• Electrical machinery continued its rapid de- 

 cline in net exports, principally as a result of 

 imports of telecommunication apparatus. 



This mixture of growing and declining exports 

 illustrates the complexities of the present U.S. 

 trade position. The underlying dynamics of the 

 position, however, are partially explained by the 

 "product cycle" concept." Trade in manu- 

 factured goods, according to this concept, typi- 

 cally follows a cycle in which the United States 

 initially establishes a net export position with 

 the introduction of a new product, maintains 

 this position until the technologies and skills 

 necessary for manufacturing the product are 

 developed elsewhere, and then becomes an im- 

 porter as the production is standardized and 

 moves abroad to minimize costs. The concept 

 implies that the product structure of U.S. 

 exports must have a continuous infusion of new 

 products in order for the United States to main- 

 tain a favorable trade position. 



The favorable position of the United States in 

 high technology areas is based primarily on 

 exports to developing nations and countries of 

 Western Europe (figure 13). In 1971, developing 

 nations accounted for 55 percent of the net 

 exports in these areas, and Western Europe 

 almost 30 percent. In contrast, the deficit balance 

 in the high technology area developed with Japan 

 in the mid-1960's and persisted in the following 

 years, with the largest increase (almost 120 per- 

 cent) occurring in 1971. This deficit lies pri- 

 marily in electrical machinery (particularly in 

 consumer electronics), and to a lesser extent in 

 the instrument and nonelectric machinery areas. 

 Only in the aircraft and parts area does the 

 United States have a significant net export posi- 

 tion with respect to Japan. 



Although the United States still retains a 



strong position as a net exporter of technology- 

 intensive products, various indicators suggest 

 that the position may deteriorate in the near 

 future. Not only did the overall trade balance for 

 high technology industries level off between 

 1970-71, but the two industries most responsi- 

 ble for the favorable balance in previous years 

 (nonelectrical machinery and chemicals) had 

 their first decline in net exports in 1971. 

 Furthermore, net exports of electrical 

 machinery appear to be declining at a faster rate 

 than in recent years; the shift of exports in this 

 area from developed to developing nations is re- 

 garded as a further indication that these prod- 

 ucts are moving from the export to the import 

 stage. In addition to these relatively direct indi- 

 cators of the U.S. trade position, other indices 

 suggest that R&D trends in these industries may 

 contribute to a deteriorating position in the 

 future: the "R&D intensiveness" of the five 

 industries as a whole declined by some 25 per- 

 cent in recent years and expenditures for R&D 

 fell by almost 10 percent between 1968-70, as 

 noted elsewhere in this report. 



The preceding examination of foreign trade 

 was restricted, for the purposes of this report, to 

 those aspects which provide relatively direct 

 indices of the position and performance of U.S. 

 technology. As a result, the whole area of 

 foreign direct investment and sales of U.S. sub- 

 sidiaries abroad was neglected." Such sales, 

 mostly in technology-intensive products, exceed 

 exports by some 2.5 times, but are highly cor- 

 related with the export position of the individ- 

 ual industries. The large and growing invest- 

 ment income from foreign subsidiaries of the 

 United States helps to finance U.S. imports of 

 nontechnology-intensive products. Further- 

 more, such investment in developing nations 

 probably generates a considerable market for the 

 export of U.S. technology-intensive products. 



'1 R. Vernon, "International Investment and Inter- 

 national Trade in the Product Cycle," Quarlerl\) journal of 

 Economics, v. 80, May 19o6. 



'i A comprehensive discussion of these and related topics 

 is presented in; P. G. Peterson, The UntleJ Sintes im the Changing 

 Worhi Economv. U.S. Government Printing Office, 1971. 



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