Jewish World Review June 22, 2004 / 3 Tamuz, 5764

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Losing our advantage


http://www.jewishworldreview.com | The U.S. 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 where 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.


"The United States has lost its advantage in many of our traditionally strong export sectors: automobiles, computers, information technology," said Charles McMillion, president of MBG Information Services, a business information, analysis and forecasting firm based in Washington, D.C. As a result, the United States is now a net importer of high-tech products such as VCRs, televisions and magnetic equipment. Most of the goods that the United States is a net exporter of are 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 such as 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 to 43 percent in 2003 from 18 percent in 1994. Meanwhile, the U.S. balance of trade in high-tech products fell to a deficit of $27 billion in 2003 from its high of $32 billion in 1997.


Advocates of free trade at all costs have 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 service 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.

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Additionally, some experts say that the services surplus may actually be much smaller than the government figures suggest.


"I actually think if it had been measured accurately it would be even more than that," said Dean Baker, co-director of the Center for Economic and Policy Research. "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 a half-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.


Ernest Preeg, senior fellow in trade and productivity at the Manufacturers Alliance, an executive development and business research organization in Arlington, Va., cautions that by allowing so much foreign ownership of American assets, the United States has left itself vulnerable to outside influences. "Surely when China has $400 billion of foreign exchange reserves, almost all in dollars, there is potential leverage," he says.


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.

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