The Declining High Tech Balance of Trade
As the global economy evolves, the U.S. continues to become a net importer, rather than exporter, of advanced technologies. Which sectors are “winners”, and which are lagging? And is there coherence between our performance in international trade, and our national R&D investments?
First, some context around advance technology imports and exports. Recent data are available from the U.S. Census bureau, and are discussed in much better detail than here in the biannual NSF Science and Engineering Indicators series, typically Chapter 6. (Minor hack tip: to access previous years, replace the path in the link above with “seind08”, “seind06”, etc.). I’ve been able to find aggregate data back to 1989 and sector by sector data back to 2000. As a technical note, in this as in all my posts I’ve inflation adjusted the historical data using GDP chained deflators (here, to convert to 2010 dollars).
The short form of the story would run: within the 10 industry sectors tracked as “advance technologies”, the U.S. has sustained vigorous exports, (although these are somewhat flat in constant dollars, which is troubling). Meanwhile, imports have increased, leading to a net trade deficit with the rest of the world. This is troubling more from the standpoint of where the U.S. economy is headed long term, rather than where it is now. With technology sectors including aerospace, biotechnology, life sciences, advanced materials, electronics, optoelectronics, and others, the waterfront of potential new manufacturing sectors in which to excel is shrinking rapidly. Sector by sector, the trade surplus / deficit data are instructive.
Aerospace and Weapons. Aerospace continues to lead, with strong emphasis on the “aero” side, as the space subsector surplus is declining rapidly (see my previous post). The U.S. continues to benefit from the decades-long investments in this area from the 20th century. Nonetheless, the engineering skill base which sustains this sector is fragile and extremely sensitive to disruption (or interruption); this goes for both disciplinary mechanical/aerospace engineering skills, and the more elusive systems engineering skills needed to coordinate the development of both aircraft and spacecraft. The bulk of the exports in the chart at right are from the aviation sector; space and weapons comprise small but non-negligible shares of the total.
Advanced Materials and Flexible Manufacturing. The news here is also good (slight positive balance of trade) but the magnitude of this sector is much smaller. As an engine which might crosscut other sectors, this is promising as it suggests the U.S. hasn’t yet exhausted its innovation potential, although that may be contingent on sustained investment into R&D in this area. Unfortunately, the physical sciences and engineering have lagged in public sector national research investment in recent years – the subject of a future post.
Electronics and Optoelectronics. This is a large sector in which the surplus / deficit tide has turned in recent years. The bulk of the decline comes from the opto-electronics side, although conventional electronics has declined in the last several years as well. (I’ll have to remember this next time I’m caressing my iPad screen, or marveling at my Sony camera…) If the global supply chain for those products is any indicator, it’s hard to see the U.S regaining ground in this area.
Biotechnology and Life Sciences. If there’s a story within a story to this post, it’s the performance of the biotech sector. Not so much because there aren’t signs of progress (exports are increasing, and the balance looks like it might be on track to someday turn positive) but because of the truly massive public sector R&D investment in this area over the last 15 years, and corresponding disruption to the rest of the U.S. R&D portfolio. Whether intentionally or unintentionally, by virtue of its spending priorities, the U.S. has “bet big” that this sector will be the defining technology for 21st century economies; more than half of the national nondefense R&D investment now goes to life sciences, in terms of magnitude; it has now exceeded Apollo Program level spending. That will be the subject of a future post. For now – it looks like the jury remains painfully out on whether the sector will pay off.
Information and Communications. This is code for computers, routers, videoconferencing, comsats, radars, etc. Note that the vertical scale on this plot is twice that of the other detail breakouts. This ship appears to have sailed, and comprises a big share of the increasing advanced technology trade deficit. Indeed, if the Information and Communications sectors are excluded from the total, the storyline changes to a positive trade surplus (largely driven by aerospace), and a looming question:
What new sector will replace the United States’ declining market share in electronics and highly related technologies? Will the biotech investment pay off? Will the current national investment priorities and policies allow the aerospace sector to maintain its prominence as anchor of the advanced technology trade surplus?