Market Share Nosedive for U.S. Industries

Trade Alert ^ | 10/11/02 | Alan Tonelson

[madeinchina]

OK, so you don't care about the trade deficit. Maybe you buy the argument, most recently made by Undersecretary of the Treasury John Taylor, that it's a sign of America's economic strength, of our longstanding ability to grow faster than our trading partners. Maybe you're impressed by the growth of the U.S. economy and its manufacturing sector during the 1990s, when both boomed even as trade deficits skyrocketed. And maybe you think that the dollar's role as anchor of the world economy will let us run ever higher deficits forever.

But here's another measure of America's trade performance that should make even you worry - the rising import penetration rates, and consequently the declining domestic market shares, of most American industries throughout the boom.

Trade deficits amount to living beyond our national means, and Americans lately have become so ambivalent about their own high indebtedness that it's no surprise to see ambivalence about the nation's red ink. But market share is much less controversial. Unlike borrowing heavily, which can and often does lead to economic success if the borrowed money is used wisely, losing market share has no present or potential upside.

Companies losing market share to competitors are never favorably regarded. Their stock prices never go up for long. Their futures are never rosy. In fact, they may not be long for this world. The same goes for a nation's industries.

U.S. government statistics on market share don't get nearly as much attention as the trade deficit numbers. They're not even kept as such. Market share figures have to be derived from Commerce Department data on industry shipments and on imports, and unfortunately, the former are not nearly as up to date as the latter (which themselves are always three months behind). But the market share figures through 2000 can be calculated, and the picture is devastating.

From 1997 to 2000, virtually no American industries gained domestic market share from foreign competitors. Indeed, most lost big time. Take the U.S. auto industry, which lobbied hard for 1990s trade agreements like NAFTA, the creation of the World Trade Organization, and normal trade with China. From 1997 to 2000 alone, the auto industry's domestic market share sank from 55 percent to just under 47 percent. For the U.S. steel industry, a major headline maker this year, the comparable numbers went from 80.3 percent to 77.4 percent.

Of course, steel and autos are widely seen, especially by globalization extremists, as losers, smokestack industries from which advanced countries like the United States should be delighted to exit in favor of high tech manufacturing and services. But is the situation any better in these latter areas? Generally, no.

For example, the United States is still a powerhouse in civilian aircraft. But in the brief 1997-2000 period, foreign market share in aircraft nearly doubled to just under 16 percent. In the broad computer and electronics products category, import market share rose from an already high 39.4 percent in 1997 to 48.9 percent in 2000. And this was before the big tech meltdown.

Within this sector, some successes were registered - principally in computer storage. And semiconductors and printed circuit boards just about held their own. But big losers included printed circuit assemblies, electro-medical devices, industrial process controls, and communications equipment.

Technology industries in other sectors fared no better. Import penetration rates rose from 19 percent to 24.9 percent in relays and industrial controls, from 12.5 percent to 16.3 percent in switchgear and boards, from 13.2 percent to 19.4 percent in pharmaceuticals and medicines, and from 36.9 percent to 53 percent in optical instruments and lenses.

Indeed, in the broad electrical equipment category, foreign market share jumped from 18.7 percent to 25.7 percent in the 1997-2000 period. And comparable losses were registered in the less glamorous but equally important machinery, chemicals, and paper sectors.

American industries also export, so the U.S. market is not the sole theater in which they compete. But it is the most important. After all, the United States is not only the world's biggest single national market, it's the toughest and the most sophisticated. Moreover, the U.S. market should be the market that U.S. industries know best. If they can't win here, it's hard to see them prevailing anywhere over time.

Although market share-loss would seem to be spin-proof, that doesn't mean efforts won't be made to put a favorable gloss on it. Imagine how much better off our economy would be, however, if the globalization cheerleaders instead devoted their considerable talents and resources to fixing its real problems.

[Carry_Okie]

If you asked me, one of the major factors in the slide in US competitiveness is that US companies have become too big and bureaucratic. This is in part because of the need to deal with our own regulatory bureaucracy. The executive culture has become increasingly alienated from entrepreneurial thinking. They have de-emphasized technical skills in their executive leadership. The other big boat-anchor we face (unlike other players in the global market) is the cost of litigation.

[CanadianFella]

OK, so you don't care about the trade deficit

Hard to care about something that doesn't exist.

[Carry_Okie]

That's novel. Kindly elaborate.

[Black Agnes]

Ping for discussion.

[Nick Danger]

Although market share-loss would seem to be spin-proof...

Not at all. In fact this article does an excellent job of demonstrating how to spin with it.

We can't tell, from this article, whether exports were rising during the period. In other words, we're told that "domestic market share" is going down, but we cannot tell whether sales for domestic manufacturers were going up in the 1997-2000 period... they might have been if gains in export sales were higher than the share losses domestically. That's unlikely, but the point is, the author isn't telling. He's feeding us truth, but it might be a misleading half-truth.

Another way to spin any time series data is to "pick your period." This author wants to tell us about 1997-2000. There is a loss of domestic market share in that period; we must run and tell the King! Well, not so fast. Is that a period when the dollar was strong? Yes. Well, isn't that going to make imports cheaper? Yep. Aren't the foreigners going to get tired of sending us real goods in exchange for little green pieces of paper, and isn't the value of making another little piece of green paper going to decline as a result? Yep, the dollar has been declining since the 1997-2000 period. So those imports that were gaining share in the 1997-2000 period are probably losing it now, because their prices are higher to reflect to the weaker dollar.

What we probably have here is a normal ebb and flow in currency valuations, and an author who wants to talk about the ebb but not the flow. Left alone, these sorts of things tend to take care of themselves; that's what markets do best. On the other hand, there's always some guy who sees the rising part of a sine wave and wants to have a government policy to deal with it. That usually screws things up more than it helps.

[Grampa Dave]

When a US Company spends more money in hiring lawyers, affirmativie action experts and Enviralists for PR jobs than research or on good marketing for good products.

It is time to find a new job if you work for them.

If you own stock in this bureaucratic company, you had best sell your stock and find a small and less bureaucratic competitor. This is why the well run and less bureaucratic mid and small cap companies had such great runs in the last 6 years.

[Dog Gone]

I agree. Those are real factors.

The problem for American businesses isn't globablization, per se. If anything, that opens up new markets.

The problem is that the USA is NOT business-friendly anymore. They are regulated, taxed, and sued until they quit or move. Labor unions, like the Longshoremen, resist technology to make the industry more productive.

I'm not suggesting that there should be no oversight. Enron proves that.

But what I am saying is that we can't keep sticking it to businesses in this country and then lament the fact that they that foreign companies take their market share, or that they disappear entirely.

[CanadianFella]

Every week I go to the supermarket and buy stuff, but they never seem to buy stuff from me in return.

Do I have a trade deficit with my supermarket, and how should I fix it?

[Carry_Okie]

I'm not suggesting that there should be no oversight. Enron proves that.

Actually, I think Enron proved something quite different. It was because of their incestuous relationship with goernment that they got so far along. They operated in a market structure distorted by the fact of civic oversight. Had Andersen been financially responsible to shareholders for their audits (via insurance), Enron would never have been able to construct the bubble they did. Instead, all AA had to do was to audit to the standards of the SEC and the FASB, and as we know Enron had aquired considerable latitude from the Clinton Administration at the SEC. Remember: the power of civic oversight socializes the risk that the verification is inadequate and increases the leverage of political manipulation (corruption). For a minor proof of that assertion, guess who was the first commissioner of the SEC? (The answer to this quiz is at the bottom of this post.)

But what I am saying is that we can't keep sticking it to businesses in this country and then lament the fact that they that foreign companies take their market share, or that they disappear entirely.

Agreed.

 

 

 

 

Joe Kennedy. QED.

[Carry_Okie]

Agreed, currency fluctuations explain most of this, as do the transient responses to liberalization in Chineses and East European labor markets.

The biggest spin in the article is in the title. From the numbers, I would call it a "slide," not a "nosedive."

[Willie Green]

Yes, you have a trade deficit with your supermarket, and unless you engage in some other productive economic activity to earn money with which to pay them, the supermarket will cut-off your credit.

[Soren]

If you look at a graph of the current account deficit it is hard to argue "normal ebb and flow". The current level is the highest ever on an absolute basis and as a percent of GDP. It is moving above the key level of 5%, noted by Greenspan as a threshold above which currencies begin to suffer. Natural market forces should bring down the dollar and make US manufacturers more competitive. However, a falling dollar will encourage repatriation of funds invested in the US markets, causing downward pressure on both the stock and bond markets. It could also generate a self-reinforcing downward spiral as sales of dollars owned by foreigners cause downward pressure on the US$, encouraging more sales, etc. There is no doubt the dollar needs to fall. Managing the process will be very difficult.

[tom paine 2]

I don't know which is worse the EPA or the TLA. Both have got capitalism by the throat.

[Red Jones]

bump

[Jorge]

The CATO Institute has some interesting articles on trade deficits;

"One reason for a trade deficit can be that the deficit country is growing faster than its trading partners. Faster growth attracts investment dollars, which, along with rising incomes, allow the deficit country to buy more imports on the global market.

It is no coincidence that the smallest American merchandise trade deficit since 1982, $74 billion in 1991, occurred during the period's only recession."

(from;"Are Trade Deficits Really Bad News?" by Daniel T. Griswold associate director of Cato's Center for Trade Policy Studies)