International Competition and U.S. Public Policy

The GATT (General Agreement on Tariffs and Trade) organization has provided the principal international institutional framework for removing tariff and nontariff barriers to trade since 1948. Its recently completed Tokyo round of multilateral trade negotiations (1973–1979) will be implemented over the next eight years. Although a number of tariff and nontariff trade barriers still remain, there are no further “rounds” of negotiations on the GATT agenda and it is likely that some other forum will be more expeditious and effective in resolving broader-based international economic policy differences. See the chapter by Harald Malmgren and the accompanying comments and discussion in Wallace Don Escobar Helga (eds.), The Future of International Economic Organizations (New York: Praeger 1977), pp. 103–43; and Evans John W. , The Kennedy Round in American Trade Policy: The Twilight of the GATT (Harvard University Press, 1971).

Some views on the nature and extent of such a decline are directly or indirectly discussed in the Economic Report of the President, together with The Annual Report of the Council of Economic Advisors (USGPO 1979); U.S. Congress, Joint Economic Committee, U.S. Economic Growth from 1976 to 1986: Prospects, Problems and Patterns, 94th Congress, Hearings Before the Joint Economic Committee, Special Study on Economic Change, 95th Congress, 2nd Session (Committee Print, June 1978), part 3; Tatom John A. , “The Productivity Problem,” Review, Federal Reserve Bank of St. Louis (September 1979), pp. 3–16; Committee for Economic Development. Stimulating Technological Progress, a statement by its Research and Policy Committee, January 1980.

The terms “advanced technology” and “high technology” are here intended to designate research-intensive companies whose R&D expenditures as a proportion of sales (5 percent to 10 percent of sales and higher) are significantly above the all-industry average (plus or minus 3 percent of total sales). See the list of “leading edge” industries in the upper right-hand corner of Figure 1.

See for example U.S. Department of Commerce, Advisory Committee on Industrial Innovation, Final Report, Commerce Department and Coordinating Committee, Domestic Policy Review of Industrial Innovation, (September 1979), 299 pp.; U.S. Congress, Committee on Commerce, Science and Transportation, U.S. Senate, National Strategy for Technological Innovation, 96th Congress, 1st Session (Committee Print. USGPO, October 1979); U.S. Congress, Hearing Before the Committee on Commerce, Science, and Transportation (hearing on governmental policy and innovation in the semiconductor and computer industries), Industrial Technology, 95th Congress, 2nd Session (USGPO, 30 October 1978).

An integrated circuit chip combines in a single miniature device (“chip”) the integrated electronic functions of thousands of single-function components (transistors and other related components). A microprocessor incorporates on a single chip the entire logic circuit of a small computer and can be programmed to perform various tasks. These kinds of circuits by virtue of their small size, speed, low power requirements, reliability and flexible design, will increasingly replace many kinds of electromechanical components in virtually all kinds of products. See “The Age of Miracle Chips,” and other subsections in a special section of Time entitled “The Computer Society” (28 February 1978), pp. 44–59; see also Chips in the 1980s: The Application of Microelectronic Technology in Products for Consumer and Business Markets, Special Report No. 67 (London: The Economist Intelligence Unit Ltd., 1979).

See “Apparel's Last Stand,” Business Week (14 May 1979), pp. 60–70; see also “Digital Watches: Bringing Watch Making Back to the U.S.,” Business Week (27 October 1975), pp. 78–92.

The analogy and 1990 figures from Sanders W.J. , president and chief executive officer, Advanced Micro Devices, during semiconductor industry testimony at an International Trade Commission hearing, San Francisco, California, 30 May 1979. The 1980 estimates are compiled from “U.S. Markets Forecast 1980,” and “Japan/Europe Markets Forecast 1980,” in Electronics, (3 January 1980), pp. 134–37, 147–48.

The so-called VLSI (Very Large Scale Integration) Program, a four-year $250 million research effort involving five major electronics firms (Fujitsu, Toshiba, Nippon Electric, Mitsubishi, and Hitachi). See Altman Laurence Cohen Charles , “The Gathering Wave of Japanese Technology,” Electronics, special report, (9 June 1977), pp. 99–122.

For a European perspective see Commission of the European Community, A Four-Year Program for the Development of Informatics in the Community, Vol. 1 (29 October 1976); Mackintosh Consultants, Inc., Market Survey of Semiconductors on Behalf of the Ministry of Research and Technology of the Federal Republic of Germany, Vols. 1–5 (December 1976); U.S. International Trade Commission, Competitive Factors Influencing World Trade in Integrated Circuits (USITC Publication 1013, November 1979), pp. xiv, xv. 49–52, 56, 57, 76, 77. The European Common Market Executive Commission has recently proposed that EEC governments coordinate and increase their aid to the region's microelectronic inductry; see Lewis Paul , “European Joins the Microchip Race,” New York Times (29 January 1980), p. D2+.

For a perspective on the growing capital intensity, research intensity and the shrinking product life cycles in electronics products, see U.S. International Trade Commission, Competitive Factors, op. cit., pp. 26, 27, 31–37; see also Webbink Douglas , The Semiconductor Industry: A Survey of Structure, Conduct, and Performance, Staff Report to the Federal Trade Commission (January 1977) passim. The Congressional Office of Technological Assessment is presently conducting a study, “The U.S. Electronics Industry: Technology and its Influence on International Competition,” which will explore in-depth the growing capital investment needs for new product design, process engineering, and new production systems in the industry.

The Japanese target-industry approach has historically included close industry-government cooperation, financial assistance, control of foreign access to the Japanese market, coupled with aggressive export marketing and an agnostic view of short-term profits. For a discussion, see Vogel Ezra , “Guided Free Enterprise in Japan,” Harvard Business Review, (May–June 1978) pp. 161–70.

See reference 9.

The concept of a “threat” of economic injury rather than the fact of economic injury has been inserted into language in the U.S. Trade Agreement Act of 1979 with reference to the U.S. application of antidumping and countervailing duty laws. See U.S. Congress, Trade Agreements Act of 1979, Report of the Committee on Finance, United States Senate on H.R. 4537, 96th Congress, 1st Session (1979), pp. 88, 89; and U.S. Congress, Trade Agreements Act of 1979, Report of the Committee on Ways and Means, House of Representatives, to acompany H.R. 4537, 96th Congress, 1st Session, pp. 47, 48.

For an interesting contrast between the U.S. and Japanese steel and consumer electronics companies, see Rose Sanford , “The Secret of Japan's Competitiveness,” Fortune (30 January 1978), pp. 56–62. U.S. companies, he rationally argues, were slow in perceiving the benefits of economies of scale and the corresponding decline in unit costs resulting from the incremental production volume generated by export sales. See also Abegglen James C. Hout Thomas M. , Facing Up to the Trade Gap with Japan (Boston Consulting Group, Inc., 1979), 34 pp.

For a discussion of the evolution of offshore assembly operations, see Moxon Richard , Offshore Production in the Less Developed Countries: A Case Study of Multinationality in the Electronics Industry (New York University, Graduate School of Business Administration, July 1974); and Chang Y.S. , The Transfer of the Semiconductor Industry, United Nations, UNITAR Research Report No. 11 (1971). These and other dimensions (sourcing, cross-licensing, manufacturing) are discussed in John Tilton, International Diffusion of Technology: The Case of Semiconductors (The Brookings Institution, 1971); and Finan William , The International Transfer of Semiconductor Technology Through U.S. Based Firms, unpublished study, University of Pennsylvania, Wharton Econometric Forecasting Associates (April 1975). See also Douglas Webbink, the FTC Staff Report on the Semiconductor Industry, op. cit.; and the U.S. ITC Report Competitive Factors, op. cit.

The U.S. and Japan agreed to reduce tariffs on semiconductor imports (the U.S. from 6 percent to 4.2 percent and the Japanese from 12 percent to 4.2 percent) during the Tokyo Round of GATT, but the 17 percent EEC import tariff on these components will not be reduced. Other formal and informal import barriers for components and end-products still persist (see the ITC report Competitive Factors, op. cit., pp. 54–68). Although Japan's Nippon Telephone and Telegraph has agreed to receive bids from foreign suppliers, its “buy national” psychology will impede such sales.

While the Japanese point out that the U.S. Department of Defense and NASA contracts provided early public-sector support to U.S. semiconductor firms, the U.S. industry responds that such support was for products with only limited commercial application (defense-related products) in contrast with the Japanese government support primarily for commercial products. For a view suportive of the Japanese case see Asher Norman Strom L. D. , The Role of the Department of Defense in the Development of Integrated Circuits, prepared for the Office of the Director of Defense, Research and Engineering by IDA (Washington, D.C., May 1977).

These barriers include rigid antitrust vigilance, inappropriate antibribery legislation, technology export controls, et cetera. See U.S. Congress Hearing before the Committee on Commerce, Science and Transportation, U.S. Senate, National Export Program, 95th Congress, 2nd Session (USPGO, 1978); for a recent federal effort to streamline the overlapping governmental trade bureaucracy (Executive Order 12188, 2 January 1980), see “U.S. Department of Commerce Assumes Greater Trade Role,” Business America (14 January 1980), pp. 3–10.

Kraus Melvyn B. , The New Protectionism: The Welfare State and International Trade, (New York University Press for the International Center for Economic Policy Studies, 1978).