Posts Tagged ‘national security’

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Are We Sufficiently Protecting our National Security?

Tuesday, February 6th, 2024

The answer is a resounding, “No!” For decades, we Americans have blithely ignored the long-term effects of allowing foreign investors or corporations to purchase the assets of our country in the form of companies, land, and mineral resources. We have been selling off our ability to produce wealth by allowing foreign corporations to purchase American companies, real estate, mines, and farm land. It is not just foreign companies buying our assets that is the problem ? it is the state-owned and massively subsidized companies of China that are the danger because China uses its state-owned enterprises as a strategic tool of the state. By pretending they are private companies abiding by free-market rules makes us the biggest chumps on the planet.

We didn’t let the USSR buy our companies, real estate, or farmland during the Cold War. We realized that we would be helping our enemy. This was pretty simple, common sense, but we haven’t had this same common sense when dealing with China.

Most foreign countries don’t allow 100% foreign ownership of their businesses, but sadly, the United States does not exercise the same prudence. We allow sales of U. S. companies to foreign companies unless there are national security issues, such as technologies that are utilized by our military and defense systems. We should be equally protective of our natural resources and farmland to ensure the health and welfare of all Americans.

In theory, we have the means to prohibit certain foreign investors or companies from acquiring U.S. assets that would pose a threat to our national security.  The Committee on Foreign Investment in the United States (CFIUS) is the inter-agency body charged with conducting national security reviews for certain foreign investments in the United States. CFIUS retains the authority to review a transaction that could result in foreign control of any U.S. business and has the power to regulate, approve and deny these acquisitions.  Australia, Canada, New Zealand and the United Kingdom are exempt from CFIUS reviews CFIUS submits an annual report to Congress and the most recent report was submitted on July 31, 2023.However, CFIUS has not been a member of the interagency Committee, so acquisitions of farmland were not reviewed with regard to impacting our national security.   

CFIUS reviews were expanded when the President  Bush signed H.R. 556, Foreign Investment and National Security Act of 2007(FINSA) on July 26, 2007 after the Dubai Ports World transaction passed through CFIUS without a formal investigation, leaving a surprised and angry Congress determined to avoid a repetition of that scenario.

The scope of CFIUS reviews was expanded when the Foreign Investment Risk Review Modernization Act of 2018 was passed by Congress on June 26, 2018. “The FIRRMA-amended CFIUS process maintains the President’s authority to block or suspend proposed or pending foreign “mergers, acquisitions, or takeovers” of U.S. entities, including through joint ventures, that threaten to impair the national security.”  It expanded the jurisdiction of CFIUS to address growing national security concerns over foreign exploitation of certain investment structures which traditionally have fallen outside of CFIUS reviews.

According to the IPM News article of June 27, 2023, “Chinese firms and investors own just over 383,934 acres in the U.S., less than the state of Rhode Island, and far less than how much Canada, Netherlands, Italy, the U.K. and Germany, in that order, each own. China is No. 18 on the list of foreign investors.” Sen. Jon Tester (D-Montana) who is skeptical of Chinese land ownership in the U.S., told NPR, “I don’t know that we know for sure all the foreign land that potentially is owned by Chinese individuals or folks controlled by the Chinese government…Any company and any individual living in China that comes and tries to buy land can be controlled by the Chinese Communist Party because they have that kind of control over their people.” Tester said.

What is enabling Chinese companies to go on a buying spree of American assets? Trade deficits – our ever-increasing trade deficit with China over the past 20 years is transferring America’s wealth to China and making millionaires out of many Chinese. In 1994, our trade deficit with China was $29.5 billion, and it grew to $83.8 by 2001 when China was granted “Most Favored Nation” status and admitted to the World Trade Organization. By 2004, it had doubled to $162.3 billion. After a slight dip in 2009 during the depths of the Great Recession, the trade deficit grew to a high of $418 billion in 2018. It dropped down in $352.8 billion in 2021 and $382 billion in 2022 due to the COVID Pandemic shutdowns and was $257 billion in 2023.

On January 26, 2017, Robert D. Atkinson, President of the Information Technology and Innovation Foundation, testified at a hearing on “Chinese Investment in the United States: Impacts and Issues for Policymakers” before the U.S.-China Economic and Security Review Commission.  He testified: “For many years, China has recycled the earnings from its large and sustained trade deficit with the United States into U.S. Treasury bills. But the last few years have seen a marked increase in the amount of inward foreign direct investment (FDI) from China to the United States, across a range of industries. While the underlying motivation for some of this investment is commercial, at least one-third is from Chinese state-owned enterprises, and it is likely that considerably more is guided and supported by the Chinese government, specifically targeting sectors that are strategically important for U.S. national security or economic leadership.”

As reported in The China Project article of  November 6, 2023, “Chinese ownership of American farmland came under increased scrutiny at both the national and local level after the Fufeng Group, producer of the flavor enhancer MSG, announced in November 2021 its intentions to invest near Grand Forks, North Dakota…Arkansas, Florida, Louisiana, Montana, North Dakota, Ohio and three more states have since passed legislation that restricts some land ownership for Chinese citizens or companies.

The Florida law, for example, bans Chinese owners from buying land “within 10 miles of any military installation or critical infrastructure facility” such as seaports, airports and wastewater treatment plants. The law doesn’t apply to purchases made before July of 2023, but current owners must register their property with the state by January 2024 or face fines and the risk of state authorities seizing their land.

Montana’s governor in May signed legislation that prohibits Chinese individuals and companies from buying farmland, critical infrastructure, and homes near military facilities. Other states have passed laws that put a cap on the number of acres Chinese buyers may own.”

However, on February 2, 2024, the Epoch Times reported, “A federal appeals court has issued a limited temporary block on a Florida law that bans citizens of China from buying property in the state that Florida Gov. Ron DeSantis said was needed to counteract the “malign influence” of the Chinese Communist Party (CCP) in his state.”

It is probable that the prohibition of Chinese investors and companies buying agricultural land will have to be handled at the national level, instead of by states.  On January 5, 2024, the Congressional Research Service issued a brief, titled, “Selected Recent Actions Involving Foreign Ownership and Investment in U.S. Food and Agriculture” stating “Some Members of Congress have introduced a series of bills that would amend existing federal law to impose additional requirements on and review of foreign ownership of U.S. agricultural land and/or foreign investment in the U.S. food and beverage industry…Bills in the 118th Congress that would establish additional restrictions include H.R. 212, H.R. 344, H.R. 683/S. 168, H.R. 809, H.R. 840, H.R. 917/S. 369, H.R. 1448, H.R. 3357/S. 926, S. 684, and S. 1136.”

In addition, the House Select Committee on China released a bipartisan report on U.S.-China economic competition on Dec. 12, 2023 that “includes nearly 150 policy recommendations, of which a majority are supported by bipartisan members of the CSC, geared toward strengthening U.S. economic competitiveness vis-à-vis China.”

I am happy that legislators are finally waking up to the real dangers of our relationship with China. The Communist Chinese government is not our friend. China a geopolitical rival that has a written plan to become the Super Power of the 21st Century. Letting Chinese corporations acquire American companies, especially energy or technology-based companies is the biggest threat to rebuilding American manufacturing. Protecting our food supply is also an important component of protecting our national security. Therefore, we must prohibit Chinese acquisition of American farmland. 

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American Manufacturers and Consumers Funded Chinese Military Buildup

Tuesday, October 19th, 2021

October 20, 2021

Major retailers and thousands of small businesses face a bleak holiday season without Chinese goods to sell because of the long line up of container ships from China waiting to enter major ports to offload their cargo.  

It seems like Americans have to learn lessons the hard way.  During the early stage of the COVID pandemic, there was a serious shortage of masks, ventilators, and other PPE equipment and supplies because we had become dependent on China for these goods. Now, American consumers are experiencing shortages in common consumer products at retail stores, and manufacturers are facing long lead times for components, ICs (chips), and other parts and assemblies. These shortages are projected to get worse before they improve sometime in 2022.

We have become dependent on goods from China over the past 20 years because American manufacturers outsourced manufacturing to China save money and increase their profits. Then, they set up their own manufacturing facilities in China even though they had to submit to transferring their technology to Chinese partners in order set up their plants.

American consumers contributed by choosing to buy cheap Made in China goods instead of supporting fellow Americans through “Buying American.”  The combination of American consumers choosing to buy “Made in China” goods and China’s mercantilist policy of dumping products at prices below cost destroyed thousands of small American manufacturers. More than 60,000 manufacturers were driven out of business in the past 20 years because of the unfair mercantilist policies of China.  This made it more and more difficult for American consumers to find products “Made in USA” to buy. 

As a result, our trade deficit with China escalated from $83.8B in the year 2000 to a high of $418.2B in 2018.  Out deficit dropped to $344.3B in 2019 and down further to $310.2B in 2020 because of the effect of the Trump Administration’s tariffs on certain goods.  Our 2021 trade deficit with China runs at $260B through September, so may exceed 2020.

A November 12, 2019 article titled, “China’s Grand Plan To Take Over The World” in Forbes, by John Mauldin states: “In The Hundred-Year Marathon, Michael Pillsbury marshals a lot of evidence showing the Chinese government has a detailed strategy to overtake the US as the world’s dominant power. They want to do this by 2049, the centennial of China’s Communist revolution.”

Mauldin comments, “Xi’s vision of the Chinese Communist Party controlling the state and eventually influencing and even controlling the rest of the world is clear. These are not merely words for the consumption of the masses. They are instructions to party members.”

He adds, “Over the last 20–30 years, we have equipped the Chinese with almost everything they need to match us, technologically and otherwise. Hundreds of billions of Western dollars have been spent developing China and its state-owned businesses.”

A slide show titled “China wants to rule the world in these industries” reveals the following industries China is targeting:  “ Global logistics and infrastructure, Steel, electric cars, Cobalt mining, rare earth minerals, autonomous vehicles, Artificial Intelligence, Additive manufacturing, Industrial Internet of Things, Advanced Robotics, Cybersecurity, Blockchain, Green energy, smart phones, 6G communications, Semiconductors, Biotech, satellite navigation and digital mapping, Orbital space station construction, Orbital telescope construction, Lunar exploration, Mars exploration, Venus exploration, Jupiter exploration, Asteroid sampling, comet exploration and more.”

Without the transfer of wealth from the U. S. to China, none of this would even be possible. The Chinese Communist Party has used the wealth our manufacturers and consumers sent them to build a military second to none. 

It’s bad enough that we transferred production of goods to China, but in the past few years, we have also been allowing Chinese companies and individuals to buy American companies, real estate property and farmland.  We didn’t allow the Soviet Union to do this during the Cold War, so why are we allowing China? 

In an article published October 13, 2021 titled “The Biden administration lacks a coherent China policy,” Peter Morici states: “President Joe Biden has identified China as the pre-eminent international competitive challenge confronting America, but his administration appears distracted and lacks a credible policy.”

It’s not enough to recognize China as the major international competitor.  We must recognize them as an enemy to our democracy. If we ignore this threat and do nothing about it, we will reap unpleasant if not catastrophic consequences.

In an article titled “Americans vanquished, China triumphant: 2021’s hit war epic doesn’t fit Hollywood script” in The Washington Post of October 16, 2021, Christian Shepherd comments “War epics showing the victories of the People’s Liberation Army have become increasingly common and studios often work closely with the government and army to ensure that their films fit with the official narrative of events.”

He explains, “The Battle at Lake Changjin” was commissioned by the propaganda department of the Chinese Communist Party and made with support from the central military commission and local governments in Beijing and the Hebei and Liaoning provinces.”

He cautions, “However, unlike films made in the early days of the People’s Republic, the emphasis of recent features is less about aiding North Korea and more about resisting America, a shift in tone that scholars suggest reflects Beijing’s growing focus on national security in its confrontation with Washington.”

The movie was released on September 30th and “broke $667 million in ticket sales within two weeks, making it already the fourth-highest-grossing film of the year worldwide.”

The success of this movie suggests to me that the Chinese public are just as eager for a rematch with us as their military. Considering that our military leader’s priority is now being woke-compliant, it’s a strong possibility that our military would be defeated with thousands of casualties thanks to the ”free-trade” supporters that sold our government leaders on the “benefits” of transferring our wealth to China in return for cheap goods from China.

I am concerned that China’s saber rattling in the South China Sea is a prelude to the invasion of Taiwan. Instead of facing a third-world military like we did in the Korean War, our service members will be facing a technically advanced enemy, who can match us weapon for weapon. What if our causalities reach such an unsustainable point that we are forced to sue for peace? We could be faced with recognizing China’s dominance over the Pacific and giving up Hawaii to China as part of a peace settlement.

It’s time for all Americans to wake up to the danger of continuing our dependence on goods from China.  We must decouple our economy from China’s economy, change our trade policies, and rebuild our manufacturing base to the point that we are self-sufficient. There is no simple solution, but I spent several months writing my book, Rebuild Manufacturing – the key to American Prosperity, published in 2017 and available on Amazon.  My book outlines how to rebuild American manufacturing through reshoring, new trade and tax policies, and workforce training and development.  Now, it’s not just time to create prosperity; it’s time to save our national sovereignty and freedom.

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U.S.-China Trade Policy is Focus of Day Four of CPA Conference

Tuesday, May 4th, 2021

The last day of the Coalition for a Prosperous America conference held on Friday, March 26th, was focused on U.S.-China trade policy. It’s gratifying to me that key elected representatives and officials are finally waking up to the fact that China is not our friend and instead is a threat to our national security.

Dennis Shea, former U.S. Ambassador to the World Trade Organization was the morning keynote speaker of the day in a live video.  He said, “China’s economic system is incompatible with the market rules of the WTO. China has not developed the market economy that was expected.  State-owned companies that are funded by state-owned banks and increased Chinese Communist Party (CCP) involvement in business has expanded in the past 20 years. Professor Mark Wu of Harvard Law School coined the term ‘China Inc,’ but Jude Blanchette, Freeman Chair in China Studies at the Center for Strategic and International Studies (CSIS) has said that ‘China Inc.’ has become ‘CCP Inc.’ The WTO has proved itself incapable of making China comply with WTO rules.  The WTO requires 100% consensus of its 164 member countries, but China will never approve changes in any WTO rules.  The WTO has been a tremendous advantage for China.  There have been administrative changes proposed, but china has been adamantly against these changes.  Where do we go from here?  First, the WTO members need to recognize that there is a problem.”

Senator Gary Peters (D-MI), who is Chairman of the Homeland Security and Governmental Affairs Committee in the Senate, was the next speaker. He said, “I have opposed every trade bill that CPA opposed and supported every bill that CPA supported.  The Biden Administration has enacted the Defense Production Act (DPA) to bolster vaccine production and increase the supply of critical PPE.  The Pfizer vaccine is made in Kalamazoo, MI. They are now producing 13 million doses/week, up from 5 million. You can’t be a really great country if you can’t make things. It is important to focus on manufacturing.  There are 58 manufacturing programs spread out over 16 government agencies. I am pushing for a national Institute of Manufacturing, which would give manufacturing a higher profile with other programs. I proposed creating a ‘manufacturing.gov’ website to be a one-stop cite to help manufacturers. I am working to increase enforcement funding to protect small companies from unfair foreign competition and have introduced legislation to have the Department of Commerce help small companies who are being affected by dumping by foreign companies.”

His speech was followed by a panel on “How to Win the Great Power Rivalry with China,” moderated by Jon Toomey, CPA Government Relations Director.  Panel participants were: Senator Marco Rubio (R-FL), Rep. Bill Posey (R-FL), Roger Robinson, President & CEO of RWR Advisory Group, and Dan DiMicco, former CEO and chairman of Nucor Steel.

Senator Marco Rubio commented, “The 21st Century is going to be about the balance between the U.S. and China. China seeks to dominate all industries and become the superpower of the century.  Our inability to make things leaves us dependent on China.  Dependence can lead to China to millions of Americans achieve the American dream without creating higher paying jobs. It is now possible for an entrepreneur to make products and create wealth with no benefit to American workers. This led to multinational companies moving manufacturing to other countries to create wealth with the loss of jobs to American workers.  It is time for policy makers to step n and ensure that the free market works for the every day American. You can’t be a great power if you can’t make things.  It has been our ability to develop and make things that is important to our national security.”

Roger Robinson said, “President Trump’s E.O. 13959 prohibited U.S. investors from purchasing or investing in securities of companies identified by the U.S. government as ‘Communist Chinese military companies.’ There are now 44 companies listed, but we need to have a list like this for human rights violators. We could put 300 companies out of our markets.  The Secretary of Treasury needs to close the doors of funding for CCP companies. We need to turn off the investment funding for Chinese companies. “ He added, “We need to put China in a box that would be very difficult to get out of like President Reagan implemented against Russia.”

Rep. Posey said, “China has held an anvil over people’s heads. More and more people realize that it is time to do something. We need to use financial and economic measures to put the squeeze on China that we have never dreamed about before. We need to get behind a precise plan to go for the jugular.  But I don’t see any sign of a unified plan now.”

Dan DiMicco said, “There is no negotiating with China, and the meeting in Alaska made that clear. It was a provocative exchange on the part of the Chinese.  I hope the Biden Administration is saying ‘the free lunch is over.’ We have the greatest opportunity in 30 years to come together on our position with China.”

The last panel of the conference was “How Customs Enforcement Can Protect Jobs and National Security,” moderated by Chuck Benoit, CPA Trade Counsel.  The panelists participating were: Vincent Annunziato, Director at Customs & Border Protection, Dan Nation, Division President of Parkdale Mills, and Therese Randazzo, Division Director, Forced Labor at Department of Homeland Security.

Mr. Annunziato said, “The way we collect data is changing. We are using Blockchain to validate the entity data of businesses when we are investigating county of origin for imports that may be violating regulations. We need to ensure that the identity of the manufacturer and the country of origin are correct to be able to apply the correct Harmonized Tariff Schedule.”

Ms. Randazzo said, ‘Enforced labor is any labor conducted under some kind of force. There are 25 million people worldwide who are suffering from forced labor.” She explained that the Trade Facilitation and Trade Enforcement Act of 2015 “prohibits all products made by forced labor, including child labor, from being imported into the United States.” She said that her division looks into 11 indicators of forced labor:

  1. Isolation from family and confinement
  2. Physical or sexual violence
  3. Not free to leave
  4. Withholding of wages
  5. Deception
  6. Excessive overtime
  7. Debt bondage
  8. Intimidation or threats
  9. Abusing vulnerabilities of illegal aliens
  10. Abusive language or working conditions
  11. Retention of identity documents

She added, “Our division collaborates with other government agencies and NGO organizations.  There are four phases in the forced labor process: (1) investigate, (2) Issue press releases (3) goods are detailed, (4) issue a finding wherein products are not allowed to be imported.”

Unfortunately, due an appointment conflict, I missed the final video presentation of the day featuring Clyde Prestowitz, discussing his new book, The World Turned Upside Down, America, China, and the Struggle for Global Leadership. You can watch his presentation at this link. I could have watched the video to be able to quote a few comments, but his book deserves my writing a separate article about it after I read it.

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Why Software Should be Made in USA

Tuesday, September 1st, 2020

Our modern world runs on computers and the software that controls them.  Software makes our computers usable for such activities as word processing, accounting, engineering design, production planning, Enterprise Resource Planning (ERP), communication, CGI, 3D printing, teleconferencing, and videoconferencing, not to mention the thousands of Apps for iPhones and Android phones. Software controls many functions of automobiles, trains, boats, ships, and airplanes. If software fails, it can mean the loss of life.  This is why is just as important for software to be Made in USA as it is for manufactured goods.  It is also important for software to be developed in the USA so we can make sure that there is no embedded malware, spyware, or backdoors.

My own manufacturers rep sales agency has been computerized since 1988, and I couldn’t function without my systems. I have also been participating in teleconferencing since 2011 for monthly meetings of  the Coalition for a Prosperous America and giving webinars since 2013 after publishing my second edition of Can American Manufacturig be Saved? Why we should and how we can in 2012.  I have used a variety of programs for videoconferencing, such as Cisco’s Webex, www.GotoWebinar.com, and www.vimeo.com.  Earlier this year I gave a webinar using Zoom. 

After the COVID-19 pandemic hit and shutdowns on nonessential businesses went into effect, many of my customers and prospects started working from home. Many of my customers are in the defense and military supply chain, and my contacts are purchasing agents and engineers. My contacts began to tell me that they were participating in staff meetings using Zoom. The meetings were most likely discussing current contracts and new products in development, but may have included proprietary or classified material.

As the months went by, it became more and more common to hear about Zoom meetings.  I began to wonder how Zoom had taken over the marketplace for videoconferencing from all of the other programs I had previously used. Then, one of my business associates told me that Zoom was allowing people to use its teleconference software for free.  I also heard that Zoom was a Chinese company, but I learned that is not true when I checked it out.

According to Wikipedia, “Zoom Video Communications, Inc. (Zoom) is an American communications technology company headquartered in San Jose, California…Eric Yuan, a former Cisco Webex engineer and executive, founded Zoom in 2011, and launched its software in 2013.”

On April 15, 2020, CNBC reported “Co-founder and CEO Eric Yuan, who previously worked on the Webex video calling product that Cisco acquired in 2007, is the largest individual shareholder of Zoom with 3.9% of the stock’s outstanding shares. He emigrated from China in 1997, when he was 27, CNBC previously reported, but he is a U.S. citizen, according to a December regulatory filing.” The concern about China is probably because CNBC also reported “Zoom’s product development team is based “largely” in China, and it operates research and development centers in that country, according to the company’s most recent annual report.”

Wikipedia explained its exponential growth: “During the COVID-19 pandemic, Zoom saw a major increase in usage for remote work, distance education, and online social relations. Thousands of educational institutions switched to online classes using Zoom. The company offered its services for free to K–12 schools in many countries.”  Chinese companies often sell products at or below cost to take over market share, so Zoom may be following this example. But, I don’t know how any company can afford to give away its product for free unless it is receiving funding from another source.

Regarding Zoom, Wikipedia states “Its software products have faced public and media scrutiny related to security and privacy issues.”  These criticisms cover “security lapses and poor design choices” and “its privacy and corporate data sharing policies.”

An article titled, “Zoom security flaws and Chinese links make US authorities nervous,” on Telecoms news of April 6, 2020, clarifies the connection to China, stating, “the software appears to be developed by three companies in China, all known as Ruanshi Software, only two of which are owned by Zoom. The ownership of the third company, also known as American Cloud Video Software Technology, is unknown. The article states “700 employees are currently in China, which is not unusual as it can save on salaries in comparison to the US, though it does open up the firm to pressure and influence from the Chinese Government.”

This same article reported that Zoom has servers in China that were used by mistake during the initial surge of usage after the COVID-19 pandemic struck. The article’s author, Jamie Davies wrote:

“By default, all participants’ audio and video in a Zoom meeting appears to be encrypted and decrypted with a single AES-128 key shared amongst the participants. The AES key appears to be generated and distributed to the meeting’s participants by Zoom servers. Zoom’s encryption and decryption use AES in ECB mode, which is well-understood to be a bad idea, because this mode of encryption preserves patterns in the input.”

These encryption keys could also be distributed through Chinese servers, which is a bad idea for anyone as companies can be legally compelled by the Government to hand over these keys. Zoom has said this oversight has been corrected and no international meetings will be routed through Chinese servers, but the damage may well have already been done.”

As a result of these concerns, Wikipedia states, “In March 2020, New York State Attorney General Letitia James launched an inquiry into Zoom’s privacy and security practices; the inquiry was closed on May 7, 2020, with Zoom not admitting wrongdoing, but agreeing to take added security measures. Also, in May 2020, the Federal Trade Commission announced that it was looking into Zoom’s privacy practices.

While there is no evidence of wrong-doing on the part of Zoom as of this writing, the fact that their programming is said to be done in China raises troubling security concerns, as programmers in China could easily be pressured by their government to put back doors into the software they write. This is why it is as essential to our national security to keep computer software development in our own country, just as it is important to keep drug development and medical equipment manufacturing in our own country.

Until the FCC investigation is concluded, some security experts are recommending that the President issue an executive order prohibiting the use of Zoom by government agencies, as well as defense contractors to insure no classified or proprietary information is compromised.

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Manufacturing is Critical to Our National Defense

Tuesday, July 21st, 2020

The final reason that manufacturing is important is that manufacturing ensures that the U.S. has a strong industrial base to support its national security objectives. We need to preserve our national and homeland security to be able to produce the goods that allow us to defend our national sovereignty.

American manufacturers supply the military and Defense Department with the essentials needed to defend our country, including tanks, fighter jets, submarines, unmanned vehicles (drones) and other high-tech equipment. The same advances in technology that consumers take for granted support the military, particularly soldiers fighting overseas.

In the keynote address “Lessons for a Rapidly Changing World” at the CA World conference in 2003, Dr. Henry Kissinger, former U.S. Secretary of State, said, “The question really is whether America can remain a great power or a dominant power if it becomes primarily a service economy, and I doubt that. I think that a country has to have a major industrial base in order to play a significant role in the world. And I am concerned from that point of view.” He added, “But if the outsourcing would continue to a point of stripping the U.S. of its industrial base and of the act of getting out its own technology, I think this requires some really careful thought and national policy probably can create incentives to prevent that from happening.”

As more and more manufacturing was outsourced offshore, the warnings of the dangerous consequences continued.  Joe Muckerman, former director of emergency planning and mobilization in the Office of the Secretary of Defense, wrote a guest editorial entitled “Without a Robust Industrial Base DOD Will Lose Future Wars” in the April 17, 2008 edition of Manufacturing & Technology News. He opined:

Joe Stalin said that World War II was not won on the battlefields of Europe but in Detroit. Had Stalin lived until the end of the Cold War, he probably would have arrived at a similar conclusion. The U.S. won the Cold War because it maintained technologically superior strategic weapons at a level that deterred the Soviet Union from attacking our vital interests. The United States was able to sustain this force for half a century during which the U.S. economy prospered while that of the USSR collapsed. … Today the U.S. industrial base is fast becoming global and the U.S. economy is in trouble.

In April 2011, the Information Technology & Innovation Foundation (ITIF) released the report, “The Case for a National Manufacturing Strategy,” by Stephen Ezell and Robert Atkinson which  echoed my strong belief that manufacturing is critical to our national security:

They wrote, “If we lose our preeminence in manufacturing technology, then we lose our national security. This is because:

  • As the U.S. industrial base moves offshore, so does the defense industrial base.
  • Reliance on foreign manufacturers increases vulnerability to counterfeit goods.”

The report revealed that the “United States has diminishing or no capability in lithium-ion (Li-ion) battery production, yttrium barium copper oxide high-temperature superconductors, and photovoltaic solar cell encapsulants, among others. … Additional examples of defense-critical technologies where domestic sourcing are endangered include propellant chemicals, space-qualified electronics, power sources for space and military applications (especially batteries and photovoltaics), specialty metals, hard disk drives, and flat panel displays (LCDs).”

On July 21, 2017, President Trump issued Exec. Order 13806, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” whose “primary goal was to conduct a comprehensive assessment of the industrial base and develop a set of specific, actionable recommendations to mitigate or eliminate the identified impacts.”

In December 2017, President Trump set forth “The National Security Strategy of the United States of America,” to put American First in which he stated, “A healthy defense industrial base is a critical element of U.S. power and the National Security Innovation Base. The ability of the military to surge in response to an emergency depends on our Nation’s ability to produce needed parts and systems, healthy and secure supply chains, and a skilled U.S. workforce.”  Since then, President Trump’s economic policies have focused on putting America First to protect our national security through the following:

  • Renegotiating NAFTA and KORUS
  • Corporate and personal tax cuts
  • Regulatory reform
  • Tariffs on steel, aluminum, and other Chinese goods tax cuts
  • Strengthening Buy America requirements for federal government procurement 

As required by E.O. 13806, on Oct. 5, 2018, Deputy Secretary of Defense Pat Shanahan, on behalf of Secretary of Defense Jim Mattis, presented the report, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” to President Trump. Note:  The  unclassified version is available here.  This 146-page report comprehensively assesses every aspect of the defense industrial base. 

One important factor noted was “The decline in the U.S. manufacturing industry, relative to prior periods of great power, creates a variety of risks for America’s manufacturing and defense industrial base and, by extension, for DoD’s ability to support national defense. Risks range from greater reliance on single sources, sole sources, and foreign providers to workforce gaps, product insecurity, and loss of innovation.”

 The U.S. cannot rely on other countries to supply its military because their interests may run counter to its own.  If we faced a real military threat to our homeland, how would we assure access to the industrial and military goods needed to defend our country when most of these items are being manufactured in China? We cannot risk being held hostage to foreign manufacturers when it comes to products that are essential for our national security and the U.S. military. The COVID-19 pandemic has taught us that we must source critical pharmaceuticals, PPE, and medical devices in the U.S. to protect the health and safety of American citizens.  In turn, it is crucial that key components and technologies that are critical to the production of U.S. weapons and other products needed by our military and Department of Defense be produced within the United States.  This is the only way that we will be able to protect our national security and keep America a free country.

 

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Navarro Warns of Fragility of U.S. Manufacturing and Defense Industrial Base

Tuesday, December 4th, 2018

If you don’t watch CSpan, you missed an important speech by Dr. Peter Navarro, White House National Trade Council and Office of Trade and Manufacturing Policy Director, on November 9th at the Center for Strategic and International Studies in Washington, D. C.

Dr. Navarro spoke about the manufacturing and defense industrial base and how U.S. economic strength is an element of national security and how it fits with the Trump strategy in dealing with the broader economic and defense issues. Dr. Navarro said that in December 2017, as part of formulating a national security strategy, President Trump introduced the maxim that “economic security is national security.”

He explained that everything that the Trump administration has done is part of this strategy, such as tax cuts, deregulation to reduce the onerous regulations put in place by the Obama Administration, ending the war on coal, and the steel and aluminum tariffs. These are all part of supply side economics to help companies be more competitive and grow in a non-inflationary way.

He commented that instead of the “doom and gloom” of economists, there has been “a flood of new investment and capital expenditures” by steel and aluminum companies, and “the waivers granted by the Department of Transportation have gone down from a flood to a trickle.”

He said, “In my estimation, we have the finest U. S. Trade Representative in U. S. history.  Doing the Section 301 investigation was a power that lay dormant for decades. This is the way we are able to now protect our technology from Chinese predation.  It has been tremendously successful in doing that.”

He outlined how Trump’s tough trade policy, backed up by tough action, has led to the renegotiation of two out of the three main trade deals – NAFTA, the Korea deal, and the WTO.  With regard to NAFTA, now called the USMCA, he said, “The whole essence is a provision to bring domestic content back onshore and share the fruits of the assembly and supply chain with our neighbors to the south and to the north. This is a deal which will strengthen all three countries and strengthen the defense industrial base.”

He commented that President Trump is a man who thinks every day about how to put more American men and women back to work, particularly those who work with their hands. He discussed how during his time on President Trump’s campaign trail, a report came out stating that one out of four people were out of the workforce, the so-called “discouraged workers” – men and women who had given up looking for work. He said, “We were told that the jobs for people who work with their hands were never coming back. Now, we have historically low unemployment., and rising employment among Blacks, Hispanics, and woman. Over a million people are back in the workforce through a fundamental restructuring of the manufacturing and industrial base.  It isn’t just the quantity of jobs; it’s the quality of jobs.”

He said, “I was blessed to be part of a large team that restructured the sale of arms to our allies and partners.  From an economic security point of view, it means more jobs here, good jobs with higher wages.  When you reactivate a supply chain, you activate 400 suppliers in that supply chain in 41 states. It helps expand production lines. If you are able to sell arms to allies and partners, it makes that country stronger.”

He then turned his attention to the findings of the “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States Report” that was prepared by the Interagency Task Force in Fulfillment of President Trump’s Executive Order 13806.

He said that an Interagency Task Force, led by DoD, created sixteen working groups with over 300 subject matter experts from across the federal government. Nine working groups focused on traditional industrial sectors, and seven working groups assessed enabling cross-cutting capabilities, such as machine tools. The report revealed that there are almost 300 gaps and vulnerabilities in America’s manufacturing and defense industrial base.  The Executive Summary states, “Currently, the industrial base faces an unprecedented set of challenges: sequestration and uncertainty of government spending; the decline of critical markets and suppliers; unintended consequences of U.S. Government acquisition behavior; aggressive industrial policies of competitor nations; and the loss of vital skills in the domestic workforce.”

Dr. Navarro asked the rhetorical questions, “How did we get to the place where the greatest military power in the world faces serious gaps, close to 300 gaps, in the defense industrial base?…What happens when you randomly cut off dollars from the defense department?

He explained, “There are five macro forces that bear down on the defense industrial base:

  1. Budgets and sequestration
  2. Decline of American manufacturing capability and capacity
  3. S. government procurement practices
  4. Industrial policies of competitor nations
  5. Decline of U.S. STEM and trade skills

He commented that the decline of the manufacturing base itself was due to the forces of globalization as well as the industrial policies and unfair trade practices of our economic competitors, our so-called allies, and our strategic rivals, particularly China.  He said, “This report called out China for its policies of economic aggression…China is engaged in unfair trade practices and currency manipulation.  From 2003 to 2014, it was documented that China was the worse currency manipulator in the world…so that we are running up annual trade deficits of half a billion dollars.”

He showed a chart, titled “China’s Categories of Economic Aggression.”  He said, “This chart is founded on the underlying assumption that China is a non-market economy, a state-directed economy. They use international rules when they benefit them and violate them when it’s to their benefit.”  He outlined` six economic strategies that China uses:

  • Protect their home markets from competition and imports
  • Protect China’s share of global markets
  • Secure and control core natural resources globally
  • Dominate traditional manufacturing industries
  • Acquire key technologies and Intellectual Property from other countries and the U. S.
  • Capture emerging industries of the future that will drive future growth and advancement in defense industries.

He said, “There are over 50 ways that China engages in these acts, policies and practices s to achieve these strategies…, if you could negotiate to eliminate 25 of these tactics, you would still have 25 that would hurt us.”

This point is very relevant to the preliminary agreement that President Trump negotiated with Chinese President Xi Xinping at the G20 this past weekend. The agreement included a 90-day delay to the planned January increase in US Section 301 tariffs—which were set to rise from 10 percent to 25 percent on $200B of Chinese imports.

Judging from past history of negotiations with China, it is unlikely that China will keep their part of the bargain of this latest agreement. It will probably unravel before the 90 days are up. Dr. Navarro alluded to the problem of negotiating with China when he said, “The biggest problem is the trust issues. One of the things about working in the White House is that you can ask for stuff. I asked them to give me all the instances where China has agreed to something and then not kept their promise. I got back like five pages of stuff going back 30 years. It’s frightening…”

Space does not permit me to cover his discussion of the tactics China uses. Through research, I discovered that Dr, Navarro had used this same chart when he spoke to the Hudson Institute on Thursday, June 28, 2018, an image of which can be viewed at this link..  It looks to me that he created the chart to be a visual summary of key points made in his report, “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World,” which he submitted to President Trump in June 2018.

His comments included mention that the globalization of the supply chain has resulted in having only a single source for some critical product or components. For example, he mentioned that there is only one company that can make turrets for tanks. He said, “The F-34 has a seven-tier supply chain, and you need to make sure that production lines for parts can continue and expand if there is a surge of demand…If you have foreign sources for products and components, that is a big problem, especially if China is the source.”

He also briefly commented on the problem of the decline of U. S. STEM and trade skills saying that if you have labor shortages because you don’t have enough skilled labor, that is a problem.

He concluded by saying, “The day that Pat Shanahan turned in the report, DoD and other agencies of government were already moving forward to fill these gaps and vulnerabilities. The day that the report was handed in, we signed two Defense Protection Act Title III orders that would help a couple of small companies in that fragile supply chain…We have initiatives for the national defense stock pile program to help with critical material issues. There is an effort to modernize the organic industrial base…This administration is working tirelessly, tirelessly, to fix those gaps and vulnerabilities. This effort really is the purest expression of the principle of economic security is national security.  We will strengthen America’s manufacturing and defense industrial base, and in the process, we will create jobs and build factories and better protect our homeland…”

I’ve made the point repeatedly that we can’t protect our national security or even defend our country without a strong manufacturing base. After writing about how and why we needed to save and now rebuild our manufacturing industry by writing three books and over 300 articles since 2009, it is gratifying to me that action is finally being taken to address this situation the Trump Administration.

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CPA’s Fair Trade Message Finds Favor in Capitol Hill Meetings

Thursday, May 31st, 2018

The week of March 12th, I was one of over 60 members of the Coalition for a Prosperous America (CPA) who attended our annual conference/fly-in.  In a two-day blitz, members visited more than 120 House and Senate offices in Washington, D. C. to sound the alarm: “America’s massive, growing trade deficit is killing jobs, harming communities, and stifling economic growth.”

Our conference began Monday afternoon with remarks by CPA Chairman Dan DiMicco touting Present Trump’s announcement of imposing Section 232 tariffs on steel and aluminum as a long-overdue measure to safeguard our domestic steel and aluminum mills.  He emphasized that CPA also supports all allowable trade enforcement remedies, such as the Section 201 Tariffs on imported solar panels and clothes washers and the Section 301 Investigation into Chinese intellectual property theft.

CEO Michel Stumo highlighted the new flyers covering issues that we were to discuss with Congressional Representatives and their staff.  Research Director Jeff Ferry introduced the new Job Quality Index he has created, which will differentiate high-paying jobs from low-paying jobs in the monthly job data.

We urged Representatives to support legislation that would eliminate the nation’s trade deficit, address an overvalued dollar, provide stronger trade enforcement, and tackle troubling trade issues with China.

In our meetings, we provided Representatives and their staffs with legislative solutions aimed at eliminating America’s trade deficit, which grew to $566 billion last year. A fact sheet produced by CPA highlighted that no other country has run 42 years of consecutive trade deficits, which has been an average 2.99% drag on our Gross Domestic Product. The flyer offered key reasons why “free” and “fair” trade can result in balanced trade—instead of the job loss that has plagued America’s productive sectors for the past 15 years.

Another fact sheet, showed that ten countries account for 97% of our trade deficit, namely China, Mexico, Japan, Germany, Ireland, Vietnam, Italy, India, South Korea, and Malaysia. Our deficit with China alone jumped from a $337 billion deficit or 38% in 2016 to a $375 billion deficit or 47% in 2017.

We discussed how the he Tax Cuts for Jobs Act narrowed, but did not eliminate, the tax benefit for moving operations overseas, and presented information on how the tax system could be improved with Sales Factor Apportionment, based, which is “a destination of sales system used by many states that would tax corporate income in proportion to a companies’ sales in the U.S. regardless of either domicile or location of operations.”  For example, a multinational corporation that still does 40% of its business in the U.S. would be taxed on the profits of that 40% of its worldwide sales.

The North American Free Trade Agreement (NAFTA) was also another topic of discussion during our visits. CPA supports “mending it or ending it” as CPA has long argued that NAFTA has hurt U.S. manufacturing, cost jobs, and incentivized investment in Mexico rather than the U.S. We explained the provisions that must be included in a renegotiated NAFTA to help America’s manufacturers, such as reinstating country of original labeling for beef and pork, tightening country of origin rules to require higher North American content, requiring periodic reviews, and a mechanism for countries to withdraw, if necessary.

During our Hill meetings, we emphasized the importance to our national security of a vibrant domestic steel and aluminum industry. I mentioned that we outproduced Germany and Japan in World War II, but we would not be able to do so in future wars if we let our domestic steel and aluminum industries be further decimated. We expressed our support for President Trump’s tariffs on steel and aluminum import, especially since CPA has many members in the steel industry.

In addition, we discussed the problem of the overvalued U. S. dollar. And presented the flyer that showed as of May 2017, the U. S. dollar was overvalued by 25.5%, whereas the currencies of Japan and Germany were undervalued by nearly as much, with South Korea not far behind at about 15% of undervaluation.  I told them that CPA has a new Advisory Board member, Dr. John R. Hansen, who is a 30-year veteran of the World Bank. He has proposed a solution to address this problem that “pushes American wages down, increases the trade deficit, disrupts capital markets, and hooks consumers on debt.” He proposed that “Congress should provide the Federal Reserve the responsibility to maintain the dollar at a current account balancing equilibrium price. New legislation should provide the Fed with a new tool to moderate the dollar exchange rate called a market access charge (MAC).” He projects that the MAC would balance trade in five years and that balance would be maintained in the future.

In addition to our congressional visits, CPA hosted a bipartisan group of Representatives to meet with our members, including Rep. Tom Reed (R-NY-23), Rep. Dan Lipinski (D-IL-23), Rep. Mo Brooks (R-AL-05), and Rep. Robert Pittinger (R-NC-09). Last fall, 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.”

Rep. Pittinger is co-sponsor of HR 4311, the Foreign Investment Risk Review Modernization Act of 2017, which would expand and update the review by the Committee on Foreign Investment in the U.S. (CFIUS) to meet new national security risks. As we distributed this flyer to Congressional Members, we expressed our support for the order President Trump signed to prohibit the acquisition of Qualcomm by Broadcom.  When I met with Congressman Duncan Hunter, he said he had sent a letter to President Trump urging him to stop the takeover of Qualcomm by Broadcom.

As the publisher of my newest book, Rebuild Manufacturing – the Key to American Prosperity, CPA provided books for me to present at my 15 appointments with Congressional Members and/or staff, and I also had the pleasure of presenting a copy of my book to Rep. Mo Brooks and Rep. Robert Pittinger.

On March 16, CPA released a press release about the success of the annual conference fly-in. highlighting the following:

“The 2018 CPA fly-in was our best yet,” said Dan DiMicco, CPA Chairman. “The presentations and panels were very well received and by far the most informative yet, with great speakers and panelists. Without a doubt we made a strong impact on those we visited on the Hill. Our congressional speakers clearly showed us that our messaging is having an impact.”

Michael Stumo, CEO of the CPA said, “We came to Capitol Hill with a united message from our members that Main Street America urgently needs action on trade. We were encouraged to find that our elected officials are becoming more receptive to calls for greater trade enforcement. Our next step is to remind them that voters are watching, and that the time for action is now.”

CPA chair Dan DiMicco said, “In 2016, voters spoke very clearly at the ballot box. They are frustrated and tired with the business-as-usual approach in Washington. We came to Capitol Hill this week to remind our elected officials that the American people are waiting for action, and that reducing our mammoth trade deficit must be a top priority.”

“The Coalition for a Prosperous America trade conference was very useful and successful in educating our members and legislators about the dangers of continuing our country’s obsession with free trade,” said Roger Simmermaker, author of How to Buy American and a CPA member. “Several times, it was evident that many members of Congress and their staff experienced what I would call “light bulb moments” as we laid out our ideas and strategies for a better and fairer trade policy that will benefit our national economy.”

“When real workers, manufacturers, and agriculturalists converge on Washington, theory is tested against reality, and good things begin happening in America,” said Bill Bullard, CEO of R-CALF and a CPA board member. “There is no question that CPA had a positive impact on U.S. trade policy this week.”

The steel and aluminum tariff discussions proved particularly wide-ranging. And as Greg Owens, CEO of Sherill Manufacturing and a CPA member, noted, “Trade and our decades-long deficits are a critical and complex issue. While I applaud the recent move to levy tariffs on steel and aluminum, the comprehensive answer must go beyond that. The overvalued dollar and tax policies are major contributors to the problem that must be addressed. CPA has detailed concrete solutions to these and other issues that I fully support. It was a privilege and an honor to help CPA introduce and develop these solutions on Capitol Hill this week.”

I am proud to be one of the 4.1 million members in the manufacturing, labor, and agricultural sectors who are “united in their view that a continuing trade deficit hampers jobs and productivity nationwide. CPA will continue to urge action on America’s troubling trade deficit, and we look forward to expanding its relationship with Members of Congress who have pledged to fight for America’s manufacturers, farmers, and their workers.”

Chairman Dan DiMicco and CEO Michael Stumo will be in southern California April 18 – 20th speaking to members of Metal Service Center and NTMA, as well as speaking at the San Marcos Manufacturing Summit to be held at the San Marcos Community Center on Friday, April 20th.  As Chair of CPA’s California chapter, I invite you to register to attend.

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Posted in Currency Misalignment/Munipulation, Economy, Legislation, Manufacturing, National security, Taxes/Regulations, Trade Policy | No Comments »

Defense Department’s Globalization of Supply Chain Threatens our National Security

Tuesday, July 21st, 2015

Over three years ago, I wrote an article (May 21, 2012), about the release of the Senate Armed Services Committee report on counterfeit parts in the Department of Defense supply chain. The Committee had found over 1,800 cases of counterfeit parts in just the Air Force C-130J and C-27J cargo plane, as well as assemblies used in the Navy’s SH-60B helicopter.

To address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by the Department of Defense and the defense industry, an amendment to the National Defense Authorization Act for Fiscal Year 2012 was adopted in the Senate and signed by President Obama.

Instead of implementing the requirements of the Act, it appears that DOD “has entered a new phase of its centuries-long development, the latest characterized by globalization of supply chains and the inability of U.S. defense contractors and laboratories to drive technological change” according to Richard McCormack, publisher and producer of the Manufacturing & Technology News, May 20, 2015 edition.

In this issue, McCormack reported on comments made by Bill Lynn, CEO of Finmeccanica North America and former Deputy Secretary of Defense from 2009 until 2011, at the April 29, 2015 meeting of the Center for Strategic and International Studies in Washington, D.C.

The defense sector and the U.S. military have “moved from being a net exporter of technology to a net importer,” Lynn stated, adding “When their R&D budgets are combined to total a scant $3 billion (or only 1.6 percent of revenue), the five biggest defense contractors — Boeing, Lockheed, Raytheon, L3 and Northrop — would not even make the list of the top 20 global companies that invest in R&D.”

Lynn told the meeting, “Those are things where the commercial industrial base is stronger than the defense industrial base and in many ways the key to maintaining our future [defense] technology edge is to be able to import those technologies into our defense industrial base… Since many of the underlying technologies now reside outside of the United States, DOD has to figure out how to deal with foreign corporations and state-owned enterprises that hold the keys to its success.”

McCormack noted, “The Department of Defense and its major contractors are now dependent on foreign manufacturers for many of the military’s most advanced weapons systems…The defense industry is a shadow of its former self, representing less than 3.5 percent of the U.S. economy, a position that continues to decline as defense budgets reach new lows with no chance of them growing faster than the economy.”

Lynn commented that ” DOD is slowly catching up to the structural change caused by globalization of technology and supply chains. It is wrestling with the regulatory and procurement systems it has in place to monitor and conduct business with foreign suppliers, but it has little time to waste.”

One of these regulations to which he referred is the Buy American Act that was passed by Congress in 1933. It required the U.S. government to give preferential treatment to American producers in awarding of federal contracts. The Act restricted the purchase of supplies that are not domestic end products. For manufactured products, the Buy American Act used a two-part test: first, the article must be manufactured in the U.S., and second, the cost of domestic components must exceed 50 percent of the cost of all its components.

After the end of the Cold War and the subsequent Gulf War, the provisions of the “Buy American Act” were eased to allow purchasing off the shelf commercial parts (COTS) from foreign countries by the Defense Department and other government agencies if they met the same fit and function of parts made to strict military specifications. 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.

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 Military Specifications 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 microchips are fabricated in China.

The President has authority to waive the Act in response to the provision of reciprocal treatment to U.S. producers. Under the 1979 GATT Agreement on Government Procurement, the U.S.-Israel Free Trade Agreement, the U.S.-Canada Free Trade Agreement, the North American Free Trade Agreement, the Central American Free Trade Agreement, and the Korea Free Trade Agreement, access to government procurement by certain U.S. agencies of goods for the other parties to these agreements is granted.

If the Trans-Pacific Partnership Agreement is approved, the procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in the 10 other countries.

In fact, it was reported by Reuters in January 2014 that “The Pentagon repeatedly waived laws banning Chinese-built components on U.S. weapons in order to keep the $392 billion Lockheed Martin Corp F-35 fighter program on track in 2012 and 2013, even as U.S. officials were voicing concern about China’s espionage and military buildup.

Lynn doesn’t seem to think that there is anything dangerous in allowing more foreign participation in the defense industry, saying “that changing perceptions about foreign involvement in the defense industry are similar to what happened in the U. S. auto sector…Americans and their representatives in Congress were skeptical about foreign nameplates. But as foreign auto companies started building technologies in the United States and hiring American workers, the tide turned…The politicians care about the jobs, they a\care less about the nameplate.”

It is incomprehensible to me to compare what happened to the U. S. auto industry to what is happening to the U. S. defense industry. The whole purpose of the defense industry is to protect our national sovereignty and national security. How can anyone in their right mind want to make our defense supply chain vulnerable to the foreign country, namely China, which has a written plan to replace us as the world’s super power? The Chinese are never going to bu9od plants in the U. S. to make parts for our defense supply chain. They have just stolen our technology to build up their own military power as evidenced by the “uncanny” similarity of China’s newest stealth fighter, the J-31, as well as the Chengdu J-20 fighter jet, to the F-35 Lightning II advanced fighter jet.

Does anyone believe that we will get any parts and assemblies need by our defense industry when China has decided we are so weak that we cannot stop their aggression in Asia. We are not even safe to have parts sourced in Taiwan, South Korea, the Philippines, Malaysia, Indonesia, or Vietnam. These countries would all be targets for takeover by China once they lose their fear and respect for U. S. naval and air power.

When President Eisenhower warned us about the military-industrial complex, little did he know that the military-industrial would be superseded by the consumer-importer complex, which has led to the virtual demise of the military-industrial complex.

Congress must act to strengthen the Buy American Act, not weaken it, eliminate the incentives for offshoring, and provide incentives for bringing manufacturing back to America. We must protect the supply chain for defense and military products and systems, so that Defense Department can fulfill its primary mission of defending our country. If we don’t, we are setting ourselves up for eventual defeat by our future enemies.

 

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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.

 

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ITIF Report Details 50 Policies to Improve U.S. Manufacturing Competitiveness

Tuesday, September 25th, 2012

Last week, the Information Technology and Innovation Foundation (ITIF) released a report titled, “Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy,” by Stephen Ezell and Robert Atkinson in which they stated, “A comprehensive strategy aimed at strengthening U.S. establishments competing in global markets is needed for the United States to boost short-term recovery and long-term prosperity…”

“The United States is increasingly isolated in its belief that countries don’t compete with one another and that only firms compete” said ITIF Senior Analyst Stephen Ezell, co-author of the report. “Our traded sector establishments are up against competitors that are aided in countless ways by their governments. It’s time to level the playing field.”

The report, presents 50 federal-level policy recommendations to help restore U.S. traded sector competitiveness, along with 13 state-level recommendations. The recommendations are organized around federal policies regarding the “4Ts” of technology, tax, trade, and talent, as well as policies to increase access to capital, reform regulations, and better assess U.S. traded sector competitiveness.

A nation’s traded sector includes industries such as manufacturing, software, engineering and design services, music, movies, video games, farming, and mining, which compete in international marketplaces and whose output is sold at least in part to nonresidents of the nation. They are the core engine of U.S. economic growth and face unique challenges.

Because these industries face competition in the global market that non-traded, local-serving industries (retail trade or personal services) do not, their success is riskier. “The health of U.S. traded sector enterprises in industries such as semiconductors, software, machine tools, or automobiles—all far more exposed to global competition than local-serving firms and industries—cannot be taken for granted.”

If a company like Boeing loses market share to Airbus, thousands of domestic jobs at Boeing, its suppliers, and the companies at which their employees spend money will be lost. In contrast, a local grocery store may compete for business with other supermarkets, but it is not threatened by international competition. If Safeway loses market share to Wal-Mart, the jobs remain in the United States.

Ezell and Atkinson state, “The fact that the U.S. traded sector has not created a single net new job in 20 years is a core reason for the current U.S. economic malaise.” They cite the research of Nobel Prize-winning economist Michael Spence, who has demonstrated that “from 1990 until the Great Recession started in 2007, the U.S. achieved virtually no growth in traded sector jobs. The malaise has been a downright decline in manufacturing, as the United States lost nearly one-third of its manufacturing workforce in the previous decade, saw on net over 66,000 manufacturing establishments close, accrued a trade deficit in manufactured products of over $4 trillion, and experienced a decline in manufacturing output of 11 percent at a time when U.S. GDP increased by 11 percent (when measured properly).”

Ezell and Atkinson corroborate what I have written previously ? “every lost manufacturing job has meant the loss of an additional two to three jobs throughout the rest of the economy. The 32 percent loss of manufacturing jobs was a central cause of the country’s anemic overall job performance during the previous decade, when the U.S. economy produced, on net, no new jobs….at the rate of growth in manufacturing jobs that occurred in 2011, it would take until at least 2020 for employment to return to where the economy was in terms of manufacturing jobs at the end of 2007.”

The reasons why the authors emphasize the importance of manufacturing as a “traded sector” are:

  • It will be difficult for the U. S. to balance its foreign trade without a robust manufacturing sector because manufacturing accounts for 86 percent of U.S. goods exports and 60 percent of total U.S. exports.
  • Manufacturing remains a key source of jobs that both pay well.
  • Each manufacturing job supports as an average of 2.9 other jobs in the economy.
  • The average wages in U.S. high technology are 86 percent higher than the average of other private sector wages.
  • Manufacturing, R&D, and innovation go hand-in-hand.
  • The manufacturing sector accounts for 72 percent of all private sector R&D spending.
  • Manufacturing employs 63 percent of domestic scientists and engineers.
  • U.S. manufacturing firms demonstrate almost three times the rate of innovation as U.S. services firms.
  • Manufacturing is vital to U.S. national security and defense.

They contend that “the engines of a nation’s competitiveness are in fact not mom and pop small businesses, but rather firms in traded sectors, high-growth entrepreneurial companies, and U.S.-headquartered multinational corporations. Although such firms comprise far less than 1 percent of U.S. companies, they account for about 19 percent of private-sector jobs, 25 percent of private-sector wages, 48 percent of goods exports, and 74 percent of nonpublic R&D investment. And, since 1990, they have been responsible for 41 percent of the nation’s increase in private labor productivity.”

The report notes that “traded sector businesses improve the local economy in three ways:

  1. Traded sector businesses bring money into a region by selling to people and businesses outside the region.
  2. They help keep local money at home through import substitution, which occurs when local residents and businesses purchase locally produced products instead of importing goods and services.
  3. They improve economic equity since “their productivity and market size tends to lead them to offer higher wage levels” and “jobs at traded sector companies help anchor a region’s middle class employment base by providing stable, living wage jobs for residents.”

While the authors believe all 50 recommendations are needed, they believe the 10 most critical recommendations are:

  1. Create a network of 25 “Engineering and Manufacturing Institutes” performing applied R&D across a range of advanced technologies.
  2. Support the designation of at least 20 U.S. “manufacturing universities.”
  3. Increase funding for the Manufacturing Extension Partnership (MEP).
  4. Increase R&D tax credit generosity and make the R&D tax credit permanent.
  5. Institute an investment tax credit on purchases of new capital equipment and software.
  6. Develop a national trade strategy and increase funding for U.S. trade policymaking and enforcement agencies.
  7. Fully fund a nationwide manufacturing skills standards initiative.
  8. Expand high-skill immigration, particularly which focuses on the traded sector.
  9. Transform Fannie Mae into an industrial bank.
  10. Require the Office of Information and Regulatory Affairs (OIRA) to incorporate a “competitiveness screen” in its review of federal regulations.

Only two of their top 10 recommendations made the list of the most critical recommendations in the second edition of my book:  # 4 and # 10. However, I support all of their other top 10 recommendations, as well as many of their other 40 recommendations, especially the following:

  • Lower the effective U. S. corporate tax rate – As of April 1, 2012 (when Japan lowered its corporate tax rate), the United States took the mantle of having the highest statutory corporate tax rate at almost 39 percent (when state and federal rates are combined) of any OECD nation.
  • Combat foreign currency manipulation
  • Better support and align trade promotion programs to boost U. S. exports.
  • Better promote reshoring.

I also support their recommendation that Congress should broaden the R&D tax credit’s scope to make it clear that process R&D (R&D to develop better ways of making things) qualifies for the tax incentive and that Congress should expand the R&D credit to allow expenditures on employee training to count as qualified expenditures.

With regard to trade enforcement, they recommend that the U. S. “exclude mercantilist countries from the Generalized System of Preferences (GSP)” because “the top 20 GSP-beneficiary countries — Argentina, Brazil, Bolivia, Colombia, India, Indonesia, Pakistan, the Philippines, Russia, Thailand, Turkey, and Venezuela—are on the U.S. Trade Representative’s Special 301 Watch List (which documents countries that fail to adequately protect U.S. companies’ or individuals’ intellectual property rights).”

I believe that enacting legislation to address foreign currency manipulation by China in particular should be in their top 10 recommendations. I also recommend that we enact legislation to establish either a Natural Strategic Tariff as recommended by economist Ian Fletcher in his book Free Trade Doesn’t Work:  What Should Replace It and Why, or a Balanced Trade Restoration Act to authorize sale of Import Certificates using either the Warren Buffet plan or the Richmans plan (as explained in their book Trading Away our Future).

I completely disagree with their recommendation to “Forge new trade agreements, including a high-standard Trans-Pacific Partnership and Trans-Atlantic Partnership.” As documented by Alan Uke in his book, Buying Back America, the U. S. has a trade deficit with nearly every single one of the countries with which it has a trade agreement. In fact, the U. S. has a trade deficit with 66 countries, the most egregious being the $278 billion deficit with China. Remember the touted benefits of NAFTA with Canada and Mexico? Well, in 2010, we had a trade deficit with Canada of $28 billion and $66 billion with Mexico. Do we want to increase our current trade deficit by adding more trading partners?

Additionally, the report articulates four key themes that the authors believe should be viewed as essential components of a U.S. traded sector competitiveness strategy. They recommend that the following key themes must be embraced by U.S. policymakers if the United States is to restore its traded sector competitiveness (summarized):

  1. The federal government must place strategic focus on its traded sectors, because it simply can’t rely entirely on its non-traded sectors to sustainably power the U.S. economy.
  2. The United States needs become much more of an engineering economy because gains from engineering-based innovation are capturable and appropriable within nations.
  3. The United States must move toward an economic system more focused on production than consumption, giving short-term consumption less priority in our politics.
  4. The structure of the global trading system must be seriously restructured to ensure that it is a trading system based on market-oriented principles and not the “innovation mercantilism” that has risen in the last decade, which fundamentally hurts the U.S. competitive position while violating the spirit and often the letter of the World Trade Organization.

Beyond federal policies to support traded sector competitiveness as a nation, the report also includes a section on recommended policies that states should implement to bolster their competitiveness, and in turn, the competitiveness of the broader U.S. economy. The state policy recommendations utilize the same “4Ts” framework as the federal recommendations.

Ezell and Atkinson state, “Implementing the policies recommended in this report will make the United States a more attractive investment environment for traded sector enterprises and their establishments. The technology policies will help spur innovation in advanced manufacturing, upgrade the technology capacity of manufacturing and other traded sector firms, help restore America’s industrial commons, and support the productivity, innovation, and competitiveness of traded sector SMEs. The tax policies will stimulate a favorable climate for private sector investment by making the overall U.S. corporate tax code more competitive with that of other nations and also by leveraging tax policy to incent private sector R&D and investment.”

In conclusion, they urge that U.S. policymakers understand that “manufacturing is not some low-value-added industry to be cavalierly abandoned.” Manufacturing is vital to U.S. competitiveness. I highly recommend reading all of this comprehensive, well-researched, well-documented report to be able to evaluate all of their recommendations and benefit from the details that are the basis for each recommendation.

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Posted in Economy, Manufacturing, National security, Outsourcing, Reshoring, Taxes/Regulations, Trade | No Comments »

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