformCongress should pass the Border Control Act and implement a points-based immigration system. This would require funds for border enforcement as well as immigration processing. Would have appropriated $20B for improvements in border securityNot scored by CBO. Spending was one-time in nature and would likely require several billion of ongoing appropriations
Total~$70 – $80 billion at steady state~$150 – $175 billion at steady state

Potential Pay-Fors

Given the budgetary requirements of these proposals, we looked for opportunities to prune the federal budget. The CBO laid out a set of budgetary options that collectively could save several trillion over the next decade. In laying out the potential pay-fors, we used two approaches that focused on streamlining mandatory spending and optimizing tax revenues in an economically efficient manner. Our first approach is to include budgetary options that eliminate unnecessary spending that are distortionary in nature or are unlikely to have a meaningful direct impact on the population that they are trying to serve (e.g., kickback payments to state health plans). Our second approach is to include budgetary options in which the burden would fall upon higher-earning populations (e.g., raising the cap on payroll and Social Security taxes). 

As the table below shows, there is a menu of options available to policymakers that raise funding well in excess of the required investment amounts above, allowing them to pick and choose which are most economically efficient and politically viable. In addition, they can modify many of these options to reduce the size or magnitude of the effect of the policy (e.g., adjust the point at which Social Security benefits for “high earners” is tapered or raise capital gains by 1% instead of 2%). While some of these proposals are potentially controversial, there is a clear and pressing need to reexamine America’s foundational policy assumptions without expanding the deficit, which is already more than 6% of GDP.

Allocating Funds to Invest in Tomorrow’s Growth | Potential Pay-Fors
Pay-ForDescription and RationaleCBO Estimate (amortized per annum)
Limit state tax “kickbacks” to health care plansHistorically, state Medicaid plans have been financed by taxes on health plans. These taxed amounts were then matched by federal funds. To “double up” their funding, states increased taxes on health plans and provided them with a “hold harmless” promise to provide rebates at least equivalent to the taxed amount (often more). Although the initial reconciliation budget proposal would freeze the current tax rates, closing the loophole entirely would eliminate the “kickback” like effect that current policy provides to health plans$61 billion
Modify Medicare Advantage payments for riskThere are two types of Medicare: Medicare Advantage (MA), which provides capitated payments (fixed amounts) for coverage, and traditional Fee For Service (FFS), which pays on a usage basis. However, the current design of MA has led to upcoding and selection bias, whereby MA patients appear sicker than they actually are, and compared to similar risk pools, MA is overpaid by as much as 39%. Although CMS already applied a 5.9% payout reduction for MA plans, increasing the reduction to as much as 20% could levelize payouts and correct for inefficiencies in risk pools$16 billion (if modifying risk-based payout reduction to from 5.9% to 8%)

$160 billion (if modifying risk-based payout reduction to from 5.9% to 20%)
Reduce Social Security for high earnersThis policy would begin reducing Social Security benefits above the 70th wage percentile and reduce payout factors over a 9-year window. Savings opportunities could be increased by reducing benefits above the 50th wage percentile and reducing payout factors over a 5-year window$5 billion
Raise taxable share of Social Security payroll taxes to 90% of earningsIn 2024, the maximum wage subject to Social Security taxes was $168,000, after which employees are no longer subject to the 6.2% tax. However, this cutoff is regressive and shifts the tax burden to lower earners. Increasing the taxable share to 90% would more evenly spread out the tax burden, and further revenues could be generated by taxing all income$73 billion
Limit itemized deductions to 15% of total valueTaxpayers are allowed to itemize certain expenses, including mortgage interest, state and local taxes, and charitable donations, among others. However, these deductions are frequently claimed by high earners, with nearly two-thirds of individuals over $500K itemizing expenses. Given the deeply regressive nature of itemization and their distortive effects on key markets (e.g., housing), limitations on itemization could provide additional funding sources, address market inefficiencies, and promote equity$191 billion
Change taxation of assets transferred at deathWhen a deceased individual passes on their assets to an heir at death, the value of the assets is marked at “fair value” to the market (the “basis”). Future capital gains taxes at sale of the asset are based on this value. However, this allows heirs to avoid paying capital gains on value accrued during the deceased individual’s lifetime. Thus, we recommend re-setting the basis based on events that occurred during the lifetime of the deceased individual, which typically results in a value lower than that at death$20 billion
Impose net investment tax on limited partnerships and S corporations’ net profitsIndividuals who earn over $200,000 are subject to a 3.8% net investment tax (NIT) on qualifying investment income, such as interest, dividends, and capital gains. However, partnership income and S corporation income is not subject to this tax. This policy would make NIT tax applicable to these forms of investment income$42 billion
Total~$400+ billion of potential savings

Conclusion

America is in need of a new economic paradigm that renews and refreshes rather than dismantles its hard-won geopolitical and technological advantages. Trump’s tariffs, should they be fully enacted, would be a self-defeating act that would damage America’s economy while leaving it more vulnerable, not less, to rivals and adversaries. However, we also recognize that the previous free trade paradigm was not truly equitable and did not do enough to support manufacturing communities and their core strengths. We believe that our two-pronged approach of investing in American innovation alongside our allies along with critical community investments in childcare, higher education, housing, and healthcare bridges the gap and provides a framework for re-orienting the economy towards a more prosperous, fair, and secure future.