Archive for the ‘Economy’ Category

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Why our Economy Struggles to Create Jobs

Tuesday, May 14th, 2013

There have been many opinions expounded via TV news shows, radio talk shows, newspapers, and magazines over the last four years as to why our economy has struggled to create jobs after the recession of 2007-2009 more than any other recession since WWII.

The economic collapse of the real estate and financial markets in 2008 had more impact on job losses than the recession of 2000-2001 caused by the dot.com bust because jobs related to real estate and construction represented a much higher component of employment than software/dot.com did at the time. During the recession of December 2007-June 2009, construction employment fell from 7,490,000 to 6,008,000, representing a loss of 1.5 million jobs or 19.8 percent of the construction workforce. It has remained less than 6 million as of April 2013 (Source:  Bureau of Labor Statistics).

When consumer demand dropped sharply because of so many people losing their jobs and homes, this eliminated the last thing keeping the domestic market floating on a bubble.

Since then, our economy has limped along at monthly average of a 1.5 to 2 percent growth rate in our Gross Domestic Product (GDP), which is not enough to create the amount of jobs we need. The main reasons why our economy is struggling to create jobs are:

Decline of U. S. Manufacturing

We lost 57,000 manufacturing firms and 5.7 million manufacturing jobs since the year 2000. According to the Bureau of Labor Statistics, we recouped about 500,000 jobs (489,000 or 4 percent) since the low in January 2010.

As I have discussed in both editions of my book and numerous blog articles, this loss of manufacturing firms and jobs was mainly the result of “predatory mercantilism”; i.e., unfair competition/product dumping by China and other Asian nations and the fact that a large number of multinational and American companies outsourced manufacturing offshore and/or set up plants in China and other parts of Asia. These companies literally outsourced American jobs in an attempt to compete with the “China price,” take advantage of less stringent environmental regulations, reduce taxes, and thereby maximize profits.

Transition to Service Economy

In addition to the many reasons previously discussed by myself and others, a key factor was revealed by the in-depth analysis of national and state data presented in the report, “Goods, Services, and the Pace of Economic Recovery” by Martha L. Olney and Aaron Pacitti, Berkeley Economic History Laboratory (BEHL), University of California, Berkeley March 2013.

Their hypothesis was:  Do service-based economies experience slower economic recoveries than goods-based economies? They argue that they do. They conclude that “service-dependent economies experience longer recoveries because they cannot respond to anticipated demand.” Thus, in a service-based economy, the recovery from a recession will take about one year longer than in a goods-based economy.

Why is this? They state, “An economy recovers from a downturn when businesses increase production. Both goods and services can be produced in response to actual demand. But only goods—and not services—can be produced in response to anticipated increases in demand, allowing optimistic forward-looking producers to inventory goods until anticipated buyers appear. Services cannot be inventoried. The more services an economy produces relative to goods, the more production is dependent upon only actual increases in demand, and the slower the recovery.”

Services have to be delivered in real-time by doctors, dentists, lawyers, accountants, web designers, graphic artists, etc. Even in the industrial realm, services such as engineering design, product testing, shipping, and delivery services are performed as needed. These services cannot be produced ahead of the need and “stored.”

The authors argue that there is a connection between the steady rise of services in the U.S. economy over the last half century and the slower pace of recovery from economic downturns. They state, “…as services become a larger share of output in an economy, more production is dependent on just actual and not also anticipated demand, slowing the pace of recovery from an economic downturn.”

The increase in the services share over the past 60 years has been striking. “In 1950, 40 percent of expenditures for U.S. GDP were for services and service-producing jobs were 48 percent of employment. By 2010, services constituted over 65 percent of expenditures for GDP and service-producing jobs were nearly 70 percent of employment.” The rise in services in the U.S. has led to longer recoveries, causing the current recovery to last about one year longer than it would have a half century ago.

End of NASA’s Manned Flight Program

The official retirement of the Space Shuttle program in 2011 resulted in a 19 percent drop in employment from 2007 to 2010 according to the Commerce Department’s Bureau of Industry and Security (BIS) industrial base assessment of the 536 companies in NASA’s manned space flight supply chain. If this steep a drop in employment occurred before the retirement of the Space Shuttle, it will be far worse by the time of the next assessment now that the program has ended.

Of the 536 companies, 50 percent of them are manufacturing companies, of which 21 percent are based in California, and 9 percent based in Florida. The report said that companies that supplied the Space Shuttle and Constellation launch program are facing “large-scale layoffs and facility closures across both industry and government.”

Near the Kennedy Space Center, more than 7,400 people in Brevard County, Florida alone lost their jobs when the shuttle program ended. The mainly contractor positions cut by NASA accounted for just under 5% of the county’s private sectors jobs. Thousands of formerly well-paid engineers and other workers around the country are still struggling to find jobs to replace the careers that flourished during the space shuttle program.

The machinery and tools used to support a manned space program are in danger of being discarded. In a separate assessment of the space flight industry, BIS found that 52 companies that were major suppliers (Tier I) had 48,623 pieces of tools and machinery, 91 percent of which had been paid for by the government. This classifies them as “Government-Furnished Property” so that the General Services Administration can process them by being transferred, sold, scrapped, or donated.

The danger is that the U. S. government may never be able to re-establish a manned space flight program to support ongoing missions to the International Space Station once the supplier base of the manned space flight program has been decimated. At the present, the U. S. has no way of sending astronauts to space in its own vehicles, and NASA is relying on the Soviet-made Soyuz capsules to send U.S. astronauts to space station. Thus, the United States may never again be a leader of space exploration.

Wind Down of War on Terrorism

The end of the Cold war with the Soviet Union resulted in a major downsizing of the military-industrial complex in the early 1990s, causing the recession of 1991-1992 and hundreds of thousands of lost jobs. Likewise, the withdrawal of troops from Iraq and the ramp down of troops in Afghanistan are having a similar effect on the defense/military industry, with a resulting loss of funding for new programs, cutbacks in existing programs, and job loss.

Sequestration

The additional cuts in the Defense Department’s procurement are taking a toll on some critical industries such as ship repair. In February, the Navy canceled all FY 2013 ship repair contracts that had been awarded to San Diego ship repair companies but not yet started. How many companies can survive having all their new contracts canceled?

What can we do?

It is interesting to note that one of the policy recommendations of the authors of the Berkeley report on goods vs. service’ corroborate some that I have presented previously:

“Therefore we believe that industrial policy aimed at restoring the country’s manufacturing sector could be beneficial. For example, tax policy that provides large re-shoring tax credits for goods-producing firms and levies large tax penalties on firms that offshore goods production could increase the share of goods in total output.”

Additional recommendations the authors make are:

  • Targeted investment in public goods and infrastructure would accomplish the same end.
  • Full employment policies and direct job creation programs could be enacted.
  • Targeted and aggressive fiscal spending and an employer of last resort program that guarantees full employment.

The authors conclude, “Longer and slower recoveries place a greater strain on state and federal budgets by decreasing tax revenue and increasing expenditures on automatic stabilizers. States will be forced to cut spending since all states with the exception of Vermont are required by law to run a balanced budget.” We have certainly seen this conclusion take effect as one state after another faces a staggering budget deficit, and our federal deficit has skyrocketed since 2009.

In the past two years, the general public and more economists and policymakers have begun to recognize the importance of U. S. manufacturing. Manufacturing is the foundation of our economy and is crucial to providing the quantity and quality of higher paying jobs we need.

It is high time for Congress and the Obama administration to develop a comprehensive national manufacturing strategy for the United States. Until we make a national manufacturing strategy a top priority, our economy will continue to struggle to create jobs.

 

Posted in Economy, Jobs, Manufacturing | 1 Comment »

How we could Create Jobs while Reducing the Trade Deficit and National Debt

Tuesday, March 26th, 2013

There are numerous ideas and recommendations on how we could create jobs but most job creation programs proposed involve either increased government spending or reductions in income or employment taxes at a time of soaring budget deficits and decreased government revenue. Other recommendations would require legislation to change policies on taxation, regulation, or trade that may be difficult to accomplish. The recommendations in this article focus on what could be done the fastest and most economically to create the most jobs while reducing our trade deficit and national debt.

Manufacturing is the foundation of the U. S. economy and the engine of economic growth. It has a higher multiplier effect than service jobs. Each manufacturing job creates an average of three to four other supporting jobs. So, if we focus on creating manufacturing jobs, we would be able to reduce the trade deficit and national debt at the same time.

The combined effects of an increasing trade deficit with China and other countries, as well as American manufacturers choosing to “offshore” manufacturing, has resulted in the loss of 5.7 million manufacturing jobs since the year 2000. If we calculate the multiplier effect, we have actually lost upwards of 17 to 22 million jobs, meaning that we have fewer taxpayers and more consumers of tax revenue in the form of unemployment benefits, food stamps, and Medicaid.

In 2012, the U.S. trade deficit with China reached a new record of $315 billion. According to a recent study by the Economic Policy Institute (EPI), the trade deficit with China cost 2.7 million U.S. jobs from 2001-2011. The Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs, so the $738 billion trade deficit in goods for 2012 cost upwards of 9,599,200 jobs.

What Congress Could Do

First, Congress should enact legislation that addresses China’s currency manipulation. Most economists believe that China’s currency is undervalued by 30-40% so their products may be cheaper than American products on that basis alone. To address China’s currency manipulation and provide a means for American companies to petition for countervailing duties, the Senate passed S. 1619 in 2011, but GOP leadership prevented the corresponding bill in the House, H. R. 639, from being brought up for a vote, even though it had bi-partisan support with 231 co-sponsors. On March 20, 2013, Sander Levin (D-MI), Tim Murphy (R-PA), Tim Ryan (D-OH), and Mo Brooks (R-AL) introduced the Currency Reform for Fair Trade Act in the House and a corresponding bill will be introduced in the Senate.

Second, Congress should strengthen and tighten procurement regulations to enforce “buying American” for all government agencies and not just the Department of Defense. All federal spending should have “buy America” provisions giving American workers and businesses the first opportunity at procurement contracts. New federal loan guarantees for energy projects should require the utilization of domestic supply chains for construction. No federal, state, or local government dollars should be spent buying materials, equipment, supplies, and workers from China.

My other recommendations for creating jobs are based on improving the competitiveness of American companies by improving the business climate of the United States so that there is less incentive for American manufacturing companies to outsource manufacturing offshore or build plants in foreign countries. The following proposed legislation would also prevent corporations from avoiding paying corporate income taxes:

  • Reduce corporate taxes to 25 percent
  • Make capital gains tax of 15 percent permanent
  • Increase and make permanent the R&D tax credit
  • Eliminate the estate tax (also called the Death Tax)
  • Improve intellectual property rights protection and increase criminal prosecution
  • Prevent sale of strategic U.S.-owned companies to foreign-owned companies
  • Enact legislation to prevent corporations from avoiding the U.S. income tax by reincorporating in a foreign country

It is also critical that we not approve any new Free Trade Agreements, such as the Trans-Pacific Partnership and Trans-Atlantic Partnership that are currently proposed. The U.S. has a trade deficit with every one of its trading partners from NAFTA forward, so Free Trade Agreements have hurt more than helped the U.S. economy.

What States and Regions Could Do

State and local government can work in partnership with economic development agencies, universities, trade associations, and non-profit organizations to facilitate the growth and success of startup manufacturing companies in a variety of means:

Improve the Business Climate – Each state should take an honest look at the business climate they provide businesses, but especially manufacturers since they provide more jobs than any other economic sector. The goal should be to facilitate the startup and success of manufacturers to create more jobs. I recommend the following actions:

  • Reduce corporate and individual taxes to as low a rate as possible
  • Increase R&D tax credit generosity and make the R&D tax credit permanent
  • Institute an investment tax credit on purchases of new capital equipment and software
  • Eliminate burdensome or onerous statutory and environmental regulations

Establish or Support Existing Business Incubation Programs, such as those provided by the members of the National Business Incubation Alliance. Business incubators provide a positive sharing-type environment for creative entrepreneurship, often offering counseling and peer review services, as well as shared office or laboratory facilities, and a generally strong bias toward growth and innovation.

Facilitate Returning Manufacturing to America – The Reshoring Initiative,  founded by Harry Moser in 2010, has a  mission to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from “offshoring is cheaper” to “local reduces the total cost of ownership.” The top reasons for U. S. to reshore are:

  • Brings jobs back to the U.S.
  • Helps balance U.S., state and local budgets
  • Motivates recruits to enter the skilled manufacturing workforce
  • Strengthens the defense industrial base

According to Mr. Moser, the Initiative has documented case studies of companies reshoring showing that “about 220 to 250 organizations have brought manufacturing back to the U.S….with the heaviest migration from China. This represents about 50,000 jobs, which is 10% of job growth in manufacturing since January 2010.”

State and/or local government could facilitate “reshoring” for manufacturers in their region by conducting Reshoring Initiative conferences to teach participants the concept of Total Cost of Ownership, how to use Mr. Moser’s free Total Cost of Ownership Estimator™, and help them connect with local suppliers.

Establish Enterprise Zones and/or Free Trade Zones: Enterprise Zones provide special advantages or benefits to companies in these zones, such as:

  • Hiring Credits – Firms can earn state tax credits for each qualified employee hired (California’s is $37,440)
  • Up to 100% Net Operating Loss (NOL) carry-forward for up to 15 years under most circumstances.
  • Sales tax credits on purchases of up to $20 million per year of qualified machinery and machinery parts;
  • Up-front expensing of certain depreciable property
  • Apply unused tax credits to future tax years
  • Companies can earn preference points on state contracts.

States located on international borders could also establish Foreign Trade Zones (FTZs), which are sites in or near a U.S. Customs port of entry where foreign and domestic goods are considered to be in international trade. Goods can be brought into the zones without formal Customs entry or without incurring Customs duties/excise taxes until they are imported into the U. S. FTZs are intended to promote U.S. participation in trade and commerce by eliminating or reducing the unintended costs associated with U.S. trade laws

What Individuals Could Do

There are many things we could do as individuals to create jobs and reduce our trade deficits and national debt. You may feel that there is nothing you can do as an individual, but it’s not true! American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.”

If you are an inventor ready to get a patent or license agreement for your product, select American companies to make parts and assemblies for your product as much as possible. There are some electronic components that are no longer made in the U. S., so it may not be possible to source all of the component parts with American companies. There are many hidden costs to doing business offshore, so in the long run, you may not save as much money as you expect by sourcing your product offshore. The cost savings is not worth the danger of having your Intellectual Property stolen by a foreign company that will use it to make a copycat or counterfeit product sold at a lower price.

If you are an entrepreneur starting a company, find a niche product for which customers will be willing to pay more for a “Made in USA” product. Plan to sell your product on the basis of its “distinct competitive advantage” rather than on the basis of lowest price. Select your suppliers from American companies as this will create jobs for other Americans.

If you are the owner of an existing manufacturing company, then conduct a Total Cost of Ownership analysis for your bill of materials to see if you could “reshore” some or all of the items to be made in the United States. You can use the free TCO worksheet estimator to conduct your analysis available from the Reshoring Initiative at www.reshorenow.org. Also, you could choose to keep R&D in the United States or bring it back to the United States if you have sourced it offshore.

If enough manufacturing is “reshored” from China, we would drastically reduce our over $700 billion trade deficit in goods. We could create as many as three million manufacturing jobs, which would, in turn, create 9 – 12 million total jobs, bringing our unemployment down to 4 percent.

You may not realize it, but you have tremendous power as a consumer. Even large corporations pay attention to trends in consumer buying, and there is beginning to be a trend to buy ‘Made in USA” products. As a result, on January 15, 2013, Walmart and Sam’s Club announced they will buy an additional $50 billion in U.S. products over the next 10 years.

U.S. voters supported Buy America policies by a 12-to-1 margin according to a survey of 1,200 likely general election voters conducted between June 28 and July 2, 2012 by the Mellman Group and North Star Opinion Research. The overwhelming support has grown since prior iterations of the same poll – Buy America received an 11-to-1 margin of support in 2011 and a 5-to-1 margin in 2010. A survey by Perception Services International of 1400 consumers in July 2012, found that 76% were more likely to buy a U.S. product and 57% were less likely to buy a Chinese product.

As a consumer, you should pay attention to the country of origin labels when they shop and buy “Made in USA” products whenever possible. Be willing to step out of your comfort zone and ask the store owner or manager to carry more “Made in USA” products. If you buy products online, there are now a plethora of online sources dedicated to selling only “Made in USA” products. Each time you choose to buy an American-made product, you help save or create an American job.

In his book, Buying America Back:  A Real-Deal Blueprint for Restoring American Prosperity, Alan Uke, recommends Country of Origin labeling for all manufactured products that “puts control in the hands of American consumers to make powerful buying choices to boost our economy and create jobs,” as well as reduce our trade deficit. The labels would be similar to the labels on autos, listing the percent of content by country of all of the major components of the product. This Country of Origin labeling would enable American consumers to make the decision to buy products that have most of their content “made in USA.”

If every American would make the decision to buy American products and avoid imports as much as possible, we could make a real difference in our nation’s economy. For example, if 200 million Americans bought $20 worth of American products instead of Chinese, it would reduce our trade imbalance with China by four billion dollars. During the ABC World News series called “Made in America,” Diane Sawyer has repeatedly said, “If every American spent an extra $3.33 on U. S.-made goods, it would create almost 10,000 new jobs in this country.”

In conclusion, if we want to create more jobs, reduce our trade deficit and national debt, we must support our manufacturing industry so that it could once again be the economic engine for economic growth. Following the suggestions in this article could make the “Great American Job Engine” roar once again.

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

How to Fix America’s Economy

Tuesday, March 19th, 2013

 

Last week, I participated in the “Fly-in” for the Coalition for a Prosperous America (CPA) in Washington, D. C.  I was part of several teams that held 105 meetings with legislative assistants for Congressional Representatives and Senators.

We presented informational flyers on the following topics that would help fix America’s economy:

Trade Deficits – In 2012, the U. S. trade deficit was $735 billion, and our trade deficit with China hit an all time high of over $300 billion. This means that we currently consume more than we produce, and we need to reverse this dynamic and produce more of what we consume.  The goal for successful trade is balanced trade, not more trade.  We aren’t going to solve this problem with just doubling exports while we continue to increase our imports at a faster rate.  Trade deficits are our biggest jobs, growth and fiscal problem.  Congress should establish a national goal for balancing trade by the year 2020. Persistent trade deficits are not “free trade, but are “dumb trade.”

Foreign Currency Cheating – currency manipulation is trade cheating because it is both an illegal tariff and a subsidy.  China, South Korea, Japan, Taiwan, and Singapore have manipulated their currency values.  However, China’s currency is estimated to be at least 35% undervalued so our exports to China cost 35% more than they should to the Chinese.  In the past two Congresses, one bill addressing the problem passed the House, and one bill passed the Senate, but we need a similar bill to pass both Houses and be signed into law.  Senator Levin is introducing a new bill this week.

The ENFORCE Act – we need to stop the evasion of countervailing and antidumping duty orders by such means as “transshipment” where goods covered by an Order are shipped to a third country before import to the U.S., with falsified U.S. customs documentation claiming the product to be origin of that third country. Other goods covered by an Order are shipped directly with fraudulent paperwork claiming that they were produced in a country that is not covered by the Order or have incorrect import classification codes or inaccurate descriptions that falsely identify the imports as goods that are not subject to an Order.

The ENFORCE Act would establish a formal process and reasonable deadlines for action when the Customs and Border Protection is presented with an allegation of evasion, require CBP to report on its enforcement activities, and order the retroactive collection of duties on entries that illegally evaded duties.

Country of Origin Labeling (COOL) – On March 8, 2013, te USDA announced it is proposing a new COOL rule that will comply with the WTO request to provide more information to consumers and/or reduce the burden on imported product.  The    proposed rule would require labels for muscle cuts of meat to identify the country where each of the three production steps – birthing, raising, and slaughtering – occurred.

Foreign Border Taxes (aka Value Added Tax – VAT) Over 150 countries have at VAT, but the U. S. is one of the few countries that doesn’t.  VATs are “border adjustable” and range from 13% to 24% (average is 17%).  This means that our exports are taxed with a VAT when our goods cross that country’s border. Thus, when we negotiate a trade agreement that lowers or eliminates tariffs, a VAT can be added by our trading partners that is a “tariff by another name.”  Trade agreements do not address VATs when tariffs are lowered, and the WTO allows VATs.  Other countries use the VATs to reduce their corporate taxes to help their manufacturers be more competitive in the global marketplace. VATs are rebated to manufacturers in foreign countries for products that are exported, and the result is a $500 billion hole in U. S. Trade.  We need reject trade agreements that do not neutralize the VAT tariff and subsidy and consider implementing a U. S. consumption tax system to erase this foreign advantage and reduce domestic taxes on income and jobs.

Trans-Pacific Partnership – We need “Smart Trade” not “Dumb Trade” so a summary of CPA’s “Principles for a 21st Century Trade Agreement” was presented that would fix past mistakes in trade agreements. CPA recommends that new trade agreements must include the following principles to benefit America:

  • Balanced Trade
  • National Trade, Economic and Security Strategy
  • Reciprocity
  • Address State Owned Commercial Enterprises
  • Currency Manipulation
  • Rules of Origin
  • Enforcement
  • Border Adjustable Taxes
  • Perishable and Cyclical Products
  • Food and Product Safety and Quality
  • Domestic Procurement
  • Temporary vs. Permanent via renewal or sunset clauses

In the past, Congress has used Trade Promotion Authority to give the executive Branch directives on which countries to negotiate with and what terms to seek in the negotiations. “Fast Track” provisions that prevent Congress from amending any agreement and requiring an accelerated timeline for the vote have also been included. However, the Executive Branch ignored most of the provisions of the 2002 TPA and Congress had no role in the negotiations. Thus, CPA recommends that “Fast Track” provisions not be included because Congress should retain its trade power.

I also took the opportunity to provide copies of my blog article on the dangers to our national sovereignty that the current draft of the Trans-Pacific Partnership Agreement includes. I enjoyed meeting other businessmen and women from other parts of the country that have similar concerns about the direction of our country and are working to fix our country’s economy.

It was a pleasure to take advantage of my rights as a citizen to express my opinions and those of an organization of which I am a member to our elected representatives in government. If more American businessmen and women would take the time to do the same, we would be more successful in our efforts to fix our trade and national deficit problems and create jobs for more Americans.

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Posted in Economy, Manufacturing, Trade Policy | No Comments »

Import Penetration Still Outweighs Reshoring Trend

Monday, March 11th, 2013

In January, the U. S. Business and Industry Council released a report, “Import Penetration Rises again in 2011; Challenges Manufacturing Renaissance, Insourcing Claims,” by Alan Tonelson. According to the report,” the share of U.S. markets for advanced manufactured goods controlled by imports reached another all-time high in 2011… and domestic manufacturing’s highest value sectors keep falling behind foreign-based rivals.”

The USBIC report shows that “imports captured 37.57 percent of the collective $2.01 trillion American market in 2011 for a group of more than 100 advanced manufactured products,” up from 37.07 percent in 2010. When government data to calculate import penetration rate were first issued in 1997,”imports controlled 24.49 percent of substantially the same group of U.S. manufactured products.”

“Fully 29 of the 106 sectors for which reliable data were available featured import penetration rates of 50 percent or more in 2011. In 2010, 31 of these industries had lost half of their home U.S. market to imports, and in 1997, only 8 of the 114 sectors initially studied were in this situation.”

Between 1997 and 2011, 98 industries lost shares of their home market while only 8 gained shares. The industries that gained shares are:  “semiconductor machinery; saw mill products; paperboard mill products; motor vehicle stamping operations; transformer, inductor, and coil manufacturing; electron tubes; computer storage devices; and heavy duty trucks and chassis.”

The 98 industries include:  “semiconductors; electro-medical apparatus; pharmaceuticals; turbines and turbine generator sets; construction equipment; farm machinery and equipment; mining machinery and equipment; several machine tool-related categories; and ball and roller bearings.”

The report states that “from 1997-2011, output fell in 38 of the 106 total industries studied over this time span – nearly 36 percent of the total. These ‘declining’ industries include electricity measuring and test instruments; relays and industrial controls; motors and generators; motor vehicle engines and engine parts; several machine tool-related categories; and environmental controls.” In 11 more sectors, output growth was less than 10 percent, “including semiconductors; semiconductor production equipment; motor vehicle transmission and power train equipment; miscellaneous industrial machinery; and medicinals and botanicals.”

Mr. Tonelson writes, “High and rising import penetration rates for this many critical domestic industries over nearly a decade and a half represent powerful evidence of chronic, significant weakness in domestic manufacturing.”

In a section titled, “The Manufacturing Renaissance that Isn’t, he disputes the predictions of the Boston Consulting Group’s 2011 report, “Made in America, Again: Why Manufacturing Will Return to the U.S.” This report contends that American manufacturing would experience a renaissance because of rising costs in China and other parts of Asia so there would be a convergence in the total costs of manufacturing by some regions of the U. S. by 2015.

If U. S. manufacturers are still losing market share to foreign competitors through import penetration in their home market, this is a sign that “the United States has not even started to become “increasingly attractive for the production of many goods sold to consumers in North America” as predicted by the Boston Consulting Group, much less experiencing a Manufacturing Renaissance.

What is even more troubling to Mr. Tonelson is that the USBIC report focuses on the capital-and technology-intensive sectors that are “keys to maintaining national prosperity, technological leadership, and national security.”  The report shows that “dozens of America’s most advanced manufacturing industries are becoming just as vulnerable to import competition – and in some cases to import domination – as labor-intensive industries like clothing and toys.”

He concludes that the conventional stimulus strategies have had the disappointing results of “less growth and employment bang per investment-target stimulus buck with each passing year” because “U. S. imports of capital goods as such generates much less American output supported by much less American employment than purchases of domestically produced capital goods.”

In his opinion, President’s Obama’s goal of doubling exports during the 2009-2014 period isn’t going to improve the situation either when imports keep rising faster than exports. While there was a 15.45 percent improvement from 2010 to 2011, the January-October 2012 period only showed a 4.56 percent improvement.

Mr. Tonelson points out that negotiating new trade agreements isn’t producing the desired effect of increasing exports. The latest agreement negotiated with Korea has had the opposite effect  ? U. S. exports to Korea dropped by more than 18 percent while imports from Korea are up 4.74 from when it came into force in March 2012.

He concludes that the continued rise of import penetration in the U. S. indicates that American industry is losing ground relative to foreign-based competitors and “the nation is not making enough of the structural changes needed to create healthy growth and avoid reflating the last decade’s credit bubble.”

In an interview by Richard McCormack in the January 15, 2013 issue of Manufacturing & Technology News, Mr. Tonelson, stated, “I think the only way that these trends reverse meaningfully is if American trade policy changes. Unless we reduce the incentives of U.S. companies and companies all over the world to supply the U.S. market from overseas, this tide will not turn.”

While reducing the incentives of U. S. companies and foreign companies to supply the U. S. market from overseas is an important step in turning the tide, it would be the first of many steps we need to take. As I have written previously, we need to change our trade, tax, and regulations policies to help U. S. manufacturers be more competitive in both their home market and the global marketplace. We need to develop a national manufacturing strategy that would address all of the various factors that are resulting in the decline in the decline in the United States’ share of the global manufacturing output.

I did take exception to Mr. Tonelson’s dispute of the predictions of the Boston Consulting Group’s report and told him that the data is lagging reality ? “reshoring” is happening. As a manufacturers’ sales rep for American companies that perform fabrication services, I am in the “trenches” competing with offshore companies. Nearly every manufacturer I represent has experienced gaining new customers that are “reshoring” manufacturing from China. I have interviewed dozens of companies at trade shows over the past year and a half, and every company I interviewed had experienced “reshoring.” Nearly all of the San Diego region’s contract manufacturers of electronic manufacturing services have benefitted from “reshoring” in the past year.

The Reshoring Initiative, founded by Harry Moser in 2010, has documented case studies of companies reshoring. In the article, “Pumping Muscle into U.S. Manufacturing,” by Craig Barner in the March 6, 2013 issue of Forbes magazine, Mr. Moser said, “For example, about 220 to 250 organizations have brought manufacturing back to the U.S….with the heaviest migration from China. This represents about 50,000 jobs, which is 10% of job growth in manufacturing since January 2010, he said.”

“The top reshoring industries include electrical equipment, appliances and components; transportation equipment; and machinery, Moser said. Key reasons for returning to the U.S. include rising wages offshore, better quality of goods produced in the U.S., easier access to repairs and lower delivery costs, he said.”

On March 4, 2013, Prime Advantage, the leading buying consortium for midsized manufacturers, announced the findings of its eleventh semi-annual Group Outlook Survey. “A large majority — more than 70% of respondents — have increased their material and service purchases from American suppliers and service providers. Mexico is the second choice for sourcing, with nearly 28% of respondents moving sourcing to that region. The most frequently cited benefits that manufacturers hope to see in nearshoring are shorter lead times, as indicated by 67% of respondents, and lower inventories (49%). Among other benefits, companies cited better supply chain control (40%) and better overall communication (39%).”

If more American manufacturers would utilize the free Total Cost of Ownership Estimator™ developed by Harry Moser, more companies would understand the benefits of “reshoring” and foster a true renaissance in American manufacturing.

 

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Posted in Economy, Manufacturing, Outsourcing, Reshoring, Trade Policy | 2 Comments »

The Trans-Pacific Partnership Would Destroy our National Sovereignty

Tuesday, February 26th, 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Could California Manufacturing Thrive Again?

Wednesday, February 20th, 2013

On February 14, about 135 business, civic, academic, and labor leaders met at the conference facilities of AMN Healthcare for the “Manufacturing in California – Making California Thrive” economic summit. Comments to welcome attendees were made in turn by San Diego City Councilman Mark Kersey, Assembly member Marie Waldron, Dale Bankhead from Assembly member Toni Atkins office, and Senator Mark Wyland.

Then, Michael Stumo, president of the Coalition for a Prosperous America, provided an overview of the schedule for the day that included an overview of manufacturing in California, a panel of local manufacturers, a panel of national presenters, and breakout sessions after lunch.

I provided the overview of California manufacturing in which I briefly discussed the history of manufacturing in California that I wrote about in a previous blog and pointed out that even though California is perceived as bad for manufacturing, it is the 8th largest market in world and ranks first in manufacturing for both jobs and output. Manufacturing in California accounts for 11.7% of Gross State Product and 9% of workforce. California leads the nation in monies spent on R&D, and California companies received over 50% of all Venture Capital dollars invested in the U. S. in 2011. California high-tech exports also ranked first nationwide, totaling $48 billion in 2011.

The major manufacturing industries are shown by the following chart:

Besides the great weather, California also has world-famous research institutions and research universities, a skilled, educated workforce, a large pool of inventors/entrepreneurs, and strong networks of “angel” investors and venture capitalists. California inventors and entrepreneurs are supported by more than 20 business incubators throughout the state, including two incubator facilities in San Diego – EvoNexus and the San Diego Technology Incubator, as well as the incubator-without-walls, CONNECT’s Springboard program.

In addition, California has 40 Enterprise Zones throughout the state, two of which are in San Diego’s south county. Enterprise Zone companies are eligible for substantial tax credits:

  • Hiring Credits – Firms can earn $37,440 or more in state tax credits for each qualified employee hired
  • Up to 100% Net Operating Loss (NOL) carry-forward for up to 15 years under most circumstances.
  • Sales tax credits on purchases of up to $20 million per year of qualified machinery and machinery parts;
  • Up-front expensing of certain depreciable property
  • Unused tax credits can be applied to future tax years
  • Enterprise Zone companies can earn preference points on state contracts.

There are also 17 Foreign Trade Zones (FTZs) in California that are sites in or near a U.S. Customs port of entry where foreign and domestic goods are considered to be in international trade. Goods can be brought into zone without formal Customs entry or without incurring Customs duties/excise taxes until they are imported into the U. S. FTZs are intended to promote U.S. participation in trade and commerce by eliminating or reducing the unintended costs associated with U.S. trade laws

Of course, no overview would be complete without mentioning the disadvantages of manufacturing in California. In the Small Business Entrepreneur Council Survival Index of 2011, California ranks 46th for its business climate because of the following:

  • Highest personal income & capital gains taxes
  • Highest corporate income & capital gains taxes
  • Highest gas and diesel taxes
  • High state minimum wage
  • High electric utility costs
  • High workers’ compensation costs
  • More stringent Cal OSHA & Cal EPA regulations
  • Stringent Air Quality Monitoring District rules
  • Large number of health insurance mandates

As a result, California has lost over 500,000 manufacturing jobs since the year 2001 as shown by the chart below.

No state, county, or city agency keeps track of the number of manufacturing companies leaving California, but there are frequent anecdotal stories in the news. Of course, everyone had seen or heard one of the ads by Texas Governor Rick Perry to woo California companies to relocate to Texas, as well as the fact that he was in California that very week to meet with some California companies.

I then moderated a panel of the following local manufacturers, who gave their viewpoints of the challenges of doing business in California:

  • Karl Friedrich Haarburger – VP, Solar Energy Industrial Operations, SOITEC
  • Neal Nordstrom – COO, PureForge
  • Rick Urban – COO, Quality Controlled Manufacturing, Inc.
  • Paul Brown – CFO, The Wheat Group
  • Craig Anderson – EHS Director, Solar Turbines, Inc.

Their comments provided examples of most of the above-cited disadvantages of doing business in California with particular emphasis on the problems of raising taxes retroactively in the last election by the passage of Proposition 30. Neal Nordstrom said, “It isn’t just the increase in income taxes and sales taxes, it’s the cumulative effect of all of the taxes and the uncertainty of what is happening next.” Businesses need to be able to have some certainty in their planning, so passing retroactive taxes makes planning for the future difficult and hurts their profitability greatly.

Mr. Anderson commented that there biggest problem was caused by the passage of AB 32. He stated, “The technology to comply with AB 32 does not currently exist, so there is great uncertainty as to whether Solar Turbines will be able to comply with the law by the deadline for compliance.”

Greg Autry, School of Business and Economics, Chapman University, led off the national panel with the topic of Trade Policy. The U. S. had a trade deficit $559.8 billion in 2011, of which over half ($295.4 billion) was with China. Every trade agreement signed in the past 20 years has resulted in an increase trade deficit with our trading partners. The U. S. already has an increased trade deficit with Korea and Columbia from the recently signed trade agreements. He said, “States need to stop trying to “poach” companies from other states and work together against our common adversary, China. States cannot compete against another country where the government is subsidizing manufacturing companies to take control of markets.” Mr. Autry showed a video he had taped during a visit to China in which an employee of Foxconn stated that the Chinese government had provided the land and built the facility where the iPads and iPhone are being manufactured without cost to Foxconn, as well as covering all of the expenses for running the facility for three years. He also showed a video interview with an executive of CODA Automotive Inc. that has opened its HQ in Los Angeles and claims to be making their electric car in the U. S. when, in fact, they are importing the “glider” (a car without the drive train) from China. Miles Automotive partnered with China-based Hafei Saibao Electric Motor Car and Qingyuan Electric Vehicle Co. to establish Coda Automotive as an affiliate company. Mr. Autry opined that federal tax rebates should not be going to purchase an electric car for essentially a Chinese import to the detriment of American car manufacturers like General Motors.

Pat Choate – Economist; Author, Saving Capitalism: Keeping America Strong, covered the importance of the protection of Intellectual Property to the future of American manufacturing. He said that the U. S. is the most innovative country in the world and issues more patents than any other country. However, the recent passage of the America Invents Act converting the U. S. from a “first-to-invent” to “first-to-file” is hurting our innovation. Most growth comes from “disruptive” technology developed by inventors/entrepreneurs of small companies, and the “first-to-file favors large companies that can file a challenge against these small companies in the hopes of bankrupting them to avoid disruptive technology from harming their business. The length of time for the Patent Office to issue a patent has increased from an average of 18 months to 36 months, which is hurting startup companies. The share of patents granted to U. S. residents and small entities has dropped several percentage points since 2007.1988.  He concluded by saying that the constitutionality of the America Invents Act is being challenged, and he hopes that it will be deemed unconstitutional.

Michael Stumo – CEO, Coalition for a Prosperous America, described the math about how a consumption tax could reduce the domestic tax burden, include imports in our tax base, and narrow the trade deficit, increase U.S. production, and fund reductions in the income tax while maintaining progressivity. He explained that our national Gross Domestic Product (GDP) equals of Consumption plus Investment plus Government Procurement plus Net Exports (Total exports minus Total Imports). Every one of our trading partners (150 countries) has a form of consumption tax, including value added taxes (VATs), with an average 17% level. These countries rebate these taxes on their exports, while the U. S. does not add a tax on its imports. The taxes are “border adjustable” because they act as a tariff on our goods sent to them and charged the VAT. This has created our more than $500 billion trade deficit with our trading partners, $298 billion with China alone. CPA advocates changes in U. S. trade policy to address this unfairness which tremendously distorts trade flows.

Thea Lee – Deputy Chief of Staff, President’s Office at AFL-CIO spoke passionately on the need to have a national manufacturing strategy that will create good paying jobs for American workers. Key points that she made were: We need to have a longer-term goal of what kind of country we want to be and how to achieve it. It will require some strategic investment in infrastructure. We need to figure out what kind of trade we want and what other countries are doing. Having an ideological position that free trade is good when other countries are pursuing mercantilism is harmful. We need to be responsive to what other countries are doing. We need to have a competitive trade policy. The ultimate goal is not to have more free trade but more prosperity at home. We need to get back into a job creation policy. We haven’t done trade policy very well, and we need to rethink our trade policies. We don’t need more dopey free trade agreements (taken from notes but not verbatim quotes.)

After lunch, the attendees were split into three groups for the breakout session, in which five issues were discussed and voted against each other, one pair at a time, to determine the top two issues. The five issues were:

  • Trade Reform
  • Tax Reform
  • Intellectual Property
  • Regulatory Reform
  • Manufacturing Strategy

After voting, the groups reconvened to share the outcome of their voting. The top two issues voted as most critical to be addressed were:  Regulatory Reform and Manufacturing Strategy. Regulatory Reform was chosen as the top issue by all three groups because they felt manufacturers needed to have their immediate “pain” alleviated before other issues could be considered. A manufacturing strategy was deemed the second most important issue because if you have a strategy that supports manufacturing, it will encompass intellectual property protection and trade reform. Attendees were invited to sign up to participate in a Task Force to be formed. I will be chairing the Task Force, so please contact me at michele@savingusmanufacturing.com if you would like to participate.

If our elected representatives will work with business, civic, academic, and labor leaders, I believe we can make manufacturing in California thrive again and once more be the “Golden State” of opportunity.

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Congress Hasn’t Averted the Real Fiscal Cliff

Tuesday, January 15th, 2013

The “kick the can” legislation that passed in the wee hours of January 1st didn’t address the real economic issues threatening a fiscal cliff for the United States ? the massive trade deficit and the rapidly escalating national debt. This article will show how these two economic issues are interrelated.

The trade deficit grew from a low of $91 million in 1969 to a peak of $698.3 billion in 2008, dropping down to$379 billion in 2009 due to the worldwide recession before climbing back up to $559.8 billion in 2011. Final figures for 2012 are not available yet, but the trade deficit through the first 11 months of 2012 is running at an annual rate of $546.6 billion.

Our trade deficit with China grew from only $6 million in 1985 to a high of $295.4 billion in 2011, after it had dropped down to $226.8 billion in 2009 during the recession. China’s portion of America’s trade deficit has nearly tripled ? from 22 percent in 2000 to 60 percent in 2009 and 52.7 percent in 2011. In the 11 years since China joined the WTO, the U.S. trade deficit with China has grown by 330 percent.

The national debt has grown from $5.6 trillion in 2000 to $16.4 trillion on January 12th. As of July 2012, $5.3 trillion or approximately 48% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at just over $1.1 trillion each.

“The estimated population of the United States is 314,243,893 so each citizen’s share of this debt is $52,304.77. The National Debt has continued to increase an average of $3.84 billion per day since September 28, 2007!”

As you can see, the debt accelerated after the economic collapse in the fall of 2008 and has continued to accelerate since because of the recession, automatic increases in unemployment benefits, food stamps, and social security payments for early retirement, as well as stimulus spending. The all-time record of increasing the debt by $1.1 trillion was set by President Bush in 100 days between July 30 and Nov 9, 2008 to avert the economic collapse of major banks and Wall Street companies. “Recessions cut tax revenues—in this case, dramatically, which accounts for nearly half of the deficit.”

According to Tom Donohue, head of the U.S. Chamber of Commerce, the nation’s largest business lobbying group, “The single biggest threat to our economic future … is our exploding national debt, driven by runaway deficit spending, changing demographics and unsustainable entitlements,” he said in his annual “State of American Business” address.

The reason why our massive trade deficit and escalating national debt are interrelated is that they share a common factor:  the American manufacturing industry and the jobs it generates or the jobs it has lost.

According to the Information Technology and Innovation Foundation report, the U. S lost 5.7 million manufacturing jobs in the decade of 2000 to 2010, more than the total number of manufacturing jobs than the rate of loss in the Great Depression (33.1 % vs. 30.9%). Manufacturing jobs now only make up 9% of the American workforce, down from about 14% in 2000. Two million manufacturing jobs were lost in the Great Recession, adding to the 3.7 million we had already lost. Less than 10% have returned since the end of the recession. The report concludes:

  • A large share of manufacturing jobs was lost in the last decade because the United States lost its competitive edge for manufacturing. It was due to a failure of U.S. policy, not superior productivity.
  • The loss was cataclysmic and unprecedented, and it continues to severely impact the overall U.S. economy.
  • Regaining U.S. manufacturing competitiveness to the point where America has balanced its trade in manufacturing products is critical to restoring U.S. economic vibrancy.
  • Regaining manufacturing competitiveness will create millions of higher-than-average-wage manufacturing jobs, as well as an even greater number of jobs from the multiplier effect on other sectors of the economy.
  • The United States can restore manufacturing competitiveness and balance manufacturing goods trade within less than a decade if it adopts the right set of policies in what can be termed the “four T’s” (tax, trade, talent, and technology).

The Economic Policy Institute briefing paper, “The China Toll,” written by Robert Scott focuses on the effects of our trade deficit with China. He wrote, “Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state.”

“Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9 percent) were in manufacturing. These lost manufacturing jobs account for more than half of all U.S. manufacturing jobs lost or displaced between 2001 and 2011.”

The growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. When you take into account the multiplier effect of manufacturing jobs creating three to four other jobs, the U. S. has lost six to eight million jobs as a result of the trade deficit with China alone. The Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs, so the $559.8 billion in the total trade deficit for 2011 represents a loss of 7,277,400 jobs. This explains why we have had a virtually jobless recovery since the end of the recession and why the unemployment rate has stayed high for so long.

The average manufacturing job nationwide pays about $40,000 per year ($20/hour). According to the 2012 federal tax table, a person making that amount of money would pay about $4,000 to $5,000 per year in taxes, depending on whether they are single or have one dependent. Without doing the complicated math to calculate the number of lost manufacturing jobs each year times the taxes those workers would have paid, you can see that the result could be trillions of dollars in lost tax revenue since the year 2000.

Adding this lost tax revenue to the cost of an unemployed worker in the form of unemployment benefits (about $15,000 year for a $40,000/year job) and possibly food stamps, you can understand the major cause of why our national debt has escalated so dramatically in the last ten years. We could raise income taxes to the highest rates of European countries such as Sweden (75%) and still not be able to pay down our national debt. The solution is not raising taxes, it is creating more tax payers, especially those employed in the higher paying jobs of the manufacturing industry. Our trade policies that result in such huge trade deficits and loss of manufacturing jobs have transformed taxpayers into tax consumers.

Because of our trade deficit with China and our national debt, we are essentially writing two checks to China every month:  one to pay for the cost of the imports we buy and the other to pay for the cost of borrowing money from China to pay for the cost of running our government.  By maintaining this trade deficit, we are sending our tax revenue to China; then, we borrow a portion of it back to pay our expenses. This is unsustainable!

We are at a cross roads in our country. We must change our tax, trade, and regulatory policies to rebuild our manufacturing industry to increase the number of taxpayers if we ever want to pay down our national debt, reduce our unemployment rates, and avoid economic collapse.

 

 

 

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Chinese Innovation Mercantilism is Hurting American Manufacturers

Tuesday, December 11th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Posted in Economy, Innovation, Manufacturing, National security, Outsourcing, Trade | 2 Comments »

“Lame Duck” Congress Must Act to Prevent Sequestration

Tuesday, November 6th, 2012

The clock is ticking ? only 55 more days until sequestration takes effect on January 2, 2013. For the uninformed, sequestration is the across the board 10 percent cut in discretionary spending in the budget, including the Department of Defense budget, that is mandated by the Budget Control Act of 2011. The mandatory entitlement spending of the federal budget, Social Security, Medicare, Medicaid, will continue to grow, along with the interest on the national debt.

If Congress is unable to reach a compromise on how to reduce our 16 trillion dollar national debt, over $500 billion dollars in cuts to the defense budget over the next decade would be mandated to start January 2nd, translating into a cut of about $55-60 billion for 2013.

Our government took drastic action to prevent the bankruptcy of General Motors, but the effect of sequestration would be like both General Motors and Ford going bankrupt. It would not only affect all of the major defense prime contractors, but would affect their subcontractors, and in turn, their vendors, all the way down to the bottom of the defense and military supply chain. The lower tiers of the supply chain are nearly all small businesses, many of them disadvantaged businesses in the minority, veteran, or women-owned categories.

After three and a half years of a weak recovery, the last thing we need is a drastic cut in defense and military spending. In many regions of the country, defense and military spending has been the major factor in helping a region to recover. My hometown of San Diego is one of these regions that would be impacted severely.

According to the San Diego Military Advisory Council (SDMAC) 2012 Economic Impact Study, “a total of $20.6 billion of direct spending related to defense was estimated to flow into San Diego County during fiscal year 2012,” and “the military sector is responsible for 311,000 of the region’s total jobs in 2012 after accounting for all of the ripple effects of defense spending. This represents one out of every four jobs in San Diego.”

“Defense?related activities and spending were predicted to generate $32 billion of gross regional product (GRP) for San Diego County in fiscal year 2012,” more than the total economic output estimated for Colorado Springs, Colorado, or El Paso, Texas.

The report states that “dollars linked to national security enter San Diego through three primary channels: wages and benefits for active duty and civilian workers; benefits for retirees and veterans; and direct spending on contracts, grants, and small purchases” by the military and other Department of Defense (DoD) agencies. San Diego will not be immune to planned cutbacks in troop levels and spending by the DoD. The Marine Corps is expected to see its size gradually reduced over the next five years primarily through attrition and a reduction in recruiting, but the number of Navy personnel based in San Diego is projected to increase in fiscal year 2013 with the return of a second aircraft carrier, the USS Ronald Reagan, and the potential addition of a third aircraft carrier.

In the San Diego region, the manufacturing industry is the largest business sector that provides goods and services to the military. One-third of all companies reported some dependency on the defense industry. Over 1,700 companies of the San Diego companies profiled on the Connectory.com database of primary industries reported that military and government contracts make up a portion of their market share, so “an orchestrated approach to future defense downsizing and its impact on the manufacturing sector is needed.”

Larry Blumberg, SDMAC Executive Director, states, sequestration is “a mindless way of doing business.” The 2013 Defense budget “submitted to Congress on February of this year was designed to provide the resources to support the National Defense Strategy which was released in January 2013. Across the Board cuts to the Defense Budget make the Strategy “Un-Executable”, which is not in our National best interests.”

Nearly all of the major defense prime contractors ? BAE Systems, Boeing, General Dynamics, General Atomics, Lockheed-Martin, Northrop Grumman, and United Technologies ? have a presence in the San Diego region.

According to an editorial by the president of the National Defense Industry Association, Lawrence Farrell Jr., about “$22 billion of the sequester cut of $54 billion for fiscal year 2013 will come from operations and maintenance accounts. About $21 billion of the reductions will be from investments in new weapons systems and technology.” He also wrote, “With or without sequester, the near term reality for defense is military forces will be smaller, and weapons a bit older unless planned acquisition catches up with aging systems. Every branch of the military needs to modernize their aging fleets.”

On Aug. 6, 2012, Defense Secretary Leon E. Panetta said, “I’ve made clear, and I’ll continue to do so, that if sequestration is allowed to go into effect, it’ll be a disaster for national defense and it would be a disaster, frankly, for defense communities as well…Panetta called sequestration “an indiscriminate formula” that was never meant to take effect. “ It was never designed to be implemented,” he said. “It was designed to trigger such untold damage that it would force people to do the right thing. He urged the defense community leaders to do what they can to ensure Congress reaches a solution that avoids sequestration.”

On September 21, 2012, Sen. John McCain, ranking Republican on the Armed Services Committee and committee Chairman Carl Levin and four other Republican and Democratic senators sent a letter to Senate Majority Leader Harry Reid (D., Nev.) and Senate Republican Leader Mitch McConnell (R., Ky.) urging their party leaders to find a way to avert the spending cuts slated to begin Jan. 2, 2013 to “send a strong signal of our bipartisan determination to avoid or delay sequestration and the resulting major damage to our national security, vital domestic priorities and our economy.’’

In an August 2012 article titled “A Smarter Way to Trim the Pentagon Budget” Charles Knight, co-director of the Project on Defense Alternatives, stated, “There are numerous ways to save defense dollars that avoid both institutional disruption and most of the economic pain associated with deep cuts to government spending. An illustrative option is the “Reasonable Defense” plan, which will soon be released in its entirety by the Project on Defense Alternatives.” The Project on Defense Alternatives is a think tank which promotes consideration of a broad range of defense options and advocates resetting America’s defense posture along more sustainable, cost-effective lines.

The plan would decrease the 2013 defense budget by only $30 billion vs. $55 billion, comparable to the 2006 defense budget adjusted for inflation, and the reduction over a 10 year period would be more gradual than the Budget Control Act cap on defense spending. Key points of the plan are:

  • The Reasonable Defense budget for ten years would cost $560 billion less than the 2013 plan submitted by the White House.
  • Over the course of ten years the White House plan is to provide the Pentagon with $5.76 trillion.
  • The Reasonable Defense budget would provide the Pentagon with $5.2 trillion over tenyears.
  • The Budget Control Act would cap defense at about $5.18 trillion.

While this plan mitigates the pain of cutting the defense budget over the next ten years, even sequestration will not solve the overall budget deficit problem. “Defense {spending} today is around 3 percent of GDP, the lowest since 2001, and comprises about 18.5 percent of federal spending, which is on par with the 20-year average.” Our deficit has been more than $1 trillion per year for the past four years, and sequestration would only cut $1.2 trillion over ten years. Yet, defense spending cuts would comprise more than 50 percent of the cuts.

The best way to solve the deficit problem is to bring manufacturing back from offshore to create higher-paying jobs for more Americans. It’s simple:  Americans with good-paying manufacturing jobs pay taxes and generate tax revenue for the government, while Americans without jobs cost the government money in the form of unemployment benefits, Medicaid, and food stamps. If we could bring back half of the 5.5 million jobs we have lost, we could reduce the federal budget deficit significantly, as well as reduce state and local budget deficits. Harry Moser of the Reshoring Initiative states that the top reasons to reshore are:

  • Brings jobs back to the U.S.
  • Helps balance U.S., state and local budgets
  • Motivates recruits to enter the skilled manufacturing workforce
  • Strengthens the defense industrial base

Regardless of the outcome of the election, the members of the “lame duck” Congress must act like statesmen instead of the intensely partisan politicians of the past several years to prevent sequestration. Call your U. S. Senator and Congressional representative to urge them to approve a budget that will prevent sequestration. Otherwise, one of  the companies that close or the jobs lost may be your own.

 

 

 

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Posted in Economy, Manufacturing, National security, Reshoring | No Comments »

How do Obama and Romney Stand on Issues Affecting Manufacturing?

Tuesday, October 23rd, 2012

Both President Obama and Governor Romney have put the manufacturing industry as the cornerstone of their plans to strengthen the U.S. economy and revitalize business activity. How would their differing plans affect manufacturers, and which would provide the most benefits to the manufacturing industry?

Government has the most impact on the manufacturing industry with regard to its tax, regulation, energy, and trade policies, but budget priorities of an administration also have a powerful effect for the good or the bad. We will use these policies and priorities to compare the plans of President Obama and Governor Mitt Romney. Governor Romney’s plan is extracted from his “Believe in America – Mitt Romney’s Plan for Jobs and Economic Growth” available on his website. President Obama’s plan is derived from his record and his “Blueprint for an America Built to Last,” released by the White House on January 24, 2012.

Taxes:  The more taxes a business pays, the less money a business has to grow the company, buy equipment, conduct R&D, expand into new markets, and hire more workers.

President Obama’s plans include:

  • Reduce overall corporate rate to 28 percent with an even deeper cut to an effective tax rate of 25 percent for corporations manufacturing in the U. S.
  • End tax breaks for outsourcing and provide a 20 percent tax credit for expenses of moving manufacturing operations back to America
  • Expand, simplify, and make permanent the R&D tax credit
  • Extend the 30 percent-Advanced Energy Manufacturing Tax Credit for clean energy manufacturing projects
  • Introduce a new Manufacturing Communities Tax Credit to encourage investments in communities affected by job loss
  • Reauthorize 100% expensing of investment in plants and equipment

Governor Romney’s proposal includes:

  • Reduce the overall corporate tax rate to 25 percent
  • Make permanent the R&D tax credit
  • Reduce the top individual tax rate from 35 percent to 28 percent since most small businesses pay taxes at the individual level, not corporate taxes
  • Eliminate the Death Tax
  • Pursue a Fairer, Flatter, Simpler Tax Structure

Taxes on corporations and individuals will increase January 1, 2013 when the current tax rates that have been in effect for 11 years expire (referred to as the Bush tax cuts) and return to the higher rates in effect under President Clinton. There are additional taxes that will go into effect at the same time as a result of the Patient Protection and Affordable Care Act, commonly called Obamacare.

As Governor of Massachusetts from 2003-2007, Mitt Romney closed a $1.3 billion state budget deficit in 2004 without raising taxes by using a combination of funding cuts, fee increases, collection of more business taxes from eliminating tax loopholes, and drawing from the state’s “rainy day fund.”

Regulations:  Regulations function as a hidden tax on manufacturers. A multitude of rules, restrictions, mandates, and directives impose stealth expenses on businesses and acts like a brake on the economy at large. The federal Office of Management and Budget own study places the annual cost of regulation on the economy at $1.75 trillion, which is nearly double the total of all individual and corporate income taxes.

President Obama’s record:

  • The Federal Register’s compendium of new rules and regulations hit a record in 2010 of 81,405 pages with a projected annual cost of compliance of $26 billion.
  • In one month alone, July 2011, the Obama administration issued 229 proposed rules, 379 final rules, and 10 economically significant rules—totaling more than $9 billion in regulatory costs.
  • The over 2,000-page Dodd-Frank Act mandates 259 rules and suggests another 188.
  • The Patient Protection and Affordable Care Act (PPACA) may generate up to 10,000 pages of regulations to implement.
  • The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 produced federal restrictions on credit card companies that have led to higher interest rates, higher annual fees, and lower credit limits.

Governor Romney’s proposal:

  • Issue an executive order paving the way for Obamacare waivers for all 50 states and work with Congress to accomplish full repeal
  • Seek to repeal Dodd-Frank and replace it with a streamlined regulatory framework
  • Eliminate the regulations promulgated in pursuit of the Obama administration’s costly and ineffective anti-carbon agenda
  • Press Congress to reform our environmental laws and to ensure that they allow for a proper assessment of their costs
  • Order all federal agencies to initiate repeal of any regulations issued by the Obama administration that unduly burden the economy or job creation
  • Impose a regulatory cap that forces agencies to recognize and limit these costs
  • Restore a greater degree of congressional control over the agency rulemaking process

Trade: The U. S. had an overall trade deficit of $558 billion in 2011, but our deficit with China was $295.5 billion, and the combined deficit with Canada and Mexico rose to a combined $185 billion of the total. In fact, we have a trade deficit with 66 countries. Both President Obama and Governor Romney support current trade agreements and propose additional agreements.

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

But as president, he pushed hard for passage of the trade agreements with Korea, Colombia and Panama, which were passed and signed in October 2011, all drafted on the NAFTA template. He has instructed his team at the U.S. Trade Representative’s office to spearhead the proposed Trans-Pacific Partnership, a trade agreement involving nine Pacific region nations, including Vietnam and Brunei, two undemocratic countries with serious and well-documented human and labor rights problems.

Unlike his predecessors, he has imposed tariffs on imported Chinese products that have been determined to be “dumping, such as the 2009 tariff on imported Chinese tires, and the recent Commerce Department final determination of anti-dumping duties from just over 31 percent up to 250 percent on photovoltaic solar cells, and anti-subsidy duties of up to more than 15 percent were also recommended.

His Blueprint states that he will:

  • Create a new trade enforcement unit that will bring together resources and investigators from across the Federal Government to go after unfair trade practices in countries around the world, including China
  • Enhance trade inspections to stop counterfeit, pirated, or unsafe goods before they enter the United States
  • Put American companies on an even footing by providing financing to put our companies on an even footing.

Governor Romney – As a candidate, he supported the free trade agreements with Korea, Colombia and Panama and also calls for passage of the Trans-Pacific Partnership, in addition to new FTAs with nations such as Brazil and India.

Romney would pursue the “formation of a ‘Reagan Economic Zone.’ This zone would codify the principles of free trade at the international level and place the issues now hindering trade in services and intellectual property, crucial to American prosperity and that of other developed nations, at the center of the discussion.”

Romney proposes to get tough with China in the following ways:

  • Impose “targeted tariffs” or economic sanctions for unfair trade practices or misappropriated American technology
  • Designate China as a currency manipulator and instruct the Commerce Department to impose countervailing duties
  • Improve enforcement at the border by allocating the necessary resources to investigate the actual point of origin for suspect products arriving on our shores
  • Impose harsher penalties on those who would circumvent our laws

Energy:  The manufacturing industry both produces and uses energy; therefore, government policies affecting energy have a major impact on the growth, development, and financial position of manufacturers. Energy policy is critical to our country’s economic future, and we have the natural resources we need to be more energy independent.

President Obama’s plan:

  • Promote safe, responsible development of the near 100-year supply of natural gas, supporting more than 600,000 jobs while ensuring public health and safety
  • Incentivize manufacturers to make energy upgrades, saving $100 billion over the next decade
  • Create clean energy jobs in the United States

President Obama’s Track Record:

  • Imposed a moratorium in 2010 on underwater drilling that eliminated more than 10,000 jobs and cost $1 billion in lost wages.
  • Delayed the construction of the Keystone XL Pipeline, which would bring enormous supplies of Canadian tar sands oil from Alberta to the U. S and create an estimated 25,000 to 100,000 American jobs.
  • Proposed a cap-and-trade system that was a complex plan for allowing industries to trade the right to emit greenhouses gases, which failed to pass Congress.
  • Under Obama, the EPA has issued a 946-page “hazardous air pollutants” rule mandating “maximum achievable control technology” under the Clean Air Act, which could put 250,000 jobs in jeopardy.
  • New regulations for industrial boilers—the so-called “Boiler MACT”—may put another 800,000 jobs at risk.

Governor Romney’s proposed energy policy focuses on significant regulatory reform, support for increased production, and funding basic research instead of specific technologies, including the following:

  • Streamline and fast-track the permitting process for exploration and development of oil and gas
  • Consolidate procedures for issuing permits so that businesses have a one-stop shop for approval of common activities
  • Overhaul outdated legislation such as the Clean Air Act, Clean Water Act, and other environmental laws
  • Reform the regulatory structure of the nuclear industry
  • Inventory our nation’s carbon-based energy resources
  • Explore and develop our oil reserves wherever it can be done safely, taking into account local concerns, including the Gulf of Mexico, both the Atlantic and Pacific Outer Continental Shelves, Western lands, the Arctic National Wildlife Refuge, off the Alaska coast, and the more recently discovered shale oil deposits
  • Partner with  our neighbors Canada and Mexico to develop their oil reserves
  • Pave the way for the construction of additional pipelines that can accommodate the expected growth in Canadian supply of oil and natural gas
  • Extract natural gas by means of “fracking” (hydraulic fracturing, coupled for these purposes with horizontal drilling)
  • Redirect government funding of clean energy spending towards basic research and development of new energy technologies and on initial demonstration projects that establish the feasibility of discoveries

Manufacturing has been a key driver of what limited economic recovery we have had since 2009 and will play a major role in U.S. economic success in the future if it gets the right support. On the surface, Obama and Romney seem to have roughly the same economic goals – stimulate job creation, boost American competitiveness in the global market and drive down the deficit, but as we have seen, their plans for reaching these objectives differ greatly. I urge everyone to carefully compare their plans and what they have said and done before choosing for whom to vote. Don’t waste the precious freedom to vote that our ancestors risked or gave their lives to gain.

 

 

Posted in Economy, Energy, Manufacturing, Taxes/Regulations, Trade Policy | No Comments »

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