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Who Are My Heroes? Part One

Tuesday, April 21st, 2020

As you might expect my heroes are people who have played a role in trying to alert Americans to the effects to our economy of the decimation of American manufacturing and the dangers of outsourcing manufacturing to China and other countries.  These are real people and none are elected officials.

This month marks the 13th year of my journey to do what I could to save American manufacturing. In May 2007, I e published one of my periodic San Diego County Industry reports that I had been writing since 2003.  I titled it, “Can U.S. Manufacturing be Saved?” My report had grown from four pages to 13 pages, and I realized that what I was documenting about the loss of manufacturers in San Diego and California was going on all over the country.  That’s when I made the decision to start writing my first book, Can American Manufacturing be Saved? Why we should and how we can, published in May 2009.  In the course of researching and writing my first book, my second edition of the same (2012), and my third book, Rebuild Manufacturing – the key to American Prosperity (2017), I have connected with many people who shared my concerns and were early advocates of saving American manufacturing.

My first set of heroes are those who either wrote books, articles, or newsletters that I came across researching my first book. When I was writing my reports, I was blaming the loss of manufacturing in California on the bad business climate, high taxes, and the cheap Chinese wages. These heroes expanded my knowledge greatly by showing that it was our primarily our national trade and tax policies, the trade cheating of China and other Asian countries, and corporate greed that was responsible for losing over five million manufacturing jobs between the year 2000 and 2009.  In alphabetical order, my heroes are:

Michael P. Collins is author of Saving American Manufacturing, Growth Strategies for Small and Midsize Manufacturers, published in 2006 and its companion handbook, The Growth Planning Handbook. Prior to becoming a writer, he was Vice President and General Manager of two divisions of Columbia Machine in Vancouver Washington. He is President of MPC Management, a consulting company that focuses exclusively on the problems and challenges of small and midsize manufacturers (SMMs) of industrial products and services. His book is written from the viewpoint of what manufacturers can do to save themselves and grow their business.  I arranged for him to come to San Diego to give a presentation to the Operations Roundtable of the American Electronic Association in 2011.

Lou Dobbs, is an American television commentator, radio show host, and the anchor of Lou Dobbs Tonight on Fox Business Network, and author of Exporting America, Why Corporate Greed is Shipping American Jobs Overseas, published in 2004 as hard cover and 2006 as a paperback. In his book, he “takes aim at the corporate executives and Washington politicians who profit by exporting U.S. jobs overseas—and shows readers what they can do to save not only their own careers, but the American way of life.

Ralph Gomory, who is well-known for his mathematical research and his technical leadership. For twenty years he was responsible for IBM’s Research Division, and then for 18 years was the President of the Alfred P. Sloan Foundation. He is the co-author with the late William J. Baumol of the book, Global Trade and Conflicting National Interests, published by MIT Press in 2001. After connecting by phone and email for years, it was nice to finally meet him at the Coalition for a Prosperous America trade conference in Washington, D. C. in 2018.

Richard McCormack, journalist and founder/publisher of Manufacturing & Technology News which he found in 1994. McCormack also served as the editor of the 2013 book on revitalizing manufacturing, ReMaking America. I read every issue of MT&N from July 2007 until it stopped publication at the end of 2016. He was also recognized as an American Made Hero by AmericanMadeHeroes.com for his newsletter “coverage of the profound financial and economic ramifications of the shift of industrial capability from the United States to Asian competitors.” He wrote “thousands of articles on outsourcing, industrial and technological competitiveness, government policies, and trends related to management, quality, technology and markets.”Mr. McCormack is currently Press Secretary and Program Manager, Office of Public Affairs, for the Department of Commerce.

Peter Kent Navarro is a Harvard Ph.D. economist and author of several books. I read his book The Coming China Wars, published in 2006, while I was researching my book. At that time, he was a professor of public policy at the University of California, Irvine. He currently serves in the Trump administration as the Assistant to the President, Director of Trade and Manufacturing Policy, and the national Defense Production Act policy coordinator. I first met Mr. Navarro when he was a professor at the University of California, San Diego and running for mayor in 1992. I also had the pleasure of seeing him when I attended the trade conference in 2018. I also read his book, Death by China, which he co-authored with Greg Autry, published in 2012.

Raymond Richman, Howard Richman (son), and Jesse Richman (grandson), authors of Trading Away our Future: How to Fix Our Government-Driven Trade Deficits and faulty Tax System Before It’s Too Late, published by Ideal Taxes Association in 2008. Raymond died in October 2019 at the age of 101. His tribute by Ideal Taxes states, he “authored four books, dozens of journal articles and hundreds of commentaries about economic development, tax policy and trade policy…Beginning with a commentary in the Pittsburgh Tribune-Review on September 14, 2003 (The Great Trade Debate), he became one of the first advocates of a policy of balanced trade, an alternative to the free trade vs. fair trade debate. His essential argument was that trade, free or not, benefits both countries if it is balanced.” I am sorry that I didn’t get to meet him before he died.

Roger Simmermaker, author of How Americans Can Buy American: The Power of Consumer Patriotism, third edition published in 2008. He also writes Buy American Mention of the Week articles for his website and World New Daily. His book provides a guide to assist American’s who wish to purchase products made in America and discusses the importance of “Buying American” for the future economic independence & prosperity of America. He earned special recognition as an American Made Hero. After years of connecting to him by phone and email, it was a pleasure to also meet him at the same trade conference in 2018.

Alan Tonelson, a Research Fellow at the U.S. Business and Industry Council Educational Foundation, and a columnist for the Foundation’s globalization website, Tradealert.org and a Research Associate at the George Washington University Center for International Science and Technology Policy. He is also the author of The Race to the Bottom, published in 2000. “He has written extensively on the trade deficit between the United States and other countries. He has also written on free trade, globalization and industrial decline. He argues that U.S. economic policy should aim for “preeminence” over other countries, just as, he believes, other countries’ economic policies seek their own national interests. He is critical of various forms of “globalism” and internationalism.”

When I was researching my first book, the U.S. Business and Industry Council was the only organization that had a written plan to save American Manufacturing.

I introduced my book as a speaker at the Del Mar Electronics Show in San Diego County, California on May 6, 2009, and had my book on display at my company’s booth at the show. One of the first persons to buy my book was Adrian Pelkus, President of contract manufacturer, A Squared Technologies.  He was also the informal leader of the steering group running the San Diego Inventors Forum.  He invited me to the next SDIF meeting which I attended, and then invited me to join the steering committee, which I did.  After reading my book and endorsing the purpose and ideas I presented in my book, the steering committee changed the focus of SDIF from helping inventors source their products in China to sourcing the manufacture of their products in the U.S.

The SDIF meetings have an informal curriculum of topics to cover in a year, and I have been giving an annual presentation on how to select the right manufacturing processes and vendors to make their products.  It has a pleasure to be able to help so many inventors and entrepreneurs source their products in America.

My connections to theses heroes led me to connections with many other people and organizations who became part of my second set of heroes after my book was published.  I will write about these people in My Heroes Part Two. 

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Posted in Economy, General, Jobs, Made in America, Manufacturing, Trade Policy | No Comments »

Reshoring Critical Pharmaceuticals and Manufactured Goods Would Create Millions of Jobs

Tuesday, March 31st, 2020

It’s a pity that it took the coronavirus pandemic to wake up Americans to the dangers of our dependence on foreign sources for pharmaceuticals and health care products. Perhaps we could have saved lives if our leaders had taken heed to the warning of co-authors Rosemary Gibson and Janardan Prasad Singh in their book China RX, published in 2018. The authors exposed how the pharmaceutical industry has transferred the manufacturing of generic drugs, vital medicines and medical devices to China and other countries, which has resulted in great risk to the health of Americans as well as a substantial risk to our national security.

In their book, they quote Dr. Goodman, dean of the Milken Business School of Public Health at George Washington University, saying, “It is a matter of national security that we have the essential drugs we need…I think it is time for an examination, for some of the most critical drugs, and it’s not just drugs, medical supplies, masks are all made overseas. Do we need to think about having at least some resilient manufacturing capacity built in this country?”

Yes, we do need to return the manufacture of pharmaceuticals and medical devices to benefit the health and safety of all Americans. Additionally, there would be economic benefits. On March 17th, the Coalition for a Prosperous America released a report on the results of the investigation conducted by Steven L. Byers, PhD and Jeff Ferry of their research team into the potential economic benefits of reshoring pharmaceutical production to the U.S.  They “found that an ambitious but realistic reshoring program could create 804,000 US jobs and add $200 billion to annual GDP in the first year.”

Their investigation showed that imports of pharmaceuticals had increased “dramatically as US-based drug manufacturers moved manufacturing facilities offshore.” By 2019, “pharmaceuticals ranked third as a US import category [$74 billion], behind automobiles ($180 billion) and crude oil ($132 billion) …”

The report states” Eighty percent of all pharmaceutical imports are accounted for by the top ten countries. Seven of the top ten countries we import from are in Europe…” Ireland is number one followed by Germany, Switzerland, Italy, India, Denmark, Belgium, Canada, United Kingdom, and Japan of the top ten. “China is well behind the leaders, in 17th place, with just $1.6 billion of pharmaceutical imports last year.”

However, “the Census category of pharmaceutical imports does not include the key ingredients that go into pharmaceuticals, known as Active Pharmaceutical Ingredients (API).” In recent testimony to Congress, Rosemary Gibson, author of China RX, stated “that three antibiotics used to treat coronavirus or related infections, azithromycin, ciprofloxacin, and piperacillin/tazobactam, are all dependent on supplies of APIs from China.” Senate Finance Committee chairman Charles Grassley commented, “80 percent of Active Pharmaceutical Ingredients are produced abroad, the majority in China and India.”

Byers and Ferry “used  the REMI Policy Insight Model[1] to estimate the impact on the US economy of restoring our level of pharmaceutical imports to the level of 2010, when we imported $61.6 billion of pharmaceuticals [and] reduced chemical imports by $4.9 billion in [their] simulation, to account for the increased imports of chemical ingredients that go into pharmaceuticals.” They ran the “model over a five-year period, 2020 through 2024.”

While the creation of jobs was the highest the first year at 804,000, the subsequent years created 614,000 in 2021, 548,000 in 2022, 453,000 in 2023, and 371,000 in 2024 for a total of 2,382,000 additional jobs.

Pharmaceutical and medicine manufacturing jobs pay a median income of $74,890, which is “47 percent higher than the median for all private-sector employees.”

The authors comment that “The economic benefits of reshoring US pharmaceutical production are thus substantial. They are also strategic; in that they would reduce US dependence on potentially hostile countries like China. In times of pandemic, there is also a non-zero risk that even friendly nations will prioritize their own citizens over exports. At the very least, the US needs a comprehensive audit of its dependence on individual nations and companies for pharmaceuticals, APIs, and any other key inputs.”

They conclude that “The US has become increasingly dependent on imports of foreign produced pharmaceutical and other health care products as well as the ingredients that go into their production. As a result, the supply chain is highly susceptible to interruption which would put significant pressure on our healthcare system…The benefits of reshoring pharmaceutical and ingredient production are large in terms of national security, patient safety, and economic welfare.”

On Friday, March 27th, the Trump Administration announced it would use the Defense Production Act, to compel General Motors to make more ventilators quicker than the company had planned to produce..

In an article in the Washington Post on March 28th, Joshua Gotbaum wrote: “Under the Defense Production Act, the federal government can, like a traffic cop, direct that inventories be allocated where they are needed most urgently. That’s what FEMA does during floods and hurricanes…The DPA also allows government to move its orders to the front of the line. The Defense Department does this regularly, but the act can be used for more than defense…The government can also use the act to order, and then pay for, expanded production, with new products or new plant capacity. “  

He recommended “The administration needs to act quickly, the DPA using all of its authority to procure not just ventilators but also test kits, masks and other equipment for health-care workers and covid-19 victims.” Mr. Gotbaum speaks from experience as he administered some Defense Production Act authorities as assistant secretary of defense in the 1990s and is currently a guest scholar in the Brookings Institution’s Economic Studies Program.

The benefits of reshoring would be even greater if we returned all critical manufactured goods to the U.S. than just returning pharmaceutical and medical products.  According to recent Reshoring Initiative data, Harry Moser, over 3,000 companies have reshored, creating about 740,000 jobs.  He estimates that if we reduce our trade deficit caused by importing more than we export by 20%, it would create one million jobs. Using the free Total Cost of Ownership Analysis calculator available at www.reshorenow.org would help more companies return manufacturing to America.

We need to ensure that we will have the critical products needed to weather future unforeseen events. In my opinion, the policies to address the Coronavirus crisis should be just the beginning of a concentrated effort to reshore all critical manufactured goods to America. Let’s use all of the potentially available policies:

  • Invoke the Defense Production Act on all critical manufactured goods
  • Impose 25% tariffs on all imported goods from China
  • Incentivize manufacturers to produce products that were offshored to China

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U.S. Private Sector Jobs Have Declined since 1990

Tuesday, December 10th, 2019

On November 14, 2019, Cornel Law School “announced the launch of a new tool for evaluating the U.S. employment situation and predicting related variables: the U.S. Private Sector Job Quality Index (JQI).” The Index described in the White Paper represents 18 months of research by Daniel Alpert, adjunct professor at Cornell Law School and founding managing partner of the investment bank, Westwood Capital, LLC, Jeffrey Ferry, chief economist at the Coalition for a Prosperous America (CPA), Dr, Robert C. Hockett, Professor of Law at Cornell Law School, and Amir Khaleghi, a Research Fellow at the Global Institute for Sustainable Prosperity (GISP) and a PhD student at the University of Missouri–Kansas City.

At the many economic summits I’ve attended over the past 25 years, I’ve heard economists state that the U. S. is creating more low paying jobs than high paying jobs but there hasn’t been any data available to track this trend on a regular basis.  For the first time, the Job Quality Index provides a tool to measure “desirable higher-wage/higher-hour jobs versus lower-wage/lower-hour jobs.”

The authors define job quality as “the weekly dollar-income a job generates for an employee” They explain that “The JQI is an analysis of weekly incomes earned by the holders of each of the private sector P&NS jobs in U.S. It derives its data from the hourly wages paid, and hours worked by, holders of jobs in 180 separate sectors of the American economy.”

Since the end of WWII, the “percentage of private U.S. jobs in the service-providing sectors increased steadily from approximately 55%” to “around 83.5%” at the end of the Great Recession in 2009.  It has remained flat since that point. However, the paper states that “While service-sector growth as a percentage of all jobs has leveled off, job quality continues to worsen.”

The authors commented, “As weekly earnings of services sector jobs have, to an increasing degree, materially lagged those of jobs in the goods- producing sector (Figure 6), an increase of the percentage of service sector jobs would naturally result in an increase in the number of jobs below the mean, as reflected in the JQI.”

In addition, the authors note that the gap between higher-wage/higher-hour jobs versus lower-wage/lower-hour jobs” has widened almost four-fold to $402 in 2018 from $104 in 1990”  

The paper states, “jobs as tracked by the JQI are defined by reference to data on private sector (nongovernmental) employment provided by third party employers—it does not include self-employed workers. In the first iteration of the JQI being presented in this paper, the index covers only production and nonsupervisory (P&NS) positions, which account for approximately 82.3% of the total number of private sector job positions in the country.”

By the end of 2020, a second index (JQL-2) “will run and be maintained side-by-side with the original JQI-1 index. This will track all private sector jobs, with data commencing in 2000.”

Monthly revisions to the JQI-1 will be published “contemporaneously with the monthly release of U.S. employment data by the BLS (generally on the first Friday of each calendar month. In the future, the JQI will be “presented as a three-month rolling average of monthly readings. This is done to address month over month variability which is too volatile to be a reliable directional trend measure.”

The November JQI stated:  “the U.S. Private Sector Job Quality Index (JQI)® has been revised to a level of 80.39, representing a minor decline of 0.04% from its level one month ago and reflecting a somewhat lower proportion of U.S. production and non-supervisory (P&NS) jobs paying less than the mean weekly income of all P&NS jobs, relative to those jobs paying more than such mean. The mean weekly income of all P&NS jobs as of the current reading (reflecting the level as of October 2019) was $794, a change of 0.9% from its level the month prior.”  The chart released is shown below:

The paper is divided into five parts:

Part I — Need for the JQI: The Unmeasured Problem with American Jobs

Part II — Construction of the JQI: Capturing and Tracking the Data (explains the development technical detail, setting forth the assumptions and algorithms inherent in its generation)

Part III — Applying the JQI: Illuminating Areas of Confusion in Economic Transmission (discusses the relationship and potential forecasting usefulness of the index in connection with other economic data)

Part IV — Further Developing the JQI: What the Future Holds for the Index (discusses future maintenance and expansion of the index)

Part V — Conclusion: An Index for our Time

Among other things, Part III discusses “The relevance of the resulting “Phillips Curve,” relating lower unemployment to higher levels of inflation…[which] remains—in various modified forms—part of central bank policy consideration to this day.”

It also discussed the impact of the JQI on household incomes and consumption with regard to the U.S. Balance of Trade in Goods. The authors comment, “…as American consumption has continued to rise, the goods consumed had to be produced by someone—even as U.S. goods production jobs plummeted. As evidenced by the U.S. balance of trade over the past several decades, goods consumed by Americans at the margin came increasingly to be manufactured abroad”

They later comment, “The decline in U.S. job quality over the past three decades is linked substantially to a decline in goods-producing jobs.”

 Some of the findings of the research that were of particular interest to me in Part III were:

  • “The JQI’s definition of high-quality jobs (those above mean weekly earnings) provided an average of 38.26 hours of weekly work at year-end 2018, compared with low quality (those below the mean) which provided 29.98 hours.”
  • The percentage of goods producing jobs as a percentage of total private sector jobs dropped from 25.6% in 1990 (down from a high of 43% in 1960) to 16.4% in 2018.

The researches commented, “Surprisingly, the data as analyzed with the JQI also tend to predict the performances of many other salient metrics of the national economy and—in the end—financial markets too…The JQI can significantly improve decision making of policymakers as well as better-inform participants in the financial markets.”

In their Conclusion, the authors remind us of the fact “that the US manufacturing workforce has declined dramatically in the past three decades.” Between 1970 and 1990, the decline was gradual, going down from “17.8 million manufacturing workers” to “17.7 million.” By the year 2000, “it was down 2.4 percent to 17.3 million manufacturing workers.” In the next decade, “manufacturing employment fell off a cliff. By 2010, manufacturing employment was down a shocking 33.2 percent at 11.5 million. Since 2010, the figure has crept up only somewhat, to reach 12.8 million in May 2019.”

 “Meanwhile, the total US working population has grown dramatically over those years. In 1970, manufacturing workers accounted for 22.6 percent of total US civilian employment. As of May 2019, they accounted for just 8.2 percent of the total.”

They comment, “An important question surrounding the decline of manufacturing is whether those leaving manufacturing are transitioning into better or worse jobs.  After building the new Job Quality Index, “the answer is that lost manufacturing jobs were chiefly replaced by lower-wage/lower hours service jobs.”

The White Paper confirms my research in writing three books and hundreds of articles in the past ten years — losing millions of manufacturing jobs between 2000 – 2010 resulted in a decline in the middle class because manufacturing jobs are the foundation of the middle class. Without a strong middle class, we risk becoming a nation of “haves” and “have nots.” I hope the Job quality Index will wake up more economists, Congressional representatives, and employees of government agencies to the dangers of this trend before it’s too late. 

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CPA Report Shows Higher China Tariffs Could Increase U.S. Jobs and GDP

Monday, August 19th, 2019

On July 22, 2019, the Coalition for a Prosperous America released an update to their study on the effects of increasing tariffs on all imported Chinese goods to 25% that had originally released in May. The study was conducted by CPA’s Chief Economist Jeff Ferry and Steven L. Byers, Ph.D. The Coalition for a Prosperous America is a non-profit, non-partisan organization working to eliminate the trade deficit with smart trade and tax policies to create jobs and prosperity.

According to the report, “The tariff revenue totals $547 billion over five years. If those funds are reinjected back into the economy each year, this additional stimulus to growth results in a $167 billion boost to GDP and 1.05 million additional jobs in 2024…The results of the Coalition for a Prosperous America (CPA) model show that tariffs will have a sustained, positive impact on the US economy, including jobs, output, and investment.”

The report states:  “The tariff would stimulate the US economy through two channels: first, the relocation of US-bound production from China to other nations would lead to a reduction in the average cost of imports because many alternative production locations ,such as those in Southeast Asia, today have lower costs of production than China; and secondly, because a portion of the production in China relocated to the US, would directly stimulate the US economy.”

In stark contrast, the opinions of professional economists are reflected in an article titled, “Trade Wars Are Not Good, or Easy to Win” in The Atlantic on August 5, 2019, staff writer Derek Thompson, wrote, ” President Donald Trump has stubbornly insisted on Chinese tariffs over the objections of his economic advisers—not to mention the near-universal outcry of the professional economic community. In a University of Chicago poll of several dozen international economists, zero disagreed with the statement that “the incidence of the latest round of US import tariffs is likely to fall primarily on American households.”

Why do the conclusions of the CPA research directors differ so greatly from the opinions of the economic community? The authors explained, “Our results differ remarkedly from other economic modeling efforts regarding tariffs…The differences result primarily from different assumptions about how businesses and consumers react to tariffs. Other models reflect a pro-free-trade bias and assume that (a) no production returns to the US as a result of tariffs (b )prices of US imports always rise when imports move from China to third countries and (c) US consumers react very negatively to higher prices, leading to educed sales and output in the US economy. A close study of the available empirical evidence shows these assumptions are unwarranted.”

The report states:  “Our model consisted of two parts:  a partial equilibrium model, which looked at how production in China for export to the US responded to the presence of a permanent across-the-board tariff, and a general-equilibrium model, based on the widely-used REMI  economic model to explore the effects of production shifts on the US economy over a five-year forecast period.”

The report takes into consideration China’s retaliation against the tariffs and China’s moving manufacturing to the U.S. or other countries. It shows that the tariffs will encourage production relocation out of Asia and generate significant reshoring of manufacturing to the US by American manufacturers who had established plants in China. This opinion concurs with the data collected by the Reshoring Initiative for several year showing that “the location decision for manufacturers is not just about cost: reliable supply, closeness to customers, political stability, and building customer/consumer brand awareness all matter!”

The original May report went into more detail about the benefit of reshoring, stating, “The US job gains from PATB-25-induced reshoring are disproportionately concentrated in the manufacturing sector, with 192,416 additional manufacturing jobs (27 percent of total jobs created by the tariff). This is because the vast majority of US imports from China are manufactured goods. By 2024, our model forecasts that $69 billion worth of annual production will have migrated from China to the United States. While US production costs in many industries remain higher than in China, that is not the whole story. Locating production in the US offers other advantages, including lower transportation costs, more logistical flexibility, and closer connectedness to consumer markets, distributors, and senior management. Relocating in the US also insulates companies against the uncertainty of potential future trade tensions. Some industries, such as apparel, have already seen reshoring due to these advantages. A permanent tariff would speed up the process.”

In a webinar to CPA members on August 1st, Ferry cited several examples of American companies reshoring production to the US; namely, Caterpillar, Stanley Black and Decker, Hasbro, Whirlpool, Optec, and West Elm.  The website of the Reshoring Initiative lists  nearly 3,000 companies that have reshored, and the list grows by the week.  

In an interview for The Epoch Times,  Ferry said: “As time goes by, people are accepting it because they’re seeing that tariffs are not provoking huge increases or any increases in consumer prices. They’re not disrupting our supply chains”

He also said “the goal of the U.S. government is to fix these problems and to restore prosperity to the United States, and he thinks tariffs have their role to play. If the trade deficit continues, and if we want to see certain manufacturing industries grow in the United States, I think we need to do more, and tariffs on all Chinese imports is a good solution…It’s a delicate and dangerous game [the Chinese regime is] going to have to play to pivot from being an economy that’s completely dependent on exports to being a more balanced economy, and it’s anybody’s guess whether they can pull it off.”

I’m betting that the conclusions reached by CPA would prove true if President Trump did impose 25% tariffs on all imports from China because of the strong evidence of the benefit of reshoring to the US economy.  According to the Reshoring Initiative, data from the manufacturing employment low of January 20190 through 2018, 749,000 jobs have been brought back to the US from offshore. In addition, manufacturing jobs pay higher than service and retail jobs, so tax revenue will increase from more people having higher paying jobs.  Another benefit would be that as we reduce our imports, our trade deficit would go down. However, the best benefit is that as we resume making the products and systems needed to defend our country in the US, we will protect our national security.

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Tariffs Benefit the American Manufacturing Industry

Wednesday, February 13th, 2019

Most people are unaware that for over 150 years, the American government protected the development and growth of its manufacturing industry with high tariffs, ranging from a low of 5% to as high as 50% in some cases. The first tariffs were imposed by the Tariff Act of 1789, whose purpose was to raise money for the new federal government, slash Revolutionary War debt and protect early-stage American industries from foreign imports.

Prior to achieving its independence, Americans were dependent on goods imported from England, France, and Holland, so it was critical to develop their own manufacturing base to maintain independence as a country in the event of future wars.

These protectionist policies enabled its fledgling manufacturing industries to grow until the United States became the preeminent industrial nation in the 20th century.  American manufacturing dominated the globe for over 70 years.

After World War II, the U.S. switched from protectionism to free trade in order to rebuild the economies of Europe and Japan through the Marshall Plan and bind the economies of the non-Communist world to the United States for geopolitical reasons.

To accomplish these objectives, the General Agreement on Tariffs and Trade (GATT) was negotiated during the UN Conference on Trade and Employment, reflecting the failure of negotiating governments to create a proposed International Trade Organization. Originally signed by 23 countries at Geneva in 1947, GATT became the most effective instrument in the massive expansion of world trade in the second half of the 20th Century.

GATT’s most important principle was trade without discrimination, in which member nations opened their markets equally to one another. Once a country and one of its trading partners agreed to reduce a tariff, that tariff cut was automatically extended to all GATT members. GATT also established uniform customs regulations and sought to eliminate import quotas.

By the 1970s, Japan’s economy was flourishing to the point that Japan became a major exporter to the U. S. for consumer electronic goods such as cameras, stereos, radios, and TVs. During the 1980s, Japan further expanded its U. S. market share with automobiles and machine tools for the manufacturing industry, such as mills, lathes, and turret presses.

Germany focused on high-end products in all of the same markets as the Japanese, so that American products faced stiff competition at the low end and high end.

Manufacturing employment in the U. S. reached a peak of 19.5 million in 1979, and slid down to 17.3 million by 1993 from the effects of job losses from increased imports from Japan, Germany, and other countries because of free trade policies and lower tariffs.

By 1995, when the World Trade Organization replaced GATT, 125 nations had signed its agreements, governing 90 percent of world trade.

Another major blow to the American manufacturing industry took place when the North American Free Trade Agreement (NAFTA) was negotiated under President Bill Clinton and went into effect in January 1994. The agreement was supposed to reduce market barriers to trade between the United States, Canada, and Mexico to reduce the cost of goods, increase our surplus trade balance with Mexico, reduce our trade deficit with Canada, and create 170,000 jobs a year. Twenty years later, the fallacy of these supposed benefits is well documented.

According to the report “NAFTA at 20” released in 2014 by Public Citizen’s Global Trade Watch, “More than 845,000 specific U.S. workers have been certified for Trade Adjustment Assistance (TAA) as having lost their jobs due to imports from Canada and Mexico or the relocation of factories to those countries.”

In 1994, GATT was updated to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO.) The 75 existing GATT members and the European Community became the founding members of the WTO on January 1, 1995. The other 52 GATT members rejoined the WTO in the following two years, the last being Congo in 1997. Since the founding of the WTO, a number of non-GATT members have joined, and there are now 157 members.

The loss of jobs accelerated after President Clinton granted Most Favored Nation status to China in the year 2000, and China was able to join the WTO. As a result, the U. S. lost 5.9 million manufacturing jobs from 2000 to 2010, and manufacturing employment dropped from 17.3 million down to 11.4 million in depth of recession in February 2010. In addition, an estimated 57,000 manufacturing firms closed.

On January 31, 2017, the Economic Policy Institute released a report, “Growth in U.S.–China trade deficit between 2001 and 2015 cost 3.4 million jobs,” written by Robert Scott.

Scott stated, “Due to the trade deficit with China, 3.4 million jobs were lost between 2001 and 2015, including 1.3 million jobs lost since the first year of the Great Recession in 2008. Nearly three-fourths (74.3 percent) of the jobs lost between 2001 and 2015 were in manufacturing (2.6 million manufacturing jobs displaced).”

Why were so many jobs lost? A large percentage of the people who lost jobs were in industries decimated by Chinese product dumping and below market pricing; i.e., textiles, furniture, tires, sporting goods, and garments. In addition, American manufacturers chose to outsource manufacturing offshore as the U.S. Department of Commerce data shows that “U.S. multinational corporations… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.”

Thankfully, manufacturing employment increased to 12.8 million by December 2018 as shown by the chart below. This was the result of a very slowly improving economy, reshoring (returning manufacturing to America), and increased Foreign Direct Investment (foreign manufacturers setting up plants in the U.S.) Notice that it took six years to increase by 904,000 under the Obama Administration, and it’s only taken two years to increase by another 441,000 jobs under the Trump Administration. While an increase of 1.4 million jobs is good news, at this rate, it would take about 30 years to recoup the 5.8 million jobs we lost from 2000 to 2010.

 

We need to accelerate the growth of manufacturing jobs, and that is what the tariffs imposed by President Trump are designed to do.  In the only few short months since the tariffs went into effect, I’ve seen the following headlines about job growth in the past week:

“U.S. Steel Corp. Restarts Texas Plant That Closed in 2016,”  IndustryWeek, February 5, 2019

“Tariffs Helping US Manufacturers Add Jobs, Says Group,” IndustryWeek, February 7, 2019

“US Steel Resumes Construction on Idled Facility,” IEN, February 11, 2019

On December 04, 2018, the article “Contrary to popular belief, Trump’s tariffs are working” by Jeff Ferry, Research Director for the Coalition for a Prosperous America (CPA), stated,  “The tariffs have contributed to this growth directly and indirectly. Directly, we’ve catalogued some 11,000 US jobs that are being created by companies in the four tariffed industries, and that’s not including any of the Section 301 industries. Since that 11,000 tally in August, more investments and jobs have been announced, like the massive $1.5 billion steel plant to be built by Steel Dynamics, which will create some 600 new jobs in the southwest. Solar Power World lists a dozen solar companies now investing in US production of solar modules.”

“At CPA, we built an economic model looking at the effects of the tariffs on the US economy from 2018 through 2021. We found that the tariffs boosted US economic growth, adding $9 billion to GDP this year. Further, our growing economy leads to growing US imports each year. In other words, by boosting our own economic growth, we buy more goods from our trading partners, not less.”

If we want to protect our national security and maintain our national leadership in the 21st Century, we cannot continue down the path of increasing trade deficits and increasing national debt by allowing countries with predatory trade policies to destroy the American manufacturing industry.  I support the new path the Trump Administration is forging by developing and implementing a national strategy to win the international competition for good jobs, sustained economic growth, and strong domestic supply chains.

 

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Upcoming Southern California Events

Wednesday, January 16th, 2019

We have a busy first few months of trade shows and conferences for 2019. I will be attending the following shows for at least one day to keep up with the latest technologies and industry news for writing future articles.

I’m also beginning the year with several webinars in January – March.  I am giving two webinars on “How to Return Manufacturing to the U.S. Using Total Cost of Ownership Analysis” on two dates, Tuesday, January 22nd (Register here) and Wednesday, January 30th (Register here).

Then, I’m giving one Tuesday, February 12th, on “How We Can Solve the Skill Shortage and Attract the Next Generation of Manufacturing Workers.” Register here.

On February 5-7, 2019, the UBM Advanced Manufacturing Expo & Conference

will be held at the Anaheim Convention Center, Anaheim, CA

This conference will be part of the five shows being held concurrently at the Center.

Register Here

 Register Here

Expo Hours for all shows:

 February 5, 10:00 a.m. – 5:00 p.m.

February 6, 10:00 a.m. – 5:00 p.m.

February 7, 10:00 a.m. – 4:00 p.m.

 

AFCEA/USNI WEST Conference
Registration Center
11208 Waples Mill Road, Suite 112
Fairfax, VA 22030
(888) 273-5706 / (703) 449-6418
Register

Why Attend AFCEA:

Attend three days of open discussions with defense and maritime leaders. Gain a better understanding of the impacts and implications of the new National Security Strategy. Hear about the current set of challenges facing the Navy, Marine Corps and Coast Guard, and be a part of the dialogue on the opportunities and solutions to address these concerns.

CONNECT

Spend time with military, government and industry ‘out of the office’ and ‘outside of the beltway.’ Engage with speakers, attendees and exhibitors and discuss ideas and insights. Afternoon happy hours on the exhibit floor provide an opportunity to network with thought leaders.

INNOVATE

Explore and experience the latest platforms, leading edge technologies and state-of-the-art networking capabilities that support the Sea Services operations. Visit over 300 maritime exhibits.

 

IPC APEX EXPO 2019 is a five-day event like no other in the printed circuit board and electronics manufacturing industry. Professionals from around the world come together to participate in the Technical Conference, Exhibition, and Professional Development, Standards Development and Certification programs. These activities offer seemingly endless education and networking opportunities that impact your career and company by providing you the knowledge, technical skills and best practices to address any challenge you face.

Exhibition Hours

Tuesday, January 29           10:00 am–6:00 pm

Wednesday, January 30     9:00 am–6:00 pm

Thursday, January 31         9:00 am–2:00 pm

About IPC

IPC is a global trade association dedicated to furthering the competitive excellence and financial success of its members, who are participants in the electronics industry. In pursuit of these objectives, IPC will devote resources to management improvement and technology enhancement programs, the creation of relevant standards, protection of the environment, and pertinent government relations.

Register Here

Conference: April 29 – May 2, 2019 | Exhibits: April 30 – May 1

Long Beach Convention Center, 300 East Ocean Blvd, Long Beach, California

Conference Hours:

Tuesday, April 30, 2019 | 10:30 AM – 4:00 PM

Wednesday, May 1, 2019 | 10:30 AM – 4:00 PM

Thursday, May 2, 2019 | 9:00 AM – 12:00 PM

Exposition:

Tuesday, April 30, 2019 | 10:00 AM – 5:30 PM

Wednesday, May 1, 2019 | 10:00 AM – 5:30 PM

Dates and times for workshops, tours, and networking receptions are being determined. Check back for updates.

Register Now

 

For those of you in San Diego County, you may also want to attend the free Economic Roundtable on Thursday, January 17, 2019.

What does the San Diego County economy look like for 2019 and beyond? Join  the lively discussion with a panel of experts covering the future of the economy, housing/homelessness, military, and diversity and inclusion. Experts will provide predictions and their perspective on what may be in store for San Diego County.

Session One:

Ray Major, Chief Economist, SANDAG

Ryan Ratcliff, Associate Professor of Economics, USD School of Business

Sarah Burns, Director of Research and Evaluation, San Diego Workforce Partnership

Session Two:

Housing/Homelessness: Stephen Maduli-Williams, Community Development Program Manager, City of San Diego

Military: Jesse Gipe, Senior Manager, Economic Development, San Diego Regional Development Corporation

Diversity and Inclusion: Dwayne Crenshaw, CEO and Co-Founder, RISE San Diego

Date: Thursday, January 17, 2019

Time:

Networking: 8–8:30 a.m.

Program: 8:30 a.m.–noon

Location:

University of San Diego—Joan B. Kroc Institute for Peace & Justice

5998 Alcala Park, San Diego, CA 92110

Cost: Free

Save Your Seat

 

 

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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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How Trade Policies Led to the Decline of American Manufacturing

Wednesday, January 24th, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source:  Coalition for a Prosperous America

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

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

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

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

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

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

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

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

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

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

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

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California Economic Summit Sets Goals to Elevate California

Wednesday, January 24th, 2018

The sixth annual California Economic Summit was held on November 2nd – 3rd in San Diego.  The Summit was convened by CA Fwd and the California Stewardship Network, with a long-list of sponsors and partners. More than 500 civic, business, attended the event held at the Hilton San Diego Bayfront.  The theme of the Summit was Elevate California with the goal of achieving:

  • One million more skilled workers
  • One million more homes
  • One million more acre-feet of water

The statewide gathering highlighted higher education as an important component to a new initiative to restore upward mobility in the state. I was only able to attend day two, which began with a welcome by Mark Cafferty, President of the San Diego Regional Economic Development Corporation, and San Diego County Supervisor Greg Cox. Mr. Cafferty said, “California’s brand around the world is remarkable.  We need to prepare and support our most important assets – people. We need to help Californians live in sustainable communities, and we need to create one million more middle class jobs to ‘future proof’ California for Californians.”

Supervisor Cox said, “We now have 1,400 “Blue tech” companies representing 46,000 employees and making a $14 billion contribution to our economic, creating blue collar and white-collar jobs.” He mentioned that according to the recent report, the impact of the military represents 22% of the region’s jobs.

The day started with a panel of millennial and Next Gen leaders discussing their perspective on how California’s economy and the high cost of living are affecting them and their peers. Christine Werstler was the panel leader, and the panelists were:  Assemblywomen Autumn Burke, Sean Bhardwaj, founder and CEO of Aspire 3, and Laura Clark of YIMBY Action. They shared that the major challenges are:  affordable housing, access to fundamental services like health care and education, rapid change, and an unknown future.

Assemblywoman Burke said, “You can only do so much with legislation. We need to provide resources. It’s important to know that we have a college system that doesn’t have room for everybody, even if they qualify, Access to education should be a high priority.” Burke added that many of those are students from disenfranchised communities. Burke said, “We have the data, and now we need to put it into action and work with private industry to provide the opportunities and resources. It is our job as legislators to provide all of the things they need. “

Panelist Sean Bhardwaj said, “We need to teach entrepreneurism as a skill across disciplines in colleges and universities so they are prepared to find and create their career opportunities for the future. Only 19% of millennials see other people as trustworthy, 10% lower than other generations. They need to build personal relationships or they will not engage.

Bhardwaj added, “Each and every one of us has a talent and a skill that we can bring to the world. We need to break out of the thinking of what we link learning is and think what it could be. Technology is a tool to make resources more accessible.  We need to look at what are the tools we can provide so we can use the tools quickly We need to figure out what are the skills needed today and quickly provide the opportunities to learn them.”

Clark said, “Millennials are angry – 20% are living in poverty, and we need to bring them up. It is important to have clustering of industries in regions to provide career advancement.” She urged institutions to make sure college students are registered to vote so they have a voice on issues including funding.

The next panel featured leaders from all three of the state’s public higher education systems: University of California President Janet Napolitano, California State University Chancellor Timothy White and California Community Colleges Chancellor Eloy Ortiz Oakley. Ryan Smith was the panel leader.

“When we think about income inequality in our country and California, the single tried and true tactic that has worked over time has been access to higher education in terms of increasing social mobility,” said Napolitano. “When I remind people that 45 percent of the entering class at University of California are first-generation college students, that’s real opportunity that public higher education presents in California. In the UC system, we have increased enrollment by 10% in the last two years.”

When asked about affordability, the leaders emphasized the widespread use of financial aid to cut tuition and fees, but reminded the audience that the total cost of education also includes California’s high housing costs and other expenses.

Chancellor White said, “There is a capacity problem. We turn away about 30,000 students every year. We need to build more capacity.  If we don’t make this investment, it will be a higher cost in the future if we don’t succeed.”

Ortiz Oakley said, “We are in 114 communities and we need to design for the future jobs, so we looking at what are the job needs of different regions to create upward mobility and train more skilled workers needed across the state. We’ve spent a lot of time and fortunately we’ve had the investment over the last several years through the Strong Workforce to take a hard look at the regions of California to begin preparing ourselves to develop curricula for the jobs of today and the future, not the jobs of yesterday.”

All three of the Democrat gubernatorial candidates appeared at the Summit.  I missed the appearance of Lt. Governor Gavin Newsom the first day, but day two, former Los Angeles Mayor Antonio Villaraigosa and State Treasurer John Chiang were interviewed. Villagorosa said, “If it were a country, California would rank sixth in the world economies, but we rank down with Romania in the level of poverty.”  He agreed with Assemblywoman Burke. “If we’re going to survive and thrive, we’re going to have to do a better job at growing middle class jobs,” adding that 60 percent of high school kids are Latino and African American, but only 13 percent go on to a four-year college. He said, “We’ve got to address that. We’ll be a million and half down in college graduates by 2025 and a million down in people with specialized skills.”

Chiang said, “We have to understand that we ought to celebrate the diversity of our resources. It’s all about the people and I believe we have an area that is the magnet that draws people. It’s the idea of what California is, so we can flourish uniquely because of the extraordinary diversity that we have.”

“The 2017 Summit sought to advance these ambitious themes during the event and in the coming year:

  • Create a unifying triple-bottom-line vision for increasing economic security and upward mobility
  • Expand the strength and diversity of the Summit network to increase its influence on state and local policy decisions
  • Mature the Summit as a formal civic partner with government to advance triple-bottom-line policies:

While I applaud the goals of the Summit co-conveners and partners, I wonder why no one seemed to connect the fact that our losing 33% (618,000) of our higher-paying manufacturing jobs from the year 2000 -2010 might be a major cause of our increased rate of poverty.

According to data from the California Manufacturing Technology Association, we have only regained about 50,000 manufacturing jobs since then.  As shown by the following chart from CMTA Champions of Manufacturing blog by V.P. Gino diCaro, California is lagging behind the rest of the country in regaining manufacturing jobs, and California only attracted 1.6% of reshored jobs from 2013 – 2016.

I also fail to see how we can achieve the goal one million more skilled workers without addressing California’s adverse business climate that is driving manufacturing companies to leave California. Not one speaker even mentioned the topic of California’s business climate.

For 20 years, the Small Business & Entrepreneurship Council has published a report, titled the Small Business Policy Index, by their Chief Economist, Raymond J. Keating, which ranks the states on policy measures and costs impacting entrepreneurship and small business growth. According to the 2016 report, California ranks dead last, and has been dead last for several years. The report “ties together 50 major government-imposed or government-related costs impacting small businesses and entrepreneurs across a broad spectrum of industries and types of businesses, which include: corporate and personal income tax rates, individual and corporate capital gains taxes, property taxes, sales, growth receipts, and excise taxes, death taxes, unemployment tax rates, gas and diesel tax rates, Workers’ Compensation premium costs, energy regulation, State minimum wage, paid family leave, etc.  It even ranks states by the number of government employees, Per Capita State and Local Government Spending, Per Capita State and Local Government Debt, and various categories of lawsuit reform.

A brief look at how California ranks reveals:

  • California has the highest personal income tax rate and individual capital gains tax at 13.3%
  • California ranks 50th in Workers Compensation premiums cost at 3.48
  • California ranks 49th in energy regulatory costs
  • California ranks 43rd in corporate income taxes and 44th in corporate capital gains tax at 8.84%

On the plus side, California ranks first in the lowest unemployment taxes at the low rate of 0.81. Thanks to Proposition 13 still being in effect, California only ranks 22nd in property taxes at 2.835%. In 2016, California only ranked 46th in gas taxes at 0.409 cents per gallon, but would rank 49th now after raising its gas taxes by 12 cents per gallon the week after the Summit.

As long as California’s legislators and other leaders have their “head in the sand,” nothing will be done about improving the business climate of California. I challenge the State legislature to do their job as legislators to provide all of the things business needs to grow and expand employment.

At the conclusion of the Summit, Oscar Chavez, assistant director at the Sonoma County Department of Human Services, announced that Sonoma County will be the site of the 2018 California Economic Summit. He said, “You cannot sit on the sidelines. This state needs you.” I would say, “This state needs leaders who address the issues affecting manufacturing if we want to achieve the lofty goals of the Summit.

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