In addition to being a competitor and creditor, China could be America's most important customer.Americans have grown accustomed to hearing gloomy news about the state of the union. Stymied by a stalling economic recovery and a volatile political climate, the country is rapidly losing ground to global competitors. But John Doggett, a senior lecturer in the Management Department at McCombs, says that if the U.S. decides to take the revival of its competitiveness seriously, there is still hope.

“We live in an amazing country. We have overcome challenges that would have destroyed other countries,” said Doggett, in a recent talk for the Texas Enterprise Speaker Series. “We face serious problems, and serious problems equal great opportunities.”

In order to catch back up, he said, we must first realize how far we have fallen.

Falling Behind

Doggett described the country’s current situation as a “strategic inflection point,” a time in which a country’s (or company’s) fundamentals begin to change direction. The federal deficit, job losses during the recession, and increased government spending have all led us to this tipping point, he said.

"The greatest time to be a business person is during chaos," Doggett told the audience.The problem is not just the debt itself, but also who owns it. In just three years, China’s ownership of U.S. treasury securities more than doubled, from $506.8 billion in 2008 to $1.17 trillion in 2011. Climbing out of a deep financial hole is considerably more difficult when your largest creditor is also your top rival, Doggett said.

“They’re buying us. In fact, they are financing our profligate spending,” he said. “We are in the middle of the greatest strategic inflection point we’ve ever seen in our lifetimes.” And unless changes are made, the U.S. stands to lose even more ground. The International Monetary Fund recently estimated that if current trends continue, China could pass the United States as the largest economy in the world by 2016.

Growing Our Way Out

Despite this grim forecast, Doggett says the U.S. can still move toward financial stability, first by taking steps to chip away at the deficit, and then by reasserting itself in the global marketplace.

Doggett says that in order to right its financial wrongs, America will need to learn from the nations that have emerged as its top competitors over the last decade. Countries including Brazil, Russia, India, and China took advantage of their large land areas, populations, and natural resources to spark a period of explosive economic growth. By the end of 2010, the four countries were generating $18.55 trillion in GDP — about one quarter of all economic activity on the planet.

China also greatly increased its international investments in the last several years, growing its foreign exchange reserves to $3.4 trillion as America’s debt skyrocketed to $1.4 trillion.

“They’re playing our game, and they’re doing it better than us,” Doggett said.

But these international success stories do not necessarily need to be regarded as threats; they can also create opportunities for U.S. companies, Doggett said. For instance, China plans to spend almost $4 trillion on new electrical transmission and distribution equipment between now and 2030. Doggett said that American companies must find a way to compete in that marketplace.

“If we can’t figure out how to make stuff that they need when they’re buying $4 trillion worth of stuff, we shouldn’t call ourselves capitalists,” he said.

‘We Own Creativity’

Doggett said that one of America’s biggest advantages in the race to catch up to its competitors is its history of innovation and creativity. This will be an important strength in the years ahead, as other nations are ramping up development of emerging technologies.

China is making strides in the renewable energy sector and is now building six of the largest wind farms in the world. It is also increasing production of commercial aircraft, which is expected to put a significant dent in sales of American-made airplanes. Similar advancements are being made in the automotive and construction industries.

But the U.S. has the resources, manpower, and expertise to capitalize on growing demand for energy, crops, and other products, Doggett said. American universities are hotbeds for researching and developing new technologies. The U.S. also has a history of importing talent, as immigrant entrepreneurs have played a vital role in bolstering the technology and manufacturing sectors. And companies such as Apple come out of nowhere seemingly overnight and revolutionize entire industries.

“These people are creative,” Doggett said. “And that’s how we compete.”