(FORTUNE Magazine) – FEW AMERICANS worried when Asian imports took over transistor radios and calculators in the 1970s. The auto invasion that followed was different, for it struck at a symbol of national industrial prowess. Downright scary are foreign inroads into the high-technology sector, which once rang up big trade surpluses and helped offset deficits in the low-end stuff. Is the U.S. manufacturing base melting away like sand castles at high tide? The charts on page 66 give a panoramic view of American industries in retreat on their home turf between 1979 and 1989. Those on technology's frontier took some of the worst beatings. A decade ago 94% of the computers bought in the U.S. were made in the U.S.; last year the figure was 66%. That doesn't even take account of a hollowing-out trend. An ''American'' computer workstation may be full of Asian parts. Other gadgets completed in the U.S. often embody assembly work by $6-a-day maquiladora employees just inside Mexico. And with 300,000 American flags imported from Taiwan and elsewhere in the first four months of 1990, you may wonder if anything will be made here in the future. Japan, which last year outspent the U.S. for the first time on plant and equipment, could become the world's top industrial power by the year 2000 or soon after. Its manufacturing output, already more than two-thirds as big as America's, is growing faster. Meanwhile, the U.S. is selling off assets to help pay for an excess of imports over exports, a red-ink figure recently running at the equivalent of one Rockefeller Center a week. Some of the asset sales are foreign takeovers of manufacturing companies -- reflected in the charts on page 67 -- which raise another question. Will the U.S. increasingly become a branch-office colony of European and Asian owners, stripped of top laboratories, decision-making jobs, and control over its national destiny? Not since Sputnik have so many alarms gone off. Kenneth Courtis, a Tokyo- based economist for Deutsche Bank, warns that Japan is building ''tremendous momentum. For America this is the make-or-break decade.'' The National Advisory Committee on Semiconductors warns that the U.S. is falling behind in chipmaking technology and that U.S. semiconductor companies may have to buy 70% of the next generation of production gear from Japan. A Commerce Department study warns that America's $200-billion-a-year electronics industry -- a contender for tomorrow's huge markets in high-definition television and fiber-optic communication -- could be overtaken by Japan's in the early 1990s. How concerned should you be? The U.S., after all, remains far out in front in such important fields as aerospace, computer software, and medical instruments. Some studies show that American companies are holding on to their slice of world manufacturing when production at their overseas plants is figured in. Besides, all those imports have been a boon to consumers, who now have dozens of car makes to choose from as well as ever smaller camcorders for capturing baby's first steps. American companies may be moving jobs abroad, but foreigners are creating new ones by investing here, all in the healthy new spirit of globalism. Anyway, can't a predominantly service economy like America's leave much of the widget making to other countries? The answer is no. In addition to undergirding the kind of military might the U.S. deployed in the Persian Gulf, manufacturing finances most of the R&D that brings material progress. According to Congress's Office of Technology Assessment, it also supports a lot of service jobs -- 6.5 million of them in the mid-1980s, mostly well paid. When this is figured in, more than a fourth of all U.S. workers depend on factories for their livelihood. ''Postindustrial'' America, though it may devote less of its activity to making things, has a growing fondness for buying them. Other government data show that the proportion of consumers' incomes spent on manufactured items other than food and fuel climbed from 16.4% to 18% in the seven years through 1986. Since that trend is unlikely to reverse itself, manufacturing offers the best hope of eliminating the mismatch in trade. The U.S. slipped from having a trade surplus to having a huge deficit in manufactured goods during the 1980s. Booming services for foreigners -- Japanese tourists visiting Disney World, Europeans watching U.S. movies -- can't erase the gap. Last year the country came out only $20.5 billion ahead on all services. This was swamped by a $115 billion deficit in merchandise trade. To help settle its international accounts, the U.S. sold $72 billion worth of companies and real estate to foreign investors. THE OVERALL current account deficit narrowed a bit in the first quarter. But a huge trade gap with Japan persists, and the annual oil import bill was running about $50 billion even before Iraq's invasion of Kuwait drove up prices. Short of heavy protectionism or a dwarf dollar, the U.S. can restore equilibrium -- and stop the asset sales -- only by making more things that people want to buy (FORTUNE cover story, May 21). A major question mark hangs over all those foreign-owned U.S. plants. Depending on the sort of work that gets done under their roofs, they either sap or support U.S. competitiveness. Some are mere assembly operations offering only ''screwdriver'' jobs to Americans; the more skilled jobs and the R&D are back in Osaka or Paris. Japanese owners of American plants, in particular, have tended to keep R&D and the production of their most advanced products and key components at home. Says Robert Hayes, who teaches manufacturing at the Harvard business school: ''Because of their culture, they resist moving away from the motherland.'' In a recent issue of the Harvard Business Review, Todd Hixon and Ranch Kimball of the Boston Consulting Group describe four stages of foreign involvement in U.S. manufacturing. These range from assembly to ''fully integrated business operations'' embracing design as well as production. Only at the last stage, say Hixon and Kimball, do foreign investors truly enhance American competitiveness. Among the few examples they find are the U.S. consumer electronics operations of Philips of the Netherlands and Honda's burgeoning U.S. plants. Honda, the most Americanized of the Japanese auto ''transplants,'' has a production engineering department and builds drive trains here. By 1992, says Honda, the local content of its American cars will reach 75%. A study by Brookings Institution economist Robert Lawrence, conducted for an organization of foreign automakers and importers, says the transplants could significantly pare the trade deficit. By 1992 it could be as much as $15 billion lower than it would be if the cars made in these plants were imported. There's only one catch, as basic as Capitalism 101. Though transplants may pay U.S. taxes, hire U.S. workers, use U.S. parts, and even help swell the total of U.S. exports, the profits belong to foreign owners. For that reason they don't deliver quite as big a bang for the U.S. economy as comparable American-owned firms. HOW DID the U.S. slip so badly in manufacturing? Guess who's easiest to use as a scapegoat. When Japanese producers dumped memory chips here in the mid- 1980s, they battered their American competition. But T. J. Rodgers, 42, the feisty CEO of Cypress Semiconductor Corp., insists that America's problems are two-thirds its own fault. The title of his testimony to a congressional committee says it all: ''The American Semiconductor Industry: Winners or Whiners?'' U.S. companies, he maintains, are being ''outmanaged'' by the Japanese. Other U.S. shortcomings are familiar: relatively high capital costs; a labor force ill-prepared by the schools; shortsighted CEOs, the reluctant generals in this war, who dodge confrontations with determined Asian adversaries because they are more interested in a quick 20% return on equity than in market share. John McConnell, CEO of Worthington Industries, says U.S. profit objectives are ''not a hopeless disadvantage but a big disadvantage.'' For some time he has been calling the U.S. a ''second-rate industrial power.'' At its new plant in Porter, Indiana, Worthington will install Austrian-made pickling equipment to clean steel before it is processed further. ''We buy American whenever we can,'' says McConnell. ''But, sorry to say, the foreign proportion increases every year.'' Some made-in-America products are good enough to bet your life on. Ask a Japanese racing down the highway in a car equipped with an air bag from Cleveland-based TRW. The world leader in automotive restraint systems, TRW expects its sales of such products to hit $1 billion this year, up from $817 million in 1989. One ingenious move the company made several years ago to speed air-bag development: It brought top engineers from its aerospace divisions into a new department named Restraint U. Innovative niche products aren't the only American success stories. Some industries, such as food and chemicals, are relatively intact. Even the rusty steel industry lately has taken on some sparkle, with help from voluntary restraint agreements (VRAs) that hold down imports. Among integrated U.S. producers who start with ore, man-hours per ton are now as low as Japan's. Meanwhile, the quality of American steel is up ''markedly,'' says trade specialist William Lane of Caterpillar. When manufacturers are faced with international competition, their knee-jerk solution is often spelled o-f-f-s-h-o-r-e. But moving production abroad to serve the home market makes sense less often than managers think. Hixon of the Boston Consulting Group notes that direct labor typically accounts for only 10% or so of a high-tech company's manufacturing costs: ''From a purely wage- rate standpoint, there's no reason why you cannot make products in the U.S.'' Much of the apparel industry has fled the country, but not Russell Corp. of Alexander City, Alabama. CEO Eugene Gwaltney, a long-term player if ever there was one, has invested lavishly on new equipment for making sweatsuits, sports uniforms, and other action wear. ''We spent money when everybody else was laying back,'' says a spokeswoman. Ohio's Timken Co., which makes tapered roller bearings for cars and other machines, has no thought of walking away from U.S. production. It built a new plant in North Carolina ten years ago and is starting another in Virginia. Most of what Black & Decker sells in the U.S. -- toaster ovens, food processors, Dustbusters, and power tools -- is made here. Some items are exported. The company is counting on a North Carolina plant that turns out a new line of circular saws to cut it worldwide. How battle-worthy are U.S. manufacturers for the 1990s? Here is a rundown on three essential industries: -- MACHINE TOOLS. Brimming with orders a decade ago, the toolmaking business imploded in the 1980s. When backlogs were big and the dollar was strong, the Japanese and others moved in, offering fast delivery and abundant service. William Copeland of Copeland Economics, a consulting firm in Stamford, Connecticut, tells of a Japanese technician who slept on a bedroll at an American customer's plant for the first ten days after a new machine was delivered, the better to pounce if anything went wrong. Imports spurted from 23% of the market in 1979 to a peak of 49% in 1986 before slipping a couple of points. The machine tool industry in Japan built an estimated $10 billion of equipment last year, three times the U.S. output. A good deal of what was made in America was produced by foreign-owned companies, some of which began expanding even before 1987, when the Reagan Administration imposed five-year VRAs on certain Japanese and Taiwanese machines. Mazak, the U.S. subsidiary of Japan's Yamazaki Mazak, the world's largest toolmaker, has just completed its fourth expansion since 1984 at Florence, Kentucky. Says Brian Papke, the second American to head Mazak: ''This gives us the most productive machine tool operation in the U.S.'' Some American companies are regaining customers. Last year Giddings & Lewis got half the U.S. orders for computer-run ''flexible manufacturing cells,'' which carry out complex machining operations and can be changed over quickly to perform new tasks. James Geier, Cincinnati Milacron's new CEO, acknowledges that over the years his company ''abdicated'' much of its market share and | wants to make a comeback. Teams called ''wolf packs'' are trying to hustle elaborate new machines into production. Milacron just sold $51.5 million in stock and intends to double its spending on product design and capital improvements over the next five years, to $250 million. When informed of this, Papke's boss in Japan said, ''Is that all?'' But don't write off the U.S. team. Eli Lustgarten, a Paine Webber security analyst who's keen on Giddings & Lewis, says American toolmakers still have a software edge. He foresees a surge in business in the 1990s as Detroit prepares to meet new fuel economy standards and to catch up in engines. -- COMPUTERS. U.S. companies' share of the global computer market has slipped from 76% in 1984 to 64% in 1989, according to the Gartner Group, a market research firm in Stamford, Connecticut. But they still reign in nearly every segment of the business. In workstations they have an astonishing 65% of the Japanese market, says Dataquest, the Silicon Valley market research company. Chalk it up to superior design and the strength the computer industry draws from America's lead in microprocessor chips and software. Those are companies. The dominance of the country as a computer factory is fading. One clue is a decline in U.S. production jobs, which a Commerce Department official attributes to increased outsourcing as well as greater productivity. Total U.S. electronics employment probably would fall were it not for the vibrant software industry, a portion of which statisticians count as manufacturing. To see how international an ''American-made'' computer can be, consider the popular $8,995 SPARCstation 1 Plus from Sun Microsystems. Disk drives, monitors, and memory come primarily from Asia, reports vice president Kevin Melia. In order to figure out Sun's effect on the trade balance, you would have to subtract such imports from its $751 million of exports last year. Melia insists that the American content of his company's workstations -- operating software, central processor unit, and some memory chips as well as R&D -- is big enough to produce a positive number. IBM, bucking the trend, raised the American content of its personal computers when it introduced its PS/2 line. Motive: to make more money by using parts from the company's U.S. plants. Big Blue's new RISC System/6000 workstation is also heavily home-sourced. But the computer industry's manufacturing trade surplus has been sinking fast, from $4 billion in 1988 to $2 billion last year. -- SEMICONDUCTORS. First the good news: The Pentagon does not yet have to beg Toshiba to sell it advanced memory chips. Japan's producers surged ahead in the mid-1980s, and as recently as 1987 held 98.6% of the world market for one- megabit dynamic random access memory chips, or DRAMs. (The statistic covers ''merchant'' producers and excludes companies like IBM that make chips solely for their own use.) This prompted Shintaro Ishihara, co-author of The Japan That Can Say No, to assert that his country could ''upset the entire military balance'' by selling to the Soviet Union instead of the U.S.

Japan's near-monopoly weakened after other countries ramped up one-megabit DRAM production. Dataquest reports that Micron Technology of Boise, Idaho, and other U.S. merchant chipmakers boosted their share of the global market to 12% last year. South Korea now makes the chips too. The Americans' market share may keep rising. Lately Motorola has in effect acknowledged that keeping abreast in DRAMs may be the most efficient way to hone crucial etching and chip-production skills. Most U.S. companies abandoned DRAMs in the mid-1980s because they deemed them commodity products that would never be more than marginally profitable. Now Motorola is building a new $500 million plant in Austin, Texas, whose initial product will be four-megabit DRAMs. Micron, the only U.S. merchant DRAM-maker with no financial or technology-sharing ties to Japan, completed its third ''fab,'' or production facility, last year. AT THE SUMMIT of the semiconductor product mix are microprocessors, the logic chips that drive computers. Here the U.S. is still king. Intel is spending 80% of its $1 billion R&D and capital budget this year on microprocessors to maintain its No. 1 global position. Says CEO Andrew Grove: ''We're outspending everybody else in the world.'' Before you get too relaxed, consider this: Since the early 1980s the U.S. has run a trade deficit in chips, and Japan is now champ in many aspects of chipmaking technology. Says Michael Stark, research director at Robertson Stephens, a San Francisco investment banking firm: ''The Japanese government has wisely targeted chipmaking equipment as a growth industry.'' If chips are the lifeblood of the information age, equipment to make them is the jugular. Many U.S. equipment makers are struggling. Between 1983 and 1988, reports VLSI Research of San Jose, California, a market research firm, their share of the world market plunged from 69% to 50%, and it is expected to dip to 40% by 1993. Joseph Parkinson, Micron Technology's CEO, says he hasn't yet found it necessary to buy equipment in Japan. Asked about prospects for the U.S. chipmaking equipment industry, he says tersely, ''There's still a heartbeat, and it's viable.'' Micron is a member of Sematech, a two-year-old research consortium whose $200 million annual budget is paid for by the Defense Department and 14 chipmakers and chip users. Sematech's programs, which aim to leapfrog Japanese technology by 1993, have been running on schedule. But the equipment industry's weakness could hamper its work. Of 142 equipment and materials companies that originally signed up to work with Sematech, four have gone out of business. Another 43 have been acquired by foreign owners, mostly Japanese. In today's interdependent, relatively peaceful world, is this something to worry about? Those who fear excessive dependence on foreign sources point to two tales of Japanese favoritism. According to one, supercomputer maker Cray Research was told by suppliers in Japan a couple of years ago that certain high-performance memory and logic chips were ''not yet available for export,'' even though Cray's Japanese rivals were already shipping machines incorporating them. And last year Japanese companies allegedly got first crack at an advanced Nikon chipmaking device while U.S. competitors who wanted the equipment, reportedly including IBM, were kept waiting for precious months. Cray denies the first story. IBM won't comment on the second, and Nikon insists it is untrue. But the mere fact that such tales are repeated, even in a congressional report on competitiveness, suggests a new uneasiness about carrying globalism too far. Significantly, Big Blue recently joined efforts to keep important parts of the equipment industry in U.S. hands. Together with five other companies, IBM backed a venture formed to buy a Perkin-Elmer chipmaking equipment division that might otherwise have been sold to a Japanese buyer. Such efforts may not be enough. Peter Mills, Sematech's senior vice president, notes that in Japan and Europe, preserving and strengthening the semiconductor industry is government policy: ''Japan has a strategy, Europe has a strategy, and the U.S. has a debate.'' WHAT SHOULD government's industrial role be? The U.S. doesn't have to distrust its international partners to notice that they are all playing the same game: trying to get their share of leading technologies and the good jobs they bring. The Eurocrats in Brussels have launched five government-assisted megaprojects with acronyms like Esprit and Eureka to make the European Community a stronger player in semiconductors, software, and other technologies. South Korea has its target industries. Taiwan has cut taxes in half for a new chip plant. High tech is becoming as politicized as agriculture, with each country prizing white-clad workers in clean rooms just as it strives to keep farmers growing food. A few efforts like Sematech aside, the Bush Administration has recoiled from anything with the faintest whiff of industrial policy. But if the U.S. team is playing without government help, isn't it like putting America's amateur bobsledders up against East Germany's heavily supported Olympic team in the days before the Wall came down? The best idea would be for all countries to abandon government meddling, as Bush's trade negotiators have proposed for world agriculture. Meanwhile, Washington cannot sit idle as factories close. Deficit fighting is the first step, for it would reduce borrowing costs for American business, says C. Fred Bergsten, director of Washington's Institute for International Economics. Lawrence of the Brookings Institution doubts that America is de-industrializing. But he favors increasing the federal tax credit for R&D and has amended his views to support direct government subsidies for ''precompetitive research.'' America is no longer ''preeminent,'' Lawrence says, and ''we can no longer take technological innovation for granted.'' Government's biggest job, of course, is in the schools. Japan and West Germany have proven that a country with a superior labor force needs neither raw materials nor Lebensraum. It's a bit like the real estate man's classic rule about location. The way to keep American industry from being submerged in the rising tide of world competition is education, education, education.

CHART: NOT AVAILABLE CREDIT: SOURCES: DEPARTMENT OF COMMERCE, WARD'S AUTOMOTIVE YEARBOOK, SEMICONDUCTOR INDUSTRIES ASS'N, ELECTRONIC INDUSTRIES ASS'N, NATIONAL MACHINE TOOL BUILDERS ASS'N CAPTION: AMERICAN INDUSTRY HAS LOST GROUND TO IMPORTS... Score 21 for imports, 0 for the home team in the industries shown at left. American-made goods may not be of 100% U.S. content, and increasingly they come from foreign-owned factories (above). Not shown: exports, which also climbed, but less than imports. U.S. FACTORIES' SHARE OF U.S. MARKET: High-tech industries U.S. FACTORIES' SHARE OF U.S. MARKET: Other industries

CHART: NOT AVAILABLE CREDIT: SOURCES: DEPARTMENT OF COMMERCE, WARD'S AUTOMOTIVE YEARBOOK, SEMICONDUCTOR INDUSTRIES ASS'N, ELECTRONIC INDUSTRIES ASS'N, NATIONAL MACHINE TOOL BUILDERS ASS'N CAPTION: ...AND FEWER PLANTS ARE U.S.-OWNED U.S.-OWNED SHARE OF U.S. PRODUCTION CAPACITY Score 21 for imports, 0 for the home team in the industries shown at left. American-made goods may not be of 100% U.S. content, and increasingly they come from foreign-owned factories (above). Not shown: exports, which also climbed, but less than imports.