Posted on 04/06/2004 12:49:21 PM PDT by doug9732
For the first time ever, the United States has a negative trade balance in technology goods and services and from royalties on intellectual property and patents.
The superiority the United States has held in technology trade has suddenly vanished. The U.S. Commerce Department tracks foreign earnings and payments for royalties and fees on intellectual property. It tracks trade accounts in technology services such as data processing and engineering. It also maintains a constantly updated list of specific advanced technology products (ATP) and monitors the export and import of these goods.
During the second half of 2003, ATP goods suffered a deficit of nearly $17.5 billion, while the surplus for royalties, fees and technology services was barely $16 billion. This left a small but symbolic deficit for the first time on record in the trade of all U.S. technology goods and services. If recent history is any guide, this U.S. loss in technology will quickly become very large and concentrated in China.
The significance of the U.S. losing advantage to China in technology trade has far-reaching consequences. With less than one-quarter of China's population and a vastly more expensive living standard to sustain, the United States cannot compete without a large technological advantage.
Over the past decade, the United States accumulated global current account deficits -- and debts -- totaling $2.8 trillion. Deficits worsened substantially for manufactured goods and the overall surplus in services declined. Wall Street economists and most politicians ridiculed concerns that the United States was producing so much less than it consumed.
"New economy" advocates said that U.S. technological superiority would provide good jobs and enormous export earnings needed to pay for the trade deficits in traditional industries from autos to textiles. Indeed, in 1997 the U.S. trade surplus in technology goods and services reached a record $60 billion -- $32 billion in ATP and about $28 billion in IP and services.
Now, technology is itself a source of lost U.S. jobs and mounting bills for net imports.
A major change occurred with the end of the technology and financial bubble in 2000 as firms looking to cut costs greatly accelerated the export of technology jobs rather than goods and services. Unlike past recessions, when U.S. trade balances improved sharply, the technology balance began to collapse with the first-ever annual ATP deficit in 2002, worsening by 65 percent in 2003. Spurred by a much weaker dollar, the IP surplus improved only slightly in 2003 after seven years of decline and stagnation.
Last year the United States faced $43 billion in trade deficits just for computers, cell phones and their parts. Fortunately, almost half of this deficit was offset by $21 billion in surpluses for semiconductors, a vital industry that has rebounded in the U.S., but now faces strong new supply-chain and policy incentives to step-up outsourcing abroad. The United States is amassing a current accounts deficit at a rate of $1 million per minute while the country lost 718,000 jobs during the first 27 months of cyclical recovery.
The shift from exporting to outsourcing pits the world's lowest wage countries -- their labor and regulatory policies -- against each other. China, now under its tenth ambitious Five-Year Economic Plan dedicated to technology, usually wins this contest. The world's most powerful global companies have made China the leading choice for productive new foreign investment.
This is entirely different from concerns in the 1980s when U.S. companies were losing the competition with Japanese companies. The concern now is not between companies but that global U.S., European and increasingly Japanese companies are all shedding their national loyalties and outsourcing their best jobs, research and production to China and elsewhere.
Despite constant media stereotypes that low-value products such as shoes and toys make up the bulk of U.S. imports from China, electrical machinery was the major U.S import from China from 1994 until last year, being displaced by non-electrical machinery.
The U.S. has had an ATP deficit with China since 1995 and an overall deficit in technology goods and services trade with China since 1999. Last year, that deficit soared to over $20 billion, almost five times larger than the U.S. technology deficit with Japan.
Technology is driving vital economic changes far too rapidly and far too threateningly for politicians and pundits in the U.S. and elsewhere to continue merely repeating over-simplified 18th Century economic theory. Serious public education and discussion of the dynamics of global commerce is long overdue. The current electoral cycle is a critically important time to begin.
-- Charles W. McMillion is president of MBG Information Services in Washington, D.C. He is formerly an Associate Director of the Johns Hopkins University Policy Institute and Contributing Editor of the Harvard Business Review.
The people acting in total have made the economic choice to not only purchase cheaper products (generally a good thing), but to squander all of the savings and then some on more cheap products which will contribute only marginally and temporarily to their standard of living. My proof is in the rising personal debt, rising trade deficit and anecdotal evidence of the types of purchases (disposable DVD players, etc). This is peoples' choice. It is not imposed by government.
Personally I am not pure and unhypocrtical, but there are many cases in which I have gone out of my way to research and purchase American made products. Other times I have grabbed cheap merchandise at WalMart (e.g. jeans) and regretted it.
You and me both. I don't go there, myself. WalMart is a retialer. They're going to sell what they perceive people want.
Last time I went to a discount store (Target) I was looking for a clothing item. Believe it or not, there was an American-made brand available of similar style as the Made in China version. The American-made item looked better, had a better feel, and was the right size, so I went with it. The price difference? The Chinese brand was something like a $1.25 cheaper (out of $30). Not a big deal.
So I remember wondering, where is this great cost savings to the consumer I keep hearing about that comes of off-shoring all this work to cheaper labor? As a consumer, I sure didn't see much. I have a feeling it went on somebody's bottom line.
Fact is, at the retail level, companies are going to charge whatever they think consumers are willing to pay for an item. Any savings from going with less-costly foreign labor very likely will not trickle down to the consumer, but will end up enriching others (who are probably few in number).
Incomprehensible indeed. There seems to several possible conclusions that can be drawn from this
1) They think this is merely a light manufacturing issue. This is incompetent.
2) They do not understand how High technology works either as a business and or as a national resource from the point of view of Human resources. This too is incompetent.
3) They do understand but are are projecting out a new tech thrust. This ignores changes that have occurred in the nation that made the last three build out possible (those periods being roughly WW@, the mid 50s to the mid 60s and the 80s.) Whatever they think it may be they are not telling us, are not developing the labor pool and somehow assume it will not reqquire the same fundemental skills like software engineering we have now. Not only is this dubious, but no one else in the world know about this new thrust either. (and please do not tell me about "nanotechnology.") At any rate, if this work can be done at a desk they have not solved anything.) This is arrogant - and stupid.
4)They understand but they have given up on the country and do not feel we are up to. This is treason.
5) They are globalists pure and simple and do not care. This is treason.
The rhetorical tacks the GOP takes are truly odd. The "retraining" issues bespeaks of being completely out of touch with reality. This issue is not about light manufacturing. The GOP came out the other day and said that they would include "more math and science" in their little "retraining initiative." This is very strange for 1) those sorts of jobs are just the ones that are going overseas so "math and science traing" (what ever that means will not help much, and 2) These area require years of education not "training." "Training" in this context is about "skills" not higher level knowledge. To talk like this is as silly as it is insulting to the intelligence -it is just window dressing. The other strange rhetoric is a constant remarking on "how does one pick winners?" in the next productivity cycle. This to is odd because of course one must try to pick winners in a technological economy that relies in great part to government funded R $ D and government funded education. It is also odd to imagine that mainstay industrial areas like software engineering, IC design and aerospace are not obviously "winners." It leads one to thing that they are either completely in a fog or are trapped in ideology and abstraction.
It is very strange.
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