Washington is stuck in a self-perpetuating cycle of budgetary and appropriations dysfunction that directly threatens the country’s military, economic and technological superiority, according to an in-depth survey released this week.

Despite the dynamism of the American private sector, inefficiencies in the public sector are hindering progress toward technological superiority, according to the study by the Ronald Reagan Presidential Foundation and Institute.

On Tuesday, the Reagan Institute released its third annual National Security Innovation Base [NSIB] report card, which measures the health and resiliency of the nation’s security system. It gave the U.S. government mixed grades across 10 categories, from defense modernization to manufacturing capacity and the industrial base.

“Innovation leadership” received an A- grade, the highest on the report card, while the nation’s manufacturing capacity and industrial base received a D, the lowest mark.

“There has long been agreement that America’s adversaries are cooperating to undermine U.S. interests, security and prosperity. Yet, flagrant shortcomings in the NSIB ecosystem remain unaddressed,” the Reagan Institute analysts wrote.

Reagan Institute Policy Director Rachel Hoff told a meeting of the D.C.-based Defense Writers Group that the American leadership on innovation has received the top mark in the survey for three years in a row.

“This is where we assess that America is really maintaining its global leadership in innovation … and in the excellence in research on the global stage, particularly in” artificial intelligence, Ms. Hoff said.

She noted positive trends in the “innovation capital” category that present opportunities to enhance the government’s investment efficiency. Government-backed innovation funding is growing and can improve a return on investment by streamlining non-financial barriers, according to the report.

The Defense Department provides “significant” funding for top players and innovators to forge productive partnerships across the board, the survey said, nurturing successful defense companies like SpaceX or Palantir. However, the businesses represent a small share of total contract dollars, highlighting the need for broader outreach, Reagan Institute officials said.

“We think that this is the indicator that matters in terms of measuring the actual progress, not simply activity aimed at driving progress on the input side,” Ms. Hoff said. “There’s certainly a disconnect with a downward trend in our first couple of years and now a flat trend on defense modernization.”

One of the two D grades on the report analyzes manufacturing capacity and the industrial base. The Reagan Institute analysts said the U.S. has made “targeted” improvements in production capacity and adaptability with the establishment of new production facilities.

“Fragility persists deeper in the supply chain [for example, rare earth minerals] while stockpiles of critical weapons remain dangerously low,” according to the report. “Meanwhile, China is widening its lead, producing twice the manufacturing output of the U.S.”

President Trump said he would address at least one glaring defense industrial base shortcoming during his address to Congress Tuesday night, announcing the creation of a White House office to promote the domestic shipbuilding industry, which has lagged badly behind both allies such as South Korea and adversaries such as China in capacity.

The Reagan Institute analysts said the trends analyzed in the latest report are not immutable.

“The United States has everything it needs to secure its military, economic and technological superiority: a free and open political system that empowers its best and brightest to innovate, a prosperous economic base, and a military that is the envy of the world,” according to the report.

“But, the trends identified in this report card highlight glaring areas of weakness that whittle away at America’s advantage and provide openings for its adversaries,” the report stated.