U.S. Loses Its Advantage In Technology Trade

Manufacturing News | April 2, 2004 | Charles W. McMillion

[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.

[palmer]

You're looking to handwring about what is or is not the job of the government and in the meantime blame everyone else.

Not the job of government to tell us what to purchase and not to purchase. Typically tariffs are set through politics where powerful industries bribe politicians to tariff their competition. Are you advocating an across-the-board tariff with no loopholes for any "unfinished" products? I wouldn't oppose a small tariff if that were the case, but I still disagree that that's the correct way to curb consumer spending on imports.

[Havoc]

Not the job of government to tell us what to purchase and not to purchase.

And therein you are running from the argument I made and hiding behind one I didn't. Are you so dishonest you can't deal with what I said instead of making up things to debunk?

[optik_b]

"If we could only export the products of liberalism to China such as diversity, multiCULTuralism, gay special rights and other nonsense we could send them back to the Ming dynasty era faster than Jesse Jackasson can spot a camera."

True but Chinese culture and chinese people are not the Jesse Jackson type. We have a huge underclass of people that are dragging down the whole nation.

[Havoc]

.. and btw, nobody is talking about curbing consumer spending on imports. What is being discussed is leveling the playing field so that people from economies that pay 25 cents an hour can't destroy the jobs in economies that pay 25 dollars an hour. That is subversion. And that is why it used to be illegal!

[The Duke]

I think borders are a dumb idea as well. What's the point of them?

Borders play a *VERY* important role - they keep governments honest. They also provide gray areas of legal juristiction that can appeal to those who are more adventurous in spirit.

[ninenot]

Regrets, my error. OVERALL econ growth was 9.1%. INDUSTRIAL econ growth was 12.1%.

[GOP_1900AD]

I realize in retrospect that I've done great damage. I was a typical George H.W. Bush moderate. It is actually frightening how little there was, at the time, to prompt me into even giving it thought. Like many, I did not give history much consideration, and had no thoughts of any substance in the geopolitical dimension. I had a job to do and there were billions of market share at stake. Then, one day in 1996, the first small sliver of awakening. I was in Taiwan and the news was that the PRC were launching missiles. For a short while, I thought it was WW3; I gave out a large sigh of relief when it became obvious that it was only a test. Still, my interest was piqued. I started on a new path, first tuning into my local Conservative talk radio station, checking into Rightist web sites, reading books. A friend at work let me borrow "Year of the Rat" and I would say that was my clear turning point. I have not looked back since. Meanwhile, the harsh realities of dealing with the Communists have come home to roost. They are theives; the variety who entrace their victims with nicety and seeming legitimacy, only to stab them in the back once they have gotten what they wanted. Many will resist seeing the reality until it is far too late; their credibility, careers, cost reduction promises and, personal relationships with Communists in businessmens' clothing are all on the line. It is painful to withdraw, past a certain rubicon. We are witnesses to both the amazing and the horrific.

[backtothestreets]

"We are witnesses to both the amazing and the horrific."

Indeed we are.  Holding your thought of awakening, I've no clear picture yet, but see the outsourcing of jobs and relocation of our factories offshore as being closely tied with the proposals to legalize illegal immigrants.  On first glance it appears all three are to benefit business, yet I wonder.  There seems to be something else motivating these changes.  My gut instincts tell me it is a purposeful policy to force lifestyle changes of the masses.  I've witnessed such changes over 50 plus years.  Economics have changed our society in ways that have devastated the family unit.  We've changed from the of nation highest per capita incomes (based primarily on single income families), leisure time, healthcare, education and overall standard of living to something much less desirable.  Taxes and use fees have accounted for some of the economic change, but not all.  To my recollection, and regardless of ones politics, our elected officials were threatened by the level of involvement average people were displaying.  It wasn't just the antiwar protesters.  There were many equally large and well planned demonstrations in favor of the war.  There were also large demonstration for and against segregation.  They all had one thing in common, and that was the peoples ability to get involved.  It was also the first time I saw the politicians frightened of losing control.  Have basic economics been manipulated to make us a more controllable population?

On an off-topic note..., I see you give geopolitics great thought.  I do too.  I also look at demographics as a good indicator of how a country, state or community will react on certain issues.  My demographics theory holds that the higher the population density, the less traditional the politics.  Have you ever considered how such politics could be applied within our country?  I've witnessed many starry-eyed politicians with grand plans to return our nation to more traditional values have changed once in Washington D.C.  I believe the community changes the politician, not vise versa.  I also believe it is due primarily to the population density and changes that density invokes upon all residents.

Many months before 9-11, I sent a letter to the editor of my local newspaper suggesting a relocation of our nations capital.  Though I did cite security as one strong reason, the primary reason was political.  Washington D.C., our current capital was selected due to its central location among the original thirteen states.  In both a geopolitical sense, and demographic sense, it was centrally located.  The choice of location gave all state Congressional delegation ample time to spend within the communities they represented.  If those standards were applied today, our national capital would be located around northwestern Oklahoma, which is hardly a densely populated area.  It would also shift our collective politics back to a more traditional base (I don't like using the term conservative as it is widely misused).  As an extra incentive, it would bring about near total employment in our country for twenty years as every factory producing everything from paint, glass, furniture, asphalt, concrete to tires and maps would be involved.  All segments of our economy from architecture, housing contractors, airlines and banking to lumber and electrical companies would be involved.  It would also give the entire population a singular purpose, and our country works best when such situations present themselves.  The sheer magnitude of new technological advances we would make in building a new capital would create knowledge to generate foreign business for decades beyond.  The cost would be almost entirely recovered from the business taxes it would ultimately generate.  It would also turn us back to more traditional times and values.  I'd propose this far ahead of a manned mission to Mars. Just a thought...

[Nowhere Man]

Or maybe the ice delivery man vs. refrigerators (false) analogy. And don't forget the ever-popular bromides (slaps-in-the-face):

1. Start your own business (with no money)
2. Relocate to where the work is (where is that, India?)
3. Get a job, any job (just throw away everything you ever learned or worked to have)
4. If they can't adapt, screw 'em (i.e., let them eat cake)

See how easy it is to view things from the black-and-white free trade mantra point of view (especially if you are not the one hit...yet)?

You hit upon the key issue about the jobs and free trade issues. We have lots of problems here where our national sovereignty and economic health is at stake. I know myself, I'm mainly in the IT field, perhaps not as schooled as many here but I did my share of IT work and computer operating. But now I'm doing fairly well in the real estate title search industry, heck I'm making more now than I ever have. My viewpoint is that sometimes you got to shift gears to survive and take something else up, I mean a person's got to survive somehow, be it working in another field or in the local grocery store. Although I do feel it was my skills that helped me out, there is a side of me that feels that luck had a part of it too.

But there is more to this issue than just that, maybe the free traders will point to me that I'm doing quite well. I hope I still do but a lot of other issues are the ability to manufacture items we would need to maintain our society here in the U.S. What if we were cut off from Asia due to a war, embargo, etc.? We'd be screwed, at least until we get factories going again here.

I know I'm 37, unmarried, live with mom, but I hope to find the right one someday, so maybe I can adapt better then a person who has his own home, family and so on.

I like Harpseal's program on revitalizing U.S. industry. We do need to focus not only the bleeding of jobs but a lot of our over-regulation too. Maybe I'm just only being abstract here but I have to cut this post short, got work in the morning. B-)

I just think that with the internet and such, I think technology is somehow outpacing a lot to the point where we are headed into unknown parts in the economy. Sure Socialism/Communism lack answers and always have, but I think even the sweeping changes in recent years, on the other side of the coin, I think even the answers that Capitalism has tends to fall short too. What if in the future, robots make everything, will people be able to get good jobs or will we need a massive welfare system to take care of people or to make "busy work?" I have no clue in this case on what we need to do or what things will be like but I think at one point we will have to answer these questions and I think we are just beginning to head into uncharted waters.

I know in places like India, in order to keep people employed, they usually have 100 workers with shovels instead of having a steam shovel do the work. I know it's not efficient at all, but I guess when you have lot of people, well.... I think one thing that sparked the Industrial Revolution is the Black Death and other plagues, wars, and so on where you have too few people and too much work so that kicked off the Machine Age. With the population growing more, we might have more people than jobs/work. If something isn't done, probably the only pragmatic thing for the United States to do is adopt a Swedish style welfare state (until we collapse from too many people in the wagon and not enough pulling it), I don't like it but we could be headed that way at some point in the future because the other option of "let them eat cake" will not go over very well.

But enough thinking, we do need to focus on the economic health as well as general health of the United States, we need to be able to take care of ourselves. The Free Traders, well, I don't like to use "Free Traitors" too much, I'm sure they do believe that they feel they have the best interests at heart and very sincere but they do fail to see the other side of the issue like some of us do.

[XBob]

28 - ping

"Protest at the HRO World [Offshore] Outsourcing Conference
Protest at the HRO World Strategy Conference in New York City on April 14-16"

[GOP_1900AD]

You are onto something here. It is way too easy for someone to do a one day power fest in DC, even though their home base happens to be NYC or Philly. Excellent idea!

[Sam the Sham]

The Free Traders, well, I don't like to use "Free Traitors" too much, I'm sure they do believe that they feel they have the best interests at heart and very sincere but they do fail to see the other side of the issue like some of us do.

No, "free traitor" is a totally apt term. MNC's are governed by an elite caste of transnational "citizens of the world", above the petty concerns of any one nation. When Carly Fiorina of Hewlett Packard proclaimed that there is no reason Americans should expect to view any job as a birthright, she proclaimed that herself a citizen of Hewlett-Packard, not an American anymore. Free traitors see themselves as the new aristocracy, a new global ruling class transcending nation states.

[Sam the Sham]

We are a new British Empire, except that we are already saddled with high debt.

You forget that the British Empire was not in debt, it owned a huge chunk of the world (even outside the bounds of its empire). The British Empire flopped not because of debt, but because the natives decided that they didn't want to fight each other in the King's name.

Debt had everything do do with the collapse of the British Empire. In the First World War Britain had to do something it had never done before. Instead of a small professional army, it now had to build a mass conscript army of the entire adult male population. Thanks to free trade, British industry had been neglected and wasn't up to the task of equipping it. So Britain imported weaponry from the United States. Around 1916 they ran out of cash and to avoid inflating the pound (getting off the gold standard) they liquidated their massive global investment holdings. The direct consequence of the First World War was that America, not Britain became the banker of the world with all the investment holdings Britain had liquidated.

The Second World War saw the same thing, only now for England it was even worse. The pockets of 1940 were nowhere as deep as the pockets of 1915 had been. As early as 1940 Churchill had to flatly tell FDR that without Lend Lease England could not stay in the war. Churchill became dependent on FDR in a way Lloyd George never was on Woodrow Wilson. When the war ended, England was so broke that it couldn't get off rationing until the mid 50's. The Royal Navy went to the scrap heap. England simply could not afford being a great power anymore and, aside from Anthony Eden, accepted American suzerainty.

[backtothestreets]

Thank you. There are additional benefits such a relocation would bring. The area composing Washington D.C. would be returned to the respective states, Maryland and Virginia. That would end the ongoing debate of statehood for Washington D.C.

The present federal buildings would be turned over to the National Parks Service or Smithsonian for management as national historical sites and conducting tours. The revenues generated from visitor traffic would pay to maintain both these structures and a good portion of existing parkland.

To make such a move would not require a Constitutional Amendment as the Constitution specifies establishing a federal district, but does not specifically name the present area. A simple majority of Congress could set the move in motion. The Republicans have that majority now. They would be joined by moderate and conservative Democrats that are from the Midwest.

Unfortunately, the Republicans been sucked into the childlike debate on statehood and do not realize how easily the debate could be addressed.

[GOP_1900AD]

A related observation .... the vast majority of CEOs of the top 1000 companies live in counties which went for Gore in 2000. What this indicates to me, is that they hobnob extensively with utopian globalist intellectuals and academics. I am unfortunate enough to live in close proximity to Fiorina and others of this ilk. They are really into NGOs and foundations; they attend these 1000/ plate fundraising events, where you'll get one of them plus some tweedy Communist, speaking. While not being the sort of overt and sinister cabal claimed by Quigley, certainly the influence into the CEOs by some very messed up characters is definitely happening. Many of today's CEOs are from the hippie generation and many of them went to the same schools as Hillary and Slick and other Lefty radicals. Never has there been a group of the powerful so influenced by New Age BS, modernist utopianism and wrong headed interpretations of just about anything important. We are in deep doo doo.

[AmericanVictory]

It is indeed ironic that the large corporations that have become such large pillagers of intellectual property rights are now constrained to complain that that which they have pillaged is being pillaged by others. What, the "submarine patent" falsehood will not deter the heathen Chinee? Egad!

[XBob]

51-"We export beans to China and they ship us computers. The U.S. trade profile looks like a banana republic.

In ten years the freetraders have given it all away"

boy, that's the truth.

[XBob]

85 - excellent summary - thanks

[XBob]

91 - "It is ridiculous to blame the government for the trade deficit, look no further than your own spending habits."

Partly true, but what do you do. I needed a new crock pot, and a search of 3 stores over a period of a week, and repeated inquiries turned up only Chinese made crock pots.

What a crock !!

[XBob]

93 - "You expect us to give a s&^% about YOUR job? Why?"

ROTFL - wow - a free traitor who wants us to be concerned about his job.


Barf !!

Move to Canada or South America - narby