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Chapter 6. Industry, Technology, and the Global Marketplace

Highlights


Knowledge- and Technology-Intensive Industries in the World Economy

The U.S. economy had the highest concentration among major economies of knowledge- and technology-intensive (KTI) industries, a key part of the global economy.

  • KTI industries, including knowledge-intensive (KI) service and high-technology (HT) manufacturing industries, have become a major part of the global economy, providing almost 30% of global economic output in 2007.
  • The U.S. economy had the highest concentration of KTI industries among major economies. These industries accounted for 38% of U.S. gross national product (GDP) in 2007. China's KTI industries created 23% of GDP in 2007, up from 21% in 1992.
  • Labor productivity growth has been higher in China and the Asia-9 than in the developed economies. (The Asia-9 includes India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam.) Despite China's 8% annual growth over the past 15 years and 4% growth in the countries and economies of the Asia-9, their absolute productivity levels remain far below those of their developed counterparts.
  • U.S. per capita income in 2007 was about 25% higher than that of Japan and 40% higher than the European Union (EU) average. The per capita income of China and the Asia-9 has grown far faster than that of the three developed economies—the United States, the EU, and Japan.

Trends in Knowledge- and Technology-Intensive Industries

The United States is the largest producer of privately provided KTI service and manufacturing industries.

  • KTI industries contributed $15.7 trillion to the world economy: $5.0 trillion in largely location-bound education and health services, $9.5 trillion in tradable services, and $1.2 trillion in HT manufacturing.
  • The United States is the largest provider of commercial KI service industries (business, financial, and communications). The U.S. world share edged up from 32% in 1995 to 34% in 2007.
  • China's share of global commercial KI service industries rose from 2% in 1995 to 5% in 2007, led by nearly 20% average annual growth of its communications industry. India's communications industry also grew rapidly.
  • In HT manufacturing industries, 90% of global value added was accounted for by the United States (30%), the EU (25%), China (14%), and Japan and the Asia-9 (about 10% each).
  • China's share of HT manufacturing industries more than quadrupled, rising from 3% in 1997 to 14% in 2007, surpassing the Asia-9 in 2006 and Japan in 2007.

Information and Communications Services and Manufacturing

The United States is the largest provider of information and communications technology (ICT) service and manufacturing industries.

  • The United States and the EU are the largest producers of ICT service and manufacturing industries (27% share each of global value added).
  • China's share of ICT global value added rose sharply from 4% to 12% between 1995 and 2007. Japan's share declined steeply from 22% to 9% over the decade.

U.S. and Global Trade in Knowledge- and Technology-Intensive Goods and Services

The United States lost market share in global HT exports, whereas China became the largest single country exporting HT goods.

  • The U.S. share of global HT exports declined from 21% in 1995 to 14% in 2008, largely because of a fall in ICT goods exports.
  • China's share of global HT goods exports more than tripled, from 6% in 1995 to 20% in 2008, making it the single largest exporting country for HT products.
  • The U.S. trade balance of HT products shifted from surplus to deficit, starting in the late 1990s. In 2000, the deficit was $32 billion in current dollars; in 2008, the deficit widened to $80 billion. The deficit in ICT goods alone was almost $120 billion in 2008.
  • China's trade position in HT products moved from balance to surplus, starting in 2001, and rapidly increased from less than $13 billion in 2003 to almost $130 billion in 2008, driven by trade in ICT goods. The Asia-9's trade surplus also increased over the past decade from less than $50 billion to more than $220 billion, an increase entirely due to an expansion of its surplus in information technology (IT) goods.
  • China's rise as the world's major assembler and exporter of many electronic goods is reflected by a sharp increase in China's share of imports of ICT goods from the United States, the European Union, and Japan.
  • Trade data indicate that assembly of ICT goods has shifted to China and that the Asia-9 has become a major supplier of components and inputs. Its share of China's ICT imports jumped from 40% to 70% in a decade; China's share of the Asia-9's exports nearly quadrupled, intra-Asia trade is up, and Japan's export data also show a pronounced shift toward China.

U.S. Trade Positions

The United States has maintained a surplus in trade of commercial KI services, but its surplus in advanced technology products turned into a deficit earlier in this decade.

  • U.S. trade in commercial KI service industries has been in surplus for the past decade and grew from $21 billion in 1997 to $47 billion in 2007.
  • U.S. trade in advanced technology products generated an initial deficit in 2002 that widened to $56 billion by 2008. The deficit in the manufacturing component of ICT alone reached more than $100 billion, with smaller deficits in the life sciences and optoelectronics. Aerospace and electronics generated surpluses of $55 billion and $25 billion, respectively.
  • The largest U.S. trade deficit in advanced technology products was $66 billion with China, its largest trading partner country, followed by $19 billion with the Asia-9 and $8 billion with Japan. ICT deficits were higher: $75 billion with China, $44 billion with the Asia-9, and $9 billion with Japan.
  • The United States had a $7-billion surplus with the EU in 2008; aerospace, the life sciences, and ICT manufacturing constituted the largest share of advanced technologies trade with this region.

Foreign Direct Investment

U.S. overseas investment in KTI industries was more than $900 billion, and direct investment in the United States in these industries was almost $600 billion.

  • U.S. overseas investment in commercial KI service industries stood at $834 billion and HT manufacturing industries at $121 billion by 2008.
  • Financial services had the largest share of commercial KI service industries by far (76%), followed by business services (22%) and communications (2%). Among HT manufacturing industries, communications and semiconductors (44%) and pharmaceuticals (30%) had the largest shares.
  • Direct investments in the United States in commercial KI service industries stood at $390 billion in 2008; direct investment in U.S. HT manufacturing industries stood at $187 billion.
  • Financial services had the largest share (64%) of foreign direct investment in commercial KI service industries, followed by business services (23%) and communications (13%). Among HT manufactures, the largest shares were in pharmaceuticals and in communications and semiconductors.

Trade in Intangible Assets

The United States runs a surplus with the rest of the world in trade of intangible assets, including patent licensing fees and use of trade secrets.

  • Investment and trade in intangible assets such as copyrights, trademarks, and patents is sizeable. In 2007, the United States had a surplus of nearly $60 billion in trade of intangible assets, which has grown steadily over the past two decades.
  • An important component of the surplus in U.S. intangible assets is generated by industrial processes ($19 billion), which include licensing fees for patents and use of trade secrets. U.S. exports in this category were $37 billion in 2007.
  • The EU is the United States' largest trading partner for industrial processes (nearly 50% share), followed by Japan (19%). More than half of the U.S. surplus is with the EU ($10 billion), and it has smaller surpluses with the Asia-9, China, and Latin America. The U.S. has a deficit of $3 billion with Japan.

Patents

The United States, the EU, and Japan have similar shares of economically valuable patents, accounting for a combined 90% share of the total.

  • Inventions for which patent protection is sought in three of the world's largest markets—the United States, the EU, and Japan—are presumed to be of higher-than-average value. The United States, the EU, and Japan have similar shares of high-value patents, accounting for nearly 90% of the total. The Asia-9's share increased from 1% in 1997 to 6% in 2006, accounted for almost entirely by South Korea.
  • The United States is the leading source of U.S. Patent and Trademark Office (USPTO) patent applications; however, foreign-based inventors, attracted by the size and openness of the U.S. market, have traditionally provided almost half of these applications.
  • In 2008 the U.S. share of patent applications declined to 51%, with gains for second- and third-ranked Japan and the EU. The Asia-9's share in 2008 was flat at 10% compared to 2007, but double its level of a decade ago, driven by growth in applications from South Korea and Taiwan. India's and China's patent applications grew but remained modest, with India's share below and China's share barely above 1%. Trends are similar in patents granted.

Angel and Venture Capital Funding in the United States

Investment in angel and venture capital, an important source of financing for HT small businesses, fell in 2008 after several years of increases.

  • Angel investors provided $19 billion in financing in 2008, compared with $26 billion in 2007—the first decline since 2002. Health services received the largest share of investment (16%), followed by software (13%), retail (12%), and biotechnology (11%).
  • U.S. venture capitalists invested $28.1 billion in 2008—an 8% decline, compared with the level in 2007. Computer software had the largest share of investment from 2007 to 2008 (18%), followed by biotechnology (16%) and industrial/energy (13%), possibly reflecting opportunities in green and renewable energy.
 

Science and Engineering Indicators 2010   Arlington, VA (NSB 10-01) | January 2010