:Falling off the Competitive Edge

[Dave Farber <dave () farber net>]

> X-Sieve: CMU Sieve 2.2
> Date: Tue, 22 Mar 2005 19:05:04 -0600
> From: clark johnson <clarkjohnson () cpinternet com>
>
> for IP if you think it relevant!
>
> Falling Off The Competitive Edge
> Christian E. Weller and Tyler Tepfer
> March 22, 2005
>
>
> The United States' trade in advanced technology products used to be one of 
> our economic high points. But in the last year, the United States dropped 
> from number one to number five in the list of successful information 
> technology economies-replaced by places like Singapore, Malaysia and 
> Ireland. We're now running trade deficits in high-tech products-something 
> that won't change without serious policy intervention, says economist 
> Christian Weller.
>
> Christian E. Weller is senior economist and Tyler Tepfer is economic 
> policy intern at the Center for American Progress.
>
> If there is one constant about this recovery, it is that the trade 
> deficits manages to set new record highs every other month. Its sheer 
> size-well above that of other countries that experienced severe financial 
> crises in the past-is threatening future economic growth in at home and 
> abroad. It is often asserted that the United States could regain control 
> over its widening deficit because it has a global competitive edge in 
> high-tech products. Unfortunately, this assertion is not matched by 
> reality. In March, the World Economic Forum declared Singapore the world's 
> most successful economy in exploiting new information and communications 
> technologies, while the United States moved from the top spot to fifth 
> place. Instead of gaining ground, the United States ran a trade deficit in 
> advanced technology products (ATP) in 2004, which was larger than the one 
> in the prior years. Without a serious policy intervention through an 
> active innovation policy, the United States stands to lose more ground in 
> the global market place with ever widening deficits as the result.
>
> Since 2002, the ATP trade balance turned from surpluses into deficits. By 
> 2004, the deficits approached $40 billion. This was not an isolated 
> phenomenon. It cut across a number of high-tech categories and across a 
> range of countries.
>
> Over the past few years, five out of 10 ATP product categories have seen 
> widening deficits. Of particular note are massive deficits in the 
> information and communications technologies, which skyrocketed to $73 
> billion. In 2004, the increase in this deficit alone wiped out the 
> surpluses among the five ATP surplus categories. In addition, deficits 
> also grew in a wide range of high-tech products, such as optical scanners, 
> nuclear reactors and semiconductor materials.
>
> While the largest deficit is with China, the United States has also lost 
> ground to others. Five of the countries, where the United States has the 
> largest deficits in high-tech products include four Asian countries-China, 
> Malaysia, South Korea and Japan. However, this list also includes Ireland, 
> and Mexico followed closely behind the number six spot, where the United 
> States had a high-tech deficit of almost $6 billion in 2004.
>
> A number of the bilateral deficits in high-tech products are especially 
> troublesome, since they occurred at a time, when it should have been 
> easier for the United States to improve its trade balance due to a 
> declining dollar. A lower value of the dollar makes exports cheaper and 
> imports more expensive, thus helping to shrink a trade deficit. Over the 
> past three years, the dollar has fallen against the currencies of eight 
> countries with the 10 smallest ATP trade balances in 2004, the exceptions 
> being China and Malaysia. Yet, the deficits have either sharply widened or 
> barely changed in five countries from 2002 to 2004. Clearly, something is 
> amiss in the world of high-tech trade for the United States.
>
> The bilateral trade deficits are also troublesome because they occur 
> across a range of industries. For instance, the United States has a large 
> deficit in life science technology-such as MRI machines-with Ireland, 
> Mexico and Germany. In optical sciences, such as optical scanners and 
> semiconductors, the United States has a deficit with South Korea, Japan 
> and Ireland, among others. And there are deficits in biotechnology with 
> Ireland; in advanced materials, such as optical fibers, with Malaysia; and 
> in nuclear technology with China.
>
> To regain control of the slipping competitive edge, policymakers need to 
> act. A comprehensive innovation policy would be one place to start. 
> Policymakers should allocate more resources into research and development 
> of new technologies and to the distribution of existing technologies, so 
> that they can enhance U.S. productivity on a broad scale.
>
> However, the Bush administration has a track record of going the other 
> way. For the 2006 budget, President Bush proposed 1 percent cuts to the 
> Department of Education, while funding for the sciences through the 
> National Science Foundation (NSF) fall below the president's own goals. In 
> 2002, President Bush supported a doubling of NSF's budget in five years. 
> The 2006 budget falls 34 percent short of what would be needed to put NSF 
> on track to meet that goal.
> Instead, policy makers should restore funds where they are needed. This 
> includes more money to the sciences, more support for science and math 
> education and increased funds for programs that help introduce new 
> technologies to a broad range of users, such as the National Technology 
> and Information Administration. Without much stronger support for the 
> development of innovative technologies and for their dispersion into the 
> economy, the United States is likely to fall further behind and to see 
> widening high-tech trade deficits.

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