Chinese Innovation Mercantilism is Hurting American Manufacturers

December 11th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

How Some Manufacturers are Successful in Competing Globally

December 4th, 2012

While attending the FABTECH Expo in Las Vegas last month, I interviewed several companies that all or the majority of their manufacturing in the U. S. to find out what they are doing to successfully compete in the global marketplace.

The first company was Laserstar Technologies, located Riverside, RI, and I interviewed Peter Tkocz, Regional Sales Mgr., southwestern States. Laserstar makes laser welding and marking equipment using the “free-moving” concept they development, enabling users to eliminate costly fixturing devices, benefit from pin-point accuracy, increase the range of assembly and repair applications and minimize the potential hazards of heat damage. Peter told me that the company is 55 years old and started making jewelry. When jewelry making went overseas in the 1990s, he said that the company had to reinvent itself and get into new markets to survive. They set a goal to enhance the quality, performance, and innovation of their products, programs and services on a continuing basis and became a “lean” manufacturing company.

Since, then, they have developed a diverse customer base of six major markets:

  • Medical – cardiac pacemakers, defibrillators, guide wires, catheters, hearing aids, orthodontic appliances, prosthetics and surgical tools
  • Dental – crowns and bridges, partial and implant fabrication and repair.
  • Electronics – a wide variety of different materials, component parts or final assemblies
  • Aerospace
  • Micro technology – wide range complex applications for laser welding and marking
  • Tool and die repair – ideal for modifications and repairs on molds, tools and dies as the process is quick, precise and will not damage surrounding surfaces.
  • Jewelry – a fast fix to repair jewelry and eyeglasses, and their new Fiber star machine can weld down to 12 microns, which is critical for high-end gem stones

LaserStar’s Research & Development laboratory is focused on inventing new technologies that change markets and create business opportunities, utilizing input from customers. Laserstar sells through learning centers vs. distributors, and the three learning centers at their headquarters in Rhode Island, California, and Florida. Their laser education courses provide a solid foundation of fundamental laser welding and laser marking skill sets to immediately gain a revenue impact for the new or existing iWeld, LaserStar or FiberStar laser welding or laser engraving system.

I next interviewed Dan Moiré, Sr. V. P. Sales of TRYSTAR, located in Faribault, Minnesota. TRYSTAR is a leading domestic manufacturer and international distributor of portable and permanent power solutions, industrial cables and power accessories. The company began operations as Bridgewater Tech, an industrial cable wholesaler founded in 1991. It wasn’t long before they realized there was room for innovation and improvement in the safety and performance of the products they were selling. As a result, they began manufacturing their own welding and grounding cables under the TRYSTAR brand in 1993.

As the superiority of TRYSTAR cables became evident throughout the industry, they expanded operations to offer customers greater versatility and reliability in the field, and as the brand became well known, the company transitioned from Bridgewater Tech to TRYSTAR.

Dan Said that today, TRYSTAR offers a wide range of capabilities specifically designed with the end-user in mind. They provide efficient, customized solutions, made with only the highest quality raw materials, manufactured on site, and serviced by their own professionals. Their factory is as vertically integrated as possible, and they provide customers with a full range of professionally packaged industrial products and services. They even extrude their own cable and do sheet metal fabrication and welding in-house.

TRYSTAR was the first to…

  • introduce sequential foot-marking to the welding cable industry, reducing the chance of waste
  • introduce custom-printed, colored cable, reducing the chance of theft on the job site
  • market a color-coded, insulated inner safety liner, designed to alert the cable’s user to any damage or wear and minimize problems in the field
  • produce a true Arctic weather cable that remains flexible to -57°C
  • introduce an improved clear-sheathed grounding cable that is flexible from -40°C to +105°C, allowing for safer grounding of high power lines during outages
  • introduce environmentally responsible, recyclable packaging for cable products
  • provide direct-to-market, completely assembled cable products, with unique and specific job identifiers, delivered directly to the job site

Kevin Duhamel, Product Sales Mgr at Gorbel was my next interview. Gorbel has over 30 years experience providing overhead handling solutions to customers in a wide range of industries. They have a comprehensive line of Crane Technology products, including work station bridge cranes, patented track cranes, I-beam jib cranes, gantries, and work station jib cranes. They also have an exciting line of Ergonomic Lifting products, featuring our G-Force® Intelligent Lifting Device, our Easy Arm® Intelligent Lifting Arm, and our G-Jib®. Their newest line, Tether Track Fall Arrest Safety Systems, provides a turnkey fall protection solution that exceeds OSHA safety standards. –

They have been in business since 1977 and are the largest U. S. manufacturer of lifting devices and cranes. Kevin said that their G-Force unit can lift up to 1320 lbs with higher speed and precision than chain hoists. They have two manufacturing plants in the U. S. – Fishers, NY and Pell City, AL – and sell to Europe, Canada, Mexico, and South America from their U. S. plant. They have a plant in Tianjin, China to market to customers such as John Deere and Caterpillar that have plants in China. About 90% of their business comes from North America and Mexico. They are very vertically integrated and qualified to have their product stickers say “Made in USA.”

I met and spoke to several of the top executives at TigerStop, located in Vancouver, WA, including president and founder Spencer Dick. Spencer founded TigerStop in 1994 and focuses on developing new product lines and enhancing their current products to simplify production processes for their customers.

TigerStop® LLC, is the global leader in stop/gauge and pusher systems that includes precision measuring systems, saws, and material handling equipment. National Sales Mgr., Erland Russell, told me that their products can easily integrate with most machinery used in the woodworking, metal, fenestration and plastics industries. He said that one of their models can measure and precisely saw material up to 20 ft. in length. TigerStop maintains an aggressive research and development program with over 100 patents awarded or pending.

TigerStop’s manufacturing is very vertically integrated in their Vancouver plant, but they also have an additional manufacturing and distribution facility in Wierden, Netherlands. The TigerStop distribution network spans six continents and their products are supported in five languages. TigerStop provides world-class customer support through experienced service technicians, on-going dealer training, and online technical resources.

Next, I interviewed Mike Albrecht, National Sales Mgr., at the Scotchman Industries booth. Scotchman Industries, Inc. is a leading manufacturer of metal fabrication equipment, accessories, and custom tools, such as ironworkers, cold saws, band saws, tube and pipe notchers, and measuring systems for nearly half a century.

Art Kroetch founded Scotchman Industries in the early 1960s to make and sell farm-related products, such as pickup stock racks, corral panels, gates and chutes. In 1966, Scotchman Industries purchased the patent for a hydraulic ironworker, the first machine of its kind in the world, and began manufacturing ironworkers. This machine, using hydraulic pressure, created up to a 35-ton force that could punch, bend and shear metal.

In 1978, Scotchman Industries purchased Excel Manufacturing Ltd. of Winnipeg, Manitoba, Canada, and was able to provide a line of ironworkers that ranged from 30-ton to 90-ton capacities for the world market. Today, Scotchman Industries, Inc. has a complete line of thirteen different ironworkers, ranging in capacities from 45 to 150 tons, with component tool design, and a fully integrated European style; both are available in either single or dual operator models. Scotchman has successfully acquired and maintained a large portion of the ironworker market.

Scotchman Industries is proud to be an American manufacturer who has always been export-minded. The company was given the President’s “E” Certificate for Exports in 1981 by the Secretary of Commerce, for excellence in its increased exporting of products. Today Scotchman Industries continues to export their products to many countries around the world.

Scotchman is located in Philip, SD; Mike said that all of their products are manufactured in the USA. They have donated equipment to the Workshops for Warriors located here in San Diego, CA.

Finally, I interviewed Heather Gaynor, Marketing Communications Mgr., at Swagelok, located in Solon, OH. Swagelok is a privately-held company that manufactures designs, manufactures, and delivers an expanding range of the highest quality fluid system products and solutions, such as tube fittings, valves, regulators, hoses and other products that are vital to fluid system solutions in industries such as power generation, oil and gas production, chemical processing, biopharmaceutical, research, semi-conductor manufacturing and more. They manufacture everything in the U. S. and are very vertically integrated.

Swagelok products and services are delivered locally through a network of more than 200 authorized sales and service centers that support customers in 57 countries on six continents.

While the products and services of the companies I interviewed are quite different, there are common threads:

  • All of the products are sold to other businesses (referred to as B-B) instead of to consumers.
  • The products fill specific needs and requirements of other manufacturers.
  • All of the companies manufacture their products in America.
  • The companies export their products to other companies

In addition, three of the six companies are privately held so that that management isn’t under the pressure to maximize quarterly profits and can focus on long-term company goals.

What this shows is that American manufacturers with unique products that satisfy customers’ needs can compete successfully in business-to-business global markets where the predatory mercantilist countries of China, Korea and India haven’t targeted to take over the market and destroy their American competition. If American manufacturers truly had a level playing field provided by “smart” trade agreements instead of the current lopsided, dumb agreements we have in place now, they would be able to compete successfully in the global marketplace. It is time to address the predatory mercantilist practices of these countries. Designating China as a currency manipulator would be a good start!

 

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Posted in Innovation, Manufacturing, Trade | 1 Comment »

New Products and Education Highlighted at Las Vegas FABTECH Expo

November 27th, 2012

The annual FABTECH expo was held November 12-14 at the Las Vegas convention center. It is the largest metal forming, fabricating, welding and finishing event in North America and only comes to the west once every three to four years. The other rotating locations are Chicago, IL and Atlanta, GA.

FABTECH is co-sponsored by five industry-leading associations: the American Welding Society (AWS), the Fabricators & Manufacturers Association, International (FMA), the Society of Manufacturing Engineers (SME), the Precision Metalforming Association (PMA), and the Chemical Coaters Association International (CCAI).

The first day’s attendance was a record high of over 15,000, and show organizers reported that 25,903 attendees walked the more than 450,000 net square feet of floor space during the three-day show to see live equipment demonstrations, compare products side-by-side and find cost-saving solutions. Because of the Las Vegas location, many attendees probably came to have fun over the weekend and attended the show the first day. I visited the show on the second and third day so I missed the huge crowd of the first day. It was my first FABTECH show, and it was overwhelming in size and scope. I haven’t seen exhibitor displays as large since the heyday of the Los Angeles WESTEC show in the early 1990s.

I was curious to see if attendees were going to the show to browse or actually place orders. Judging by the number of “sold” signs on equipment and my interviews with exhibitors, attendees were placing orders and not just browsing. Exhibitors speculated that many were buying to take advantage of the “accelerated depreciation for the purchase of capital equipment” that will expire on December 31st, unless Congress extends the current tax rates (referred to as the Bush tax cuts).

The October issue of West Manufacturing News reported, “FABTECH’s annual expo comes as manufacturing continues to lead the American economy out of the recession…Offshored work is returning home and profits at manufacturing companies increased 25% in 2011.”

Out of the more than 1,100 manufacturers participating in the expo, 274 companies were displaying new products. There were 113 new products in the welding section alone, and the rest were displayed in the forming and fabricating, finishing, metal forming, and tube bending, pipe and wire forming sections.

I met the COO of Lincoln Electric, Christopher Mapes, while standing in line at Starbucks, and he arranged for me to have a demonstration of their new VRTEX® virtual reality arc welding training simulator. These computer based training systems are educational tools designed to supplement and enhance traditional welding training. They allow students to practice their welding technique in a simulated and immersive environment. The VRTEX® systems promote the efficient transfer of quality welding skills and body positioning to the welding booth while reducing material waste associated with traditional welding training. I actually got to put on the helmet and perform a virtual weld. I have watched welding in the shops I have represented over the years, but it was my first time to actually perform a virtual weld. I immediately saw how great the training system would be for training the next generation of workers in programs such as the Workshops for Warriors I wrote about in October.

The FABTECH educational conference held simultaneously with the three-day expo included an unprecedented number of sessions on such manufacturing topics as laser and water jet cutting, product finishing and coatings, forming and fabrication, lean, online and social marketing, metal stamping, tube and pipe ending, and welding. The educational sessions were available for half-day, all-day and a three-day program. The education programs and special events were packed with attendees.

There was at least one special event each day:  On day one, there was a workshop on “Lean Manufacturing for Managers” and a “State of the Industry:  Manufacturers’ Executive Outlook.” On day two, there were three special events:  “Post-Election Analysis:  How the Results Impact U. S. Manufacturing; the “American Jobs for American Heroes,” in which Steve Nowlan, President, Center for America (CFA), briefed attendees on the opportunity for manufacturers to hire military veterans for skilled manufacturing jobs. The American Jobs for America’s Heroes is an alliance of the National Guard, CFA, Corporate America Supports You (CASY) and the Military Spouse Corporate Career Network (MSCCN) to help 60,000 unemployed National Guard members, veterans and spouses find skilled jobs in the private sector. The final event was a presentation by Harry Moser, President of the Reshoring Initiative on “To Offshore or Reshore? How to Objectively Decide!” I attended the “Post Election Analysis” and “To Offshore or Reshore? special events.

According to the after-show press release, at the State of the Industry roundtable with manufacturing CEOs, the CEOs concurred that growth in manufacturing should continue for the next year; however, all said a stumbling block to growth is the lack of skilled workers in manufacturing. The CEOs emphasized that manufacturers need to be more aggressive in influencing parents of students, having students influence each other and have school be a more active voice in recruiting potential workers.

The Post-Election Analysis panel featured Washington insiders Paul Nathanson, Founding Partner, Policy Resolution Group, Omar Nashashibi, The Franklin Partnership LLP, and David Goch, Webster, Chamberlain & Bean, all of whom have long track records in representing manufacturing interests.

They discussed the so-called looming fiscal cliff, tax reform, and other issues that will impact manufacturers. Paul Nathanson said, “Manufacturers need certainty to plan and there are major challenges ahead because of tax increases with the expiration of current tax rates and new taxes under Obamacare.” He feels something will get done before end of year and doesn’t think that sequestration will go in effect.

Omar Nashashibi said, “The new Congress will look at tax reform. The expiration of current taxes and Obamacare taxes represents $5.4 trillion of tax increases. The President proposed 28% taxes for corporations, but that doesn’t affect 70% of businesses that are LLCs, LLPs, partnerships, or sole proprietorships.

David Goch said, “Congress will do what they have done in the past – a 6-9 month ‘punt.’ The continuing resolution for funding ends March 31st if the debt limit isn’t reached sooner.” He warned the audience not to be surprised if the “carbon tax” reappears. “A recent Brookings Institute report proposed a “carbon tax” that would result in $1.2 trillion revenue over 10 years. It would make economists happy as it encourages investment vs. consumption. It would make Republicans happy because there would be no new taxes, and it would make environmentalists happy.”

They all believe that Congress will reach a deal to at least move the deadline for a debt deal before the end of the year. All agreed that the manufacturing sector has gained influence in Washington over the past two years and encouraged manufacturers to get involved in advocacy efforts for the industry via their trade associations.

While I am an authorized speaker for the Reshoring Initiative, I attended Harry Moser’s presentation on Tuesday afternoon to see if he had any new data that I could add to my own presentation. I appreciated being reminded that W. Edwards Deming’s “4th Key Principle for Management,” in Out of the Crisis, was:  “End the practice of awarding business on the basis of price tag. Instead, minimize total cost.” If companies had been practicing this principle for the past 20 years, we would have had far less manufacturing sourced offshore.

Moser’s Total Cost of Ownership (TCO) calculator enables companies to calculate the cost of all of the variables, including the hidden costs and risk factors, of doing business offshore.  Moser stated, “Manufacturers have to look at the total costs of offshoring to reliance that the savings gained might not e as significant as they think…Once you factor in tariffs, shipping costs, increase inventor because of delivery delays, quality control and communication issues, it’s a financial win to bring certain types of manufacturing back to North America.”

Some of the new data included in his presentation was:

  • 61% of larger companies surveyed “are considering bringing manufacturing back to the U.S.” (MIT forum for Supply Chain Innovation 1st Qtr. 2012)
  • 40% of contract manufacturers have done reshoring work  this year (MFG.com 4/12)
  • Percentage of U.S. consumers who view products Made in America very favorably: 78%  (2012) up from 58% (2010) (AAM June 28-July 2, 2012)
  • 76% are more likely to buy U.S. product
  • 57%  are less likely to buy Chinese product  (Perception Research Services Intl. survey 7/12, 1400 consumers)

According to the Reshoring library of case studies, the top four industries that have reshored are:

  • Electronic equipment, appliances & components
  • Transportation equipment
  • Machinery
  • Furniture

The main reasons why companies are reshoring are:

  • Wage and currency change
  • Quality, Warranty, Rework
  • Delivery
  • Travel Cost/Time
  • Inventory

Moser believes that just by using the TCO calculator, 25% of manufacturing offshored could return to America, representing about 300,000 jobs. In conclusion, Moser recommends:

  1. Keep existing domestic sources
  2. Shift outsourcing back to U. S.
  3. Repurpose own offshore to serve the offshore market and incrementally invest domestically to serve domestic market.
  4. Shut own offshore facility and build new domestic facility.

In the after show press release, John Catalano, FABTECH show co-manager, said, “We’ve received great feedback from attendees and exhibitors. Attendees were impressed with the size and scope of the show and the vast array of new products and technologies on display. Exhibitors were enthusiastic and report that sales activity was brisk and leads were plentiful.”

Mark Hoper, FABTECH show co-manager, said, “If you can take the pulse of the economy by what’s happening in manufacturing, then you have to be optimistic that we are headed for economic growth, said. A constant theme I heard both on the show floor and at the seminars was that, while challenges and uncertainties remain, most manufacturers believe that their businesses are headed for continued growth in 2013.”

Mark your calendar to attend FABTECH 2013, which will be held on November 18-21 at McCormick Place in Chicago, IL.

 

Posted in Education, Manufacturing, Reshoring | No Comments »

“Lame Duck” Congress Should Pass These Two Important Bills

November 12th, 2012

While the focus of the “Lame Duck” Congress will be to keep us from falling off the cliff of financial ruin from reaching the debt ceiling and sequestration, there are two bills passed by one body of Congress but not the other that should be passed. Both of these bills would be beneficial to America’s manufacturing industry.

The first bill addresses a topic many Americans supported during the latter part of Governor Mitt Romney’s campaign for president ?  he “took a hard line in his campaign, promising to cite China for its currency peg on day one of his presidency. National polling makes clear that the American people overwhelmingly support such action on China’s brazen violations of world trade law, including its currency undervaluation.”

The Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619) is an international trade bill that would establish US duties on imports from countries with undervalued currencies. The bill was approved by the Senate on October 11, 2011 by a vote of 63-35, but H.R.639, the Currency Reform for Fair Trade Act, has not been brought up for a vote yet in the House of Representatives even though it has strong bipartisan, majority support with 234 lawmakers, including 65 Republicans, as cosponsors. U.S. Rep. Sander Levin, D-MI and ranking member on Ways and Means, introduced the legislation. The bill remains in the Ways and Means Subcommittee on Trade.

Speaker of the House John Boehner (R-OH) has continued to block a vote on the bill despite overwhelming support. Speaker Boehner has said in statements that the United States should not dictate currency policy for another country and that he will oppose attempts to bring this bill to the floor for vote. It is clear that Speaker Boehner is single-handedly thwarting the majority will of both Congress and the American people. It is hard to understand why Boehner would stand in the way of such modest legislation to address China’s mercantilism.

On the Senate website, Sen. Sherrod Brown (D-OH) said, “China’s currency manipulation has already cost 3 million American jobs–2 million of which came from our manufacturing sector. The bill that passed [Oct. 11] could create 1.6 million American jobs.”

In 2010, the House passed a similar bill, H.R.2378, the Currency Reform for Fair Trade Act, by a strong, bipartisan vote of 348-79, including 99 Republicans, but the Senate failed to pass their version of the bill.

The problem of Chinese currency manipulation has actually gotten worse in the past year since the Senate bill passed. The New York Times’ Keith Bradsher “reports that Beijing has actually depreciated its currency more of late.  The Yuan fell nearly 1 percent against the dollar last month, and Bradsher says this is the “largest drop since Beijing officials unpegged the currency from the dollar in July 2005. The fact that Beijing can adjust its currency so precisely is proof yet again that it deliberately manipulates the Yuan to gain an export advantage.”

We cannot continue to run up a massive trade deficit with China. The U.S. trade deficit in goods and services increased from $500 billion in 2010 to $558 billion in 2011, an increase of $58 billion (11.6 percent). The massive sales of Chinese exports to the U.S. is fueled by China’s deliberately undervalued currency. By pegging its currency to the dollar at an artificially low rate, Beijing is making sure that its exports are exceedingly cheap in the U.S. Conversely, U.S. exports are more expensive due to this preferential currency rate.

How would this bill help? The bill calls for the Treasury Department to identify countries whose currencies are undervalued, and then instruct the Commerce Department to impose duties on imports from those aforementioned countries. Key points of the Currency Exchange Rate Oversight Reform Act of 2011 include:

* Improves the oversight of the currency exchange rate by the Treasury.

* Clarifies the countervailing duty law to address currency under-evaluation.

* States that Commerce may not refuse to investigate a subsidy allegation. This clarification is supported by the WTO’s Appellate Body and is a key element in the previous Brown-Snowe currency bill and in HR 2378, which passed in September 2010.

* Triggers a series of consequences, including:  Immediate: “consider designation of a country’s currency as a ‘priority’ currency when determining whether to grant the country ‘market economy’ status for purpose of U.S. antidumping law.”

After 90 days: “forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement,” and “forbid Overseas Private Investment Corporation financing or insurance for projects in the designated country.”

After 360 days and failure to adopt appropriate policies: “The administration must require the U.S. Trade Representative to request dispute settlement consultations in the World Trade

Organization with the government responsible for the currency,” and “require the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.”

The bill also stipulates that “countries that fail to fix their currencies would be subject to higher anti-dumping duties and other penalties, such as a procurement ban, not receiving financing from the Overseas Private Investment Corporation, and U.S. opposition to multilateral bank financing for the targeted countries.”

Passage of this bill would be an obvious step forward to provide a level playing field for America’s manufacturers and their workers.

The other important bill, “The American Manufacturing Competitiveness Act” (HR-5865), co-sponsored by Illinois Reps. Dan Lipinski (D) and Adam Kinzinger (R), passed the House on September 12, 2012 by a vote of 339-77.

“H.R. 5865 establishes the American Manufacturing Competitiveness Board within the Department of Commerce to advise the President on issues affecting manufacturing in the United States. The board would be required to perform a comprehensive analysis of the nation’s manufacturing sector and, using results from the analysis, develop a strategy to improve the competitiveness of domestic manufacturing efforts. Results from the analysis and strategy would be available to the President to comply with the bill’s requirement to publish a strategy in 2014 and again in 2018 to promote growth in the nation’s manufacturing sector.”

The board would consist of 15 members: five from the public sector appointed by the President, including two governors from different parties; and 10 people from the private sector appointed by the House and the Senate, with the Majority appointing three and the Minority appointing two from each chamber.

In preparing the analysis, the board would be required to study, among other things:

  • The current environment for manufacturing, including government policies—at the international, federal, state, tribal, and local levels—that affect the sector;
  • Forecasts, both short- and long-term, for domestic and international trends in manufacturing;
  • Actions by federal agencies that affect manufacturing; and
  • Factors that affect the growth and stability of the sector such as workforce skills;
  • Trade, energy, and monetary policies; research and development; and protections for intellectual property.

Using results from the analysis, the board would be required to develop a strategy to improve the competitiveness of the nation’s manufacturing sector. The bill would require the strategy to include recommendations to eliminate or consolidate government programs, improve interaction between the government and the manufacturing sector, and amend any regulations that put the industry at a competitive disadvantage in international markets.

The final report also would be required to include a plan to implement the strategy, including an estimate of the cost to implement it as well as recommendations for ways to cover those costs.

In April 2011, The Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” that made a strong case for such a strategy. Authors Stephen Ezell and Robert Atkinson present information on five key reasons why manufacturing is important to the U.S. economy:

1.      It will be extremely difficult for the United States to balance its trade account without a healthy manufacturing sector.

2.      Manufacturing is a key driver of overall job growth and an important source of middle-class jobs for individuals at many skill levels.

3.      Manufacturing is vital to U.S. national security.

4.      Manufacturing is the principal source of R&D and innovation activity.

5.      The manufacturing and services sectors are inseparable and complementary.

The authors also present three primary reasons on why the United States needs a manufacturing strategy:

1.      Other countries have strategies to support their manufacturers and by lacking similar strategies we are therefore forcing our manufacturers to compete at a disadvantage.

2.      Systemic market failures mean that absent manufacturing policies, U.S. manufacturing will underperform in terms of innovation, productivity, job growth, and trade performance.

3.      If a country loses complex, high-value-added manufacturing sectors, it is unlikely to get them back, even if the dollar were to decline dramatically.

While not perfect, this bill would be a good start in developing a national manufacturing strategy. Contact your senator or representative to urge them to vote on these bills.

 

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“Lame Duck” Congress Must Act to Prevent Sequestration

November 6th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

 

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

How do Obama and Romney Stand on Issues Affecting Manufacturing?

October 23rd, 2012

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

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

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

President Obama’s plans include:

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

Governor Romney’s proposal includes:

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

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

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

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

President Obama’s record:

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

Governor Romney’s proposal:

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

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

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

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

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

His Blueprint states that he will:

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

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

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

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

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

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

President Obama’s plan:

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

President Obama’s Track Record:

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

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

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

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

 

 

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Workshops for Warriors Prepares Vets for Skilled Manufacturing Jobs

October 16th, 2012

While there are over 12 million people unemployed, there are hundreds of thousands of manufacturing jobs going unfilled due to the lack of people with the right skills to fill those jobs. Much of the demand for skilled workers arises because the automated factories of today demand workers who can operate, program and maintain the new computerized equipment.

On the other side of the equation, we have thousands of young men and women who are ending their  military service and having great difficulty finding jobs because there is a mismatch in the skills they acquired in the military and the skill needs to find a civilian job, particularly in the manufacturing industry. Transitioning from military service to civilian life is challenging in the best of times, but has been even tougher in the current economy. For the estimated two million veterans who served a tour — or multiple tours — of duty in the wars in Iraq and Afghanistan, there are even more hurdles than usual. The jobless rate amongst these veterans was more than 12 percent in 2011, well above the national average rate of the general population. It was even worse for veterans between 18 and 34 years old; their jobless rate neared 30 percent in 2011. In California, nearly one in four veterans ages 18-24 were unemployed in 2009, almost double the unemployment rate for the civilian population.

Other factors that come into play include medical advances that are resulting in greater survivability on the battlefield with more “Wounded Warriors” (severely injured service members) returning home.

On October 5th, I visited the Workshops for Warriors facility in San Diego during their Manufacturing Day Facility Tour and met retired naval officer Hernán Luis y Prado, founder and president of Workshops for Warriors (WFW), a Board-governed 501 (c) 3 nonprofit organization that provides free vocational training to veterans of the US Armed Services. WFW assists the transition of veterans and injured veterans into civilian life through mentorship, training, and education. Their mission is to certify and place veterans of the US Armed Services into manufacturing careers. The main objective of WFW is to enable veterans to move from economic insolvency into self-sufficiency by learning necessary job-skills and earning a steady income.

In a subsequent interview, I asked Hernán about how he started his program and was astonished to find out that he actually started helping his fellow service members when he got back from his tour of duty in Iraq in 2003. He was tired of seeing his friends lose everything ? their homes, spouse, and family ? after getting out of the service and experiencing financial from not being able to make the transition.

While he was stationed in the Washington D.C. area, he opened his house, garage and back yard to friends so they could come over during their medical rehabilitations and work with his metal fabrication and woodworking tools. He continued to do this as he moved to new stations in Newport, Rhode Island, Virginia, and Mississippi. He bought more and more equipment until his garage was filled. When he was stationed in Mississippi in 2008, he and his wife realized there was a great need for formal training in manufacturing skills, and they determined to do what they could to fill this need.

Hernán said, “We are a military family. And we will do whatever it takes to get veterans who have the desire to work, work. We are going to create America’s manufacturing infrastructure right here in San Diego. Every couple of weeks I go to either the Veteran’s Center near Balboa Park or Camp Pendleton to speak to the Wounded Warriors. I’ll get in front of a group of 200 to 400 Wounded Warriors and ask them how many have a job when they separate from the service. Up to now, I’ve only had one show of hands.”

After learning that one out of seven members exit the military in San Diego, he was able to get stationed in San Diego, and  he rented one storage unit, two, and then three, filling them with more and more equipment. Over the years, he and his wife financed all of this on their own by selling two homes, a car, and a motorcycle.

In February 2011, they rented a 4,500 sq. ft. building, but soon ran out of space and moved to a building twice the size in October 2011. In November 2011, Goodrich Aerostructures, in Chula Vista, California, donated $25,000 and a trailer in which their CAD/CAM training is conducted (powered by solar panels on the roof.) In addition, Goodrich Aerostructures business has donated nearly $1 million in equipment and materials to help WFW build out its class offerings.

When he left active duty in February 2012, he and his wife decided to formalize and structure a true training program to expand the scope of the impact they sought. Workshops for Warriors now has certified instructors teaching welding and machining to more than a dozen veterans in each 12-week course and offers training in CAD/CAM (Computer Aided Design/Computer Aided Manufacturing). The courses will expand to 16 weeks when they get their NIMS certification in welding and MasterCAM. A combination of vocational training and real-world job experience empowers veterans, increases their career options, their confidence and self-respect.

This hands-on training as well as classroom education ranges from hobby-level skills and access to common tools to fabricating commercially viable products on state-of the art machining systems. The program provides classroom experience, practical training, paths towards vocational certification, work-experience, and mentorship programs in order to assure long-term independence and integration into the workforce. Instruction is offered by skilled veterans, active-duty service-members, and industry experts.

Workshops for Warriors offers assistance to graduates of their program and previously certified veterans and their entrepreneurial endeavors in the following ways:

  • Job placement
  • Work experience,
  • Equipment
  • Tools
  • Metal stock

In order to provide actual work experience for veterans and be self-sustaining, Workshops for Warriors frequently undertakes projects to help disabled and homeless veterans, the community, and local businesses. The most recent projects include:

  • Fabricating handicapped railings
  • Fabricating handicap-accessible ramps
  • Fabricating metal cylinder pallets
  • Fabricating new doors for a local restaurant

The students also make products for sale to raise money for the program. These products have been designed and patented by Hernán Luis y Prado. One is a set of leveler plates used to level machines on the shop floor, and the other is a machined skate used for moving machines and other heavy equipment around in a shop. Another product is a cofferdam designed specifically for use by the Navy to plug up battle damage in a ship hull until a ship can get to port to be repaired.

On May 24th, Hernán Luis y Prado was one of the 11 veterans honored as the Champions of Change by the White House Office of Public Engagement for the week of May 21st. The individuals honored that week had shown continued support for efforts to end veterans’ homelessness, boost veterans’ employment, treat problems with substance abuse, and develop treatment programs for those dealing with PTSD. In early 2011, the White House created the Champions of Change program to recognize ordinary Americans across the country that are doing extraordinary work in their communities.

On July 5, 2012, Goodrich Foundation announced that it awarded Workshop for Warriors (WFW) $100,000 to support its program that provides job training and skill certification to U.S. veterans at no cost to students.

“One area of our giving focus at Goodrich is to honor the men and women who serve their country in the armed forces,” said Marc Duvall, president of Goodrich’s Aerostructures business. “Enabling Workshops for Warriors to provide much-needed job training to veterans one of the best ways that we as a company can tell our veterans, ‘Thank you for your service.’” Hernán Luis y Prado said, “America is hungry for manufacturing employees; there are more than two million unfilled manufacturing jobs in the U.S. right now, Hiring our graduates is a win-win for this country and the people who served it. We want to be a major driver for retraining the world’s greatest fighting force into the world’s most modern manufacturing force.” The Goodrich Foundation grant will be used to hire additional instructors in order to increase the number of graduates from Workshops for Warriors.

The Society of Manufacturing Engineers also donated $25,000, recently provided another $5,000 towards getting NIMS certification for their welding training, and connected WFW to the Gene Haas Foundation. On September 11, 2012, the Gene Haas Foundation, formed in 1999 by SHR co-owner Gene Haas, has announced a grant of $50,000 to Workshops for Warriors.

In addition to the grant, Haas Automation has also entrusted the program with four state-of-the-art Haas-CNC machines and made a donation of eight training simulators with a value of $444,000 to WFW.

To help get national exposure for Workshops for Warriors, the logo for Workshops for Warriors was featured on the Stewart-Haas Racing car No. 39 driven by Ryan Newman at the GEICO 400 NASCAR® race that took place at Chicagoland Speedway on Sept. 16, 2012. Mr. Newman said that while his goal is to be the best of the rest, “his No. 39 Chevrolet carries a special paint scheme this weekend that recognizes an organization whose goal is to assist veterans in job training and helps them create the best post-military-service life possible. It’s called Workshops for Warriors and it was founded in San Diego, Calif., by U.S. Navy veteran Hernán Luis y Prado, who recognized and acted upon the need to help veterans find jobs after leaving military service.”

To date, the list of companies and organizations that have donated equipment, materials, and supplies not mentioned already includes, but is not limited to, Betenbender Manufacturing, Inc., Industrial Metal Supplies, MasterCAM, Microsoft, R-K Press Brake Dies, Inc., Sandvik, Scotchman, SolidWorks, and Torchmate. All we hear about in the news media is that corporations are only interested in maximizing profits and here we see evidence of them being generous to a fault to help a veteran realize his dream of helping other veterans.

Since October 2011, Workshops for Warriors has served 109 veterans, of which 57 veterans have graduated from the program for manufacturing jobs like welding and fabricating. The organization currently has a 100 percent job placement rate for its students. These veterans have earned 129 certificates (multiple certificates are available to each veteran.) The cost of tuition and all necessary classroom materials is free.

Because San Diego is a Navy/Marine region, the majority of the veterans that have applied to the program have been Marines (48 percent) and Navy (26 percent.). One percent served in the United States Air Force, and 13 percent were from other services such as National Guard and Coast Guard. Nearly all, 98 percent were enlisted men.

WFW welcomes companies interested in supporting our service members and their families and is looking forward to partnering with industry leaders, companies, and local businesses in order to provide training and employment opportunities for our veterans. If you would like to give back to our veterans, you can help by donating money or equipment to WFW. WFW is especially interested in fabrication, welding, and industrial companies that would like to assist in furnishing equipment, training, expertise, lessons learned, or supplies.

Workshops for Warriors has confidence that the young men and women exiting military service, once given the proper training and experience, will be able to re-integrate seamlessly into the civilian workforce.  Your support will help WFW facilitate access to good jobs for these Americans who have served their country and help them easily transition their commercially viable work experience to the manufacturing industry.

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

September 25th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S.-China Trade Deficit Cost More than 2.1 Million Manufacturing Jobs

September 4th, 2012

On August 23rd, the Economic Policy Institute released a briefing paper, “The China Toll ? Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state, written by Robert Scott.

“Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9 percent) were in manufacturing. These lost manufacturing jobs account for more than half of all U.S. manufacturing jobs lost or displaced between 2001 and 2011.”  The growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. When you take into account the multiplier effect of manufacturing jobs creating 3-4 other jobs, this explains why we have had a virtually jobless recovery since the end of the recession and why the unemployment rate has stayed so high for so long.

The growing trade deficit between China and the United States since China entered the World Trade Organization in 2001 has had a disastrous effect on U.S. workers and the domestic economy. It has cost jobs in all 50 states, as well as the District of Columbia and Puerto Rico.

“A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar. Instead, China has tightly pegged its currency to the U.S. dollar at a rate that encourages a large bilateral trade surplus with the United States.”

China’s currency should have increased in value as its productivity increased, which would have created balanced trade. But, the yuan has remained artificially low as China acquired dollars and other foreign exchange reserves to further depress the value of its own currency. The paper explains “To depress the value of its own currency, a government can sell its own currency and buy government securities such as U.S. Treasury bills, which increases its foreign reserves.”

As a result of pressure for action on China’s currency manipulation, the Ryan-Murphy Currency Reform for Fair Trade Act (H.R. 2378) was approved by the House of Representatives on September 29, 2010, in the 111th Congress, but it did not pass the Senate. Last year, the Senate passed a similar bill, the Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619), authored by Sen. Sherrod Brown (D-Ohio), but a similar measure introduced in the House by Rep. Sander Levin (D-Michigan) with strong bi-partisan support from 234 cosponsors is being held up by the House leadership. “These bills would revise the Tariff Act of 1930 to include a “countervailable subsidy” that would allow tariffs to be imposed on some imports from countries with a ‘fundamentally undervalued currency’.”

Scott identifies several other Chinese government policies that also illegally encourage exports:

  • Extensive suppression of labor rights, lowering manufacturing wages of Chinese workers by 47 percent to 86 percent
  • Massive direct export subsidies provided to many key industries
  • Maintaining strict, non-tariff barriers to imports

The EPI paper states, “As a result, China’s $398.5 billion of exports to the United States in 2011 were more than four times greater than U.S. exports to China, which totaled only $96.9 billion…making the China trade relationship the United States’ most imbalanced by far.”

Scott believes that another crucial missing link is foreign direct investment (FDI) and outsourcing, about which I have written extensively in my own book and articles. He writes, “FDI has played a key role in the growth of China’s manufacturing sector. China is the largest recipient of FDI of all developing countries…Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 52.4 percent of China’s exports and 84.1 percent of its trade surplus in 2011…Outsourcing—through foreign direct investment in factories that make goods for export to the United States—has played a key role in the shift of manufacturing production and jobs from the United States to China since it entered the WTO in 2001. Foreign invested enterprises were responsible for the vast majority of China’s global trade surplus in 2011.” This includes investments by American corporations in their plants in China.

Another factor that has contributed to the trade deficit is that the expectations of a growing Chinese market for U.S. goods failed to occur. The U. S. was supposed to benefit from increased exports to a large and growing consumer market in China. Instead, “the most rapidly growing exports to China are bulk commodities such as grains, scrap, and chemicals; intermediate products such as semiconductors; and producer durables such as aircraft and non-electrical machinery…”

The paper provides a detailed analysis of trade and job loss by industry to show “the employment impacts of the growing U.S. trade deficit with China using an inputoutput model that estimates the direct and indirect labor requirements of producing output in a given domestic industry. The model includes 195 U.S. industries, 77 of which are in the manufacturing sector…”

The rapidly growing imports of computer and electronic accounted for 54.9 percent of the $217.5 billion increase in the U.S. trade deficit with China between 2001 and 2011. “…the trade deficit in the computer and electronic products industry grew the most, and 1,064,800 jobs were displaced, 38.8 percent of the 2001–2011 total.” As a result, the hardest-hit congressional districts were in California, Texas, Oregon, Massachusetts, Colorado, and Minnesota, where jobs in that industry are concentrated. Some districts in North Carolina, Georgia, and Alabama were also especially hard hit by job displacement in a variety of manufacturing industries, including computers and electronic products, textiles and apparel, and furniture.

The three hardest-hit congressional districts were all located in Silicon Valley in California, and of the top 20 hardest-hit districts, seven were in California, four were in Texas, two in North Carolina, two in Massachusetts, and one each in Oregon, Georgia, Colorado, Minnesota, and Alabama.

According to Scott, “The composition of imports from China is changing in fundamental ways, with serious implications for certain kinds of high-skill, high-wage jobs once thought to be the hallmark of the U.S. economy. China is moving rapidly “upscale,” from low-tech, low-skilled, labor-intensive industries such as apparel, footwear, and basic electronics to more capital- and skills-intensive sectors such as computers, electrical machinery, and motor vehicle parts. It has also developed a rapidly growing trade surplus in high-technology products.”

This growth of trade in advanced technology products (ATP) is of serious concern because it includes the more advanced elements of the computer and electronic products industry, as well as other sectors such as biotechnology, life sciences, aerospace, nuclear technology, and flexible manufacturing. It also includes some auto parts ? China has surpassed Germany as one of the top suppliers of auto parts to the United States.

“In 2011, the United States had a $109.4 billion trade deficit with China in ATP, reflecting a nine-fold increase from $11.8 billion in 2002. This ATP deficit was responsible for 36.3 percent of the total U.S.-China trade deficit in 2011. It dwarfs the $9.7 billion surplus in ATP that the United States had with the rest of the world in 2011…”

This increase in ATP is mainly the result of foreign direct investment and outsourcing by   U. S. corporations that have set up manufacturing in China or are using Chinese manufacturers as vendors so that products they make in China are imported for sale domestically that these corporations previously made in the U. S.

The growing U.S. trade deficit with China has displaced millions of jobs in the United States and contributed heavily to the crisis in U.S. manufacturing employment. At the same time, “the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment.”

Scott writes, “The bottom line of the influences discussed above is this:  As a result of China’s currency manipulation and other trade-distorting practices (including extensive subsidies, legal and illegal barriers to imports, dumping, and suppression of wages and labor rights), the increase in foreign direct investment in China and related growth of its manufacturing sector, and the absence of a growing market for U.S. consumer goods in China, the U.S. trade deficit with China rose from $84.1 billion in 2001 to $301.6 billion in 2011, an increase of $217.5 billion…” ? a 72 percent increase!

He concludes, “Unless China raises the real value of the yuan by at least a third and eliminates these other trade distortions, the U.S. trade deficit and related job losses will continue to grow rapidly…The U.S.-China trade relationship needs a fundamental change. Addressing the exchange rate policies and labor standards issues in the Chinese economy is an important first step. It is time for the administration to respond to the growing chorus of calls from economists, workers, businesses, and Congress and take action to stop illegal currency manipulation by China and other countries.” If elected representatives will not serve the interests of the American people, then they need to be replaced by ones who will in the next election!

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Posted in Economy, Manufacturing, Outsourcing | No Comments »

The Future of American Manufacturing — Is there Reason for Hope?

August 14th, 2012

While the state of American manufacturing has been grim for the past decade, the “reshoring” trend and new technologies are making the outlook for the future of American manufacturing look brighter than it now appears.

In the past few years, the key factors for returning manufacturing to America have been quality problems, rising labor costs, intellectual property theft, rising shipping costs, long lead times for product delivery from Asia, and the cost of inventory for the larger lots you have to buy from Asia to get the cheaper prices.

Now, Harry Moser’s Total Cost of Ownership worksheet calculator is helping companies quantify the hidden costs of doing business offshore enabling more companies to make the decision to reshore manufacturing. According to Harry Moser, founder of the “Reshoring Initiative,” about 10% of companies nationwide are bringing manufacturing back to America from Asia. It is a pleasure to read frequent stories about even large companies such as Dow Chemicals, Caterpillar, GE, and Ford starting to move some manufacturing back to the U.S. from China.

“But rising costs and political pressure aren’t what’s going to rapidly change the equation.” according to Vivek Wadhwa, Vice President of Academics and Innovation at Singularity University. “The disruption will come from a set of technologies that are advancing at exponential rates and converging. These technologies include robotics, artificial intelligence (AI), 3D printing, and nanotechnology. These have been moving slowly so far, but are now beginning to advance exponentially just as computing does.”

In the past, large American food product companies like General Mills and Kraft Foods, as well as the automotive industry, have been the biggest user of complex robotic systems. But, today’s robots are smaller and cheaper ? they are really specialized electromechanical devices run by software and remote control designed to perform specific tasks in the manufacturing of products for a variety of industries. These robots are cost effective for lower production volume than those used in the food and automotive industry enabling more companies to utilize this technology.

Artificial Intelligence (AI) is really the software that makes computers, robots, and even unmanned aircraft and space vehicles run in an “intelligent” manner. Unmanned vehicles have dominated the sky in the “war on terror” in Iraq and Afghanistan and are now being used to provide surveillance along our international border with Mexico. The unmanned rover, “Curiosity,” traversing the surface of Mars is an example of the latest AI technology.

“Additive manufacturing is the process of producing parts by successive melting of layers of material rather than removing material, as is the case with conventional machining.

Each layer is melted to the exact geometry defined by a 3D CAD model. Additive Manufacturing allows for building parts with very complex geometries without any sort of tools or fixtures, and without producing any waste material.”

This process, also known as 3D printing, is turning product designs into reality for a fraction of the cost of past manufacturing technologies. The application of this technology started as a way to make prototypes faster and cheaper. What is great about parts made by this process is that they are not just the fragile prototype parts previously made by stereo lithography technology; parts made by 3D printing can function as production parts.

A simple tabletop 3D printing device, such MakerBot’s Replicator, is now down to about $1,700 for use in home workshops, making the technology more accessible to students, researchers, do-it-yourself enthusiasts, hobbyists, inventors and entrepreneurs.

Millions of dollars of government-funded research in additive manufacturing has led to breakthroughs and cost reduction in the utilization of this technology. Large, complex geometry parts that had to be made by casting and forging with expensive tooling are now being made by laser sintering of metals such as tool steel, stainless steel, cobalt chrome-moly, and other steel alloys. While Selective Laser Sintering (SLS) and Direct Metal Laser Sintering (DMLS) began as a way to build parts early in the design cycle, it is now being used to manufacture end-use parts. Depending on the material, up to 100% density can be achieved with material properties comparable to those found with traditional manufacturing methods.

There are many applications for the laser sintering method of additive manufacturing in the aerospace and defense industry because of the low volume requirements. The cost of amortizing expensive casting and forging tooling into low volume production was the main reason for the $600 hammers and $900 toilet seats of the defense spending scandals 20 years ago.

Even the tooling to make simple injection molded plastic parts can now be made by this technology, helping keep some plastic injection molding work in the U. S. that used to go to China.

We are just beginning to see advances in nanotechnology that will affect manufacturing in the next decade. Nanotechnology (sometimes shortened to “nanotech”) is the manipulation of matter on an atomic and molecular scale. Generally, nanotechnology works with materials, devices, and other structures with at least one dimension sized from 1 to 100 nanometers.

Since the creation of the National Nanotechnology Initiative in 2000, the U. S. has invested 3.7 billion dollars. “The NNI involves the nanotechnology-related activities of 25 Federal agencies, 15 of which have specific budgets for nanotechnology R&D. The agencies involved allocate expenditures from their core budgets, demonstrating nanotechnology’s importance to their mission.”

Today, engineers and scientists are developing new types of materials, such as carbon nanotubes, ceramic-matrix nanocomposites, and new carbon fibers. These new materials are stronger, lighter, more energy-efficient, and more durable than current materials in use.

These advances in technology will be a real boon to the U. S. manufacturing industry in the next 5 – 10 years, but they will have a dramatic impact on China as well. Large Chinese manufacturing companies such as Foxconn are starting to utilize robotics, which will cause a reduction in the Chinese labor force just as it did in the U. S. a generation ago.

It is unlikely that the 10% of products being returned to the United States from China is affecting China’s unemployment rate, but the serious financial problems of several countries in the European Union is taking its toll on China’s exports to these countries. While China reported a low unemployment rate of 4.1% in July 2012, this needs to be understood in the context of the size of China’s workforce. The Chinese workforce is so large that there are actually more people unemployed in any one month in China than the total workforce of the United States.

In February 2011, Marketplace Business China correspondent, Rob Schmitz, explained the unemployment situation in China, stating, “Now that’s what’s called the ‘urban registered unemployment rate.’ I emphasize ‘registered,’ because it only counts people who officially live in urban areas. Many people are off the books. These are the hundreds of millions of migrant workers who move to the cities and they make up a huge labor pool. So when you factor in that population, China’s actual unemployment rate comes out to be 22 percent. That’s around 200 million people who don’t have work.”

If China wants to avoid headlines of massive unemployment as the U. S. has experienced, the Chinese government needs to change its focus from an export-driven economy to a domestic-driven economy. This will require a far greater increase in wages than has occurred in the past few years so that the average Chinese worker will be able to buy the products they are now producing for export.

It may be worth thinking about emulating the strategy that Henry Ford utilized in 1914 when he wanted to stabilize his workforce ? he decided to pay double the average daily wage. This had a twofold result:  he kept his employees from quitting his company to take a job at another company for a slightly higher wage, and the higher wages his company paid enabled his workers to be able to buy the Model T car they were making.

If China’s industry switched to manufacturing more products for their domestic marketplace, it would also help reduce the unemployment for their college graduates. As Rob Schmitz explained in the same article, “Nearly a quarter of last year’s graduates haven’t found jobs. Part of the problem is that there is a big disconnect between how China’s colleges are preparing its young people and the reality of China’s economy. China’s economy is still mostly dependent on manufacturing and building things. At the same time, you have six million college students a year graduating with degrees from everything from the sciences to liberal arts. And China’s economy simply hasn’t evolved to the point where enough employers are looking for workers with those skills.”

It is becoming apparent that more and more Americans now realize that manufacturing jobs are the foundation of the prosperity of our country and that we need to be producing a major portion of goods domestically in order to have a strong manufacturing industry and thus a strong economy. It may be China’s turn to learn this lesson.

Posted in Innovation, Manufacturing, Reshoring | 1 Comment »

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