Industry Assessment

Machine Tools and Metalworking Equipment


The U.S. machine tool and metalworking equipment manufacturing industries are comprised of companies that build machine tools, that manufacture machinery used to cut or form metal and other hard materials, and those that produce industrial tooling. A machine tool is usually defined as a non-portable, power-driven manufacturing machine or system used to perform specific operations on man-made materials to produce durable goods or components.  It is designed specifically for metalworking either by cutting, forming, physico-chemical processing, or a combination of these techniques.

Machine tools are traditionally broken down into two categories: metalcutting and metalforming. Metalcutting machines typically cut away chips or swarf and include (but are not limited to) broaching machines, drilling machines, electrical-discharge machines, gearcutting machines, grinders, machining centers, milling machines, transfer machines, and turning machines, such as lathes. Metalforming machines typically squeeze metal into shape and include (but are not limited to) bending machines, cold-heading machines, presses, shears, coil slitters, and stamping machines.

The industry is classified under NAICS 333512 (metal cutting machine tools) and NAICS 333513 (metal forming machine tools). Machines built by the industry are frequently classified into seven types: turning machines, such as lathes; shapers and planers; power drills or drill presses; milling machines; grinding machines; power saws; and presses. Machine tools are used in the process of manufacturing virtually all products, either directly or indirectly (by fabricating other machines, molds, or dies that are then used to create finished products) and are therefore critical to all manufacturing industries.

Industry Overview and Global Competitiveness

Machine tool shipments were $6.33 billion in 2006, a surprising 15.5 percent increase over the 2005 value of $5.48 billion (latest Census figures available). There are approximately 550 machine tool manufacturers in the United States, predominately made up of small- and medium-size enterprises. In the current economic crisis, many are barely surviving. 2008 figures will doubtless reflect a downward spiral of the machine tool industry and an overall decline in the number of operating businesses as a result of mergers, acquisitions and bankruptcies.

In 2008, U.S. exports were valued at $3.78 billion, an increase of 12.1 percent from 2007 figures of $3.37 billion. Mexico, Canada, China, and Germany remain the top four markets for U.S. exporters, composing nearly half of the market.

Imports increased by 13.4 percent in 2008, totaling $6.38 billion. Most of these machines were imported from Japan (40 percent market share), Germany (16 percent market share), followed by Italy, Canada, Taiwan, and Switzerland. Japan is the world’s largest producer of machine tools, producing approximately one-fifth of the world’s value of machine tools, and the second-largest consumer, only after China. The quality and reputation of Japanese machine tool manufacturers as well as the ingenuity of German manufacturers allowed these competitors to increase penetration of the U.S. market and expand the industry’s trade deficit, while Italian, Korean, and Taiwanese firms capitalized on the price competitiveness of their machines.

China remains the largest market for machine tools, followed by Japan, Germany and the United States. China remains one of the world’s most voracious importers of machine tools, as evidenced by a 9.6 percent increase in U.S. imports of machine tools over 2007 figures. China is also becoming more self-sufficient in the machine tool industry, but still lags far behind the export powerhouses of Japan and Germany in technology and quality. As the world’s leading consumer of machine tools, China will remain a primary market for the U.S. machine tool industry.

In 2007, the United States ranked seventh among machine tool producers, following such countries Taiwan, Korea, and Italy. The United States has lost some competitive advantages due to higher production and labor costs to manufacture in this country. However, a strong trend in economic growth in many foreign markets, such as Brazil, Russia, India, and China, may result in an increase in U.S. exports for machine tool manufacturers as long as U.S. companies can compete on a global scale with Japan, Germany, Korea, and China on price, quality, technology, competitive financing, and after-sales-service. Additionally, the United States needs to regain and maintain a technological edge in nanotechnology, smart machining, and other manufacturing technologies and innovations that increase productivity and reduce costs for end-users.

Domestic Environment

With the collapse of the U.S. credit market, the decline of the Big Three automakers, and the U.S. economy in turmoil, the U.S. metalworking equipment industry is facing ever increasing challenges. In the past, the industry already faced various obstacles, such as rising energy, health care and legal costs as well as a slew of regulations and standards placed on the industry.

Numerous U.S. metalworking equipment manufacturers supply the Big Three automakers. With their demise come more seemingly insurmountable challenges for the industry. Many companies were already struggling before the financial crisis hit, and so as the U.S. economy slows down, the industry will also scale back considerably in the future. Over recent years, the industry has experienced a continuing trend of consolidation, as the result of the need to compete in the global marketplace. This trend is expected to accelerate along with downsizing and many companies filing for bankruptcy.

Costly regulations and proposed rules are also impediments for the industry. One such pressing regulatory issue is the workplace capital goods product liability statute that currently mandates open-ended responsibility for equipment in operation. This statute subjects machine tool builders to litigation stemming from faulty machinery that may have been produced decades ago to historically appropriate specifications. Most U.S. competitors from Europe and Japan are held to a ten-year statute of repose, limiting their exposure to responsibility for very old machines.

Financing also continues to be difficult for the industry. The metalworking equipment industry is highly capital intensive, thus sophisticated machine tools and manufacturing technology are critical for manufacturers to reduce labor costs and improve efficiency. Such investments take a large amount of funding that is often difficult to acquire. The current dubious financial state of many of these small manufacturers has made most lending institutions reluctant to offer the capital necessary to reorganize operations or to improve efficiencies.

More needs to be done to support the capital investment tax credits that make acquiring equipment a bit more affordable. In addition, many businesses tend to lose orders or have orders postponed because customers have trouble obtaining the credit they need to buy new equipment. And with the current financial crisis, many financial institutions are tightening their belts, so both the buyer and the seller are at a loss.

Another major issue that is perceived to dampen the attractiveness of U.S. machine tools in the eyes of foreign buyers is the export licensing process required by the U.S. government. Several categories of sophisticated machine tools are considered “dual-use” and therefore subjected to lengthy review procedures carried out by the Bureau of Industry and Security (BIS), prior to exportation. Industry claims this lengthy process makes U.S. products less attractive to foreign customers due to delivery delays, the possibility of license denial, and the general aggravation caused by the review process.

This issue is of particular concern to U.S. companies trying to sell products to China. The fact that U.S. industry has no particular monopoly on any type of technology makes it convenient for Chinese purchasers simply to acquire the needed machinery from a supplier from another country. Firms in an array of European countries, Japan, and often China itself are capable of producing machine tools of comparable quality and precision.

Since a sizeable portion of domestic machine tool consumption arises from companies engaged in defense manufacturing work, it remains important to ensure that Defense Department procurement rules are sensitive to domestic manufacturers of machine tools. In March 2006, the DOD finalized a rule that creates incentives for U.S. defense manufacturers to use U.S.-built machine tools. Section 822 of the National Defense Authorization Act for Fiscal Year 2004 requires the Secretary of Defense to “(1) establish an incentive program for contractors to purchase capital assets manufactured in the United States under contracts for major defense acquisition programs”; and “(2) provide consideration for offerors with eligible capital assets in source selections for major defense acquisition programs.”

This rule demonstrates the critical nature of the Department of Commerce’s work with the National Defense Industrial Association’s (NDIA’s) Defense Manufacturing Working Group. While some U.S. defense manufacturers were not particularly supportive of the bill, the intent of the NDIA group is to advocate programs that ensure the existence of U.S. tool makers capable of supplying U.S. military contractors. As noted by the NDIA, however, “if the government wants a strong machine tool industry, it should support R&D (to develop) better tools so that the industry can compete and win internationally.”

As mentioned above, research and development (R&D) funding is another important issue for machine tool builders as well as strengthening and making permanent R&D credits to manufacturers. Increased investment in manufacturing R&D could result in new technologies and the break that U.S. machine tool manufacturers need to compete both globally and domestically.

Going forward, new technology development could improve the competitive position of the U.S. industry, as it did in the early 1980s with the development of computer numerically controlled (CNC) machines. Funding of programs such as the Manufacturing Extension Partnership (MEP), the Market Development Cooperator Program (MDCP), and the Technology Innovation Program (TIP) needs to be increased and is critical to the future of the industry.

Similar to many other capital goods industries, the metalworking sector is hampered by the backlog and stringent requirements in the processing of business visas for many foreign customers, particularly those from China and India. These requirements often make it difficult for foreign customers to visit U.S. machinery manufacturers, manufacturing facilities, and to participate in manufacturing trade shows.

U.S. trade shows are key marketing events for U.S. machine tool companies. The International Manufacturing Technology Show (IMTS) is the largest and longest running manufacturing technology trade show in the United States. It is held every even year at McCormick Place in Chicago, IL. IMTS ranks among the largest trade shows in the world and is recognized as one of the world’s preeminent stages for introducing and selling manufacturing equipment and technology. IMTS attracts over 90,000 visitors from every level of industry and over 119 countries. Many exhibitors rely on trade shows, such as IMTS, to introduce new manufacturing technologies and increase customers and sales. Visitors look forward to IMTS to find out what are the latest manufacturing technologies and ways to improve productivity.

Trading Environment

The U.S. machine tool industry is extremely export-oriented. Since roughly half of its annual sales come from foreign customers, it is imperative for the industry to maintain a strong global export presence and innovative global strategy. Key export opportunities for U.S. machine tool builders can be found in developing industrial nations like Brazil, Russia, India and China as well as Mexico. The U.S. industry also hopes to increase its presence in mature markets, like Japan and Western Europe, but the highly sophisticated domestic capacity for machine tool production in those markets makes it extremely difficult for U.S. machine tool builders to compete.

Eastern Europe is another developing market that the U.S. industry wants to supply, but EU accession has oriented its companies toward purchasing Western European machine tools. Many Eastern European countries also have fairly developed indigenous machine tool industries that can service some portion of demand. Similarly, Southeast Asia is also a potential market, particularly Thailand and Malaysia; however, their close proximity to other Asian machine tool producing countries, such as Japan, Korea, and Taiwan, poses a challenge.

In sum, U.S. machine tool exports are affected by a lack of new technologies and innovations, R&D funding, U.S. visa restrictions, dual use export controls, healthcare, energy, etc. costs, and limited financing. These impediments have all affected the U.S. ability to compete in domestic and global markets.

Many U.S. machine tool builders also view some types of foreign standards and regulatory certifications as unnecessary obstacles to trade. For instance, all companies exporting machine tools into the EU must obtain a mandatory CE (Conformite Européenne, French for European Conformity) mark and must prove compliance with the EU Electromagnetic Compatibility Directive. These certifications typically cost U.S. machine tool companies thousands of dollars in consulting and testing expenses. A machine cannot be placed on the EU market, or be put into service, without certification indicating that its specifications have been deemed compatible with European safety and electromagnetic disturbance requirements.

This requirement and other standards are currently being addressed by the ITA Standards Working Group. The work of this group helps ensure the technical standards developed abroad do not restrict the access of U.S. metalworking equipment manufacturers to foreign markets.

Over the years, many machine tool companies have participated in a wide array of USDOC export promotion and marketing opportunities. During the past decade, USDOC has provided partial funding through the Market Development Cooperator Program (MDCP) to establish machinery industry trade association offices in China and Mexico to provide market development assistance to the U.S. machine tool industry. In the past, IMTS has often been included in the USFCS International Buyer Program.

Founded in 1902, the Association for Manufacturing Technology (AMT), formerly the National Machine Tool Builders Association (NMTBA), represents and promotes the interests of American providers of manufacturing machinery and equipment. Its goal is to promote technological advancements and improvements in the design, manufacture and sale of members’ products in those markets and acts as an industry advocate on trade matters to governments and trade organizations throughout the world. AMT owns and manages IMTS.

The U.S. Department of Commerce’s partnership with AMT/NMTBA has a long history and many successes. Working closely with USDOC, AMT has provided support and assistance to its members in the fields of export promotion and trade facilitation since the late 1960’s. AMT has received three Market Development (MDCP) grants to fund its representation offices in Mexico, Beijing and Shanghai and the U.S. Machine Tool Technology & Service Center in Shanghai. The AMT Technology Center has been an unqualified success and showcases U.S. machine tool equipment and promotes their member companies in the China market. The Center has been a model for a number of other industry associations to emulate.

Dawn Kawasaki

202 482-3494

February 2009