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.
They're not ivory tower free traders. They're CEO-wannabes who think their subscription to The Wall Street Journal qualifies them as an expert, who hate their fellow American working neighbors and whose jobs haven't been offshored.
Yet.
OK, but you better plan on selling to consumers or other home based businesses.
Don't forget Walmart .... they're our nation's biggest employer you know.
What a disgrace.
It is the crisis of our times: Globalism. Our elites have a different vision than the rest of us. We will have to see if democracy is really still a powerfiul force in the nation.
Very revealing comment. For free traders there is NO DIFFERENCE between California, Michigan on one side and Guangdong, Karnataka on the other.
Americans in the eyes of free traders have no claim or stake in American economy unless they are the part of international owner class. American workers are to be treated as a commodity to be priced on the level equal to the Third World labor.
I've tried to maintain a cool head about outsourcing. Being 51 and in IT, it's never far from your mind.
I live in Aliquippa, PA. It's a community that the rest of the world abandoned. It used to be a throbbing heartbeat of steel making.
The infrastructure is crumbling. Empty buildings where people strolled to shop are rotting. Houses are selling for what people paid for them in the 60's. Crime is up. Hope is down. According to all the "newspeak", this community should have recovered on its own. New jobs would replace the old jobs. But there isn't even an McDonalds in town.
The kids move away because there is nothing here for them. The taxes still rise while the tax base erodes. Tax sales are at an all time high. We've had a policeman executed by drug dealers. There is corruption.
We've already done this grand experiment. It does not make things better for society when it is not a win-win for business and society. The "newspeak" crowd would have us use their calculus to make it so. I, for one, am not buying. There must be some way to make things incrementally better for a society instead of always handing the prize to the immoral profiteers, i.e., those who win at any cost.
But what have you (collectively) done about it? Does your local WalMart have a full parking lot? Who is going to buy American products when everyone wants to save a few pennies buying the imported stuff? Do you look at labels and notice that your cat food is made in China? Did you stampede WalMart for one of the cheap (disposable) DVD players last Christmas? Do you research each purchase to find American made alternatives?
It is ridiculous to blame the government for the trade deficit, look no further than your own spending habits.
One of the major problems is that while wages may equalize (more likely you will have an endless cycle of wages rising in a country and then falling as companies chase the next discount labor pool), we are in this country fixed into certain expenses that are not adjustable to the "new world market" price. I've talked to Indians about housing prices in India. It's no wonder they can afford to live on far, far less than I make, and in comparable fashion (I'm of course referring to the Indian middle class, not the vast numbers of people living in utter squalor). I'd be perfectly willing to compete on wages with these guys, but the holder of my mortgage is unlikely to cut the note by 60% in a fit of patriotic fervor for economic competitiveness. It couldn't if it wanted to, since the builder already got paid (and he's not going to refund 60% of the price of the house just so a bunch of highly skilled Americans can compete on price).
The problem with the situation is you will be creating an economic domino effect where in radically adjusting U.S. wages downward, market after market will start falling apart because the price structure is either not adjustable because the loan is already issued (the housing example being an example of that) or not adjustable fast enough to stave off collapse (a simplistic example: you drive down the cost of food, but at a certain point farmers cannot earn enough profit to pay of loans on equipment -- ergo there's a point at which prices on a commodity or service cannot be reduced due to other economic factors, and those other factors may be longer-term in their adjustment cycle).
The Free Traders are absolutely correct that free markets will weed out inefficienies and chase the lowest cost, but capitalism is an economic system, not a political one. It's not a good idea to confuse the two.
For the political take on this, I should note that while Bush has people like Snow and Mankiw out there running their sewers about how "good" outsourcing is to the economy and how happy everyone who has lost their job to outsourcing should be, Kerry is clobbering Bush over the head with this very same issue. In my state (one of the battleground, "must-win" states for Bush and Kerry), Kerry is running TV ads that absolutely cream Bush with this very message: Bush thinks sending your job overseas is a good thing. It's a lie, of course, and Kerry and the Rats won't make things any better, but the message is clear and it is hitting home with people: vote for Bush if you think outsourcing and losing your job is good.
I'll even toss this one into the pot. Suppose we get into a real snot-slinging, down-and-dirty, out-and-out world war and need to ramp up our supply of weapons and munitions? If most of our manufacturing capacity is in Asia and they decide to close the door on us, how much will we be able to affect the balance of the war if we run out of ammo or weapons systems? Don't kid yourselves, a LOT of our military weapons capability is now based in offshore manufacturing. Where do you think mosy of those ICs come from for the nifty new electronic devices they use come from?
A very salient point indeed. It is simply incomprehensible to me that those who advocate and extol the so-called "benefits" of offshoring the manufacturing and R&D infrastructure of the country fail to grasp a fundamental axiom of geopolitical/military strategy. And that is, the more dependent a nation becomes on outsiders for it's basic needs, the more vulnerable it becomes to conquest by siege. We've had a taste of this already in recent times, at least for those who can remember the "oil shock" of the 1970s. That was a siege of the economic variety. So the foreign suppliers decide to cut us off from their supply of raw material, and what do they care if it sends us into a devastating and enduring recession? Tough cookies for you. Now imagine that same principle extended to other areas besides crude oil, strategic materials like steel and aluminum, high-tech commodities like motherboards and disk drives, finished goods like aircraft and military hardware, or intellectual expertise like power systems design and maintenance. Having a sizable fraction of the crude oil supply cut off was a shock, but having almost everything else cut off would wipe us out. Then all the hamburger flippers and insurance salesmen and WalMart gladhanders in the world won't help us.
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