- The Washington Times - Tuesday, January 30, 2007

Everyone knows loss of huge portions of their home U.S. market to imports has decimated U.S.-owned automakers Ford and GM (as well as Chrysler, which is no longer U.S.-owned, but shares many of Detroit’s biggest problems).

What everybody doesn’t know is that literally dozens of U.S.-based manufacturing industries have suffered the same kinds of losses since the late 1990s. The clear bottom line, as revealed by the U.S. Business & Industry Council’s latest annual survey of domestic manufacturing’s competitiveness: The United States is a military superpower, but is steadily becoming an industrial also-ran.

The Council’s new study of import penetration in the manufacturing sector shows that 111 of 114 U.S.-based industries examined lost customers to foreign-produced goods between 1997 and 2005. From 2004 to 2005 alone, import penetration rates rose for 83 of these sectors and fell for just 31.

The industries chosen, moreover, are exclusively the kinds of high-value, capital-intensive sectors that make up the industrial and technological backbone of any advanced economy. Lower-value, labor-intensive sectors that were long ago overwhelmed by foreign competition, like apparel and toys and low-end consumer electronics, were not included.

In many cases, import shares of these critical U.S. manufacturing markets surged dramatically. Between 1997 and 2005, 26 of the 114 industries studied lost 50 percent or more of their U.S. sales to foreign-produced goods, including pharmaceuticals, computers; telecommunications hardware; navigation and guidance equipment; broadcasting and wireless communications equipment, and motor vehicle power-train and transmission equipment.

Eight more sectors lost nearly half their U.S. market to imports during this period, notably tires; switchgear and switchboard apparatus; and commercial and service industry machinery.

From 2004 to 2005 alone, import penetration rose by 15 percent or more in 14 sectors, including industries such as semiconductor production equipment; aircraft engines and engine parts; and telecommunications hardware.

As a result, as of 2005, imports represented at least 50 percent of sales in the United States of 24 of the 114 industries studied, such as telecommunications hardware; heavy duty trucks and chassis; and broadcast and wireless communications gear.

In eight more industries, imports have captured between 60 and 69 percent of the U.S. market, including autos; environmental controls; and aircraft engines and engine parts. And in six sectors, imports control 70 percent or more of the American market, including machine tools and electric resistors and capacitors. If current trends continue, imports will account for the majority of U.S. domestic sales in sectors such as electricity measuring and test equipment; X-ray equipment; turbines and turbine generator sets; laboratory instruments; and construction machinery.

Rising import penetration in American markets means U.S.-located producers are flunking the most important test of competitiveness — winning and keeping customers. It’s true that American manufacturing output has been growing since the 2002 recession. All this means, however, is that domestic manufacturers are receiving some of the new business created by the unsustainable debt-fueled growth on which the nation’s prosperity increasingly relies. Their foreign-based competitors, however, are meeting even more of this new demand. When the debt tide recedes and growth slows, these surging foreign producers are likeliest to be the survivors.

Just as revealing, surging imports are already replacing and depressing U.S. production throughout domestic manufacturing. Between 1997 and 2005, output actually fell in nearly two-thirds of the 53 industries where import penetration is highest or grew fastest, and stagnated in many of the rest.

These import penetration figures are especially worrisome because the America is the market in which U.S.-based manufacturers should do best. After all, they should be most familiar with local tastes and they face no trade barriers at home. If domestic industry can’t even defend its home turf, how can it hope to compete abroad?

The import penetration data also show U.S. manufacturing’s woes even extend to the high-tech sector, supposedly America’s best hope for future prosperity and an area where it has a natural advantage. Yet some of the biggest losers of home market share in recent years include such mainstays of the so-called New Economy as semiconductor production equipment, electricity measuring and test equipment (critical for all high-tech manufacturing), telecommunications hardware, navigation and guidance devices, and pharmaceuticals.

Why are such critical U.S. industries faring so poorly? Two major failures of U.S. international trade policy bear much of the blame. First, Washington has done a terrible job of combating the numerous predatory trade policies, ranging from manipulating currency values to handing out illegal subsidies, pursued by other major trading powers precisely to gain industrial supremacy at America’s expense. Second, too many U.S. trade agreements since NAFTA (the North American Free Trade Agreement) have encouraged too many American-owned multinational companies to supply U.S. markets even for sophisticated goods from abroad — and thus literally to build powerful manufacturing bases in foreign countries.

Moreover, the relentless increase in import penetration over the last decade shows that, contrary to the conventional wisdom, an overvalued U.S. dollar has not been at the heart of domestic manufacturing’s woes. Imports’ share of American manufacturing markets has grown only slightly slower during weak dollar periods than during strong dollar periods.

The core manufacturing sectors suffering these mounting losses at home lead the U.S. economy in productivity and innovation, generate America’s best-paying jobs on average, and undergird the nation’s security. If imports’ growing domination of American industrial markets is not reversed soon, it could push scores of these critical industries past the point of no return.

Alan Tonelson, a research fellow at the U.S. Business & Industry Council Educational Foundation, is a contributor to the AmericanEconomicAlert.org Web site and the author of “The Race to the Bottom.” Peter Kim is a research associate at the Council.

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