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.

[rmlew]

Kill free trade before it kills us, bump.

[Clemenza]

While were at it, kill inferior (and EXPENSIVE!) public schooling that gives no prep for the real world as well. While I agree that taking it up the a-s through so called "free" tech trade with Asia is a problem, the fact that so many of America's youth are poorly educated in many subjects is a factor that cannot be ignored.

[narby]

Kill free trade before it kills us, bump.

Thanks for trying to take my job away from me.

Most of the money my company makes comes from selling wireless systems in South America. Our division is owned by a Canadian company, and they build the hardware in Canada and ship it to So. America. It's designed by folks in the Bay Area.

So if you clowns get your way and lock down America, then there are several hundred of us probably out of a job.

Or I'll have to move to Canada (no thanks).

The Willie Greens of the world can always find isolated examples where it looks like the sky is falling. But overall, and for the long run, anyone with brains is for free trade.

If isolation is such a good idea, then it would be a good idea to practice between the states. Put tarrifs on goods made in Californa and shipped to Michigan. Obviously that's a dumb idea, and it's the same dumb idea when applied across national boundaries.

(Yes, I know the Constitution says only the Congress could do that, but that's not my point)

[Fishrrman]

Chimera wrote:
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)?

Great post. That one goes into my archives.

"Free Trade": as "free" as freedom itself!

Cheers!
- John

[rmlew]

The problem with Free trade is that capital and skilled labor are exportable. Given lower standards of living, well-paid engineers in India are still paid a fraction of the price of one in any America city. In the long run wages will equalize. While I am all for the developing world getting richer, it will mean that our standard of living will decrease, at least for a few decades.
Free trade proponents (I used to be one) will claim that the loss of jobs is not a real concern. It is simply a cost of the "creative destruction" that drives our economy. To some degree, they are correct. However, there are few jobs that need to be in the US. Even if much of the creativity comes from the US, why would companies produce their goods or services in a high cost environment. While we can, and should, reduce the government-created costs on business, there is no way that we can compete in the long run. In an age of instantaneous connections via the internet, and unfettered shipping, America's competetive advantage decreases tremendously.
There is no real reason to produce technology here. Tehre are problems and costs associated with outsourcing. However, don't kid yourself into thinking that they are insurmountable. Better management, training, and quality control will improve results over time. It may take 5 years, or event a generation, but the costs of outsourcing tehcnical work will greatly diminish.
The end result will be a weaker dollar, lower GDP in America, depressed wages, and the end of American dominance. We are not the New Rome. We are a new British Empire, except that we are already saddled with high debt.

Your job is essentially middle management in the US. Please explain why it will not be outsourced in the next decade before saying that I want to take away your job!

California and Michigan are both states. There is no real cost to the country if a job moves between states. There is a real cost to the nation if it moves to India or China.

[clamper1797]

Dont worry, Im sure the free traitors will show up on this thread soon and explain how this is actually a GOOD thing, probably using a buggy-whip maker analogy. 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)?

Don't forget

#6. I save a couple of cents on the dollar screwing my fellow Americans

or

#7 MY job depends on screwing fellow Americans out of their jobs

Or

#8 The're not YOUR jobs ... they belong to the company (all the while neglecting to acknowledge whose tax money went into building the roads and other infrastructure which enable that the company to function and whose blood was given in protection of their free traitor a$$es

Yes Benedick ... they are OUR jobs (spelling on purpose)

[backtothestreets]

There's a lot this story doesn't mention.  Here's a quote from the US Trade Representative's (USTR) office.

"-- Failing to protect intellectual property rights (IPR). Enforcement of IPR laws was "seriously inadequate," the report said, noting a US estimate that the value of counterfeit goods in China amounted to 19 billion to 24 billion dollars. Estimated US losses exceeded 1.8 billion dollars a year."

This is costing me between 10K and 40K daily in lost royalties alone.  It is keeping me from increasing my staff.

WE SHOULD NOT CONDUCT BUSINESS IN ANY COUNTRY THAT DOES NOT RECOGNIZE INTELLECTUAL PROPERTY RIGHTS.

I've no intention of introducing any more products until our government has signed a treaty with China that protects our Constitutional rights.

Article. I. Section. 8. Clause 8:

"To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries"

[rmlew]

http://www.rescueamericanjobs.org/events/nyc20040414.html

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

What?
This offshoring conference is billed as "the world's largest gathering of executives ever assembled to focus on human resources outsourcing". Executives from across America will gather to discuss moving your job offshore. Rescue American Jobs is organizing advocacy organizations and unions to protest the outsourcing of American jobs at this event.

When?
April 14th, 2004, 8:00 AM - 5:00 PM
Where?
New York Hilton Hotel
1335 Avenue of the Americas
New York, New York 10019

How?
Contact us if you or your organization would like to participate in this protest:

James Pace
(203) 393-5404
nycrally@rescueamericanjobs.org

Rescue American Jobs
Attn: James Pace, Legislative Affairs
P.O. Box 3789
Woodbridge, CT 06525

Who? Rescue American Jobs and the organizations listed below will be there to let them know that Americans will not lay down while they sell off our country:

Rescue American Jobs (contact James Pace)
TORAW (contact John Bauman)
American Engineering Alliance (contact Sal Galletta)
Constitution Party (contact Walter Adams)
Programmers Guild (contact Sab Maglione)

[Lael]

WE SHOULD NOT CONDUCT BUSINESS IN ANY COUNTRY THAT DOES NOT RECOGNIZE INTELLECTUAL PROPERTY RIGHTS

India forbids itself from recognizing Patents on Pharmaceuticals.

[InABunkerUnderSF]

Pardon me if this is redundant.

Free traders are quick to invoke Reagan, who did support a lowering of trade barriers. They forget though that Reagan was the father of "Operation Exodus" and the initiator of the gentleman's agreement between the Western Nations to not sell advanced technology to the Soviets. Selling your best technology, and the factories to make the goods, to countries that want to destroy you is a serious mistake. I don't think President Bush is looking far enough ahead to see this.

I have to much admiration and respect for China to expect her to do anything other than what she has done throughout her history; which is to strive to be the center of the universe, the Middle Kingdom, the hegemon over all she surveys. And right no she surveys the entire Pacific Rim.

[Mrs Zip]

ping

[backtothestreets]

India is another example.

Our elected representatives are allowing our companies to relocate our Intellectual Properties, not just jobs and factories into these countries. Allowing companies to make such moves without a treaty in place, that acknowledges and protects Intellectual Properties, is akin to having a renter move onto a property before they have signed an agreement establishing a renter/landlord relationship. Does our government really believe these countries will bargain such treaties after the fact?

There is a huge problem in addressing these related issues. Politicians of both parties are receiving huge campaign contributions from the companies that place a higher value on corporate profits then Constitutional principals. This has placed these elected officials into an area of compromise, and we, the citizens, have been compromised in the exchange.

Another problem is that so few people realize an attack on Intellectual Property is an attack on property ownership exactly like an attack on the ownership of a building, automobile, or gun. People who fight to protect one, and not the others, are destined to lose all.

The government falls short of protecting our country if it protects our lives, yet does not protect our way of life.

[techwench]

sounds like a "better you than me" ping

[techwench]

also:

#9 invest all your savings and break into the popsicle stick bird house business. or perhaps the "elvis on black velvet" roadside sales business.

[Iscool]

So if you clowns get your way and lock down America, then there are several hundred of us probably out of a job.

Well get off your hind end then and start your own business...Or go back to school and retrain for a better job...Hey, the options are endless...Aren't they???

[lelio]

Put tarrifs on goods made in Californa and shipped to Michigan. Obviously that's a dumb idea, and it's the same dumb idea when applied across national boundaries.

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

[Bush2000]

Hey, I've got a great idea. Let's create a free operating system derived from protected IP, screw over American software companies, and export jobs to India, China, and Pakistan! /SARCASM

[A. Pole]

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.

"Free" trade bump.

[findingtruth]

Got a link?

[A. Pole]

The end result will be a weaker dollar, lower GDP in America, depressed wages, and the end of American dominance. We are not the New Rome. We are a new British Empire, except that we are already saddled with high debt.

Or maybe new Spanish Empire. Or new Polish Commonwealth of XVIIIc.