American Manufacturing Needs an Update High Tech Trade Agreement

American Manufacturing Needs an Updated High Tech Trade Agreement

June 5, 2014
While the The Information Technology Agreement played a critical role in promoting IT trade and investment, which in turn has driven innovation, boosted productivity, increased employment, and accelerated U.S. industrial growth, the product scope needs to be expanded.

The Information Technology Agreement (ITA), which eliminates tariffs on trade across a wide range of information technology (IT) products, has been one of the most commercially successful trade agreements ever undertaken—for the global economy and for American industry.

From 1996 to 2008, total global trade in IT products increased by more than 10% annually, from $1.2 trillion to $4.0 trillion, which is at least partially due to the liberalization of IT trade.

Moreover, the ITA has empowered the formation of efficient, global supply chains which have enabled a shift from a closed, linear innovation model to an open innovation model that relies on close collaboration among suppliers, network partners, and customers to bring breakthrough, next-generation IT products to market.

In short, the ITA has played a critical role in promoting IT trade and investment, which in turn has driven innovation, boosted productivity, increased employment, and accelerated U.S. industrial growth.

Yet despite these positive results and the fact that significant IT transformation has occurred since the ITA first took effect in 1996, the product scope of the agreement has not been expanded.

Over the past 18 years, technology developments have spawned the creation of hundreds of innovative new products, from GPS systems and flat panel displays to an entirely new class of semiconductor chips—multi-component semiconductors or MCOs—that have become ever-more significant components of the global IT trade. In addition, the initial ITA agreement did not cover many products, including dynamic random access memory chips (DRAMs), audio speakers, and DVD players, which also need to be brought under IT coverage.

To enable the ITA to catch up with the rapid pace of technological development, the United States has taken the lead in attempting to craft an expanded ITA agreement that would increase the product coverage of the ITA, expanding the overall “tariff-free” global market for trade in IT products.

Despite the claims made by some isolationists (both in the United States and other nations), to the contrary the expansion would in fact produce many specific positive impacts for U.S manufacturers.

As ITIF argues in Boosting Exports, Jobs, and Economic Growth by Expanding the ITA ITA expansion would provide three primary and a variety of ancillary benefits for the United States.

First, foreign tariff removal on an expanded set of IT products will boost U.S. exports of IT goods and create U.S. jobs. In fact, ITIF estimates an expanded agreement could increase U.S. exports of IT products by $2.8 billion and support the creation of approximately 60,000 U.S. jobs.

Second, as central players in the global IT supply chain that collectively account for one-quarter of the global IT industry, leading U.S. IT goods companies, IT services companies, and the component manufacturers that supply these firms could see revenue increases of approximately $10 billion thanks to an expanded ITA.

Third, expansion would reduce costs and increase productivity for a range of industries, from automotive manufacturing to medical devices, which depend on IT components and inputs, some of which are imported. Finally, U.S. leadership in promoting ITA product expansion will further bolster the United States’ position as a leading advocate of greater global multilateral trade liberalization at a time when some actors around the world are implementing protectionist policies at an alarming rate.

Expanded Agreement Benefits IT Products 

The increased role IT plays in modern manufacturing product and process technologies deserves particular note.

First, IT-enabled applications have increasingly become a core feature of a wide variety of downstream products: everything from automotive vehicles, medical devices, jet aircraft and engines, and industrial goods to consumer products. For example, as much as 40% of the cost of a modern automobile is comprised of electronic components.

Second, IT products are now a foundational building block for a country’s manufacturing base. A recent study by the IDA Science and Technology Policy Institute found that modern manufacturers “rely less on labor-intensive mechanical processes and more on sophisticated information-technology-intensive processes.” Numerous examples of IT usage exist in the manufacturing domain, including its support of digital-control systems and computer-controlled machine tools, asset-management software, computer-aided design (CAD), integrated sensing, robotics, and modeling and simulation.

ITA expansion will contribute to a reduction of costs for IT products that have become central inputs to the modern manufacturing process. Put simply, the role of an expanded ITA in decreasing tariffs on and thus reducing the cost of IT products and IT-based inputs is an important issue for all U.S. manufacturers, not just those in the IT manufacturing sector.

In summary, from its potential to boost exports of U.S. IT products, to its role in decreasing the cost of key inputs vital to both finished manufactured products and modern manufacturing processes, to its role in bolstering productivity, innovation, and employment growth, the U.S. manufacturing community has an important interest in seeing ITA expansion talks reach a robust and successful conclusion.

With ITA expansion negotiations currently stalled—due primarily to reticence from Chinese negotiators to conclude a comprehensive expansion—the U.S. manufacturing community should lend its voice to amplifying calls to complete a robust agreement.

About the Author

Robert Atkinson | President, ITIF

The Information Technology and Innovation Foundation (ITIF) is a non-partisan research and educational institute – a think tank – whose mission is to formulate and promote public policies to advance technological innovation and productivity internationally, in Washington, and in the states. Recognizing the vital role of technology in ensuring prosperity, ITIF focuses on innovation, productivity, and digital economy issues.

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