KTI industries are central to the U.S. R&D enterprise in multiple ways. Compared to their share of output and employment, KTI industries perform and fund a disproportionately large share—more than half—of U.S. business R&D. They produce innovative products and technologies that benefit other industries and the economy and society more broadly.

In the United States, IT and other information services, software publishing, and computer, electronic, and optical products industries account for more than half of the value added generated by KTI industries. The most notable change in U.S. KTI production in the last two decades is the faster growth in KTI services value added compared to manufacturing. KTI industries employ disproportionately more workers in STEM occupations compared to other industries and have high concentrations of foreign-born workers. Foreign-born STEM workers in KTI industries are primarily from India, China, the Philippines, Vietnam, and Mexico.

KTI industries continue to support various aspects of the response to the COVID-19 pandemic, including the supply of medical products, the transition to remote work and online learning, and the digital delivery of health care services. As a result, the value added generated by KTI industries increased in 2020 even as GDP declined, led by increases in medical instruments, pharmaceuticals, IT and other information services, software publishing, and computer, electronic, and optical products.

U.S. KTI production is concentrated and specialized domestically. Fifteen states account for three-fourths of the total value added generated by KTI industries. Globally, the United States leads production activities of KTI services industries (IT and other services, software publishing, and scientific research and development), whereas China leads KTI manufacturing industries (except for air and spacecraft, medical and dental instruments, and pharmaceuticals). Slower growth of KTI manufacturing value added in the United States and other major economies compared to China has resulted in a decline in their global shares of KTI production in the last two decades.

As other countries’ KTI output has increased, so too has their share of exports. As a result, the U.S. global export share has fallen over the last decade, and the U.S. KTI trade deficit has widened. Although its share has fallen, the United States is the world’s third-largest exporter of KTI products, behind China and Germany. U.S. KTI exports overall, however, contain a smaller share of foreign value, indicating less reliance on foreign inputs when compared to China and Germany.

Investment in enabling technologies, like biotechnology and AI, has been a high priority for U.S. federal R&D funding over the last few years. Many KTI industries are either developing or utilizing biotechnology and AI technologies, including pharmaceuticals, software publishing, and IT services. The pharmaceuticals industry performs the most biotechnology R&D in the United States.

The demand for AI- and biotechnology-related skills has increased over the last few years in the United States, although it is concentrated in a few states in the West and the Northeast. Venture capital financing for both AI and biotechnology sectors is also highly concentrated in the West and the Northeast, which is consistent with these regions producing the most KTI output.

Although biotechnology and AI are primarily performed in a few industries, the diffusion and use of these technologies are likely to give rise to new, technologically advanced industries, products, and services. The data presented in this report indicate that the United States and China lead in research and commercialization of AI technologies, and while the United States continues to lead in business R&D performance and patenting in biotechnology, other countries, including China, are rapidly building their biotechnology capacity.