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U.S. Loses Its Advantage In Technology Trade
Manufacturing News | April 2, 2004 | Charles W. McMillion

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.


TOPICS: Business/Economy; Extended News; Foreign Affairs; Front Page News; Government; Politics/Elections; Technical
KEYWORDS: china; deficit; technology; trade
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To: palmer
You're looking to handwring about what is or is not the job of the government and in the meantime blame everyone else.
Why do you suppose that is. Political favoritism isn't supposed to be involved anymore than political slackness. But are you now going to say something is the government's fault while dodging something being the government's fault..
Gee, how interesting.
161 posted on 04/07/2004 11:52:46 AM PDT by Havoc ("The line must be drawn here. This far and no further!")
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To: Clemenza
While were at it, kill inferior (and EXPENSIVE!) public schooling that gives no prep for the real world as well.

Says who? Where do you think the vast majority of students at US engineering schools come from? That's right, public schools, where the program they take to get into engineering school is rigorous and essentially begins in junior high school.

Students going to engineering school in my district usually begin taking either algebra or geometry (a few!) in eighth grade. Then in high school their program is as follows. They don't have to take both chemistry and phyiscs but many take both:

Freshman year:
Either honors geometry or honors Algebra 2 / Trigonometry
Honors Biology(which is equivalent to the college course which I taught labs for)

Sophomore year:
Honors Algebra 2 / Trig or Honors Precalculus
Honors Chemistry
Honors Physics

Junior year:
Honors precalculus or Calculus I (college credit)
Advanced Physics (college credit)
Advanced Chemistry (either can also be taken senior year)

Senior year:
Calculus 1 (college credit) or Calculus 2/Differential equations (college credit)

Another St. Louis district is offering Calculus 3 / Differential Equations 2 to its high school seniors.

Don't tell me how bad public schools are when it comes to providing the advanced classes needed to get into engineering schools. Better suburban districts *are* providing this preparation. Most students in any given district are not *intellectually capable* of pursuing this type of course of study.

What should concern us more is that students who *are* capable aren't doing it (EE and CS enrollment is down a third this year already) because *why work so hard* if you can't get a job easily, or if you do, your job is outsourced?

162 posted on 04/07/2004 11:55:55 AM PDT by valkyrieanne
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To: rmlew
The problem with Free trade is that capital and skilled labor are exportable.

And Free Traders, apparently, are not.

163 posted on 04/07/2004 11:57:29 AM PDT by templar
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To: belmont_mark
Dollars to donuts? Pay up, I wasn't old enough to Vote.
164 posted on 04/07/2004 12:00:24 PM PDT by Havoc ("The line must be drawn here. This far and no further!")
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To: ninenot
Good points. In addition to .30, I am also interested in .50 long range target rifle rounds. In the latest American Rifleman there is an article about how the Army adopted the commercial versions (e.g. the ones that all the Rats are trying to ban). Probably not a lot of volume but the markup is good. So many possibilities.... ! :)
165 posted on 04/07/2004 12:01:05 PM PDT by GOP_1900AD (Un-PC even to "Conservatives!" - Right makes right)
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To: Havoc
Oh man, you got me there! Here you go ... $$$$$$$ . :)
166 posted on 04/07/2004 12:01:50 PM PDT by GOP_1900AD (Un-PC even to "Conservatives!" - Right makes right)
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To: chimera
Then all the hamburger flippers and insurance salesmen and WalMart gladhanders in the world won't help us.

Why should the "CEO-wannabes" (love that phrase) care? After all, if borders don't matter, why not just clamber to the top of the heap of the One World Government?

Outsourcing manufacturing was bad - we have no domestic US men's shirt makers, for instance, and I really wonder if we do have the ability to make the materiel we would need for a long-drawn out war. But our really critical lack is going to be technically-trained people. Keeping engineering jobs in the US isn't just a protectionist issue - it's a serious national security issue.

167 posted on 04/07/2004 12:05:36 PM PDT by valkyrieanne
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To: lelio
I'm perplexed too about this "training" -- is it Bush's version of the WPA? What exactly are these people going to be trained to do? And what about the college educated people whose jobs are going overseas, are they going to be retrained to do something new?

Good question. I've been reading dozens of these articles/threads over the past few months, and *no one* has a cogent answer. Except for a few brief references to "biotechnology" and "new technologies" (unspecified), NO ONE interviewed from this administration has given any decent answer.

The "biotechnology" thing is especially lame. Most of the head work requires a PhD in biochemistry, genetics, etc. and the lab grunt work is done by people with 1-2 years at community college.

The basic message to 40-50 year old engineers - in fact, the whole technically-trained middle class - is f--- off. Too bad most of those being flipped off were George Bush's base in 2000.

168 posted on 04/07/2004 12:13:25 PM PDT by valkyrieanne
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To: funkywbr
No, you said It was funny as hell having my black manager comment one day about how she went into the coffee room and thought she was in another country.

The emphasis was on the color, so I asked you:

hmmm... what's that supposed to mean?
169 posted on 04/07/2004 12:22:41 PM PDT by Cronos (W2K4!)
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To: chimera
Indeed a good point here. Many believed that the peace of the 1870s was a portent of a new age of global commerce. And mind you, there was an even heavier hand, in the form of the European monarchies, to steer it, than there is today. If it failed then, then how can anyone argue that it will be any better this time around? I think the bugaboo here is that the current false peace has lasted so long. Arguably, it has been in place since 1945.

I personally do not count anything that has happened since then as an end of that peace - never were major great powers in direct shooting (vaporizing?) conflict over extended periods.

I attribute the length of the period to a number of things. Firstly, from the moment we nuked Japan, we feared great war so strongly, that we exhibited many behaviors that were not, from a historical perspective, at all normal. Appeasement, truce calling, detente, ongoing negotiations with no conclusive end point, etc. I issue no value judgement regarding those behaviors, I only am bringing them to light.

Secondly, we took the UN much more seriously than the League of Nations or any other earlier international body. In many if not most cases, much of our support of and engagement with the UN has been overtly antithetical to our true national interest; we have, in essence, taken the anti Clausewitzian approach. This is, in a way, another manifestation of the first item - our now near primal fear of great war (even, I might add, to the point of refusal to consider it in cases where, from a perspective of the long term survival of Western Civilization, it would have been the correct, ableit exceedingly painful, decision).

Thirdly, the advanced state of decay of the age old aristocratic structures, and, innate Judeo Christian Western institutions, fomented by the increasing influence of anti traditional intellectuals brought on by inexpensive media means, the bourgeiosification of higher education and the previously mentioned efforts to discredit Von Clausewitz' theses, resulted in a potent Leftist polity throughout the West with its own ill effects.

And finally, the change in monetary policy from one of relatively fixed (or at best, slowly changing and metal backed) money supply to one of elasticity and bourgeiosified debt incursion, gave rise to the historically unprecedented and unproven hyper commercial orientation of Western modernism. This last item clearly drives the mentality of the so called "free traders." Certainly it comes as no surprise that when that mentality is juxtaposed upon the first three factors, the current state of affairs is a predictable outcome.

Given that none of these four factors have a deep foundation and are certainly not part of the thousand plus year old underpinnings of the core of Western Civilization, any claim as to their stability and staying power must be suspect.

170 posted on 04/07/2004 12:25:59 PM PDT by GOP_1900AD (Un-PC even to "Conservatives!" - Right makes right)
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To: WRhine
Indeed, it is not "Creative Destruction" for the reasons you stated but I like to call the deleterious effect of our One Way "unFree" trade polices "Senseless Destruction" because it does not have to happen. As you pointed out it has NOTHING to do with Innovation, only the search for cheaper labor to build EXISTING technology.

Software companies have moved south as well (and I don't mean Mexico) because they can get better value for money there -- the programmers there can work for less and live pretty good.
171 posted on 04/07/2004 12:26:40 PM PDT by Cronos (W2K4!)
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To: ninenot
Your number is wrong. China's growth last year was WAY in excess of 12%, and it's larger YTD 2004.

China's growth was less than 10% last year. That is nothign considering the base level or starting point. e.g. suppose you start up a company in the year 2000 and make a profit of $1000 that year. The next year you make $2000 -- that's a 100% increase in profit. Now, it's easy to make $1000 to $2000 but not that easy to make $2000 $4000. And hte US is much much larger economically so it's 4% GDP growth is massively larger than China's 10% growth.
172 posted on 04/07/2004 12:29:36 PM PDT by Cronos (W2K4!)
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To: valkyrieanne
Too bad most of those being flipped off were George Bush's base in 2000.

If Bush loses this election (which is looking more and more likely as those approval numbers drop), a big reason will be what you say. This is impacting primarily a conservative Republican demographic. Bush and the GOP are committing mindless political suicide on this jobs/offshoring issue. If they think the well-heeled corporate fat cats are going to save them with their big bucks they'd better think again, because there are very few of them and a whole lot of the middle class who have been screwed by offshoring.

173 posted on 04/07/2004 12:29:51 PM PDT by chimera
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To: belmont_mark
Given that none of these four factors have a deep foundation and are certainly not part of the thousand plus year old underpinnings of the core of Western Civilization, any claim as to their stability and staying power must be suspect.

You can say that again. They're about as substantial as a house of cards built on shifting sands. It won't take much to bring it down. Something like, say, China deciding to re-assert it's perceived historical right of hegemony over the Pacific Rim. They might not try it anytime soon, but in something like, maybe 20 or 30 years, when this country is only a shadow of its former military and industrial self, and has largely reverted to an agricultural base or, as the one Japanese business executive called it, an "entertainment nation", they can move on the vision. The Chinese are nothing if not patient. They'd rather see us destroy ourselves than take on a shooting war, but if it comes to that, they won't do it until they're sure they'll win. That may not be all that far off, given the trends.

174 posted on 04/07/2004 12:41:18 PM PDT by chimera
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To: Cronos
I thought you might have understood the 1st part of my post.

At my office, besides outsourcing we are also insourcing.

That means that we have about 40 Pakistanis working along side of the 50 of US varied Americans.

Now can you imagine the IRONY of a Black American saying that she went into the Coffee Room and thought she was in another Country?

It sounding so RACIST when she said that.

Don't worry I did not report her as I KNOW how in REAL LIFE whistle blowers are treated:-)
175 posted on 04/07/2004 1:00:47 PM PDT by funkywbr
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To: funkywbr
Got it! ARe they Pakis or Injuns? I distrust slammies
176 posted on 04/07/2004 1:07:51 PM PDT by Cronos (W2K4!)
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To: Cronos
Sorry my mistake, they are all from India (guess I made a racist assumption myself).
177 posted on 04/07/2004 1:23:00 PM PDT by funkywbr
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To: valkyrieanne
Ah, a member of the PS Teachers lobby.

While there are fine public schools out there (usually in affluent districts) your average public school s-cks in terms of preparation for the sciences (to say nothing about the other subjects).

178 posted on 04/07/2004 2:30:30 PM PDT by Clemenza ("Knowledge is Good" --- Emil Faber, Founder of Faber College)
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To: valkyrieanne
BTW: Ask any Professor of Engineering which students are better prepared: Those from India and Korea or those from the United States.
179 posted on 04/07/2004 2:37:30 PM PDT by Clemenza ("Knowledge is Good" --- Emil Faber, Founder of Faber College)
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To: belmont_mark
"I feel for you. I am taking it on the chin as well. Globalism made me rich during the 1990s, but today it has turned into a monster, I doubt my current line of business can continue without radical changes to the environment, or, some major externally imposed new conditions."

Thanks Mark.  Your experiences with Globalism gives your response added validity.  While I haven't become an all-out isolationist, my experience has made me a much stronger protectionist. 

180 posted on 04/07/2004 3:33:55 PM PDT by backtothestreets
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