cians naturally dislike such transactions. To make them more palatable, it is helpful if such purchases can be linked to job creation and increased capability in the aerospace and defense sector. In short, when the taxpayers' funds are spent, they, or at least their political leaders, want a "piece of the action." Offsets are the inevitable result.

Thus it is not surprising that a discussion of offsets quickly turns to a discussion of the aerospace industry. A few notes about the U.S. aerospace industry might be helpful to put the offset issue in context. Aerospace has for many years been among the most dynamic and expansive of U.S. industries. In 1997 domestic and international sales by U.S. aerospace companies were estimated at $130 billion, or about 3 percent of all U.S. industrial manufacturing activity. New orders for the year totaled about $115 billion, and the backlog of orders at year end amounted to $218 billion. The industry currently employs approximately 870,000 Americans.

The industry's export performance has been most remarkable, particularly when compared with that of other U.S. industries. In 1997 exports totaled $50 billion, whereas imports of aerospace products reached about $16 billion. This means that the U.S. trade surplus in aerospace products was roughly $34 billion, a continuation of a long-term trend of positive trade balances.

As positive as these numbers are, it should be noted that, except for trade figures, all are lower than the last industry peak in the late 1980s and early 1990s. In 1989 the industry employed 1.35 million people, and its sales reached $139 billion in 1991. Two major trends hit sales and employment beginning in the late 1980s. First, the markets for aerospace products declined, as financially troubled airlines reduced new aircraft purchases and, with the end of the Cold War, the U.S. defense budget, particularly the procurement portion, plummeted. Second, the aerospace industry began a major restructuring, partly in response to lessened demand, but also to reduce costs by taking advantage of increased technological capabilities. Such technologies include use of computers to allow primes and subcontractors to design products without the use of draftsmen and extensive use of mockups. Improved machine tools and testing devices have reduced the work hours needed for production, testing, and rework. The bottom line is that productivity is improving, so that fewer workers, and in some cases less-skilled workers, can produce more of a better product. With the sharp increase in demand by airlines, employment is again picking up in the aerospace industry, but given the new efficiencies noted above and the continuing low demand for defense products, it is unlikely to return to former levels.

Currently about 50 percent of U.S. aerospace products is sold to the U.S. government for defense, space, and air traffic control. Of the other 50 percent, about 75 percent relates to exports of both commercial and military products. Government purchases are expected to remain flat, so that most growth in the industry will depend on success in the international marketplace. There are several factors that bear watching on the international horizon that could have an

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