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Chapter 6. Industry, Technology, and the Global Marketplace

Trade and Other Globalization Indicators

In the modern world economy, production is more often globalized (i.e., value is added to a product or service in more than one nation) and less often vertically integrated (i.e., conducted under the auspices of a single company and its subsidiaries) than in the past. These trends have affected all industries, but their impact has been particularly strong in many commercial KTI industries. The broader context is the rapid expansion of these industrial and service capabilities in many developing countries, both for export and internal consumption, accompanied by an increasing supply of skilled, internationally mobile workers. (See chapter 3 for a discussion on the migration of highly skilled labor).

This section will focus on international KI services and HT trade and U.S. trade of advanced technology products (ATP). (See "U.S. Trade in Advanced Technology Products" later in this chapter for a discussion of how the U.S. Census Bureau's product-based classification of advanced technology products differs from the OECD's industry-based classification of HT products.) It will also examine several globalization measures of U.S. multinationals in KTI industries.

Trade data are a useful though imperfect indicator of globalization. Trade data are classified by product or type of service, while corresponding production data are classified by industry (see sidebars "Industry and Trade Data and Terminology" and "Product Classification and Determination of Country of Origin of Trade Goods"). An export classified as a computer service may originate from a firm classified as a computer manufacturer. Trade data also cannot provide a precise measure of where value is added to a product or service. For example, China is credited with the full value (i.e., factory price plus shipping cost) even when exporting a smart phone that was assembled in China with inputs and components imported from other countries. Countries whose firms provide these high-value components and services (design, marketing, software development, etc.) are not credited for their contributions (see sidebar, "Tracing the Geography of the Value Chain of Products").

This discussion of trade trends in KI services and HT manufactured products focuses on (1) the world's large, highly developed countries and regions—the United States, the EU, and Japan; (2) China, which is rapidly taking on an increasingly important role in KTI trade; and (3) the Asia-8, which generates a substantial and increasing trade volume within the group and maintains strong trade ties with China.

Both Europe and East Asia have substantial volumes of intraregional trade. This section treats trade within these two regions in different ways. Intra-EU exports are not counted because the EU is an integrated trading bloc with common external trade tariffs and few restrictions on intra-EU trade. By the same token, HT trade between China and Hong Kong is excluded because it is essentially intra-country trade. Intra-Asian trade is counted because it allows the delineation of a developing Asia-8/China trade zone in the absence of the kind of formal structures that bind the EU together.

Global Trade in Commercial KTI Goods and Services

Exporting goods and services to other countries is one measure of a country's economic success in the global market—the goods and services it produces compete in a world market.

Global trade in commercial KTI goods and services consists of three services—business, communications, and finance—and six HT products—aerospace, communications, computers, pharmaceuticals, semiconductors, and scientific instruments.[11] The data on commercial KI service trade also include trade in royalties and fees, which do not correspond to a specific industry.

The value of commercial KTI exports has risen faster than their global production, resulting in an increase in the export share of production from 12% in 1995 to plateau at 15%–16% in the latter half of the 2000s (figure 6-20). The rise in export intensity indicates the growing importance of international suppliers involved in production of goods and provision of services. Data on multinational companies and cross-border investment likewise indicate growing interconnection among the world's economies.

The global value of commercial KTI exports increased from $1 trillion in 1995 to $3.5 trillion in 2008, then declined to a recession-induced $3.2 trillion in 2009 but rebounded to $3.6 trillion in 2010 (figure 6-20). This mirrored the trend in global output of commercial KTI industries during this period (figure 6-11 and appendix table 6-3). The decline of commercial KTI exports in 2009 was far sharper than in the recession in the early 2000s (figure 6-20).

The EU is the largest exporter of commercial KI goods and services, with $719 billion in 2009 (23% of global value) (figure 6-21). The Asia-8 closely follows with $683 billion. The United States is next largest with $564 billion (18% of global value), followed by China with $500 billion (16% of global value). Japan trails with $199 billion.

The U.S. global share fluctuated between 20% and 23% from 1995 to 2001 before declining to 17%–18% from 2002 to 2009 (figure 6-21). The EU and Asia-8's shares fluctuated between 20% and 23% for much of the period. China's share rose rapidly from 6% to 15% from 1995 to 2006, surpassing Japan in 2003, then rose more slowly to 16% from 2006 to 2009.

Commercial Knowledge-Intensive Services

Global exports of commercial KI services grew faster than global production of these services over the 15-year period from 1995 to 2010 (figure 6-20). The gradual rise in the export share of commercial KI production (from 5% to 8%) suggests a modest rate of globalization in these service industries, in contrast to the earlier and more rapid pace in HT manufacturing. Advances in ICT technologies and emerging capabilities in other developed and developing countries, such as India, are driving globalization of commercial KI services.

The EU is the largest exporter of commercial KI services with $409 billion in 2009 (30% of global value) (figure 6-22). The United States is the second-largest economy and single largest country exporter with $293 billion in 2009 (22% of global value). The Asia-8 is the third-largest exporter group with $204 billion (15% of global value), with India and Singapore being the major exporters in this region. China is the fourth-largest exporter with $110 billion, although its exports include trade between China and Hong Kong, which is likely substantial.[12] Japan is the fifth largest with $84 billion.

The dollar value of total global exports (excluding intra-EU) of commercial KI services rose almost fourfold over a decade and a half, from $360 billion in 1995 to $1.5 trillion in 2008, before declining to $1.4 trillion in 2009, in contrast to the flattening of output during the earlier recession (figure 6-20). Global exports resumed growth in 2010, returning to their 2008 level ($1.5 trillion).

The U.S. and EU global shares fluctuated at 22%–26% and 29%–31%, respectively, over the period (figure 6-22). The Asia-8's share rose from 11% to 15%, led by India and Singapore. China's share nearly doubled from 5% to 8%, surpassing Japan in 2007. Japan's share declined from 11% to 6% during this period.

Commercial KI service exports comprise four categories: business services (including legal, management, advertising, R&D, and engineering services), valued at $675 billion; financial services (banking and insurance), valued at $267 billion; royalties and licensing fees, valued at $183 billion; and computer and information services, valued at $129 billion (figure 6-23).[13]

The EU is the largest world exporter of business services with value added of $222 billion in 2008 (33% of global value) (figure 6-23). The United States is the second largest with $102 billion (15% of global value added), far below the EU's level. China (including Hong Kong) is slightly below the United States with $79 billion (12% of global value added).

The EU is the largest exporter of financial services with $95 billion in 2008 (36% of global value added), closely followed by the United States with $63 billion (28% of global value added) (figure 6-23). Data on China, Japan and the Asia-8 economies show much lower levels of financial services exports.

The United States is the world's largest exporter in royalties and licensing fees with $102 billion (51% of global value) (figure 6-23). The EU and Japan are the second and third largest with $36 billion and $26 billion, respectively. These three economies collectively account for 85% of global value of these exports.

The EU is the largest exporter of communications and information services with $43 billion (33% of global value) (figure 6-23). India is the second-largest exporter with $36 billion (28% of global value), reflecting its strong position in providing these services for companies based in the United States, EU, and other developed countries. The United States is the third largest with $13 billion (10% of global value).

Trade Balance Trends in Commercial Knowledge-Intensive Services

The EU and the United States have enjoyed substantial and rising positive balances in their trade of commercial KI services, particularly over the last decade (figure 6-24). Both exceeded $80 billion in 2009, even as the EU's surplus dropped steeply and the U.S. surplus flattened as a result of the 2008–09 recession. The U.S. surplus rose from $55 billion in 2000 to more than $100 billion in 2007–09, even as the U.S. trade deficit in HT goods deepened during the same period.

The United States has substantial surpluses in royalties and fees ($68 billion) and other business services ($36 billion). It has small deficits in financial services and computer and information services ($2–$3 billion). The composition of the EU's surplus is similar to that of the United States.

China had a surplus of $28 billion in 2009, up from the $13–$16 billion surplus it had run in the early 2000s (figure 6-24). The Asia-8 as a group had a surplus of $34 billion in 2009 with India having a $32 billion surplus, the largest among these economies (figure 6-24). The rise in India's surplus was driven by its substantial rise in computer and information services. Brazil and Russia have deficits in their KI services trade, ranging up to $29 billion for Russia.

High-Technology Goods

The global production of HT manufacturing industries more than doubled from $2.0 trillion to $4.3 trillion over the last 15 years. The value of HT export goods grew faster than global production, suggesting that globalization has continued in these already highly competitive and geographically dispersed industries. The export share rose from 36% to 53% in 2006 before drifting downward to 50% in 2010 (figure 6-20).

The HT export shares of the major economies—i.e., the percentage of total production that is exported—vary widely, with the shares of the United States and EU and Japan considerably lower than those of China and the Asia-8, the largest global exporters (figure 6-25). The export shares of the United States and the EU each rose about 15 percentage points between 1995 and 2010 to reach 43% in the United States and 38% in the EU. Japan's share stayed roughly stable at 29%. The Asia-8's export share fluctuated between 80% and 90% of their total production. China's export share rose from 63% to 71% from 1995 to 2004 before falling sharply to 43% in 2010, helping to account for the slight decline in the proportion of global HT production that was exported. The decline in China's export share could be a result of growing domestic consumption of these goods, higher labor costs in China that have prompted some relocation of manufacturing facilities to other countries, and higher shipping costs. Conversely, it may reflect the impact of the global recession that caused a sharper decline in China's exports than in production in 2009.

Global exports of HT goods in 2010 were $2.1 trillion, including a combined $1.1 trillion exported by China and the Asia-8 and a collective $800 billion exported by the United States, the EU, and Japan (figure 6-26 and appendix table 6-24). Global HT exports comprised nearly one-fifth of the $11 trillion in exports of all manufactured goods (appendix table 6-25). The largest single exporter in HT manufacturing is the Asia-8 group with $570 billion (27% of global value) (figure 6-26). The second-largest exporter is China with $476 billion (22% of global value). The United States and EU follow China with exports of around $330 billion each (16% of global value). Japan was fifth with exports of $140 billion.

The value of global exports rose from $700 billion in 1995 to $2.0 trillion in 2008 before falling sharply in 2009 to $1.8 trillion, coinciding with the contraction of global HT manufacturing output during the recession (figures 6-16 and 6-26 and appendix table 6-24). Global exports sharply rebounded in 2010 to reach $2.1 trillion, slightly greater than their 2008 levels.[14]

The U.S. share of global HT manufacturing exports rose from 19% to 22% from 1995 to 1998 before declining to a range of 13%–15% from 2003 to 2010 (figure 6-26 and appendix table 6-24). China's share nearly quadrupled from 6% to 22%. The Asia 8's global share fluctuated between 27% and 30% from 1995 to 2010. Japan's share fell sharply from 19% to 7% over the 15-year period.

Among the six HT products, ICT products account for $1.3 trillion (61%) of the $2.1 trillion in global exports. These include communications ($505 billion), semiconductors ($422 billion), and computers ($385 billion) (appendix tables 6-26, 6-27, and 6-28). The others are, in decreasing order: scientific and measuring instruments ($361 billion), pharmaceuticals ($286 billion), and aerospace ($176 billion) (table 6-5 and appendix tables 6-29, 6-30, and 6-31).

The U.S. global export share in computers declined substantially, driving the loss in the U.S. overall ICT export share (table 6-5 and appendix tables 6-26, 6-27, and 6-28). The U.S. share was down by about half, reaching a level of 11%. The United States had a more modest decline in communications (from 13% to 11%) and semiconductors (from 15% to 11%). The EU had comparatively greater declines in communications and semiconductors and a smaller decline in computers. Japan had steep losses across all three goods categories.

China's share rose sharply in communications and computers, becoming the world's largest exporter in these two goods (table 6-5 and appendix tables 6-26 and 6-28). China's share increased from 10% to 39% in communications and from 6% to 45% in computers. China's rise in semiconductors was more modest, increasing from 4% to 10% (appendix table 6-27). The Asia-8's share in communications fluctuated between 24% and 29% and was down in computers (from 39% to 27%). The Asia-8's share in semiconductors rose from 40% to 59%, driven by rapid gains in South Korea and Taiwan. The Asia-8's sizeable export share in ICT goods reflects its role as a manufacturing supplier zone for ICT goods assembled in China.

The U.S. share in scientific and measuring instruments fell slightly from 22% to 19% (table 6-5 and appendix table 6-29). The EU's share also fell slightly, declining from 20% to 18%. Japan's share was down by half from 23% to 12%. The Asia-8 region's share more than doubled from 10% to 22%. China's share rose sharply from 8% to 14%.

The U.S. share in pharmaceutical exports was stable at 16% between 1995 and 2010 (table 6-5 and appendix table 6-30). The EU's share declined from 48% to 44%. China's share was stable at 4%. The Asia-8's share rose from 4% to 6%, driven by gains in India and Singapore.

The United States maintained a dominant position in aerospace exports, with its share rising from 40% in 1995 to 48% in 2005 before dropping to 44% in 2010 (table 6-5 and appendix table 6-31). The EU's share dropped from 40% to 31%.

Trade Balance Trends in High-Technology Goods

The United States had a trade surplus in HT manufactured products throughout the 1980s and early 1990s, in contrast to deficits for other U.S. manufacturing products.[15] Growing U.S. imports in the late 1990s shifted the U.S. balance into a $67 billion deficit by 2000. After reaching a level of $100–120 billion in 2004–07 prior to the recession, the deficit dropped to $90 billion by 2010 (figure 6-27 and appendix table 6-24).

The EU had a small deficit from 1995 to 2005, which widened to $50–$60 billion in 2006-10 (figure 6-27 and appendix table 6-24). Japan's surplus declined from $90 billion to $30 billion over the 15-year period. The other Asian economies also ran surpluses: China's trade position in HT products increased from a small surplus in 2000 to almost $160 billion in surplus in 2010. The Asia-8's trade surplus doubled over the last decade to reach $230 billion in 2010.

Two categories of ICT goods, communications and computers, are largely responsible for producing the substantial shifts in the trade positions of the United States, the EU, Japan, and China (figure 6-27 and appendix tables 6-26 and 6-28). The U.S. deficit in these goods rose from $39 billion in 1995 to nearly $100 billion in 2002 and further widened to $150 billion in 2010; the EU's trend was similar. Japan's trade surplus in these ICT goods fell from $40 billion to a small deficit.

The widening EU and U.S. deficits in these goods and the shrinking Japanese surplus were driven by a sharp rise in their imports from China. This in turn reflected the structural shifts towards Asia in production of these ICT goods (Athukorala and Yamashita 2006, Ng and Yeats 2003, Rosen and Wing 2005). China's share of U.S., EU, and Japanese global imports of these ICT goods rose from 13%–15% in 2000 to 49% or more by 2010 (figure 6-28 and appendix tables 6-33 and 6-34). China's surplus in these ICT goods rose from $3 billion in 1995 to $28 billion in 2000, and then leaped to more than $200 billion in 2006 and almost $300 billion in 2010 (figure 6-27 and appendix tables 6-26, 6-27, and 6-28).

In semiconductors, the United States and Japan ran modest surpluses over the last decade (figure 6-27 and appendix table 6-27). The largest market for U.S. exports of semiconductors was the Asia-8, largely South Korea and Taiwan (41% of U.S. exports), with China the second largest at 20%, up sharply from only 6% in 2000 (figure 6-29 and appendix table 6-34). The Asia-8 ran surpluses in semiconductors, reflecting their growing role as suppliers to each other's and China's factories and assembly lines. The surpluses widened over the decade from less than $20 billion in 2000 to $100 billion in 2010, coinciding with rapid growth in Asia-8 exports destined for China for final assembly or manufactured under contract by U.S.- and Japanese-based semiconductor firms (figure 6-30 and appendix table 6-27).

China must import semiconductors for use in its production. Its deficit in semiconductor trade widened from $20 billion in 2000 to $110 billion in 2010, driven by increased imports from the Asia-8 (figure 6-27 and appendix tables 6-27 and 6-34). The Asia-8's share of Chinese semiconductor imports rose from 61% to 77%, with Taiwan accounting for about half of China's imports from this region (figure 6-31).

In aerospace, the United States has run a consistent surplus over the decade and a half from 1995 to 2010 (appendix tables 6-31 and 6-35). The U.S. surplus increased from about $20 billion in the early 2000s to $60 billion in 2010, partially offsetting its growing deficit in communications and computers. The EU ran a small surplus.

In scientific instruments and pharmaceuticals, the United States had small deficits in most years since 1995, while the EU had a surplus in pharmaceuticals that grew from $11 billion in 1995 to $55 billion in 2010 (appendix tables 6-29 and 6-30). The Asia-8's trade position in scientific instruments shifted from a small deficit to surplus in 2005, and steadily grew to $31 billion in 2010. The trend was similar in pharmaceuticals, driven by exports from India and Singapore.

Since 1995, the United States and EU have become more important destinations for pharmaceutical exports from India and Singapore. The U.S. share of India's pharmaceutical exports rose from 5% in 2000 to 29% in 2010, and its share of Singapore's pharmaceutical exports jumped from 5% to 30% during the same period (figure 6-32 and appendix table 6-36). The trend was similar in the EU.

Trade in Medium- and Low-Technology Manufactured Products

The U.S. export performance in manufactured products associated with less knowledge intensity and less use of R&D provides a context for interpreting its HT trade. In these industries, the United States has world export shares below those of the EU and Asia-8 (across all three categories: medium-high, medium-low, and low technology) and China (medium-low and low technology).

The U.S. share of world exports in medium-high-technology products (i.e., motor vehicles, chemicals, railroad equipment) was 14% in 2010, roughly the same as its share in HT industries (table 6-6), placing it at about the same level as China, Japan, and the Asia-8. The world export shares of these economies are significantly below the leading global exporter, the EU (23% share of global value). The U.S. and EU shares have fallen 3 percentage points over the past decade and a half, while Japan's share has fallen more steeply from 22% to 13%. China has rapidly expanded its share of global exports from 4% to 14% (excluding trade between China and Hong Kong), reaching rough parity with the United States, the Asia-8, and Japan.

The United States has roughly the same share (8%) as Japan in world exports in medium-low-technology products, behind the EU (15%), China (11%), and the Asia-8 (21%) (table 6-6). The U.S. share of global exports of low-technology products in 2010 (11%) placed it well behind all the other major economies except for Japan (2% share). In both of these industry groups, China's world export share expanded greatly since the mid-1990s but not to the same degree as for HT exports.

U.S. Trade in Advanced Technology Products

The Census Bureau has developed a classification system for internationally traded products based on the degree to which they embody new or leading-edge technologies. This classification system has significant advantages for determining whether products are HT and may be a more precise and comprehensive measure than the industry-based OECD classification.

This system allows a highly disaggregated, focused examination of technologies embodied in U.S. imports and exports. It categorizes advanced technology product (ATP) trade into 10 major technology areas:

  • Advanced materials—the development of materials, including semiconductor materials, optical fiber cable, and videodisks, that enhance the application of other advanced technologies.
  • Aerospace—the development of aircraft technologies, such as most new military and civilian airplanes, helicopters, spacecraft (excluding communications satellites), turbojet aircraft engines, flight simulators, and automatic pilots.
  • Biotechnology—the medical and industrial application of advanced genetic research to the creation of drugs, hormones, and other therapeutic items for both agricultural and human uses.
  • Electronics—the development of electronic components (other than optoelectronic components), including integrated circuits, multilayer printed circuit boards, and surface-mounted components (such as capacitors and resistors) that improve performance and capacity and, in many cases, reduce product size.
  • Flexible manufacturing—the development of products for industrial automation, including robots, numerically controlled machine tools, and automated guided vehicles, that permit greater flexibility in the manufacturing process and reduce human intervention.
  • Information and communications—the development of products that process increasing amounts of information in shorter periods of time, including computers, videoconferencing, routers, radar apparatus, communications satellites, central processing units, and peripheral units such as disk drives, control units, modems, and computer software.
  • Life sciences—the application of nonbiological scientific advances to medicine. For example, advances such as nuclear magnetic resonance imaging, echocardiography, and novel chemistry, coupled with new drug manufacturing techniques, have led to new products that help control or eradicate disease.
  • Optoelectronics—the development of electronics and electronic components that emit or detect light, including optical scanners, optical disk players, solar cells, photo-sensitive semiconductors, and laser printers.
  • Nuclear—the development of nuclear production apparatus (other than nuclear medical equipment), including nuclear reactors and parts, isotopic separation equipment, and fuel cartridges. (Nuclear medical apparatus is included in the life sciences rather than this category.)
  • Weapons—the development of technologies with military applications, including guided missiles, bombs, torpedoes, mines, missile and rocket launchers, and some firearms.

U.S. trade in ATP products is an important component of overall U.S. trade, accounting for about one-fifth of its combined nonpetroleum exports and imports for the past two decades. In 2010, U.S. exports of ATP products were $273 billion (24% of total U.S. goods exports) and imports were $355 billion (23% of total U.S. goods imports) (figure 6-33 and appendix table 6-37). As with world HT product trade accounts, U.S. imports of ATP products have grown faster than exports since the early 1990s. This sent the U.S. trade balance in ATP products into deficit in 2002. The deficit leveled off at $55–60 billion for 2007–09 before reaching a new record high of $82 billion in 2010.

After growing for much of the last decade, exports and imports both fell 10% in 2009 during the global recession (figure 6-33 and appendix table 6-37). Both bounced back in 2010, exports growing 11% and imports growing 18%. Exports returned to their 2008 value, and imports reached a new high of $354 billion.

The growing U.S. trade deficit in these goods reflects not only changing world production and trade patterns but also factors that are hard to measure and cannot be adequately accounted for, including exchange rate movements and new business and production processes.

U.S. Advanced Technology Product Trade, by Technology

Four technology areas—ICT, aerospace, electronics, and the life sciences—accounted for a combined share of 85% of U.S. ATP product exports in 2010 (figure 6-34 and appendix tables 6-37, 6-38, 6-39, 6-40, 6-41, 6-42, and 6-43). Aerospace had the largest single share (30%), followed by ICT (28%), electronics (17%), and the life sciences (10%). ICT technologies have generated the largest trade deficits of any technology area—$127 billion in 2010. This deficit in ICT, widening from $35 billion to more than $120 billion over the decade, drove the increase in the U.S. ATP trade deficit.

Two technologies, aerospace and electronics, have generated a combined trade surplus of $70 billion in 2010 (figure 6-34 and appendix tables 6-39 and 6-40). The United States is the leading producer of aerospace products; it had a trade surplus of $51 billion in 2010 ($24 billion more than in 2000), as exports jumped from $53 billion to $81 billion and imports increased more moderately from $26 billion to $29 billion. The surplus in electronics was $18 billion in 2010.

U.S. Advanced Technology Products Trade, by Region and Country

About 80% of U.S. ATP exports go to three regions: the EU (24%), Asia (Asia-8, China, and Japan) (36%), and the North American Free Trade Agreement (NAFTA) trade zone (20%) (figure 6-34 and appendix table 6-37).

China, Japan, and the Asia-8. China is the single largest U.S. trading partner in both total goods trade and ATP products, exporting $117 billion worth of ATP products to the United States (about one-third of U.S. imports of these products) and importing $30 billion from the United States in 2010 (figure 6-34 and appendix table 6-37).[16] The U.S. deficit in ATP and all products with China is larger than its deficits with any other country. Nearly 90% of U.S. ATP imports from China are ICT goods (appendix table 6-38). U.S. ATP exports to China include aerospace, electronics, and ICT (appendix tables 6-39 and 6-40).

U.S. ATP data show that ICT imports from China have increased much faster than its exports to China (appendix table 6-38). The steep rise in imports and flat export growth widened the U.S. deficit with China in ICT from $6 billion in 2000 to $87 billion in 2010 (figure 6-34).

ICT products also constituted 40% of all U.S. imports from Japan in 2010 (figure 6-34 and appendix table 6-38). Among U.S. ATP exports to Japan, aerospace accounted for the largest share (34%); life sciences ranked second (22%) (appendix tables 6-39 and 6-40).

The United States exported $36 billion of ICT goods to the Asia-8 and imported $60 billion from this region (figure 6-34 and appendix table 6-38). The $17 billion U.S. deficit with the Asia-8 in ICT consists of $5–$7 billion deficits with Malaysia, South Korea, Taiwan, and Thailand and a small surplus with Singapore. As with China, ICT products constituted the largest share of total U.S. ATP trade with the Asia-8. Important suppliers are Malaysia ($10 billion), South Korea ($13 billion), and Taiwan ($11 billion). U.S. imports of $48 billion and exports of $7 billion produced a deficit with these Asian economies of $41 billion in ICT products in 2010.

The European Union. The EU exported $60 billion to the United States and imported $66 billion from it, for a $6-billion U.S. surplus in 2010 (figure 6-34 and appendix table 6-37). Four EU members—France, Germany, the Netherlands, and the United Kingdom (UK)—accounted for nearly 75% of U.S. ATP exports. Three technology areas—aerospace, ICT, and the life sciences—had a combined 75% share of U.S. exports to the EU, with aerospace having the single largest export share (40%) (appendix tables 6-38, 6-39, and 6-41).

The United States had substantial surpluses with the EU in aerospace ($11 billion) and ICT goods ($6 billion) (figure 6-34 and appendix tables 6-38 and 6-39). Important EU customers of aerospace and ICT are France, Germany, and the UK; the Netherlands purchases the most U.S. ICT goods of any EU country. The life sciences produced a $16-billion deficit (appendix table 6-41). Ireland was by far the largest EU supplier of life sciences products to the United States, accounting for more than half of the EU's $27 billion in exports to the United States in 2010. Other substantial suppliers were Belgium, France, Germany, and the UK.

The U.S. trade surplus in ATP goods with the EU narrowed from $16 billion in 2000 to $400 million in 2010, reflecting the deficit in the life sciences, which rose from $6 billion to $16 billion because of accelerating growth of imports (figure 6-34 and appendix tables 6-37 and 6-41).

NAFTA Trade Zone. The United States exported $55 billion to Canada and Mexico in 2010 and imported $62 billion from those countries (figure 6-34 and appendix table 6-37). The United States has a $22 billion deficit with Mexico, largely in ICT and optoelectronics, reflecting in part Mexico's duty-free imports of U.S. components and their assembly and free re-export to the United States (appendix tables 6-38 and 6-42). The United States imported $13 billion from Canada and exported $24 billion, resulting in a surplus of $12 billion, largely in ICT goods.[17]

U.S. Multinational Companies in Knowledge- and Technology-Intensive Industries

The Bureau of Economic Analysis (BEA) conducts an annual survey of U.S. multinationals that includes firms in KTI industries. The BEA data are not directly comparable with the world industry data used in the previous sections. However, the BEA data provide additional information on the globalization of activity and the employment of U.S. multinationals in these industries.

Since 2000, an increasing proportion of the goods and services produced by U.S. multinational companies in KTI industries has been produced outside the United States. The proportion of jobs in these companies that are outside the United States has likewise increased.

Commercial Knowledge-Intensive Service Industries

U.S. multinationals in commercial KI service industries generated $722 billion in value added in 2008, of which 79% ($573 billion) occurred in the United States (figure 6-35). Communications ranks first by value added ($264 billion), followed by business services ($261 billion) and finance ($197 billion).[18] The proportion of U.S. value added was highest in communications (90%), followed by Internet and data processing and financial services (76%–77%) and business services (70%). The U.S. share of value added declined across all these industries between 2000 and 2008, suggesting globalization of their production.

U.S. multinationals in commercial KI service industries employed 5.2 million workers worldwide, of which 3.8 million (73%) were employed in the United States (figure 6-35). U.S. employment was highest in communications services, at 1.4 million, closely followed by 1.3 million employed in business services and 1.0 million employed in financial services. The financial and communications industry employed 81% of their workers in the United States, with business services employing a smaller share of their workers in the United States (63%). Between 2000 and 2008, the U.S. share of employment fell nearly 10 percentage points in business and communications services, but by larger amounts (17%–21%) for computer systems design and management and for scientific, and technical services. The U.S. share in financial services stayed stable.

High-Technology Manufacturing Industries

U.S. multinationals in four of five HT manufacturing industries generated more than $300 billion worldwide in value added in 2008, of which about two-thirds originated in the United States, down from three-quarters in 2000 (figure 6-36). Production in the semiconductor industry was the most globalized, as measured by the distribution between U.S. and foreign value added, with 57% of value added originating from the United States in 2008, down from 77% in 2000. Pharmaceuticals and communication equipment showed a more modest shift, with the U.S. shares of value added falling 5 percentage points to 65% and 81%, respectively. The distribution of value added of the other two industries remained stable between 2000 and 2008.

U.S. multinationals in HT manufacturing employed 2.2 million workers worldwide with 1.3 million workers (about 60%) employed in the United States in 2008 (figure 6-36). More than half (58%) of the semiconductor workforce of half a million workers is employed abroad, the highest share among these industries. Three industries—computers, communications and pharmaceuticals—employ around 40% of their workforce abroad, equal to the average for all manufacturing industries. The navigational and measuring equipment industry has 25% of its workforce abroad, much lower than other industries. The U.S. share of worldwide employment showed little change or increase in computers and navigational and measuring equipment from 2000 to 2008. The U.S. employment shares in communications equipment fell from 76% in 2000 to 56% in 2008 and in semiconductors fell from to 48% in 2000 to 41% in 2008.

U.S. and Foreign Direct Investment in Knowledge- and Technology-Intensive Industries

Foreign direct investment (FDI) has the potential to generate employment, raise productivity, transfer skills and technology, enhance exports, and contribute to long-term economic development (Kumar 2007). Receipt of FDI may indicate a developing country's emerging capability and integration with countries that have more established industries. FDI in specific industries may suggest the potential for their evolution and the creation of new technologies.

This section uses data from the BEA on U.S. direct investment abroad and foreign investment in the United States in KTI industries. The rising volume of trade by U.S.-based KTI firms has been accompanied by increases in U.S. direct investment abroad and FDI in the United States.

U.S. Direct Investment Abroad

U.S. firms have long invested abroad and have substantial overseas investment positions in both KTI services and manufacturing. The U.S. KI services stock abroad exceeds foreign counterpart investments in the United States; the opposite is the case with HT manufacturing investments (table 6-7). The stock of U.S. direct investment abroad had reached $125 billion in HT manufactures and $1 trillion in commercial KI service industries by 2009.[19] This represented one-quarter of the stock of all U.S. direct overseas investment in all manufacturing industries ($500 billion) and about one-third of U.S. direct overseas investment in all services ($2.8 trillion).

The stock of U.S. direct investment abroad in HT manufacturing industries increased from $87 billion in 2000 to $125 billion in 2009 (table 6-7). Semiconductors and pharmaceuticals have a combined share of 66% of investments in HT industries. The value of pharmaceuticals investments doubled between 2000 and 2009 to reach $51 billion. The investment value in semiconductors rose 25% to reach $31 billion. The stock of investment in the other three HT industries is $10–$13 billion.

The stock of U.S. direct investment abroad in commercial KI service industries was $1 trillion in 2009, exceeding one-third of the stock of total U.S. direct investment abroad in all services (table 6-7). Financial services accounted for 86% ($861 billion) of these investments, up from $257 billion in 2000. Business services grew from $61 billion in 2000 to $197 billion in 2009. Within business services, software investments grew from $10 billion to $51 billion, and investment in the professional, scientific, and technical industries more than doubled from $33 billion to $78 billion.

Foreign Direct Investment in the United States

The value of FDI stock in U.S. HT manufacturing industries stood at $222 billion in 2009, up from $133 billion in 2000, larger than the $125 billion FDI stock in U.S. investment abroad (table 6-7). The FDI stock in the U.S. pharmaceuticals industry was $152 billion in 2009, almost 70% of the total. The stock of FDI in pharmaceuticals more than tripled between 2000 and 2009 from $45 billion to $152 billion, coinciding with the acquisition of U.S. drug companies by EU- and India-based firms. The stock of FDI grew rapidly in computers from $3 billion in 2000 to $20 billion in 2009. However, FDI in semiconductors fell from $29 billion to $11 billion during this period, reflecting a relative decline in the U.S. world position in this industry.

FDI stock in U.S. commercial KI service industries was $433 billion in 2009, compared with the $1 trillion in the stock of U.S. investment abroad in these industries (table 6-7). The largest industry was financial services ($292 billion), followed by $84 billion in business services and $56 billion in communications. The stock of FDI in software increased $13 billion to $22 billion over this 9-year period.


[11] Commercial KTI services and goods trade does not correspond to commercial KTI industries because industry and trade data are collected on different bases. Industry production data are classified by primary industry and trade data are classified by product or service.
[12] Data on commercial KI trade between China and Hong Kong are not available.
[13] The sums of the categories do not add to the total, which also includes a small amount of trade in noncommercial KI services, including construction services.
[14] IHS Global Insight data as of July 2009.
[15] The U.S. trade balance is affected by many other factors, including currency fluctuations, differing fiscal and monetary policies, and export subsidies between the United States and its trading partners.
[16] China is the single largest trading partner for the United States in goods trade according to recent data from the U.S. Census. For more information, see
[17] The discrepancy in the trade figures is because of rounding.
[18] U.S. multinational financial services data for 1999 and 2006 do not include banks and depository institutions, which are included in the global industry data on financial services.
[19] U.S. direct investment abroad by industry and country is a lower bound estimate because an increasing share of U.S. direct investment (36% in 2008) is through holding companies that invest in other industries that may be in a different country. For more information, see Ibarra and Koncz (2008).