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New Data Show Import
Growth Depressing U.S. Industrial Output; Advanced U.S. Manufactures
Keep Losing Ground in Home Market
USBIC Research Alert
By Alan Tonelson and Sarah Linden
January 8, 2008
©U.S. Business and Industry Council 2008
SUMMARY
Soaring imports are undermining production levels in dozens of advanced
manufacturing industries in the United States, according to a new
analysis of the latest official trade and output data by the U.S.
Business and Industry Council (USBIC).
Even despite the price advantages created by the weakening dollar,
numerous U.S.-based manufacturers of high-tech and other
capital-intensive products in 2006 lost record shares of their home U.S.
markets to foreign-based competitors. Not only did many such sectors
experience the kind of import domination once restricted to
labor-intensive industries like clothing and toys. Surging imports are
now displacing enough domestic production to depress output
significantly throughout advanced manufacturing just as they have for
decades in labor-intensive industries.
USBIC’s report – the only study available providing detailed import
penetration and production figures for key U.S. manufacturing industries
– convincingly refutes recent claims that major productivity-created job
loss is the only serious problem affecting domestic U.S. industry.
Output is now suffering as well. The USBIC report also shows that,
contrary to widespread perceptions, exchange-rate shifts have had
limited effects at best on the competitiveness of U.S.-based industries.
THE SAMPLE AND METHODOLOGY
The 114 manufacturing sectors studied by USBIC are overwhelmingly
characterized by high levels of technology- and capital-intensiveness.
They are the nation’s leaders in productivity, technological progress,
and high-wage job-creation As a result, the sample constitutes a highly
representative cross-section of the manufacturing industries in which
many public officials and observers insist the United States must remain
strong.
Most, but not all, of the products these industries create are widely
exported and imported. None of the 114 sectors represents a
labor-intensive industry, such as apparel, toys, or consumer
electronics, which for years` have been dominated by imports. Nor do the
114 include 55 food product sectors or 19 construction materials sectors
that so far are still dominated by domestic production. A full list of
the industries studied is attached, along with supporting data.
The data does not provide any information about national ownership
patterns in these industries. A certain share of domestic manufacturing
output comes from foreign-owned facilities in the United States, and a
certain share of imports comes from U.S.-owned facilities abroad. Yet
official data on inward- and outward-bound foreign direct investment
make clear that the vast majority of domestic manufacturing output is
generated by U.S.-owned companies, and that the vast majority of U.S.
imports are generated by foreign-owned companies.
Thus this study can shed considerable light on the competitiveness of
U.S.-owned versus foreign-owned companies. But it sheds much more light
on the competitiveness of the United States as a location for
manufacturing.
Due to a lack of detailed data for most industries, the study does not
show how these domestic manufacturing sectors are performing in global
markets. Yet it is unreasonable to expect that these industries are
faring better in foreign markets – which are relatively unfamiliar and
where they face many major trade barriers – than in a U.S. market they
know intimately, and where they face no trade barriers.
1997 is the first year examined because the increasingly standard North
American Industry Classification System (NAICS) was introduced that
year. 2006 is the last year for which detailed NAICS data on output is
available. Consistent data for 14 industries is available going back to
1992, and shows the same steadily rising import penetration rates.
All output data comes from the “Value of Product Shipments” reports of
the U.S. Census Bureau’s Annual Survey of Manufactures. All import
figures represent “imports for consumption.” All export figures
represent “domestic exports.” Both sets of trade figures come from the
U.S. Census Bureau.
MAJOR FINDINGS
Between 2005 and 2006, 79 of the 114 high tech and other
capital-intensive industries studied by USBIC lost shares of their home
U.S. market to imports. That is to say, their import penetration rates
rose. The aggregate import penetration rate for all 114 sectors
increased from 32.65 percent to 33.87 percent during this period – up
3.74 percent
In 1997, the aggregate import penetration rate for the 114 sectors was
only 21.36 percent. This means that between 1997 and 2006, their total
import penetration rate grew by 58.57 percent.
Twenty-five sectors gained shares of their home market from 2005 to 2006
– i.e., their import penetration rates fell. By comparison, between 2004
and 2005, 83 of the 114 industries examined lost market share in the
United States to imports, and 21 gained market share in the United
States from imports.
The 79 sectors that lost share of their home market to imports in 2005-6
included many important leading-edge industries, such as semiconductors,
semiconductor production equipment, aircraft, aircraft engines and
engine parts, pharmaceuticals, turbines and turbine generator sets, and
machine tools. For a list of the 2006 import penetration rates for the
114 sectors by decile, see Appendix A For specific 2006 import
penetration rates of special interest, see Appendix B.
In addition, 27 of the sectors studied featured import penetration rates
of 50 percent or more in 2006 – an increase from 25 in 2005 and from
only 8 in 1997. Industries where imports controlled the majority of
their home U.S. markets included – in addition to autos and light
trucks, whose trade troubles are well known – aircraft engines and
engine parts; turbines and turbine generator sets; and machine tools.
In addition, from 2005 to 2006 alone, 13 of the 114 industries lost 15
percent or more of their home U.S. market to imports. These industries
with unusually fast-growing import penetration rates included
semiconductors; aircraft; search, detection; navigation; and guidance
devices; and turbines and turbine generator sets. From 2004 to 2005,
such fast growers numbered 14. For a complete list of the 2006 fast
growers, see Appendix C.
Output in the 114 sectors put together rose by 5.17 percent in
non-inflation-adjusted terms from 2005 to 2006 (to $1.83 trillion), but
by only 1.95 percent in real terms. Twenty-seven of the 114 sectors saw
output fall in non-inflation-adjusted terms from 2005 to 2006; adjusting
for inflation would expand the number of shrinking industries that year
to 44 – or 38.60 percent of the total. Significantly, this slow growth
came despite the highly stimulative fiscal and monetary policy
environment created by Washington. For a list of the industries with the
biggest product shipment shrinkages from 2005-6 before and after
inflation, and a list of product shipment changes of special interest,
see Appendix D.
Sectors where output fell in non-inflation-adjusted terms from 2005 to
2006 include semiconductors, farm machinery and equipment, motor vehicle
engines and engine parts, and special dies and tools.
Significantly, nearly a third (26) of the 79 industries with rising import
penetration rates also saw output fall between 2005 and 2006. The clear
implication: Imports are displacing significant amounts of domestically
produced goods.
The longer term trends are even more troubling. Output in the 114
sectors together rose 18.27 percent in non-inflation-adjusted terms
between 1997 and 2006, from $1.55 trillion to $1.83 trillion. But the
22.17% GDP deflator over this stretch means that real output in this
critical group of industries actually fell – by 3.16 percent, to $1.50
trillion. In non-inflation-adjusted terms, output fell in 42 individual
sectors. Adjusting for inflation would add 36 other industries to this
list for a total of 78 – 68.42 percent of the sectors studied. For a
list of these sectors where product shipments, see Appendix E.
Sectors whose output fell in non-inflation adjusted terms from 1997 to
2006 include semiconductors; telecommunications hardware; electricity
measuring and test instruments; metal-cutting and metal-forming machine
tools,; special dies and tools; relays and industrial controls; and
environmental controls.
The 1997 to 2006 trends also provide even stronger evidence of a link
between rising import penetration and falling output. Of the 42 sectors
where output fell in non-inflation-adjusted terms between 1997 and 2006,
41 experienced rising import penetration rates. The lone exception –
computer storage devices – featured a very high absolute level of import
penetration of 62.33 percent.
OTHER KEY FINDINGS
The average fall in import penetration rates for the “winner” industries
between 2005 and 2006 (3.79 percent) was less than half as great as the
average rise in the import penetration rates for the “loser” industries
(8.43 percent)
Between 1997 and 2006, only five of the 114 industries examined gained
shares of the U.S. market against import competition: heavy-duty trucks,
computer storage devices, air and gas compressors, motor vehicle
stamping operations, and industrial gases.
The 109 industries that lost shares of their home market between 1997
and 2006 include an especially long list of America’s economic and
technological crown jewels, including semiconductors, semiconductor
machinery, aircraft; aircraft engines and engine parts,
telecommunications hardware, electro-medical apparatus (e.g., CAT scan
and MRI machines); pharmaceuticals, turbines and turbine generator sets,
and machine tools..
The average fall in import penetration rates for the five “winner”
industries between 1997 and 2006 was 4.43 percent. The average rise in
import penetration rates for the 109 “loser” industries between 1997 and
2006 was just under 83 percent
Between 1997 and 2006, 31 of the 114 industries lost 50 percent or more
of their U.S. market to imports – i.e., import penetration rates
doubled. These sectors included pharmaceuticals, telecommunications
hardware, broadcasting and wireless communications equipment, and
search, navigation, detection, and guidance equipment. Four new
industries entered this category in 2006. For a list of those sectors
that lost the greatest absolute and relative amounts of home market
shares, see Appendix F.
Between 1997 and 2006, 12 of the 114 industries lost nearly 50 percent
of their U.S. market to imports – i.e., import penetration rates nearly
doubled. These included aircraft, tires, switchgear and switchboard
apparatus, and commercial and service industry machinery. Four new
industries entered this category in 2006. For a breakdown of the sectors
that experienced the fastest-rising import penetration rates, see
Appendix F.
Of the 27 industries where in 2006 imports captured at least half the
U.S. market, 8 featured import penetration rates of 60-70 percent – the
same total as 2005. In 2006, these sectors included aircraft engines and
engine parts; computer storage devices; and industrial process control
instruments. For a complete list of these import-dominated sectors, see
Appendix A.
In 7 of these 27 industries, imports control 70 or more percent of the
U.S. market – up from 6 in 2005. In 2006, these sectors included
metal-cutting and metal-forming machine tools; and electric resistors
and capacitors, as well as autos and light trucks. For a complete list
of these import-dominated sectors, see Appendix A.
As of 2006, in 12 industries, imports will soon control at least half
the U.S. market if present trends continue – up from 11 such sectors in
2005. In 2006, these sectors included such foundations of the New
Economy such as semiconductors; electricity measuring and test
instruments; non-engine aircraft parts, and X-ray equipment, along with
analytical and laboratory instruments, and construction equipment. For a
complete list of these sectors, see Appendix A.
From 2005-2006 alone, 7 U.S. industries lost five or more percentage
points of their home U.S. market to imports – down from 13 between 2004
and 2005. Industries with such rapidly shrinking home market shares in
2006 included such high-tech sectors as semiconductors, aircraft, and
turbines and turbine generator sets. For a complete list of these
sectors, see Appendix A.
The complete 1997 to 2006 data on import penetration rates for the 114
industries studied is available to journalists upon request.
IMPLICATIONS
High and rising import penetration rates for this many critical domestic
industries represent the most definitive evidence available of chronic
and significant weakness in domestic manufacturing. Moreover, the
figures show that serious weakness is now as common in capital- and
technology-intensive industries as in labor-intensive industries that so
far have been considered uniquely vulnerable to import competition.
Import penetration rate figures are superior to more widely cited trade
deficit figures as measures of domestic industries’ health for several
reasons. Unlike the trade deficit figures, they compare apples with
apples: the performance of products made in the United States versus
products made overseas in the same U.S. market. This is the market that
domestic manufacturers should know best. It is also a market in which
they face no trade barriers. Trade deficit figures, though useful,
compare apples with oranges – U.S.-made products’ performance in
overseas markets versus foreign-made products’ performance in the U.S.
market.
These import penetration rate figures contradict the argument that the
strong dollar, which keeps high the relative prices of U.S.-made goods,
is the biggest trade-related problem facing domestic manufacturing. The
vast majority of industries studied lost market share when the dollar
was rising (1997-2002), and when it was falling (2002-2005). Moreover,
the average annual increase in the aggregate import penetration rates
for the 114 industries during the rising dollar years was only slightly
higher (5.33 percent) than during the falling dollar years (5.22
percent). Other evidence clashing with the emphasis on the dollar comes
from the 14 major industries that have suffered rising import
penetration rates going back to 1992, during years when the dollar
ostensibly was reasonably valued.
Alan Tonelson , a Research Fellow at the U.S. Business and Industry
Council Educational Foundation, is a columnist for the Council’s
www.AmericanEconomicAlert.org website and the author of The Race to the
Bottom (Westview Press). Sarah Linden, former Research Assistant at the
Council, is now the organization’s Media Relations Associate.
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