A Disturbing New Deficit

By Janice Castro

Americans are all too familiar with the damage caused to U.S. industries by Japanese cars, Brazilian shoes, Chinese textiles and other consumer imports. Now a new report released by the Joint Economic Committee of Congress shows that America's proud high-tech companies, which accounted for 43% of all U.S. exports as recently as 1984, are facing a similar fate. According to the study, the U.S. trade surplus for such advanced products as computers, communications equipment and scientific instruments has plummeted from $27 billion in 1980 to just $4 billion last year. The study, titled "The U.S. Trade Position in High Technology: 1980-1986," furthermore predicts that the U.S. will run an unprecedented high-tech trade deficit this year of perhaps $2 billion or more.

The report, which was prepared for Congress by Washington-based Quick, Finan and Associates, suggests a number of reasons for the slide, ranging from cheaper overseas labor costs to U.S. security restrictions on exports of defense-related technology. A major factor: growing foreign interest in high- tech fields. Japan, for example, is now close to becoming the world's largest manufacturer of semiconductors, the tiny silicon chips that are the brain cells of electronic goods, and seems determined to dominate world markets in computers and communications as well. One of the few high-tech categories in which the U.S. still runs a hefty surplus is aircraft. Seattle- based Boeing is the leading U.S. exporter of industrial goods ($5.8 billion worth last year), but even its supreme position is being challenged by Europe's Airbus.

One of the reasons for the high-tech deficit is that many American companies have moved at least some manufacturing operations to foreign locales like Taiwan and Singapore in search of cheap labor. Even IBM personal computers sport foreign-made parts.

High-tech companies are still feeling the lingering effects of the steep rise in the dollar's value during the early 1980s, which made imports cheaper in the U.S. and American exports more expensive overseas. Even though the dollar has fallen back by 38% against the Japanese yen in the past 19 months, the U.S. currency has declined only 8% against the Taiwanese new dollar and has actually risen 3% vs. the South Korean won.

Though the congressional study does not assess the impact of the looming high- tech deficit on the U.S. economy, there is little doubt that rising imports and falling exports will mean fewer American jobs. The American Electronics Association estimates that some 11,000 U.S. jobs are lost for every $1 billion of trade deficit.

Many U.S. executives say that in order to reverse the high-tech slump, American companies must concentrate on increasing research into new products, boosting productivity and improving manufacturing processes. "I'm very patriotic, and I would love to buy American," says Scott McNealy, president of Sun Microsystems, a California maker of workstations, which buys chips from Japan. "But quite often our Japanese suppliers are more aggressive on price, better on quality and more flexible in doing business than many American suppliers." That is something many executives at U.S. high-tech companies will have to think about long and hard.

With reporting by Jay Branegan/Washington and Cristina Garcia/San Francisco