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.

[Truthsayer20]

"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."

Corporate CEOs supported Bush over Gore with a wide margin. GOP is and has been the party of choice for the most productive citizens for the last 100 or so years.

[XBob]

118 - " India and China are little more than cheap mom and pop shops set up near Walmart."

You reall don't have a clue, do you?

[XBob]

162 - "Where do you think the vast majority of students at US engineering schools come from?"

LOL - overseas, not from the US, just like our doctors and nurses.

[XBob]

sounds like my course of study back in the late 50's-early 60's.

I had no idea they still offered such high school courses even in specialized high schools, considering most colleges are now teaching arithmatic and reading.

[Cronos]

what's the size of the indian & chinese economies in REAL terms? minuscule.

[Cronos]

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

115-A banana republic is a nation that sells only ONE PRODUCT. E.g. Central American countries that only export bananas or Saudi A that only exports oil. Our trade profile to China does not signify that.

[Sam the Sham]

Corporate CEOs supported Bush over Gore with a wide margin. GOP is and has been the party of choice for the most productive citizens for the last 100 or so years.

Transnational MNC CEO's and CEO's of national businesses are as different as Woody Allen and Toby Keith. That is why the NAM is split right down the middle on outsourcing. Between middle and small manufacturers who are based right here in America and globalist "citizens of the world".

[ninenot]

Churchill became dependent on FDR in a way Lloyd George never was on Woodrow Wilson.

Perhaps explaining his capitulation to Roosevelt's acquiescence to Stalin at Yalta?

[ninenot]

what's the size of the indian & chinese economies in REAL terms? minuscule

From the CIA "Factbook":

In 2003, with its 1.3 billion people but a GDP of just $5,000 per capita, China stood as the second-largest economy in the world after the US (measured on a purchasing power parity basis).

Yup. Miniscule.

[XBob]

205 - "what's the size of the indian & chinese economies in REAL terms? minuscule."

Have you ever been there. I have. They are huge economies, with vast numbers of peoples. Not as great as ours on a per capita basis, but huge.

The 'cost' scales are different however. How do you feed, clothe, and house 2 billion people, without huge scales?

But the money systems vastly change the relative 'costs' through exchange rates.

At many places in India and China, you can get a pleasant apartment for $10 per month. Where can you do that here in the US? Many places you can eat a good meal for 25-50 cents. Where can you do that here?

How do you transport a billion people (india?). Coal locomotive is one way, but it still works pretty good, but is pretty grimy, bicycles, peddy cab, motorcycle, cyclos, cars, busses, elephants, horses, donkey carts, camels, walking, aircraft.

[XBob]

206-"In ten years the freetraders have given it all away"

boy, that's the truth."

[underbyte]

“Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime”—

Tech transfer is my biggest beef with all this free trade. We had 40 years of U.S. R&D money into Computers and enjoyed a relatively short U.S. manufacturing run of a few years. Now any new advance do not even get considered for U.S. manufacture because it is "better to do it in China"

They are now making their own chips, doing their own design, developing their own products they only need us as a market to ship product to.

Free trade OK just do not teach them how to do it.

They now own the river and are selling us the fish.

[GOP_1900AD]

You missed my point. I was not making any comment about how CEOs voted. I was simply pointing out that most of them are surrounded by utopian globalists in the places where they live, and in the circles they socialize in. That's the point.

[backtothestreets]

"85 - excellent summary - thanks"

You're welcome.  Most people place the origins to this situation on the laps of business.  They need to know it was started as a means to wean developing countries from direct foreign aid.  The policy succeeded.  These countries can now continue to develop on their own.  It is time our companies come home.

[Nowhere Man]

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.

Well, if you talk about those, yeah, I agree with you 200%. I guess I didn't make myself clear, I'm basically talking about the Freepers here who support free trade. People like that lady at HP, well, I would have to say she is a "Free Traitor" in that case. I remember Barry Goldwater's 1988 biography where he warned against the idea of loyalty to a company getting ahead of loyalty to one's country and it seems like we are seeing this now.

[upcountryhorseman]

We are exporting third world type goods like: cotton, grain,
soy beans, coal, etc.

[Cronos]

You said measured on a purchasing power parity basis. Note what I said (post #209), in REAL terms it is minuscule.

[Cronos]

We are exporting third world type goods like: cotton, grain, soy beans, coal, etc.

I wouldn't consider the sale of agricultural and mining products as being reserved for third world countries.

[adx]

The sale was being overseen by students from the USC School of Engineering. Not one American student anywhere in sight. And I struck up conversations with as many as I could and asked them where they were from. Here's a short list:

India (of course), Pakistan, Bangladesh, China (mainland), Borneo, Sarawak, Sri Lanka, Iran, Egypt. I stayed a lot longer than I indended, talked to a lot of students, just to get some specific information.

Hmm...... I wonder how many of those students are going to go home and work in their nation's WMD and other programs designing weapons to kill Americans with.

[N3WBI3]

Nobody here has ever said all free trade is bad, thinking that a communist nation with slave labor and nukes pointed at us deserve the same favor as Canada is kinda silly..

There are many nations that deserve free trade they have a first world economy, human rights, and dont point nukes at the US.