Reviews | The US tech sector looks weak. It is a geopolitical risk.

In a world at peace, making potato chips is as good for a nation as making computer chips, and making fighter jet movies is just as good as making real fighter jets. All that matters in free trade is how much money a country makes from its efforts.

But with Russia crushing Ukraine and China threatening to take over Taiwan, “at peace” is a poor description of today’s world. This prompted new thinking about US economic strategy.

This week, the Information Technology & Innovation Foundation, a research group sponsored by technology companies such as Amazon and Microsoft, announced that it had launched an initiative, the Hamilton Center on Industrial Strategy. Its goal is to help build the United States’ ability to produce advanced technologies that are “strategically important to economic and national security,” according to its website.

The Hamilton Center is named after Alexander Hamilton, the first Secretary of the United States Treasury, whose report on the subject of manufactures in 1791 aimed to make the fledgling nation stronger economically and militarily by developing the manufacturing industry. He once wrote that government-led development would “thwart all combinations of European jealousy to stunt our growth.”

Hamilton’s interventionist views are out of step with pure laissez-faire economics. “If you listen to the business establishment in Washington, trade is a win-win,” Robert Atkinson, founder and president of the Information Technology & Innovation Foundation, told me in an interview before the center opened. “This may be true for some sectors. When talking about advanced sectors, however, it’s not a win-win. It’s win-lose.

In other words, the country that sells advanced products wins against the one that has to buy them because the producer retains all the vital technical knowledge.

Atkinson makes a good point, though it’s also important to keep in mind the downsides of sourcing important technologies domestically or from a handful of trusted partners. Costs are rising. Protected domestic industries can become inefficient. Neutral business partners who are not admitted into the inner circle are harmed. And international tensions may escalate: Reducing interdependence with China, which is rushing to develop technologies such as artificial intelligence and semiconductors, could backfire by giving the Chinese government even fewer reasons to be on good terms with the United States.

With those caveats in mind, I explored a spreadsheet of global tech production data that the Hamilton Center shared with me before it opened. I created three graphs to highlight some interesting findings, which I share below.

The first graph shows that over the past decade, China has more or less matched the United States in terms of the two nations’ global production shares in seven high-tech sectors: pharmaceuticals; medicinal, chemical and botanical products; electrical equipment; machinery and equipment (from engines to office equipment); equipment for motor vehicles; other transport equipment (mainly aerospace); computer, electronic and optical products; and information technology and information services. The data comes mainly from the Organization for Economic Co-operation and Development and is only available up to 2018.

The second chart makes the US situation worse. It shows that the US economy increased its share in one sector, information technology and information services, but lost share in the other six categories combined. “We’ve become so enamored with big tech, it masks very significant weaknesses elsewhere,” Atkinson said.

Next, the following table ranks the technological intensity of 26 major economies, with Taiwan taking the lead. The chart compares the importance of technology to a national economy with the importance of technology to the world as a whole. This is called the location quotient. (Readers may recall that I recently used location quotients from the Bureau of Labor Statistics to examine the popularity of jobs in different states and metropolitan areas – shampoos in New Jersey, tire makers in South Carolina, etc.)

There is hardly a one-to-one correlation between technological intensity and prosperity. India’s location quotient is above average, for example, while Hong Kong’s is well below average. The way the index is constructed, a movie studio that made a successful movie would reduce its country’s location quotient by increasing the country’s gross domestic product and thus diluting the relative contribution of the technology sector.

I asked Atkinson via email why he thought the location quotient was nonetheless a worrying data point for the United States, which scores below average. He wrote, among other things, “Weaknesses make the United States vulnerable to economic aggression, especially from China.” India scores high because “it greatly outstrips its weight in IT and pharmaceuticals, which is something the United States has to worry about because its gain has come at the expense of the United States,” he said. -he adds. And Hong Kong scores low because its main strength is finance, he wrote. “So, sure, Hong Kong has been prosperous, but would anyone call it safe at this point?”

The second spike in timber prices appears to be over. Timber prices soared in 2021 because sawmills were unable to meet housing construction demand after the worst of the Covid-19 pandemic. Prices fell as factories caught up, but then rose again due to continued strong demand for home construction coupled with higher rates, bad weather, pine beetle infestations and shortages of materials. labor in factories.

Higher mortgage rates depressing housing demand are the latest depressant for softwood lumber. The futures market prices shown in this chart tend to appear with a price lag for producers and consumers.

“Effectively trying to eliminate underlying inflation by compressing the economy is possible but disproportionately costly. It burns the house down to roast the pig.

— Robert Solow, quoted in “The Threating Economy” by David Mermelstein, The New York Times Magazine, December 30, 1979

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