World Machine Tools Market 1997-2003

Dennis Redmond © July 2004

Machine tools are the DNA of industrial economies: they are the machines which make all other machines. Because the production of machine tools requires a highly skilled workforce, massive engineering talent, and complex networks of researchers and designers, the health of the machine tools sector is one of the most revealing indicators of the competitiveness of an economy.

The situation of the US machine tool industry is, in a word, catastrophic. US production levels have dropped by more than half since 1997, the worst performance of any major industrial economy tracked by Gardner, including Depression-stricken Argentina. This is not a temporary blip or cyclical event. The decline has been persistent and broad-based, and extends all the way to US machine tool consumption: the US consumed 20.8% of the world’s machine tools in 1997 but only 10.8% in 2003, the fourth-worst decline of any country (only Britain, Romania and Argentina did worse). 

The carnage has been especially noticeable in the tools-dependent semiconductor industry, which is in the throes of a long-term shift away from its historic centers in the US and Japan, and towards East Asia (although so far, the EU has managed to maintain its market share). The only historical parallel which comes to mind is the meltdown of the USSR in the early 1990s.

By contrast, Europe padded its global lead in the late 1990s, increasing its market share to about half of global output. Europe also weathered the global 2001-03 downturn with aplomb – a remarkable feat, considering that the euro has appreciated 30% vis-a-vis the dollar, which should give US competitors significant cost advantages (US firms seem to have other priorities, though, such as producing smart bombs for stupid oil wars at porkbarrel mark-ups).

While Japan’s production levels have retreated slightly from their 1997 peak, China, Korea and Taiwan have combined to pick up the slack. China has also emerged as the world’s biggest consumer of machine tools (from 7.7% of world consumption in 1997 to 18.1% in 2003), a boon to its recession-plagued neighbors. Though there is much talk of a potentially disastrous investment bubble in China, it’s worth noting that consumption levels are rising throughout Asia, especially Japan (20%) and Korea (85%). (Though Gardner does not issue consumption statistics for Malaysia and Thailand, imports of machine tools have risen smartly in both countries.) All things considered, global production and global demand are more balanced and less dependent on the US than ever before.

Things are less cheerful in the rest of the world. While the IMF has praised India’s neoliberal reforms to the sky, the BJP’s market-friendly policies boosted stock exchanges while hanging the country’s machine-tools sector out to dry – a criminal waste of the country’s prodigious scientific and engineering talent. It remains to be seen if the new Indian government has the political will to reverse these priorities. Both Brazil and Russia have experienced recoveries from their late-1990s crises, but so far this hasn’t translated into better times for their machine-tools industries – a key issue for the Lula and Putin governments.

All data is from Gardner’s excellent and informative website: http://www.gardnerweb.com/reports.html (1999, 2000, 2001, 2002, 2003 and 2004 World Reports)

Table 1. Production of Machine Tools by Region, Percent of World

Table 2. Change in Market Share, Machine Tools Production 1997-2003

*Data for South Africa and Belgium, 1998-2003

Table 3. Per Capita Output of Machine Tools 2003 (in US$) 

Table 4. Machine Tool Consumption By Region, Percent of World

Table 5. Consumption Share of World Market, Index 1997 = 100 (S. Africa 1998, Belgium 1999)

* Data for South Africa 1998-2003, Belgium 1999-2003