US disembowels, China ramps up ..

In 2003 the The Manufacturing Institute produced the Securing America’s Future:
The Case for a Strong Manufacturing Base they have now published a 2nd follow up report (PDF Alert!) U.S. Manufacturing Innovation at Risk A Study by Joel Popkin and Kathryn Kobe

The authors identify the U.S. share of global trade in manufactures has shrunk, falling from 13 percent in the 1990s to 10 percent in 2004. The U.S. share of global trade in some of the highest value-added export industries such as machinery and equipment is falling. Furthermore, the United States now runs a trade deficit in Advanced Technology Products, goods produced in the industries expected to lead U.S. exports in the 21st century.

Manufacturing continues to pay better than many other industries, and it employs 25 percent of scientists and related technicians and 40% of engineers and engineering technicians — critical skill groups for the R&D process — yet the sector is experiencing a growing shortage of skilled workers.

They identify the challenges to America’s long-standing leadership in R&D and that whilst the United States continues to spend more than any other country on R&D investment, (The United States invested more than $290 billion in R&D in 2003, or 40 percent of all R&D spending in the industrial world; the domestic R&D activities of manufacturers accounting for 42 percent of that total.) U.S. growth in R&D has averaged only about one percent per year in real terms since 2000.

(A National Science Foundation survey identified that in 2003, (2004 figures not yet available) motor vehicle manufacturers spent about 2.4 percent of sales on domestic R&D, down from 3.2 percent in 2000.)

They point out the United States is not keeping up with other countries in insuring a supply of scientific personnel: the portion of doctoral degrees awarded to citizens and permanent residents in the United States in science and engineering is falling, while the combined number of science and engineering graduates in China and India (1 million) now dwarfs those in America (70,000). According to Fortune magazine’s estimates (1), in 2005, the United States graduated 70,000 engineers, compared with 600,000 for China, and 350,000 for India.85 In addition, 20 to 30 percent of the students graduating with a bachelor’s degree in Taiwan, South Korea and Japan received engineering degrees.


In its latest report on R&D (3) , the OECD reports that China is now the third largest R&D performer behind the United States and Japan and has the second largest number of researchers, behind only the United States.


Manufacturing generates a large share of American prosperity. The authors claim that the sector is in danger and identify 4 key problem areas….
1. Manufacturing output has continued to lag that of earlier economic recoveries

2. Manufacturing capacity remains underutilized (see GM / Ford closures etc.,) so investment in new plant and equipment, particularly Greenfield plants, has slowed

3. U.S. share of world trade in manufactured goods generally, and
capital goods in particular, continues to shrink (the United States lost its leadership in world merchandise exports to Germany in 2003 and the German lead widened in 2004 as its exports (in dollar terms) grew eight percentage points faster than those of the United States.)

4. Lack of job growth has discouraged new workers from entering the industry, which has serious implications for maintaining a skilled workforce at all levels
U.S. leadership in R&D is being challenged.

This could also be said to apply to the Euro area and has been recently discussed in an IMF Paper (2). European investment has also been weak. After declining five percent in real terms between 2001 and 2003, euro area nonresidential fixed investment grew only 2% in 2004.

Furthermore The United States has become more dependent on foreign nations to supply many important raw materials, now importing more than 50 percent of 42 mineral commodities, all of which are important for manufacturing and strategic military uses.31 The reliance on imports of important commodities such as aluminum, copper and cement has nearly doubled since 1996. Most prominent, given its potential economic impact, is the U.S. dependence on imported oil, 65 percent of which was imported as of mid 2005.

Amongst many other proposals the authors identify one major educational objective ..

Along with increasing efforts to improve K-12 education, a special emphasis should be placed on improving the quality and rigor of math and science offerings at all levels. The problem-solving and critical-thinking skills those subjects teach will be vital for the U.S. workforce to compete in a global economy.

For “US workforce” in the above statement substitute any country’s name you wish.

It is of interest that the Chairman of California based National Semi Conductor in speaking this week at DesignCon in Santa Clara, Calif. Tuesday said …

“The big question is whether the United States will participate and lead that boom or whether it will cede that role to emerging nations that recognize the opportunity and are investing in technology and research.
“Exactly what do we have to do to screw this thing up?” he asked.”

And went on to say …

.. the United States is falling behind in deploying new technology such as broadband. And the K-12 schools are not filling the pipeline with students who want to study math and science at the university level.

Finally he posed the question that many in the West , in academia, research and manufacturing should ponder ..

“It’s a very bright future,” Halla said. “I have never seen a more optimal time for the technology industry. But where? In the United States? In China? In Russia?”

There is no better example of the way the wind is blowing than the Feb 2004 IPO of SMIC, the mainland Chinese silicon foundry headed by former Texas Instruments executive Richard Chang, which raised $1.8 billion in an initial public offering (IPO more than Google raised !) that was 15 times over-subscribed. It spent some of that money on buying their Tienjin Fab plant from Motorola. Yesterday their Chairman announcing their latest Quarterly results said “During the fourth quarter, we commenced commercial production for nine new customers, two of whom are among the top fabless companies in the world. We also taped out nineteen new products, of which over half are products for Mainland China customers. Our Mainland China customers continue to represent an important area of growth. More than 8% of our revenues in December 2005 was generated from Mainland Chinese fabless companies. The new products we manufactured for those companies include the first 3G baseband chips on 0.13 micron process for the TD-SCDMA, WCDMA, and CDMA2000 standards, a digital satellite receiver chip for set-top boxes, and an HDTV video processor chip.”



1.“America Isn’t Ready,” by Geoffrey Colvin, Fortune, July 25, 2005, p. 72.

2.“Why Is Productivity Growth in the Euro Area So Sluggish?” by Marcello M. Esevao, International Monetary Fund Working Paper WP/04/200, International Monetary Fund, October 2004.

3. Science, Technology and Industry Scoreboard 2005, Organisation for Economic Co-operation and Development, October 2005.

(One reason for China’s R&D record is apparent in Chinese manufacturers’ responses to a recent survey by IndustryWeek. When asked to identify the focus of their marketing strategy, the second most frequent response was innovation, preceded only by high quality, itself enhanced by innovation. U.S. manufacturers, when asked the same question, put innovation much further down the list at number seven). “Manufacturers Like Us,” IndustryWeek, November 1, 2004.)