Are We Losing the China Market?

Are We Losing the China Market?

FreedenbergAnnual United States machine tool consumption currently amounts to only 40 percent of China’s.

A mere eight years ago we installed twice the volume of China. But, as I have recounted in earlier columns, that superiority was gone within two years. By 2002, China and the United States consumed an equal amount. Within another two years, China’s consumption had doubled ours, and two years later they had consumed triple the number that we did.

What does that mean? Obviously China cannot be denied.

It has become a manufacturing behemoth.

More important still, to add to the attractiveness of the market, China is one of the few truly open markets in the world for machine tool sales.

That statement certainly cannot be repeated for Japan, which is currently the only machine tool market in the world that is larger than China. Nor can it be said for the key industrial states of the European Union, who favor their domestic builders.

A mere decade ago, most U.S. machine tool builders could depend on the domestic market for the bulk of their sales. Today they face intense competition on their own turf. U.S.-based companies account for only a third of the sales to the American manufacturing market.

To add insult to injury, U.S. production of machine tools has slipped to seventh place in the world, behind not only Germany and Japan but Taiwan and Italy as well.

Indeed, China produced a greater dollar value of machine tools last year than we did.

One would think that the message of our fading importance in the world of machine tools would not be lost on the Defense Department. After all, that agency alone spent more than $10 billion last year on intelligence gathering.

But, despite that fact that the United State industry has been reduced to the status of a role player in the world-wide machine tool competition and despite the fact that more than a half-dozen different Chinese companies now produce the very five-axis machine tools, including the computer control systems, that the Defense Department is trying to deny China, it can still take a year or longer for an export license application to be approved by the Defense Department.

What does that mean for U.S. competitiveness?

It means that U.S. companies have become less and less attractive as vendors to Chinese commercial aircraft companies just as Chinese contracts from Boeing and Airbus have been increasing and as the Chinese have begun production of their own regional jet to service the vast Chinese commercial air market.

With U.S. experience and expertise, and with the dollar making U.S. products even more attractive, one would assume that U.S. companies would account for an ever larger percentage of the foreign machine tools installed in Chinese companies.

Although it is difficult to quantify, it is clear that the opposite is true.

There are only a handful of U.S. machine tools in Chinese aircraft plants, and those numbers are diminishing further as European companies come forward to fill the gap left by the restrained U.S. competition.

It is reasonable to assume that this trend will have a long-term, deleterious effect on the U.S. defense industrial base.

Investors and multi-national company CEOs are likely to increasingly avoid the United States when they make their decisions about future production and R & D, since China is likely to be the most attractive target market for machine tools in the foreseeable future.

That negative consequence is likely to mean less U.S. development of the machines that have enabled our nation to be the leader in stealth technology and many of the most advanced aerospace developments in recent years.

Perhaps the Defense Department decision-makers believe that low-volume defense contracts will be enough to offset this trend, or that they can buy what they need “off the shelf”from around the world.

But I suspect that the Secretary of Defense is unaware of the long-term consequences of his Department’s export control decisions.

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