Technologies: how not to be left behind by Asia?

4 January 2023

Why are high-tech sectors (high R&D expenditure/added value) important economically? They have strong growth, offer high value-added jobs and the salaries are 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 in international sector classifications into nine sectors, but four of them represent 83% of the total production sold in the EU in high-tech products in 2021: pharmaceutical products (33%), electronics and telecommunications (22%), scientific instruments ( 19%) and finally aviation (9%). Several observations stand out when analyzing high-tech trade and production on a global scale.

The share of high technologies in total international trade is increasing strongly. Between 2011 and 2021, total EU trade with the rest of the world in high-tech products has increased by an average of 4.9% annually. 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 exporting countries. In 2020, there were seven Asian countries in the global ranking of the top ten high-tech exporters in the world. China is easily number one followed by Korea, Japan, Singapore. Only non-Asian countries, 3rd Germany, 6th USA and 10th Netherlands. France is in 11th place.

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

The EU’s high-tech imports accounted for 392 billion euros in 2021 and exports 385 billion euros. The EU had its largest high-tech trade deficit with China, €100bn, and its largest surplus with the US, €23bn.

In terms of products, the EU registers its largest profit in pharmaceuticals, 67 billion. EUR, in scientific instruments and space travel, both around 20 billion. EUR, and its largest deficit in electronics and telecommunications, 71 billion. EUR, and in computers, 50 billion.

High-tech production in the EU is dominated by Germany and France. In 2019, high-tech manufacturers achieved the highest turnover 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 recorded surpluses in international trade in high technology. This was the case for Germany, France or the Netherlands, while other countries had a significant deficit, such as Italy or Spain.

In 2021, France had trade surpluses in two high-tech sectors, aviation and space €19.7 billion, and pharmaceuticals €2.6 billion, but like the EU, its deficits were significant in electronic products and IT, €20.6 billion and medical instruments , 4 billion euros.

How to deal with Asia’s technological progress?

Asia has taken a dominant place in world trade with high technologies around computer, electronic and telecommunications products. How can this technological dominance be explained?

First of all, a country’s specialization in high technology must be accompanied by a high qualification of the workforce. Having a skilled workforce is the first asset for the development of these high-tech industries. However, the OECD’s PISA studies show that several Asian countries are at the top, China, Singapore, Japan, Taiwan, well ahead of France in the mathematics rankings. A significant effort must be made in the field of natural science.

Second, R&D spending is the lever needed to develop the many innovations specific to these high-tech sectors. Here, too, some Asian countries have made remarkable progress. Already in 2020, R&D spending relative to GDP was slightly higher in China compared to France (2.4% of GDP) and is increasing dramatically, while the R&D ratio in France has been stable for several years. Other Asian countries are well above France, Korea, 4.8% of GDP in R&D, Japan, 3.3%. The challenges are therefore considerable.

Finally, the countries implement support policies for high technologies: protection of the domestic market against imports, export control of strategic components, sector support through public support. Westerners were slow to respond to Asia’s advance.

In recent years, the political debate about Europe’s backwardness in high technology has focused on semiconductors and electric batteries, which appear to be the priority technologies.

In Semiconductors, United States, on behalf of national security,” imposed export controls aimed at limiting China’s ability to buy and manufacture high-end chips. China’s Ministry of Commerce has accused Washington of engaging in protectionist practice » and launched a WTO case aimed at protecting China’s “legitimate rights and interests”.

In electric batteries, the European Commission in January 2021 authorized twelve Member States, including France, to pay €2.9 billion in public aid to support companies, research centers and universities, invited to work together in a program called “European innovation in batteries.” This 2.9 billion in aid should 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 initiative on electric batteries with the status of “important project of common European interest”, which allows for unimaginable amounts of state aid without the consent of the Commission.

Without a strong political will from Europe and France, the battle in high technology will be lost and the stall in these sectors of Europe and France will only get bigger. Several areas of intervention by the public authorities are needed: strengthened scientific education with the promotion of the training of technicians and engineers, a sharp increase in the R&D budget with clearly stated priorities such as semiconductors or electric batteries, a strong European trade policy which must stop with being naive, a European industrial policy that favors subsidies to give the funds for a technological offensive back to companies present in Europe in the high technologies.

Leave a Comment