Archive for the ‘National security’ Category

We are in danger of losing our country’s assets!

Tuesday, April 8th, 2014

We Americans blithely ignore the long-term effects of allowing foreign corporations to purchase the assets of our country in the form of companies, land, and resources. We are selling off our ability to produce wealth by allowing so many American corporations to be purchased by foreign corporations. It is not just foreign companies buying our assets that is the problem ? it is the state-owned and massively subsidized companies of China that are dangerous because China uses its state-owned enterprises as a strategic tool of the state. By pretending they are private companies abiding by free-market rules to our detriment makes us the biggest chumps on the planet. German economist Fredrich List, wrote, “The power of producing wealth is…infinitely more important than wealth itself.”

How many Americans paid attention to the news last year that Smithfield Foods was acquired by a Chinese corporation? Last September, shareholders approved the sale of the company to Shuanghui International Holdings Limited, the biggest meat processor in China. Smithfield Foods is the world’s largest pork producer, and Americans must now face the danger of polluted Chinese food since our FDA only inspects 2% of our food imports.

In the December 15, 2013, New York Post, Diane Francis, author of “Merger of the Century: Why Canada and America Should Become One Country” wrote “Currently, American authorities only evaluate foreign takeovers on the basis of national-security issues or shareholder rights and securities laws. But these criteria are inadequate. A fairer test in the case of Smithfield, and future buyout attempts by China, should also require reciprocity: Only corporations from countries that allow Americans to buy large companies should be allowed to buy large American companies. That is why Washington must impose new foreign ownership restrictions based on the principle of reciprocity. The rule must be that foreigners can only buy companies if Americans can make similar buyouts in their countries”.

How many are aware that the chain of AMC Theaters is now owned by Chinese Corporation? Dalian Wanda Group Company owned by China’s richest man, billionaire real estate developer, Wang Jianlin, bought AMC Theatres in May 2012, creating the world’s largest theater chain. This means that the Chinese will now be in a position to shape public opinion and mold the minds of our children through entertainment media.

In January 2014, Motorola Mobility was sold by Google to Chinese corporation, Lenovo, which means that the nation that invented smart phones is just about entirely out of the business of producing smart phones in America. Lenovo is the same company that bought IBM’s line of personal computers in 2004. This acquisition will give one of China’s most prominent technology companies a broader foothold in the U. S.

Through strategic purchases, China is positioning itself to be our energy supplier as well. Since 2009, Chinese companies have invested billions of dollars acquiring significant percentages of shares of energy companies, such as The AES Corporation, Chesapeake Energy, and Oil & Gas Assets. In 2010, China Communications Construction Company bought 100% of Friede Goldman United, and in 2012, A-Tech Wind Power (Jiangxi) bought 100% of Cirrus Wind Energy.

Chinese companies are even acquiring healthcare companies:  WuXiu Pharma Tech bought AppTec Laboratory Services, and Mindray Medical International bought Datascope Corporation in 2008; BGI-Shenzhen bought Complete Genomics in 2012, and Mindray Medical International bought Zonare Medical Systems in 2013.

Wall Street and the finance industry are not immune from acquisitions by Chinese corporations:  Shenzhen New World Group bought Sheraton Universal Hotel in 2011; China Aviation Industrial Fund bought International Lease Finance Corporation in 2012; and Fosun bought One Chase Manhattan Plaza in 2013.

One of the earliest acquisitions by a Chinese corporation was when the Hoover brand was sold to Hong Kong, China-based firm Techtronic Industries after Maytag that owned Hoover was acquired by Whirlpool in 2006.

The acquisition of American companies by foreign corporations isn’t something new. Many prominent companies founded in America have been bought by corporations from the United Kingdom, France, Germany, Italy, and other European countries in the latter half of the 20th Century. Most American don’t realize that such iconic American companies as BF Goodrich and RCA are now owned by French corporations, and that Carnation and Gerber are now owned by Swiss corporations.

Most foreign countries don’t allow 100% foreign ownership of their businesses, but sadly, the United States does not exercise the same prudence. We sell our companies to them, and they almost never sell theirs to us. This tilted playing field has gutted America’s economic power.

What is enabling Chinese companies to go on a buying spree of American assets? Trade deficits – our ever-increasing trade deficit with China over the past 20 years is transferring America’s wealth to China and making millionaires out of many Chinese. In 1994, our trade deficit with China was $29.5 billion, and it grew to $83.8 by 2001 when China was granted “Most Favored Nation” status and admitted to the World Trade Organization. By 2004, it had doubled to $162.3 billion. After a slight dip in 2009 during the depths of the Great Recession, the trade deficit grew to $318.4 billion in 2013. If you add the annual trade deficits for the past 20 years, it totals $3.15 trillion. China now has over one billion serious savers and more than a million millionaires whose assets when combined provide billions to spend to buy our assets.

In addition, it is our trade deficit with Japan that has enabled Japanese corporations to go a buying spree of American assets since the 1980s when such companies as Columbia Pictures Entertainment was acquired by the Sony Corporation of Japan in 1989, and Bridgestone Corporation of Japan bought Firestone in 1988. However, our highest trade deficit with Japan of $84.3 billion in 2007 was nearly one third of our current trade deficit with China. While we are still transferring wealth to Japan, it is a democracy and doesn’t have armed missiles pointed in our direction.

In theory, we have the means to protect ourselves from this. CFIUS, the Committee on Foreign Investment in the United States, has the power to regulate, approve and deny these purchases. However, it is rare for the CFIUS to block deals. “During 2011, the most recent year with data available, the CFIUS was notified 111 times of deals that fell under its purview. Of those 111 covered deals, 40 were investigated and just five were withdrawn during that investigation…This year, Chinese companies have bought 10 companies worth $10.5 billion, says Thomson Reuters. That’s more than 20% of the 484 U.S. companies that have been bought by foreign companies this year worth $43.6 billion, Thomson Reuters says.”

The 2013 Annual Report to Congress by the U.S.-China Economic and Security Review Commission states, “China presents new challenges for CFIUS, because investment by SOEs can blur the line between national security and economic security. The possibility of government intent or coordinated strategy behind Chinese investments raises national security concerns. For example, Chinese companies’ attempts to acquire technology track closely the government’s plan to move up the value-added chain. There is also an inherent tension among state and federal agencies in the United States regarding FDI from China. The federal government tends to be concerned with maintaining national security and protecting a rules-based, nondiscriminatory investment regime. The state governments are more concerned with local economic benefits, such as an expanded tax base and increased local employment, rather than a national strategic issue, especially as job growth has stagnated.”

The report, continues, “China has amassed the world’s largest trove of dollar-denominated assets. Although the true composition of China’s foreign exchange reserves, valued at $3.66 trillion, is a state secret, outside observers estimate that about 70 percent is in dollars. In recent years, China has become less risk averse and more willing to invest directly in U.S. land, factories, and businesses.”

Did we let the USSR buy our companies during the Cold War? No, we didn’t! We realized that we would be helping our enemy. This was pretty simple, common sense, but we don’t seem to have this same common sense when dealing with China.

China has a written plan to become the Super Power of the 21st Century. With regard to China’s military buildup, the report states, “PLA modernization is altering the security balance in the Asia Pacific, challenging decades of U.S. military preeminence in the region…The PLA is rapidly expanding and diversifying its ability to strike U.S. bases, ships, and aircraft throughout the Asia Pacific region, including those that it previously could not reach, such as U.S. military facilities on Guam.

It is time to wake up to the real dangers of our dangerously high trade deficits with China. The Communist Chinese government is not our friend. They are a geopolitical rival that is striving to replace the United States as the global hegemony. We should not let Chinese corporations acquire any more of our energy companies or technology-based companies if we want to maintain our national sovereignty.

Manufacturing in Golden State Summit shows how to make California Thrive

Tuesday, March 25th, 2014

On March 19th, over 100 business leaders met at the community center of the City of Brea in Orange County for the “Manufacturing in the Golden State – Making California Thrive” economic summit. The summit was hosted by State Senator Mark Wyland in partnership with the Coalition for a Prosperous America and many other regional businesses and associations. The purpose of the summit was to discuss how our national trade policies and tax policies are harming California manufacturers and what policies should be changed to help them grow and thrive.

After State Senator Wyland welcomed attendees, Michael Stumo, CEO of the Coalition for a Prosperous America, provided an overview of the schedule for the day.

I provided an overview of California manufacturing in which I briefly discussed the history of manufacturing in California, pointing out that California is the 8th largest market in world and ranks first in manufacturing for both jobs and output. Manufacturing accounts for 12.5 % of the California’s Gross State Product and 9% of California jobs. California leads the nation in monies spent on R&D, and California companies received over 50% of all Venture Capital dollars invested in the U. S. in 2011. California’s high-tech exports also ranked first nationwide, totaling $48 billion in 2011.

California dropped to 50th in ranking for its business climate by the Small Business Entrepreneur Council Survival Index of 2013 because of its high personal and corporate income & capital gains taxes, its high gas and diesel taxes, high state minimum wage, high electric utility costs, high workers’ compensation costs, and stringent environmental and air quality regulations.

As a result, California lost over 600,000 manufacturing jobs since the year 2001, which represents 33.3% of its manufacturing industry. I mentioned that all of us had undoubtedly heard the latest ad by Texas Governor Rick Perry touting that 50 California companies had relocated to Texas in the last two years.

I then moderated a panel of the following local manufacturers, who gave their viewpoints of the challenges of doing business in California:

  • Bob Lane, President, laneOPX
  • Dana Mitchell, President, Advanced Mold Technology Inc.
  • Tim Nguyen, President, Alva Manufacturing
  • Nick Ventura, Co-founder

Ms. Mitchell, Mr. Nguyen, and Mr. Ventura highlighted the difficulty in competing against Chinese prices and finding skilled workers. Their other comments provided examples of some of the above-cited disadvantages of doing business in California.

Dr. Greg Autry, Adjunct Professor of Entrepreneurship, Marshall School of Business, University of Southern California, led off the national panel with the topic of “Currency Valuation and National Security Concerns with the Current U.S. Trade Regime.” He began by showing the falsity of classical  assumptions behind “free trade” by Ricardo and Hume ? absolute advantages are non-transferable, there are no externalities, such as pollution and military expenses, trade is in kind, there are no fiat currency distortions, and no strategies that are time constrained.

Autry then discussed the currency manipulation models of Japan and China, showing how China’s currency manipulation affects our national security. While China has adjusted the valuation of their renminbi (yuan) slightly since they drastically devalued it in 1994, it has still not reached the level that it was at that time. To keep their currency valuation low they either keep the dollars they get from their trade surplus in reserve or buy U. S. Treasury bonds. The dollars they earn from our trade imbalance and the interest they earn from buying our debt in the form of bonds has funded the dramatic buildup of their military.

Our technical superiority in military systems will not assure our national security any more than the technical superiority of Nazi Germany’s aircraft and tanks did for them. Economic superiority is what matters. The manufacturing industry of the U. S. out produced Germany during WWII and the Soviet Union in the Cold War. Autry stated, “An economy that builds only F-35s is unsustainable – productive capacity is what wins real wars. Sophisticated systems require complex supply chains of supporting industries. They require experienced production engineers and experienced machinists.” He concluded that we cannot rely on China to produce what we need for our military and defense systems. We should not be relying on Russia’s Mr. Putin to launch our satellites and space vehicles and provide us a seat to get to the international space station.

Next, Michael Stumo presented “Can Consumption Taxes Create Jobs and Help Regain American Prosperity?” He said, “America has no strategy to win… in terms of being a successful producing and exporting nation. Growing exports, expanding two-way trade, and establishing global supply chains makes us losers.Unilateral trade disarmament makes us losers.We should want to win and not be ashamed of pursuing our national interest.”

Stumo described the math about how a consumption tax could reduce our income tax burden, include imports in our tax base, and shrink the trade deficit, and increase U.S. production while maintaining progressivity. He explained that our national Gross Domestic Product (GDP) equals Consumption plus Investment plus Government Procurement plus Net Exports (Total exports minus Total Imports). Because our imports exceed exports, our economy is smaller than it would be if the U.S. balanced trade.

More than 150 countries have a form of consumption tax, either a goods and services tax (GST) or a value added tax (VAT), with an average 17% level. These countries rebate these taxes on their exports, which is a subsidy. The taxes are “border adjustable” because they act as a 17% tariff on our goods sent to other countries.

After NAFTA, Mexico replaced its tariff reduction by establishing a 15% VAT, and Central America did the same, establishing a 12% VAT after CAFTA. Other countries use consumption taxes to offset income, payroll, or other employer taxes to help their manufacturers be more competitive in the global marketplace or to offset other costs like national health care or pension programs.

These border adjustable consumption taxes have been a causative factor in increasing our trade deficits with our trading partners, which was $471.5 billion in 2013, $318 billion with China alone. CPA advocates changes in U. S. trade policy to address this unfairness which tremendously distorts trade flows. The goal of a U. S. consumption tax should be:

  • Neutralize foreign tax (tariff/subsidy) advantage
  • Reduce non-border adjustable taxes: Income and/or Payroll
  • Replace them with border adjustable consumption taxes like a GST
  • Be revenue neutral
  • Be distribution/progressivity neutral
  • Minimize fight over exemptions, deductions, and location of profits

Pat Choate (Economist; Author, Saving Capitalism: Keeping America Strong) covered the importance of protecting Intellectual Property to the future of American manufacturing. He said that the U. S. is the most innovative country in the world, issuing more patents than any other country, and California represents 25% of all U. S. patents. Choate highlighted how our current trade policies do not address patent infringement, trademark counterfeiting, and the outright theft of our trade secrets by China and other Asian countries. The intellectual property clauses of the Trans-Pacific Partnership would exacerbate the problems already created by the passage of the America Invents Act in 2012 converting the U. S. from a “first-to-invent” to “first-to-file” that has hurt our innovation. Any future trade agreement must address intellectual property theft.

The next speaker was Mike Dolan, Legislative Representative for the Teamsters, who has long experience working for Fair Trade (fighting expansion of the job-killing NAFTA/WTO model). If we build and maintain a strong bipartisan mobilization, we can stop Fast Track trade authority from being granted to the President and stop the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) Agreements from being passed. Dolan called the TPP “NAFTA on steroids” said that TTIP is just as bad. Dolan concluded that the path to victory on sensible trade policy is not possible without the Coalition for a Prosperous America and the constituencies it represents — small business, particularly in industries that are sensitive to trade fluctuations, family farmers and ranchers, working families and “trade patriot” activists including Tea Party groups.

Keynote speaker Dan DiMicco, Chairman Emeritus of Nucor Steel Corporation, spoke about “Seizing the Opportunity.” He led off by shocking the audience with facts about the real state of our economy and our unemployment rate. By December 2013, we still had not reached the level of employment that we had when the recession began in December 2007 although 72 months had passed. We lost 8.7 million jobsfrom December 2007 to the “trough” reached in February 2010, but because our recovery has been much slower than the previous recessions of 1974, 1981, 1990, and 2001, the gap in recovery of jobs compared to these recessions is actually 12,363 jobs.  

In contrast to the misleading U-3 unemployment rate of 6.7% for December that is reported in the news media, the U-6 rate was 13.1%.  The government’s U-6 rate is more accurate because it counts “marginally attached workers and those working part-time for economic reasons.” However, the actual unemployment is worse because the participation in the workforce has dropped from 66.0% to 62.8%. In other words, if the December 2013 Civilian Labor Force Participation Rate was back to the December 2007 level of 66.0%, it would  add 7.9 million people to the ranks of those looking for jobs.The manufacturing industry lost 20% of its jobs, and the construction industry lost 19% of its jobs.

Unemployment Data Adjusted For Decline in Civilian Labor Force Participation Rate
(Adjusted For Decline from December 2007 Level Of 66.0% to 62.8% in December 2013)

Reported Unemployed U.S. Workers 10,351,000
Involuntary Part-time workers 7,771,000
Marginally Attached To Labor Force Workers 2,427,000
Additional Unemployed Workers With 66% CLF Participation Rate 7,896,000


Unemployed U.S. Workers In Reality 28,445,000
Adjusted Civilian Labor force 162,833,000
Unemployment Rate In Reality 17.5%

We got in this position from 1970 until today because of failed trade policies allowing mercantilism to win out against true FREE Trade. We bought into wrongheaded economic opinions that America could become a service-based economy to replace a manufacturing-based economy. Manufacturing supply chains are the Wealth Creation Engine of our economy and the driver for a healthy and growing middle class! The result has been that manufacturing shrank from over 30% to 9.9% of GDP causing the destruction of the middle class. It created the service/financial based Bubble Economy ( scheme type financial instruments.)

In addition, we have had 30 years of massive increases in inefficient and unnecessary Government regulations. These regulations, for the most part, in the past have been put in place by Congress and the Executive Branch. However, today they are increasingly being put in place by unelected officials/bureaucrats as they intentionally by-pass Congress.

American’s prosperity in the 20th century arose from producing more than it consumed, saving more than it spent, and keeping deficits to manageable and sustainable levels. Today, America’s trade and budget deficits are on track to reach record levels threatening our prosperity and our future.

Creating jobs must be our top priority, and we need to create 26-29 million jobs over the next 4-5 years. There are four steps we can take to bring about job creation:

  • Achieve energy independence,
  • Balance our trade deficit,
  • Rebuild our infrastructure for this century.
  • Rework American’s regulatory nightmare

We need to recapture American independence through investment in our country’s people, infrastructure, and energy independence, and by reversing the deficit-driven trends that currently define our nation’s economic policy. In conclusion, DiMicco said, “Real and lasting wealth IS, and always has been, created by innovating, making and building things — ALL 3 ? and servicing the goods producing sector NOT by a predominance of servicing services!”

Now is the time for all Americans to put aside their political differences and work together to restore California to the Golden State it once was and restore the United States to the land of opportunity it once was.

CPA’s Legislative Fly-in was a Resounding Success!

Tuesday, March 18th, 2014

Last week, I attended the annual Coalition for a Prosperous America’s legislative fly-in to Washington, D.C. for the second time. My fellow CPA members and supporters came from California to New England and from Washington State to Florida, and we met with over 100 Congressional and Senate offices. As chair of the California chapter, I headed up one of the two teams from the western United States, and my team met with Congressional staff and one Congressmen at a dozen offices. It was obvious that CPA’s influence is growing as we had more scheduled appointments than last year, and our appointment times were twice as long.

We delivered the message that balanced trade needs to be at the forefront of our national strategy. We now have a trade deficit with 88 countries, and our trade deficit with every one of our trading partners is worse than it was prior to concluding trade agreements with these countries. In 2013, we had a trade deficit in goods of $703.2 billion and services, but because we still have a trade surplus in services, our deficit in goods and services went down to $471.5 billion. One problem with services is that many of the services we now export are services being performed for American manufacturers that have set up manufacturing plants in other countries. An additional problem is that over 40% of our trade deficit is with China alone, and this is unsustainable.

Since our U. S. Gross Domestic Product (GDP) is the sum of Consumption plus Investment plus Government Procurement plus Net exports (exports – imports), our trade deficit reduces our GDP. For example, in 2011, our GDP was $15,094.4 trillion, and our trade deficit shaved 4% off our GDP (14% share of GDP for exports minus 18% share of GDP for imports.)

“Our members reported a major improvement this year in congressional willingness to reconsider bad trade policy,” said Michael Stumo, CEO of the Coalition for a Prosperous America. “We were effective in countering the relentless efforts by the wealthy special interest groups who work hard to offshore our industries, our jobs and our sovereignty. The Administration’s efforts to push outdated, economy-killing concepts of trade policy has been stonewalled by the left and the right in Congress. Now they are in disarray.”

“It has become impossible to defend the current neo-liberal trade policy which ignores balance of trade,” continued Stumo. “We will start pushing that concept harder this year as we work with Congressional allies.”

I was happy to see that Congressional offices showed a heightened sensitivity to preserving states rights, American national sovereignty, and legislative branch authority over trade. The Trans-Pacific Partnership (TPP) being negotiated would allow foreign tribunals to pass judgments on “investment agreements” between the U. S. federal government and investors from TPP nations. This would make the laws and policies of the 50 states to be subject to  international tribunals rather than our Congress and judicial system.

Also, the TPP would create binding policies on future Congresses as it pertains to patent and copyright laws, land use, food and agriculture, and product standards. It would also govern our nation’s policies concerning natural resources, the environment, labor laws, and government procurement policies, along with financial, health care, energy, telecommunications and other service sector regulations.

“Congress is increasingly loathe to transfer its authority over trade and domestic policy to the executive branch and give up its right to full transparency and amendments,” said Stumo. “Trade negotiators have steadfastly refused to pursue balanced trade, a fix for currency manipulation, and multiple other changes to fix the mistakes of the past.”

I have written the following four articles in the past year that were published on the Huffington Post regarding the dangers of the TPP as currently negotiated:

The Trans-Pacific Partnership Would Destroy our National Sovereignty” (March)

Why the Trans-Pacific Partnership Would Hurt American Manufacturers” (May)

The Trans-Pacific Partnership Trade Agreement Would Harm Our Environment” (July)

Why we must stop Fast Track Authority from being granted” (January 9, 2014)

In addition to pointing out the harm that has been caused by our current trade policies and what is wrong with the TPP, we presented CPA’s “Principles for a 21st Century Trade Agreement:  Fixing Past Mistakes,” which advocates trade strategies that would create “Smart Trade not Dumb Trade.” Congress should require that future trade agreements provide:

Balanced Trade:  Trade agreements must contribute to a national goal of achieving a manageable balance of trade over time.

National Trade, Economic and Security Strategy: Trade agreements must strive to optimize

value added supply chains within the U.S. – from raw material to finished product – pursuant to a national trade and economic strategy that creates jobs, wealth and sustained growth. The agreements must also ensure national security by recapturing production necessary to rebuild America’s defense industrial base.

Reciprocity: Trade agreements must ensure that foreign country policies and practices as well as their tariff and non-tariff barriers provide fully reciprocal access for U.S. goods and services. The

agreements must provide that no new barriers or subsidies outside the scope of the agreement nullify or impair the concessions bargained for.

State Owned Commercial Enterprises: Trade agreements must encourage the transformation of state owned and state controlled commercial enterprises (SOEs) to private sector enterprises. In the interim, trade agreements must ensure that SOEs do not distort the free and fair flow of trade -

throughout supply chains – and investment between the countries.

Currency: Trade agreements must classify prolonged currency undervaluation as a per se violation of the agreement without the need to show injury or intent.

Rules of origin: Trade agreements must include rules of origin to maximize benefits for U.S. based supply chains and minimize free ridership by third parties. Further, all products must be labeled or marked as to country(s) of origin as a condition of entry.

Enforcement: Trade agreements must provide effective and timely enforcement mechanisms, including expedited adjudication and provisional remedies. Such provisional remedies must be permitted where the country deems that a clear breach has occurred which causes or threatens injury, and should be subject to review under the agreements’ established dispute settlement mechanisms.

Border Adjustable Taxes: Trade agreements must neutralize the subsidy and tariff impact of the border adjustment of foreign consumption taxes.

Perishable and Cyclical Products: Trade agreements must include special safeguard mechanisms to address import surges in perishable and seasonal agricultural product markets, including livestock markets.

Food and Product Safety and Quality: Trade agreements must ensure import compliance with

existing U.S. food and product safety and quality standards and must not inhibit changes to or improvements in U.S. standards. The standards must be effectively enforced at U.S. ports.

Domestic Procurement: Trade agreements must preserve the ability of federal, state and local

governments to favor domestic producers in government , or government funded, procurement.

Temporary vs. Permanent Agreements: Trade agreements must be sunsetted, subject to renegotiation and renewal. Renewal must not occur if the balance of benefits cannot be restored.

Trade negotiators agree to language based upon expectations and judgment in pursuit of national goals.

Labor: Trade agreements must include enforceable labor provisions to ensure that lax labor standards and enforcement by contracting countries do not result in hidden subsidies to the detriment of U.S.-based workers and producers.

We CPA members also delivered a petition signed by over 80 liberty groups across the country objecting to Fast Track and the Trans-Pacific Partnership on constitutional grounds. “Tea Party and other liberty organizations have learned how American sovereignty is at risk as we transfer domestic authority to international governance systems and tribunals,” continued Stumo. “They are not fooled by phony free trade claims as a rationale to permanently give up our sovereignty.”

After this legislative fly-in, the outlook is more promising that CPA will be successful in forging a new consensus on trade and economic policy that balances trade, creates jobs, grows our economy and protects American sovereignty. It was a pleasure to take advantage of my rights as a citizen to express my opinions and those of an organization of which I am a member to our elected representatives. You can help ensure that this success happens sooner than later by supporting the Coalition for a Prosperous America.

We Must Stop Fast Track Trade Authority from Being Granted!

Tuesday, January 7th, 2014

President Obama had hoped to be able to announce that he had been granted Fast Track Authority before the Asia-Pacific Economic Cooperation (APEC) meeting in Bali, Indonesia on October 8, 2013, but due to budget issues and the government shutdown, the bill wasn’t introduced and approved in the fall. He had also hoped to complete negotiations for the Trans-Pacific Partnership (TPP) Agreement at this meeting, but no agreement was reached by the countries involved. For the last three years, the Obama administration has conducted negotiations behind closed doors through the offices of U.S. Trade Representative Ron Kirk without any involvement with Congress.

Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. Because the TPP is intended as a “docking agreement,” other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest. China could join the TPP at a later date without suffering any disadvantage even though this would negate the original reason for the TPP as a counter to China’s hegemony in the Pacific.

Reliable sources have revealed that a bill to grant the president Fast Track Authority under the Trade Promotion Authority will be introduced on January 8th in the Senate Finance Committee and the House Ways and Means Committee. It appears that there is sufficient support to pass these bills out of the committees for a vote on the floor.

Earlier this year, I published three blog articles on the dangers of the Trans-Pacific Partnership agreement and granting the president Fast Track Authority:  “The Trans-Pacific Partnership Would Destroy our National Sovereignty;” “Why the Trans Pacific Partnership Would Hurt American Manufacturers;” and “The Trans Pacific Partnership Trade Agreement Would Harm our Environment.”

In my first article, I commented on the many articles that Lori Wallach of Public Citizen had written about the Trans-Pacific Partnership:  “Ms. Wallach opines that U.S. multinational corporations have the goal of imposing on more countries a set of extreme foreign investor privileges and rights and their private enforcement through the notorious “investor-state” system. ‘ This system elevates individual corporations and investors to equal standing with each TPP signatory country’s government- and above all of us citizens.’ This would enable ‘foreign investors to skirt domestic courts and laws, and sue governments directly before tribunals of three private sector lawyers operating under World Bank and UN rules to demand taxpayer compensation for any domestic law that investors believe will diminish their ‘expected future profits.’”

With regard to “Buy American” laws in my second article, I wrote, “What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries.”

I also noted that as far back as May 3, 2012, a letter from Rep. Donna Edwards (D-Md.) and 68 other Congressional Reps to President Obama stated in part, “We are concerned about proposals we understand are under consideration in the Trans-Pacific Partnership (TPP) agreement negotiations that could significantly limit Buy American provisions and as a result adversely impact American jobs, workers, and manufacturers…We do not believe this approach is in the best interest of U.S. manufacturers and U.S. workers. Of special concern is the prospect that firms established in TPP countries, such as the many Chinese firms in Vietnam, could obtain waivers from Buy American policies. This could result in larger sums of U.S. tax dollars being invested to strengthen other countries’ manufacturing sectors, rather than our own.”

In a commentary article on October 15, 2013, Lt. Col (Retired) Allen West wrote, “TPP would subject the U.S. to the jurisdiction of foreign tribunals under the authority of the World Bank and United Nations. These unelected, unaccountable panels would constitute a judicial authority higher than the U.S. Supreme Court. They would have the power to overrule federal court rulings and order payment of U.S. tax dollars to enforce the special privileges granted to foreign firms that would be exempt from EPA and other regulations that strangle American firms.”

He added, “We’re also told TPP shows our Asian allies we’re serious about confronting China. But it would actually weaken the U.S. As the Chinese People’s Liberation Army uses every means possible to infiltrate our command and control systems, TPP bans Buy American policies that require crucial equipment for our troops be produced in the U.S. We don’t need TPP to stop China’s military expansion – we need to tell the same crowd pushing TPP to stop transferring their capital and technology to that communist dictatorship.”

In a commentary on the Economy in Crisis website, economist Pat Choate outlined the reasons why we should oppose President Obama being granted Fast Track Authority:

  • Allows the President to select countries with which to enter into trade agreements, set the substance of the talks and then sign those pacts without prior Congressional approval.
  • Allows the President to negotiate and include in these trade agreements not only tariffs and quotas, but also changes in federal, state and local laws on taxes, food and health safety, patents, copyrights, trademarks, immigration, Environment, Labor standards, and Buy America provisions, among many other issues.
  • Creates a Presidential advisory system, comprising 700 industry representatives appointed by the President. These advisors have access to confidential negotiating documents that are kept secret from most members of Congress and the public.
  • Empowers the President to draft the agreements to implement legislation without Congressional input.
  • Requires House and Senate Leaders to introduce the President’s bill on the first legislative day following the President’s submission.
  • Requires that the legislation be discharged from Committee 45 days after submission.
  • Requires a floor vote 15 days after the bill is discharged from Committees.
  • Allows only 20 hours of debate in each House.
  • Prohibits any amendments either in Committee or during the floor debate.
  • Eliminates several floor procedures, including Senate unanimous consent, normal debate and cloture rules, and the ability to amend the legislation.
  • Prevents a Senate filibuster.
  • Requires only a simple majority vote in each House for enactment.

In conclusion Mr. Choate states, “These trade pacts will have the effect of a treaty, though the Constitution requires a two thirds majority vote by the Senate for the United States to enter into a treaty.”

It is precisely this sort of amassing of powers that defines a dictatorship. Our Founding Fathers wisely chose to keep governmental power separated in a system of checks and balances, but by utilizing the Fast Track Authority, our Constitutional system of checks and balances would be destroyed and our national sovereignty would be given to foreign nations and multinational corporations in the name of “free trade.”

A letter addressed to President Obama, signed by 24 Republican Representatives in the House, stated, “Under Fast Track, the executive branch is empowered to sign trade agreements before Congress has an opportunity to vote on them, and then unilaterally write legislation making the pacts’ terms U.S. federal law. Fast Track allows the president to send these executive branch-authored bills directly to the floor for a vote under rules forbidding all floor amendments and limiting debate. And by requiring the House to vote on the bill within a preset period of time, it takes the floor schedule out of the hands of the House majority and gives it to the president.

Given these factors, we do not agree to cede our constitutional authority to the executive through an approval of a request for “Fast Track Trade Promotion Authority.”

The signatories were:  Jones, Bachmann, Joyce, Gohmert, Cook, McKinley, Jimmy Duncan, Stockman, LoBiondo, R. Bishop, C. Collins, C. Smith, Rohrabacher, Bentivolio, Grimm, Mica, Broun, Brooks, D. Young, Jeff Duncan, Gibson, Denham, Hunter and Fitzpatrick.

On the Democrat side of the aisle, Representatives Rosa DeLauro (D-CT) and George Miller (D-CA) took the lead in getting a total of 151 Democrats in the House to oppose the use of “Fast Track” procedures that usurp Congress’s authority over trade matters. Their opposition stands for both the Trans-Pacific Partnership (TPP) agreement and any future trade agreements. The letter in part states, “Congress, not the Executive Branch, must determine when an agreement meets the objectives Congress sets in the exercise of its Article I-8 exclusive constitutional authority to set the terms of trade. For instance, an agreement that does not specifically meet congressional negotiating objectives must not receive preferential consideration in Congress. A new trade agreement negotiation and approval process that restores a robust role for Congress is essential to achieving U.S. trade agreements that can secure prosperity for the greatest number of Americans, while preserving the vital tenets of American democracy in the era of globalization.”

If Fast Track Authority is approved, it would allow President Obama to essentially have dictatorial control over the country in many respects. Fast Track Authority gives the executive branch legislative powers, something expressly forbidden by the Constitution. We must deny the President Fast Track Authority. If this is granted, it will be even more difficult to stop the Trans-Pacific Partnership from being approved.

It would be the final nail in the coffin for U.S. sovereignty. Contact your Congressional representative and urge them to oppose the Fast Track Authority and forward this article to your friends and ask them to do the same!

Decline in Capital Investment is Threat to American Innovation

Tuesday, October 22nd, 2013

In early October, the Information Technology and Innovation Foundation released a report titled “Restoring America’s Lagging Investment in Capital Goods,” by Luke A. Steward and Robert D. Atkinson. The report analyzes trends in private sector investment in capital goods over the last three decades, investigates the causes of the current decline, and proposes policy reforms designed to spur increased investment growth. The authors warn that this serious decline in capital investment over the last decade is a key threat to economic growth.

The authors state, “Private capital investment is the primary means through which innovation, the key driver of economic growth, diffuses throughout the economy.” Business investment in equipment, software and structures grew by only 0.5 percent from 2000 and 2011 compared to an average of 2.7 percent between 1980 and 1989 and 5.2 percent per year between 1990 and 1999.

The authors make a strong case about why capital investment matters in developed, knowledge-based economies like the United States. While innovation powers long-run economic growth, the mere act of innovating is not sufficient to grow an economy. Innovation must diffuse through the economy by being adopted by other companies that seek to improve productivity or the quality of products or services. It is the purchase of machinery, equipment, and software by companies that is capital investment that spreads the innovation throughout the economy.

“Capital investment acts as a diffuser of innovation because innovation is embedded in new investment”  Industrial equipment such as engines, metalworking machinery, and materials handling equipment; transportation equipment like trucks and aircraft; construction machinery, agricultural or mining equipment are now “infused with highly advanced technologies, and each new generation is better than the last.”

After a comparison of neoclassical economies and neo-Keynesian economies with innovation economies such as the United States, they conclude that innovation economies require high rates of capital investment in order to be utilized. This innovation economy is also referred to as “the new growth theory, in which investment in new machinery, equipment and software spreads innovation. By high rates of investment, they do not mean a high amount of equipment, software and structures. They “mean that the capital stock is refreshed and replaced with newer and more productive machinery, equipment and software.” They write, “The value of investment is not in acquiring more machinery and equipment; it is in acquiring newer and more productive equipment… A high rate of investment enables innovations to swiftly spread through the economy, bestowing their economic benefits upon their users.”

The authors show that a second reason why “capital investment matters is that it has substantial ‘spillover’ benefits—that is, benefits not just for the firm making the investment, but also for the rest of society…Many economists acknowledge that investments in the production of innovation (such as R&D) have spillovers, and that this is why policies like the R&D tax credit are important. But fewer recognize that investments in new machines, equipment and software also have spillovers.”

The report continues with an analysis of capital investment trends, focusing on information processing equipment and software (IPES). While IPES assets grew at the very rapid rate of 681 percent compared to the next highest, transportation, at 69 percent from 1980 to 2011, the growth rate of even IPES stagnated in the decade of the 2000s.

The authors conclude: “This stagnation means that business investment rates are actually falling relative to the size of the economy…As a share of GDP, fixed investment was higher in the early 1980s—around 13 percent of GDP—than in any subsequent year. In 2011, fixed investment accounted for less than 10 percent of GDP. Given that it is investment that drives productivity growth, these statistics are sobering. Out of all the fundamental components of GDP—consumption, investment, government, and net exports—a fall in the relative magnitude of investment is the most worrying in terms of future economic performance.”

While equipment investment is far more important than investment in structures (buildings), in 2011, “the number of new manufacturing structures is no longer keeping pace with the depreciation of existing manufacturing structures, which, in turn, means that the real quantity of manufacturing facilities in the United States is shrinking…Between 2001 and 2011, the net stock of manufacturing structures fell by more than nine percent, a fall which, given investment’s continued decline, will also undoubtedly continue.”

A decline in value of manufacturing structures in the United States is only a symptom, not a driver, of a decline in the international competitiveness of the U.S. manufacturing sector. The decline of “investment equipment and software investment is more of a driver of competitiveness, and thus its decline is far more ominous.”

Total business investment in equipment and software grew in the 1980s, boomed in the 1990s, and then stagnated in the 2000s. Between 1980 and 1991, equipment and software investment increased by 37 percent compared to just 2 percent between 2000 and 2011. This means that investment in equipment and software is falling relative to the size of the economy just like total investment.

The picture looks even worse when the IPES assets are removed from total equipment assets, leaving only assets such as industrial machinery and transportation equipment. “Instead of merely stagnant growth, non-IPES investment has declined over eight percent since 2000.”

The next section of the report compares investment in equipment and software by industry, showing that “the composition of investment went from being spread over a broad base of sectors, especially in the 1990s, to being concentrated in a few select sectors in the 2000s.” Industries such as trade and transportation, health, and management and professional services expanded slightly. “Manufacturing led in the 1980s and 1990s but was displaced in the 2000s by finance and real estate, much of that made in the ramp up to the financial collapse of 2008.”

Not only did business investment stagnate in the 2000s, but investment is “now much more concentrated in a few select domestic-serving services industries, and industries that once powered U.S. investment growth and global competitiveness are now falling behind,” such as computers and chemical products.

The investment trends in the computer and electronic products industry are even worse than other manufacturing sectors:  “a 36 percent decline in equipment and software investment since 2000.”

The authors propose two possible reasons for the causes of investment stagnation:

  1. Decline in the competiveness of U.S. traded-sector businesses on the global market that has been occurring, particularly over at least the past decade
  2. “Short-termism”—the obsession with the upcoming financial report rather than long-range planning—that pervades publicly traded businesses facing stockholder pressures

Numerous other reports have described the U.S. competitive decline over the past decade so this report just summarizes a few of the key points that have been made in other reports and previous articles I have written. The end result is that the United States has lost its attractiveness as a production location for manufacturing, and when those businesses move offshore to other countries, they take their investment along with them. In addition, fewer foreign firms are making investments here in the United States. Thus, investment declines in one industry sector after another.

With regard to “short-termism,” the authors mean “the pressure on companies by Wall Street to achieve short-term profits has all too often come at the expense of long-term investment.” In other words, executives are willing to “delay new investment projects in order to meet short-term earnings targets, even if it meant sacrifices in value creation.”

Atkinson and Steward urge policymakers to put in place new policies to encourage the private sector to restore investment rates and stem the decline and stimulate new investment and productivity growth. They recognize that the first step to addressing market short-termism is for Congress and the Obama administration to acknowledge and take the problem seriously, and the next step is to begin a detailed analysis of the problem. They recommend the following actions:

Establish a Task Force to Study Market Short-Termism and Recommend Policies to Ameliorate It ?  The White House should establish a task force, led by the National Economic Council, bringing together members of the Council of Economic Advisers and the Treasury Department, to study the causes and nature of short-termism and draft a set of recommendations to ameliorate it. “The task force should analyze all potential options for reigning in market short-termism, ranging from changes to tax law to corporate governance solutions to encouraging changes in the U.S. corporate cultures within business schools, corporate boardrooms and ‘Wall Street.’”

Establish a Tax Credit for Investing in Equipment and Software ?  Congress should enact an investment tax credit (ITC) to provide a 35 percent credit on all capital expenditures made above 75 percent of a base amount. The ITC would be modeled on the Alternative Simplified Research and Experimentation Tax Credit (ASC).

This report proves that as investment declines, economic growth declines, and as economic growth declines, the capital available for investment and demand for new investment declines. If this trend continues, innovation will slow, competitiveness will continue to decline, and productivity growth will weaken. I agree with the authors that “it is essential that policymakers make challenging this problem a top priority. The authors’ policy recommendations may not be the only solutions to the problem, but “many countries have similar policies in place already—they will at least put the United States on a more equal f

Second Annual Manufacturing Day Celebrates American Knowhow

Tuesday, September 24th, 2013

The mission of Manufacturing Day 2013 on Friday, October 4th is to highlight the importance of manufacturing to the nation’s economy, address common misperceptions about manufacturing by giving manufacturers an opportunity to open their doors, and show what manufacturing is — and what it isn’t.

Manufacturing Day has become an annual national event after its inaugural year in 2012 that is executed at the local level supporting hundreds of manufacturers across the nation that host students, teachers, parents, job seekers and other local community members at open houses designed to showcase modern manufacturing technology and careers.

In its first year, more than 240 events were held in manufacturing facilities in 37 states and more than 7,000 people participated. This year’s celebration will feature open houses, public tours, career workshops and other activities to increase public awareness of modern manufacturing. Events also will introduce manufacturers to business improvement resources and services delivered through the MEP’s network of hundreds of affiliated centers across the country.

By working together during and after Manufacturing Day, manufacturers will begin to address the skilled labor shortage they face, connect with future generations, take charge of the public image of manufacturing, draw attention to the many rewarding high-skill jobs available in manufacturing fields, and ensure the ongoing prosperity of the whole industry.

This year’s Manufacturing Day is being co-produced by the Fabricators & Manufacturers Association, International (FMA), the National Association of Manufacturers (NAM), the National Institute of Standards and Technology’s (NIST) Hollings Manufacturing Extension Partnership (MEP), Industrial Strength Marketing which is a leading industrial B2B marketing agency, and the Manufacturing Institute. The national media partner for the event is the Science Channel.

“Manufacturing Day is a great opportunity to shift Americans’ perception that it is not our grandfather’s manufacturing anymore and to showcase the tremendous career opportunities manufacturing has to offer,” said NAM President and CEO Jay Timmons. “This day is an engaging way to attract young people and get them excited about pursuing a career in a technology-driven, innovative environment that will also provide a good-paying job. We encourage all manufacturers and manufacturing associations to get involved and share what we already know—manufacturing makes us strong.”

A long list of trade associations and private companies have joined the effort as sponsors that includes Shell and the Alliance for American Manufacturing at the Gold level, The Association of Manufacturing Excellence, Precision Metalforming Association, SME Education Foundation, Association for Manufacturing Excellence, the Plastics Industry Trade Association, and IHS GlobalSpec at the Silver level, as well as many others at the Bronze level. The long list of endorsers on the website includes my own organization.

“We’re honored to be a part of Manufacturing Day this year and look forward to helping make it a success,” said Scott Paul, president of AAM. “An innovative and growing manufacturing base is vital to America’s economic and national security, as well as to providing good jobs for future generations.”

“The co-producers could not be more pleased that these organizations and companies, which work on such an integral level with all sectors of the manufacturing industry, are putting their full support behind Manufacturing Day,” said Ed Youdell, president and CEO of the Fabricators & Manufacturers Association. “Their reputation and their reach to professionals in the industry, as well as educators and students, will help generate participation in Manufacturing Day events across the nation.”

The SME Education Foundation sees this is an opportunity for educators and parents to visit local employers with children, particularly those in middle school, to get them excited about the career opportunities available for those who have critically important STEM (science, technology, engineering and mathematics) skills.

“The SME Education Foundation is dedicated to opening multiple pathways for young people to find fulfilling, high paying careers in manufacturing.  Manufacturing Day is an opportunity to highlight manufacturing as vital to our economy and a career path that helps to growing wealth for the individual and for our nation,” said Bart A. Aslin, CEO, SME Education Foundation.  “Positive national media attention can help to dispel misconceptions about industries that provide safe, clean work environments while manufacturing products that improve standards of living in our global economy.”

Supported by this group of co-producers and industry sponsors, Manufacturing Day is designed to amplify the voice of individual manufacturers and coordinate a collective chorus of manufacturers with common concerns and challenges. The rallying point for a growing mass movement, Manufacturing Day empowers manufacturers to come together to address their collective challenges so they can help their communities and future generations thrive.

From now until Manufacturing Day, October 4th, enter the Manufacturing Day Sweepstakes to win a trip for two to a 2014 race of your choice, courtesy of Shell Lubricants. Eligible races include any of the Sprint Cup Series or Nationwide Series races during the 2014 season. The winner will be selected on October 7, 2013 and will be contacted shortly thereafter to claim their prize. Click here to enter today!

According to the 2012 Public Perception of Manufacturing report by the nonprofit Manufacturing Institute, 80 percent of Americans believe manufacturing is important to our economic prosperity, standard of living and national security. Yet, only 30 percent would encourage their children to go into manufacturing as a career. The hope is that by providing media, educators, parents, and kids with an inside look at the high-tech world of manufacturing this percentage will begin to grow.

With the gap growing each year between the skills students learn in school and those they will need on the job, it is increasingly difficult for manufacturers to find and hire qualified employees. By promoting Manufacturing Day, manufacturing associations and other organizations led by NIST MEP centers and the FMA said they want to remove some of the myths surrounding manufacturing. For example, manufacturing is a solid, long-term career choice for qualified candidates—including the young people who will form the workforce of tomorrow.

Here is a summary of a few reasons why we should acknowledge the importance of manufacturing by observing October 4th as Manufacturing Day that are outlined in greater detail in the chapter on “Why we should save American Manufacturing” from my book Can American Manufacturing be Saved? Why we should and how we can:

  • Manufacturing is the foundation of the American economy, and high-paying manufacturing jobs spurred a robust and growing economy and improved our quality of life. Manufacturing jobs were responsible for the lower working class rising into the middle class the last century.
  • Manufacturing is critical to our national defense because American manufacturers supply the military with the essential needed to defend our country. Without a strong manufacturing industry, America could lose future wars.
  • Manufacturing wages and benefits are 25-50 percent higher than non-manufacturing jobs. Only 16 percent of today’s workers earn the $20/hour ? down 60 percent since 1979.
  • United States is the world’s third largest exporter after China & Germany. Manufactured goods make up more than 60percent of U. S. exports, and high-tech products are largest export sector – four times as much as agriculture.
  • Manufacturing supports states’ economies through the taxes they pay. Manufacturing is the largest sector in 10 states, second largest in 9 states, and third largest in 21 states. Losing the critical mass of manufacturing will result in larger state and federal budget deficits. Over 90 percent of all manufacturers are small businesses of less than 100 people.

In my home town of San Diego, Manufacturing Day is being promoted by the California Governor’s Office of Business and Economic Development, the County of San Diego, the City of San Diego, the San Diego Regional Economic Development Corporation, the East County EDC, the San Diego North County EDC, CONNECT, California Manufacturing Technology Consulting (CMTC), the Tijuana EDC, and D&K Engineering. The day starts off with:

8 a.m.  Breakfast and Networking
8:30 – 10 a.m. Program
San Diego City College, Corporate Ed Center
1551 C Street, San Diego, CA 92101

Moderator: Mark Cafferty, President & CEO, San Diego Regional EDC

Panelists joining the conversation are:
Stephan Aarstol, Founder & CEO, Tower Paddle Boards
Alex Kunczynski, President, D&K Engineering

Rick Urban, COO/CFO, Quality Controlled Manufacturing Inc.

Chris Wellons, Vice President of Manufacturing, Taylor Guitars

Unfortunately, this event is already sold out, but you can add your name to the wait list at

Tours:  Following this Kick-off breakfast, you are invited to tour various local manufacturers who have agreed to open their doors to the community. Further information and registration to attend the tours can be found at Click on “Attend an Event” to find a tour near you.

To learn more about Manufacturing Day or to sign up to host or participate in one of the events, log on to www.mfgday. Organizations that wish to become involved as official sponsors of this program may email

What is the Importance of Unmanned Vehicles to our Economy?

Tuesday, July 16th, 2013

We’ve heard a great deal about “drones” or unmanned vehicles over the last decade of the “war on terror” in Iraq and Afghanistan. While these terms are used interchangeably in the news media, the members of the Association for Unmanned Vehicle Systems International (AUVSI) are quick to point out that the term “drone” was originally coined to refer to pilotless aircraft used for “target” practice by the military while an unmanned vehicle includes the technology on the ground, often with a human at the controls.

The mission of AUVSI is to advance the unmanned systems and robotics community internationally through education, advocacy and leadership. AUVSI represents more than 7,000 individual members and more than 600 corporate members from 60+ allied countries involved in the fields of government, industry and academia. AUVSI members work in the defense, civil and commercial markets.

In March 2013, AUVSI released a report, titled “The Economic Impact of Unmanned Aircraft Systems Integration in the United States” to document the economic benefits to the  U.S. once Unmanned Aircraft Systems (UAS) are integrated into in the National Airspace System (NAS) after the federal government tasked the Federal Aviation Ad­ministration (FAA) to determine how to integrate UAS into the NAS in 2012. This report estimates the economic impact of this integration and estimates the jobs and financial opportunity lost to the economy if there is a delay in enacting the regulations needed to do the integration.

The report states that “the main inhibitor of U.S. commer­cial and civil development of the UAS is the lack of a regulatory structure.” Non-defense use of UAS has been ex­tremely limited because of current airspace restrictions.

The combination of greater flexibility, lower capital and lower operating costs could allow unmanned vehicles to transform fields as diverse as urban infrastructure management, farming, and oil and gas exploration to name a few. The use of UAS in the future could be” a more responsible approach to certain airspace operations from an environmental, ecological and human risk perspective.”

Present-day unmanned vehicles have longer operational duration and require less maintenance than earlier models and are more fuel-efficient. These aircraft can be deployed in a number of different terrains and may not require prepared runways.

The Executive Summary states, “While there are multiple uses for UAS in the NAS, this research con­cludes that precision agriculture and public safety are the most prom­ising commercial and civil markets. These two markets are thought to comprise approximately 90% of the known potential markets for UAS.”

UAS are already being used in a variety of applications, and many more areas will benefit by their use, such as:

  • Wildfire mapping
  • Agricultural monitoring
  • Disaster management
  • Thermal infrared power line surveys
  • Law enforcement
  • Telecommunication
  • Weather monitoring
  • Aerial imaging/mapping
  • Television news coverage, sporting events, moviemaking
  • Environmental monitoring
  • Oil and gas exploration
  • Freight transport

While there are a number of different markets in which UAS can be used, the report concentrates on the two markets, commercial and civil, with the largest potential. A third category (Other) summarizes all other markets: Precision agriculture, Public safety, and Other.

“Precision agriculture refers to two seg­ments of the farm market: remote sens­ing and precision application. A vari­ety of remote sensors are being used to scan plants for health problems, record growth rates and hydration, and locate disease outbreaks. Such sensors can be attached to ground vehicles, aerial vehicles and even aerospace satellites. Precision application, a practice especially useful for crop farmers and horticulturists, uti­lizes effective and efficient spray techniques to more selectively cover plants and fields. This allows farmers to provide only the needed pes­ticide or nutrient to each plant, reducing the total amount sprayed, and thus saving money and reducing environmental impacts.”

Public safety officials include police officers and professional firefighters in the U.S., as well as a variety of profes­sional and volunteer emergency medical service providers who protect the public from events that pose significant danger, including natural disasters, man-made disasters and crimes.”

If sensible regulations are put in place, authors Darryl Jenkins and Dr. Bijan Visagh foresee few limitations to rapid growth in these industries because these products use off-the-shelf technology and thus impose few problems to rapidly ramping up pro­duction. The parts comprising these unmanned systems can be purchased from more than 100 different suppliers so prices will be stable and competitive. They can all be purchased within the U.S. or imported from any number of foreign countries without the need of an import license. For this report, they assume necessary airspace integration in 2015, which is on par with current legislation.

UAS have a durable life span of approximately 11 years and are relatively easy to maintain. The manufacture of these products requires technical skills equivalent to a college degree so there will always be a plentiful market of job applicants willing to enter this market. “The average price of the UAS is a frac­tion of the cost of a manned aircraft, such as a helicopter or crop duster, without any of the safety hazards. For public safety, the price of the product is approximately the price of a police squad car equipped with standard gear. It is also operated at a fraction of the cost of a manned aircraft, such as a helicopter, reducing the strain on agency budgets as well as the risk of bodily harm to the users in many difficult and dangerous situations. Therefore, the cost-benefit ratios of using UAS can be easily understood.”

The authors estimate enormous economic benefits to our country. To calculate the benefits, they forecast the number of sales in the three market categories. Next, they forecast the supplies needed to manufac­ture these products. Then, they forecast the number of direct jobs created using estimated costs for labor. Finally, using these factors, they forecast the tax revenue to the states.

In addition to direct jobs created by the manufacturing process, the authors state that there would be additional economic benefit by the new jobs created and income generated spread to local communities. “As new jobs are created, additional money is spent at the local level, creat­ing additional demand for local services which, in turn, creates even more jobs (i.e., grocery clerks, barbers, school teachers, home build­ers, etc.). These indirect and induced jobs are forecast and included in the total jobs created.”

The economic benefits to individual states will not be evenly dis­tributed. Ten states are predicted to see the most gains in terms of job creation and additional revenue as production of UAS increase, totaling more than $82 billion in economic impact from 2015-2025. In rank order they are:

  • California
  • Washington
  • Texas
  • Florida
  • Arizona
  • Connecticut
  • Kansas
  • Virginia
  • New York
  • Pennsylvania

“The economic projections contained in this report are based on the current airspace activity and infrastructure in a given state. As a result, states with an already thriving aerospace industry are projected to reap the most economic gains. However, a variety of factors—state laws, tax incentives, regulations, the establishment of test sites and the adoption of UAS technology by end users—will ultimately determine where jobs flow.”

The authors conclude:

1. The economic impact of the integration of UAS into the NAS will total more than $13.6 billion in the first three years of in­tegration and will grow sustainably for the foreseeable future, cumu­lating to more than $82.1 billion between 2015 and 2025.

2. Integration into the NAS will create more than 34,000 manufac­turing jobs and more than 70,000 new jobs in the first three years.

3. By 2025, total job creation is estimated at 103,776.

4. The manufacturing jobs created will be high paying ($40,000) and require technical baccalaureate degrees.

5. Tax revenue to the states will total more than $482 million in the first 11 years following integration (2015-2025).

6. Every year that integration is delayed, the United States loses more than $10 billion in potential economic impact. This translates to a loss of $27.6 million per day that UAS are not integrated into the NAS.”

They base the 2025 state economic projections on current aerospace employment in the states and presume that none of the states have enacted restric­tive legislation or regulations that would limit the expansion of the technology. Future state laws and regulations could also cause some states to lose jobs while others stand to gain jobs. States that create favorable regulatory and business environments for the industry and the technology will likely siphon jobs away from states that do not.

In conclusion, the study “demonstrates the significant contribution of UAS development and integration in the nation’s airspace to the economic growth and job creation in the aerospace industry and to the social and economic progress of the citizens in the U.S.

As the top ranked state and home to UAS manufacturers General Atomics and Northrop Grumman, California has active chapters of AUVSI, and the San Diego region chapter is AUVSI San Diego Lindbergh. Since both General Atomics and Northrop UAS plants are located in San Diego’s north county, in 2012, the North San Diego Chamber of Commerce commissioned the National University System Institute for Policy Research to conduct an economic assessment of the industry’s impact on San Diego’s defense economy. The report is titled, “Unmanned Aerial Vehicles:  An Assessment of Their Impact on San Diego’s Defense Economy. The report states, “Unmanned aerial vehicle (UAV) production neared $1.3 billion in San Diego during 2011, according to analysis of federal government Depart of Defense (DoD) contract spending. UAV spending has grown significantly in San Diego over the past five years, nearly doubling since 2008. This growth parallels the increasing role played by UAVs in the U.S. military and the leadership position San Diego companies occupy in the UAV industry.”

While San Diego is still struggling to emerge from the 2008 national economic downturn, “the bright spot in the San Diego economy in recent years has been defense-related spending. Local defense expenditures grew substantially the past decade while military base operations and payrolls expanded. “Many economic observers, including the National University System Institute for Policy Research (NUSIPR), conclude that absent San Diego’s prowess in defense manufacturing and its role in hosting major military facilities, the local unemployment rate would have been significantly higher.”

At the peak of the recession, civilian unemployment in the county climbed to nearly 11 percent, and todaystill hovers around 9 percent. Companies have shed more than 50,000 jobs in the region. Local wages have fallen the past two years, while per capita income remains well below pre-recession peaks.

The important role of UAVs to the San Diego economy is emphasized by the fact that “UAV contracting activities in 2011 supported 7,135 direct and indirect jobs throughout San Diego County,” and “UAVs now comprise the largest segment of San Diego’s defense manufacturing sector. UAV production comprises more than 12 percent of all DoD contracting activities in San Diego County.” While DoD contracting in San Diego started to decrease in the past three years, UAV activity continued to expand.

“Since 2004, San Diego’s aerospace employment, now primarily focused on unmanned aircraft systems, has increased by 1,200 jobs. Just since early 2010, the sector has added 600 jobs. The two major UAV firms locally, Northrop Grumman and General Atomics Aeronautical Systems, each conduct billions of dollars in UAV unclassified contract work in San Diego County. According to Northrop Grumman Vice President Jim Zortman, ‘The center of the unmanned business for aerial vehicles is right here in San Diego.’”

The report states, “Production of UAVs is forecast to double by the end of the decade. Several forecasting firms have predicted the global demand for UAVs will reach $12 billion by 2019, even in the face of significant reductions in U.S. military spending.” There is every reason to believe San Diego is positioned to benefit from this trend given the leadership of Northrop Grumman and General Atomics Aviation in UAV technology.

However, several other states and regions are actively working to attract UAV researchers and manufacturers, and their efforts include the development of specialized educational programs and the preservation of airspace assets. Many states are setting aside dedicated airspace to support the UAV industry. Before the end of this year, the FAA will designate six areas around the country as UAS test sites.

In April of this year, the AUVSI San Diego Lindbergh Chapter joined the San Diego Regional Economic Development Council (EDC), the San Diego Military Advisory Council (SDMAC), the Imperial County EDC, County of Imperial, Holtville Airport, Indian Wells Valley Airport District (IWVAD), and defense contractors including General Atomics, Cubic Corporation, and Epsilon Systems Solutions, Inc. to respond to the Federal Aviation Administration’s (FAA) Screening for Information Request (SIR) and develop an Unmanned Aerial Systems (UAS) Test Range in a partnership with civil and military government agencies, academia, and industry. This coalition has joined an already established entity called the California Unmanned Systems Portal (Cal UAS Portal), which is based in Indian Wells, to create a proposed UAV Test Site that would extend from the NAS China Lake/Edwards Air Force Area, West to the Pacific Ocean, South to the Mexican border, and East to the Arizona border.

If San Diego wants to continue as a leading region for unmanned vehicles, it will be necessary for leaders in the private and public sectors to determine how best to support this industry and influence policymakers to address the high cost of doing business in California that is creating cost pressures on UAS manufacturers’ competitiveness in the worldwide UAS industry. As the report concludes, “Complacency could cause the region [and our country] to lose its leadership position and miss an opportunity to support an industry posed for growth.”

The Trans-Pacific Partnership Would Destroy our National Sovereignty

Tuesday, February 26th, 2013

In his State of the Union address, President Obama declared in his intent to complete negotiations for a Trans-Pacific Partnership (TPP). The Obama administration has pursued the TPP through the offices of U.S. Trade Representative Ron Kirk instead of under the auspices of the Department of State.

This was the first time negotiations to create a free trade zone with Pacific Rim countries were made public although 15 rounds have been concluded. Eleven nations are participating: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Although Japan and China are not presently participating in TPP negotiations, “docking provisions” being written into the TPP draft agreement would permit either Japan or China to join the TPP at a later date without suffering any disadvantage.

To implement the TPP free-trade agreement, Congress will be asked to surrender its responsibility under Section 1, Article 8 of the Constitution to regulate commerce with foreign nations, and grant President Obama extra-constitutional “Trade Promotion Authority” to negotiate the final TPP agreement. The administration seeks to gain “fast-track authority,” a provision under the Trade Promotion Authority that requires Congress to review an FTA under limited debate, in an accelerated time frame subject to a yes-or-no vote by a simple majority vote rather than a two-thirds vote, as required for the ratification of a formal treaty.

Under fast-track authority, there is no provision for Congress to modify the agreement by submitting amendments. Fast-track authority also treats the FTA as if it were trade legislation being negotiated by the executive branch. The purpose is to assure foreign partners that the FTA, once signed, will not be changed during the legislative process.

A report released Jan. 24 by the Congressional Research Service, “The Trans-Pacific Partnership Negotiations and Issues for Congress,” makes clear that the present negotiations are not being conducted under the auspices of formal trade promotion authority as the latest TPA expired July 1, 2007. However, the Obama administration is acting as if fact-track authority were in effect already.

The report states that the TPP is being negotiated as a regional free-trade agreement that U.S. negotiators describe as a “comprehensive and high-standard” FTA. The U.S. hopes the agreement “will liberalize trade in nearly all goods and services and include commitments beyond those currently established in the World Trade Organization (WTO.)”

Oppostion to the TPP ranges from one end of the political spectrum to the other ? from the liberal Public Citizen non-profit, consumer rights advocacy group founded by Ralph Nader in 1971 to the far-right, conservative news organization, World Net Daily founded in 1997 by Joseph Farah.

Lori Wallach of Public Citizen has written several articles warning about the dangers of the Trans-Pacific Partnership. According to her review of TPP, foreign firms would gain the follow privileges:

  • Risks and costs of offshoring to low wage countries eliminated
  • Special guaranteed “minimum standard of treatment” for relocating firms
  • Compensation for loss of “expected future profits” from health, labor environmental, laws (indirect or “regulatory” takings compensation)
  • Right to move capital without limits
  • New rights cover vast definition of investment: intellectual property, permits, derivatives
  • Ban performance requirements, domestic content rules. Absolute ban, not only when applied to investors from signatory countries

Ms. Wallach opines that U.S. multinational corporations have the goal of imposing on more countries a set of extreme foreign investor privileges and rights and their private enforcement through the notorious “investor-state” system. “This system elevates individual corporations and investors to equal standing with each TPP signatory country’s government- and above all of us citizens.” This would enable “foreign investors to skirt domestic courts and laws, and sue governments directly before tribunals of three private sector lawyers operating under World Bank and UN rules to demand taxpayer compensation for any domestic law that investors believe will diminish their ‘expected future profits.’ Over $3 billion has been paid to foreign investors under U.S. trade and investment pacts, while over $14 billion in claims are pending under such deals, primarily targeting environmental, energy, and public health policies.”

This opinion was confirmed by Jerome Corsi in an article last week on World Net Daily, in which he reported that a “leaked copy of the TPP draft makes clear in Chapter 15, ‘Dispute Settlement,’ that the Obama administration intends to surrender U.S. sovereignty to an international tribunal to adjudicate disputes arising under the TPP. Disputes concerning interpretation and application of the TPP agreement, according to Article 15.7, will be adjudicated by an “arbitral tribunal” composed of three TPP members.

He states, “Because the TPP agreement places arbitral tribunals created under TPP to be above U.S. law, the Obama administration’s negotiation of the Trans-Pacific pact without specific consultation with Congress appears aimed at creating a judicial authority higher than the U.S. Supreme Court. The judicial entity could overrule decisions U.S. Federal District and Circuit courts make to apply U.S. laws and regulations to foreign corporations doing business within the United States. The result appears to allow foreign companies doing business within the United States to operate in a legal and regulatory environment that would give the foreign companies decided economic advantages over U.S. companies that remain subject to U.S. laws and regulations.”

Another group opposing the TPP is Americans for Limited Government , a lobbying group and advocacy organization which describes itself as a non-partisan, nationwide network committed to advancing free-market reforms, private property rights and core American liberties President Bill Wilson states, “This new trade agreement will place domestic U.S. firms that do not do business overseas at a competitive disadvantage. Foreign firms under this trade pact could conceivably appeal federal regulatory and court rulings against them to an international tribunal with the apparent authority to overrule our sovereignty. If foreign companies want to do business in America, they should have to follow the same rules as everyone else. Obama is negotiating a trade pact that would constitute a judicial authority higher than even the U.S. Supreme Court that could overrule federal court rulings applying U.S. law to foreign companies. That is unconstitutional. The U.S. cannot be allowed to enter a treaty that would abrogate our Constitution.”

As a director on the board of the American Jobs Alliance, an independent, non-partisan, non-profit organization, I wish to point out some of the additional problems with the TPP that are cited on our website:

TPP Undermines Our Sovereignty and Democracy – it is misleadingly called a trade agreement when in fact it is an expansive system of enforceable global government.  Only two of its 26 chapters actually cover trade issues, like cutting border taxes (“tariffs”) or lifting quotas that limit consumer choice. In reality, most of the deal would impose one-size-fits all international rules to which U.S. federal, state and local law must conform. This includes limits on the U.S. government’s right to regulate foreign investors operating here and control our natural resources and land use. TPP also would provide preferential treatment to foreign banks and other firms operating here. The pact would subject the U.S. to the jurisdiction of two systems of foreign tribunals, including World Bank and United Nations tribunals. These foreign tribunals would be empowered to order payment of U.S. tax dollars to foreign firms if U.S. laws undermined the foreign firms’ new special TPP privileges.

TPP Threatens States Rights - the agreement undermines the critical checks and balances and freedoms established by the U.S. Constitution, which reserves many rights to the people or state governments. TPP would obligate the federal government to force U.S. states to conform state laws to 1,000 pages of rules, regulations and constraints unrelated to trade? from land use to whether foreign firms operating in a state can be required to meet the same laws as domestic firms.

The U.S. federal government would be required to use all possible means – including law suits, and cutting off federal funds for states – to force states to comply with TPP rules. Already a foreign tribunal related to the World Trade Organization has issued a ruling explicitly stating that such tactics must be employed against U.S. states or the U.S. would face indefinite trade sanctions until state laws were brought into compliance.

TPP bans Buy American - it explicitly prohibits both Buy American and state-level Buy Local programs.

UN and World Bank Tribunals Would Replace U.S. Courts – the “Investment” chapter would submit the U.S. to the jurisdiction of international tribunals established under the auspices of the United Nations or World Bank. It would shift decisions over the payment of U.S. tax dollars away from Congress and outside of the federal court system established by Article III of the Constitution to the authority of international tribunals. These UN and World Bank tribunals do not apply U.S. law, but rather international law set in the agreement. These tribunals would judge whether foreign investors operating within the U.S. are being provided the proper property rights protections. The standard for property rights protection would not be those established by the U.S. Constitution as interpreted by the U.S. Supreme Court, but rather international property rights standards, as interpreted by an international tribunal.

TPP Cedes a Quarter of all U.S. Land to Foreign Control (544 million acres of public land)  – it would subject to the foreign tribunals’ judgment all contracts between the U.S. federal government and investors from TPP nations – including  subsidiaries of Chinese firms -  “with respect to natural resources that a national authority controls, such as for their exploration, extraction, refining, transportation, distribution, or sale; to supply services to the public on behalf of the Party, such as power generation or distribution, water treatment or distribution, or telecommunications; or to undertake infrastructure projects, such as the construction of roads, bridges, canals, dams, or pipelines, that are not for the exclusive or predominant use and benefit of the government.”

In conclusion, the TPP is a direct threat to American national sovereignty, the U.S. Constitution and American-owned businesses. TPP would destroy American jobs and our independence. It would have a negative impact on jobs, the safety of our food, Internet freedom, our right to ‘Buy American,’ and our laws. We must make sure Congress rejects any fast-track authority the Obama administration seeks to invoke when it comes time to get final congressional approval.

Please join me in opposing granting fast-track authority by signing the petition at the American Jobs Alliance website: In addition, email, write, or call your Congressional representative to let them know that you oppose approving the Trans-Pacific Partnership.


Congress Hasn’t Averted the Real Fiscal Cliff

Tuesday, January 15th, 2013

The “kick the can” legislation that passed in the wee hours of January 1st didn’t address the real economic issues threatening a fiscal cliff for the United States ? the massive trade deficit and the rapidly escalating national debt. This article will show how these two economic issues are interrelated.

The trade deficit grew from a low of $91 million in 1969 to a peak of $698.3 billion in 2008, dropping down to$379 billion in 2009 due to the worldwide recession before climbing back up to $559.8 billion in 2011. Final figures for 2012 are not available yet, but the trade deficit through the first 11 months of 2012 is running at an annual rate of $546.6 billion.

Our trade deficit with China grew from only $6 million in 1985 to a high of $295.4 billion in 2011, after it had dropped down to $226.8 billion in 2009 during the recession. China’s portion of America’s trade deficit has nearly tripled ? from 22 percent in 2000 to 60 percent in 2009 and 52.7 percent in 2011. In the 11 years since China joined the WTO, the U.S. trade deficit with China has grown by 330 percent.

The national debt has grown from $5.6 trillion in 2000 to $16.4 trillion on January 12th. As of July 2012, $5.3 trillion or approximately 48% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at just over $1.1 trillion each.

“The estimated population of the United States is 314,243,893 so each citizen’s share of this debt is $52,304.77. The National Debt has continued to increase an average of $3.84 billion per day since September 28, 2007!”

As you can see, the debt accelerated after the economic collapse in the fall of 2008 and has continued to accelerate since because of the recession, automatic increases in unemployment benefits, food stamps, and social security payments for early retirement, as well as stimulus spending. The all-time record of increasing the debt by $1.1 trillion was set by President Bush in 100 days between July 30 and Nov 9, 2008 to avert the economic collapse of major banks and Wall Street companies. “Recessions cut tax revenues—in this case, dramatically, which accounts for nearly half of the deficit.”

According to Tom Donohue, head of the U.S. Chamber of Commerce, the nation’s largest business lobbying group, “The single biggest threat to our economic future … is our exploding national debt, driven by runaway deficit spending, changing demographics and unsustainable entitlements,” he said in his annual “State of American Business” address.

The reason why our massive trade deficit and escalating national debt are interrelated is that they share a common factor:  the American manufacturing industry and the jobs it generates or the jobs it has lost.

According to the Information Technology and Innovation Foundation report, the U. S lost 5.7 million manufacturing jobs in the decade of 2000 to 2010, more than the total number of manufacturing jobs than the rate of loss in the Great Depression (33.1 % vs. 30.9%). Manufacturing jobs now only make up 9% of the American workforce, down from about 14% in 2000. Two million manufacturing jobs were lost in the Great Recession, adding to the 3.7 million we had already lost. Less than 10% have returned since the end of the recession. The report concludes:

  • A large share of manufacturing jobs was lost in the last decade because the United States lost its competitive edge for manufacturing. It was due to a failure of U.S. policy, not superior productivity.
  • The loss was cataclysmic and unprecedented, and it continues to severely impact the overall U.S. economy.
  • Regaining U.S. manufacturing competitiveness to the point where America has balanced its trade in manufacturing products is critical to restoring U.S. economic vibrancy.
  • Regaining manufacturing competitiveness will create millions of higher-than-average-wage manufacturing jobs, as well as an even greater number of jobs from the multiplier effect on other sectors of the economy.
  • The United States can restore manufacturing competitiveness and balance manufacturing goods trade within less than a decade if it adopts the right set of policies in what can be termed the “four T’s” (tax, trade, talent, and technology).

The Economic Policy Institute briefing paper, “The China Toll,” written by Robert Scott focuses on the effects of our trade deficit with China. He wrote, “Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state.”

“Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9 percent) were in manufacturing. These lost manufacturing jobs account for more than half of all U.S. manufacturing jobs lost or displaced between 2001 and 2011.”

The growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. When you take into account the multiplier effect of manufacturing jobs creating three to four other jobs, the U. S. has lost six to eight million jobs as a result of the trade deficit with China alone. The Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs, so the $559.8 billion in the total trade deficit for 2011 represents a loss of 7,277,400 jobs. This explains why we have had a virtually jobless recovery since the end of the recession and why the unemployment rate has stayed high for so long.

The average manufacturing job nationwide pays about $40,000 per year ($20/hour). According to the 2012 federal tax table, a person making that amount of money would pay about $4,000 to $5,000 per year in taxes, depending on whether they are single or have one dependent. Without doing the complicated math to calculate the number of lost manufacturing jobs each year times the taxes those workers would have paid, you can see that the result could be trillions of dollars in lost tax revenue since the year 2000.

Adding this lost tax revenue to the cost of an unemployed worker in the form of unemployment benefits (about $15,000 year for a $40,000/year job) and possibly food stamps, you can understand the major cause of why our national debt has escalated so dramatically in the last ten years. We could raise income taxes to the highest rates of European countries such as Sweden (75%) and still not be able to pay down our national debt. The solution is not raising taxes, it is creating more tax payers, especially those employed in the higher paying jobs of the manufacturing industry. Our trade policies that result in such huge trade deficits and loss of manufacturing jobs have transformed taxpayers into tax consumers.

Because of our trade deficit with China and our national debt, we are essentially writing two checks to China every month:  one to pay for the cost of the imports we buy and the other to pay for the cost of borrowing money from China to pay for the cost of running our government.  By maintaining this trade deficit, we are sending our tax revenue to China; then, we borrow a portion of it back to pay our expenses. This is unsustainable!

We are at a cross roads in our country. We must change our tax, trade, and regulatory policies to rebuild our manufacturing industry to increase the number of taxpayers if we ever want to pay down our national debt, reduce our unemployment rates, and avoid economic collapse.




Chinese Innovation Mercantilism is Hurting American Manufacturers

Tuesday, December 11th, 2012

On Wednesday, December 5, 2012, Robert D. Atkinson, President of the Information Technology and Innovation Foundation (ITIF), testified before the House Science Committee Subcommittee on Investigations and Oversight in a hearing on “The Impact of International Technology Transfer on American Research and Development.” His testimony was based on his book, Innovation Economics: The Race for Global Advantage (Yale University Press, 2012) and the ITIF report, “Enough is Enough:  Confronting Chinese Innovation Mercantilism,” released February 2012.

Atkinson began his testimony by stating, “A nation’s investments in research and development (R&D) are vital to its ability to develop the next-generation technologies, products, and services that keep a country and its firms competitive in global markets. Until recently, corporate R&D was generally not very mobile, certainly not in comparison to manufacturing. But in a “flat world” companies can increasingly locate R&D activities anywhere skilled researchers are located…. the United States has seen its relative competitive advantage in R&D and advanced technology industries decline. While the United States still leads the world in aggregate R&D dollars invested, on a per-capita basis it is falling behind.”

He testified that the “decline in America’s innovative edge is due to a number of factors, not the least of which are failures of federal policy, such as an unwillingness to make permanent and expand the R&D tax credit, limitations on high-skill immigration, and stagnant federal funding for R&D. But the decline is also related to unfair practices by other nations that collectively ITIF has termed as ‘innovation mercantilism.’”

The ITIF report cited above states that these policies “include currency manipulation, relatively high tariffs (three times higher than U.S. tariffs), and tax incentives for exports.” In addition, “some policies help Chinese firms while discriminating against foreign establishments in China. These policies include “discriminatory government procurement; controls on foreign purchases designed to force technology transfer to China; land grants and rent subsidies to Chinese-owned firms; preferential loans from banks; tax incentives for Chinese-owned firms; cash subsidies; benefits to state-owned enterprises; generous export financing; government-sanctioned monopolies; a weak and discriminatory patent system; joint-venture requirements; forced technology transfer; intellectual property theft; cyber-espionage to steal intellectual property (IP); domestic technology standards; direct discrimination against foreign firms; limits on imports and sales by foreign firms; onerous regulatory certification requirements; and limiting exports of critical materials in order to deny foreign firms key inputs.”

The report explains that “in the last decade China has accumulated $3.2 trillion worth of foreign exchange reserves and now enjoys the world’s largest current account balance. In 2011, it ran a $276.5 billion trade surplus with the United States. This ‘accomplishment’ stems largely from the fact that China is practicing economic mercantilism on an unprecedented scale. China seeks not merely competitive advantage, but absolute advantage. In other words, China’s strategy is to win in virtually all industries, especially advanced technology products and services… China’s policies represent a departure from traditional competition and international trade norms. Autarky [a policy of national self-sufficiency], not trade, defines China’s goal. As such China’s economic strategy consists of two main objectives: 1) develop and support all industries that can expand exports, especially higher value-added ones, and reduce imports; 2) and do this in a way that ensures that Chinese-owned firms win.”

The report states that “because China is so large and because its distortive mercantilist policies are so extensive, these policies have done significant damage to the United States and other economies…The theft of intellectual property and forced technology transfer reduce revenues going to innovators, making it more difficult for them to reinvest in R&D. The manipulation of standards and other import restrictions balkanizes global markets, keeping them smaller than they otherwise would be, thereby raising global production costs…if Chinese policies continue to be based on absolute advantage and mercantilism…the results will be more of the same: the loss of U.S. industrial and high-tech output, and the jobs and GDP growth that go with it.”

Chinese mercantilist policies are unprecedented in their scope and size. Atkinson testified, “A principal arrow in China’s innovation mercantilist quiver is to force requirements on foreign companies with respect to intellectual property, technology transfer, or domestic sourcing of production as a condition of market access. While China’s accession agreement to the WTO contains rules forbidding it from tying foreign direct investment to requirements to transfer technology to the country, the rules are largely ignored.”

He added, “Rather than doing the hard work to build its domestic technology industries, or better yet focus on raising productivity in low-producing Chinese industries, China decided it would be much easier and faster simply to take the technology from foreign companies… China’s government unabashedly forces multinational companies in technology-based industries—including IT, air transportation, power generation, high-speed rail, agricultural sciences, and electric automobiles—to share their technologies with Chinese state-owned or influenced enterprises as a condition of operating in the country.”

The ITIF report explains that in 2006, “China made the strategic decision to shift to a “China Inc.” development model focused on helping Chinese firms, often at the expense of foreign firms. Chinese leaders decided that attracting commodity-based production facilities from multinational corporations (MNCs) was no longer the goal…The path to prosperity and autonomy was now to be ‘indigenous innovation’…”

The document “advocating this shift was ‘The Guidelines for the Implementation of the National Medium- and Long-term Program for Science and Technology Development (2006-2020)’…to ‘create an environment for encouraging innovation independently, promote enterprises to become the main body of making technological innovation and strive to build an innovative-type country.’”

Some 402 technologies, from intelligent automobiles to integrated circuits to high performance computers were included so that China could seek the capability to master virtually all advanced technologies, with the focus on Chinese firms gaining those capabilities through indigenous innovation.

However, China is not alone in trying to force the transfer of technology and R&D from foreign multinationals ? Indonesia, Malaysia, India, Portugal, and Venezuela have the same goal.

Why do so many nations engine in innovation mercantilism? Atkinson testified that there are two principle reasons. “First, these nations have embraced a particular and fundamentally limited model of economic growth that holds that the best way to grow an economy is through exports and shifting production to higher-value (e.g., innovation-based) production. Moreover, they don’t want to wait the 20 to 50 years it will take to naturally move up the value chain through actions like improving education, research capabilities, and infrastructure, as nations like the United States did. They want to get there now and the only way to do this is to short-circuit the process through innovation mercantilism. This explains much of China’s economic policies. The Chinese know that to achieve the level of technological sophistication and innovation that America enjoys will take them at least half a century if they rely on only their own internal actions. So they are intent on stealing and pressuring as much of American (and other advanced nations’) technology as they can to their own companies. If you can’t build it, steal it, is their modus operendi.”

Atkinson added that the second reason why these nations do this is because they don’t believe in the rule of law and the principles of free trade like Western nations and much of Europe do. These nations also “work on the ‘guilt’ of Western, developed nations. The narrative goes like this: the West has used its imperialist powers to gain its wealth, including at the expense of poor, developing nations and now it wants to “pull the ladder” up after it. This means turning a blind eye to intellectual property and giving our technology, including pharmaceutical drugs, to nations almost for free. After all, we are rich and they are poor because we are rich.”

The reality is that forced technology transfer is enabling China and other nations to gain global market share. It is doing “considerable harm to U.S. technology companies and to the U.S. economy, if for no other reason than reducing their profits and ability to reinvest in the next wave of innovation.”

Atkinson posed the question, “So what should the U.S. government do? He responded that “this is a difficult question because if there were easy solutions, they would have been done by now.” He recommended the following actions:

  • Try to do more through conventional trade dispute channels and expand funding for the U.S. Trade Representative’s Office (USTR) so it can do more.
  • Ensure that future bilateral trade and investment treaties (BIT) contain strong and enforceable provisions against forced technology and R&D transfer.
  • Congress should make it clear that it will not judge any administration by whether a BIT with China is concluded, but rather by if the United States made a strong effort to conclude a treaty that provided full protection against mercantilist practices like forced transfer of R&D.
  • Congress should pass legislation that allows firms to ask the Department of Justice for an exemption to coordinate actions regarding technology transfer and investment to other nations.
  • Congress should exclude mercantilists from the Generalized System of Preferences (GSP).

Finally, he recommended that the United States actively explore alternatives to the WTO and  pursue a two-pronged trade strategy, continuing as best it can to improve conventional trade organizations like the WTO, but also creating alternative “play-by-the-rules” clubs of like-minded countries.

He concluded his testimony stating, “Pressured or mandatory technology transfer by other nations has, is, and will continue to negatively impact American R&D and innovation capabilities. It’s time for the federal government to step up its actions to fight this corrosive mercantilist practice.”

Curbing Chinese mercantilism must become a key priority of our trade policy if we want to address this serious threat to American manufacturers and the U. S. economy.