Chapter 6: Industry, Technology, and the Global Marketplace

U.S. Trade Balance in Technology Products

The methodology used to identify high-technology industries relies on a comparison of R&D intensities. R&D intensity is typically determined by comparing industry R&D expenditures or the number of technical people employed (e.g., scientists, engineers, and technicians) with industry value added or the total value of shipments (see sidebar, "Comparison of Data Classification Systems Used" in the introduction to this chapter). Classification systems based on industry R&D intensity tend to overstate the level of high-technology exports by including all products shipped overseas by those high-technology industries, regardless of the level of technology embodied in each product, and by the somewhat subjective process of assigning products to specific industries.

In contrast, the U.S. Census Bureau has developed a classification system for exports and imports that embody new or leading-edge technologies. The system allows a more highly disaggregated, better-focused examination of embodied technologies and categorizes trade into 10 major technology areas:

  • Biotechnology— the medical and industrial application of advanced genetic research to the creation of drugs, hormones, and other therapeutic items for both agricultural and human uses.

  • Life science technologies— the application of nonbiological scientific advances to medicine. For example, advances such as nuclear magnetic resonance imaging, echocardiography, and novel chemistry, coupled with new drug manufacturing techniques, have led to new products that help control or eradicate disease.

  • Optoelectronics— the development of electronics and electronic components that emit or detect light, including optical scanners, optical disk players, solar cells, photo-sensitive semiconductors, and laser printers.

  • Information and communications— the development of products that process increasing amounts of information in shorter periods of time, including fax machines, telephone switching apparatus, radar apparatus, communications satellites, central processing units, and peripheral units such as disk drives, control units, modems, and computer software.

  • Electronics— the development of electronic components (other than optoelectronic components), including integrated circuits, multilayer printed circuit boards, and surface-mounted components, such as capacitors and resistors, that improve performance and capacity and, in many cases, reduce product size.

  • Flexible manufacturing— the development of products for industrial automation, including robots, numerically controlled machine tools, and automated guided vehicles, that permit greater flexibility in the manufacturing process and reduce human intervention.

  • Advanced materials— the development of materials, including semiconductor materials, optical fiber cable, and videodisks, that enhance the application of other advanced technologies.

  • Aerospace— the development of aircraft technologies, such as most new military and civil airplanes, helicopters, spacecraft (communication satellites excepted), turbojet aircraft engines, flight simulators, and automatic pilots.

  • Weapons— the development of technologies with military applications, including guided missiles, bombs, torpedoes, mines, missile and rocket launchers, and some firearms.

  • Nuclear technology— the development of nuclear production apparatus (other than nuclear medical equipment), including nuclear reactors and parts, isotopic separation equipment, and fuel cartridges (nuclear medical apparatus is included in life sciences rather than this category).

To be included in a category, a product must contain a significant amount of one of the leading-edge technologies, and the technology must account for a significant portion of the product's value. In this report, computer software is examined separately, creating an 11th technology area. In official statistics, computer software is included in the information and communications technology area (see sidebar, "Comparison of Data Classification Systems Used" in the introduction to this chapter).

Importance of Advanced Technology Products to U.S. Trade

During much of the 1990s, U.S. trade in advanced technology products grew in importance as it accounted for larger and larger shares of overall U.S. trade (exports plus imports) in merchandise and produced consistent trade surpluses for the United States. Beginning in 2000 and coinciding with the dot.com meltdown, the trade balance for U.S. technology products began to erode.[17] In 2002, U.S. imports of advanced technology products exceeded exports, resulting in the first U.S. trade deficit in this market segment in history. The trade deficit has grown each year since then (figure 6-14 figure.; appendix table 6-6 Excel table.). In 2002, the U.S. trade deficit in advanced technology products was $15.5 billion; it increased to $25.4 billion in 2003 and $37.0 billion in 2004. The imbalance of U.S. trade with Asia (imports exceeding exports), especially with China, Malaysia, and South Korea, overwhelms U.S. surpluses and relatively balanced trade with other parts of the world.

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Technologies Generating a Trade Surplus

Throughout most of the 1990s, U.S. exports of advanced technology products generally exceeded imports in 9 of the 11 technology areas.[18] Trade in aerospace products consistently produced the largest surpluses for the United States during this time.

Since 2000, the number of technology areas in which U.S. exports of advanced technology products generally exceeded imports has slipped from nine showing a trade surplus during the 1990s to five or six areas in 2003 (table 6-3 table.). Aerospace products continue to produce the largest surpluses. Surpluses in aerospace trade began to narrow in the mid-1990s as competition from Europe's Airbus Industrie challenged U.S. companies' preeminence at home and in foreign markets. U.S. aerospace exports and imports both declined in 2002 and 2003 and both increased in 2004. In 2004, U.S. trade in aerospace products generated a net inflow of $30.5 billion, creating a surplus 14.6% higher than the 2003 surplus.

U.S. trade classified as electronics products (e.g., electronic components including integrated circuits, circuit boards, capacitors, and resistors) is the only other technology area that has generated large surpluses in recent years. However, unlike the U.S. trade surplus in aerospace products where exports increased between 2000 and 2004, the larger surplus in this technology area resulted mainly from a greater drop in U.S. imports than exports. In 2001, U.S. trade in electronics products generated a net inflow of $14.5 billion and increased to $16.1 billion in 2002, before rising to more than $21 billion in both 2003 and 2004. Trade activity in biotechnologies, flexible manufacturing products (e.g., industrial automation products, robotics), and weapon technologies generated small surpluses over the past few years.

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Technologies Generating a Trade Deficit

Throughout most of the 1990s, trade deficits were recorded in just 2 of the 11 technology areas: information and communications and optoelectronics. Rapidly rising imports of life science technologies during the late 1990s produced the first U.S. trade deficit in that third technology area in 1999. Since 2000, U.S. imports have exceeded exports in 5 of the 11 technology areas, although the largest trade deficits continue to be in the information and communications technology area (table 6-3 table.). In 2004, U.S. trade in information and communications resulted in a net outflow of $73.3 billion; in life science technologies, the net outflow was $18.3 billion; and in optoelectronics, it was $4.3 billion. Small deficits of about $0.65 billion resulted from trade in both nuclear technologies and advanced materials.

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Top Customers by Technology Area

Asia, Europe, and North America together purchase nearly 90% of all U.S. exports of advanced technology products. Asia is the destination for about 40%, Europe about 30%, and Canada and Mexico together about 18% (appendix table 6-6 Excel table.).

Canada, Japan, and Mexico are the largest country customers across a broad range of U.S. technology products, with Canada accounting for about 10% of all U.S. exports of advanced technology products in 2003 and 2004, Japan for about 9%, and Mexico about 8%. In 2004, Canada ranked among the top three customers in 5 of 11 technology areas, Japan in 9, and Mexico in 4 (figure 6-15 figure.).

Asia is a major export market for the United States. In addition to the broad array of technology products sold to Japan, the latest data show Taiwan among the top three customers in optoelectronics, flexible manufacturing, and nuclear technologies, while China is among the top three customers in electronics and advanced materials, and South Korea is among the top three in nuclear technologies and flexible manufacturing.

European countries are also important consumers of U.S. technology products, particularly Germany, the United Kingdom, France, and the Netherlands. The European market is particularly important in two technology areas: biotechnology and aerospace. The Netherlands and Belgium are the top customers for U.S. biotechnology products, together consuming more than half of all U.S. exports within this technology area. France is the leading consumer of U.S. aerospace technology products (11% of U.S. exports in this technology area) and the United Kingdom is third (nearly 9%).

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Top Suppliers by Technology Area

The United States is not only an important exporter of technologies to the world but also is a major consumer of imported technologies. The leading economies in Asia, Europe, and North America are important suppliers to the U.S. market in each of the 11 technology areas examined. Together, they supply about 95% of all U.S. imports of advanced technology products. In 2004, Asia supplied almost 60%, Europe about 20%, and North America about 15%.

China is by far the largest supplier of technology products to the United States, as the source for almost 20% of U.S. imports in 2004 (appendix table 6-6 Excel table.). Japan is a distant second, as the source for 10% of U.S. technology imports in 2004. Malaysia, South Korea, and Taiwan are other major Asian suppliers. In the electronics technology area, the top three suppliers are all in Asia (figure 6-16 figure.).

Among the European countries, Germany, the United Kingdom, and France are major suppliers of technology products to the United States. Many smaller European countries have also become important sources for technology products, although they tend to specialize more. Ireland was the top supplier of biotechnology and life science products to the United States in 2004, as the source for 24% and 36% of U.S. imports in these categories. Hungary supplied 14% of U.S. biotechnology imports, and the Netherlands supplied nearly 8% of U.S. flexible manufacturing technology imports in 2004.

Footnotes

[17] The U.S. dollar rose against other major currencies in the late 1990s and continued to rise until early 2002. The sharp rise in the U.S. dollar was a contributing factor in the broad-based decline in exports by U.S. manufacturers during 2000 to 2003. The U.S. export decline was also affected by slower rates of GDP growth experienced by some U.S. trading partners during that time, including the EU and Japan.

[18] U.S. trade in software products is not a separate Advanced Technology Program (ATP) category in the official statistics but is included in the ATP category covering information and communications products. For this report, trade in software products is examined separately, creating an 11th category.

National Science Board.