U.S. Leadership in Electronics at Risk, Congress Warned : High tech: The Commerce Department fears that Japan will take over the No. 1 spot in the early ‘90s.
The Commerce Department warned Friday that America’s worldwide leadership in the electronics field is “under serious challenge” and “may well be eclipsed” by Japan during the early 1990s if current trends continue unchecked.
In a 221-page report to Congress, the agency said that the U.S. electronics industry still is No. 1 worldwide but that it is rapidly losing market share on a broad range of electronic products, while its competitors in Japan and South Korea are gaining ground.
Worse yet, the document said, with a few notable exceptions--such as the already hard-hit semiconductor business--most of the U.S. electronics industry has not yet fully realized the extent to which it is being threatened by competition from other countries.
“If current growth rates continue, the Japanese will be the world’s No. 1 electronics producer and trader by the early 1990s,” the document concluded. It said prospects that America can maintain its market share--even in newer areas such as X-ray lithography--is bleak.
Commerce Department officials said the comprehensive study--the first formal government assessment to weigh both the domestic and international performance of the U.S. electronics industry--was intended to shock the U.S. industry into action.
“What we are trying to bring back to the industry is, frankly, some sense of what they are up against,” said J. Michael Farren, undersecretary of commerce for international trade. “We’re suggesting that maybe it’s time for the industry to look further out,” he added.
But the report, the result of a six-month study by the department’s International Trade Administration, stopped short of proffering any sweeping new proposals. And it conspicuously avoided urging new federal subsidies for industry, which the White House already has rejected.
Instead, the study listed a series of “national” and “sectoral” issues that it said were contributing to the industry’s decline--from the high cost of capital to poor education and training and damage from unfair trade practices such as predatory pricing by foreigners.
It also noted that the U.S. industry has not developed its own consensus on what needs to be done. Some sectors of the industry favor government intervention, while others want Washington simply to keep out.
But the document’s only specific recommendations were for Congress to enact White House proposals to reduce the tax rates on capital gains, to liberalize the antitrust laws to permit more joint manufacturing by U.S. firms and to make permanent the tax credit for research and development.
The absence of any new proposals apparently reflected a sharp split within the Administration over how far the government should go in providing new forms of support to help the industry keep pace with foreign competition.
Sources familiar with the report said Commerce Secretary Robert A. Mosbacher initially favored stronger action but was rebuffed by budget director Richard G. Darman and chief White House economist Michael A. Boskin. The internal wrangling delayed the report by almost a year.
Farren said the Administration currently opposes any form of “industrial policy” that would subsidize the industry. “The U.S. government needs to play an active role, but it is the role of the private sector to chart the course to competitiveness,” the document said.
Initial reaction from the industry was cautious. Herb Linnen, a Washington representative for American Telephone & Telegraph Co., said the document appeared to provide “a very thoroughgoing analysis” but said it was too early to evaluate its conclusions.
James P. Gradoville, manager of international trade programs for Motorola Inc., called the report “a good review of the issues” and “a confirmation of the problem that exists.” But he said it was not likely to come as a surprise to most of the domestic industry.
At the same time, however, Gradoville conceded that there still was no consensus on what should be done to help the industry out of its fix. “We all have to do a lot more thinking on what the United States should do,” he said in a telephone interview.
But Rep. Mel Levine (D-Santa Monica), a frequent advocate of government subsidies to private industry, branded the report “urgent and alarming” and called for swift action by Congress to strengthen the electronics sector.
Levine said in a prepared statement that “America cannot be a leading economic power in the next century without a healthy electronics sector. If the U.S. ignores this study, we risk second-rate status for generations to come.”
The detailed study covered the entire breadth of the U.S. industry, from suppliers of basic materials and components to software-producers and manufacturers of computers, telecommunications equipment, instruments and business equipment.
It showed that the $200-billion U.S. electronics industry is still the largest in the world in terms of production, exports, employment and technological leadership, and that the United States provides the largest single market for electronics makers, buying 40% of world production.
But it warned that since 1984, the electronics industries of other key countries, particularly Japan and the European Community, have been growing more rapidly than the U.S. industry--by 8% and 6% respectively, compared to only 1% for the United States.
And the electronics industries of newly industrializing countries such as South Korea, Taiwan, Singapore, Brazil and India have been expanding at an average double-digit pace, albeit from much smaller bases.
Besides the high cost of capital, the “national” issues that the report said the U.S. industry is facing include the impact of foreign exchange rates, restrictions in antitrust laws, poor education and training and an outlook by corporations that is too short-term.
The sectoral issues include the industry’s inability to reach a consensus on problems; low spending on research and development; unfair trade practices; piracy of patents and trademarks; growing dependence on foreign suppliers and investors, and inadequate export financing.
