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.
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?
And Free Traders, apparently, are not.
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.
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.
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.
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.
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.
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).
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.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.