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How Multinational Corporations Undermine American Prosperity

Tuesday, April 18th, 2023

Long-time American manufacturing advocate, Michael Collins, added to his extensive body of work with a 4th book, Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity  Michael had a 35-year career in manufacturing before retiring and uses hhis experience to write a book he describes as “a concise story that tells what America’s multinationals did to the U.S. economy and how they did it.”

Michael told me that one of his purposes in writing the book was to take advantage of a commitment letter signed by 181 CEOs on August 19, 2019 “to lead their companies not just for the benefit of their investors, but for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.” He wanted to “provide the managers of the 181 corporations a good summary of the problems and obstacles they will need to address and overcome if they are going to make good on their commitments.”

In his book, Michael reveals that multinational corporations (MNCs) began to follow Milton Friedman’s doctrine — an entity’s greatest responsibility lies in the satisfaction of the shareholders.” He wrote, “In the 1980s, the Business Roundtable translated this into shareholder value or ‘the point of a business enterprise is to generate economic returns to its owners, period.’” This resulted in “favoring shareholders over all stake holders and short-term profits over society and country.”

His book shows “how the economy has been restructured to fit the needs of the MNCs and their investors, resulting in huge gains in wealth for the few [and] rising inequality while tens of millions of Americans find themselves unable to attain the standard of living of previous generations.”

He writes that outsourcing “began as early as the 1970s, but accelerated in the 1990s after the U.S. negotiated the North American Free Trade Agreement (NAFTA) and the Central American Free Trade Agreement (CAFTA).” He writes, Outsourcing by American corporations has caused permanent damage to American workers, manufactur9ng, supplier companies and the living standards of many families. It may lead to short-term profits for the corporations, but eventually, the corporations will lose the technology and the market to foreign corporations.” He opines that “Over the last 40 years, the MNCs commitment to short-term profits, shareholder value, and outsourcing has resulted in the deindustrialization of America.”

All of this outsourcing caused a surge in inequality, and he quotes the Job Quality Index developed by the Coalition for Prosperous America, which shows that “In 1972, 27 percent of all private industry jobs were low-quality jobs. Today, low-quality jobs are 59 percent of all jobs.”

His brief coverage of “the Myth of Free Trade” corroborates many of the points I have made in blog articles I have written in the past 13 years. I particularly liked his comment, “the winnings of free trade have gone mostly to the investors —the MNCs and their shareholders. Free trade has been very hard on workers, manufacturers, suppliers, and industries…”

In his chapter “Innovation and the Loss of Technology, he lists several key American inventions patented between 1945 – 1982, such as microwave ovens, hard disk drives, laser, MRIs, GPS, mobile phones, personal computers, and comments that “most of the inventions listed above are no longer manufactured in America.” He points out that “China has already swallowed the low-tech products we used to make. What they want now is our advanced technology products and production processes that were developed in the United States. The technologies they are after are all listed in their Made in China 2025 plan.”

The data in his chapter “The Slow Erosion of American Manufacturing Industries is mind-blowing and frightening with regard to how many manufacturing sectors have declined, some to the point of no return.  His comment that “all former Presidents since Bill Clinton rely on their economic advisors and abandon manufacturing” rings true.

His analysis of Financialization, “defined as the ‘growing scale and profitability of the finance sector at the expense of the rest of the economy and the shrinking regulation of its rules and returns” provided a new perspective for me.  It was startling to learn that “today finance has 40 percent of the nations’ profits with 5 percent of the jobs.”  He writes that some of ways “Financialization has hurt the American economy” are:

  • Rising inequality
  • Stagnant wages
  • Falling productivity
  • The decline of GDP growth
  • The decline of innovation
  • Decline of capital investment

In the next chapter, he discusses the fact that reducing corporates taxes to keep multinationals producing here in the U.S. hasn’t worked because there are too many loopholes that corporations can use to avoid paying taxes, not to mention reincorporating in tax haven countries or shifting taxes to subsidiaries in lower tax countries.  As a result, reductions in corporate taxes have caused our national debt to escalate because multinational corporations have not paid their fair share of taxes.

The next two chapters focus on how MNCs have developed a more powerful influence on the economy and Congress; first, by buying influence in government with lobbying money, and second by forming monopolies and oligopolies.  His itemization of the lobbying money spent by the top 33 companies in lobbying Congress is staggering.  This explains why trade associations and even manufacturing-related unions like the AFL/CIO Industrial sector have so little influence on legislation.

I was familiar with monopolies, but had to look up information on oligopolies. Essentially, they are industries dominated by a few large companies. Michael writes, “In the last 20 years, oligopolies have been created by mergers and acquisitions (M&A) of MNCs.” He then describes modern day oligopolies:  airlines, banks, hospitals, meat packers, beer, smart phones, pharmaceutical companies, and railroads. He opines, “The agglomeration of market power also leads to political power where the oligopolies and monopolies create and control the rules of the economic game which leads to political inequality.”

In the subsequent chapters, Michael addresses the skilled worker shortages, mainly caused by a lack of workforce training by MNCs, especially apprenticeships, and the lack of high paying manufacturing jobs compared to service jobs as a result of outsourcing manufacturing to other countries. 

His chapter on “The Threat of China” is so thorough that no summary could do justice to his comprehensive coverage of this topic.  He writes, “The COVID-19 pandemic has dramatically exposed the vulnerability of U.S. supply chains.” He advises, “The first step is to recognize China as a competitor not a trading partner and do everything possible to stop this competitor form gain strategic and tactical advantages. He notes, “It is not an exaggeration to say we are in the beginning of a cold war with China and must defend ourselves as we did with the Soviet Union.”

 His next two chapters are devoted to solutions to address the decline in productivity and GDP growth, currency manipulation and the overvalued dollar.

His chapter on “Why we Must Save America’s Manufacturing Sector” echoes most of the points I made in my first book, Can American Manufacturing be Saved?  Why we should and How we Can, published in 2009.  Michael and I are definitely on the same page, and both of us have published hundreds of articles that expressed our opinions on the importance of manufacturing to our national economy. I concur with his statement, “More than any other business sector, the U.S. multinationals were responsible for the erosion of the industrial commons. They outsourced all kinds of technologies and products with reckless abandon and with no regard for the skills and knowledge that would make America competitive in the future.”  I have made the same point many times that Michael expressed when he wrote, “The American MNCs have become ‘stateless’ entities with little or no loyalties to the home country.”

The final chapter provides his recommended solutions for the key problems he has identified, which you need to read for yourself. He makes an appeal to the 181 CEOs to keep their pledge so they can contribute to saving and rebuilding American manufacturing in order to protect our national security that is at risk.

This book is a must-read for everyone who is concerned about the future of the manufacturing industry, especially with regard to our national security.  Every Senator and Congressional Representative needs to read this book.  I suggest you buy one book for yourself and one to give to your Representative.

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

EPI Report Claims U.S.-China Trade Deficit Cost 3.4 Million Jobs

Tuesday, February 14th, 2017

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

Scott explained that when China entered into the World Trade Organization (WTO) in 2001, “it was supposed to bring it into compliance with an enforceable, rules-based regime that would require China to open its markets to imports from the United States and other nations by reducing Chinese tariffs and addressing nontariff barriers to trade.”

However, Scott wrote, “China both subsidizes and dumps massive quantities of exports. Specifically it blocks imports, pirates software and technology from foreign producers, manipulates its currency, invests in massive amounts of excess production capacity in a range of basic industries, often through state owned enterprises (SOEs) (investments that lead to dumping), and operates as a refuse lot for carbon and other industrial pollutants. China has also engaged in extensive and sustained currency manipulation over the past two decades, resulting in persistent currency misalignments.”

As a result, “China’s trade-distorting practices, aided by China’s currency manipulation and misalignment, and its suppression of wages and labor rights, resulted in a flood of dumped and subsidized imports that greatly exceed the growth of U.S. exports to China.”

He added, “the WTO agreement spurred foreign direct investment (FDI) in Chinese enterprises and the outsourcing of U.S. manufacturing plants, which has expanded China’s manufacturing sector at the expense of the United States, thereby affecting the trade balance between the two countries. Finally, the core of the agreement failed to include any protections to maintain or improve labor or environmental standards or to prohibit currency manipulation.”

These trade policies have resulted in an enormous trade deficit with China. Scott, stated, “From 2001 to 2015, imports from China increased dramatically, rising from $102.3 billion in 2001 to $483.2 billion in 2015… U.S. exports to China rose at a rapid rate from 2001 to 2015, but from a much smaller base, from $19.2 billion in 2001 to $116.1 billion in 2015. As a result, China’s exports to the United States in 2015 were more than four times greater than U.S. exports to China. These trade figures make the China trade relationship the United States’ most imbalanced trade relationship by far…”

He explained, “Overall, the U.S. goods trade deficit with China rose from $83.0 billion in 2001 to $367.2 billion in 2015, an increase of $284.1 billion. Put another way, since China entered the WTO in 2001, the U.S. trade deficit with China has increased annually by $20.3 billion, or 11.2 percent, on average.

Between 2008 and 2015, the U.S. goods trade deficit with China increased $100.8 billion. This 37.9 percent increase occurred despite the collapse in world trade between 2008 and 2009 caused by the Great Recession and a decline in the U.S. trade deficit with the rest of the world of 30.2 percent between 2008 and 2015. As a result, China’s share of the overall U.S. goods trade deficit increased from 32.0 percent in 2008 to 48.2 percent in 2015.” Scott notes that the figures in this paragraph derive from his analysis of USITC 2016 data.”

Previously, the U. S. had a trade surplus in advanced technology products, but now we have lost that comparative advantage. Scott stated, “Global trade in advanced technology products… is instead dominated by China. This broad category of high-end technology products includes the more advanced elements of the computer and electronic parts industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology. In 2015, the United States had a $120.7 billion deficit in advanced technology products with China, and this deficit was responsible for 32.9 percent of the total U.S.–China goods trade deficit. In contrast, the United States had a $28.9 billion surplus in advanced technology products with the rest of the world in 2015.”

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

After explaining how EPI calculated the loss of jobs due to the U.S.-China trade deficit, he wrote, “U.S. exports to China in 2001 supported 171,900 jobs, but U.S. imports displaced production that would have supported 1,129,600 jobs. Therefore, the $83.0 billion trade deficit in 2001 displaced 957,700 jobs in that year. Net job displacement rose to 3,077,000 jobs in 2008 and 4,401,000 jobs in 2015.
That means that since China’s entry into the WTO in 2001 and through 2015, the increase in the U.S.–China trade deficit eliminated or displaced 3,443,300 U.S. jobs…the U.S. trade deficit with China increased by $100.8 billion (or 37.9 percent) between 2008 and 2015. During that period, the number of jobs displaced increased by 43.0 percent.”

Scott states, “The growing trade deficit with China has cost jobs in all 50 states and the District of Columbia, and in every congressional district in the United States.” The report calculates job loss by state and Congressional District, stating that “The trade deficit in the computer and electronic parts industry grew the most, and 1,238,300 jobs were lost or displaced, 36.0 percent of the 2001–2015 total. As a result, many of the hardest-hit congressional districts (in terms of the share of jobs lost) were in California, Texas, Oregon, Massachusetts, Minnesota, and Arizona, where jobs in that industry are concentrated. Some districts in Georgia, Illinois, New York, and North Carolina were also especially hard-hit by trade-related job displacement in a variety of manufacturing industries, including computer and electronic parts, textiles and apparel, and furniture. In addition, surging imports of steel, aluminum, and other capital intensive products threaten hundreds of thousands of jobs in these key industries as well.”

It was interesting to note that of the top 20 hardest-hit districts, eight were in California, four were in Texas, and there was one district each in Oregon, Georgia, Massachusetts, Illinois, Minnesota, New York, North Carolina, and Arizona.

The three hardest-hit congressional districts were all located in Silicon Valley in California. The 17th District lost 60,900 jobs, the 18th lost 49,500 jobs, and the 19th lost 39,400 jobs for a total loss of 149,800 jobs. His explanation for why this occurred is “Although the San Francisco Bay Area has experienced rapid growth over the past decade in software and related industries, this growth has come at the expense of direct employment in the production of computer and electronic parts.”

In summarizing the lost wages from the increasing trade deficit with China, Scott stated, “U.S. workers who were directly displaced by trade with China between 2001 and 2011 lost a collective $37.0 billion in wages as a result of accepting lower-paying jobs in nontraded industries or industries that export to China assuming, conservatively, that those workers are re-employed in nontraded goods industries…”
In addition, Scott wrote, “According to the most recent Bureau of Labor Statistics survey covering displaced workers (BLS 2016b), more than one-third (36.7 percent) of manufacturing workers displaced from January 2013 to December 2015 were still not working, including 21.7 percent who were not in the labor force, i.e., no longer even looking for work.”

As I have written in previous articles, Scott concludes, “The rapid growth of U.S. imports of computer and electronic parts from China also represents a threat to national security because it is connected to the outsourcing of U.S. defense products, as explained by Brigadier General John Adams (2015). The outsourcing of the defense industry makes the United States vulnerable to disruption of supply chains for key missile and communications components. Outsourcing has also reduced the quality of military equipment: a congressional report found nearly 1 million counterfeit components in the supply chain for “critical” defense systems (Senate Armed Services Committee 2012). And outsourcing has eroded the capacity of the defense industrial base for cost innovation, knowledge generation, and support for domestic employment (Alliance for American Manufacturing 2016).

Foreign Direct Investment by American companies in factories in China has also played a key role in the growth of China’s manufacturing sector and “the shift of manufacturing production and jobs from the United States to China since China entered the WTO in 2001.” Scott notes that “China is the largest recipient of FDI of all developing countries (Xing 2010) and is the third-largest recipient of FDI over the past three decades, trailing only the United States and the United Kingdom.” He wrote, “For many years, foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for roughly two-thirds of China’s global trade surplus…However, due to China’s indigenous innovation policies and other measures that have pushed out foreign investors, often through forced takeovers and illegal theft of intellectual property, this share has fallen sharply to only one-third in 2015…”

However, the most serious consequences of the U.S.-China trade deficit are:
• The United States net international investment position (NIIP) declined from -$2.3 trillion in 2001, before China joined the WTO, to $-7.2 trillion in 2015 (BEA 2016b).
• Each year that the United States runs a trade deficit is a year that it must borrow from abroad to finance this excess of consumption over domestic production.
• The United States ran a trade surplus in nearly every year between 1946 and 1975, and by 1975 had become the largest net lender in the world.
• The United States has run increasingly large trade deficits in every year since 1976, and has become the world’s largest net debtor.

In summary, Scott stated, “The U.S.–China trade relationship needs to undergo a fundamental change. Addressing unfair trade, weak labor, and environmental standards in China, and ending currency manipulation and misalignment should be our top trade and economic priorities with China. It is time for the United States to respond to the growing chorus of calls from economists, workers, businesses, and Congress (Scott 2014b) and take action to stop unfair trade and illegal currency manipulation by China and other countries.”

According to my calculations, our trade deficit with China and other countries since 1994 when NAFTA went into effect has added up to nearly $11 trillion dollars. President Trump has set the goal of reducing the trade deficit. I say we need to eliminate the trade deficit by implementing the smart trade policies recommended by the Coalition for a Prosperous America that address all of the trade misalignment issues mentioned in the EPI report.

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

Tuesday, July 21st, 2015

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

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

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

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

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

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

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

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

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

After the end of the Cold War and the subsequent Gulf War, the provisions of the “Buy American Act” were eased to allow purchasing off the shelf commercial parts (COTS) from foreign countries by the Defense Department and other government agencies if they met the same fit and function of parts made to strict military specifications. Previously, parts, assemblies, and systems were required to be substantially made in the United States or in a NATO country, such as Great Britain, France, and Germany.

In the early 1990s, most commercial parts were still being made in the United States, with some outsourcing to the Philippines, Hong Kong, and Singapore, so this change was pretty safe. Permitting commercial parts to replace Mil. Spec. parts probably drove out of business the small companies that catered exclusively to the military and that provided traceability per Military Specifications for parts supplied to government agencies, military contractors, and subcontractors. This was all done in the name of cost savings. Now, however, most commercial electronic components and microchips are fabricated in China.

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

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

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

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

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

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

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

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

 

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Posted in Manufacturing, National security, Outsourcing | 1 Comment »

Trade Deficit Would Shrink with Stroke of a Pen

Tuesday, July 15th, 2014

Since NAFTA went into effect in 1994, the U. S. has generated the highest trade deficit in the world and the largest in the world’s recorded history. If you add the annual trade deficit in goods as shown on the Census Bureau website, the total is a staggering figure of -$10.347 trillion.

The United States now has a trade deficit with 88 countries according to data in the book, Buying Back America. Some deficits are small, but some are enormous. Our top six trading partners of Canada, China, Mexico, Japan, Germany, and South Korea represent 64% of our total trade deficit. In 2013, our total trade deficit in goods was $688.4 billion, of which China represented 46% at $318.4 billion. However, our 20-year total trade deficit with China since 1994 is a staggering -$3.287 trillion.

Now, the current Administration wants to cover up the evidence of the damage to our economy by changing the rules of how a manufacturer is defined instead of responding to the American public’s demand to know where products are manufactured so they can have the freedom to choose whether or not to buy “Made in USA” products.

On June 24, 2014, Robert E. Scott, Director of Trade and Manufacturing Policy Research for the Economic Policy Institute, conducted a webinar for the Coalition for a Prosperous America: “The Factoryless Goods Production Controversy (Foreign Goods Production) – How proposed government rule changes would classify foreign goods as U.S.-made.”

He explained that an Economic Policy Classification Committee (ECPC) formed by the Office of Management and Budget is proposing a Factoryless Goods Production (FGP) and Global Value Chain (GVC) rule to artificially inflate manufacturing production and reduce the trade deficit. This change would result in shrinking our trade deficit and growing our manufacturing output with the stroke of a pen, without adding any more real jobs or production.

The ECPC was formed to make recommendations for revising the North American Industrial Classification System (NAICS), created in 1997 as a unified Industrial classification system for the U.S., Mexico and Canada.

Traditionally, all production chain tasks were performed in one factory, in multiple factories of one firm, or by subcontract suppliers to that firm, as is the case for companies like Northrop Grumman that makes Unmanned Aircraft Systems in San Diego.

In the last 20 years, improvements in communications, technology and transportation, as well as global trade agreements and foreign investment in plants haveallowed product design, development, and manufacturing to be performed in different locations, including offshore in China and other Asian countries.

This has enabled a company to control production without directly performing any manufacturing process or transformation task in one of their facilities; e.g. Apple, Nike, AMD, and fabless semiconductor manufacturing. In fact, the top five semiconductor firms in 2013 were fabless companies: Qualcomm, Broadcom, AMD, Mediatek, and Nvidia. These companies focus on innovation, product development, marketing, and sales rather than manufacturing tasks.

There are currently three types of establishment classifications:

Type of Establishment Characteristics  
Integrated Manufacturer (IM)  Performs all the tasks of the production chain
Manufacturing Service Provider (MSP) Performs transformation tasks but does not perform production management tasks (may purchase inputs) 
Factoryless Goods Producer (FGP) Does not perform transformation tasks but performs all production management tasks (may or may not own parts)

These current classifications require the statisticians to choose where to put the FGPs and how to count production. They now have the choice of classifying them as wholesalers, manufacturers, or split based on the location of the transforming company.

Currently, Apple and Nike are classified as wholesalers since they do not perform any manufacturing transformation tasks in the U.S. This accurately reflects the fact that both Apple and Nike have offshored their manufacturing to China.

Under current policy, when a company like Apple ships component parts to China to be assembled in a Chinese factory (e.g. Foxconn) and then sends the product back to the U.S. to be sold here, the value of the imported iPhone minus the value of the exported parts counts as a net U.S. import of manufactured goods.

Under the ECPC proposal, Foxconn, now called a “manufacturing services provider,” would not be described as having manufactured the iPhones but as having provided services to Apple.

An additional concern is that the ECPC proposes to treat some goods exported by foreign factories as U.S. manufactured exports. For example, currently, when Apple ships iPhone parts to China to be assembled by Foxconn and then ships the finished product to another county, Apple’s export of these parts to China counts as the only U.S. export.

But, the ECPC proposed rule would classify the engineering, marketing and profit to Apple as U.S. production. A fully assembled iPhone sale to another country, such as Japan or a European Union country, would count as a “U.S. manufactured goods export,” less the cost of any imported parts.

The justification for this is that while China manufactured and exported the iPhones, they count as U.S. manufactured exports because they were under the control of a U.S. brand. This would create an artificial increase in U.S. manufactured exports and cover up the real U.S. manufacturing trade deficit.

Thus, if a U.S. based company offshores manufacturing work, much of it would be classified as U.S. production. Further, imported products from foreign contract manufacturers hired by a U.S. company will no longer be a “goods import” but rather a “manufacturing services import.” This means that products from Flextronics in Mexico, which makes components in Mexico for U.S. firms that are shipped to the U.S., would no longer be considered a “goods import” but a “services import.”

In addition, the ECPC proposal would result in a miraculous overnight increase in the number of U.S. “manufacturing” jobs. White-collar employees in firms like Apple would be re-branded as “factoryless goods producers” and counted as “manufacturing” workers. The change would also create a false increase in manufacturing wages, as many of the new-to-be-counted “manufacturing” jobs would be designers, programmers and brand managers at “factoryless goods producers” like Apple. As a result, reported manufacturing output would jump, as revenues from firms like Apple would be lumped in with the output of actual U.S. manufacturers.

This proposal would deceptively shrink the size of the reported U.S. manufacturing trade deficit while artificially inflating the number of U.S. manufacturing jobs. It would obscure the erosion of U.S. manufacturing, undermining efforts to improve the trade and economic policies for our country.

This proposal is fraudulent and would distort U.S. trade, labor, and gross domestic product statistics that show the need for a developing a manufacturing strategy in the U.S. The offshoring of U.S. manufacturing under years of bad trade policies should not be undone with a data trick.

The proposal from the Economic Classification Policy Committee (ECPC) to redefine U.S. manufacturing and trade statistics must be stopped. Only manufacturing performed within the U.S. should be considered U.S. goods production. If manufacturing occurs in another country, it simply is not U.S. production.

On May 22, 2014 the Office of Management & Budget solicited comments on these proposed revisions. You also can view the notice for this proposal in the Federal Register. The comment period ends July 21, 2014. You may email your comments today to John.Burns.Murphy@census.gov to keep the “factoryless goods” proposal from becoming a reality. Or, to make taking action even easier, you can click here to customize and submit a pre-drafted comment provided by the Coalition for a Prosperous America.

Posted in Economy, Manufacturing, Outsourcing, Trade | 1 Comment »

Has NAFTA Benefited Americans?

Tuesday, January 28th, 2014

By this question, I mean the American people, not America, our country, nor American corporations. There can be diplomatic benefits to trade agreements, such as strengthening our relationships with countries that are allies in the world’s political arena. There can be benefits to American-based global corporations to open doors to new markets in specific countries. These are two of the reasons touted by “free trade” proponents as benefits to negotiating trade agreements.

To discern the answer to the title’s question, let us examine whether the North American Free Trade Agreement (NAFTA) has benefited Americans as a whole. NAFTA was negotiated under President Bill Clinton and went into effect in January 1994. The agreement was supposed to reduce market barriers to trade between the United States, Canada and Mexico to reduce the cost of goods, increase our surplus trade balance with Mexico, reduce our trade deficit with Canada, and create 170,000 jobs a year. Twenty years later, the fallacy of these supposed benefits is well documented.

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

Major corporations such as General Electric, Caterpillar, and Chrysler announced they would add jobs for increased sales to Mexico; instead they eliminated jobs. For example, General Electric testified before Congress saying, “We are looking at another $7.5 billion in potential sales over the next 10 years. These sales could support 10,000 jobs for General Electric and its suppliers. In reality, “General Electric has eliminated 4,936 U.S. jobs since NAFTA due to rising imports from Canada and Mexico or decisions to offshore production to those countries.”

The report also documents the fact that “the small pre-NAFTA U.S. trade surplus with Mexico turned into a massive new trade deficit and the pre-NAFTA U.S. trade deficit with Canada expanded greatly.” According to Census Bureau data, in 1993, the non-inflation adjusted U.S. trade surplus with Mexico was $1.6 billion, and in 2013, the U. S. trade deficit had grown to $50.1 billion. The non-inflation adjust U. S. deficit with Canada grew from $4.4 billion in 1994 to $7.4 billion in 2013. Together the Mexico and Canada inflation-adjusted trade deficits “have morphed into a combined NAFTA trade deficit of $181 billion.”

Most people do not understand how trade deficits hurt them. They do not realize that when our country imports more goods than it exports, we go in debt as a country to pay for these goods. We then have to borrow money or increase taxes to have enough money to run our government. This is why we now have a nearly $17 trillion national debt. As individuals, we would soon go bankrupt if we did not earn enough money to pay our bills and had to keep borrowing money, but the government can just keep printing money. The problem with printing more money is that the value of the dollar keeps going down, so each of us has to work harder to make more money to try to keep our pay equal to what we earned previously.

According to the Coalition for a Prosperous America, trade deficits also diminish the U. S. Gross Domestic Product since GDP equals the sum of Consumption, Investment, Government Procurement, and Net Exports (Exports – Imports). Our trade deficit in 2011 alone shaved an astounding 4% from overall U. S. GDP.

Our efforts to keep our earnings of equal value have not succeeded because the report states, “NAFTA has contributed to downward pressure on U.S. wages and growing income inequality.” What this means is that as Americans lost their higher paying manufacturing jobs, they had to compete with the glut of other Americans for the non-offshorable, lower paying, low-skill jobs, in retail, hospitality, and food service. “According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.” The result is an increasing gap between the rich and the poor and a shrinking middle class.

Manufacturing jobs are the foundation of the middle class; these jobs raised the average daily wage between 1900 and 2000 from $2.50 a day to $96.00 a day. If we lose the majority of our manufacturing industry, we will lose our middle class.

We were supposed to realize the benefits of lower prices as consumers, but in contrast, the report states, “Despite a 188 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal price of food in the United States has jumped 65 percent since the deal went into effect.”

As a result, our “average annual U.S. agricultural trade deficit with Mexico and Canada under NAFTA stands at $800 million, more than twice the pre-NAFTA level.” American ranchers and cattlemen have been hurt by the 130 percent increase of beef imports from Mexico and Canada since NAFTA took effect, “and today U.S. consumption of “NAFTA” beef tops $1.3 billion annually.” U.S. food processors moved to Mexico to take advantage of low wages, resulting in a loss of jobs for Americans at U. S. food processing plants.

The report was a revelation to me about an unintended consequence of NAFTA ? the dramatic increase of illegal immigrants to the U. S. in the past 20 years. According to the report, the increased export of subsidized U. S. corn to Mexico resulted in the destruction of “…the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture.”

The report quotes an exposé, “Trade Secrets,” by John Judis in the April 9, 2008 issue of New Republic, which stated. “Wages dropped so precipitously that today the income of a farm laborer is one-third that of what it was before NAFTA. As jobs disappeared and wages sank, many of these rural Mexicans emigrated, swelling the ranks of the 12 million illegal immigrants living incognito and competing for low-wage jobs in the United States.”

As a result, “The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.”

Prior to NAFTA, jobs at maquiladora factories were responsible for a growing middle class in cities such as Tijuana and Tecate in Baja California, Mexico. The report states that “Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods as on the day that NAFTA took effect.”

The lower wages at Mexican maquiladoras since NAFTA explains why Mexico is now benefitting from “nearsourcing,” which is returning manufacturing from China where wages have risen 15-20% year over year for the past five years. Taking into consideration the other costs and hidden costs of doing business offshore that comprise a Total Cost of Ownership analysis; Mexico is now more competitive than the coastal areas of China’s manufacturing industry.

Of course, the influx of illegal immigrants from Mexico is another factor in the downward pressure on wages in the United States. Today, only 1.9 million hourly workers make $20 per hour, which is a marker for jobs that provide a middle-class standard of living, down 60% since 1979, according to the Bureau of Labor Statistics.

In conclusion, we can clearly see from the well-documented evidence that NAFTA has not benefited the American people. It may have benefited American corporations that expanded their sales in Mexico or moved manufacturing to Mexico to increase their profits. However, I am sure that none of the American company owners of the more than 60,000 manufacturing firms that have closed since 1994 or the nearly one million American workers who lost their jobs because of NAFTA would say they benefited from this trade agreement.

The last thing we need is another free trade agreement such as the Trans-Pacific Partnership Agreement that has been negotiated behind closed doors by the Obama Administration for the past three years. We can’t afford the loss of more American jobs. What we need are trade policies that will help American manufacturers and address the predatory mercantilist policies of China, Japan, Korea, and other countries with regard to government subsidies, currency manipulation, product dumping, and intellectual property theft. We need to have balanced trade as recommended by the Coalition for a Prosperous America (CPA) in their issue paper, “21st Century Trade Agreement Principles.” As chair of the newly formed California chapter of CPA, I would welcome your support and involvement to rebuild American manufacturing, create more higher-paying manufacturing jobs, and reduce our trade deficit and national debt.

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

Coalition for a Prosperous America’s California Chapter Celebrates the Outlook for the Future

Tuesday, December 17th, 2013

The California Chapter of the Coalition for a Prosperous America (CPA) held their annual dinner in San Diego on January 11th at the Del Mar Hilton to look back on this year’s work and ahead to the coming year, as well as honor those who have helped make that work successful. Nearly 80 attendees joined me in showing our appreciation to Senator Mark Wyland for being the co-host of the well-attended “Manufacturing in the Golden State–Making California Thrive” economic summit last February. Unfortunately, co-host Assemblymember Toni Atkins was unable to be present. Assemblyman Tim Donnelly and County Supervisor Dave Roberts attended along with staff representing Congresswoman Susan Davis, Congressman Darrell Issa, Assemblyman Brian Jones, and Assemblyman Rocky Chavez.

I shared how I became involved with CPA, which is a non-profit, non-partisan membership organization established in 2007 as a coalition of manufacturing, farming, ranching, and labor to fix the U.S. trade deficit and the economy. CPA uniquely joins these distinct groups and focuses on both grass roots and Washington, D. C. lobbying efforts. CPA educates business, organization and political leaders about the economic harm caused by the trade deficit, methods to correct the deficit, and the need to develop and implement a national strategy to produce more in the U.S. so jobs and the taxes they create stay in the U. S.

When I was researching and writing the chapter “What is being done now to save American manufacturing?” for the first edition of my book in 2008, I found many trade and professional organizations that were focused on a particular issue important to their industry or profession, but there didn’t seem to be any collaboration between the organizations to support or oppose issues that affected American manufacturers. The two most powerful organizations, the National Association of Manufacturers and the U. S. Chamber of Congress seemed to be controlled by the large multinational corporations whose position on various issues were at odds with those of smaller American-only manufacturing corporations.

After my book was published in 2009, I met Ian Fletcher, author of Free Trade Doesn’t Work:  What should replace it and why, and he introduced me to CPA when he became their Sr. Economist in early 2011. I realized this was just the kind of organization I had been looking for and started participating in their member-at-large monthly conference calls to share what we were each doing to work on issues adversely affecting American manufacturing.

I volunteered to help CPA put on a Smart Trade Conference on March 28, 2012, and one of the people that attended was Donna Cleary, Field Rep for State Senator Mark Wyland. She asked CPA to facilitate putting on a manufacturing summit in the fall. Because of the national election, we postponed the summit to February 2013, which gave us more time to solicit partners and sponsors. Our partner list became the “who’s who” of organizations in San Diego, and the summit was very successful. In addition to being a bi-partisan event, what made it different was that we broke into small groups after the main presentations and conducted “pair wise” voting on issues to come up with the top two issues: California regulations and the need for a national manufacturing strategy.

We formed a Manufacturing Task Force and produced a report that we disseminated to all of the attendees and subsequently presented to our Congressional delegation. We also presented CPA position papers on the trade deficit, currency manipulation, County of Origin labeling, Border Adjustable Taxes, and “Fast Track” Authority for the proposed Trans-Pacific Partnership Agreement (a trade and global governance agreement being negotiated by the U.S. with eleven Pacific Rim nations).

We sponsored a viewing of the film “Death by China” in September, which clearly shows that we are in a trade war with China that we are losing, and American companies aren’t competing against Chinese companies, but the Chinese government itself.

The next speaker was Mike Dolan, Legislative Representative for the Teamsters, who said, “If CPA didn’t exist, we’d have to invent it.” His basic point was that, based on his long experience working on the Hill and in the field for Fair Trade (fighting expansion of the flawed and failed NAFTA/WTO model), we can win the current battles of the Trans-Pacific Partnership and Fast Track if and only if we build and maintain a strong bipartisan mobilization. He called the TPP “NAFTA on steroids.” He doesn’t see a path to victory next year on sensible trade policy without the Coalition for a Prosperous America and the constituencies it represents — small business, particularly in industries that are sensitive to trade fluctuations, family farmers and ranchers, working families and “trade patriot” activists including the Tea Party cadres.

Bill Bullard, CEO of R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) was the next speaker. He said they joined the Coalition because their industry was being unfavorably impacted by current U. S. trade policies and unfair trade practices by our trading partners. He said, “The number of privately owned cattle and sheep ranches has been going down dramatically since 1994 when NAFTA went into effect and accelerated after China became part of the World Trade Organization (WTO) in 2000. The size of the beef and sheep herd has been decreasing every year, while imports of beef, lamb, and mutton have been increasing.” Shockingly, he revealed that fast food restaurants are not required to disclose the origins of their beef and even when restaurants say the beef is “U.S. Inspected,” it is as likely as not to be imported. Their industry especially needs the government to provide consumer package labeling to show where meat and livestock was born, raised and slaughtered and to reverse the current policy of lowering U.S. health and safety standards just to facilitate more imported meat.

CPA President Michael Stumo presentation was “A Prosperity Strategy for America,” in which he stated:  “We are convincing Congress that we need “net exports,” not merely more exports, to be a successful trading and producing nation. In 2011, our trade deficit shaved an astounding 4% from overall U. S. GDP. We should have a national goal to grow manufacturing back up to 20% of GDP rather than 11%.

Supply chains are the lifeblood of our economy, and all tiers of suppliers to the OEMs are important. They produce the jobs, the job multipliers, the wealth, the innovation, and the intellectual property of a successful developed economy. Those in Washington who are pushing “global supply chains” are really pushing offshoring of our supply chain. We need a strategy of acquiring, keeping, and growing “domestic supply chains” for a strong America.

We need to stop offshoring our manufacturing jobs and the taxes they create to safeguard our economic strength, our democracy and our constitutional republic. The globalization agreements like the Trans-Pacific Partnership are only 15% about tariffs and quotas and 85% about non-trade topics. These other topics include financial regulation, taxes, food and product safety, product labeling, government procurement of domestic supplies, and other matters. These globalization deals transfer the authority of Congress and states over these domestic policy issues to unelected international tribunals of foreign trade lawyers.

The old way of manufacturing and labor working separately for their interests no longer works. These issues are a macro problem for our country and affect all Americans. That’s why manufacturers, farmers, ranchers and workers must work together.

It is working. A large part of Congress signed a letter opposing Fast Track trade authority because of sovereignty and economic issues. Leadership on important committees is talking about net exports rather gross exports. A majority of the House and Senate signed a letter calling for effective protections against foreign currency manipulation in future international agreements. We need to win. Vince Lombardi said ‘winning isn’t everything… it’s the only thing.’ We can win these issues by expanding our membership of individuals, companies, and organizations and expanding from eight state chapters to at least 25 chapters.”

In the wrap-up presentation, Dave Frengel, Director of Government Relations, Penn United Technologies, a precision tool making company, said, “We have 600 employees today, but if our government had been standing up for us against China’s unfair trade practices, we would have 1200 employees, most in family-sustaining jobs with good benefits. Unfair trade affects the entire U.S. supply-chain, not just our company. Our government has been turning its back on production of food and manufactured goods. Our precision tooling and manufacturing industry, which is critical to America’s industrial economy, is a third of what it was before this era of bad U.S. trade policy began. The resulting loss of jobs is huge.”

He continued, “When I was asked by my boss to “fix trade” 11 years ago, we tried working within the National Association of Manufacturers, but our voice and that of other American-only manufactures was ignored. We realized that we needed to join not only with manufacturers and concerned citizens, but with farmers, ranchers and workers to win. We realized that the mission would not be accomplished through existing organizations – we needed a new organization to get the job done. That is why we were a founding member of CPA.

For nearly seven years now, CPA has been holding events all over the nation to raise awareness and mobilize local leaders around trade reform issues. CPA members and staff made over 200 legislative visits this past year. The credibility and influence of CPA is growing and our trade reform message is becoming more convincing as we continue to have crucial conversations with a growing circle of trade policy leaders in Washington, D. C.

We are opening new doors with trade negotiators inside the Obama Administration, the House Ways and Means Committee, and the Senate Finance Committee. Our efforts helped gain massive Congressional opposition to Fast Track trade authority and in support of our constitution. Our efforts helped gain a majority of Senate and House support for effective currency manipulation provisions in all future trade deals.

The Chinese will negotiate forever without changing their predatory trade strategies. We need protection from those who cheat us, which requires strong enforcement of international trade rules by our government. We can compete against foreign companies, but not against foreign governments that rig markets to cheat us out of our share of markets. The Coalition for a Prosperous America works for trade reform that delivers prosperity and security to America, its citizens, factories, farms, and working people. The solutions that CPA focuses on will benefit those who make and grow things here.”

In conclusion, he stated, “We are gaining more GOP support, more Democrat support, more Tea Party support, more citizen support, and more producer support. This year, we’re starting to win – because of the growth in size and influence of the Coalition for a Prosperous America. We need to get stronger. We need you to consider joining CPA as an individual or a company member or to make a tax deductible donation to the CPA Education Fund.”

Bad U. S. trade policy is a major cause of California’s economic crisis. Offshoring has cost California hundreds of thousands of its manufacturing jobs. Family members lost good jobs; communities declined; property values plummeted. We Californians know that we need a smarter U.S. trade strategy.

As a fledgling chapter, we are already influencing the trade policy positions of San Diego’s Congressional delegation, but need to grow to influence the other 48 Representatives and our two Senators to support better trade deals that will grow our economy. This is not a Republican issue nor a Democratic issue, but an American issue, and they must vote right to properly represent California. We need to get stronger and grow to accomplish our goals. We need your involvement and financial support to make a difference. Please contact me at michele@savingusmanufacturing.com to participate in the California Chapter.

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Why it is Important to Know Where Products are Manufactured

Tuesday, September 3rd, 2013

At a time when more consumers are paying attention to where products are made and expressing greater interest in buying “Made in USA” products even if they cost more, there are changes proposed that could impact consumers being able to make decisions on the products they buy.

The first reason we need to know where products are manufactured is to have a clear picture of whether the nearly six million manufacturing jobs we have lost since 2000 have been mainly the result of technologic advances and higher productivity in the U. S. or whether outsourcing to foreign countries like China has been the main cause.

For decades, there have been companies referred to as manufacturers that I called “virtual manufacturers.” in my book. These companies have no manufacturing capability in-house. Sometimes they don’t even have the personnel to design the product. The founders of the company may have a concept of the new product they wish to develop and market, but they don’t have the technical expertise to do the design and development themselves. They hire outside consultants to design and develop the product or subcontract the design, development, and prototyping to a company specializing in these services. At the extreme end, they subcontract out everything from start to finish, including engineering design, procurement of parts and materials, assembly, test, inspection, and shipping to the end customer. They may handle marketing and customer service themselves, but sometimes they even subcontract these functions to marketing and customer service firms. There was no real impact on U. S. manufacturing data as long as these U. S. companies outsourced their manufacturing to other domestic manufacturers.

However, in the past 20 years, these virtual manufacturers have increasingly outsourced most or all of their manufacturing offshore. This resulted in U. S. federal agencies involved in economic data labeling them as “factoryless goods producers” and classifying them as “wholesale traders,” if they didn’t do any domestic manufacturing themselves. Apple, Nike, and Cisco are some of the more well known “factoryless goods producers” because of having their manufacturing outsourced offshore.

Now, U.S. federal agencies involved in economic data want to change the way they classify companies that have outsourced their U.S. production to foreign manufacturing companies. They are proposing to reclassify these “wholesale traders” as “domestic manufacturers.” This means that their sales would be counted as U.S. production and their products that are made offshore and imported into the U. S. for sale would no longer be counted as imports.

As reported in the August 20th issue of Manufacturing & Technology News, the purpose of this change is supposedly “to determine how much products are been offshored and to pinpoint the number of American companies that are linked to manufacturing, even though they don’t make the products they design and sell.”

For the past decade, “U.S. statistical agencies found that the North American Industry Classification System (NAICS) did not provide a clear definition of companies that outsourced their production overseas, but that still owned the design and controlled the production and sale of goods from that foreign production.” A Manufacturing Transformation Outsourcing Subcommittee was formed in 2008 by the Economic Classification Policy Committee “to define outsourcing and identify “characteristics of establishments that outsource manufacturing transformation activities.” The committee was made up of representatives from the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Census Bureau and the White House Office of Management and Budget.

“The committee decided that all factoryless goods producers should be classified in manufacturing, the specific industry classification based on the transformation production process used by the contractor”  and recommended that the classification changes be implemented in the 2017 North America Industry Classification System.

There is disagreement on whether this change would be beneficial as it would impact a dozen major government statistical series, such as industrial production, producer price indexes, and industrial productivity.

In my opinion this change would result in data that is misleading and wouldn’t be giving a true picture of American manufacturing. We would not be able to know how much is actually being produced in the United States if we count imports from offshore as if they are domestic production. This change could radically increase U.S. production statistics and reduce our import statistics making our trade balance artificially look better.

A better way to find the answer to this question has been provided by San Diego entrepreneur and businessman, Alan Uke in his book, Buying America Back:  A Real-Deal Blueprint for Restoring American Prosperity. Mr. Uke writes, “Our future as a nation and as individuals is being threatened. Since our spending habits as consumers have contributed to this situation, we can change our spending habits to reverse it… in order for a change to happen, consumers must demand to be more honestly and completely informed about what they are buying and where their money goes. To this end, we are starting a consumer movement to bring this to the attention of Congress…The goal of this movement and of this book are to encourage people to change their buying habits toward purchasing things that help the U. S. economy and job situation.”

He points out that the current information provided on country of origin labels is “misleading, incomplete, inaccessible, or all of these…In order to support our economy and American industries, we must have easily accessible, clearly communicated, and truthful information about a product’s entire origins.”

Mr. Uke recommends that consumers be provided the country of origin information they need at the point of sale whether at a store or online and presents a proposal for the U. S. government to require detailed country-of-origin labels for all manufactured products similar to the nutritional information labels now required on packaged food products. He feels that it is important for consumers to “see the last place where the product was manufactured” and “to discern what portion of its components came from other places” by use of what he calls a “Transparent Label.” It would include the cost by country of origin by both percentage and trade ratio, as well as the location of the company’s headquarters. The percentage is the total cost of the product that is produced or transformed in a particular country. The trade ratio describes the amount of exports vs. imports for a country in relation to the United States. This label would enable consumers to make better decisions when they buy manufactured goods.

The second reason we need to know where products are manufactured is to protect ourselves from unsafe, defective, toxic, and counterfeit products. The U. S. Consumer Protection Safety Commission’s website provides a monthly list of products that have been recalled, and month after month, more than 90% are made in China.

A label similar to Mr. Uke’s recommendation would help companies comply with the new product safety standard (ISO 10377) recently released by the International Standards Organization (ISO):  The “Consumer Product Safety — Guidelines for Suppliers” standard (ISO 10377). The summary written by Dr. Elizabeth Nielsen, Chair of ISO/PC 243, Consumer product safety and a Canadian government Scientist, Regulator and Policy Analyst, states, “Regardless of company structure and organization, ISO 10377 will affect all suppliers irrespective of their role in the supply chain and all types of products whatever the origin.”

“Products should be traceable and carry a unique identifier that is labelled, marked or tagged at the source. This also goes for raw materials, components and subassemblies. Suppliers should insist on properly identified products from vendors and be able to trace products back to their direct source and identify the next direct recipient of the product in the supply chain.”

This standard has a different purpose for labeling than Mr. Uke’s label:  to protect consumers from unsafe, defective, toxic, and counterfeit products. “Products are safer when they carry documentation about the product, its design, its production and its management in the market…Suppliers should be able to recognize a product’s development through its documentation and trace its design, risk assessment, hazard analysis and testing decisions back to its conception.”

ISO 10377 is “aimed at small and medium sized enterprises (SMEs) as well as larger firms and offers risk assessment and management techniques for safer consumer products. This standard will allow retailers and OEMs to trace every part and component of a product through the supply chain to determine exactly where a defect or a counterfeit has occurred.” The standard is divided into four main sections outlining general principles that promote a product safety culture in a company, safety in design, safety in production and safety in the retail marketplace.

Either Mr. Uke’s “Transparent Label” or the label required by ISO 10377 would satisfy both reasons for wanting to know where products are manufactured. This type of label would provide protection for consumers from unsafe, defective, toxic, and counterfeit products and would help us to recognize the main cause of the loss of manufacturing jobs in the United States. We need to face up to the true cause of the loss of manufacturing jobs before we can get any consensus of what to do about it by means of our national policies. We need to oppose reclassifying “wholesale traders” as domestic manufacturers and support “country of origin” labeling by contacting our Congressional representatives.

 

 

 

 

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“Death by China” Film Shows where all the Jobs Have Gone

Tuesday, August 27th, 2013

Are you wondering where all the good jobs have gone? Why do we have less tax revenues creating an out-of-control Federal budget deficit? Why are you working harder for less money than you did in the 1990s?

Death by China, based on the book by Peter Navarro and Greg Autry, shows how the world’s most populous nation and soon-to-be largest economy is rapidly turning into the planet’s most efficient assassin through its shoddy and even poisonous products and environmental pollution. China’s perverse form of capitalism combines illegal mercantilist and protectionist weapons to pick off American industries, job by job. Meanwhile, America’s executives, politicians, and even academia remain silent about the looming threat. To read my full review of the book, click here.

Director Peter Navarro is an internationally acclaimed expert on U.S.-China relations, a regular contributor on CNN, CNBC, MSNBC and the Huffington Post, and a professor of economics at the University of California, Irvine. Greg Autry is an entrepreneur, writer, and educator. He has published extensively on business, economics, trade policy, China and space. Greg serves as Senior Economist for the American Jobs Alliance and economist for the Coalition for a Prosperous America. Both Navarro and Autry have testified to the U.S. Congress on China issues.

To Navarro and Autry, the success of the film will be measured by the ability of the public to spur politicians to finally recognize that “the best jobs program for America is trade reform with China – not more empty fiscal and monetary stimulus.”

The film review on “rottentomatoes” states, “Death by China pointedly confronts the most urgent problem facing America today – its increasingly destructive economic trade relationship with a rapidly rising China. Since China began flooding U.S. markets with illegally subsidized products in 2001, over 50,000 American factories have disappeared, more than 25 million Americans can’t find a decent job, and America now owes more than 3 trillion dollars to the world’s largest totalitarian nation. Through compelling interviews with voices across the political spectrum, Death by China exposes that the U.S.-China relationship is broken and must be fixed if the world is going to be a place of peace and prosperity.

The New York Times review states, “The film, based on a book by Peter Navarro and Greg Autry and directed by Mr. Navarro, is blunt as can be in working the premise that the admission of China to the World Trade Organization in 2001 has been catastrophic for the American economy. The influx of Chinese goods has left American manufacturers unable to compete, the film says, and Chinese leaders have been brashly ignoring rules about things like currency manipulation to make sure that their country’s products remain artificially cheap.”

In this review article, Daniel M. Slane of the United States-China Economic and Security Review Commission said, “American companies cannot compete because they’re not competing with Chinese companies, they’re competing with the Chinese government.”

The New York Post review states, “Narrated by Martin Sheen, the film looks at what it calls America’s increasingly destructive trade relationship with China — we owe them $3 trillion — which goes back to the Asian nation’s entry into the World Trade Organization in 2001. We hear claims that instead of helping both lands, as President Clinton promised at the time, the deal has resulted in the loss of millions of American jobs and the influx here of shoddy, even deadly Chinese products. Death by China gives that nation a black eye for currency manipulation, intellectual-property theft, political persecution and serious environmental pollution.”

Paste Magazine’s review states, “With his Harvard pedigree and his acclaimed credentials, Navarro is an authority on the subject of the U.S.-China trade relationship. Death by China features him along with several geopolitical experts and activists spelling out exactly how and why this nation’s corporate-political nexus sold out the American worker and consumer to the tune of thousands of factories, millions of jobs and trillions in debt owed to the Chinese.

And who’re the losers in this scenario? Interviews with out-of-work factory workers, college graduates and with both Democratic and Republican legislators paint a picture of widespread blight as unemployment destroys communities and consumers find themselves without any choice but to buy Chinese-made goods.”

Navarro commented: “My goal in creating the film is to draw attention to the urgent need for trade reform with China, and to ensure that it becomes a top priority for legislators. We hope to give the highest possible visibility to an issue that is all too often ignored by politicians, journalists and consumers alike – the incredibly corrosive loss of America’s once formidable manufacturing base to a cheating China. The fact that our government has turned a blind eye to China’s deceitful policies has had an enormously negative impact on the American economy and the standard of living of millions of Americans.”

Francesca McCaffery of Blackbook Magazine said, “A truly life-changing, mouth-dropping documentary film…Peter Navarro’s ‘Death by China’ grabs you by the throat and never lets go…But watch this movie, and you will, in turn, start glowing with a newfound, hit-on-your-head awareness.”

The Hollywood Report review points out that “Narrator Martin Sheen warns upfront that it’s important to “distinguish clearly between the good and hard-working people of China, and their repressive Communist government victimizing American and Chinese citizens alike.”

Death by China made its theatrical debut in Los Angeles and New York in June of 2012 and played theatrically in over 50 cities across the U.S. including key manufacturing cities such as Akron, Chicago, Dayton, Detroit, Cincinnati, Columbus, Detroit, Milwaukee, Pittsburgh, Toledo, Youngstown and many more.

This was opposite of the typical course of documentary films being shown at festivals first and then in theaters. Navarro and Autry wanted to open the film in theaters throughout the swing states during the 2012 presidential election to draw attention to the issue China’s exploitation of our economy.

After the election, Death by China made a series of festival appearances through the end of June 2013. All total, the film was shown at more than 25 festivals – from Beaufort, South Carolina; Macon, Georgia; and New York City to Green Bay, Wisconsin; Sedona, Arizona; and San Luis Obispo, California.

As part of its festival activity, the film garnered three best documentary awards from festivals in Beverly Hills, Durango, and Studio City. “It was a Best Doc nominee at the Cape Fear Independent Film Festival, was first runner up at the Myrtle Beach festival, and received a Golden Ace award from the Las Vegas Film Festival.”

Don’t miss the following opportunity to see this film. If you are not located in the region, please check the Death by China website for other screenings. If you or your organization would like to sponsor a screening, please contact Peter Navarro.  Of course, you can also order the DVD to watch on your own TV.

The Coalition for a Prosperous America presents:  A Screening of Death by China, A Documentary Film by Peter Navarro and Greg Autry

When: Wednesday, September 18th, 2013, Doors open 6:00 PM, event starts at

6:30 PM.

Where: AMN Healthcare, 12400 High Bluff Drive, San Diego, CA 92130 (exit Carmel Valley Road off Int. 5)

Cost: $10.00 (refreshments served)

Agenda

Introduction: Michele Nash-Hoff, Chair, California chapter of the Coalition for a Prosperous America

Film: “Death by China”, directed by Peter Navarro and produced by Greg Autry, CPA Economist

Discussion/Q and A: Greg Autry, Producer, Death by China, Economist, Coalition for a Prosperous America

Following the film there will be a discussion and Q and A to talk about how the Coalition for a Prosperous America is working to build a smart trade policy that will counter China’s, and other nation’s, trade cheating and move manufacturing back to America.

Register today at the CPA site: prosperousamerica.org

For more information, please contact Sara Haimowitz (sara@prosperousamerica.org,)

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Reshoring is Answer to Corporations Cutting U. S. Jobs and Adding Jobs Offshore

Tuesday, August 20th, 2013

As originally reported in a Wall Street Journal article in April 2011, U. S. Department of Commerce data shows that major U. S. corporations cut their work forces in the U. S. by 2.9 million jobs during the 2000s while increasing their employment overseas by 2.4 million.

This trend continues according to data revealed by Trade Assistance Adjustment (TAA) filings made to the U. D. Department of Labor in a recent article in Manufacturing & Technology News. TAA provides benefits and training to workers displaced by trade and sifting manufacturing offshore. The article lists 50 companies that laid off workers in the first three weeks of July, about 80% of which were manufacturing jobs. Other types of jobs displaced were customer service, technical support, information technology, data processing, and even engineering design. TPA assistance is like putting a bandage on after your arm was cut off.

While over 25 companies were shifting manufacturing offshore to China or India, it was surprising to see that Mexico was the next highest location to which manufacturing was being shifted. The reason for this is that new data produced by the Bank of America shows that labor rates in Mexico could be lower than China by as much as 20%, quite a change from 10 years ago when Mexican labor rates were 188 percent higher than China.

Other reasons for this switch to Mexico are lower transportation costs, faster delivery, higher productivity from automation, more reliable quality, and better payment terms than from China. As a resident of the border region of California and Mexico, I have seen this first hand. “Nearsourcing” to Mexico is occurring when reshoring to the U. S. is not economically justifiable at the present time.

Our major regional organization, CONNECT, has a Nearsourcing Initiative focused on matching San Diego companies in need of outsourcing with the region’s local manufacturers. “The program includes workshops that educate the region’s innovation entrepreneurs on the benefits of contracting with local manufacturers, including reduced time to market, increased innovation and reduced risk and costs; and a matchmaking program that helps San Diego innovation companies in need of outsourcing to Innovate Locally, Grow Globally – to connect and contract with qualified San Diego production resources.” Educational workshops and networking meetings have been held over the past two years, and manufacturers are encouraged to seek local vendors or even be matched with regional vendors by using the www.connectory.com database of primary industries, developed by the East County Economic Development Council, and the CONNECT Resource Guide.

CONNECT’s SME (Small-Medium Enterprises) Operations Roundtable group has also taken the lead in educating San Diego’s regional manufacturers on how to use the Total Cost of Ownership EstimatorTM developed by Harry Moser of the Reshoring Initiative, by means of a presentation I gave with a local contract manufacturer in February as an authorized speaker on behalf of the Reshoring Initiative.

It is crucial for American companies that do not have offshore plants to be trained on how to do a true Total Cost of Ownership Analysis using the TCO Estimator as a counter to the continuing trend of offshoring manufacturing jobs by multinational corporations that have facilities all over the world. For multinational corporations, the U. S. market represents a smaller piece of a bigger whole in the global economy. While offshoring may no longer be a relentless search for the lowest wages, many corporations go to Brazil, to China, to India, and other countries because that is where their customers are located.

I believe that training people performing two particular job functions is one of the keys to facilitating more reshoring ? supply chain personnel and Chief Financial Officers (CFOs). I have had the pleasure in the past year of speaking to three regional APICS’ chapters and a four-state regional conference last weekend. APICS is composed of supply chain/logistics people. I learned that in the 13th edition of APICS’ dictionary, the definition of Total Cost of Ownership is:  “In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream.” This is a good definition, not as complete as mine, but good. If supply chain personnel had utilized this definition in the past decade, a great deal of offshoring would never have occurred.

My question to conference attendees was what prevented the utilization of this good definition. One answer was:  We were not allowed to consider anything but the piece price and sometimes transportation costs in making the decision to select domestic vs. offshore vendors. Another answer was:  We were being mandated by upper management to outsource to China to save money. Others thought that their managers were doing what everyone else was doing; i.e., going to China to save money. In other words, they were following the “herd mentality” like buffalo were driven off a cliff by American Indians in our past history.

Another problem mentioned was that in the cost accounting systems used by most corporations,  transportation costs, travel costs to vendors, rework costs of defective parts, cost of inventory, etc. are in separate accounting categories and there wasn’t any software available to do a true Total Cost of Ownership analysis until Harry Moser developed his TCO estimator. This is why I believe that CFOs are critical in turning the tide towards reshoring vs. offshoring.

 

Yes, I believe that as wages continue to rise offshore, especially in China, transportation costs continue to increase, and risk factors such as political instability, intellectual property theft, and counterfeit parts take their toll, more and more companies will see the economic advantage and wisdom of reshoring.

 

However, we can accelerate reshoring if we can expand the reach of our education and training on understanding and using a true Total Cost of Ownership analysis to CFOs and other C level management. Harry Moser and I are no longer the only persons singing the “reshoring” tune. Consultants at the Manufacturing Extension Programs nationwide, such as California Manufacturing Technology Consulting (CMTC) and Manex are being trained in how to use the Reshoring Initiative’s Total Cost of Ownership EstimatorTM. I have even met former “offshoring” consultants who are rebranding themselves to be reshoring consultants. I urge everyone to do what you can to promote reshoring if you want to help create jobs and save American manufacturing.

 

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Is India a Better Place for Manufacturing than China?

Tuesday, June 4th, 2013

You would think that because India was formerly part of the British Empire and became an independent democracy, there would be less pollution and better working conditions than in China. Well, you would be wrong.

You wouldn’t find it any healthier to live in many of the industrial cities of India than the industrial cities in China. India is developing more slowly, but its growth is already taking a toll on the health of its people. India’s population has more than tripled since independence in 1947, from 350 million people to 1.2 billion, severely straining the country’s environment, infrastructure, and natural resources.

In my last article, I mentioned that four cities in India were listed in the Blacksmith Institute’s “Dirty 30” of the 2007 report, “The World’s Worst Polluted Places.” Consider Vapi, at the southern end of India’s “Golden Corridor,” a 400 km belt of industrial estates in the state of Gujarat. There are more than 50 industrial estates in the region, containing over 1,000 industries and extending over more than 1,000 acres. Many estates are chemical manufacturing centers, producing petrochemicals, pesticides, pharmaceuticals, textiles, dyes, fertilizers, leather products, paint, and chlor-alkali. Waste products discharged from these industries contain heavy metals (copper, chromium, cadmium, zinc, nickel, lead, and iron), cyanides, pesticides, aromatic compounds like PCBs (polychlorinated biphenyls), and other toxins.

The Indian Medical Association reports that most local drinking water is contaminated because of the absence of a proper system for disposing of industrial waste. Industrial waste instead drains directly into the Damaganga and Kolak rivers. Vapi’s groundwater has levels of mercury 96 times higher than World Health Organization standards. Approximately 71,000 people have no choice but to drink contaminated well water, as clean water sources are more than a mile away. The water is so discolored by contaminants it looks like a bottle of orange soda. Local produce contains heavy metals up to 60 times the safe standard. There is a high incidence of respiratory diseases, chemical dermatitis, and skin, lung, and throat cancers. Women in the area report high incidences of spontaneous abortions, abnormal fetuses, and infertility. Children’s ailments include respiratory and skin diseases and retarded growth.

It isn’t any better in Sukinda, in the state of Orissa, where 97 percent of India’s chromite ore deposits are located. Twelve mines operate without any environmental management plans, and more than 30 million tons of waste rock is spread over the surrounding area and the banks of the Brahmani River. The mines discharge untreated water directly into the river. Approximately 70 percent of the surface water, and 60 percent of the drinking water, contains hexavalent chromium at more than double national and international standards. The polluted Brahmani River is the only water source for 2,600,000 people. Health problems include gastrointestinal bleeding, tuberculosis, asthma, infertility, birth defects, and stillbirths.

The Indian economy is growing rapidly, but pollution is quickly spiraling out of control and rivers are dying by the dozens. Fully 80 percent of urban waste, including industrial waste, winds up in the country’s rivers. Much of this comes from untreated sewage. The Ganges River has levels of fecal coliform, a dangerous bacterium that comes from untreated sewage, 3,000 percent higher than what is considered safe for bathing. More than three billion liters of waste are pumped into Delhi’s Yamuna River each day. “The river is dead, it just has not been officially cremated,” said Sunita Narain, director of the New Delhi-based Centre for Science and Environment, one of India’s top environmental watchdog groups, to Spiegel-Online.com in reference to the Yamuna.

Air pollution is also a growing problem. There are four main sources: vehicles, power plants, industry, and refineries. India’s air pollution is exacerbated by its heavy reliance on coal for power generation. Coal supplies more than half the country’s energy needs and nearly three-quarters of its electricity. Reliance on coal has led to a 900 percent increase in carbon emissions over the past 40 years. India’s coal plants are old and not outfitted with modern pollution controls. Also, Indian coal has a high ash content, which creates smog. Vehicle emissions are responsible for 70 percent of the country’s air pollution. Exhaust from vehicles has increased 800 percent, and industrial pollution 400 percent, in the past 20 years.

Although the Constitution of India guarantees free and compulsory education to children between the age of 6 to 14 and prohibits employment of children younger than 14 in any hazardous environment, child labour is rampant. According to an article, “The Hidden Factory: Child Labour in India,” in The South Asian, May 7, 2005, many consumer goods  are “the products of a hidden factory of countless children, many as young as five years old, toiling for tireless hours, under harsh, hazardous, exploitative, often life threatening conditions for extremely low wages.” The article states “India has the largest number of working children in the world.” Credible estimates range from 12 to 15 million child laborers. What is even more horrible is that a large percentage of these children are de facto slaves, bonded to their jobs, with no means of escape or freedom until they can repay their parents’ loans. The major industries using child labor are:

Carpets – An estimated 50,000 to 1,050,000 children, as young as six, are often chained to carpet looms in confined, dimly lit workshops, making the thousands of tiny wool knots that become expensive hand-knotted carpets for export. Recruiters or organized gangs pay landless peasants cash advances to “bond” their children to their jobs. The children suffer from spinal deformities, retarded growth, respiratory illnesses, and poor eyesight.

Brassware – An estimated 40,000 to 45,000 children, as young as six, are involved in brassware production, including jobs like removing molten metal from molds and furnaces, electroplating, polishing, and applying chemicals. If they survive being injured from molten metal and exposure to furnaces operating as high as 2,000 degrees Fahrenheit, they often suffer from tuberculosis and other respiratory diseases due to inhalation of fumes from the furnaces and metal dust.

Leather – As many as 25,000 children, from 10 to 15, are involved in the manufacture of shoes. They suffer from respiratory problems, lung diseases, and skin infections from continuous skin contact with industrial adhesives and breathing the vapors from glues.

Gemstones – Children are commonly engaged as “apprentices” in the gem polishing industry. The learning process takes five to seven years and they work an average of 10 hours a day. Major health issues include tuberculosis and respiratory diseases.

Glass – This industry employs an estimated 8,000 to 50,000 children as young as eight. They work in an inferno due to the intense heat of glass furnaces (1,400-1,600o C) and suffer from skin burns, tuberculosis, respiratory diseases, mental retardation, and genetic cell damage.

Silk – An estimated 5,000 children, mostly girls from five to 16, are employed in silk manufacturing, which includes sericulture, dyeing, and weaving the silk. Chemicals and boiling water in the dyeing process are common health hazards; skin burns from the boiling water and respiratory diseases from the chemicals often result.

Agriculture –Parents pledge children as young as six to landlords as bonded laborers. The number of bonded laborers is not categorized by adults and children, but the total is estimated to range from 2.6 to 15 million. Children are involved in all types of agriculture and are completely controlled by their masters, receiving a bare minimum of food and lodging. More than 90 percent of bonded laborers in India, many of whom became bonded as children, never had the opportunity to go to school.

Mining – A 2006 report, “Our Mining Children,” prepared by a team of non-profit organizations, described the condition of hundreds of thousands of migrant workers in the mining industry.

Karnataka, for example, is a state with vast mineral resources, of which the Bellary district has the most extensive range. Minerals mined include iron ore, manganese, quartz, gold, copper, granite, and decorative stones. India is the fourth-largest iron-ore producer in the world. As a result of new government economic policies, a shift to privatization, an open market economy, and wide-open markets in China, South Korea, and Australia, mining companies have bought up thousands of acres of land in the district since 2000.

All of the mines visited by government teams had child laborers, some as young as five. It is estimated that as many as 200,000, or 50 percent, of the workers are children. The mining economy is only profitable because of large-scale child labor and the flouting of social and environmental laws. The mine owners say they only employ the adults, but as the families live at the mine site, the children join in the work. The parents force their children to work because they say they cannot survive otherwise.

As you can see, India is not any better than China for products to be made ? the pollution is just as bad, working conditions are as bad or worse, and child labor is rampant. Make the better choice ? Made in USA!

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