New research from HEC Paris business school proves that the best way for US manufacturers to compete with cheaper, Chinese imports is to invest more in their Research and Development (R&D) departments, and increase innovation. The study, conducted by Johan Hombert, Professor of Finance at HEC Paris, measured the impact of innovation on competitiveness, to discover how US manufacturing firms could be better supported to effectively compete with China and other emerging economies. Together with co-researcher Adrian Matray, he examined the changes made to the R&D tax credits made available to US manufacturers over time, recording the differences in amount between each state, and how this correlated with the amount of Chinese imports penetrating the US market. The researchers found that in states where larger tax credits were made available to manufacturers there was a direct increase in R&D investment – boosting innovation. Furthermore, these US firms with larger R&D tax credits available were found to consistently outperform cheaper, Chinese imports to a significant level, compared to US firms with less investment in R&D. Professor Hombert says: “President Trump’s administration has recently slashed taxes in the hope that industry will be attracted back to the US, and that US products will be able to better compete with cheaper foreign products. However, this research reveals that this is the wrong strategy in a globalised economy. An increase in R&D tax credits will stimulate better innovation, allowing US manufacturers to compete in the modern globalised world.”
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