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Chapter 6. Industry, Technology, and the Global Marketplace

Trade and Other Globalization Indicators

In the modern world economy, production is more often globalized (i.e., value is added to a product in more than one nation) than in the past and less often vertically integrated (i.e., conducted under the auspices of a single company and its subsidiaries). These trends have affected all industries, but their impact has been particularly strong in electronic, ICT, and other KTI manufacturing and service industries. The broader context is the rapid expansion of these industrial and services capabilities in many developing countries, both for export and internal consumption.

Global high-technology trade volume has risen faster than global production, indicating the growing importance of international suppliers of intermediate goods that are then used in the assembly of the final products purchased by the consumer. Data on multinational companies and cross-border investment likewise indicate growing interconnection among the world's economies.

This discussion of trade trends in high-technology manufactured products focuses on the United States, the EU, Japan, the Asia-9, and China. Europe and East Asia have a substantial volume of intraregional trade that is treated differentially in this section. Intra-EU exports are excluded because the EU is an integrated trading bloc with common external trade tariffs and few restrictions on intra-EU trade. Trade between China and Hong Kong is excluded because it is essentially intracountry trade. The substantial intra-Asia-9 trade is included because the group is not an integrated economy. Analytically, this allows delineation of a developing Asia-9/China supplier and manufacturing zone of high-technology goods that are largely destined for export to the EU, the United States, and Japan.

Trade data are an imperfect indicator of where value is added to a product. When the United States imports an ICT good that is assembled in China from components that, in turn, are imported from other Asian economies, China's value added may be small because its contribution is limited to final assembly of the good (Koopman, Wang, and Wei 2008). Much of the value added may originate from Asian, EU, or U.S. firms that manufactured the components or conducted design, marketing, software development, and other activities. The factory price and shipping cost of the good, however, would be fully credited to China's exports and U.S. imports. Accurately apportioning value added is fraught with difficulties (see sidebar, "Tracing the Geography of the Value Chain of Products").

Trade of High-Technology Goods

A country's success in exporting its goods to other countries is one measure of its comparative economic advantage—the goods it produces are provided not just to its local market but are also competitive in a world market.

The gross value of global exports of high-technology products—communications and semiconductors, computers and office machinery, pharmaceuticals, scientific instruments, and aerospace—reached $2.9 trillion in 2008, up from $915 billion in 1995 (appendix table 6-19 ).[12] (See sidebar, "Product Classification and Determination of Country of Origin of Trade Goods" for discussion on how trade goods are classified.) Removing intrabloc (within the EU) and intracountry (China to Hong Kong) exports reduces these totals to $732 billion in 1995 and an estimated $2.3 trillion in 2008—base figures for the analyses that follow (figure 6-16 ). Among the five high-technology products, the world export value was greatest in communications and semiconductors (45% of the total) followed by computers (20%), giving the ICT products about two-thirds of the total (figure 6-17 ; appendix tables 6-20 through 6-24).

The threefold increase in exports was greater than the rise in global production of these industries over the period, from $2.0 trillion to $4.0 trillion (figure 6-16 ). This probably reflects the broadened geographic base of high-technology manufacturing overall, the expansion of multinational firms' production to overseas venues, and the shift of production from vertically integrated firms to greater reliance on international external suppliers.

Global Trade Balance Trends in High-Technology Manufactures
The expansion of high-technology trade has led to changes in the relative positions of the developed and developing countries (figure 6-18 ; appendix table 6-19 ). Measured in relative volume of exports, the U.S. position has declined from 21% in 1995 to 14% in 2008, reflecting broad drops in exports of U.S. ICT goods (communications and semiconductors and computers and office machinery), which account for nearly 45% of the nation's high-technology exports (figure 6-19 ; appendix tables 6-19 through 6-21). (See sidebar, "Product Classification and Determination of Country of Origin of Trade Goods," for discussion of how exports are credited to countries.) Japan's share declined steadily over the period, from 18% to 8%, again largely because of declining exports of ICT goods. The EU's high-technology export share remained approximately stable at 16%–18%.

Amidst a great increase in world exports, China's share surged from 6% to 20% over little more than a decade, making it the largest single exporting country for high-technology manufactured goods (figure 6-18; appendix table 6-19). The Asia-9 region has maintained its position at more than a quarter of the total. However, this largely reflects the rise of a manufacturing supplier zone around China that is focused on ICT goods (see "Trends in the Geographic Distribution of Bilateral High-Technology Trade," later in this chapter).

Notable differences are apparent in the export performance of these countries and regions for the five products (figure 6-19 ; appendix tables 6-20 through 6-25). The United States and Japan have been losing export shares in most industries, with the exception of the U.S. aerospace share, which has fluctuated at about 50%. EU shares have held approximately steady, with strong market shares for pharmaceuticals, aerospace, and scientific instruments. China's market shares have grown substantially since 2000, capturing almost 40% of the world export market in computers and office machinery and showing strong growth in semiconductors export shares (but negligible shares in aerospace and pharmaceuticals). The Asia-9 region accounts for large shares of semiconductor and computer exports and, together with China, captured more than 60% of the world export market share in these industries.

Throughout the 1980s and into the mid-1990s, the United States consistently exported more high-technology products than it imported, in contrast to deficits recorded for other U.S. manufacturing products.[13] A growing U.S. import volume in the late 1990s shifted the U.S. high-technology trade balance from surplus to deficit (figure 6-20 and appendix table 6-19 ). In 2000, the deficit was $32 billion in current dollars; by 2008, the deficit had widened to $80 billion.

ICT goods are driving the U.S. high-technology trade deficit: In 2008, the ICT industries ran a deficit of almost $120 billion in current dollars (figure 6-20 ; appendix table 6-26 ). The emergence of large deficits in these products reflected rising domestic demand, which coincided with a broad shift in location of the production of ICT goods to developing countries, largely in Asia. This, in turn, stimulated imports of ICT goods from these countries. Pharmaceuticals contributed a further $21 billion to the overall 2008 deficit (appendix table 6-23 ).

U.S. trade in aerospace products registered a trade surplus of $50 billion in 2008, continuing its trend of surpluses for the past two decades; trade in scientific instruments added a smaller surplus of $9 billion (appendix tables 6-22 and 6-24 ).

The EU high-technology trade balance remained roughly stable, with a deficit of about $20 to $50 billion over this period (figure 6-20 ; appendix table 6-19 ). However, the EU ICT deficit grew from $38 billion in 1995 to $117 billion in 2008, reflecting the same underlying structural shift (appendix table 6-26 ). Rising surpluses in aerospace, pharmaceuticals, and scientific instruments offset the increasing ICT deficit (appendix tables 6-22 through 6-24).

The trade positions of China and the Asia-9 also changed substantially. China's trade position, which had been in balance for much of the 1980s and 1990s, moved to a surplus after 2001 (figure 6-20 ; appendix table 6-19 ) and rapidly increased from less than $13 billion in 2003 to almost $130 billion in 2008, driven by the ICT goods trade (appendix table 6-26 ). The Asia-9's trade surplus grew from about $50 billion to more than $220 billion over the past decade, entirely due to an expansion of its surplus in ICT goods (however, see the next section). Japan's surplus showed little change, despite its loss of market share in production of high-technology industries.

Geographic Distribution of Bilateral High-Technology Trade
The shift in trade in global high-technology manufactures over the past decades (i.e., the shift away from the developed regional/national economies to China and the Asia-9) was accompanied by a pronounced shift in the distribution of bilateral trade among these and the three other economies—the United States, the EU, and Japan. Trade in ICT goods, the largest single category of high-technology industry goods, illustrates these shifting patterns.

Final assembly of ICT goods and components shifted—from the United States, the EU, Japan, and developed economies among the Asia-9—toward China early in this decade, and some assembly work has subsequently shifted from China to the less-developed Asia-9 economies (Athukorala and Yamashita 2006, Ng and Yeats 2003, Rosen and Wing 2005). This discussion examines trends in bilateral trade distribution of ICT goods.

The rise of China as the world's major assembler and exporter of many electronic goods is reflected by a sharp increase in China's share of ICT imports in the United States, the European Union, and Japan (figure 6-21 ; appendix tables 6-27 through 6-29). China's share of these economies' ICT imports was 40%–50% in 2008, compared with 10% or less in 1995. Data on China's bilateral exports show that about 65% of its ICT exports were shipped to the United States, Japan, and the EU, suggesting that most of China's exports are finished products destined primarily for developed countries (figure 6-22 ; appendix table 6-30 ). The trends for China's ICT exports by share of developed economy showed little change over time.

Trends in data regarding China's imports and the Asia-9's exports of ICT goods suggest that much of final assembly has shifted to China, with the Asia-9 acting as key suppliers of components and inputs. The Asia-9's share of China's ICT imports rose from 40% in 1995 to 71% in 2008 (figure 6-22 ; appendix table 6-30 ). Imports from Taiwan increased the most, from 11% to 23% of China's total ICT imports. South Korea's and the Philippines' shares also increased by about 5 percentage points each, reaching 14% and 5%, respectively; Singapore's share was stable. However, Japan's share of China's imports fell from 30% to 16%.

Japan's ICT export data show a pronounced shift toward China, rising from a 10% share of its ICT export goods to 28% since 1995 (figure 6-23 ; appendix table 6-29 ). The share of Japanese exports to the United States fell sharply over the period, from 36% to 15%; its share to the Asia-9 was steady at about 25% (figure 6-21 ; appendix tables 6-27 and 6-31 ). These patterns are consistent with reports that Japanese (and Taiwanese) manufacturers began exporting components for assembly in plants they established in China. U.S. purchases of ICT goods from Japan may have been supplanted by goods assembled in and shipped from China for Japanese and Taiwanese firms.

The Asia-9's bilateral export data are consistent with China's import data showing the rise of the Asia-9 as a major supplier to China's ICT manufacturing industries. China's share of the Asia-9's exports nearly quadrupled from 8% to 31% over the decade (figure 6-24 ; appendix table 6-31 ). China's share growth was strongest in the exports of South Korea (from 8% to 30%), Taiwan (from 12% to 43%), Singapore (from 10% to 29%), and the Philippines (from 5% to 38%) (figures 6-24 and 6-25 ; appendix tables 6-32 through 6-35). The share of Asia-9's ICT exports going directly to the United States or the EU fell sharply during this period (appendix tables 6-27 and 6-28 ).

The data indicate that the Asia-9 countries/economies have come to be assemblers and exporters of both intermediate and finished ICT goods, the former going to China and other Asia-9 destinations, the latter largely to the United States, the EU, and other developed nations. The intra-Asia-9 share of Asia-9 ICT imports rose from 36% to 46% over the past decade (figure 6-26 ; appendix table 6-31 ), coinciding with a sharp increase (from 7% to 26%) in imports from China. This is consistent with the Asia-9 countries/economies importing components from China for final or intermediate assembly and re-exporting them back to China for final assembly and export.

The Asia-9 countries/economies—particularly Malaysia, South Korea, Taiwan, and Singapore—remain substantial suppliers of ICT goods to the EU and the United States (about 30% each) and to Japan (39%) (figure 6-24 ; appendix tables 6-31 and 6-33 through 6-36).

Exports of Medium- and Low-Technology Manufactured Products
The U.S. export performance in products associated with less knowledge intensity and less use of R&D provides a context for its high-technology status. In these industries, the United States has historically had lower world export shares, although some convergence, which largely reflects declines in the U.S. high-technology share, has been evident since the late 1990s.

The U.S. share of world exports in medium-high-technology products (i.e., motor vehicles, chemicals, railroad equipment) was 14% in 2008, which was equal to its share in high-technology industries (table 6-3 ) and which placed it fourth behind the EU (24%, excluding intra-EU trade) and Japan and the Asia-9 (15% each). The U.S. and EU shares have remained stable over the past decade, whereas Japan's share has fallen from 22% to 15%. China, ranked fifth, has rapidly expanded its share of global exports from 4% to 13% (excluding trade between China and Hong Kong).

The United States also ranks fourth (8%) in share of world exports in medium-low-technology products (table 6-3 ), behind the EU and the Asia-9 (16% and 18%, respectively) and China (13%). U.S. export share in low-technology products in 2008 (at 12%) also placed it fourth behind China (22%), the EU (18%), and the Asia-9 (16%). In both of these industry groups, China's world export share expanded greatly since the mid-1990s but not to the same degree as for high-technology exports.

U.S. Trade in Advanced Technology Products

The Census Bureau has developed a classification system for internationally traded products that embody new or leading-edge technologies. This classification system has significant advantages for determining whether an industry and its products are high technology and may be a more precise and comprehensive measure than the industry-based OECD classification.

This system allows a highly disaggregated, focused examination of technologies embodied in U.S. imports and exports. It categorizes trade into 10 major technology areas:

  • 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 (excluding communications satellites), turbojet aircraft engines, flight simulators, and automatic pilots.
  • 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.
  • 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.
  • Information and communications—the development of products that process increasing amounts of information in shorter periods of time, including computers, video conferencing, routers, radar apparatus, communications satellites, central processing units, and peripheral units such as disk drives, control units, modems, and computer software.
  • Life sciences—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, photosensitive semiconductors, and laser printers.
  • Nuclear—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 the life sciences rather than this category.)
  • Weapons—the development of technologies with military applications, including guided missiles, bombs, torpedoes, mines, missile and rocket launchers, and some firearms.

U.S. trade in advanced technology products is an important component of overall U.S. trade, accounting for about one-fifth of total trade volume for the past two decades. In 2008, U.S. exports of advanced technology products were $276 billion (nearly 21% of goods exports) and imports were $331 billion (16% of total goods imports) (figures 6-27 and 6-28 and appendix table 6-37 ). As with high-technology industries trade accounts, imports of advanced technology products grew faster than exports since the early 1990s, sending the U.S. trade balance in these products into deficit in 2002 (figure 6-28). By 2008, the deficit reached $56 billion, comprising 7% of the total U.S. goods trade deficit ($816 billion).

Changes in exchange rates may have been a contributing factor to these trends because the U.S. dollar's value against a basket of its major trading partners' currencies appreciated more than 60% between the early 1990s and 2002, coinciding with the shift from surplus to deficit (figure 6-28 ). However, the dollar depreciated about 20% through 2008, and the deficit continued to widen.

It is likely that the growing deficit was affected by changing world production and trade patterns, adoption of new business and production processes, establishment of productive capacity abroad, and the emergence of export-oriented high-technology industries in Asia and other regions and countries.

U.S. Advanced Technology Product Trade, by Technology
Five technology areas—information and communications, aerospace, electronics, the life sciences, and optoelectronics—accounted for a combined share of about 90% of U.S. advanced technology product trade in 2008 (figure 6-29 ; appendix tables 6-38 through 6-47). Information and communications had the largest single share (43%), followed by aerospace (21%), electronics (13%), the life sciences (11%), and optoelectronics (5%). Three of these technologies have generated substantial trade deficits: information and communications ($104 billion), optoelectronics ($21 billion), and the life sciences ($15 billion) (figure 6-30 ). The rapid rise in the overall deficit between 2002 and 2008 was driven by the deficit in ICT, widening from $48 billion to more than $100 billion. The trend from surplus to deficit is similar to the trend in trade of ICT high-technology products.

Two technologies, aerospace and electronics, have generated significant trade surpluses (figure 6-30 ; appendix tables 6-38 and 6-39 ). The United States is the leading producer of aerospace products; it had a trade surplus of $55 billion in 2008 ($28 billion more than in 2000), as exports jumped from $53 billion to $90 billion and imports increased more moderately from $26 billion to $35 billion. The surplus in electronics was $25 billion in 2008 ($13 billion higher than at the beginning of the decade). In this technology, both imports and exports fell during the period, but imports declined more steeply.

U.S. Advanced Technology Trade, by Region and Country
The majority of U.S. advanced technology trade occurs with six regions/countries: the EU (24%), the Asia-9 (21%), China (19%), Latin America (15%), Japan (7%), and Canada (7%) (figure 6-29 and appendix table 6-37 ). U.S. trade with Asia (Asia-9, China, and Japan) accounts for nearly half of total U.S. advanced technology trade. U.S. merchandise trade with Asia also contains a higher-than-average share of advanced technology goods. This share in 2008 was twice the U.S. average for exports to the Asia-9 (35%) and 27% for China. Japan's 22% share equaled that of the EU (figure 6-31 ).

China and Japan. China exported $92 billion of advanced technology products to the United States (about one-fourth of U.S. imports) and imported $26 billion in 2008. The United States has the largest deficit with China, which is its third largest trading partner among the six regions/countries and the largest single country (figure 6-30 ; appendix table 6-37 ). ICT goods account for nearly 90% of U.S. imports of advanced technology products from China (appendix table 6-40 ). U.S. exports of advanced technology goods include aerospace, electronics, and information and communications (appendix tables 6-38 through 6-40).

The volume of U.S.-China advanced technology trade more than quadrupled over this decade, and in 2003 China surpassed Japan as the United States' single largest country partner in these goods (appendix table 6-37 ). U.S. imports from China have increased much faster than its exports to China, pushed by a rising trade volume in ICT technologies. The steep rise in imports and flat export growth widened the U.S. deficit with China in information and communications from $6 billion to $75 billion (figure 6-30 ; appendix table 6-40 ).

Japan was the largest trading country partner with the United States until it was overtaken by China in 2003 (appendix table 6-37 ). Information and communications technology constituted nearly half of all U.S. imports from Japan in 2008, similar to its prevalence in imports from China (appendix table 6-40 ). Among advanced technology exports to Japan, aerospace accounted for the largest share (42%); information and communications products ranked second (18%) (appendix table 6-38 ).

The Asia-9. The Asia-9's trade was one-fifth of total advanced technology trade volume in 2008 (figure 6-29 ), with exports of $73 billion to the United States and imports of $54 billion (figure 6-30 ; appendix table 6-37 ). Malaysia, Singapore, South Korea, and Taiwan are the Asia-9's major U.S. trading partners. The $19-billion U.S. deficit with the Asia-9 consists of a $12-billion deficit with Malaysia and smaller deficits with South Korea, Taiwan, and Thailand (and a small surplus with Singapore).

As with China, ICT products constituted the largest share of total U.S. advanced technology trade with the Asia-9. Important suppliers are Malaysia ($17 billion), South Korea ($13 billion), and Taiwan ($8 billion) (appendix table 6-40 ). U.S. imports of $52 billion and exports of $9 billion produced a deficit of more than $40 billion in ICT products in 2008.

The Asia-9 ICT deficit in information and communications was partly offset by a $24-billion combined surplus in aerospace, electronics, and flexible manufacturing products (appendix tables 6-38 , 6-39 , and 6-45 ). Combined U.S. exports of these technologies were $41 billion in 2008, 76% of total U.S. exports to the Asia-9. Important customers of these three technologies were South Korea, Singapore, and Taiwan (in all three categories), India (aerospace), and Malaysia and the Philippines (electronics).

The U.S. trade position in advanced technology goods with the Asia-9 has been relatively stable over this decade. This may reflect the migration of final assembly of many ICT goods from the Asia-9 to China, coinciding with a widening deficit of ICT trade with China.

The European Union. Trade with the EU accounts for nearly one-fourth of U.S. advanced technology product trade (figure 6-29 ; appendix table 6-37 ). The EU exported $69 billion and imported $76 billion, resulting in a $7-billion surplus in 2008 (figure 6-30 ). Five EU members—France, Germany, Ireland, the Netherlands, and the United Kingdom—accounted for nearly 80% of total U.S.-EU trade in these goods. Aerospace, the life sciences, and ICT had a combined 77% share of the volume of U.S.-EU advanced technology product trade in 2008 (appendix tables 6-38 , 6-40 , and 6-41 ).

The United States had substantial surpluses with the EU in aerospace ($13 billion) and ICT goods ($9 billion) (appendix tables 6-38 and 6-40 ). Important EU customers of aerospace and ICT are France, Germany, and the UK; the Netherlands purchases the most U.S. ICT goods of the EU countries.

The life sciences produced a $15-billion deficit (appendix table 6-41 ). Ireland was by far the largest EU supplier of life sciences products, accounting for more than half of the EU's $27 billion in exports to the United States in 2008. Other substantial suppliers were Belgium, France, Germany, and the UK.

The U.S. trade surplus with the EU narrowed from $22 billion in 2000 to $7 billion in 2008 ( figure 6-30 ), reflecting the deficit in life sciences rising from $6 billion to $16 billion due to much more rapid growth of imports (appendix tables 6-37 and 6-41 ).

Latin America and Canada. U.S. advanced technology trade with Latin America amounted to 15% of total U.S. advanced trade in 2008 (figure 6-29 ; appendix table 6-37 ). Mexico is by far the largest trading partner in Latin America (10% share of U.S. advanced technology trade), followed by distant-second Brazil (2%). ICT products accounted for half of Latin America's total U.S. trade in these products (appendix table 6-40 ).

Strong growth in U.S. aerospace and ICT exports was more than offset by large import increases in optoelectronics and ICT (appendix tables 6-38 , 6-40 , and 6-42 ). Mexico was the main supplier of optoelectronic imports, which rose from $0.5 billion to $15 billion. The United States also had a substantial deficit with Mexico in ICT goods ($10 billion). The U.S.-Mexico trade deficit in these goods reflects, in part, Mexico's duty-free imports of U.S. components and their assembly and re-export to the United States.

U.S. advanced technology trade with Canada amounted to 7% of total trade in 2008 (figure 6-29 ; appendix table 6-37 ). Canada exported $17 billion and imported $28 billion, resulting in a surplus of $11 billion (figure 6-30 ; appendix table 6-37 ). ICT and aerospace constituted three-quarters of this bilateral trade (appendix tables 6-38 and 6-40 ). The United States had a $9-billion surplus with Canada in ICT goods and a $2-billion deficit in aerospace products.

Globalization of Knowledge-Intensive Service Industries

Services have historically been more local and insulated from global competition than manufactured goods because they were less easily traded and often had to be located near the consumer. However, rapid growth of new international markets, increased competition, and advances in communications and other enabling technologies have ushered in the globalization of services. Tradable knowledge-intensive services include three commercial services: business, financial, and communications. Education and health have also become globalized but to a much lesser extent than the commercial knowledge-intensive services. Overall, the current extent of globalization of knowledge-intensive services is less than that of high-technology manufacturing industries.

The volume of U.S. trade in commercial knowledge-intensive services is lower than trade in high-technology manufactured goods but is producing increased surpluses. Commercial knowledge-intensive service industries are a key component of the overall U.S. trade in private services, accounting for 40% of the total (appendix table 6-49 ). U.S. exports of (receipts for) commercial knowledge-intensive service industries were $185 billion in 2007 (nearly 40% of total private services exports), and imports (payments) were $138 billion (again, 40% of the total) (figure 6-32 ). The resulting surplus, $47 billion, accounted for one-third of the overall surplus in private services trade ($139 billion) in 2007.

Business, professional, and technical services, the category that includes R&D and computer services, is the largest component of trade in commercial knowledge-intensive service industries (55%) (table 6-4 ; appendix table 6-49 ) (See "Business to Business Linkages, Exports, and Imports of R&D Services" in chapter 4 for discussion of trends in U.S. trade in R&D services, a component of business services). Finance is the second-largest component (40%), with communications being much smaller (5%).

U.S. trade in commercial knowledge-intensive services has been in surplus for the past 10 years (figure 6-33 ), in contrast to deficits in U.S. trade of high-technology goods. Business services produced a $39-billion surplus in 2007, out of a total of $47 billion (table 6-4 ; appendix table 6-49 ). Financial services gained a small surplus, and telecommunications services trade is balanced.

The bulk of U.S. trade in commercial knowledge-intensive service industries was with the EU (42%), with business services as the largest component (table 6-4 ). The next-largest trade partner was Latin America (21%), with a relatively large share in financial services that may, in part, reflect offshore banking in the Caribbean. The Asia-9's share of trade in commercial knowledge-intensive services was much smaller than in high-technology products.

U.S. Multinationals in Knowledge- and Technology-Intensive Industries

The Bureau of Economic Analysis (BEA) conducts an annual survey of U.S. multinationals that includes firms in KTI industries. The BEA data are not strictly comparable with the world industry data. However, the BEA data do provide useful information on the globalization of activity and the employment of U.S. multinationals in these industries.

Commercial Knowledge-Intensive Service Industries
U.S. multinationals in commercial knowledge-intensive service industries generated $720 billion in value added in 2006, of which more than 80% ($602 billion) occurred in the United States, according to BEA data (figure 6-34 ; appendix table 6-50 ). Financial services ranked first by value added ($270 billion), followed by business services ($239 billion) and communication services ($212 billion).[14] The proportion of value added from their U.S. operations was highest in communications (94%), followed by financial services (86%) and business services (71%). The distribution of value added between U.S. and foreign affiliates showed little change between 1999 and 2006.

The U.S. multinationals in commercial knowledge-intensive service industries employed 3.7 million workers in the United States in 2006, of whom about 40% were employed in business services and about 30% each in communications and financial services (appendix table 6-50 ). Business and financial services firms employed 0.9 million and 0.5 million, respectively, at their foreign affiliates (data are not available for communications services). From 1999 to 2006, the foreign employment shares rose from 19% to 28% in financial services and from 36% to 38% in business services (figure 6-33 ).

High-Technology Manufacturing Industries
BEA data show that U.S. multinationals in four of these five industries generated more than $300 billion worldwide in value added in 2006, of which about two-thirds originated in the United States (appendix table 6-50 ). Production in the computer industry was the most globalized, as measured by the distribution between U.S. and foreign value added, with 48% of value added originating from the United States in 2006, down from 64% in the late 1990s (figure 6-35 ). The U.S. value added in the communications and semiconductors industry also showed a substantial shift to foreign production, from 77% to 63%. The U.S. share was relatively stable in pharmaceuticals and scientific instruments.

U.S. multinationals in high-technology manufacturing employed 1.3 million workers in the United States in 2006 (appendix table 6-50 ). Employee data for foreign affiliates, available for three of the four industries, show that nearly half of the total workforce for pharmaceuticals and computers is employed abroad, along with one-third of the scientific instruments workforce. The distribution between U.S. and foreign employment showed little change in pharmaceuticals and computers from 1999 to 2006. However, the U.S. employment share in scientific instruments fell from 72% to 66% over this period (figure 6-35 ).

Information and Communications Technology Services and Manufacturing
U.S. multinationals in the ICT industries generated more than $400 billion worldwide in value added in 2006, of which 70% was attributable to ICT services and 30% to ICT manufacturing (appendix table 6-50 ). U.S. ICT multinationals generated most (75%) of their production from their headquarters and other U.S. locations, and the remainder from their foreign affiliates (figure 6-36 ).

However, the distribution of value added between U.S. and foreign affiliates varies widely by industry. The U.S. share of value added in ICT services was highest in telecommunications (97%), about average in information and data processing services (77%), and considerably lower in computer systems design (58%) (figure 6-36 ; appendix table 6-50 ). In the two ICT manufacturing industries, the domestic value-added portion is below the overall ICT average: 64% in communications and semiconductors and 48% in computers and office machinery.

Globalization of ICT, as measured by the U.S. and foreign shares of value added, has increased in this decade. The U.S. share dropped from 81% of value added to 75% because of substantial declines in the two ICT manufacturing industries, whereas the U.S. share of value added remained stable in the ICT service industries (figure 6-36 ; appendix table 6-50 ). (Employment data for foreign affiliates for 2006 are not available for four of the five ICT industries.)

U.S. and Foreign Direct Investment in Knowledge- and Technology-Intensive Industries

Foreign direct investment (FDI) has the potential to generate employment, raise productivity, transfer skills and technology, enhance exports, and contribute to long-term economic development (Kumar 2009). Receipt of FDI may indicate a developing country's emerging capability and integration with countries that have more established industries. FDI in specific industries may suggest the potential for their evolution and the creation of new technologies.

This section uses data from the BEA on U.S. direct investment abroad and foreign investment in the United States in KTI industries. The rising volume of trade by U.S.-based KTI firms has been accompanied by increases in U.S. direct investment abroad and FDI in the United States.

U.S. Direct Investment Abroad in Knowledge- and Technology-Intensive Industries
According to data from the BEA, the stock of U.S. direct investment abroad had reached $121 billion in high-technology manufactures and $834 billion in commercial knowledge-intensive service industries by 2008 (table 6-5 ; appendix table 6-51 ).[15] This represented one-quarter of the stock of all U.S. direct overseas investment in all manufacturing industries ($0.5 trillion) and about one-third of U.S. direct overseas investment in all services ($2.5 trillion).

The stock of U.S. foreign direct investment abroad in high-technology manufacturing industries increased from $87 billion in 2000 to $121 billion in 2008 (table 6-5 ; appendix table 6-51 ). Communications and semiconductors increased from $42 billion to $54 billion, pharmaceuticals from $25 billion to $37 billion, aerospace from $3 billion to $11 billion, and scientific instruments from $3 billion to $10 billion. However, the investment stock of the computer industry dropped by 36%, from $14 billion to $9 billion, and its share of all high-technology manufacturing industries fell by half, from 16% to 7%.

The stock of U.S. direct investment abroad in commercial knowledge-intensive service industries was $834 billion in 2008, one-third of the stock of total U.S. direct investment abroad in all services (table 6-5 ; appendix table 6-51 ). Financial services dominated commercial knowledge-intensive services investments at $634 billion (76%), up from $217 billion in 2000. Business services grew from $61 billion in 2000 to $185 billion in 2008. However, the stock of U.S. FDI in communications fell from $27 billion to $15 billion.

Geographic data on U.S. FDI investments in high-technology industries is limited to computer and electronic products, which includes computers, communications and semiconductors, and scientific instruments. For these products, the EU was the largest recipient with $27 billion (35% share in 2008), followed by $23 billion in the Asia-9 (30%) (table 6-6 ). Investments in Canada, China, and Japan were 4%–13% of the total. There was little change in these shares from 2000 to 2008.

The largest foreign destinations for U.S. direct investment in financial services are the EU ($314 billion in 2008) and Latin America ($195 billion), for a combined 80% of the total (table 6-6 ). The Asia-9, Canada, China, and Japan have 5% or less of the total. The EU was the largest recipient at $78 billion (64% share) of investment in information services, which includes communications. Investments in Asia were smaller, with 2% in China and 5% each in the Asia-9 and Japan.

Data on professional, scientific, and technical services, a component of business services, show that the EU had $53 billion of the $81 billion in stock of worldwide U.S. FDI in this industry in 2008 (table 6-6 ). The Asia-9, Canada, and China were the next-largest recipients with shares of 5%–10%. The shares of these regions/countries shifted between 2000 and 2008. Canada's share increased from 6% to 10% and China's share increased from 2% to 5%. Japan's share fell sharply from 16% to 3%.

Foreign Direct Investment in U.S. Knowledge- and Technology-Intensive Industries
According to BEA data, the stock of FDI in U.S. high-technology manufacturing industries stood at $187 billion in 2008, up from $133 billion in 2000 and above the stock of $121 billion in U.S. investment abroad (table 6-5 ; appendix table 6-51 ). The FDI stock in the U.S. pharmaceuticals industry was about $125 billion in 2008, and the stock in communications and semiconductors was $25 billion, for a combined share of 80% of FDI stock in U.S. high-technology industries. The share of pharmaceuticals doubled, from 34% to 67%, and the share of communications and semiconductors fell from 47% to 13%.

FDI stock in U.S. commercial knowledge-intensive service industries was $390 billion in 2008, compared with $834 billion in the stock of U.S. investment abroad in these industries (table 6-5 ; appendix table 6-51 ). The largest industry was financial services ($249 billion), followed by $91 billion in business services and $50 billion in communications. FDI stock in U.S. financial services increased by nearly 50% (from $167 to $249 billion) and nearly doubled in business services (from $47 billion to $91 billion). (Data for communications services are not available for 2000.)

Limited data on geographic origin show that the EU and Japan are the largest sources of foreign direct investment in U.S. computer and electronic products industries, which comprised more than 90% of the stock of worldwide investment in these U.S. industries ($63 billion) in 2008 (table 6-6 ). The EU's investment stayed constant at about $40 billion between 2000 and 2008. However, its share increased from 44% to 63% because of a $30-billion decline in the stock of total inward investment in this industry during this period. Japan's investment rose from $17 billion in 2000 to $19 billion in 2008. Canada's investment fell sharply from $27 billion (29% share) to a slight negative position ($0.3 billion).[16]

In commercial knowledge-intensive service industries, the two largest sources of FDI in U.S. financial services are the EU and Canada, which provided more than 80% of the $249 billion in stock of worldwide investment in this industry in 2008 (table 6-6 ). The EU had the largest share (80%) of the $158 billion in investment stock in the U.S. information services industry in 2008. Its share increased 13 percentage points between 2000 and 2008. Latin America's share fell from 9% to less than 1%. The EU was also the largest investor in professional, scientific, and technical services, with a share of 73% ($45 billion of inward investment in 2008). The EU's share, however, fell almost 20 percentage points between 2000 and 2008. Japan's share of investment in this industry more than doubled, from 3% to 8%.


[12] IHS Global Insight data as of July 2009.
[13] The U.S. trade balance is affected by many other factors, including currency fluctuations, differing fiscal and monetary policies, and export subsidies between the United States and its trading partners.
[14] U.S. multinational financial services data for 1999 and 2006 do not include banks and depository institutions, which are included in the global industry data on financial services.
[15] U.S. direct investment abroad by industry and country is a lower-bound estimate because an increasing share of U.S. direct investment (36% in 2008) is through holding companies that invest in other industries that may be in a different country. For more information, see Ibarra and Koncz (2008).
[16] In these data, BEA values foreign direct investment (FDI) at historical cost. According to BEA, a negative FDI position in the United States occurs when total claims of U.S. subsidiaries on their foreign multinational parent companies (MNCs) exceed the foreign MNCs' investment in the United States, which typically results when U.S. affiliates are net lenders to their foreign parents.

Science and Engineering Indicators 2010   Arlington, VA (NSB 10-01) | January 2010