The Impact of Industrial Offsets on the US Machine Tool Industry

Abstract

This paper examines the extent to which industrial offset agreements affect US exporters of computer numerically controlled machine tools. Evidence from a sample of 48 export-intensive firms suggests that compensatory conditions vary directly with unit selling prices (i.e. expensive machines are subject to tougher offsets than low-end products). The evidence also suggests that the most stringent offset agreements involve a degree of international technology transfer, as well as job-displacement within the US. On balance, however, the commercial benefits of industrial offset agreements appear to exceed the costs. Specifically, it would seem that US employment in the machine tool industry has become increasingly export-dependent, and that offset agreements represent relatively minor irritants in the light of the industry's growing need for international sales. The study concludes with a brief discussion of the implications of the empirical findings for future research on compensatory trade in technology-intensive industries.