Center for American Progress

Our Nation’s Surprising Technology Trade Deficit

Our Nation’s Surprising Technology Trade Deficit

A Wide Array of High-Tech Imports Overtake U.S. Exports

Report from Christian E. Weller and Holly Wheeler shows that U.S. economic competitiveness in innovation may be slipping away.

Read the full report (pdf)

Against the backdrop of slowing U.S. economic growth and rising economic uncertainty among most working Americans, we as a nation at least find comfort in the underlying resilience of an economy traditionally strong in creativity and innovation. After all, a skilled and innovative workforce has fueled American productivity and economic growth for decades, allowing the United States to remain at the forefront of global competition, especially since the mid-1990s.

Why should the first decade of the 21st century be any different?

Alas, it is. A snapshot of global trade statistics in advanced technology products since 2002 reveals that U.S. economic competitiveness in innovation may be slipping away. Surprisingly, the United States has recorded a deficit in high-technology products over the past five years. By the end of 2007, our nation’s high-tech deficit reached new record highs, measured either in absolute terms or as a share of the overall trade deficit. Specifically:

The high-tech trade balance is growing apace. ƒ Prior to 2002, the high-tech trade balance kept the total U.S. trade deficit lower than it otherwise would have been. While the high-tech deficit accounted for less than 4 percent of the total trade deficit in 2002, it accounted for more than 7 percent in 2007.

The deterioration in the high-tech trade deficit is spreading. ƒ The growing trade high-tech deficit from 2002 to 2007 included a widening of the deficit in information and communication technology products by $57.5 billion, in opto-electronics products by $16.5 billion, and in nuclear technology products by $2.2 billion.

The United States is losing ground to a range of countries, led by China ƒ and Mexico. Mexico in particular has skyrocketed onto the scene, now surpassing Malaysia as our country’s second-largest high-tech trade deficit partner, with a deficit of over $21 billion in high-technology products in 2007. From 2002 to 2007, the rate of increase in the U.S. high-tech trade deficit with Mexico—at 492 percent—was higher than China’s 473-percent increase.

There is no single reason for our growing and widening high-tech trade ƒ deficit. The high-tech trade statistics indicate that our trading partners are moving up the value chain in high-tech products, possibly by identifying individual product niches they can concentrate on to boost their competitive edge over the United States.

What do these trends mean for U.S. economic policymakers? A rising trade deficit in our most competitive products requires a deft policy response. Our nation’s total trade deficit remains high despite a recent export boom due to the declining value of the dollar, in part because the high-tech trade deficit is increasing rapidly. High-tech products that once were our most competitive exports are losing their innovative edge in world markets.

In part, we can attribute this deterioration in the U.S. high-tech trade balance to the offshoring of high-technology jobs. As more high-tech manufacturers lower production costs and use increasingly qualified workers overseas, the high-tech industry in the United States suffers.

A larger and more deep-seated problem, however, has been the dramatic difference between U.S. innovation policies and those of our global competitors. As other countries have been investing in innovation to create a skilled workforce and encourage more research and development, the United States has, by and large, neglected to make innovation a policy priority. The U.S. high-tech trade deficit finds its roots in the negligence of our innovation policy and requires a strong policy response.

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