R ecord U.S. trade deficits during the 1980s have directed increasing research attention to national competitiveness. U.S. trade deficits have been equated with the deteriorating competitiveness of U.S. firms in the world market. However, the recent dollar depreciation has allowed U.S. trade deficits to decline, particularly with Western Europe, while the deficits still remain a relatively sticky problem with Japan. In the political arena, foreign trade barriers (particularly in Japan, China, and other Asian countries) often have been blamed, for mounting U.S. trade deficits. However, data from GAIT and other sources suggest that in addition to competitive weaknesses in U.S. industry, the United States has a comparably high level of tariff and non-tariff barriers to Western Europe and Japan. The President's Commission on Industrial Competitiveness (1985) defines U.S. competitiveness as the degree to which the United States can, under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real income of its citizens. At a quantitative level, no single indicator accurately measures all aspects of U.S. competitiveness. The trade balance is a partial reflection of a nation's competitiveness, but it also reflects exchange rate fluctuations and trade barriers. Variants of trade balance, such as a natiora's share of world exports and its import penetration, also are frequently used measures of competitiveness. These measures, similar to the trade deficit, reflect past performance and are less indicative of a nation's current and future competitiveness. Numerous studies have shown the importance of a nation's innovative ability as a foundation for future competitiveness in international trade. A nation's product and process innovations have become increasingly critical prerequisites for the success of its firms in global competition. Patent data also cast some concern over future U.S. cornTrends in patent applications and grants in four countries studied suggest not only a decline in the U.S. competitive position, but an apparent technological life cycle as well.