Losing our advantage
The United States trade deficit exploded to another staggering record last month of more than $48 billion.
New trade data from the Commerce Department also confirmed two alarming trends. This country has lost its edge in technology exports and is rapidly losing its edge in the services sector as well.
The trade report is especially disturbing since technology is one area that the United States has long been thought to have supremacy over other nations. Unfortunately, the data tells another story.
The United States actually ran a $3 billion deficit in April in what the government calls "advanced technology products."
President of MBG Information Services, Charles McMillion says, "The United States has lost its advantage in many of our traditionally strong export sectors: automobiles, computers, information technology."
As a result, the United States is now a net importer of such high-tech products as VCRs, televisions, electrical machinery and magnetic equipment. While most of the goods that the United States is a net exporter of are, in fact, very low-tech like wheat, cotton and corn.
According to the economic theory of competitive advantage, lower wage nations should be the ones specializing in low-tech goods while leaving the high-tech production to higher wage nations. But as American multinationals shifted operations to low wage nations, like China, they also shipped American technology, production capability and expertise abroad.
Consequently, the share of China's exports consisting of machinery, electronics and transport equipment increased from 18 percent in 1994 to 43 percent by 2003. While the U.S. balance of trade in high-tech products fell from its high of $32 billion in 1997 to a deficit of $27 billion in 2003.
Advocates of free trade at all costs have also argued that the United States does not have to be concerned about the exports of high-tech or low-tech goods, since we are transitioning into a services economy.
Revised trade data released last week, however, illustrates that our nation's surplus in services deteriorated by 21 percent between 2001 and 2003, a much larger decline than was originally estimated.
Additionally, some experts say that the services surplus may actually be much smaller than the government figures suggest. Co-director of the Center for Economic and Policy Research, Dean Baker cautions, "I actually think if it had been measured accurately it would be even more than that. If you look at the data from India ... what they think they're producing for the United States is a lot more than what is showing up in our trade figures."
North America is, in fact, the largest destination for Indian tech services, accounting for 70 percent of the country's $8.9 billion in annual tech service exports. Official U.S. data, on the other hand, suggests that we only import about $300 million a year in services from India.
While many nations appear to have decreased motivation and need to purchase goods and services from the United States, foreigners continue to be interested in purchasing our assets. This is, perhaps, the most dangerous aspect of our ballooning trade deficit.
Since the U.S. trade deficit has reached nearly half a trillion dollars, we have no choice but to borrow from other nations in order to finance the debt. We do this by selling our assets, stocks and bonds to foreigners. According to the Securities Industry Association, foreign gross activity in U.S. securities grew from $198 billion in 1980 to more than $30 trillion in 2003.
Senior Fellow in Trade and Productivity at the Manufacturers Alliance, Ernest Preeg cautions that by allowing so much foreign ownership of American assets, the United States has left itself vulnerable to outside influences. Preeg questions, "What happens if these foreigners who hold our [assets] start getting out of dollar denominated financial assets, be they stocks bonds or treasury bills? That could lead to a rather disruptive decline in the value of the dollar." And he adds, "Surely when China has $400 billion of foreign exchange reserves, almost all in dollars, there is potential leverage."
Foreigners and foreign nations have far too much potential leverage against the United States. We have given away not only our manufacturing base, but also our advantage in technology and services, as well. And we have left ourselves dangerously dependent on foreign capital to fund our out-of-control trade deficit. America is, quite simply, losing its advantage. Comparative or not.
