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Will the AME, NAM and NACFAM Alliance Revitalize Manufacturing?

Tuesday, March 6th, 2012

The Association for Manufacturing Excellence (AME) is joining with leading organizations, such as the National Association of Manufacturers (NAM), and the National Council For Advanced Manufacturing (NACFAM) to form an alliance to revitalize manufacturing and grow the economy, while improving the standard of living of all citizens in North America.  These organizations are inviting public and private sectors to come together to build on the NAM study, A Manufacturing Renaissance: Four Goals for Economic Growth.

The AME white paper “Challenges Facing the Manufacturing Industry…” states “The strategy calls for putting people, schools, businesses and the government to work; producing literate career-ready citizens capable of joining the workforce; and enabling manufacturers to once again lead the designing, building and exporting of quality products and services around the globe.” The top three priorities are:

  • Build a better educated and trained workforce
  • Promote product and process innovation, as well as research and development
  • Improve global competitiveness for companies

AME advocates that each priority “must be considered in developing public policies that support the revitalization of the manufacturing sector, and policy-makers must consider these elements in shaping future public policy and legislation.”   The goal is to help companies and our education systems transform themselves by using more innovative processes to become more competitive to put people back to work in making things in America.

I  strongly agree with AME’s viewpoint that we need to revitalize American manufacturing because “manufacturing is very critical to economic growth, prosperity and a higher standard of living.”  This is because manufacturing jobs have a multiplier effect-? every manufacturing job creates three to four other jobs.  Manufacturing creates more wealth than any other sector in the economy.  “Manufacturing pays higher wages and provides greater benefits, on average, than other industries. It performs almost two-thirds of private sector research and development, creates the highest number of jobs to support the industry while serving the surrounding communities, and contributes to more than 50 percent of the country’s total exports.”

The White Paper notes that we’ve lost nearly six million manufacturing jobs in the United States since January 2000, for an average of about 54,000 per month, according to the Bureau of Labor Statistics.  We also lost 56,190 manufacturing facilities from 2001 to 2010, or about 15 per day.

AME has issued a call for action to policy-makers, industry professionals and academic leaders to play critical roles in revitalizing the economy through the rebirth of manufacturing jobs.  To do this, we need to ensure the supply of educated citizens, necessary physical infrastructure, and a favorable tax and regulatory framework that fosters increased collaboration between public and private sector partners.

AME has been leading the “Revitalization of Manufacturing” initiative, wherein AME and their allied organizations have been reaching out to policy-makers nationwide, and encouraging them to join or develop efforts focusing on local and state job creation.  AME states that “itt is imperative that policy-makers recognize the importance of an industry that has been the backbone of the North American economy.  To date, AME has received more than 400 signatures of support from state and federal policy-makers, industry trade associations and operations executives representing manufacturers across North America.”

AME advocates “a renewed emphasis on making businesses more competitive by developing the educational and training infrastructure to produce qualified individuals to fill these new opportunities.”   To accomplish these initiatives, AME is joining with leading organizations to adopt the three priorities by:

Reforming public education to produce career ready citizens – Parents, teachers and business leaders need to recognize that other nations are both out-educating us and out-competing us.  Some of the ongoing initiatives by manufacturing organizations to help reform public education are:

  • The Manufacturing Institute’s Roadmap to Education Reform for Manufacturing, a comprehensive blueprint for education reform
  • American Productivity and Quality Center’s (APQC) Education North Star program that helps school districts do more with less by transforming education through process and performance management
  • Career Pathways,  a program that encourages students to consider a career in manufacturing and help prepare them by using the Manufacturing Pathway Map

Last fall, I wrote about a number of programs sponsored by other organizations to interest and prepare youth for careers in manufacturing in the article, “How Can we Attract Youth to Manufacturing Careers?”

Establishing consortiums of like-minded individuals with the same mission to help sustain and grow businesses through sharing technology and innovative ideas.  AME recommends that businesses “grow a culture that achieves results through engaging their people” to “develop pragmatic, working-level leaders who can pull it all together.”  In addition, businesses “need to foster rapid advancement of technology and innovation by establishing regional consortiums to help bring jobs back home.”

“AME Northern Kentucky/Cincinnati Consortium is the first building block of the AME Consortia network, and the organizations plans to deploy at least 10 more in 2012.  AME also has alliance partners, like the Virginia Business Excellence Consortium.”

Reshoring by making better informed business decisions  to keep and bring jobs back home – the Reshoring Initiative was founded by Harry Moser in 2010.  He is collaborating with AME to promote reshoring as part of the “Revitalization of Manufacturing” initiative.  AME recommends that companies use the Total Cost of Ownership (TCO) analysis tool Mr. Moser developed “to effectively compare total cost of local and offshore sources, enabling them to make informed business decisions. ‘We are committed to changing the sourcing paradigm from ‘off-shored is cheaper’ to ‘local reduces the total cost of ownership,’ said Moser.”

Redeploying Training Within Industry (TWI) programs to train or retrain workers to have the skills to work in advanced manufacturing jobs to revitalize manufacturing and re-energize the economy.  First created during WWII to replace workers who left the factories and went off to war, the TWI programs were revived in 2001 by the Central New York Technology Development Organization, a member of the U.S. Manufacturers Extension Partnership (MEP), after which the TWI Institute was formed to oversee the global deployment of the program.

AME’s White Paper only identifies the TWI programs, but I wrote about training programs sponsored by other organizations, such as the Society of Manufacturing Engineers’ Tooling U and The Fabricators and Manufacturers Association, International in my article, ”What’s Being Done to Address the Lack of Skilled Workers?

In order to be more globally competitive, AME recommends that companies use Lean Certification, an internationally recognized certification process developed by the Society of Manufacturing Engineers (SME), AME, Shingo Prize, and the American Society for Quality (ASQ), which establishes the standard for continuous improvement and Lean practices.

The White Paper states that at its 2012 national board meeting, “AME reaffirmed its commitment to helping small-and medium-sized businesses create more manufacturing jobs, and the organization’s strategic plans address the challenges facing manufacturing by formulating counter-measurements to address them with its public and private alliance partners.”

In conclusion, the White Paper states, …the public and private sectors must come together to build an integrated plan supportive of these initiatives, especially NAM’s Manufacturing Strategy for Jobs and Competitiveness and Roadmap to Education Reform for Manufacturing; the LEARN Act; and the Reshoring Initiative.  These will ultimately revitalize the industry and grow the economy.”

I have repeatedly said in my book and blog articles that it will take the efforts of the public and private sectors, as well as individual Americans, to first save and then revitalize American manufacturing.  I agree that these strategies will be beneficial, but they will not be enough to accomplish this goal.   First of all, I do not agree that the challenges to accomplish this goal are the “four major challenges on which its future depends and has been failing to meet… globalization, the revolution in information technology, the nation’s chronic deficits and its pattern of energy consumption” that are quoted from Thomas L. Friedman and Michael Mandelbaum’s book, That Used to Be Us, How America Fell Behind in the World It Invented and How We Can Come Back.

These are all realities that must be addressed, but they are not the main challenges that face America’s manufacturing industry.  The main challenge can be summed up in one word:  China.  By this I mean China’s predatory mercantilism in the form of currency manipulation, export subsidies, theft of intellectual property, product “dumping,” export restrictions on raw materials, and more recently, technology transfer and rare earth hoarding.

As long as companies that are members of AME, NAM, and NACFAM, such as Westinghouse, General Electric, and Caterpillar, choose to close factories in the United States to offshore manufacturing to China for the illusion of selling to the 1.3 billion Chinese consumers, we will continue to lose manufacturing jobs.

As long as these organizations and their member companies advocate so-called free trade policies and are afraid to stand up to China’s predatory mercantilism and urge our elected officials to demand that China adhere to the terms of its admission into the World Trade Organization, our huge trade deficits will continue to escalate.

These companies must stop being Chinese apologists and appeasers just to add more profit to their bottom line.  They need to realize that complying with China’s demand for technology transfer in order to build or establish a plant in China is destroying the future of their own companies.

Now is the time for action.  The best thing that AME, NAM and NACFAM members could do is to take a pledge to not close any more plants in the U. S. to set up manufacturing in China.  Then, we would really be able to revitalize American Manufacturing.

 

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What’s Really Happening to America’s Solar Industry?

Tuesday, February 21st, 2012

There’s been a lot of negative press about the American solar industry in the past few months because six companies went bankrupt in 2011, even after receiving government loans.   At least 12 U.S. manufacturers have suffered layoffs, plant shutdowns or bankruptcies over the past two years.  Solyndra and Evergreen Solar are the most well-known because of media coverage about their government loans, but Beacon Power Corp, Mountain Plaza, Stirling Energy Systems, and Spectrawatt Inc. also went out of business, resulting in the loss of thousands of jobs.  What’s behind the financial trouble that many of these American solar companies have experienced?

“Dumping” of solar cells and modules produced in China is the real culprit for the financial woes of the American solar industry.  According to a report released by George Washington University in December 2011, China’s production of solar photovoltaic cells and modules has grown from 1 gigawatt (GW) to 20 GW in three years, and its industry now accounts for more than 50 percent of the global market.  During the same period, prices for solar modules decreased to $1.40 per watt and may go down as low as $1 per watt.  It is clear that over capacity in both purified silicon feedstock and module manufacturing have played a key role in the recent major price declines.  The annual market for solar more than doubled between 2009 and 2010.  For 2011, estimates of total market range from 21 to 24, which is a 44 percent increase from the year prior.

On October 19, 2011, SolarWorld, the largest U.S. producer of crystalline silicon photovoltaic products, filed antidumping and countervailing duty petitions at the International Trade Commission (ITC) of the Department of Commerce.  The petition alleges that China is unfairly subsidizing its solar manufacturing industry with cash grants, multi-billion dollar preferential loans, raw material discounts, tax incentives, and currency manipulation.  SolarWorld seeks to establish that Chinese companies could not possibly have production costs low enough to be selling modules and cells at their current prices in the U.S.

SolarWorld’s petitions were supported by six other members of the newly formed Coalition for American Solar Manufacturing, started by a group of seven U.S. solar manufacturers that has grown to 150 companies representing employing more than 14,650 workers.  However, SolarWorld was the only U.S. manufacturer identified publicly in these petitions because the “unnamed companies are said to fear retaliation from essential Chinese suppliers and customers and, if they have facilities in China, the Chinese government.”

China’s Ministry of Foreign Commerce responded to these petitions as being overly protectionist and a threat to global economic recovery. China’s Suntech, the world’s largest solar panel maker, with manufacturing facilities in Goodyear, Arizona, stated that “a misguided solar trade conflict against China…could threaten the livelihood of the global solar ecosystem, particularly solar jobs in the U.S.”

U. S. opponents of the petition have formed the Coalition for Affordable Solar Energy (CASE) recruiting 132 solar companies as members representing 13,134 jobs.  Kevin Lapidus, Sr. V. P<> of legal and government affairs for SunEdison, a lead member of CASE, said “Today the solar industry is 100,00 employees of which 57 percent are in the installation business, 21 percent are in sales and distribution, and only 14 percent are in manufacturing.”  These companies benefit from the cheap Chinese products they sell, distribute, and install.

The petitions request that the ITC investigate imports of Chinese crystalline solar cell and modules but exclude thin-film products and solar technology that is not photovoltaic, such as solar thermal products.

The petitions seek relief for the U.S. domestic companies injured by Chinese imports and seek duties to offset Chinese dumping alleged to exceed 100 percent.  “The countervailing duty petition alleges that China illegally subsidizes its solar industry by providing cash grants; discounted polysilicon and aluminum necessary for production of solar panels; heavily discounted land, power and water; multi-billion dollar preferential loans and directed credit; tax exemptions, incentives and rebates; and export grants and insurance. The countervailing duty petition also alleges that China’s currency undervaluation is an illegal subsidy.”

The next step is for the ITC to decide whether the petitions are legally and factually sufficient and are adequately supported by the U.S. industry.  During such investigations, the Commission gathers information from the U.S. industry and the ITC gathers information from the foreign government and industry.

On December 2, 2011, the ITC issued a unanimous preliminary determination that Chinese trade practices are harming the U.S. domestic solar manufacturing industry.  The next step in the trade case will be Commerce’s preliminary determination on whether to levy countervailing import duties to offset the effects of any illegal Chinese subsidies.  The finding of “critical circumstances” means that if the agency imposes preliminary countervailing duties on March 2, the duties will apply to all imports of cells and modules from Chinese exporters that were brought into the United States starting Dec. 3, 2011.

This critical-circumstances ruling marks the first time that Commerce has issued such a finding in advance of a preliminary countervailing duty determination.  Aside from the determination on countervailing duties, the agency is scheduled to issue a separate preliminary ruling on anti-dumping duties on March 27.  Commerce will issue a separate critical-circumstances ruling in the anti-dumping investigation. A final decision from the U. S. ITC can take up to a year.

On February 7, 2012, the National Renewable Energy Laboratory posted a revised research presentation on the NREL website, which CASM praised.  The presentation concludes Chinese production of crystalline silicon solar technology for the U.S. market costs more than U.S. production for the domestic market, when the costs of shipping are included.

CASM contends the findings validate its position that the Chinese solar-manufacturing industry doesn’t enjoy a cost advantage in solar production costs but, rather, benefits from a government-underwritten export campaign designed to injure competition from U.S. manufacturers.

The NREL presentation, “Solar PV Manufacturing Cost Analysis: U.S. Competitiveness in a Global Industry,” concludes that Chinese producers have an inherent cost advantage of no greater than one percent, compared with U.S. producers.  However, when trans-ocean shipping costs are counted, Chinese producers face a 5 percent cost disadvantage, according to the analysis…Massive government subsidies the government says, sponsor the Chinese industrial drive to export about 95 percent of domestic production, a campaign that has already seized 55 percent of global market share.”

“This analysis from the renewable-energy research arm of the U.S. government corroborates our view that an export drive sponsored by the Chinese government is improperly intervening in the U.S. market,” said Gordon Brinser, president of SolarWorld Industries America Inc., based in Oregon.  “Highly efficient U.S. producers like SolarWorld can vie with any company in the world in legal competition.  But the government of China’s illegal trade practices are neither economically nor environmentally sustainable for anyone.  Free trade is trade free of illegal foreign government intervention.”

“We are countering the illegal trade practices of China and its state-sponsored industry only as a first step to reviving renewable-energy competition, manufacturing and jobs and augmenting national energy security and world environmental stewardship,” Brinser said. “All of the advantages of solar should be available to the United States and to the competitive U.S. industry that pioneered this technology.”

Chinese silicon solar PV producers more than doubled their exports of crystalline silicon solar cells and modules in advance of potential U.S. government duties on those imports, according to an evaluation of PIERS’ reports, which are based on US Customs and Border Protection Automated Manifest System data.

“This significant increase in imports demonstrates that the Chinese know they have violated U.S. and international trade rules and are trying to evade the consequences,” said Gordon Brinser, president of SolarWorld Industries America Inc., based in Oregon.  “Year to date, Chinese imports of solar cells and modules in 2011 are up 346 percent by quantity and 138 percent by value. Since 2008, Chinese imports have risen 939 percent by value and 1664 percent by quantity.  This most recent surge of Chinese solar imports gives the U.S. Department of Commerce the evidence it needs not only to make a preliminary determination in our favor, but also to apply a critical-circumstances finding to address this last-minute import surge.”

“The Chinese have made it clear that, contrary to various World Trade Organization agreements they signed 10 years ago, they will employ any means necessary to dominate the American and international solar markets,” Brinser said.  “Rather than reward the Chinese for cheating, Commerce and the International Trade Commission need to take every possible action to enable American manufacturers to compete fairly.”

Most of the solar technology was developed in the U. S., but the Chinese government decided the industry was something it wanted to dominate and provided the financing necessary to its manufacturers to build the capacity to do so enabling China to take a dominant market position. Chinese companies such as LDK Solar, JA Solar, Suntech, and Trina Solar obtained billions of dollars in financing from the China Development Bank in the last five years.

In contrast, the U.S. solar industry has had to rely on a tax credit to fund its expansion until federal stimulus money gave a jolt to the industry.  This funding was given to solar and wind project installers, not manufacturers. Investor advisor, Travis Hoium wrote, “Since it was a tax credit, it often required a tax equity investor, often a foreign company, to fund the project. The subsidy was there, but instead of being direct, it was convoluted and too complex to be as effective as China’s subsidies in building an industry.”

He added, “The stimulus money helped in some ways. The 1603 Treasure Program turned the tax credit into a cash grant for 30% of a renewable energy installation’s cost, helping attract more investors. But more direct funding blew up in the government’s face.  The Solyndra debacle showed that loan guarantees don’t guarantee success and that the government probably isn’t the best at picking industry winners.  The outrage after the company’s collapse could be heard around the country.”

This shows the contrast in the ways that China and the U.S. have subsidized their solar industries.  As a capitalistic economy, the U. S. doesn’t want direct government meddling in business.  On the other hand, China will subsidize businesses to create jobs and help them maintain their position as the world’s #1 exporter.

Filing a trade case is the last resort for an industry harmed by China’s “dumping,” government subsidies, and currency manipulation.  Other industries that have been forced to file similar cases are steel, semiconductors, textiles, furniture, and tires.  This latest case is part of a long trend of industries on the verge of being wiped out by China’s predatory mercantilism.  Our elected leaders seem to be afraid to do anything because it would start a trade war.  When are our leaders going to realize that we are already in a trade war, and China is winning?  If China can defeat us in an economic war and destroy the economy of the United States, they won’t have to fight us in a military war.  It’s time for our elected to have the courage to stand up to China and address China’s “dumping” and currency manipulation.  We Americans need to demand action!

 

 

 

 

 

 

 

 

 

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What are the Positions of Presidential Candidates on Trade?

Tuesday, December 20th, 2011

As a candidate for president in 2007-2008, the then-Illinois senator, Barrack Obama talked a good game.  In December 2007 at the Des Moines Register debate, he pledged “there’s no doubt that NAFTA needs to be amended. “  At a June 2008 speech in Flint, MI, he said, “If we continue to let our trade policy be dictated by special interests, then American workers will continue to be undermined, and public support for robust trade will continue to erode.”

But as president, Obama’s flip-flops on trade rank up there with the best moves of an Olympic gymnast.  He pushed hard for passage of the trade agreements with Korea, Colombia and Panama, all based fail NAFTA template.  He has instructed his team at the U.S. Trade Representative’s office to spearhead the proposed Trans-Pacific Partnership, a trade agreement involving nine Pacific region nations, including Vietnam and Brunei, two undemocratic countries with serious and well-documented human and labor rights problems.

So how about the Republicans?  Former Massachusetts governor, Mitt Romney, has the most detailed position on trade of all the GOP candidates.  Romney supports the free trade agreements with Korea, Colombia and Panama that were passed by Congress and signed by Obama.  He also calls for passage of the Trans-Pacific Partnership, in addition to new FTAs with nations such as Brazil and India.

However, Romney would get tough with China by imposing “targeted tariffs” or economic sanctions for unfair trade practices or misappropriated American technology.  He would also designate China as a currency manipulator and instruct the Commerce Department to impose countervailing duties.  Romney would also pursue the “formation of a ‘Reagan Economic Zone.’ This zone would codify the principles of free trade at the international level and place the issues now hindering trade in services and intellectual property, crucial to American prosperity and that of other developed nations, at the center of the discussion.”

Not much can be said for Newt Gingrich on the subject of trade and jobs. The once-powerful House speaker wants to make “mutual trade”–neither free trade nor protectionism–the country’s goal,” whatever that means.  Back in 2006, Gingrich felt that protectionism helps China and India challenge U.S. supremacy.  Writing on his website, he said, “In the US, there exists a coalition of union leaders who prefer protection over competition. This liberal coalition complains about companies’ outsourcing jobs while insisting on corporate taxes that encourage companies to go overseas. They prefer that government impose on business obsolete, absurd work rules, even though these raise costs, lower productivity, and make America less competitive in the world market. The challenge to American economic supremacy from 1.3 billion Chinese and more than 1.1 billion Indians is vastly greater than anything we have previously seen.  India’s embrace of capitalism and China’s bizarre combination of Marxist-Leninist government and free market initiatives will create a future where one-fourth of the world’s markets will be controlled by these countries.  Those who advocate economic isolationism and protectionism are advocating a policy that could help China and India surpass the US in economic power in our children’s or grandchildren’s lifetime.”

Texas Governor Rick Perry’s plan for “Energizing American Jobs and Security” on his campaign website makes no mention of trade issues.  However, in his 2010 book Fed up!, Perry says “I see an America where the innovation and hard work of the American people creates still more opportunities, jobs, and wealth. I see a nation that is not cowering to the prospect of a united Europe or an ever-growing China and India, but rather welcomes those markets and many others as opportunities for the entrepreneurial and industrious spirit of the American people. I see a world where free trade opens up more doors and where people embrace trade’s benefit to both America and the rest of the world.”

Congresswoman Michele Bachmann pledges to cut spending and the size of government, reduce taxes, and repeal onerous legislation, such as ObamaCare and the Dodd-Frank Act.  The first of the 11 points of her “American Jobs, Right Now” blueprint is to repatriate the foreign earnings of American corporations to create immediate jobs, but the other ten points make no mention of trade issues.  However, she voted for the Peru FTA in 2007, her first year in the House, and she backed the Korea, Colombia and Panama FTAs this year.

Former Pennsylvania Senator Rick Santorum pledges to negotiate five Free Trade Agreements and submit them to Congress in the first year of his presidency.  During his tenure in Congress, Santorum voted for Permanent Normal Trade Relations with China and all of the free trade agreements of the George W. Bush era including CAFTA, Chile, Oman and Singapore.  All of these votes resulted in Senator Santorum compiling a perfect 100% rating from the CATO Institute, the libertarian think tank co-founded by Charles Koch, one of the Koch brothers that own the conglomerate Koch Industries, Inc.

U.S. Rep. Ron Paul is another candidate whose economic planks are standard Republican positions.  To understand Paul’s views it is best to look at his quotes and votes. During his two stints in Congress, Paul voted against NAFTA and free trade agreements with Australia, CAFTA, Chile, Peru and Singapore.  In addition, Paul voted to withdraw from the WTO and to not renew the “fast track” authority for the president to negotiate FTAs because he feels it cedes power from Congress to the executive branch.

In his 2008 presidential campaign, Paul explained his opposition to FTAs as threats to American sovereignty, saying “I opposed both the North American Free Trade Agreement and the World Trade Organization, both of which were heavily favored by the political establishment.  Many supporters of the free trade market supported these agreements. Nearly six decades ago when the International Trade Organization was up for debate, conservatives and libertarians agreed that supranational trade bureaucracies with the power to infringe upon American sovereignty were undesirable.”

Jon Huntsman is selling himself as an unabashed free trader. The former Utah governor boasts of leading trade missions overseas that helped grow his state’s exports, and he touts his appointment as deputy U.S. trade representative under President George W. Bush as giving him experience in helping to negotiate trade agreements across the globe. Like Romney, Huntsman would push for completion of the Trans-Pacific Partnership, and he would initiate FTAs with Japan, India, Taiwan and other nations. Huntsman also supports the Doha Development Round of World Trade Organization (WTO) negotiations.

In contrast, Buddy Roemer has taken a hard line against Free Trade Agreements and China. In a September 1, 2011 speech in front of the Chinese Embassy in Washington, DC, the former Louisiana congressman and governor unveiled his jobs plan where he slammed open trade with China as the “biggest disaster for the American economy.”  He claims to be “the only presidential candidate who is speaking the truth about global free trade.”   To level the playing field on trade, Roemer called for an elimination of the foreign tax credit for taxes paid to a foreign country.   In addition, he proposed the elimination of tax deductions for business expenses and costs of goods sold for companies that buy goods or services outside the United States.  Only businesses that employ American workers and buy American products would be allowed these tax deductions.  He also called for importers to pay the government an adjustment fee “equal to the unfair advantage they gain from importing goods from foreign countries to the United States.”

It’s a shame that the Republican candidate with the best position on trade has garnered less than 1% support in the polls so that he isn’t being included in the debates with the other Republican candidates.  This is the same position that Congressman Duncan Hunter occupied in the 2008 election when he was the only candidate on the right side of the trade issue and supported American manufacturing.  He wasn’t included in the 2008 debates so millions of people missed out on hearing his message.

When are Americans going to wake up to what is really causing the lack of jobs in the United States?  The real culprits are free trade agreements with Mexico, China, and other countries, as well as the outsourcing of manufacturing offshore..  They have led to the loss of nearly six million manufacturing jobs since the year 2000.   Since manufacturing jobs create an average of three to four other jobs, we’ve really lost 18 to 24 million jobs.  We need to review our unilateral free trade agreements with China and other countries that only seem to benefit other countries at the cost of jobs and even whole industries in the United States.  We need to let all the candidates for president know that we don’t want any more free trade agreements.  We need to let them know that we want them to support the American manufacturing industry and stop giving our wealth and jobs to foreign countries.

 

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What Led to the Problem of Chinese Counterfeit Parts?

Tuesday, November 15th, 2011

Last week, the Senate Armed Services Committee reported that an investigation found and examined about 1800 cases of suspected counterfeit electronic parts dating from 2009 to last year, totaling about a million individual components.  Tracing the supply chain, 70% of the components came through China, where a variety of methods were used to misrepresent the parts as new and genuine.  Hearings now being conducted by Senator Carl Levin (D-Michigan) and Senator John McCain (R-Arizona).

At a news conference on Monday, November 7, 2011, Sen. Carl Levin told reporters, “There’s a flood of counterfeit parts entering the defense supply chain.  It is endangering our troops and it is costing us a fortune.”

Sen. John McCain said the investigation documents the alarming “threat counterfeit parts pose to the safety of our men and women in uniform, to national security and to our economy.”  He added, “We can’t tolerate the risk of a ballistic missile interceptor failing to hit its target, a helicopter pilot unable to fire his missiles, or any other mission failure because of a counterfeit part.”

This dangerous state of affairs has taken over 20 years to develop and is a complex web of unintended consequences of seemingly innocuous changes in policies.  There are four main reasons for the problem of Chinese counterfeit components:

1.      Mil. Spec. qualified components replaced by off the shelf components

2.      “Buy American” requirements relaxed

3.      Manufacturing outsourced offshore, mainly in China

4.      Rapid obsolescence of components, especially micro chips

It all started with the scandals of the 1980s over the $600 toilet seats and $400 wrenches that President Reagan’s Defense Department, under Caspar Weinberger, was accused of wasting its money on by the Democrat-controlled Congress.

At the time, the news media ignored reasonable voices pointing out that tooling often has to be made to produce metal, plastic, rubber, and fiber glass parts in certain manufacturing processes.  This tooling cost then has to be amortized into the piece price of the part; i.e., tooling cost divided by the number of parts ordered plus piece price equals selling price. Since defense and military parts are produced in much lower volume than commercial products, the amortized tooling costs add much more to the part cost than it does for commercial parts.

The $600 toilet seat was actually a uniquely shaped, molded fiberglass shroud that fits over the toilet and had to satisfy specifications for vibration resistance, weight, and durability for the P-3C Orion antisubmarine aircraft, which went into service in 1962.  Since the airplane had been out of production for years, new tooling was required to produce the part.  The price reflected the design work and the cost of the equipment to manufacture them, and Lockheed Corp. charged $34,560 for 54 toilet covers, or $640 each.  The president of Lockheed at the time, Lawrence Kitchen, adjusted to the price to $100 each and returned $29,165.

Because of the public outcry over these scandals, the procurement regulations were changed.  The Defense Department, branches of the military, and their supply chain of vendors were allowed to purchase commercial off the shelf parts (COTS) if they met the same fit and function of parts made to strict military specifications.  In the early 1990s, most commercial parts were still being made in the United States, with some outsourcing to the Philippines, Hong Kong, and Singapore, so this change was pretty safe.  Permitting commercial parts to replace Mil. Spec. parts probably drove out of business the small companies that catered exclusively to the military and that provided traceability, per Mil. Spec., for parts supplied to government agencies, military contractors, and subcontractors.  This was all done in the name of cost savings.  Now, however, most commercial electronic components and micro chips are fabricated in China.

Second, after the end of the Cold War and the successful conclusion of the first Gulf War, the provisions of the “Buy American Act” were eased to allow purchasing off the shelf commercial parts from foreign countries by the Defense Department and other government agencies.  Previously, parts, assemblies, and systems were required to be substantially made in the United States or in a NATO country, such as Great Britain, France, and Germany.

This led to parts being made in China as more and more American companies started to outsource manufacturing in China either by selecting Chinese companies as vendors or setting up their own manufacturing plants in China.   This trend accelerated after China received “most favored nation” status with the approval of the World Trade Organization treaty in the year 2000, and American companies started to build semiconductor wafer fab plants in China to produce micro chips.

The problem with counterfeit parts is not something new to industry – there were always a small number of rejected parts that went out the “back door” of companies to be sold on the black or “gray” markets by individual employees.  What is new is the purposeful production of counterfeit parts by a foreign government, namely, China, as a form of economic warfare and counter espionage.

Brian Toohey, president of the Semiconductor Industry Association (SIA), testified Tuesday before the Senate Armed Services Committee calling counterfeit parts “a ticking time bomb.”   He added, “The catastrophic failure risk inherently found in counterfeit semiconductors places our citizens and military personnel in unreasonable peril,” said Toohey. The SIA estimates that counterfeits cost US-based semiconductor companies more than $7.5 billion a year.

EBN Editor, Barbara Jorgensen wrote in her blog, “Counterfeits have been appearing in the consumer and industrial sectors for as long as anyone can remember, but their presence in mission-critical defense equipment and military and passenger aircraft threatens lives  The efforts have a ways to go, but the dialogue between industry associations such as the SIA and the Defense Department and Justice Department are a major step in the right direction.”

Bruce Rayner, Contributing Editor, EE Times, wrote “counterfeiting is on the rise and it is getting harder to detect.  Counterfeit computer hardware, including chips, was one of the top commodities seized in 2010 by the US Immigration and Customs Enforcement agency (ICE) … up five-fold over 2009…The reason for the increase is that there’s a lot of money to be made.  Many obsolete components are in demand by the military because they need to repair very old equipment, such as 1980s-vintage fighter jets.  But the parts are no longer manufactured, and only a few authorized distributors stock the vintage components.  In some cases, the only place to buy these chips is from independent distributors or brokers who don’t have formal sourcing relationships with the original component manufacturer. They buy them over the Internet from sources they don’t know and who can’t validate their authenticity.”

The August 2011 issue of Industry Week reported, “In 2010, government agents seized fake goods totaling $188.1 million, which if genuine would have been worth $1.4 billion.  Goods from China accounted for 66% of the value of seizures by U. S. Customs and Border Protection.”  In the same article, Wes Shepherd, CEO of Channel IQ, said that the outsourcing of manufacturing in China combined with online selling “introduced the specter of counterfeiting as a much more serious problem.”

Joe O’Neill, owner of O’Neill Technologies and formerly with Intel, Samsung and Toshiba, told me in an interview, “the counterfeit problem is a product life cycle mismatch between consumer and more traditional applications, such as industrial, medical, and defense.  The life cycle of micro chips, also referred to as micro processors and controllers, are very short in the networking, computer, and telecommunications industries.  The life cycle of a cell phone model may range from six to 12 months, while industrial and military products may have a life cycle of decades.  Products for the military are a small piece of the market so there is a real problem with part obsolescence.  Availability of these parts that have been made ‘end of life’ force manufacturers to go into the Gray Market or other non-traditional sources to keep their factories supplied with parts.  There are a few companies that specialize in making obsolescent microprocessors for industrial, medical or military manufacturers by “cloning” the parts.” One such company is Innovasic, which makes the X86 series of Intel and AMD micro processors.

During the Senate hearings, part of which I watched after work, photos of bins of electronic parts were shown as Thomas Sharpe, V. P. of SMT Corporation, described visiting electronic component marketplaces in July 2008, where scrapped electronic parts were washed in rivers or left for the daily monsoon rains, dried on river banks, and collected in bins to be ready for counterfeit processing.  Counterfeiters buy used parts for pennies in the street markets of Shenzhen and other Chinese cities, re-mark them, fix broken leads and buff them up, then ship them to brokers in the West who unknowingly or knowingly sell them to other brokers or to OEMs for multiples of what they paid.

Last year, the Department of Justice’s Task Force on Intellectual Property was created specifically to prosecute counterfeiters, and last week Stephanie McCloskey was sentenced to 38 months in federal prison for her role in a scheme by VisionTech Components to import fake chips from China into the U. S. that were sold to a variety of customers including defense contractors and the military.

Until we implement more stringent procurement regulations, strengthen “Buy American” procurement regulations for defense and military components, and return more manufacturing to the United States from offshore, it will be up to manufacturers to have a system to detect and deter counterfeits.  Many defense contractors have put in place strict regimen for inspecting, testing, and reporting counterfeits, but all companies need to be vigilant by inspecting, testing, and reporting.

 

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What Can I do to “save” American Manufacturing?

Tuesday, October 25th, 2011

You may feel that there is nothing you can do as an individual to stop the total destruction of American manufacturing and watch the United States go over the precipice. Don’t think this way!   American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.” Eleanor Roosevelt echoed this sentiment saying, “Never doubt that a small group of thoughtful, committed citizens can change world; indeed, it’s the only thing that ever has.” Remember that our country was founded by a small group of people that did indeed change the world by forming the United States of America.

Here are suggestions of what each one of us can do:

As a Consumer:  It matters if we buy American-made products.  First, our addiction to imports has helped create our high trade deficit, especially with China, where most of the consumer goods we import are manufactured.  Second, American-made products create American jobs.  Each time you choose to buy an American-made product, you help save or create an American job.

Look at the country of origin labels of goods when you go shopping. Most imported goods are required to have these labels.  Buy the “Made in U.S.A.” even if it costs more than the imported product. It is a small sacrifice to make to insure the well being of your fellow Americans. The price difference you pay for “Made in USA” products keeps other Americans working.

If the product you are looking for is no longer made in America, then avoid countries such as China, who have nuclear warheads aimed at American cities. It would not be an exaggeration to say that American consumers have paid for the bulk of China’s military buildup. American service men and women could one day face weapons mostly paid for by American consumers. Instead, patronize impoverished countries such as Bangladesh or Nicaragua, which have no military ambitions against the United States.

In addition, you will be reducing your “carbon footprint” by buying a product made in America instead of a product that is made offshore that will use a great deal of fossil fuel just to ship it to the United States.

If you have a “Made in USA” appliance that needs repair and all the new ones are imported, have it repaired. If it can’t be fixed, and it is a small appliance that you can live without, then don’t buy a new one.

We Americans buy many things that we really don’t need just because they are so cheap. If a product that you are considering purchasing is an import, ask yourself, “Do I really need this?” If you don’t need it, then don’t buy it.

If you are willing to step out of your comfort zone, you could ask to speak to the department or store manager of your favorite store. You could tell the person that you have been a regular customer for x amount of time, but if they want to keep you as a customer, they need to start carrying some (or more) “Made in USA.” products.  If you buy products on line or from catalogs, you could contact these companies via email with a similar message. Your communicating with a company does have an effect because the rule of thumb in sales and marketing is that one reported customer complaint equals 100 unreported complaints.

If you think that Americans no longer care about where goods are made or have concerns about the safety of foreign products, you may be surprised to learn that poll after poll shows that the majority of Americans prefer to buy American.

A nationwide poll conducted by Sacred Heart University in September 2007 found the following:

  • 68.6 percent of Americans check labels for information like manufacturer, nation of origin and ingredients
  • 86.3 percent of Americans would like to block Chinese imports until they raise their product and food safety standards to meet U.S. levels.3

Buying American has been made even easier by a book by Roger Simmermaker – “How Americans Can Buy American: The Power of Consumer Patriotism” released in March 2008 and updated in 2010.  According to Simmermaker, “buying American” is not just about buying “Made in USA.”  “Buying American, in the purest sense of the term, means we would buy an American-made product, made by an American-owned company, with as high a domestic parts content within that product as possible . . . ‘American-made’ is good. ‘Buying American’ is much better!”

One of our greatest statesmen, Thomas Jefferson, stated, “I have come to a resolution myself, as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may.”

Simmermaker has made it easy by listing companies and their nation of ownership. You can see his list of American-owned companies at his website: www.howtobuyamerican.com However, Simmermaker’s website isn’t the only one available. You can also check many other websites, found simply by “Googling” “buy American.” These include:

www.buyamericanmart.com

www.ionlybuyamerican.com

www.madeinusa.org

www.americansworking.com

www.shopunionmade.org

www.MadeInUSAForever.com

www.stillmadeinUSA.com

There are also brick and mortar stores springing up around the country that are either stocking only “made in America” products, such as the American Apparel stores or primarily “made in America” products, such as the Urban Outfitters stores.

As American consumers, you have many choices to live safely and enjoy more peace of mind with American products. It’s high time to stop sending our American dollars to China while they send us all of their tainted, hazardous, and disposable products. If 200 million Americans refuse to buy just $20 each of Chinese goods, that’s a four billion dollar trade imbalance resolved in our favor – fast!

As a Voter:  There’s only one way for manufacturers to find relief from high taxes, burdensome regulations, and unfair trade laws and that’s through Washington, D.C.  Voter apathy is partially responsible for the state of our affairs as a country. Too many people have decided that there is nothing we can do on an individual basis and have even stopped voting.

Americans have been “sold down the river” by politicians on both sides of the aisle – Democrats and Republicans. Democrats profess to support “blue collar workers” and unions, yet NAFTA and the WTO treaties were approved and went into effect under the presidency of Democrat Bill Clinton. Republicans profess to support business, yet they primarily support large, multinational corporations, rather than the small businesses that are the engine of economic growth in the U.S. and the foundation of the middle class.

In his 2008 book, “Where Have all the Leaders Gone” Lee Iacocca said, “Am I the only guy in this country who’s fed up with what’s happening? Where is our outrage? We should be screaming bloody murder. We’ve got corporate gangsters stealing us blind. The most famous business leaders aren’t the innovators, but the guys in handcuffs. And, don’t tell me it’s all the fault of right wing Republicans or liberal Democrats. That’s an intellectually lazy argument and it’s part of the reason that we’re in this stew. We’re not just a nation of factions. We’re a people and we rise and fall together.  We didn’t elect you to sit on your butts and do nothing and remain silent while our country is being hijacked and our greatness is being replaced with mediocrity.  What is everybody so afraid of?  Why don’t you guys in Congress show some spine for a change?”

In a poll asking Americans if they’ve ever contacted their elected representatives, eight out of ten said that they never had. It’s never been easier to contact members of Congress. All you have to do is click on www.house.gov or www.senate.gov and type in your zip code, and you’re automatically directed to your representative. A window automatically pops up where you can type a message to that representative.  It takes less than two minutes, on average.  Well, we now need to let our elected representatives know how we feel about the bad trade laws, bad tax laws, and over burdensome regulations on manufacturers. It’s time to shed apathy, become involved, and vote.

If people whose lives are affected by manufacturing would contact their legislators and tell them they want trade reform and tax reform and would follow up to watch to see how they voted, the results would be amazingly effective.

We cannot afford to export our wealth and be able to remain a first-world country. We cannot lose our manufacturing base and be able to remain a “superpower.” In fact, we may not be able to maintain our freedom as a country because it takes considerable wealth to protect our freedom. You can play a role as an individual in saving our country ? the company you save or the job you save by your actions may be your own.

Posted in General, Taxes/Regulations, Trade Policy | No Comments »

U. S. Lost 1.9 Million Manufacturing Jobs due to Trade Deficit with China

Tuesday, September 27th, 2011

According to a study released on September 20, 2011 by the Economic Policy Institute, the U.S.-China trade deficit has eliminated or displaced nearly 2.8 million jobs, of which 1.9 million or 70 percent were in manufacturing.

The study, “Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010” by Robert Scott, EPI’s director of trade and manufacturing policy research, writes, “Since China entered the World Trade Organization in 2001, the extraordinary growth of U. S. trade has had a dramatic effect on U.S. workers and the domestic economy.”

The trade deficit with China grew from $84 billion in 2001, when China entered the WTO, to $278 billion in 2010.  It eliminated or displaced 2,790,100 jobs, or about 2 percent of total U.S. employment over that period. All 50 states, the District of Columbia and Puerto Rico suffered jobs lost or displaced as a result of the growing U.S.-China trade deficit.  The 10 states that suffered the biggest net losses were California (454,600 jobs), Texas (232,800), New York (161,400), Illinois (118,200), Florida (114,400), North Carolina (107,800), Pennsylvania (106,900), Ohio (103,500), Massachusetts (88,600) and Georgia (87,700). ).  These losses comprise more than 2.2 percent of total employment.

A total of 453,100 jobs were lost or displaced from 2008 to 2010 alone—even though imports from China and the rest of world collapsed in 2009 during the height of the global financial crisis.  In fact, the report notes the U.S. trade deficit with China increased $8 billion during the great recession, despite a collapse in world trade at that time.

The largest share of manufacturing jobs lost or displaced were in computer and electronic parts, accounting for more than 44 percent of the $194 billion increase in the U. S. trade deficit with China between 2001 and 2010.  In 2010, the total U.S. trade deficit with China was $278.3 billion, of which $124.3 billion was in computer and electronics parts.  This growth of the trade deficit resulted in the loss of 909,400 jobs in these industries.

Apparel and accessories lost 178, 700 jobs, textile fabrics and products lost 92,300 jobs, fabricated metal products lost 123,900 jobs, plastic and rubber products lost 62,000 jobs, motor vehicles and parts lost 49,300 jobs, and miscellaneous manufactured goods lost 119,700 jobs.   The job displacement estimates in the report are conservative and represent only the direct and indirect jobs displaced by trade and exclude jobs in domestic wholesale and retail trade and advertising.

“Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China,” the report concludes.  The U.S. had a new record $94.2 billion trade deficit in Advanced Technology Products (ATP) with China in 2010 compared to a $40.7 billion trade deficit in 2007, an increase of 45.5 percent in three years.  In contrast, the United States had a $13.3 billion surplus in ATP with the rest of the world in 2010.

The impact of the trade deficit with China extends beyond U.S. jobs lost or displaced, according to the Alliance for American Manufacturing (AAM). Competition with China and countries like it has resulted in lower wages and less bargaining power for U.S. workers in manufacturing and for all workers with less than a four-year college degree.

Cheap labor may well be the main reason for China’s manufacturing advantage, but the report cites illegal currency manipulation as a major cause of the rapidly growing U.S. trade deficit with China.  Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar, but is artificially pegged in order to boost China’s exports.  While the cost of labor affected China’s exports, the currency manipulation, which happened despite China joining the World Trade Organization in 2001, distorted its imports.

American policymakers have long assumed that as China’s huge middle class grew, U.S. companies’ sales to these new consumers would also grow.  But it did not work out that way, the EPI reports: “as a result of China’s currency manipulation and other trade distorting practices, including extensive subsidies, legal and illegal barriers to imports, dumping and suppression of wages and labor rights, the envisioned flow of U.S. exports to China did not occur.”  Added to its labor cost advantage, this currency manipulation has been devastating to many U.S. companies.

China’s currency manipulation, state-owned enterprises, heavy industrial subsidies, intellectual property theft and piracy, indigenous innovation policies, rare earth mineral export restrictions and other trade-distorting practices have caused China’s share of the total U.S. non-oil goods trade deficit to soar from 69.6 percent in 2008 to 78.3 percent in 2010.

“Unless China raises the real value of the yuan by at least 28.5 percent and eliminates other trade distortions,” the report concludes, “the U.S. trade deficit and job losses will continue to grow rapidly.”

“This report offers conclusive evidence that immediate action by the Administration is needed to curb China’s currency manipulation, which, along with China’s blatant trade violations, are having the same devastating impact on high-tech production that they’ve already had on the nation’s longstanding industrial base,” said Scott Paul, executive director of the Alliance for American Manufacturing (AAM), a partnership of America’s leading manufacturers and the United Steelworkers union.

“We urgently need a national strategy for restoring America’s global leadership in manufacturing,” he added. “Challenging China’s currency manipulation would be an important first step toward developing such a strategy.  It would not only cut unemployment, it would result in a much-needed increase in federal revenue.”

According to a blog notice by the Coalition for a Prosperous America today, Majority Leader Reid has filed for cloture on the Senate currency bill that was filed last week.  This bill is the Brown-Schumer-Graham-Snowe-Stabenow-Sessions-Casey-Burr Currency Exchange Rate Oversight Act of 2011 (S. 1619), which is the consensus bill negotiated among Senators to deal with Treasury’s oversight role as well as the Commerce Department’s role in countervailing duty investigations.  Reid’s announcement means that there will be vote on the cloture on Monday, October 3, 2011, followed by debate on the currency bill and a vote on the bill.  A similar bill, H.R.639, was introduced recently in the House and had 206 co-sponsors as of last week.

The EPI report cites Foreign Direct Investment (FDI) as another key factor in the job loss.  FDI is money invested in China by other countries, such as the United States.  It can take the form of American companies buying or building plants in China to move manufacturing operations to China.  When outsourcing to China first occurred in the mid 1990s, American companies just outsourced parts and assemblies to Chinese companies.   Then, it became the trend to outsource whole product lines to Chinese companies.  The next step was for American companies to buy or build new plants set up as subsidiaries in China to manufacture their products.  The report states that “China is the largest recipient of FDI of all developing countries and is the third largest recipient of FDI over the past three decades, trailing only the United Stated and the United Kingdom.  Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 55 percent of China’s exports and 68 percent of its trade surplus in 2010.  Outsourcing ? through foreign direct investment in factories that make goods for export to the United States ? has played a key role in the shift of manufacturing production and jobs from the Unites States to China since it entered the WTO in 2001.”

The EPI research does not make a forecast of how many more American jobs may be lost in the future due to China’s manufacturing cost advantages and questionable trade policies.  The damage, of course, did not suddenly end in 2010, and is almost certainly ongoing.  And, of course, “the U.S. is piling up foreign debt, losing export capacity, and faces a fragile macroeconomic environment.”

The report concludes that “the U. S. trade relationship needs a fundamental change.  Addressing the exchange rate policies and labor standards issue in the Chinese economy are important first steps.”

I think it’s high time that these issues are addressed by Congress.  I’ve watched one company after another outsource manufacturing to China in my sales territory in Southern California as a manufacturers’ sales rep for American companies.  I’ve personally witnessed my customers who are engineers and purchasing agents at these companies lose their jobs and have increasing difficulty finding replacement jobs. My career in manufacturing includes the major recessions we have experienced since 1980, and I have never known so many people out of work for so long.  The joblessness problem in the U.S. is so serious that any added erosion of employment opportunities from our trade deficits with China will make a recovery of the American economy all the more difficult.

According to a study released on September 20, 2011 by the Economic Policy Institute, the U.S.-China trade deficit has eliminated or displaced nearly 2.8 million jobs, of which 1.9 million or 70 percent were in manufacturing.

The study, “Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010” by Robert Scott, EPI’s director of trade and manufacturing policy research, writes, “Since China entered the World Trade Organization in 2001, the extraordinary growth of U. S. trade has had a dramatic effect on U.S. workers and the domestic economy.”

The trade deficit with China grew from $84 billion in 2001, when China entered the WTO, to $278 billion in 2010.  It eliminated or displaced 2,790,100 jobs, or about 2 percent of total U.S. employment over that period. All 50 states, the District of Columbia and Puerto Rico suffered jobs lost or displaced as a result of the growing U.S.-China trade deficit.  The 10 states that suffered the biggest net losses were California (454,600 jobs), Texas (232,800), New York (161,400), Illinois (118,200), Florida (114,400), North Carolina (107,800), Pennsylvania (106,900), Ohio (103,500), Massachusetts (88,600) and Georgia (87,700). ).  These losses comprise more than 2.2 percent of total employment.

A total of 453,100 jobs were lost or displaced from 2008 to 2010 alone—even though imports from China and the rest of world collapsed in 2009 during the height of the global financial crisis.  In fact, the report notes the U.S. trade deficit with China increased $8 billion during the great recession, despite a collapse in world trade at that time.

The largest share of manufacturing jobs lost or displaced were in computer and electronic parts, accounting for more than 44 percent of the $194 billion increase in the U. S. trade deficit with China between 2001 and 2010.  In 2010, the total U.S. trade deficit with China was $278.3 billion, of which $124.3 billion was in computer and electronics parts.  This growth of the trade deficit resulted in the loss of 909,400 jobs in these industries.

Apparel and accessories lost 178, 700 jobs, textile fabrics and products lost 92,300 jobs, fabricated metal products lost 123,900 jobs, plastic and rubber products lost 62,000 jobs, motor vehicles and parts lost 49,300 jobs, and miscellaneous manufactured goods lost 119,700 jobs.   The job displacement estimates in the report are conservative and represent only the direct and indirect jobs displaced by trade and exclude jobs in domestic wholesale and retail trade and advertising.

“Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China,” the report concludes.  The U.S. had a new record $94.2 billion trade deficit in Advanced Technology Products (ATP) with China in 2010 compared to a $40.7 billion trade deficit in 2007, an increase of 45.5 percent in three years.  In contrast, the United States had a $13.3 billion surplus in ATP with the rest of the world in 2010.

The impact of the trade deficit with China extends beyond U.S. jobs lost or displaced, according to the Alliance for American Manufacturing (AAM). Competition with China and countries like it has resulted in lower wages and less bargaining power for U.S. workers in manufacturing and for all workers with less than a four-year college degree.

Cheap labor may well be the main reason for China’s manufacturing advantage, but the report cites illegal currency manipulation as a major cause of the rapidly growing U.S. trade deficit with China.  Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar, but is artificially pegged in order to boost China’s exports.  While the cost of labor affected China’s exports, the currency manipulation, which happened despite China joining the World Trade Organization in 2001, distorted its imports.

American policymakers have long assumed that as China’s huge middle class grew, U.S. companies’ sales to these new consumers would also grow.  But it did not work out that way, the EPI reports: “as a result of China’s currency manipulation and other trade distorting practices, including extensive subsidies, legal and illegal barriers to imports, dumping and suppression of wages and labor rights, the envisioned flow of U.S. exports to China did not occur.”  Added to its labor cost advantage, this currency manipulation has been devastating to many U.S. companies.

China’s currency manipulation, state-owned enterprises, heavy industrial subsidies, intellectual property theft and piracy, indigenous innovation policies, rare earth mineral export restrictions and other trade-distorting practices have caused China’s share of the total U.S. non-oil goods trade deficit to soar from 69.6 percent in 2008 to 78.3 percent in 2010.

“Unless China raises the real value of the yuan by at least 28.5 percent and eliminates other trade distortions,” the report concludes, “the U.S. trade deficit and job losses will continue to grow rapidly.”

“This report offers conclusive evidence that immediate action by the Administration is needed to curb China’s currency manipulation, which, along with China’s blatant trade violations, are having the same devastating impact on high-tech production that they’ve already had on the nation’s longstanding industrial base,” said Scott Paul, executive director of the Alliance for American Manufacturing (AAM), a partnership of America’s leading manufacturers and the United Steelworkers union.

“We urgently need a national strategy for restoring America’s global leadership in manufacturing,” he added. “Challenging China’s currency manipulation would be an important first step toward developing such a strategy.  It would not only cut unemployment, it would result in a much-needed increase in federal revenue.”

According to a blog notice by the Coalition for a Prosperous America today, Majority Leader Reid has filed for cloture on the Senate currency bill that was filed last week.  This bill is the Brown-Schumer-Graham-Snowe-Stabenow-Sessions-Casey-Burr Currency Exchange Rate Oversight Act of 2011 (S. 1619), which is the consensus bill negotiated among Senators to deal with Treasury’s oversight role as well as the Commerce Department’s role in countervailing duty investigations.  Reid’s announcement means that there will be vote on the cloture on Monday, October 3, 2011, followed by debate on the currency bill and a vote on the bill.  A similar bill, H.R.639, was introduced recently in the House and had 206 co-sponsors as of last week.

The EPI report cites Foreign Direct Investment (FDI) as another key factor in the job loss.  FDI is money invested in China by other countries, such as the United States.  It can take the form of American companies buying or building plants in China to move manufacturing operations to China.  When outsourcing to China first occurred in the mid 1990s, American companies just outsourced parts and assemblies to Chinese companies.   Then, it became the trend to outsource whole product lines to Chinese companies.  The next step was for American companies to buy or build new plants set up as subsidiaries in China to manufacture their products.  The report states that “China is the largest recipient of FDI of all developing countries and is the third largest recipient of FDI over the past three decades, trailing only the United Stated and the United Kingdom.  Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 55 percent of China’s exports and 68 percent of its trade surplus in 2010.  Outsourcing ? through foreign direct investment in factories that make goods for export to the United States ? has played a key role in the shift of manufacturing production and jobs from the Unites States to China since it entered the WTO in 2001.”

The EPI research does not make a forecast of how many more American jobs may be lost in the future due to China’s manufacturing cost advantages and questionable trade policies.  The damage, of course, did not suddenly end in 2010, and is almost certainly ongoing.  And, of course, “the U.S. is piling up foreign debt, losing export capacity, and faces a fragile macroeconomic environment.”

The report concludes that “the U. S. trade relationship needs a fundamental change.  Addressing the exchange rate policies and labor standards issue in the Chinese economy are important first steps.”

I think it’s high time that these issues are addressed by Congress.  I’ve watched one company after another outsource manufacturing to China in my sales territory in Southern California as a manufacturers’ sales rep for American companies.  I’ve personally witnessed my customers who are engineers and purchasing agents at these companies lose their jobs and have increasing difficulty finding replacement jobs. My career in manufacturing includes the major recessions we have experienced since 1980, and I have never known so many people out of work for so long.  The joblessness problem in the U.S. is so serious that any added erosion of employment opportunities from our trade deficits with China will make a recovery of the American economy all the more difficult.

 

 

 

 

 

 

Posted in Outsourcing, Trade Policy | No Comments »

What is the Secret behind China’s Cheap Prices?

Tuesday, August 16th, 2011

It might not be what you think it is.  Most people would say it’s no secret and that the answer is obvious – lower wages in China compared to the United States.  However, that answer is only partially true.  Why?  Because labor is only one part of the total cost of a product, and in many cases it’s as low as 20% of the total cost.

Let’s compare two simple products that are primarily made in China:  a stuffed toy animal for a baby and a Frisbee.  The stuffed animal is comprised of textile material for the cover, stuffing, two eyes and a nose.  The material must be cut into pieces, sewn together, and stuffed.  The nose, eyes, and mouth are usually a pattern of thread that is sewn on the face piece before the toy animal is sewn together and stuffed.  The cutting of the pieces may be done by hand or by machine, but the pieces are sewn together by a worker using a high speed sewing machine.  The stuffing is usually blown into the stuffed toy by a machine, but the insertion point is closed by hand.   This type of a product is considered to be a high labor content product with labor being about 70% of the total cost.

On the other hand, a Frisbee is made of plastic resin (beads or pellets of plastic) in a process that is called plastic injection molding in which the resin is heated in a molding machine to a viscous state and is then injected into a mold, after which the molded part is automatically popped out of the machine in a matter of seconds.  The mold can be designed to make several parts at once at the push of a button, and a fully automated machine can be set to run continuously 24 hours a day with very little monitoring by a worker.  The highest expense in producing a Frisbee is the cost of making the mold (also called tooling), and that cost is amortized into the piece price of the parts so that the higher the volume of production, the lower the cost of the amortized tooling that is added to the cost of the part.  A Frisbee is considered to be a low labor product at about 20% of the total cost.

What are other factors of the total cost for the “China price”?  First, there are the actual costs of the materials used to manufacture the product, which would be the textile material and stuffing for the toy animal and the plastic resin for the Frisbee.  Because of the high volume of materials and resins ordered by Chinese companies, the pricing would be as low as it could be.

Second, there are the wages for the workers directly involved in producing the parts.  Labor is abundant and cheap in China because even though 300,000 have risen into the middle class and above, this still leaves one billion people living at the poverty level.  At any one time, there are an estimated hundred million workers who are unemployed and underemployed, which is about equal to the number of Americans employed in full time jobs.

All employees in China have the right under law to join the ACFTU, which claims some 170 million members and is controlled by the Communist Party.  ACFTU has a monopoly on trade unionizing in China and creation of competing unions is illegal Party leaders have ensured that the ACFTU has a monopolist position.  They don’t want autonomous unions springing up, because of the potential threat to their authority.  In 2008, collective bargaining became a requirement of the Labor Contract Law that went into effect, forcing most companies – including most foreign owned ones – to create an ACFTU chaptered trade union within them.

However, there are about 1,000 protest demonstrations occurring every week in China, even at the risk of beatings, demotions, dismissal, and even torture.  As a result, wages have finally been rising by about 15% per year over the past four years.  It took some suicides by workers in the summer of 2010 to achieve additional improvement in wages and working conditions at plants that were more like prison camps with dormitories for workers to live on site and fences around the buildings so workers couldn’t leave the premises.

Third, there are the costs of compliance to health and safety regulation and environmental regulations.  These costs are less expensive in China than in the United States because the Chinese government imposes few health and safety or environmental regulations.  China doesn’t provide workman’s compensation insurance for their workers so workers hurt on the job don’t receive any compensation when they are injured to the point that they are disabled.  Although China has its own environmental protection agency, the environmental protection laws are generally ignored and not enforced, especially at the local level.  So, Chinese companies have the advantage of being able to dump just about any odious byproduct into the air or waterways.   Six of the top 20 most polluted cities of the world are in China, and China has been designated as the world’s most polluted nation in several studies.  There is one city in China where the land, air, and water are polluted with mercury so the residents are really the “living dead” because there is no cure for mercury poisoning, which is eventually fatal.  The World Health Organization estimates that 750,000 people a year die in China as a result of the effects of pollution.

Next, there is the cost of taxes and duties.  China is one of over 150 countries that utilize a Value Added Tax (VAT) system.  It is a tax only on the “value added” to a product, material, or service at every state of its manufacture or distribution.  The VAT rate is generally 17 percent, or 13 percent for some goods.  Chinese companies receive a VAT refund from the government for materials of products produced for export.   American imports to China are charged a VAT, but the U. S. doesn’t have a VAT to charge Chinese imports.

On top of this, China’s national government policies allow their manufacturers to use trade cheats.   For example, there are unbalanced tariffs, such as the 2.5% for a car entering America vs. 25% for a car coming into China.  In addition, the Chinese government requires foreign firms to have a Chinese “partner” company, who maintains the majority interest, takes most of the profits, and has the real control of the company.  More seriously, China now requires U. S. companies to share their technology and relocate their R&D centers to China if they want to have access to Chinese markets.

Above all, there is the ever-present currency manipulation, where China undervalues their currency by an estimated 30-40%, which simply makes every product that China ships out 30-40% cheaper than those of a potential American competitor.

Finally, China has a national strategy of what is called “dumping.” “Dumping” is defined as the act of a manufacturer in one country exporting a product to another country at a price that is either below the price it charges in its home market or is below its cost of production.

The goal of “dumping” is to capture the market or destroy the competition for a particular product or commodity so the price to the end user or consumer is lowered way below the competition, often below cost. “Dumping” is one of the strategies China uses as a neomercantilist country.  Neomercantilism is a term used to describe a policy which encourages exports, discourages imports, controls capital movement and centralizes currency decisions in the hands of a central government. The objective of neo-mercantilist policies is to increase the level of foreign reserves held by the government, allowing more effective monetary and fiscal policy.

While dumping is not prohibited by the World Trade Organization (WTO) agreement, GATT Article VI allows countries to act against dumping where there is genuine (“material”) injury to the competing domestic industry.  Countries are allowed to act in a way that would normally break the GATT principals of binding a tariff and not discriminating between trading partners. Typically, antidumping action means charging extra import duty on a particular product from the exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry.

The number of U.S. dumping cases against imports from China is up, and more than 50 categories of goods from China are now subject to U.S. antidumping duties. Some of these product categories are: steel fence posts, iron pipe fittings, aluminum extrusions, tires, hand trucks, ironing tables, wooden bedroom furniture, and paper products.

Thus, the secret of China’s cheaper prices is a complex, national strategy of China to become the preeminent superpower of the 21st Century.  Sun Tzu, author of “The Art of War,” would be impressed with how his descendants have used his military strategies to dominate the world economy.

Posted in General, Trade Policy | No Comments »

How Free Trade Agreements Lead to Job Loss and Wealth Gaps

Tuesday, August 2nd, 2011

Since the year 2000, the United States has lost over 5.5 million manufacturing jobs, nearly 50,000 manufacturing companies, and racked up an annual trade deficit with China of $273 million in 2010, up from $83.8 million in 2000.  These escalating trade deficits with China have far-reaching effects, particularly on American workers.  This article will examine the impact of free trade with China as documented in two of the annual reports submitted to Congress by the bi-partisan, 12 member U. S.-China Economic and Security Review Commission (USCC).

The 2007 report included a case study of the local impact of trade with China on North Carolina.  The USCC report stated “the accelerating decline in North Carolina’s manufacturing employment is due in large measure to increasing competition from imports mostly from China . . . The combination of China’s 2001 admission to the World Trade Organization (WTO), which gave it quota-free access to U.S. markets for its textile and clothing exports, and the subsequent U.S. grant of Most-Favored (Trading) Nation status that lowered most tariffs on Chinese imports, battered North Carolina’s textile and apparel industries, and they never recovered.”

During the period of 2001 -2007, the number and proportion of jobs in the North Carolina services sector increased.  This shift put downward pressure on wages because manufacturing historically paid substantially higher wages than the services sector.  The shift also reduced the number of workers receiving such fringe benefits as retirement and health insurance, in part because some of the displaced workers were able to find only part-time jobs that often do not offer benefits.

Because a greater proportion of North Carolina’s workforce had manufacturing jobs than any other state, North Carolina’s workforce was more vulnerable to competition from imports than the workforces of other states.  North Carolina’s manufacturing economy was made even more vulnerable by its concentration in the import-sensitive sectors of textiles, apparel, and furniture.   According to the National Council of Textile Organizations, the U. S. textile industry dropped from the worlds second in basic manufacturing industries in 1991 with $244 billion in sales, down to third in 2002 with $60 billion in sales.11 North Carolina is one of the southeast states that had a large number of textile companies.

The North Carolina Employment Security Commission’s Labor Market Information Division followed the employment prospects of 4,820 workers laid off from bankrupt Pillowtex in 2003, which was the largest mass layoff in North Carolina history.  “About 40 percent of the laid-off workers had not yet found work, three years after they lost their jobs, and for those who have, take-home pay isn’t as much as they were making at Pillowtex.”  The article reported that North Carolina has been the most impacted state in the nation by layoffs due to trade.  Between 2004 and 2006, almost 39,000 North Carolina workers were certified by the Trade Adjustment Assistance program as having lost jobs to trade, more than 10 percent of the U.S. total of 387,755.”

According to the Social Science Research Institute (SSRI) of Duke University in North Carolina, there
were 2,153 textile and apparel plants in North Carolina employing 233,715 people in 1996.  By 2006, the apparel industry had experienced a 70% decline in jobs and 55% loss of plants.  The textile industry by comparison had only lost 63% of jobs and 32% of plants from 1996 to 2006.

“Trade agreements can profoundly affect state and regional economies and particular industries.  While trade agreements that lower import barriers among America’s trading partners have the potential to benefit American exporters, North Carolina appears to have realized few if any substantial benefits from China’s admission to the WTO, and the net effect of trade with China since its accession appears to be negative overall for North Carolina’s economy.”  It isn’t just people losing jobs and not being able to find other employment that pays as well as their former jobs, “hundreds of small towns throughout North Carolina impacted by plant closures are dying.”

How does the downturn in the textile industry in the South affect other regions of the country?  San Diego is a long way from North Carolina so you wouldn’t expect there would be much impact.  However, the San Diego region has a large number of companies manufacturing sporting vehicles, such as dune buggies, go-karts, mini-motorcycles, etc.  The connection is that the Southeast has traditionally been the largest market for go-karts, and the majority of U.S. textile companies were located in the Southeast.  A San Diego company that has manufactured parts for go-karts for over 40 years revealed that their sales of go-kart parts had dropped significantly in the past ten years in the Southeast.  Go-karting is mainly a hobby of blue-collar workers, such as textile workers.  Many of the thousands of workers who lost their jobs in the textile and apparel industry were not able to find equally well-paying jobs in other manufacturing sectors.  The average weekly salary for a U.S. textile worker was $487 in 2002, 38 percent more than the average salary of $301 for a worker in a retail store, such as Wal-Mart.  When a family’s disposable income drops drastically, money for non-essentials, such as go-karts is cut or goes away altogether.

The loss of these well-paid manufacturing jobs in North Carolina’s textile industry may have resulted in families losing their homes and/or being forced to relocate to other areas of the country to find jobs.  Taking lower paying jobs in their own communities may have resulted in families no longer being in the middle class income range.  And, those who haven’t been able to find any work or only part-time work may have even dropped down to the poverty level.

What about all the jobs that were supposed to be created in the green and clean technology industries?  Is our free trade agreement with China as part of the World Trade Organization having an effect on these industries also? This is of particular concern because the Obama Administration has repeatedly emphasized green technology’s role in job creation and highlighted green technology in its 2010 National Export Initiative, which is intended to double the level of U.S. exports within five years.  According to the U.S. Department of Commerce, the green sector has the potential to fuel economic growth in the immediate future.  More than two dozen states have also identified green technology’s potential to create jobs and to revitalize manufacturing areas that have been damaged by imports, outsourcing, and the loss of export markets abroad.

The USCC’s 2010 Annual Report to Congress discussed China’s green energy policies and efforts to promote alternative energy sectors as part of its analysis of the U.S.-China relationship in several areas.

 

One key development in 2009 was a ban in China on deployment of turbines of less than 1,000 kilowatts for most projects, on the grounds of inefficiencies.  The ban had a discriminatory effect on imported turbines, since most of the smaller models are produced by European and American companies.  Larger wind turbines are more expensive and require substantial new investment to build but require comparatively less maintenance and can be more efficient, because they require fewer installations.  But the larger wind turbines require new investment by manufacturers.  Many foundries in the United States, for example, are reluctant to invest in new, larger molds for the larger turbine casings unless they can be guaranteed a substantial production run.  Chinese state-owned foundries are under no such profit constraints.

“U.S. firms are losing global market share in the green technology sector, mostly to China, with solar panel manufacturing experiencing a particularly severe loss.  As various sources have noted, China became the largest producer of solar panels in the world in 2008, shipping 2,600 megawatts of photovoltaic panels, enough for about one-third of annual world supply.”

U.S. and Chinese firms are both engaged in active research and development for electric vehicles and their fuel cells or batteries.  To spur the entry of electric vehicles into the market, China has created a mandate for increased vehicle emissions standards in the next ten years, with plans to reduce gasoline consumption by vehicles 60 percent by 2020.  This is expected to spur the development of an electric vehicle market.

Recent reports have noted that China is considering a new technology transfer requirement for foreign automakers.  China’s Ministry of Industry and Information Technology is ‘‘preparing a 10-year plan aimed at turning China into ‘the world’s leader’ in developing and producing battery-powered cars and hybrids,’’ according to executives at four foreign car producers familiar with the plan.

In the area of alternative energy, China is following a familiar pattern of choosing an industry sector and showering it with a comprehensive mixture of subsidies and incentives.  In this case, China also intends to establish certain alternative energy industries as ‘‘national champions’’ able to dominate world export markets.  China has already developed the world’s largest manufacturing capacity in solar panels.  Its capacity is far larger than that needed to satisfy domestic demand; 90 percent of the solar panels manufactured in China are exported.  China also has a large number of installed wind turbines and is rapidly developing new technology for a growing global market.  China’s domestic wind turbine industry operates behind a protectionist barrier.  Only the largest wind turbines may be installed in China.  This excludes many U.S. and European turbines, which are typically smaller.

What have been the long term effects of the loss of manufacturing jobs on America’s working class?  On July 25, 2011, the Pew Research Center released a report based on their analysis of new census data, which shows that the wealth gaps between whites and minorities have grown to their widest levels in a quarter-century.  I believe that this is the direct result of the loss of manufacturing jobs in the last decade, exacerbated by the loss of jobs in the construction industry since 2007 with the burst of the real estate bubble.

The numbers are based on the Census Bureau’s Survey of Income and Program Participation, which sampled more than 36,000 households on wealth from September-December 2009.  Census first began publishing wealth data from this survey, broken down by race and ethnicity, in 1984.

Household wealth is the sum of assets (houses, cars, bank accounts, stocks and mutual funds, retirement accounts, etc.) minus the sum of debt (mortgages, auto loans, credit card debt, etc.).  It is different from household income, which measures the annual inflow of wages, interest, profits and other sources of earning.  Wealth gaps between whites, blacks and Hispanics have always been much greater than income gaps.

The median wealth of white U.S. households in 2009 was $113,149, compared with $6,325 for Hispanics and $5,677 for blacks, according to the analysis released Tuesday by the Pew Research Center. Those ratios, roughly 20 to 1 for blacks and 18 to 1 for Hispanics, far exceed the low mark of 7 to 1 for both groups reached in 1995, when the nation’s economic expansion lifted many low-income groups to the middle class.  The white-black wealth gap is also the widest since the census began tracking such data in 1984, when the ratio was roughly 12 to 1.

According to the Pew study, the housing boom of the early to mid-2000s boosted the wealth of Hispanics in particular, who were disproportionately employed in the thriving construction industry.  “After reaching a median wealth of $18,359 in 2005, the wealth of Hispanics …declined by 66 percent by 2009…  Among blacks, who now have the highest unemployment rate at 16.2 percent, their household wealth fell 53 percent from $12,124 to $5,677.”

“Typically in recessions, minorities suffer from being last hired and first fired. They are likely to lose jobs more rapidly at the beginning of the recession, and are far slower to gain jobs as the economy recovers,” said Harrison, who is now a sociologist at Howard University. “One suspects that blacks who lost jobs in the recession, or who have tried to help family members or relatives who did, have now spent whatever savings or other cashable assets they had.”

Asians lost their top ranking to whites in median household wealth, dropping from $168,103 in 2005 to $78,066 in 2009. Like Hispanics, many Asians were concentrated in states like California hit hard by the housing downturn. More recent arrivals of new Asian immigrants, who tend to be poor, also pushed down their median wealth.

In San Diego, the factory floor is comprised primarily of Asians, Vietnamese, Cambodian, Laotian, and Hmong, many of whose families came to the United States as refugees, with little formal education.  The balance of manufacturing workers is mainly Hispanics, with a small percentage of whites and blacks.  In other parts of the country, this mix of factory workers may comprise a higher number of working class whites and blacks who were able to get jobs in manufacturing with only a high school diploma or GED.

For the past 60 years, the manufacturing sector offered the best opportunity for persons with only a high school diploma or GED to have upward mobility — starting at an entry level wage, but having the opportunity to advance to better paying jobs through experience, training, and education.  With millions of manufacturing jobs gone, the opportunity to live the American dream is disappearing.  As a nation, we are in danger of becoming a two-class society of rich and poor, haves and have-nots, with the rapidly disappearing middle class.  We must stop this slide into becoming a third-world country.   It’s time for us to review our unilateral free trade agreement with China that only seems to benefit China at the cost of jobs and even whole industries in the United States.

Posted in Cleantech, Outsourcing, Trade Policy | No Comments »

Korea Free Trade Agreement – Beneficial or Harmful?

Tuesday, April 19th, 2011

The Korea Free Trade Agreement (KORUS), originally signed on June 30, 2007 is one of three FTAs that have been concluded but not yet implemented by Congress.  The other two are the Colombia FTA, signed on November 22, 2006 and the Panama FTA, signed on June 28, 2007.

Because of shared authorities on trade and differences of views between successive Congresses and presidents, these FTAs, struck with countries that the United States counts as friends and allies, have been stuck in a procedural no-man’s land between the White House and Congress.

On December 4, 2010, President Obama announced that he had obtained supplemental concessions from the South Korean government on autos significant enough to justify his decision to transmit an implementing bill to Congress. This gave KORUS renewed political life.

As the 112th Congress began, the new Speaker, John Boehner, said that the House intends to move on all three trade pacts.  On January 25, the House Ways and Means Committee held a hearing to consider all three FTAs, setting the stage for consideration of these agreements by Congress in the coming months.

The agreement is an integral part of the President Obama’s efforts to increase opportunities for U.S. businesses, farmers and workers through improved access for their products and services in foreign markets and supports the President’s National Export Initiative goal of doubling of U.S. exports in five years.

According to the Fact Sheet by the U.S. International Trade Commission (ITC), the agreement will promote the further integration of the U.S. and Korean economies and enhance the competitiveness of U.S. businesses in the world’s 12th largest economy.  The agreement is an important demonstration of the Administration’s advancement of free and fair trade and will complement the Obama Administration’s efforts to expand business opportunities for the United States in Asia, including through such initiatives as the Trans Pacific Partnership.  The estimated tariff cuts alone in the U.S.-Korea trade agreement will increase exports of American goods by $10 billion to $11 billion.  The Agreement would eliminate tariffs on over 95 percent of industrial and consumer goods within five years.

The U.S.-Korea trade agreement will open Korea’s $560 billion services market to highly competitive American companies – supporting jobs for American workers in sectors ranging from delivery and telecommunications services to education and health care services.

The U.S-Korea trade agreement creates new opportunities for U.S. manufacturers seeking to export to Korea in two ways: first, it eliminates tariffs, or duties, charged when U.S. exports come into Korea; and it addresses non-tariff barriers to U.S. exports – whether by eliminating barriers that are in place today, or by establishing a framework to prevent non-tariff barriers from arising in the future.  Under the agreement, U.S. exports of aerospace, automotive, consumer goods, electrical/electronic goods, metals, scientific equipment, and shipping and transportation equipment will gain duty-free access to the Korean market.  Beyond tariffs, the agreement establishes strong new rules on how Korea will develop regulations applied to U.S. exports, and contains state-of-the-art protections on intellectual property rights (IPRs).

The U.S.-Korea trade agreement creates new opportunities for U.S. farmers, ranchers and food processors seeking to export to Korea’s 49 million consumers, giving American agricultural producers more market access in two ways – by getting rid of tariffs charged when U.S. exports come into Korea, and by laying out a framework to tackle other barriers to U.S. exports –even those that might arise in the future.  Tariff eliminations on Korea’s existing 40 percent tariff will further boost beef exports, saving an estimated $1,300 per ton of beef imported to Korea – savings that would total $90 million annually for U.S. beef producers at current sales levels.

The U.S.-Korea agreement expands U.S. firms’ access to the $100 billion Korean government procurement market, creating new opportunities for exporters, and ensuring that U.S. firms will get to bid on contracts on a level playing field with Korean firms. At the same time, the agreement’s government procurement rules ensure that certain American business sectors – such as small businesses or textile companies bidding on Department of Defense procurement – do not face foreign competition for key government contracts here at home.

The agreement’s procurement obligations also maintain American environmental and labor safeguards.  The Korean government will be held to the same level of accountability for meeting labor commitments as it is for meeting other commitments in the agreement.  Under the agreement, the Korean government – which has already demonstrated a significant commitment to environmental protections – will be held to the same level of accountability for meeting environmental commitments as it is for meeting other commitments in the agreement.

This all sounds great, but the “devil is in the details.”  In the February 18, 2011 issue, Richard McCormack, publisher of the Manufacturing & Technology News, wrote, “If American are interested in determining on their own if the Korea Free Trade Agreement will benefit he U. S. economy (and their own job prospects) good luck!   He quoted a few paragraphs from the six-page addendum released by U. S. Trade Representative Ron Kirk on February 10, 2011 as an example of how incomprehensibly worded this agreement is written.  Check it out for yourself at http:www.ustr.gov/webtm_send/2557.

According to research by the Economic Policy Institute, KORUS  “will increase the U. S. trade deficit by about $16.7 billion and displace about 159,000 American jobs within the first seven after it takes effect.”  Robert E. Scott noted, “The USIT has a history of vastly underestimating the negative impacts that free trade agreements have on the U. S. economy.  In 1999, it estimated that China’s entry into the World Trade Organization would increase the U. S. trade deficit with Chin by only $1.0 billion, and have no significant impact on U. S. employment.  In fact, the U. S. trade deficit with China increased by $185 billion between 2001 (when China entered the WTO) and 2008, and 2.4 million U. S. jobs have been displaced or lost.”

The following list details the reasons why the publisher and staff writers of the Economy in Crisis website opine that this trade agreement would be disastrous for America:

  • It will dramatically export more American jobs and increase our trade deficit.
  • Korea will gain unhindered liberties to change U.S. laws; even prevailing wage laws can be challenged.
  • The U.S. government will lose the ability to regulate the American banking industry as the agreement was negotiated before the financial collapse of 2008.
  • The Korean FTA will allow foreign monopolies to take over U.S. industries, making any laws ore regulations that would stop companies from becoming monopolies illegal. This will make preventing foreign takeovers impossible.
  • Korea will be able to insource low-wage jobs to the U.S., but American companies will NOT get the same access to South Korea.
  • American textile industry will be rendered uncompetitive.
  • The U.S. beef industry will continue to diminish as Korea will not accept our beef, but will have unrestricted access to ship their beef to us.
  • More unchecked contaminated food will legally enter the U.S. – and we won’t be able to stop it.  Korus will put limits on our ability to check food imports.
  • ”Buy American” food support will become illegal. .
  • South Korea will still use barriers that the U.S. does not, continuing their Value-added Tax of 10 percent that will act as a tariff.
  • Korean companies will have right to sue the United States for lost profits, but U. S. companies will not have their right.
  • There is nothing in the Korean FTA to stop South Korea’s currency manipulating practices, which are presently prevalent.

The Coalition for a Prosperous America concurs with the above reasons and outlines a few more reasons for opposing KORUS:

1.      Currency:  South Korea has a history as a currency manipulator.  The trade deal does nothing to prevent a return to massive undervaluation of the “won” which taxes our exports and subsidizes their imports.

2.      Trans-shipping from China/35% Rule of Origin:  Korus requires only 35% of a product to be made in South Korea to be allowed into the U. S. with lower tariffs.  China is Korea’s biggest trading partner.  We will see tremendous volumes of Chinese goods shipped through Korea to the U.S. with nearly two-thirds made in China.

3.      Eroding U.S. Trade Laws:  The KORUS FTA slows the Korean government several avenues to weaken U. S. trade law enforcement when domestic industries seek a remedy for foreign unfair trade practices, including countervailing duties and anti-dumping duties.

“The nine members of the House Trade Working Group released a statement condemning the South Korea Free Trade Agreement (KORUS), in opposition to Republican and presidential support for the disastrous deal.  Rep. Mike Michaud (D-ME) called the proposed deal a “fundamentally flawed trade agreement that will cost us jobs in the United States.”  “The war on the middle class continues. Its greatest battle of 2011 will be the Korea free trade agreement,” said Rep. Brad Sherman (D-CA).  Sens. Susan Collins and Olympia Snowe, both Republicans from Maine, have also refused to sign on to a letter demanding the USTR present Congress with a treaty to vote upon, citing various concerns.”

As bipartisan opposition begins to coalesce against this failed trade deal, other Senate Republicans have threatened to block the nomination of a new Commerce Secretary until KORUS is approved.  Members of the House Working Trade Group have pledged to begin an education campaign to sway their colleagues, but this alone may not be enough.

Staff writer Sam Williford, wrote “We need fair trade agreements that correct America’s trade imbalance as well as protecting the rights of workers and the environment. This agreement is clearly unfair, especially with respect to automobiles.  The U.S. would be allowed to export up to 75,000 a year to South Korea compared to the more than half a million South Korea exports here.  By way of comparison, in 2007, the U.S. sold 7,000 American vehicles in South Korea, or less than one percent of the entire market.  South Korean automakers, on the other hand, sold 615,000 vehicles in the U.S. that same year.  Korea has only 48 million people – the U.S. has over 300 million.  It would not be possible to have anything but a massive trade imbalance with this country.  In addition, KORUS does nothing about South Korea’s value-added tax, or government policy to audit anyone who buys an American vehicle.”

Free trade agreements that increase exports for certain industries and increase imports far more for other industries are not the answer.  Instead of another trade agreement that makes no sense for America, we need a national trade and economy strategy.

In his book, Free Trade Doesn’t Work, What Should Replace It and Why, Ian Fletcher stated, “It has been estimated that every billion dollars of trade deficit costs American about 9,000 jobs.  After losing 5.5 million manufacturing jobs since the year 2000, we can’t afford to lose that many more through another bad trade agreement.

Take action against the U. S.- Korea Free Trade Agreement today!  Our elected representatives need to be held accountable for how they vote. Contact your representative in Congress and let them know they can’t count on your vote if they continue to approve job-killing “free” trade deals!

Posted in Trade Policy | No Comments »

ABCs ‘Made in America’ Series

Tuesday, March 8th, 2011

On Monday, February 28th, ABC began a series on the World News with Diane Sawyer called “Made in America.” John and Ana Ursy of Dallas, Texas agreed to accept the challenge of working with the ABC team of David Muir and Sharyn Alfonsi to furnish three rooms of their home exclusively with products that are made in America.  When the team examined everything that existed in these three rooms and removed all foreign-made products, the result was a virtually empty house – no beds, no tables, no chairs, no couches, no lamps.  Only the kitchen sink, a vase, a candle, and some pottery remained.

The questions posed by the team were:  Is buying American-made more expensive?  What staples are no longer manufactured in the U.S.?  And what difference would it make if everyone promised to buy more American-made products?

The results were somewhat surprising.  The kitchen was the most difficult because there are only a couple of companies still making major appliances in America:  Viking Products provided the stove, and Sub-Zero and Wolf provided the refrigerator, microwave, and oven.  They couldn’t find any coffee makers made in the U.S.; Bun-a-Matic assembled a coffee maker out of parts made offshore.  There are no TVs made in America and no light bulbs.  General Electric closed the last plant making incandescent light bulbs in the U. S. in July 2010.  The team was able to furnish the bedroom with all American-made furniture, lamps, and bedding for less money:  $1,699 compared to $1,758.   All in all, the team found more than 100 manufacturers still making various consumer goods in America, and viewers submitted names of many more.  You can view the companies on an interactive map of the USA.

When one of the ABC reporters, Sharyn Alfonsi, examined the toy box of her own child, she didn’t find any American-made toys in it, so the interactive website provides the names of some U. S. toy makers, such as Green Toys in San Francisco that makes toys from recycled milk bottles. There are six other California companies shown on the interactive map:  Pure-Rest Organics, making organic bedding in San Diego, Harveys Handbags in Santa Ana, Maglite Flashlights in Ontario, Danmer Custom Shutters in Los Angeles, Glass Darma, making handmade drinking straws in Ft. Bragg, and Sergio Lub Jewelry in Martinez.

Why does it matter if we buy American-made products?   First, our addiction to imports has helped create our high trade deficit, especially with China, where most of the consumer goods we import are manufactured.  In 1960, imported foreign goods made up just 8 percent of Americans’ purchases.  Today, nearly 60 percent of everything we buy is made overseas.  In 2010, our overall trade deficit was $97.8 billion, up from $374.9 billion in 2009 but nearly 30 percent below our highest deficit in 2008 of $698.8 billion.  Our trade deficit with China has grown from $ $83.8 billion in 2000 when China was granted Most Favored Nation status to a record high of $273 billion in 2010.

Second, American-made products create American jobs.  Each time you choose to buy an American-made product, you help save or create an American job.  There is a ripple effect in that every manufacturing job creates three to four other jobs while service jobs create only one to two other jobs.  We’ve lost 5.5 million manufacturing jobs since the year 2000, and the number of manufacturing jobs dropped below 12 million in 2010, down from a high of nearly 20 million in 1979.

You may be thinking, would what I do make a difference? American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.”   Eleanor Roosevelt echoed this sentiment saying, “Never doubt that a small group of thoughtful, committed citizens can change world; indeed, it’s the only thing that ever has.”  Remember that our country was founded by a small group of people that did indeed change the world by forming the United States of America.

Here are suggestions of what each one of us can do:  First, look at the country of origin labels of goods when you go shopping.  Most imported goods are required to have these labels.  Many manufacturers have tried to get the Federal Trade Commission (FTC) to relax the rules determining what’s “Made in USA.”  After two years of public hearings, studies, and reports, in December 1997, the FTC reaffirmed:  A product will be considered Made in U.S.A. if “all or virtually all made in the Unites States” only where “all significant parts and processing that go into the product are of U. S. origin.”

Buy the “Made in U.S.A.” even if it costs more than the imported product.  It is a small sacrifice to make to insure the well being of your fellow Americans.  The price difference you pay for “Made in USA” products keeps other Americans working.  If the product you are looking for is no longer made in America, then avoid countries such as China that has the goal of becoming the world’s “super power” in the 21st Century by winning either an economic war or a military war with the U. S.  When you take our trade deficits with China into consideration, it would not be an exaggeration to say that American consumers have paid for the bulk of China’s military buildup.  American service men and women could one day face weapons mostly paid for by American consumers. Instead, patronize impoverished countries such as Bangladesh or Nicaragua, which have no military ambitions.

In addition, you would be reducing your “carbon footprint” by buying a product made in America instead of a product that is made offshore that will use a great deal of fossil fuel just to ship it to the United States.

If you have a “Made in USA” appliance that needs repair and all the new ones are imported, try to get it repaired.  If it can’t be fixed, and it is a small appliance that you can live without, then don’t buy a new one.  We Americans buy many things that we really don’t need just because they are so cheap.  If a product that you are considering purchasing is an import, ask yourself, “Do I really need this?”  If you don’t need it, then don’t buy it.

If you are willing to step out of your comfort zone, ask to speak to the department or store manager of your favorite store.  Tell the person that you have been a regular customer for x amount of time, but if they want to keep you as a customer, they need to start carrying some (or more) “Made in USA.” products.  If you buy products on line or from catalogs, you could contact these companies via email with a similar message.   Your contacting a company does have an effect because there is a rule of thumb in sales and marketing that one reported customer complaint equals 100 unreported complaints.

Buying American has been made even easier by a new guide to buying American – “How Americans Can Buy American:  The Power of Consumer Patriotism” first released in March 2008 and updated in 2010.  Author Roger Simmermaker says, “Supporting American companies leads to a more independent America.  Ownership equals control, and control equals independence.  We cannot claim to be an independent country or control our own destiny if our manufacturing base is under foreign ownership or foreign control.  A nation that cannot supply its own needs is not an independent nation.  If we are to claim independence from the rest of the world and truly be a sovereign nation, we must begin supplying our own needs once again.”

According to Simmermaker, “buying American” is not just about buying “Made in USA.”  “Buying American, in the purest sense of the term, means we would buy an American-made product, made by an American-owned company, with as high a domestic parts content within that product as possible…’American-made’ is good. ‘Buying American’ is much better!”

One of our greatest statesmen, Thomas Jefferson, stated, “I have come to a resolution myself, as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may” (pg. 9 of Simmermaker’s book).

Simmermaker has made it easy by listing companies and their nation of ownership and view his list of American owned companies at his website: www.howtobuyamerican.com.    In addition here are some other websites.

www.buyamericanmart.com

www.madeinusa.org

www.americansworking.com

www.shopunionmade.org

www.MadeInUSAForever.com

As American consumers, you now have more American choices so you can live safely and have more peace of mind.  It’s high time to stop sending China our American dollars while they send us all of their tainted, hazardous, and disposable products.  If 200 million Americans refused to buy just $20 each of Chinese goods, that’s would be a four billion dollar trade imbalance resolved in our favor – fast!  In the ABC World News program, Diane Sawyer said, “if every American spent an extra $3.33 on U. S. -made goods, it would create almost 10,000 new jobs in this country.”   The ABC World News series “Made in America” continues with a look at the garment industry the week of March 7th.

Manufacturing jobs are the foundation of our middle class, and we are losing our middle class in state after state.  From December 2000 to December 2010, 22 states have lost a third or more of their manufacturing jobs.  Massachusetts, New York, and Ohio have lost 38 percent of their manufacturing jobs, New Jersey 39 percent, North Carolina 42 percent, Rhode Island 44 percent, and Michigan 48 percent.

We cannot afford to export our wealth by buying imports from China and finance our more than 10 years of deficits by borrowing an average of $1.553 billion every day.  We cannot lose our manufacturing base and be able to remain the world’s “superpower.”  In fact, we may not be able to maintain our freedom as a country because it takes considerable wealth to protect our freedom.

Remember, the company you save or the job you save by your actions may be your own.  More importantly, you can play a role as an individual in saving our country’s sovereignty by following the suggestions in this article.

Posted in Outsourcing, Reshoring, Trade Policy | 3 Comments »

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