Archive for January, 2023

Action on China or Yet Another Charade by Congress?

Tuesday, January 17th, 2023

On January 10, 2023, the House voted to pass a resolution “to create a select committee focused on U.S. competition with China, fulfilling a campaign promise Republicans made in the lead-up to the 2022 midterm elections.”

An article in The Hill, stated: “The select committee, chaired by Rep. Mike Gallagher (R-Wis.), will zero in on the Chinese Communist Party’s economic, technological and security progress and the strategic competition between Beijing and Washington. The resolution tasks the panel with investigating and submitting policy recommendations on those matters.” The Committee will be “made up of seven Republicans and five Democrats” and “has the authority to hold public hearings.”

The question that should be on everyone’s mind is — Will this Committee have any real impact when Congress has not taken any action on recommendations provided by the annual report they have received from the U.S.-China Economic and Security Review Commission for 20 years?.  Will this Committee just be another “dog and pony” show to demonstrate that Congress is taking the threat China poses to the U.S. more seriously?

For those of you who have never heard of such a Commission, it “was created on October 30, 2000 by the Floyd D. Spence National Defense Authorization Act of 2001, Pub. L. No. 106–398 (codified at 22 U.S.C. §7002) …” This was after China was granted “Most Favored Nation” status, now known as Permanent Normal Trade Relations (PNTR) and allowed to become a member of the World Trade Organization by President Clinton.

The stated “purpose of the Commission is to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China. “

The main duty of the Commission is to provide an annual report to Congress — “Not later than December 1 each year (beginning in 2002), the Commission shall submit to Congress a report, in both unclassified and classified form, regarding the national security implications and impact of the bilateral trade and economic relationship between the United States and the People’s Republic of China. The report shall include a full analysis, along with conclusions and recommendations for legislative and administrative actions, if any, of the national security implications for the United States of the trade and current balances with the People’s Republic of China in goods and services, financial transactions, and technology transfers…”

Each report was required to include full discussion of key factors of the U.S.-China relationship that are very comprehensive.  The following briefly summarizes the key factors:

(A) “The role of the People’s Republic of China in the proliferation of weapons of mass destruction and other weapon systems…”

(B) “The qualitative and quantitative nature of the transfer of United States production activities to the People’s Republic of China, including the relocation of manufacturing, advanced technology and intellectual property, and research and development facilities…”

(C) “The effects of the need for energy and natural resources in the People’s Republic of China on the foreign and military policies of the People’s Republic of China, the impact of the large and growing economy of the People’s Republic of China on world energy and natural resource supplies, prices, and the environment…”

(D) “Foreign investment by the United States in the People’s Republic of China and by the People’s Republic of China in the United States…”

(E) “The military plans, strategy and doctrine of the People’s Republic of China…and the implications of such objectives and trends for the national security of the United States.”

(F) “The strategic economic and security implications of the cyber capabilities and operations of the People’s Republic of China. “

(G) “The national budget, fiscal policy, monetary policy, capital controls, and currency management practices of the People’s Republic of China, their impact on internal stability in the People’s Republic of China, and their implications for the United States.”

(H) “The drivers, nature, and implications of the growing economic, technological, political, cultural, people-to-people, and security relations of the People’s Republic of China’s with other countries, regions, and international and regional entities…”

(I) “The compliance of the People’s Republic of China with its commitments to the World Trade Organization, other multilateral commitments, bilateral agreements signed with the United States, commitments made to bilateral science and technology programs, and any other commitments and agreements strategic to the United States (including agreements on intellectual property rights and prison labor imports), and United States enforcement policies with respect to such agreements.”

(J) “The implications of restrictions on speech and access to information in the People’s Republic of China for its relations with the United States in economic and security policy, as well as any potential impact of media control by the People’s Republic of China on United States economic interests.”

(K) “The safety of food, drug, and other products imported from China…”

The report was also required to “include recommendations for action by Congress or the President, or both, including specific recommendations for the United States to invoke Article XXI (relating to security exceptions) of the General Agreement on Tariffs and Trade 1994 with respect to the People’s Republic of China, as a result of any adverse impact on the national security interests of the United States. “

The 2022 Annual Report to Congress was submitted on November 15, 2022 to Patrick Leahy
President Pro Tempore of the U.S. Senate and Nancy Pelosi, Speaker of the U.S. House of Representatives. “The Commission conducted seven public hearings, taking testimony from 74 expert witnesses from government, the private sector, academia, think tanks, research institutions, and other
backgrounds.”

This report contained the following chapters:

Chapter 1 – CCP Decision-Making and Xi Jinping’s Centralization of Authority

Chapter 2 – U.S.-China Economic and Trade Relations

  • Section 1 – U.S.-China Economic and Trade Relations
  • Section 2 – Challenging China’s Trade Practices
  • Section 3 – China’s Energy Plans and Practices
  • Section 4 – U.S. Supply Chain Vulnerabilities and Resilience

Chapter 3 – U.S.-China Security and Foreign Affairs

  • Section 1 – Year in Review: Security and Foreign Affairs
  • Section 2 – China’s Cyber Capabilities: Warfare, Espionage, and Implications for the United States
  • Section 3 – China’s Activities and Influence in South and Central Asia

Chapter 4 – Taiwan

Chapter 5 – Hong Kong

The report made 39 very specific recommendations for Congressional consideration to address the key factors covered in the above chapters of the report. The Executive Summary states: “The Commissioners agreed that ten of these recommendations, which appear on page 10, are the most important for congressional action.” However, the concluding comment of the Executive Summary states: “There remains a gap between America’s growing recognition of the challenges China presents and our responses to date in dealing with them. The purpose of this report is to assess recent developments and to recommend a set of actions that Congress can consider to help meet the challenges, and seize the opportunities they present.”

Space doesn’t permit considering the ten most important recommendations, but I will at quote the shortest recommendation as an example:

#7. “. Congress create an authority under which the president can require specific U.S. entities or U.S. entities operating in specific sectors to divest in a timely manner from their operations, assets, and investments in China, to be invoked in any instance where China uses or threatens imminent military force against the United States or one of its allies and partners.”

I’ve wondered for years if any Congressional Representative actually read the annual report because I never saw any actions taken by Congress with regard to the recommendations I read in the reports of 2008, 2011 and 2016 when I was writing my three books. It seems to me that the new select Committee on China should review the Commission’s 2022 report and propose legislation to act on the recommendations of the report instead of starting all over with holding hearings.

Our national security is at stake, and we don’t have time to “start from scratch” with a new committee conducting hearings to replicate the work that has already been done by the U.S.-China Economic and Security Review Commission. It would be a far better service to our country to have Congress actually take action to pass legislation recommended by the Commission to protect our country from the plans of China to destroy our country economically and militarily to become the “super power” of the 21st Century.

2023 Offers Vibrant Opportunities for American Manufacturing

Tuesday, January 3rd, 2023

While some industry leaders are predicting continued supply chain disruptions and even an economic recession, I believe that American manufacturers are poised to enjoy vibrant opportunities in 2023 after nearly three years of economic turmoil and supply chain disruptions.

Americans had a wakeup call during the COVID-19 pandemic when we realized that we had become vulnerable because of our dependency on suppliers from other countries, particularly China.  Our national security and the health of Americans became at risk because of the supply chain disruptions of the goods we needed.

The Industry Week article, titled “Why the US Needs Manufacturing to Succeed”, on Dec. 16, 2022, stated, “With newly focused attention on supply-chain availability and resilience, U.S. manufacturing is at an inflection point. The recently passed infrastructure and CHIPS acts enable direct investment of billions of dollars into the manufacturing sector responsible for critical components, again to improve capacity and supply certainty.”

Manufacturing matters because the high-wage jobs it provides are the foundation of the middle class.  Besides these high-wage jobs, the Brookings Institution says it provides “commercial innovation (the nation’s largest source), a key to trade-deficit reduction and a disproportionately large contribution to environmental sustainability.” In fact, U.S Census data shows that manufacturing still ranks fourth out of the top five employment sectors in the country.

In their annual report dated April 26, 2022, the Reshoring Initiative reported that manufacturing added 1.3 million jobs to the economy between 2010 and 2019, after losing 5.8 million jobs over the previous 10 years. “For the second year in a row, reshoring exceeded FDI by 100%, continuing a recent trend not seen since 2013. Additionally, the number of companies reporting new reshoring and FDI set a new record of over 1,800 companies.” 

I predict that the reshoring data for 2022 will show a continued trend because with today’s heightened need for national security, sustainability and self-reliance, reshoring of U.S. manufacturing, has become, a matter of survival.

 I am not alone in predicting “vibrant opportunities” for 2023.  The Manufacturing.net blog of December 14, 2022, “Predictions for Manufacturing in 2023 – Part I,” provided thoughts on trends from several executives.

A few key thoughts on trends for the upcoming year shared by James DeMuth, CEO of Seurat Technologies, were:

  • “Localization of manufacturing near to customers will reduce economic and environmental costs. Currently, the cost to ship a 40’ container from Asia to the U.S. West Coast is 5X more than pre-pandemic levels.
  • Unpredictable policymaking and inflationary pressures will have less impact on companies that strategically place manufacturing of key components within the U.S. and near to assembly plants.
  • Domestic manufacturing will be emphasized as a matter of national security.”

A few of the key thoughts shared by Molex, a leading provider of electronic components and connectivity solutions, were:

  • Major investments in battery management, zonal architectures and EV charging stations will dominate.
  • Emerging demand for Infrastructure advancements is expected to escalate, which will place greater emphasis on the need for intelligent sensors and high-speed connectors.
  • Investments in Industrial IoT will grow. Robotics and AI will see a surge in usage, as businesses roll out investments made over the last few years.
  • The migration towards Extended Reality (XR) will move data processing to the Edge, allowing inferencing to happen more frequently in real time to match performance expectations. 

Another manufacturing.net blog article, “Key Trends to Remember for 2023,” dated December 29, 2022, predicts:

Continuing Supply Chain Disruption  – “The need to be flexible, and efficiently manage multiple sources of supply while managing overall profitability means sharing information not just within the organization but upstream, driving increased collaboration with suppliers.”

Smart Factories – smart factories encompass two domains:

  • “Improving the capture of data and the operational context to surface the information needed to inform better decisions.
  • Providing the insights and information to more stakeholders, in a more consumable manner, specifically, active rather than passive presentation of impactful data at, or even before, the time of need.”

Continued skills shortages – “Modular robotics in both the physical world and the data environment (through robotic process automation) are reaching levels of maturity that make them more accessible from the perspectives of both cost and complexity.”

Notice that investing and adopting new technologies such as IIOT, Robotics, AI, Industry 4.0 are incorporated into these predictions.  These are examples of “vibrant opportunities” that are happening now, but are not being widely scaled. 

Deloitte’s 2023 manufacturing industry outlookexplores five manufacturing industry trends that can help organizations turn risks into advantages and capture growth.”

      Technology – Investing in advanced technologies to help mitigate risk

“Manufacturers have increased their digital investment over the past few years and accelerated the adoption of emerging technologies. Companies with higher digital maturity have shown greater resilience, as did those that accelerated digitalization during the pandemic. Continued investments in advanced manufacturing technologies can help develop the required agility.”

  • Talent – Implementing a broad range of talent management strategies to reduce voluntary exits

“Addressing the tight labor market and workforce churn amid shifting talent models is expected to remain a top priority for most manufacturers in 2023. Despite a record level of new hires, job openings in the industry are still hovering near all-time highs…”

  • Supply chain – Relying on time-tested mitigation strategies with enhanced tactics to achieve supply assurance

“Of surveyed executives, 72% believe the persistent shortage of critical materials and the ongoing supply chain disruptions present the biggest uncertainty for the industry… Manufacturers are mitigating these risks not only with increased utilization of digital technology…building local capacity and moving from just-in-time sourcing to create redundancy in the supply chain.”

  • Smart factory – Taking a holistic approach to smart factory initiatives to unlock new horizons

“Many manufacturers are making investments in laying the technology foundation for their smart factories. One in five manufacturers is already experimenting with underlying solutions or actively developing a metaverse platform for their products and services.”

  • Sustainability  – Focusing on corporate social responsibility

“The fast-evolving environmental, social, and governance (ESG) landscape may require close monitoring in 2023 for manufacturers…regulators globally are also moving toward requiring more disclosures for nonfinancial metrics. Manufacturers are progressing toward their ESG commitments by making operational changes across their value chains.”

Deloitte’s recommendations are important for American manufacturers to adopt and implement into their company’s strategic action plans in order to take advantage of the “vibrant opportunities” of the future.  They illustrate that achieving the vision of Industry Reimagined 2030 will require a sea-change in the national narrative of the U.S. manufacturing industry to transform from a prevailing worldview of ‘inevitable decline’ to one of ‘vibrant opportunity.’ The vision of Industry Reimagined 2030 is for U. S. manufacturing to be revitalized, globally competitive and advancing societal interests by 2030.  The following goals will demonstrate achieving this vision through unprecedented collaboration and scaling:

  • 50,000 world-class domestic manufacturers (10x increase)
  • Additional 2+ million to the manufacturing-related, middle-income workforce (30%)
  • Reduce the environmental footprint to supply U.S. goods by 30%
  • Consumer purchases of US made goods increased by $500 million

To explore how your company needs to adapt to the disruptive trends that are taking shape, you may wish to participate in our Reimagine Dialogues. They are structured conversations to consider what the world will be like in 2030 and beyond. The purpose is to stimulate business owners and executives to reimagine their business and its environment in 2030. Why? Looking back on the past 10 years, there have been significant changes and disruptions which impacted business. Many companies were caught off guard and unprepared. Going forward, there will be further disruptions for businesses. Vibrant opportunities await those companies acting with foresight and preparedness. Distress awaits those companies caught reacting. There is no charge for participation and this it is not a free preview of another executive roundtable.  Here is the link for further information and to register. https://www.industryreimagined2030.org/