US runs a high-tech trade gap

For the first time on record, the United States has a deficit in high-tech trade, prompting concern about American competitiveness in key job-producing industries from biotechnology to aerospace.

That deficit appears to be widening, fueled in part by the trend of offshore outsourcing in areas such as software design. As computer parts have become commodities, production has long since moved to places such as Taiwan and, now, to China.

Trade gaps have opened in scientific instruments and in specialized industrial machinery. In commercial airplanes, among the most sophisticated of machines, America remains an export powerhouse, but Europe's Airbus consortium as of this year is selling more planes than Boeing.

By itself, a trade deficit is not necessarily a major problem for US industry, but experts worry that it symbolizes a deeper risk that America may fall behind in some of the very areas it is counting on for high-wage jobs.

"People are going to be surprised how rapidly this develops," says Charles McMillion, a Washington consulting economist.

During the second half of 2003, the US imported nearly $17.5 billion more than it exported in "advanced technology" products. That shortfall in goods was not fully offset by a high-tech trade surplus in services, including royalties, totaling $16 billion. That gap persisted during this year's first quarter, and will probably grow, Mr. McMillion says.

Ten industries fall under the Commerce Department's definition of high-tech production: biotechnology, life sciences, optoelectronics, information and communications, electronics, flexible manufacturing, advanced materials, aerospace, weapons, and nuclear technology.

During the 1990s, American workers were told that if US lower-skill manufacturing jobs were lost abroad, they would be replaced by better-paying jobs in new higher-tech areas as long as they upgraded their skills to qualify for these jobs.

Now high-tech jobs, too, are increasingly moving overseas. Many countries are becoming more sophisticated in high-tech production, often with the help of graduates from the best American technological universities.

Ronil Hira, a public-policy professor at Rochester Institute of Technology, worries that as both tech jobs and industry move abroad, the US will lose the "spillover effect" that produces new tech ideas that result in new firms, new tech businesses.

"You are going to get the next generation of entrepreneurs abroad," he warns.

Large US companies believe the shift of high-tech jobs overseas is in their interest, allowing them to expand globally and cut prices for consumers. They label opponents as "protectionists."

"The alarms being sounded about the loss of jobs to foreign countries are motivated by political need rather than facts," Thomas Donahue, president of the US Chamber of Commerce, stated recently.

The question of offshore outsourcing aside, few dispute the point made by Warren Washington, who heads President Bush's National Science Board - that the US is in a "long-distance race" to retain its essential global advantage and world leadership in science and technology.

Corporate America is clearly worried by the current trends.

Various business associations have recently published reports that defend globalization but urge steps to retain America's competitive advantage in technology. Most call for tax cuts, subsidies, and other changes to reduce the costs of American firms competing in the international marketplace and encourage technical and business innovation in the US. Many call for the education of more scientists and engineers.

"The low cost, high-skill combination abroad is seriously undermining US manufacturing," Richard Dauch, chairman of the National Association of Manufacturers said last month. "We vitally need our elected officials to act on public policy in constructive and meaningful ways."

China is of particular concern. Beijing has insisted that companies getting access to its large market share some technological know-how in return. Last year, the US deficit in technology goods and services with China soared to $20 billion, almost five times larger than the technology deficit with Japan, notes McMillion.

America's high-tech deficit, he predicts, will be concentrated in China, which "has been putting all the pieces together" in recent years. The US, meanwhile, has seen its position erode from a record $60 billion trade surplus in technology, reached in 1997. A surplus in technology, experts say, could be vital to moving America's huge overall trade deficit closer to balance.