Machinery investment, not trade agreements, are the problem with Asia

Machinery investment, not trade agreements, are the problem with Asia
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After President Donald Trump’s recent trip to Asia he declared that it was “a tremendous success,” but he did not offer any specific important trade news. And what many do not realize is that it is our own lack of investment in machinery research and development has contributed largely to the underlying fundamentals of trade imbalance.

The 2017 Gardner Business Intelligence on World Machine Tool Survey listed the 20 largest machine tool trade balances of last year. Here, a positive trade balance for a country means that the country exports more machine tools than it imports.

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Japan topped the most positive trade balance in machine tools with $6 billion, followed by Germany slightly short of $6 billion. Taiwan, Italy and Switzerland are in the next tier at about $2 billion in machine tool trade balances.

 

The three largest negative countries are China at minus $4.6 billion, followed by the U.S. at minus $2.8 billion. Both China and U.S. imported more machine tools than they exported in 2016. For comparison, Mexico is listed at minus $2.3 billion in trade balance for machine tools.

A country’s economy is largely based on how good our tools are, particularly after the industrial revolution. It comes as no surprise that 80 percent of the top positive machine tool building countries also showed a positive overall trade balance in 2016.

More worrisome than just those above numbers showed is the potential of losing the capability of creating precision machinery for producing high value-added products or simply for the sake of national security.

In 2005, a result of a 17-year research effort involving dozens of researchers and engineers in Fanuc of Japan, ROBOnano set the new technical frontier of a multi-purpose micromachine. The machine has a wide range of applications, in semiconductor, medical, and biotechnology fields for high-precision applications, was sold for $1 million in Japan. The machine has the resolution of the linear axes less than the width of a human hair split by half for 15 times.

The machine only appeared in North America for the first time in 2016, more than a decade after its initial introduction in Japan.

Such delays are costly. That is because the machine tool industry has a domino effect. Better machine introduces more capability, efficiency and productivity, and hence better profit.

You can browse youtube.com to see unique machines designed for picking up grapes in Germany or building tunnels and bridges in China. Yet the necessary patience and continuous investment in advancing technology improvement in machinery prevalent elsewhere in the world seems to be losing ground here in US. You do not see those large stamping presses used to make car body panels made in United States.  

One exception is the recent Maker movement and the development of 3D printers. The U.S. government established the public-private partnership manufacturing institute, America Makes focused on additive manufacturing, or 3D printing in 2012.

The field combines materials design, mechanical actuations, sensing and digital part design into one integrated process that can make geometric shapes that otherwise cannot be made. The future lies in not just the creation of unique shapes but with specific functionalities integrated, for example, visual appearance, thermal conductivity, hybrid materials or beating muscles.

The federal support is encouraging, but if private companies do not keep up with investment, the U.S. will be surpassed in this field. American manufacturers need the long-term stability in investment in research and development. To encourage such investment, tax code on research and development spending is worthwhile to be explored, which has already shown its effectiveness in Hong Kong, for example.

Research and development investment is founded on the simple principle that one needs money to make money. Germany has established 69 Fraunhofer institutes since 1973, continuously co-funded by government and corporations at $2.43 billion annually. This is a shining model for investing in manufacturing research and workforce development. Similar models have been established in Singapore (A*Star) and Taiwan (ITRI).

Between 2012 and 2017, the U.S. has established 14 manufacturing institutes in areas ranging from 3D printing and digital manufacturing to fabric manufacturing. Each one has about $25 million per year for five years of federal funding and matched with state, corporate and university funding.

Recently the 2016 Global Manufacturing Competitiveness Index  developed by Deloitte Touche Tohmatsu Limited and the Council on Competitiveness ranked the U.S. as the second following China. The same study ranked United States as 4th in 2010 and 3rd in 2013, and projected that the U.S. will take the lead in 2020.

It is a cliché that Rome wasn’t built in a day. But to have a solid foundation for our competitiveness, leaders in manufacturing in this country need to start with re-building our solid base in basic tools, machinery, all supported by a long term investment strategy.  

Instead of purely blaming on other trade partners for being “not fair” or “not open” during his trip to Asia, President TrumpDonald John TrumpPapadopoulos on AG's new powers: 'Trump is now on the offense' Pelosi uses Trump to her advantage Mike Pence delivers West Point commencement address MORE could have sought this opportunity to openly ask for others’ investment plan on research and development in the area of manufacturing and specifically machine tools.

Building up our own strength and foundation will carry us a long way and create a friendly, but competitive environment that both us and partners can enjoy.

Jian Cao, Ph.D., is Cardiss Collins professor of mechanical engineering, Director of Northwestern Initiative on Manufacturing Science and Innovation, and Associate Vice President for Research at Northwestern University, and a Public Voices Fellow through The OpEd Project.