X-Sieve: CMU Sieve 2.2
Date: Tue, 22 Mar 2005 19:05:04 -0600
From: clark johnson <clarkjohnson@xxxxxxxxxxxxxx>
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.