Technologies: How not to be left behind by Asia?

January 4, 2023

Why are high-tech sectors (high R&D expenditure/added value) economically important? They have strong growth, high value-added jobs and salaries are among the highest in the industry. Countries with a strong specialization in the high-tech sector therefore have an increasingly important economic advantage.

High technology is divided into nine sectors in international industry classifications, but four of them account for 83% of the total production sold of high technology products in the EU in 2021: pharmaceuticals (33%), electronics and telecommunications (22%), scientific instruments (19%) and finally aerospace (9%). When analyzing high-tech trade and production at the global level, several observations stand out.

The share of high technologies in total international trade is increasing rapidly. Between 2011 and 2021, total EU trade in high-tech products with the rest of the world increased by an average of 4.9% per year. High-tech products represented in total EU trade, 14.7% in 2011 to 18.1% in 2021.

Asian countries dominate the ranking of high-tech export countries. In 2020, seven Asian countries were represented in the global ranking of the world’s ten largest high-tech exporters. China is number one by far, followed by Korea, Japan and Singapore. Non-Asian countries only, 3rd Germany, 6th the United States and 10th the Netherlands. France is 11th.

The European Union has a deficit in international trade in high technology due to its deficits in electronics, telecommunications and computers. China is its biggest deficit, the US its biggest surplus.

In 2021, EU high-tech imports amounted to €392 billion and exports to €385 billion. The EU had its largest high-tech trade deficit with China, €100 billion, and its largest surplus with the United States, €23 billion.

In terms of products, the EU has its largest surpluses in pharmaceuticals (EUR 67 billion), scientific instruments and aerospace (each around EUR 20 billion) and its largest deficits in electronics and telecommunications (EUR 71 billion ) and computers (EUR 50 billion).

High-tech production in the EU is dominated by Germany and France. In 2019, high-tech manufacturers achieved the highest sales in Germany (€212 billion, 23.4% of the EU total), followed by France (€187 billion, 20.7%) and Italy (€58 billion, 6.4% %).

Before the health crisis, some EU countries had surpluses in international trade in high technology. This was the case for Germany, France or the Netherlands, while other countries such as Italy or Spain had significant deficits.

In 2021, France had trade surpluses in two high-tech sectors, aerospace 19.7 billion 4 billion euros.

How to deal with Asia’s technological progress?

Asia has taken a dominant position in world trade in high technology related to computer, electronics and telecommunication products. How can this technological dominance be explained?

First of all, a country’s specialization in high technologies must go hand in hand with a highly qualified workforce. Having a skilled workforce is the most important asset for the development of these high-tech industries. However, the OECD’s PISA surveys show that several Asian countries top the mathematics rankings, China, Singapore, Japan, Taiwan, well ahead of France. Significant efforts need to be made in the field of science education.

Second, R&D spending is the leverage needed to develop the many innovations specific to these high-tech sectors. Here, too, some Asian countries have made remarkable progress. Already in 2020, China’s R&D expenditure as a percentage of GDP was slightly higher than France (2.4% of GDP) and it is increasing dramatically, while in France the ratio of R&D to GDP has been stable for several years. Other Asian countries far outperform France, Korea, 4.8% of GDP in R&D, Japan, 3.3%. So the challenges are significant.

Finally, the countries implement a promotion policy for high technologies: protection of the domestic market against imports, export control of strategic components, sectoral support through public subsidies. The westerners reacted late to the advance of Asia.

The political debate about Europe’s high-tech backwardness in recent years has focused on semiconductors and electric batteries, which are emerging as priority technologies.

In semiconductors, the United States, on behalf of national security,” introduced export controls aimed at restricting China’s ability to buy and manufacture high-end chips. China’s Commerce Ministry accuses Washington of being involved protectionist practices » and initiated a WTO case aimed at protecting China’s “legitimate rights and interests”.

In the field of electric batteries, in January 2021 the European Commission authorized twelve Member States, including France, to pay €2.9 billion in public aid to support companies, research centers and universities working together in a program entitled “European Innovation in batteries”. This 2.9 billion aid is expected to generate 9 billion euros in additional private investment.

By the end of 2019, the Commission had already approved €3.2 billion in aid under an electric battery initiative with Important Project of Common European Interest status, enabling an unthinkable volume of state aid without Commission approval.

Without a strong political will from Europe and France, the battle in high technology will be lost and the deadlock in these sectors of Europe and France will only increase. Several areas of public intervention are needed: increased scientific education with the promotion of the training of technicians and engineers, a large increase in the R&D budget with clearly formulated priorities such as semiconductors or electric batteries, a strong European trade policy that must stop, naive to be a European industrial policy that favors subsidies in order to give back to the high-tech companies present in Europe the means of a technological offensive.

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