Posts Tagged ‘free trade agreements’

How Trade Policies Led to the Decline of American Manufacturing

Wednesday, January 24th, 2018

Many people think that the decline in American manufacturing started with American manufacturers sourcing manufacturing offshore in order to achieve lower labor costs, avoid regulations, and pay lower taxes. While the decline accelerated after China was granted the status of Permanent Normal Trade Relations (PNTR) and was allowed to join the World Trade Organization, it actually began decades earlier.

PNTR is a legal designation in the U. S. for free trade with a foreign nation and was called Most-Favored-Nation (MFN) until the name was changed in 1998. Thefreedictionary.com defines it as “A method of establishing equality of trading opportunity among states by guaranteeing that if one country is given better trade terms by another, then all other states must get the same terms.

Thus, it is a method to prevent discriminatory treatment among members of an international trading organization. It provides trade equality among trading partners by ensuring that an importing country will not discriminate against another country’s goods in favor of those from a third. Once a country grants any type of concession to a third-party country, this concession must be given to all other countries.

At the end of World War II, the United States was the dominant manufacturing country of the world.  The American manufacturing base had enabled the U. S. to win the war with Germany and Japan by outproducing these two countries in implements of war from ships to tanks to weapons.

Over the next 20 years, American manufacturing became synonymous with quality and inventiveness.  Companies like Ford, General Motors, General Electric, Hewlett Packard, and Levi Straus became household names.

One of the main reasons why the United States became the dominant manufacturing country in the world was that for over 150 years, our government protected and fostered the growth of American industry through tariffs. The first tariff law passed by the Congress, was the Tariff of 1789.  The purpose was to generate revenue to fund the federal government, pay down the debt of the government, and also act as a protective barrier for domestic industries from imports from England and France in particular.

Tariffs played a key role in our country’s foreign trade policy and were the main source of revenue for the federal government from 1789 to 1914, the year after income taxes went into effect in 1913.  During this long period of time, tariffs averaged about 20% on foreign imports, and at times, tariff revenue approached 95% of federal revenue.

During the Truman Administration (1945-52), foreign trade policies began to focus on liberalizing trade through moving from protective tariffs to free trade. The instructions given from Congress to the U. S. Trade Representative were:  Remove barriers to trade. A key concept of the liberalization of trade was reciprocal tariffs and low tariff rates. Two of the main reasons for this change in trade policy were to help Europe and Japan rebuild after the war and engender closer relations with the U. S. as a deterrent to the spread of communism. This ended the use of tariffs as a significant source of Federal revenue and began the increase of corporate and personal income taxes.

In 1948, the General Agreement on Tariffs and Trade (GATT) treaty “was signed by 23 nations in Geneva on October 30, 1947, and took effect on January 1, 1948. It remained in effect until the signature by 123 nations in Marrakesh on April 14, 1994, of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995. The WTO is in some ways a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994. GATT, and its successor WTO, have successfully reduced tariffs. The average tariff levels for the major GATT participants were about 22% in 1947, but were 5% after the Uruguay Round in 1999.”

GATT requires that exports of all countries that are party to the treaty should be treated alike by other countries that are party to the treaty, and each member is granted Most Favored Nation status. Since GATT was first signed, MFN (now PNTR) status has been granted to about 180 countries. Only a handful of communist countries have been denied MFN status.

For over 20 years, American manufacturers experienced little competition from foreign exports, but in the 1970’s Japanese and German products began to significantly penetrate the U. S. market. Due to the focus on demilitarization and decentralization in the U. S.- directed rebuilding of the Japanese and German economies, producing consumers goods was the focus.

Japan focused on audio/stereo products, cameras, pianos/keyboards, and TVs, as well as low cost automobiles and motorcycles. Companies such as Panasonic, Sony, Sanyo, Yamaha, Toyota, Mitsubishi, and Datsun (now Nissan) became the new household names in America. Mitsubishi had produced aircraft in Japan before and during WWII, including the infamous fighter plane, the Zero. Nakajima was another aircraft manufacturer that was reformed as Fuji Heavy Industries after the war and began to produce the Subaru vehicles.

Germany started focusing on automobiles such as the Volkswagen “Bug” and bus, BMWs, and then Mercedes vehicles.  They expanded into manufacturing equipment, machine tools, and scientific and laboratory instruments and equipment. Volkswagen was instrumental in Germany’s industrial recovery as their plants have escaped damage from bombing. The Volkswagen plant had been offered to England after the war as reparations, but England turned it down. Without Volkswagen being able to start manufacturing autos in 1946 after the war, the reindustrialization of Germany would have been delayed considerably.

It didn’t take long for the increased imports from Japan and Germanys to take their toll on the U. S. trade balance.  As the below chart shows, the last year we had a positive trade balance in goods was 1975:

Source:  Coalition for a Prosperous America

As a developing country, imports from China didn’t become a significant factor until the beginning of the 21st Century. The development and growth of China’s manufacturing industry was essentially funded through American companies setting up manufacturing plants in China starting in the 1990s and transferring manufacturing to Chinese contract manufacturers. Foxconn, Apple’s contract manufacturer for the iPhone and iPad, is the only Chinese manufacturer to become well known in the U.S. While Foxconn has plants in mainland China, it is actually owned by Hon Hai Precision Industry Co., Ltd., a Taiwanese multinational electronics contract manufacturing company headquartered in Tucheng, New Taipei, Taiwan.

“In article titled “The Death of American Manufacturing,” published in the February 2006 Trumpet Print Edition, Robert Morley wrote: “Manufacturing loss is occurring because of globalization and outsourcing. Globalization is the increased mobility of goods, services, labor, technology and capital throughout the world; outsourcing is the performance of a production activity in another country that was previously done by a domestic firm or plant.

At the dawn of globalization, the elimination of trade barriers opened up access to foreign markets for American manufacturers in return for building factories abroad. In due course, more and more manufacturers set up shop overseas, producing goods to be sold to Americans.”

According to Yashen Huang author of Capitalism with Chinese Characteristics, China’s “indigenous private sector is conspicuously small.” The majority of urban companies are still State-Owned Enterprises (SOE’s). Other companies are privately owned, but the owner(s) are government employees, so they are still essentially government controlled.

China had lost its status as MFN through suspension in 1951 after the Communists took over control of the government in 1949. It was “restored in 1980 and was continued in effect through subsequent annual Presidential extensions. Following the massacre of pro-democracy demonstrators in Tiananmen Square in 1989, the annual renewal of China’s MFN status became a source of considerable debate in the Congress…Congress agreed to permanent normal trade relations (PNTR) status in P.L. 106-286, President Clinton signed into law on October 10, 2000.  PNTR paved the way for China’s accession to the WTO in December 2000…;”

  1. S. trade with China began to be measured in 1985 by the U. S. Census Bureau, and we had only a small deficit of $6 million. The trade deficit grew to $83.8 billion by the year 2000. However, after China was granted PNTR and became a member of the WTO, the trade deficit started to escalate. It doubled to $162.3 in 2002 and doubled again by 2014 to $344.8 billion. The 2016 trade deficit was $347 billion, down from $367 billion in 2015.  In 2016, China represented 38% of our overall trade deficit of $654.5 billion.

As a result of the escalated trade deficits from 2001 to 2010, the U.S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed. Where do all the jobs go?  Well, the U.S. Department of Commerce shows that “U.S. multinational corporations… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.” So, we lost about half to offshoring of manufacturing to China and other parts of Asia.

The real story is even worse than this data. In an article by Terence P. Jeffrey published on www.CBSNews.com on May 12, 2015, “The number of jobs in manufacturing has declined by 7,231,000–or 37 percent–since employment in manufacturing peaked in the United States in 1979, according to data published by the Bureau of Labor Statistics.

As a result of more and more American manufacturers setting up plants in China, our domestic supply chain was weakened. From 2001 to 2010:  The U. S. textile industry lost 63% of jobs since 2001. Communication equipment industry lost 47% of its jobs. Motor vehicles and parts industry lost 43% of its jobs. U. S. machine tool industry consumption fell 78% in 2008 and another 60% in 2009. U. S. printed circuit board industry has shrunk by 74% since 2000.  We even lost whole industries, such as:  fabless chips, compact fluorescent lighting, LCDs for monitors, TVs and handheld devices like mobile phones displays, Lithium ion, lithium polymer and NiMH batteries, low-end servers, hard-disk drives, and many others.

After over 40 years of trade policies that foster offshoring, it’s time to have a new goal for trade policies.  Instead of “remove barriers to trade,” we need to have a goal of “eliminating the trade deficit.”  The Coalition for a Prosperous America has recommended this goal for years, and on March, Representatives Brooks and Lipinski introduced House Congressional Resolution 37 for Congress to set a national goal to eliminate the trade deficit.  It is only one sentence long:  “Expressing the sense of Congress that Congress and the President should prioritize the reduction and elimination, over a reasonable period of time, of the overall trade deficit of the United States.”

As soon as the tax reform bill is signed by President Trump, Congress needs to pass this Resolution before the end of the year, so we can start 2018 on a new track.

The Trans-Pacific Partnership Would Destroy our National Sovereignty

Tuesday, February 26th, 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Chinese Innovation Mercantilism is Hurting American Manufacturers

Tuesday, December 11th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

How Some Manufacturers are Successful in Competing Globally

Tuesday, December 4th, 2012

While attending the FABTECH Expo in Las Vegas last month, I interviewed several companies that all or the majority of their manufacturing in the U. S. to find out what they are doing to successfully compete in the global marketplace.

The first company was Laserstar Technologies, located Riverside, RI, and I interviewed Peter Tkocz, Regional Sales Mgr., southwestern States. Laserstar makes laser welding and marking equipment using the “free-moving” concept they development, enabling users to eliminate costly fixturing devices, benefit from pin-point accuracy, increase the range of assembly and repair applications and minimize the potential hazards of heat damage. Peter told me that the company is 55 years old and started making jewelry. When jewelry making went overseas in the 1990s, he said that the company had to reinvent itself and get into new markets to survive. They set a goal to enhance the quality, performance, and innovation of their products, programs and services on a continuing basis and became a “lean” manufacturing company.

Since, then, they have developed a diverse customer base of six major markets:

  • Medical – cardiac pacemakers, defibrillators, guide wires, catheters, hearing aids, orthodontic appliances, prosthetics and surgical tools
  • Dental – crowns and bridges, partial and implant fabrication and repair.
  • Electronics – a wide variety of different materials, component parts or final assemblies
  • Aerospace
  • Micro technology – wide range complex applications for laser welding and marking
  • Tool and die repair – ideal for modifications and repairs on molds, tools and dies as the process is quick, precise and will not damage surrounding surfaces.
  • Jewelry – a fast fix to repair jewelry and eyeglasses, and their new Fiber star machine can weld down to 12 microns, which is critical for high-end gem stones

LaserStar’s Research & Development laboratory is focused on inventing new technologies that change markets and create business opportunities, utilizing input from customers. Laserstar sells through learning centers vs. distributors, and the three learning centers at their headquarters in Rhode Island, California, and Florida. Their laser education courses provide a solid foundation of fundamental laser welding and laser marking skill sets to immediately gain a revenue impact for the new or existing iWeld, LaserStar or FiberStar laser welding or laser engraving system.

I next interviewed Dan Moiré, Sr. V. P. Sales of TRYSTAR, located in Faribault, Minnesota. TRYSTAR is a leading domestic manufacturer and international distributor of portable and permanent power solutions, industrial cables and power accessories. The company began operations as Bridgewater Tech, an industrial cable wholesaler founded in 1991. It wasn’t long before they realized there was room for innovation and improvement in the safety and performance of the products they were selling. As a result, they began manufacturing their own welding and grounding cables under the TRYSTAR brand in 1993.

As the superiority of TRYSTAR cables became evident throughout the industry, they expanded operations to offer customers greater versatility and reliability in the field, and as the brand became well known, the company transitioned from Bridgewater Tech to TRYSTAR.

Dan Said that today, TRYSTAR offers a wide range of capabilities specifically designed with the end-user in mind. They provide efficient, customized solutions, made with only the highest quality raw materials, manufactured on site, and serviced by their own professionals. Their factory is as vertically integrated as possible, and they provide customers with a full range of professionally packaged industrial products and services. They even extrude their own cable and do sheet metal fabrication and welding in-house.

TRYSTAR was the first to…

  • introduce sequential foot-marking to the welding cable industry, reducing the chance of waste
  • introduce custom-printed, colored cable, reducing the chance of theft on the job site
  • market a color-coded, insulated inner safety liner, designed to alert the cable’s user to any damage or wear and minimize problems in the field
  • produce a true Arctic weather cable that remains flexible to -57°C
  • introduce an improved clear-sheathed grounding cable that is flexible from -40°C to +105°C, allowing for safer grounding of high power lines during outages
  • introduce environmentally responsible, recyclable packaging for cable products
  • provide direct-to-market, completely assembled cable products, with unique and specific job identifiers, delivered directly to the job site

Kevin Duhamel, Product Sales Mgr at Gorbel was my next interview. Gorbel has over 30 years experience providing overhead handling solutions to customers in a wide range of industries. They have a comprehensive line of Crane Technology products, including work station bridge cranes, patented track cranes, I-beam jib cranes, gantries, and work station jib cranes. They also have an exciting line of Ergonomic Lifting products, featuring our G-Force® Intelligent Lifting Device, our Easy Arm® Intelligent Lifting Arm, and our G-Jib®. Their newest line, Tether Track Fall Arrest Safety Systems, provides a turnkey fall protection solution that exceeds OSHA safety standards. –

They have been in business since 1977 and are the largest U. S. manufacturer of lifting devices and cranes. Kevin said that their G-Force unit can lift up to 1320 lbs with higher speed and precision than chain hoists. They have two manufacturing plants in the U. S. – Fishers, NY and Pell City, AL – and sell to Europe, Canada, Mexico, and South America from their U. S. plant. They have a plant in Tianjin, China to market to customers such as John Deere and Caterpillar that have plants in China. About 90% of their business comes from North America and Mexico. They are very vertically integrated and qualified to have their product stickers say “Made in USA.”

I met and spoke to several of the top executives at TigerStop, located in Vancouver, WA, including president and founder Spencer Dick. Spencer founded TigerStop in 1994 and focuses on developing new product lines and enhancing their current products to simplify production processes for their customers.

TigerStop® LLC, is the global leader in stop/gauge and pusher systems that includes precision measuring systems, saws, and material handling equipment. National Sales Mgr., Erland Russell, told me that their products can easily integrate with most machinery used in the woodworking, metal, fenestration and plastics industries. He said that one of their models can measure and precisely saw material up to 20 ft. in length. TigerStop maintains an aggressive research and development program with over 100 patents awarded or pending.

TigerStop’s manufacturing is very vertically integrated in their Vancouver plant, but they also have an additional manufacturing and distribution facility in Wierden, Netherlands. The TigerStop distribution network spans six continents and their products are supported in five languages. TigerStop provides world-class customer support through experienced service technicians, on-going dealer training, and online technical resources.

Next, I interviewed Mike Albrecht, National Sales Mgr., at the Scotchman Industries booth. Scotchman Industries, Inc. is a leading manufacturer of metal fabrication equipment, accessories, and custom tools, such as ironworkers, cold saws, band saws, tube and pipe notchers, and measuring systems for nearly half a century.

Art Kroetch founded Scotchman Industries in the early 1960s to make and sell farm-related products, such as pickup stock racks, corral panels, gates and chutes. In 1966, Scotchman Industries purchased the patent for a hydraulic ironworker, the first machine of its kind in the world, and began manufacturing ironworkers. This machine, using hydraulic pressure, created up to a 35-ton force that could punch, bend and shear metal.

In 1978, Scotchman Industries purchased Excel Manufacturing Ltd. of Winnipeg, Manitoba, Canada, and was able to provide a line of ironworkers that ranged from 30-ton to 90-ton capacities for the world market. Today, Scotchman Industries, Inc. has a complete line of thirteen different ironworkers, ranging in capacities from 45 to 150 tons, with component tool design, and a fully integrated European style; both are available in either single or dual operator models. Scotchman has successfully acquired and maintained a large portion of the ironworker market.

Scotchman Industries is proud to be an American manufacturer who has always been export-minded. The company was given the President’s “E” Certificate for Exports in 1981 by the Secretary of Commerce, for excellence in its increased exporting of products. Today Scotchman Industries continues to export their products to many countries around the world.

Scotchman is located in Philip, SD; Mike said that all of their products are manufactured in the USA. They have donated equipment to the Workshops for Warriors located here in San Diego, CA.

Finally, I interviewed Heather Gaynor, Marketing Communications Mgr., at Swagelok, located in Solon, OH. Swagelok is a privately-held company that manufactures designs, manufactures, and delivers an expanding range of the highest quality fluid system products and solutions, such as tube fittings, valves, regulators, hoses and other products that are vital to fluid system solutions in industries such as power generation, oil and gas production, chemical processing, biopharmaceutical, research, semi-conductor manufacturing and more. They manufacture everything in the U. S. and are very vertically integrated.

Swagelok products and services are delivered locally through a network of more than 200 authorized sales and service centers that support customers in 57 countries on six continents.

While the products and services of the companies I interviewed are quite different, there are common threads:

  • All of the products are sold to other businesses (referred to as B-B) instead of to consumers.
  • The products fill specific needs and requirements of other manufacturers.
  • All of the companies manufacture their products in America.
  • The companies export their products to other companies

In addition, three of the six companies are privately held so that that management isn’t under the pressure to maximize quarterly profits and can focus on long-term company goals.

What this shows is that American manufacturers with unique products that satisfy customers’ needs can compete successfully in business-to-business global markets where the predatory mercantilist countries of China, Korea and India haven’t targeted to take over the market and destroy their American competition. If American manufacturers truly had a level playing field provided by “smart” trade agreements instead of the current lopsided, dumb agreements we have in place now, they would be able to compete successfully in the global marketplace. It is time to address the predatory mercantilist practices of these countries. Designating China as a currency manipulator would be a good start!

 

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.