Imports Assist Push to Increase U.S. Exports : American Factories Still Rely on Foreign Machines

The new machine at American Honda Motor’s plant in Marysville, Ohio, is a monster and a marvel: It towers four stories above the ground and reaches three more stories below. Almost around the clock it roars, molding hunks of steel into car doors, side panels and hoods.

“I don’t believe that anything of this scale and scope and sophistication is made in the United States,” Honda spokesman Roger Lambert said of the machine, which takes up an area roughly half the size of a football field and crunches steel with the pressure of 4,800 metric tons.

The transfer press, ordered from a Japanese manufacturer for undisclosed millions of dollars, highlights a kind of import often overlooked in discussions of America’s trade problems. Equipment used by industry--from scientific instruments to telephone switches to computer parts--is entering the country by the shipload, accounting for $87 billion of the nation’s import bill of $411 billion last year.

Sound disturbing? According to at least some analysts, things could be a lot worse. In fact, this import wave may be helping propel a boom in U.S. exports. Unlike imported shoes, cars and videocassette recorders, imports of industrial equipment help make things in this country. In many cases, they are modernizing factories and offices and paving the way for long-term improvement in America’s trade picture.

“This stuff is lowering our costs and making our factories more productive, so we’re going to earn our way back to being competitive again,” maintains John Rutledge, chairman of Claremont Economics Institute, a private consulting firm near Los Angeles.

Some kinds of U.S. industrial equipment actually are selling more quickly overseas than imports are entering this country. But the imports continue to pour in. And this has occurred at a time when the dollar’s fall was expected to stop the surge by forcing import prices upward.

In certain kinds of high-tech goods, for example, the United States may be running a trade deficit for the first time in history.

“We’re relying more on imported equipment than we used to, but it’s a much, much better situation than imports of consumer goods where there’s no return at all,” said Norman Robertson, chief economist at Mellon Bank in Pittsburgh. The imported equipment, he said, “pays for itself” as companies increase sales, including exports.

The big customers for such equipment are sometimes foreign-based firms with big U.S. facilities, such as Honda, which started up the transfer press--its second in Marysville--this year. Mazda, meanwhile, spent $550 million to open an auto plant in Flat Rock, Mich., last September. More than $200 million went for Japanese material and equipment.

Such spending affects America’s world competitiveness in a very real way: Ford is a part owner of Mazda. And Ford plans to ship some of its Probe models, manufactured at the Mazda plant, back to Japan starting next month. “I believe it’s going to be a hot seller (in Japan),” predicts K. Sonoguchi, Mazda’s general manager of corporate planning.

Rutledge compared such investment to an earlier era, when the United States paid to rebuild Europe’s devastated industrial base after World War II. “It’s kind of a reverse Marshall Plan,” he said. “We’re retooling and reindustrializing in large part with foreign capital. . . . They’re giving our economy a jump start.”

In certain cases foreign suppliers may offer items not available in the United States. And in others they may offer them more quickly, because many U.S. factories have a backlog of orders. Some point out, however, that these imports can create a demand for imported replacement parts and accessories--a market thus lost to U.S. manufacturers.

More Than Price

“I don’t think we can criticize the Japanese for using their own equipment for their plants here,” said Jerry Jasinowski, chief economist with the National Assn. of Manufacturers. “We just have to demonstrate to them that it’s not their best economic course.”

The U.S. subsidiaries of foreign companies are not the only ones ordering foreign equipment. AT&T;’s Material Management Center in Los Angeles uses a variety of American-made machines to make parts for telephone systems. But it recently spent $50,000 for a piece of Japanese equipment to make metal frames used to hold telephone wiring.

“It’s the most expensive machine in the plant,” said spokeswoman Kelly Williams. She noted that AT&T; officials looked at things besides price in selecting it, however. “This machine gives us the flexibility to do everything we want to do, and to make the metal parts the way we want to make them.”

Government figures suggest that many other companies have been making similar decisions. According to the Commerce Department, imports of business equipment have risen steadily, from an annual rate of $79.2 billion in the first quarter of 1987 to an annual rate of $97.6 billion in the first quarter of this year.

The department’s newest monthly trade figures, while less reliable than the quarterly data, also point to American industry’s reliance on foreign sources of equipment. From January to February of this year, imports rose in a variety of categories, including scientific instruments, machinery and trucks. Imports of electric machinery rose from $2 billion to $2.3 billion; imports of telecommunications equipment rose from $1.5 billion to $1.7 billion, and imports of computer and office equipment rose from $1.6 billion to $1.8 billion.

Robot Hardware

“They (American companies) are not building factories, but they’re spending like hell on equipment,” observed Adren Cooper, an economic spokesman at the Commerce Department.

GMF Robotics, a joint venture of General Motors and a Japanese robot manufacturer, is currently equipping one customer, a Southern California aerospace company, with $12 million worth of robot arms. The objective: to paint aircraft parts more cost-effectively than aerospace workers have been able to do.

Michael R. Newkirk, a marketing executive at the robotics firm in Auburn Hills, Mich., said about half the hardware for its robots is supplied by Fanuc, GM’s Japanese partner based near Mt. Fuji. “Just as American companies have to think about the globalization of their markets, they have to think of the globalization of the technology in their plants,” he said.

The U.S. reliance on imported equipment is sometimes overlooked because American manufacturers, including those that make equipment, are enjoying strong export growth. Yet despite an export surge late last year, Americans in 1987 spent more on foreign-made computers and telecommunications devices than they were able to sell abroad for the first time ever, according to the Computer and Business Equipment Manufacturers Assn. in Washington.

“Exports are going up, but in all categories imports are going up faster,” Charlotte LeGates, the organization’s spokeswoman, said of computers and telecommunications equipment.

LeGates explained that U.S. companies often depend on reliable, low-cost parts and equipment from abroad, and that this dependence is unlikely to change dramatically. “Information technologies are at the heart of the modern factory, the robot-controlled factory,” she said. “Without these imports, without the low prices, the blue jeans factory in the United States is going to find itself unable to compete with the blue jeans factory in Mexico.”

Imported Parts

Telecommunications--which contributed $2.2 billion to the U.S. trade deficit last year according to CBEMA--provides a unique example of why imports continue to flood the United States, at least in one important industry. Increasingly, vendors from Sweden, Japan, France and other countries are selling expensive telephone switching devices to big U.S. corporations, a market that has expanded rapidly in recent years with deregulation of the telephone industry.

“That’s an excellent example of the role of imports, and a quick change in the last 10 years,” said Steven Kropper, a senior consultant with International Data Corp. in Framingham, Mass. “At one time, AT&T; had a virtual monopoly on central office switches.”

Also, just as U.S. auto makers may use foreign-made parts in their products, American telecommunications firms rely on foreign parts for the things they sell. Edwin B. Spievack, president of the North American Telecommunications Assn. in Washington, estimated that 15% to 20% of telecommunications imports entered this country through orders from U.S. telecommunications manufacturers.

In addition, many countries restrict imports of such technology. By contrast, the United States remains the most open major market for telecommunications in the world. “If everything remains the same, the deficit in telecommunications equipment will increase--despite the lower value of the dollar,” Spievack maintained.

To be sure, not everybody believes that the influx of equipment is cause for celebration. Stephen S. Roach, senior economist with the Morgan Stanley investment banking firm in New York, blames such imports for a third of the overall trade deficit and warns that the high import volumes aggravate a trade gap that continues to threaten financial disruption. “Whether it’s low tech or high tech, consumer goods or industrial materials, that doesn’t change the fact that we’re buying too much from our trading partners,” he said.

Cost Advantages

Despite such concerns, some predict that the trend will ease within a few years, when more of America’s industry has been overhauled. “It’s really a one-time surge,” contended Brian R. Horrigan of the WEFA Group, economic consultants in Bala Cynwyd, Pa. “As the modernization process finishes, and as foreign expansion in the United States slows, imports of capital goods (business and industrial equipment) will start winding down.”

Will they? William F. Connell, chairman of a firm that owns Danly, a Chicago machine tool maker, thinks so. Honda’s Marysville plant already uses some of the Danly machines, although it passed over Danly when it ordered the big transfer press. “Up until now, the Japanese factories have been no different than the American factories--they bought a lot of machines overseas,” Connell said.

But he said that cost advantages arising from the lower dollar have revitalized Danly and its American counterparts as world-class competitors: “If we can offer machines to Honda in Marysville cheaper than they get from Japan, they’re going to buy from us,” he declared.

The view in Marysville is slightly different. Lambert, the Honda spokesman, said that an item’s overall quality, flexibility of use--and the manufacturer’s ability to deliver it on time--all must be considered, along with price, in deciding whether to place an order. “Absolute cost, or price, is not the first thing we look at,” he said.