“Reshoring” Opportunities Abound at Del Mar Electronics & Design Show

April 24th, 2012

If your company is considering ”reshoring” manufacturing of some parts, assemblies, or products to the U. S., then you should attend the 18th annual Del Mar Electronics & Design Show, which will be held at the Del Mar Fairgrounds (Map) Wednesday May 2nd, 10am – 5pm and Thursday May 3rd 10am – 3pm.  Admission to the show, the seminars, and parking at the show are ALL FREE.

This is the only industrial trade show for manufacturers held annually in the San Diego region so this is the best opportunity for companies to find local and regional suppliers to “reshore” manufacturing to the U. S.

To help your company analyze the true Total Cost of Ownership to determine whether or not you should be returning manufacturing to America, I will be giving a presentation on “Returning Manufacturing to America” at 10 AM on Wednesday May 2nd.    I will be considering:

  • Hidden costs of doing business offshore that comprise a true understanding of the “Total Cost of Ownership”
  • How you can calculate these costs utilizing the Total Cost of Ownership worksheet calculator developed by Harry Moser of the Reshoring Initiative
  • Case stories reviewing some of the problems companies have experienced in outsourcing offshore
  • Reasons why some companies are choosing to “reshore” manufacturing to the U.S.

For the past 15 years, manufacturers have outsourced their manufacturing offshore in Asia, especially in China, to reduce costs to keep or increase market share.  However, the supply chain dynamics are changing, and the cost savings of outsourcing to China are eroding due to higher labor rates and shipping costs.  In the last few years, there have also been many news reports about outsourcing horror stories regarding poison or tainted Chinese products, Chinese counterfeit parts, intellectual property infringement, quality problems, and lawsuits so many companies are rethinking their decision about manufacturing in China.

In August 2011, the Boston Consulting Group’s released their first report “Made in America, Again: Why Manufacturing Will Return to the U.S.,” explaining how rising wages and other forces are steadily eroding China’s once-overwhelming cost advantage as an export platform for North America.  By around 2015, BCG concluded that when higher U.S. worker productivity, supply chain and logistical advantages, and other factors are taken fully into account, it may start to be more economical to manufacture many goods in the U.S.

Now, a new BCG report, “U.S. Manufacturing Nears the Tipping Point, Which Industries, Why, and How Much?” released on March 22, 2012 by Harold L. Sirkin, Michael Zinser, Douglas Hohner, and Justin Rose has identified “seven industry groups that account for $200 billion in goods imported from China for which rising costs in China will likely prompt manufacturing of goods consumed in the U.S. to return to the U.S.”

The report predicts that production of 10 to 30 percent of U.S. imports from China in these industries, which account for approximately 70 percent of goods that the U.S. imports from that nation, could shift to the U.S. before the end of the decade, adding $20 billion to $55 billion in output annually to the domestic economy.”  The tipping-point sectors are transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics.

BCG predicts that improved U.S. competitiveness and rising costs in China will put the U.S. in a strong position to add 2 million to 3 million jobs in a range of industries and an estimated $100 billion in annual output by the end of the decade which would reduce unemployment by 1.5 to 2 percentage points, and lower the nonoil-related merchandise deficit by 25 to 35 percent.

According to a new survey which BCG conducted in late February, “More than a third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it.”

The top factors cited as driving future decisions on production locations:  labor costs (57 percent), product quality (41 percent), ease of doing business (29 percent), and proximity to customers (28 percent).  In addition, 92 percent said they believe that labor costs in China “will continue to escalate,” and 70 percent agreed that “sourcing in China is more costly than it looks on paper.”

In the new survey, “67 percent of respondents in rubber and plastic products, 42 percent in machinery, 41 percent in electronics, 40 percent in computers, and 35 percent in fabricated metal products said they expect that their companies will reshore production from China to the U.S.”

“Not long ago, many companies regarded China as the low-cost default option for manufacturing,” observed Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “This survey shows that companies are coming to the conclusion surprisingly fast that the U.S. is becoming more competitive when the total costs of manufacturing are accounted for.”  To request a summary of the survey findings, please contact David Fondiller at fondiller.david@bcg.com.

The Del Mar show will also feature a number of other free technical seminars.  A few of the topics are:  “Using LinkedIn as a Business Development Tool,” “New Energy Storage Options for the Transportation Sector,” “Best of SolidWorks Tips and Tricks,” and “Counterfeit Electronic Components Are No Longer a Threat; They are a Reality.”  For the full seminar schedule, go to www.vts.com.  In addition, all attendees are invited to the Post Time Party, Wednesday, May 2nd, from 5 – 7pm, with free refreshments provided thanks to sponsorship by Quality Systems Integrated Systems, Luscombe Engineering, Concisys Electronic Manufacturing Services, and National Test Equipment.

My company will be exhibiting products for the companies we represent at Booths 207 – 209 in the Bing Crosby Hall, which is to the left of the main entrance to the show.   We look forward to seeing you at the show!

 

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Smart Trade Conference Initiates Efforts to Fix California’s Economy

April 17th, 2012

On March 28th the Smart Trade Conference sponsored by the Coalition for a Prosperous America brought together a broad spectrum of local business executives to discuss CPA’s strategic agenda to fix America’s economy by reforming U. S. international economic policies to enhance the global competitiveness of domestic manufacturers and farmers to promote genuine economic recovery and create family-sustaining private sector jobs.

Ian Fletcher, CPA’s Senior Economist, began with the following chart showing that the     U. S. trade deficit from 1960 to 2010 has resulted in a total $5.85 Trillion in U. S. global losses requiring net U. S. foreign borrowing/asset sales of $1.6 Billion per day.

He emphasized that trade deficits are real money, saying that when America receives goods from abroad, we must pay with:  a) goods we produce today, b) goods we produced yesterday, or c) goods we will produce tomorrow.  We are going more and more into debt because we are losing the manufacturing capability to produce goods today that we can use to pay for goods we receive from abroad.  America has already lost the following industries:  Fabless chips, Compact fluorescent lighting, LCDs for monitors, TVs, and handheld devices like mobile phones, electrophoretic displays, Lithium, ion, lithium polymer and NiMH batteries, Advanced rechargeable batteries for hybrid vehicles, Crystalline and polycrystalline silicon solar cells, Inverters and power semiconductors for solar panels, Desktop, notebook and netbook PCs, Low-end servers, Hard-disk drives, Consumer Networking gear such as routers, access points, and home set-top boxes, Advanced Composites used in sporting goods and other consumer gear, Advanced ceramics and Integrated circuit packaging.

Mr. Fletcher said that from the early 1800s until after WW II, the Untied Stated was a protectionist nation in order to protect and grow its domestic manufacturing industry, as initially recommended by our first Secretary of Treasury, Alexander Hamilton.  As a free-market capitalist country, the United States is competing against the state-controlled capitalism of China and Japan.  He concluded by pointing out that it’s not just cheap labor that is the problem.  The U.S. is actually now a laggard in manufacturing wages among developed nations.   Germany has much higher wages than the U. S. and doesn’t have a trade deficit problem with China as we do.

Next, CPA’s President Michael Stumo went into more detail on the trade deficit problem stating that our trade deficit set records in the last decade.  Net imports hollow the U.S. economy and slow growth.   He explained that GDP is the sum of “consumption,” “investment,” “government spending,” and “net exports.”  Thus, our net imports subtract from our GDP.

The trade deficit equals lost jobs– ten thousand jobs are lost for every one billion in trade deficits.   In February 2011, the real unemployment, that is, the U-6 measure, which also includes marginally attached workers and involuntary part-time workers, totaled 24.7 million Americans.

The trade deficit equals low quality jobs because we have trade deficits in virtually all industrial sectors, from low tech to high tech to green tech.   Agriculture has also ceded domestic market share to imports.  We are creating low wage, low benefit jobs. Our loss of manufacturing means that workers move from manufacturing to service jobs for an average 40% pay cut.

Mr. Stumo said that the primary problem is our failure to recognize and neutralize foreign state capitalism. The Chinese government owns over 50% of its economy, using currency manipulation, value added taxes, strategic subsidies, indigenous innovation, and other means to maintain trade imbalances.  Japan, Germany, South Korea and others have versions of state-managed capitalism to maintain net exports.  Tariffs are a very small part of the issue.  The “Washington Consensus” version of free trade focuses upon lower tariffs.  But, lower tariffs do not address the many ways state-managed capitalism causes our trade deficit.  State-managed capitalism is the 21st Century problem.  The U.S. has failed to even articulate this problem, even as we lose jobs, wealth and innovation.  We need a national trade and economic strategy designed to produce more of what we consume, balance trade, and neutralize state capitalism.

Then, he explained that border adjustable taxes (BAT) are a hidden foreign export subsidy whenever exporters receive a government tax rebate upon export.   BATs are hidden tariffs because the U.S. goods pay the tax when entering the foreign country.  A Value Added Tax (VAT) is a tax on consumption – as opposed to income, wealth, property or wages.  It is s a tax only on the “value added” to a product, material or service, from an accounting view, at every stage of its manufacture or distribution.  Over 150 countries have a VAT but the U.S. does not.  VATs are “border adjustable” and average about 17%.  He said this means that virtually all foreign countries tax our exports with their VATs, when our goods cross into their country.  While those countries tax their domestic production as well, they rebate their 17% VAT when their companies export.

Mr. Stumo said that VATs are the biggest trade problem for the U.S. globally. They are an essentially a tariff on U.S. exports, and foreign VAT rebates are also a subsidy facilitating foreign exports to us.  Trade agreements do not address VATs when tariffs are lowered.  The World Trade Organization allows VATs.  During the last 40 years, the U.S. has lowered tariffs and other countries lowered tariffs.  However, other countries implemented and raised their VATs. The net result is that other countries replaced tariffs with VATs but the U.S. did not.  No trade barrier costs us more money.  No other foreign trade tactic costs the U.S. economy more.  Our exports are double taxed – once in the U.S. and once upon arrival at a foreign country’s shores.  Foreign sales to us are partially tax free.  Foreign countries rebate the VAT upon export, and the U.S. does not apply the tax at our border.

Mr. Stumo concluded his remarks with a brief discussion of the currency manipulation problem.  Foreign currency manipulation is trade cheating because it is both a tariff and a subsidy.  The U.S. economy cannot produce jobs and wealth without addressing this problem.  China’s state managed economy, poses the biggest problem to the U.S., making up 1/3 of our trade deficit.  China’s currency is at least 35% undervalued.  Our exports cost 35% more than they should to the Chinese.  Their sales to us are 35% less than free market value.  China, South Korea, Japan, Taiwan and Singapore have manipulated their currency values.  Our government has not protected U.S. economic and national security interests by neutralizing this practice.

He said that the U. S. has the discretion, under WTO rules, to apply its trade laws to offset the injurious effect of any subsidy, but the U. S. Trade Representative has refused to include trade agreement provisions that neutralize currency manipulation or other massive non-tariff barriers.  Reciprocal tariff cuts matter very little when state-managed economies have many other modern tools to game the system, including currency cheating, border taxes, free credit, indigenous innovation requirements, and other tactics to hobble U. S. producers.  The persistent failure of high level diplomatic efforts to solve this problem underscores the futility of negotiating without leverage.  CPA is urging Congress to act to address this problem.

Mr. Dave Frengel, Director of Government Affairs at Penn United Technologies, Inc. was the last speaker.  He told the story of how CPA was founded in 2007.  At that time a group of domestic manufacturing members of the National Association of Manufacturers successfully pushed for a controversial vote on NAM’s International Economic Policy Committee endorsing congressional legislation that would hold China and other nations accountable for currency manipulation.  The vote was eventually overturned by NAM’s Executive Committee and Board of Directors because the Executive Committee and Board of Directors is dominated by the large multinational corporations, many of which have manufacturing operations in China and other foreign countries.  The overturn of the vote led to a confrontation between a group of NAM’s domestic manufacturing members that supported the vote and NAM’s president.  Some of these companies subsequently left NAM.  He said that when some agricultural and labor leaders heard about his group of domestic manufacturers who were battling the multinationals in the NAM, they invited his group to join them for a “Globalization” conference in Colorado Springs to see if there was common ground for all of them to work together on trade reform.  It turned out that there was a huge amount of high middle ground.  As a result, his company was part of the group that founded CPA to address currency manipulation and other trade issues hurting American manufacturers.  If you would like to receive CPA’s Trade reform blog, you may sign up at www.prosperousamerica.org

During the Q & A session, Senator Mark Wyland’s field rep, Donna Cleary, suggested that CPA schedule a follow-up summit to address other problems to fix California’s economy.  The response was positive, and several people volunteered to help plan the summit.  All of the San Diego County Supervisors, California legislators, and Congressional representatives had been invited to attend or send a representative, but only Donna Cleary showed up.  In subsequent conference calls, a tentative date of October 10, 2012 has been set.  Persons interested in sponsoring and planning this summit, may contact CPA’s State Chair, Michele Nash-Hoff at michele@savingusmanufacturing.com or Sara Haimowitz, Program Development Director, at sara@prosperousamerica.org

 

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American Manufacturing Has Declined More Than Most Experts Have Thought

March 27th, 2012

A new report released by the Information Technology & Innovation Foundation (ITIF) presents a strong case that manufacturing has declined more during the last decade than it did during the Great Depression of the 1930s.  It’s gratifying to finally see a well-respected non-partisan “think tank” release a report based on empirical data that corroborates what those of working in the manufacturing industry have experienced, about which I have been speaking and writing since 2003.

One of the main points of the report is that during the Great Depression, we lost 30.9% of manufacturing jobs, but in the decade of 2000-2010, we lost 33.1% of manufacturing jobs.  It becomes more serious when you realize that in the Great Depression, manufacturing accounted for 43% of jobs lost and 34% of all jobs at the time, but now manufacturing only represents about 11% of all jobs, but nearly one-third of the job loss.  This percentage loss represents 5.7 million manufacturing jobs. The report states, “On average, 1,276 manufacturing jobs were lost every day for the past 12 years.   A net of 66,486 manufacturing establishments closed, from 404,758 in 2000 down to 338,273 in 2011. In other words, on each day since the year 2000, America had, on average, 17 fewer manufacturing establishments than it had the previous day.”

When you understand the multiplier effect of manufacturing jobs, creating 2-3 supporting jobs, this loss of manufacturing jobs represents 11 to 17 million jobs.  The report states, “In fact, in January 2012 there were more unemployed Americans (12.8 million) than there were Americans who worked in manufacturing (just under 12 million).”  No wonder we have the high local, state, and federal deficits that we are experiencing ? there are fewer taxpayers and more benefit collectors.

The two million manufacturing jobs we lost during the Great Recession was added to the over 3.7 million we had already lost.  After the recession ended, the report states “just 166,000, or 8.2 percent, returned. That leaves 91.8 percent of jobs to be recovered.  At the rate of growth in manufacturing jobs 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.   In reality…U.S. manufacturing has been in a state of structural decline due to loss of U.S. competitiveness, not temporary decline based on the business cycle.”

It’s obvious that with unemployment at 8.3 percent, “all those jobs have not been recreated in other industries.”  If manufacturing declines further, there are no guarantees that other jobs will appear to replace those lost in manufacturing.  The authors validate what I’ve written in my book and previous articles:  “manufacturing jobs pay more; manufacturing is a source of good jobs for non-college-educated workers; and manufacturing is the key driver of innovation—without manufacturing, non-manufacturing innovation jobs (for example, research and design) will not thrive.”

For years, most economists, experts, and government officials have said that the decline in manufacturing is a natural outcome of our transformation from an industrial society to a post-industrial society. “This decline is often cited by defenders as “normal” and in line with what is happening in other countries. In this “post-industrial” view, advanced nations are transitioning from factories to services; the greater and faster the loss of manufacturing, the more successful nations are in mastering the transition.”

The authors concede that there is “some truth to the post-industrialists’ view.  Advanced economies naturally see manufacturing jobs contribute to a smaller share of total employment, since manufacturing productivity is typically higher than non-manufacturing productivity.  But normally the loss is modest and gradual, in contrast to the United States where in the last decade it was sudden and steep.”  In addition, “advanced nations do lose some lower-value-added, lower-skill, commodity-based manufacturing to lower-wage nations.   But …they also increase their demand for the higher-value-added products that developed nations should naturally produce…the process of global integration does not and should not naturally lead to the deindustrialization of developed economies, but rather to the transformation of their industrial bases toward more complex, higher-value-added production.”

These same experts have denied that manufacturing has been in decline, arguing that manufacturing became incredibly productive just like agriculture did a century earlier so that fewer workers are needed in the industry.  The authors state that “Virtually everyone makes the argument that massive manufacturing job decline is a sign of success: manufacturers are using technology to automate work and to become more efficient…Manufacturing is like agriculture” has been the dominant story.  The United States produces more food than ever, but because farming has become so efficient, it requires a very small share of U.S. workers to grow and harvest the food. So while manufacturing productivity growth may be tough on workers, job loss is seen as a sign of strength, not weakness.”

It’s true that job loss could be result of increased productivity, but what these experts have ignored is that manufacturing’s share of the Gross Domestic Product (GD) declined from 15% in 2000 to 11.0% in 2009.   While manufacturing has declined as a share of GDP in the United States and some other nations, such as Canada, Italy, Spain, and the United Kingdom,” it is stable or even growing in many others (including Austria, China, Finland, Germany, Japan, Korea, the Netherlands, and Switzerland.)”

The ITIF report dispels the myth that increased productivity is the reason for the job loss with a review of the productivity of various manufacturing industry sectors, showing that in 2010, “13 of the 19 manufacturing sectors (employing 55 percent of manufacturing workers) were producing less than they there were in 2000 in terms of inflation-adjusted output.”

In addition, the authors assert that “the government’s official calculation of manufacturing output growth, and by definition productivity, is significantly overstated.  ” Correcting for biases in the official data, ITIF finds that from 2000 to 2010, U.S. manufacturing labor productivity growth was overstated by a remarkable 122 percent. Moreover, manufacturing output, instead of increasing at the reported 16 percent rate, in fact fell by 11 percent over the period.”  This was during a period when the U. S. GDP increased by 17 percent.

Besides, the report states that “it is not clear how productivity could be the culprit behind the large share of job loss in the 2000s when manufacturing labor productivity (as measured by the official value added data) was not substantially different in the 1990s than it was in the 2000s.  During the 1990s, manufacturing jobs fell by one percent, while labor productivity increased by 53 percent. In the 2000s, manufacturing jobs fell by 33 percent while productivity increased by 66 percent…the 2000s productivity number is actually significantly overstated, even more so than the 1990s figure. Adjusting for bias in the data, the actual productivity growth in the 2000s was just 32 percent.”

The authors provide evidence that “there are serious problems with how the U.S. government measures manufacturing output that cause it to significantly overstate output and, by extension, productivity.   In order to see how productivity and output are overstated, it is necessary to understand both concepts.”

Their explanation is too complicated to consider in this short article, but is well worth reading in the report.  They conclude “that there are substantial upward biases in the U.S. government’s official statistics and that real manufacturing output and productivity growth is significantly overstated. The most serious bias relates to the computers and electronics industry (NAICS 334)—its output is vastly overstated. Correcting for these statistical biases, we see that the base of U.S. manufacturing has eroded faster over the past decade than at any time since WWII, when the United States began compiling the statistics.”

I can substantiate this conclusion from my experience as a manufacturers’ representative for American companies who perform fabrication services, such as plastic and rubber molding, metal stamping and casting, machining, and sheet metal fabrication for other American manufacturers.  While many of the manufacturers in my sales territory of southern California may still be assembling their products in the U. S., many of the components and subassemblies they are using have been produced offshore.  Obviously, it takes fewer American workers to produce the end product because part of the work was actually done by foreign workers.

The problem is that there is no way for the government to track the value of the components and subassemblies that have been produced elsewhere from the value of the product that is sold by the American company. Therefore, the value of the whole product is counted as American productivity without deducting the value of the parts produced outside of the U. S.  You can see how American productivity becomes inflated.

I hope this report will convince the majority of economists, experts, and government officials recognize that manufacturing is truly in serious decline so that they will look at what are the main reasons:  outsourcing manufacturing offshore and the economic warfare being waged by China against the U. S.

 

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“What does the economy have to do with national security?”

March 20th, 2012

Most people in the United States would define national security as military readiness, homeland defense, and generally protecting American interests at home and abroad.  They don’t recognize that the economy has an effect on our national security.  This is the main purpose of the book “Economic Security:  Neglected Dimension of National Security?” edited by Dr. Sheila Ronis for the Center for Strategic Conferencing, Institute for National Strategic Studies and published by the National Defense University Press in the fall of  2011.

Other questions she considered are:  “But how does the United States remain strong? What does that mean in a world of globalization? How do we even define what national security is in such a complex and interdependent world?  Can we survive, let alone remain a superpower, if we no longer control any means of production?  If we remain a major debtor nation?  If we continue our dependence on unstable countries for our energy supplies?  If we invest insufficient amounts of our resources in research and development, science and technology?  Or if we perceive the training and education of people as a cost as opposed to an investment?”

This report was the result of a conference held on August 24–25, 2010, by the National Defense University.  The conference explored the economic element of national power.  Over two days, several keynote speakers and participants in six panel discussions explored the complexity of this subject and examined the major elements that define the economic component of national security.

The panels and keynote presentations looked at the economic element of national power from different system views, including the role of debt, the government, industrial capability, energy, science, technology, and human capital—create a systemic view of what could be done to improve an understanding of the economic element of national power. Selected papers from the conference that represent these views comprise this volume, edited by Dr. Sheila Ronis, Director of the Master of Business Administration/Master of Management Programs at Walsh College and President of The University Group, Inc., a management consulting firm and think tank specializing in strategic management, visioning, national security, and public policy.  Dr. Ronis has chaired the Vision Working Group of the Project on National Security Reform (PNSR) in Washington, DC, which has been tasked by Congress to rewrite the National Security Act of 1947. As a Distinguished Fellow at PNSR, Dr. Ronis is responsible for the plan and processes to develop the Center for Strategic Analysis and Assessment, to provide the mechanism to conduct foresight studies and the development of the grand strategies that would follow—the kind of studies that would look at an entire system, such as the economy and its relationship to national security.

Dr. Ronis begins with a definition of national security that “can include anything that adds to the strength of the Nation,” such as “the strength of our nation’s infrastructure, our strong societal and moral codes, the rule of law, stable government, social, political, and economic institutions, and leadership.”  It also includes “our nation’s schools and educational programs to ensure a knowledgeable citizenry and lifelong learning—a must for a democracy.”  Then, it also “requires investments in science, engineering, research and development, and technological leadership. We cannot be strong without a viable way to power our cities, feed ourselves, and move from one place to another. Most of all, a strong economy is an essential ingredient of a global superpower.”  Without a strong market-based economy we would quickly lose our superpower status.  We need to have a strong base of globally competitive products and services that produce jobs. The “economy must include sound government policies to promote responsible choices and reduce our debt, and grand strategies for energy and environmental sustainability, science and technology leadership (at least in some areas), human capital capabilities, manufacturing, and the industrial base.”   “And…National security goes to the very core of how we define who we are as a people and a free society. It concerns how we view our world responsibilities.”

Dr. Ronis states that there can be no question of the need to include the economic viability of our nation as a major element of national security because “without capital, there is no business; without business, there is no profit; without profit, there are no jobs.  And without jobs, there are no taxes, and there is no military capability.  The viability of a nation’s industrial infrastructure, which provides jobs for its people, creates and distributes wealth, and leverages profits, is essential. Without jobs, the quality of peoples’ lives deteriorates to a point where society itself can disintegrate.”

Chapter one is a transcript of the comments made by opening keynote speaker David Walker, U. S. Comptroller General and head of the Government Accountability Office (GAO) from 1998 to 2008, and  Founder and CEO of the Comeback America Initiative.  When he started at the GAO, it didn’t have “a strategic, integrated, forward-looking, and outcome-based strategic plan.”  They put such a plan in place at GAO during his tenure, and he said, “It is the closest thing that exists to a strategic plan for the Federal Government, but the GAO is in the legislative branch. So we need one for the executive branch. It needs to be led by the OMB (Office of Management and Budget), and hopefully, eventually it will be.”

He stated, “Things like savings, critical infrastructure, investments in basic research, educational outcomes, and healthcare outcomes are key leading indicators, and in all of these areas, we are below average for an industrialized nation.”  He contends that if the economic element of national power is neglected and misunderstood, nothing will be more dangerous to the Nation than the national debt and its unintended consequences for generations to come.  Last year government represented 25 percent of the economy, above the recent average of 21 percent. “But if we do not reform our existing entitlement programs and other aspects of government, it will represent about 40 percent of the economy by 2040, and that does not count state and local governments.”

He stated that the composition of the budget has changed dramatically in the last four decades.  “Forty years ago, it was dominated by defense at 42 percent.  Today, it is dominated by social insurance programs, which grow faster than inflation and grow faster than the economy even when the economy is growing. Forty years ago, when Congress came to town, they got to decide how 62 percent of the budget would be spent, of which today defense is about half of the discretionary budget.  Now they decide how about 38 percent gets spent, and if we continue on our status quo, do nothing, let-it-ride policy, it will go down to 18 percent by 2040.  This obviously is an imprudent and unsustainable course.”  He points out that if you count our unfunded Social Security and Medicare debt, our total debt is $62 trillion, not the $14 trillion we hear about.  He states that if the total debt is taken into consideration, we are worse off than Spain,    and only three years away from becoming like Greece.  His arguments are alarming and are critical for policymakers and every citizen to understand.   In conclusion, he provides a common-sense approach to making the tough choices and changes we need to make before it’s too late to get our financial house in order.

In chapter two, John Morton traces the historical roots of the economy and its role in enabling the superpower status of the Nation.  Mr. Morton is a Distinguished Fellow and the Homeland Security Lead for the Project on National Security Reform. He is also the Strategic Advisor to DomesticPreparedness.com and a consultant to Gryphon Technologies. He states, “Today, America sustains that position primarily through two elements of its national power: its peerless military and its dollar currency, upon which the international monetary and economic system is largely based. A third element initially enabled that hegemony in the 1940s: the national economy—that is, the Nation’s industrial might. Much of that element is no longer present today.”  He presents a brilliant analysis of how American industry was the foundation of America’s becoming a superpower from the Civil War to the present day and how the alliance of government, science, industry, academe, and the military forged the national security establishment, later called the defense industrial base.  He proposes that the United States needs an economic grand strategy in order to continue America’s role in the world, which is based on its military and economic prowess and capability.

In chapter three, Keith Cooley explains his approach to an energy plan, which includes a grand strategy that, if enacted, will support the Nation’s future.  Mr. Cooley is Chief Executive Officer (CEO) of the advisory firm Principia, LLC.  He previously was President and CEO of NextEnergy, an accelerator for alternative energy businesses and technologies. He paraphrases the International Energy Association definition of energy security as simply “the assurance of the uninterrupted supply of energy at an affordable price, while respecting environmental concerns.” His chapter addresses the notion of energy security as national security from four points of view that are, in his opinion, strategic priorities:

  • Priority 1: creating strong civic, business, and political leadership to quickly implement needed changes that assure energy and national security for this country.
  • Priority 2: developing and sustaining an alternative energy capability
  • Priority 3: migrating to alternative (sometimes called “clean”) energy sources
  • Priority 4: widespread increased dependence on domestic energy efficiency

He states, that “no 21st-century economy can be secured without a steady supply of energy. Without adequate energy to power contemporary civilization, there is no security at all.”  He concludes by urging “action on energy security issues at the highest levels of government, industry, and civic engagement. We have many examples to draw lessons from both here and abroad that can inform our actions. But we must act; we must engage. It is the only path available for our survival.”

In chapter four, Louis Infante offers his approach to energy security.  Mr. Infante is the Executive Director, Government and Military, for Ricardo, Inc., an independent automotive engineering consulting company, where he is responsible for strategy development and enactment in the military and government markets.  He advocates a National Energy Security Initiative administered by the Department of Energy (DOE) and joined by every government department with responsibilities that will be affected by energy—in essence, practically all departments.”  He describes a specific model that the U. S. could use to manage the complexities of its entire energy system. “This initiative would include mechanisms to improve the research and development policymaking decisions and strategies to make them real.”  He recommends that “U.S. leadership must overcome barriers to establishment of a national policy on energy that prescribes an endgame and the plan to achieve it.”  He concludes that “the National Energy Security Initiative will provide the coordinating efforts in planning and technology R&D that can assure success in the redevelopment of the U.S. energy system. And it can start within DOD as a first application of success.”

In chapter five, Myra Howze Shiplett, Wendy Russell, Anne M. Khademian, and Lenora Peters Gant address the complex set of issues of whether a nation can be an economic or military superpower without a plan to ensure it has people with the right knowledge and capabilities throughout its society.  They point out, “In 2010, America was “ranked 12th in the number of 24- to 35-year-olds with college degrees . . . among 36 developed nations” compared to “sixth in post-secondary educational attainment in the world among 25- to 60-year-olds.” Also, a major problem is that “Nationwide, only about 70 percent of students earn their high school diplomas” with lower rates for minority students ? “only 57.8 percent of Hispanic, 53.4 percent of African American, and 49.3 percent of American Indian and Alaska Native students.”  They discuss the five steps needed for the “Architecture of the High School Educational Future” and a new kind of graduate education that will produce “practitioners/scholars” with the skill sets needed for public service.  They conclude that “A vibrant, growing economy that provides jobs for America’s citizens is an essential component of our national security. A critical success factor for such an economy is a well-educated workforce, equipped to deal with the complexities of the 21st century…The security of our nation demands this commitment.”

In chapter six, Carmen Medina explores the many issues that surround what it means to have innovation as a major element of a nation’s economy.  Carmen Medina retired from the Central Intelligence Agency (CIA) in February 2010 after over 30 years of service. Her last assignment was as Director of the Center for the Study of Intelligence (CSI), where she developed and managed CIA’s first agency-wide Lessons Learned Program. First, she explores some definitions of innovation: “technology-based that leads to new industries”, as opposed to “social innovation, which refers to changes in the way people behave,” as well as agricultural innovation, “defined as the application of knowledge of all types to achieve desired social and economic outcomes.”  She states that “The capacity for innovation has been the primary catalyst of U.S. economic growth. Indeed, capitalism essentially is built on innovation and the concept of creative destruction. Going forward, innovation will be even more critical to U.S. economic prosperity.”

She identifies a problem, stating “There is, however, no doubt that the U.S. capacity for innovation has declined in relative and absolute terms over the last 20 years or so.  Our standing has consistently declined.”  In addition, “the emergence of the BRIC economies—those of Brazil, Russia, India, and China—will fundamentally alter the world economic map by 2020.”  The conclusion of this chapter is that “It is probably impossible for the United States to have a robust economy and remain a superpower if its companies lose their ability to be innovative.

Very often, important White Papers, reports, and books are ignored by the mass news media, but this is one book that every elected official from the president down to local legislators should read.  The current situation is alarming, and we have a limited amount of time to address these issues if we want to stop our slide into becoming a third-world nation.  Manufacturing, innovation, energy security, and an educated citizenry are necessary to maintain freedom as a democratic republic.   As the report concludes, “To be successful in addressing a complex system, we need to integrate all major elements of national power: diplomatic, informational, military, economic, and so on… The entire world expects the United States to remain a leader. We cannot do this unless we are strong. And we cannot be strong unless we plan for and shape our future as a Nation with a sound economy.”

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Will the AME, NAM and NACFAM Alliance Revitalize Manufacturing?

March 6th, 2012

The Association for Manufacturing Excellence (AME) is joining with leading organizations, such as the National Association of Manufacturers (NAM), and the National Council For Advanced Manufacturing (NACFAM) to form an alliance to revitalize manufacturing and grow the economy, while improving the standard of living of all citizens in North America.  These organizations are inviting public and private sectors to come together to build on the NAM study, A Manufacturing Renaissance: Four Goals for Economic Growth.

The AME white paper “Challenges Facing the Manufacturing Industry…” states “The strategy calls for putting people, schools, businesses and the government to work; producing literate career-ready citizens capable of joining the workforce; and enabling manufacturers to once again lead the designing, building and exporting of quality products and services around the globe.” The top three priorities are:

  • Build a better educated and trained workforce
  • Promote product and process innovation, as well as research and development
  • Improve global competitiveness for companies

AME advocates that each priority “must be considered in developing public policies that support the revitalization of the manufacturing sector, and policy-makers must consider these elements in shaping future public policy and legislation.”   The goal is to help companies and our education systems transform themselves by using more innovative processes to become more competitive to put people back to work in making things in America.

I  strongly agree with AME’s viewpoint that we need to revitalize American manufacturing because “manufacturing is very critical to economic growth, prosperity and a higher standard of living.”  This is because manufacturing jobs have a multiplier effect-? every manufacturing job creates three to four other jobs.  Manufacturing creates more wealth than any other sector in the economy.  “Manufacturing pays higher wages and provides greater benefits, on average, than other industries. It performs almost two-thirds of private sector research and development, creates the highest number of jobs to support the industry while serving the surrounding communities, and contributes to more than 50 percent of the country’s total exports.”

The White Paper notes that we’ve lost nearly six million manufacturing jobs in the United States since January 2000, for an average of about 54,000 per month, according to the Bureau of Labor Statistics.  We also lost 56,190 manufacturing facilities from 2001 to 2010, or about 15 per day.

AME has issued a call for action to policy-makers, industry professionals and academic leaders to play critical roles in revitalizing the economy through the rebirth of manufacturing jobs.  To do this, we need to ensure the supply of educated citizens, necessary physical infrastructure, and a favorable tax and regulatory framework that fosters increased collaboration between public and private sector partners.

AME has been leading the “Revitalization of Manufacturing” initiative, wherein AME and their allied organizations have been reaching out to policy-makers nationwide, and encouraging them to join or develop efforts focusing on local and state job creation.  AME states that “itt is imperative that policy-makers recognize the importance of an industry that has been the backbone of the North American economy.  To date, AME has received more than 400 signatures of support from state and federal policy-makers, industry trade associations and operations executives representing manufacturers across North America.”

AME advocates “a renewed emphasis on making businesses more competitive by developing the educational and training infrastructure to produce qualified individuals to fill these new opportunities.”   To accomplish these initiatives, AME is joining with leading organizations to adopt the three priorities by:

Reforming public education to produce career ready citizens – Parents, teachers and business leaders need to recognize that other nations are both out-educating us and out-competing us.  Some of the ongoing initiatives by manufacturing organizations to help reform public education are:

  • The Manufacturing Institute’s Roadmap to Education Reform for Manufacturing, a comprehensive blueprint for education reform
  • American Productivity and Quality Center’s (APQC) Education North Star program that helps school districts do more with less by transforming education through process and performance management
  • Career Pathways,  a program that encourages students to consider a career in manufacturing and help prepare them by using the Manufacturing Pathway Map

Last fall, I wrote about a number of programs sponsored by other organizations to interest and prepare youth for careers in manufacturing in the article, “How Can we Attract Youth to Manufacturing Careers?”

Establishing consortiums of like-minded individuals with the same mission to help sustain and grow businesses through sharing technology and innovative ideas.  AME recommends that businesses “grow a culture that achieves results through engaging their people” to “develop pragmatic, working-level leaders who can pull it all together.”  In addition, businesses “need to foster rapid advancement of technology and innovation by establishing regional consortiums to help bring jobs back home.”

“AME Northern Kentucky/Cincinnati Consortium is the first building block of the AME Consortia network, and the organizations plans to deploy at least 10 more in 2012.  AME also has alliance partners, like the Virginia Business Excellence Consortium.”

Reshoring by making better informed business decisions  to keep and bring jobs back home – the Reshoring Initiative was founded by Harry Moser in 2010.  He is collaborating with AME to promote reshoring as part of the “Revitalization of Manufacturing” initiative.  AME recommends that companies use the Total Cost of Ownership (TCO) analysis tool Mr. Moser developed “to effectively compare total cost of local and offshore sources, enabling them to make informed business decisions. ‘We are committed to changing the sourcing paradigm from ‘off-shored is cheaper’ to ‘local reduces the total cost of ownership,’ said Moser.”

Redeploying Training Within Industry (TWI) programs to train or retrain workers to have the skills to work in advanced manufacturing jobs to revitalize manufacturing and re-energize the economy.  First created during WWII to replace workers who left the factories and went off to war, the TWI programs were revived in 2001 by the Central New York Technology Development Organization, a member of the U.S. Manufacturers Extension Partnership (MEP), after which the TWI Institute was formed to oversee the global deployment of the program.

AME’s White Paper only identifies the TWI programs, but I wrote about training programs sponsored by other organizations, such as the Society of Manufacturing Engineers’ Tooling U and The Fabricators and Manufacturers Association, International in my article, ”What’s Being Done to Address the Lack of Skilled Workers?

In order to be more globally competitive, AME recommends that companies use Lean Certification, an internationally recognized certification process developed by the Society of Manufacturing Engineers (SME), AME, Shingo Prize, and the American Society for Quality (ASQ), which establishes the standard for continuous improvement and Lean practices.

The White Paper states that at its 2012 national board meeting, “AME reaffirmed its commitment to helping small-and medium-sized businesses create more manufacturing jobs, and the organization’s strategic plans address the challenges facing manufacturing by formulating counter-measurements to address them with its public and private alliance partners.”

In conclusion, the White Paper states, …the public and private sectors must come together to build an integrated plan supportive of these initiatives, especially NAM’s Manufacturing Strategy for Jobs and Competitiveness and Roadmap to Education Reform for Manufacturing; the LEARN Act; and the Reshoring Initiative.  These will ultimately revitalize the industry and grow the economy.”

I have repeatedly said in my book and blog articles that it will take the efforts of the public and private sectors, as well as individual Americans, to first save and then revitalize American manufacturing.  I agree that these strategies will be beneficial, but they will not be enough to accomplish this goal.   First of all, I do not agree that the challenges to accomplish this goal are the “four major challenges on which its future depends and has been failing to meet… globalization, the revolution in information technology, the nation’s chronic deficits and its pattern of energy consumption” that are quoted from Thomas L. Friedman and Michael Mandelbaum’s book, That Used to Be Us, How America Fell Behind in the World It Invented and How We Can Come Back.

These are all realities that must be addressed, but they are not the main challenges that face America’s manufacturing industry.  The main challenge can be summed up in one word:  China.  By this I mean China’s predatory mercantilism in the form of currency manipulation, export subsidies, theft of intellectual property, product “dumping,” export restrictions on raw materials, and more recently, technology transfer and rare earth hoarding.

As long as companies that are members of AME, NAM, and NACFAM, such as Westinghouse, General Electric, and Caterpillar, choose to close factories in the United States to offshore manufacturing to China for the illusion of selling to the 1.3 billion Chinese consumers, we will continue to lose manufacturing jobs.

As long as these organizations and their member companies advocate so-called free trade policies and are afraid to stand up to China’s predatory mercantilism and urge our elected officials to demand that China adhere to the terms of its admission into the World Trade Organization, our huge trade deficits will continue to escalate.

These companies must stop being Chinese apologists and appeasers just to add more profit to their bottom line.  They need to realize that complying with China’s demand for technology transfer in order to build or establish a plant in China is destroying the future of their own companies.

Now is the time for action.  The best thing that AME, NAM and NACFAM members could do is to take a pledge to not close any more plants in the U. S. to set up manufacturing in China.  Then, we would really be able to revitalize American Manufacturing.

 

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What’s Really Happening to America’s Solar Industry?

February 21st, 2012

There’s been a lot of negative press about the American solar industry in the past few months because six companies went bankrupt in 2011, even after receiving government loans.   At least 12 U.S. manufacturers have suffered layoffs, plant shutdowns or bankruptcies over the past two years.  Solyndra and Evergreen Solar are the most well-known because of media coverage about their government loans, but Beacon Power Corp, Mountain Plaza, Stirling Energy Systems, and Spectrawatt Inc. also went out of business, resulting in the loss of thousands of jobs.  What’s behind the financial trouble that many of these American solar companies have experienced?

“Dumping” of solar cells and modules produced in China is the real culprit for the financial woes of the American solar industry.  According to a report released by George Washington University in December 2011, China’s production of solar photovoltaic cells and modules has grown from 1 gigawatt (GW) to 20 GW in three years, and its industry now accounts for more than 50 percent of the global market.  During the same period, prices for solar modules decreased to $1.40 per watt and may go down as low as $1 per watt.  It is clear that over capacity in both purified silicon feedstock and module manufacturing have played a key role in the recent major price declines.  The annual market for solar more than doubled between 2009 and 2010.  For 2011, estimates of total market range from 21 to 24, which is a 44 percent increase from the year prior.

On October 19, 2011, SolarWorld, the largest U.S. producer of crystalline silicon photovoltaic products, filed antidumping and countervailing duty petitions at the International Trade Commission (ITC) of the Department of Commerce.  The petition alleges that China is unfairly subsidizing its solar manufacturing industry with cash grants, multi-billion dollar preferential loans, raw material discounts, tax incentives, and currency manipulation.  SolarWorld seeks to establish that Chinese companies could not possibly have production costs low enough to be selling modules and cells at their current prices in the U.S.

SolarWorld’s petitions were supported by six other members of the newly formed Coalition for American Solar Manufacturing, started by a group of seven U.S. solar manufacturers that has grown to 150 companies representing employing more than 14,650 workers.  However, SolarWorld was the only U.S. manufacturer identified publicly in these petitions because the “unnamed companies are said to fear retaliation from essential Chinese suppliers and customers and, if they have facilities in China, the Chinese government.”

China’s Ministry of Foreign Commerce responded to these petitions as being overly protectionist and a threat to global economic recovery. China’s Suntech, the world’s largest solar panel maker, with manufacturing facilities in Goodyear, Arizona, stated that “a misguided solar trade conflict against China…could threaten the livelihood of the global solar ecosystem, particularly solar jobs in the U.S.”

U. S. opponents of the petition have formed the Coalition for Affordable Solar Energy (CASE) recruiting 132 solar companies as members representing 13,134 jobs.  Kevin Lapidus, Sr. V. P<> of legal and government affairs for SunEdison, a lead member of CASE, said “Today the solar industry is 100,00 employees of which 57 percent are in the installation business, 21 percent are in sales and distribution, and only 14 percent are in manufacturing.”  These companies benefit from the cheap Chinese products they sell, distribute, and install.

The petitions request that the ITC investigate imports of Chinese crystalline solar cell and modules but exclude thin-film products and solar technology that is not photovoltaic, such as solar thermal products.

The petitions seek relief for the U.S. domestic companies injured by Chinese imports and seek duties to offset Chinese dumping alleged to exceed 100 percent.  “The countervailing duty petition alleges that China illegally subsidizes its solar industry by providing cash grants; discounted polysilicon and aluminum necessary for production of solar panels; heavily discounted land, power and water; multi-billion dollar preferential loans and directed credit; tax exemptions, incentives and rebates; and export grants and insurance. The countervailing duty petition also alleges that China’s currency undervaluation is an illegal subsidy.”

The next step is for the ITC to decide whether the petitions are legally and factually sufficient and are adequately supported by the U.S. industry.  During such investigations, the Commission gathers information from the U.S. industry and the ITC gathers information from the foreign government and industry.

On December 2, 2011, the ITC issued a unanimous preliminary determination that Chinese trade practices are harming the U.S. domestic solar manufacturing industry.  The next step in the trade case will be Commerce’s preliminary determination on whether to levy countervailing import duties to offset the effects of any illegal Chinese subsidies.  The finding of “critical circumstances” means that if the agency imposes preliminary countervailing duties on March 2, the duties will apply to all imports of cells and modules from Chinese exporters that were brought into the United States starting Dec. 3, 2011.

This critical-circumstances ruling marks the first time that Commerce has issued such a finding in advance of a preliminary countervailing duty determination.  Aside from the determination on countervailing duties, the agency is scheduled to issue a separate preliminary ruling on anti-dumping duties on March 27.  Commerce will issue a separate critical-circumstances ruling in the anti-dumping investigation. A final decision from the U. S. ITC can take up to a year.

On February 7, 2012, the National Renewable Energy Laboratory posted a revised research presentation on the NREL website, which CASM praised.  The presentation concludes Chinese production of crystalline silicon solar technology for the U.S. market costs more than U.S. production for the domestic market, when the costs of shipping are included.

CASM contends the findings validate its position that the Chinese solar-manufacturing industry doesn’t enjoy a cost advantage in solar production costs but, rather, benefits from a government-underwritten export campaign designed to injure competition from U.S. manufacturers.

The NREL presentation, “Solar PV Manufacturing Cost Analysis: U.S. Competitiveness in a Global Industry,” concludes that Chinese producers have an inherent cost advantage of no greater than one percent, compared with U.S. producers.  However, when trans-ocean shipping costs are counted, Chinese producers face a 5 percent cost disadvantage, according to the analysis…Massive government subsidies the government says, sponsor the Chinese industrial drive to export about 95 percent of domestic production, a campaign that has already seized 55 percent of global market share.”

“This analysis from the renewable-energy research arm of the U.S. government corroborates our view that an export drive sponsored by the Chinese government is improperly intervening in the U.S. market,” said Gordon Brinser, president of SolarWorld Industries America Inc., based in Oregon.  “Highly efficient U.S. producers like SolarWorld can vie with any company in the world in legal competition.  But the government of China’s illegal trade practices are neither economically nor environmentally sustainable for anyone.  Free trade is trade free of illegal foreign government intervention.”

“We are countering the illegal trade practices of China and its state-sponsored industry only as a first step to reviving renewable-energy competition, manufacturing and jobs and augmenting national energy security and world environmental stewardship,” Brinser said. “All of the advantages of solar should be available to the United States and to the competitive U.S. industry that pioneered this technology.”

Chinese silicon solar PV producers more than doubled their exports of crystalline silicon solar cells and modules in advance of potential U.S. government duties on those imports, according to an evaluation of PIERS’ reports, which are based on US Customs and Border Protection Automated Manifest System data.

“This significant increase in imports demonstrates that the Chinese know they have violated U.S. and international trade rules and are trying to evade the consequences,” said Gordon Brinser, president of SolarWorld Industries America Inc., based in Oregon.  “Year to date, Chinese imports of solar cells and modules in 2011 are up 346 percent by quantity and 138 percent by value. Since 2008, Chinese imports have risen 939 percent by value and 1664 percent by quantity.  This most recent surge of Chinese solar imports gives the U.S. Department of Commerce the evidence it needs not only to make a preliminary determination in our favor, but also to apply a critical-circumstances finding to address this last-minute import surge.”

“The Chinese have made it clear that, contrary to various World Trade Organization agreements they signed 10 years ago, they will employ any means necessary to dominate the American and international solar markets,” Brinser said.  “Rather than reward the Chinese for cheating, Commerce and the International Trade Commission need to take every possible action to enable American manufacturers to compete fairly.”

Most of the solar technology was developed in the U. S., but the Chinese government decided the industry was something it wanted to dominate and provided the financing necessary to its manufacturers to build the capacity to do so enabling China to take a dominant market position. Chinese companies such as LDK Solar, JA Solar, Suntech, and Trina Solar obtained billions of dollars in financing from the China Development Bank in the last five years.

In contrast, the U.S. solar industry has had to rely on a tax credit to fund its expansion until federal stimulus money gave a jolt to the industry.  This funding was given to solar and wind project installers, not manufacturers. Investor advisor, Travis Hoium wrote, “Since it was a tax credit, it often required a tax equity investor, often a foreign company, to fund the project. The subsidy was there, but instead of being direct, it was convoluted and too complex to be as effective as China’s subsidies in building an industry.”

He added, “The stimulus money helped in some ways. The 1603 Treasure Program turned the tax credit into a cash grant for 30% of a renewable energy installation’s cost, helping attract more investors. But more direct funding blew up in the government’s face.  The Solyndra debacle showed that loan guarantees don’t guarantee success and that the government probably isn’t the best at picking industry winners.  The outrage after the company’s collapse could be heard around the country.”

This shows the contrast in the ways that China and the U.S. have subsidized their solar industries.  As a capitalistic economy, the U. S. doesn’t want direct government meddling in business.  On the other hand, China will subsidize businesses to create jobs and help them maintain their position as the world’s #1 exporter.

Filing a trade case is the last resort for an industry harmed by China’s “dumping,” government subsidies, and currency manipulation.  Other industries that have been forced to file similar cases are steel, semiconductors, textiles, furniture, and tires.  This latest case is part of a long trend of industries on the verge of being wiped out by China’s predatory mercantilism.  Our elected leaders seem to be afraid to do anything because it would start a trade war.  When are our leaders going to realize that we are already in a trade war, and China is winning?  If China can defeat us in an economic war and destroy the economy of the United States, they won’t have to fight us in a military war.  It’s time for our elected to have the courage to stand up to China and address China’s “dumping” and currency manipulation.  We Americans need to demand action!

 

 

 

 

 

 

 

 

 

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Will President Obama’s Blueprint Save American Manufacturing?

February 7th, 2012

In his State of the Union address, President Obama laid out a blueprint for an economy that’s built to last – an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

I share the President’s believe that “this is a make or break moment for the middle class and those trying to reach it.  Manufacturing is the foundation of the middle class, and we are losing the middle class because of the loss of manufacturing jobs.  I’ve seen the middle class eroding for decades because manufacturing and the good jobs the industry provides began leaving our shores long before the recession.  Too many manufacturers have sourced all of most of their manufacturing offshore, especially in China.  It’s the loss of manufacturing jobs that is keeping unemployment so high and creating budget deficits at the local, state and federal level.  People who are working pay taxes that generate revenue for our government whereas the unemployed create expenses to government for their “safety net.”

The President’s blueprint has one section covering manufacturing titled, “Manufacturing: Create New Jobs Here In America, Discourage Outsourcing, And Encourage Insourcing,” so let’s examine the points one by one to see if they will make enough difference to “save American manufacturing.”

1.        Remove tax deductions for shipping jobs oversees and providing new incentives for bringing them back home:  It’s been outrageous that we’ve been giving tax incentives to companies to outsource manufacturing offshore by allowing companies moving operations overseas to deduct their moving expenses and reduce their taxes in the United States.  This proposal would eliminate deductions for moving their operations offshore and give a 20 percent income tax credit for the expenses of moving operations back to the U. S. to create jobs for Americans.  Eliminating this tax incentive for outsourcing offshore is one of the recommendations mentioned in my book.

2.        Target the domestic production incentive on manufacturers who create jobs here at home and double the deduction for advanced manufacturing:  This proposal would reform the current deduction for domestic production by more narrowly focusing it on manufacturing activities, expanding the deduction for manufacturers, and doubling the deduction for advanced manufacturing technologies from its current level of 9 percent to 18 percent.  This proposal would benefit manufacturers utilizing advanced manufacturing technologies, but I see no reason why it shouldn’t apply to all domestic manufacturing and why oil production should be eliminated from this deduction.

3.       Introduce a new Manufacturing Communities Tax Credit to encourage investments in communities affected by job loss:  “The President is proposing a new credit for qualified investments that help finance projects in communities that have suffered a major job loss event … would provide $2 billion per year in incentives for three years.”  For example, if a major employer closes a plant or substantially reduces the workforce with a mass layoff, the tax credit would support qualified investments in the affected community that would improve local economic growth.   This proposal would help communities that lose manufacturing companies or suffer mass layoffs, but would have no effect in preventing manufacturers from leaving or closing plants.

4.       Provide temporary tax credits to drive nearly $20 billion in domestic clean energy manufacturing: The President is proposing to extend the Advanced Energy Manufacturing Tax Credit tax credit for investment in domestic clean energy manufacturing to ensure new windmills and solar panels will incorporate parts that are produced and assembled by American workers.  However, the U.S. solar industry filed a trade case at the Department of Commerce late last year alleging dumping and unlawful subsidies by China.  Until we address China’s currency manipulation and dumping of products including solar panels and windmill parts, America’s clean energy industry will remain at a competitive disadvantage to China.  Senate bill 1619 that passed the Senate last fall, and H. R. 639 waiting for a vote in the House would be a good start in addressing China’s currency manipulation.  Unfortunately, President Obama has indicated he would veto the bill if passed.

5.      Reauthorizing 100% expensing of investment in plants and equipment: The President is proposing to extend for all of 2012 a provision that allows businesses to expense the full cost of their investments in equipment, spurring investment in the United States.   This provision was part of the Bush administrations tax cuts and will sunset at the end of this year unless it is extended.  It needs to be extended well beyond the end of this year for it to have any real impact in benefitting manufacturers.

6.      Closing a loophole that allows companies to shift profits overseas: Corporations right now can abuse the tax system by inappropriately shifting profits overseas from intangible property created in the United States.  The President is proposing to close this loophole.  This is one of the several steps we need to take to incentivize companies to maintain manufacturing in the U. S. or bring manufacturing back from overseas.

At the same time the President is calling for immediate enactment of this plan, he is pushing forward on a framework for corporate tax reform that would encourage even greater investment in the United States, while eliminating tax advantages for outsourcing.  This framework would include:

Making companies pay a minimum tax for profits and jobs overseas and investing the savings in cutting taxes here at home, especially for manufacturing: The President is proposing to eliminate tax incentives to ship jobs offshore by ensuring that all American companies pay a minimum tax on their overseas profits, preventing other countries from attracting American business through unusually low tax rates.  The savings would be invested in cutting taxes here at home, especially for manufacturing.

This would only encourage more companies to reincorporate in tax haven countries to avoid paying any corporate taxes in the U. S., which has the second highest rates in the world.  A better plan would be to reduce corporate taxes down to the globally competitive 25 percent so that corporations will have less incentive to avoid paying U. S. taxes by building facilities in foreign countries.

Making permanent an expanded Research and Experimentation Tax Credit: The President is proposing to make the Research and Experimentation Tax Credit permanent, while enhancing and simplifying the credit.  Again, this is one of the recommendations in my book and would encourage manufacturers to keep R&D in the United States as only research and experimentation performed in the United States is eligible.
Simplify the tax code and close loopholes:  The Fact Sheet states that over the last 30 years since the last comprehensive reform, the tax system has been loaded up with special deductions, credits, and other tax expenditures that help well-connected special interests, but do little for our country’s economic growth.  The President’s framework will close these loopholes and simplify the tax code so businesses can focus on investing and creating jobs rather than filling out tax forms.  As I mentioned in a recent article, the Department of Treasury issued a report in 2007 that made many recommendations of how to simplify the tax code and close loopholes.  We don’t need to “reinvent the wheel” to study how to simplify the tax code.  Let’s just implement some of the previous recommendations immediately.

Cracking down on overseas tax avoidance and loopholes:  The Fact Sheet states that the President has taken strong steps to crack down on overseas tax evasion and loopholes, including signing into law the Foreign Account Tax Compliance Act, which targets tax evasion by U.S. citizens holding investments in foreign accounts, as well as measures to crack down on abuse of foreign tax credits  that have allowed multinational companies to inappropriately reduce the amount of taxes they paid in the U. S.
The Fact Sheet touts the tax incentives that President Obama signed into law in the last three years that have helped manufacturers, but he actually only signed legislation extending the tax cuts and tax incentives through 2012 that were originally passed by Congress under the Bush administration.  These tax cuts and incentives will end in 2013, if not extended again, and far higher taxes will be imposed under certain provisions of the Affordable Health Care Reform Act of 2010.

One of the big reasons manufacturers and other types of businesses are sitting on millions of dollars in corporate profits without expanding plants, buying new equipment, and hiring more workers is the fear of the higher taxes and health care costs they are facing in 2013 as a result of the Health Care Reform Act.

Therefore, a careful review of the President’s blueprint shows that it doesn’t do enough to save American manufacturing.  The few beneficial policies will be more than undone by the tax increases and regulations that will take effect in 2013 and thereafter.  What we need is an all encompassing national manufacturing strategy if we truly want to provide enough incentives to retain or bring back manufacturing to the U. S. and discourage corporations from outsourcing their R&D and manufacturing overseas.

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Why We Don’t Need a New Program to Train America’s Manufacturing Workers

January 31st, 2012

In his State of Union address, President Obama placed American manufacturing at the center of a “blueprint” for bringing back jobs and strengthening our economy.  After years of being one of the “voices in the wilderness” urging our elected leaders to “save American manufacturing,” it was gratifying to hear manufacturing being given such prominence.

I am concerned, though, that his idea of “one program, one website, and one place to go for all the information and help” American workers need for training or retraining for jobs would result in more government control and more deficit funding, adding to the burden of debt for American taxpayers.  We don’t need to wait for government to come up with a new program and spend taxpayer dollars developing new curricula for training for manufacturing jobs.   We don’t need to wash years of work and collaborations between industry, trade and professional organizations, colleges, and universities down the drain.  A great deal has already been done and is being done to train and retrain today’s workers and prepare the next generation of manufacturing workers.

When considering training, we need to understand the difference between certification versus a certificate.  Certificate programs are training based on proprietary criteria/curriculum and sometimes include an exam without any recertification requirements. Numerous training companies, educational institutions, and individual training consultants compete to sell training courses that purportedly include “certification.”  In many cases, these are not based on a standard body of knowledge as developed by objective third-party entities, but rather paper certificates awarded for specific training.  Certificate programs are useful to prepare workers for entry-level positions in many industries.

Certifications are based upon profession and competency.  Certifications are independent, third-party assessments of knowledge, skills, and experience based upon a known publicly available standard overseen by industry.  The exam includes legally defensible content and can be referenced back to widely available industry accepted references.  Recertification is a key component and ensures individuals show evidence of continued learning.  Professional certification is a designation earned by a person to assure they meet the minimum knowledge requirements of the profession and is transferable from state to state and company to company.

For example, the National Institute for Metalworking Skills (NIMS) was formed in 1995 by the metalworking trade associations to develop and maintain a globally competitive American workforce.  NIMS sets skills standards for the industry, certifies individual skills against the standards, and accredits training programs that meet NIMS quality requirements.   NIMS operates under rigorous and highly disciplined processes as the only developer of American National Standards for the nation’s metalworking industry accredited by the American National Standards Institute (ANSI).

NIMS has a stakeholder base of over 6,000 metalworking companies. The major trade associations in the industry- the Association for Manufacturing Technology, the American Machine Tool Distributors’ Association, the National Tooling & Machining Association, the Precision Machine Products Association, the Precision Metalforming Association, and the Tooling and Manufacturing Association have invested over $7.5 million in private funds for the development of the NIMS standards and its credentials.  The associations also contribute annually to sustain NIMS operations and are committed to the upgrading and maintenance of the standards.

NIMS has developed skills standards in 24 operational areas covering the breadth of metalworking operations including metalforming (Stamping, Press Brake, Roll Forming, Laser Cutting) and machining ( Machining, Tool and Die Making, Mold Making, Screw Machining, Machine Building and Machine Maintenance, Service and Repair). The Standards range from entry (Level I) to a master level (Level III).  All NIMS standards are industry-written and industry-validated, and are subject to regular, periodic reviews under the procedures accredited and audited by ANSI.

NIMS certifies individual skills against the national standards.  The NIMS credentialing program requires that the candidate meet both performance and theory requirements.  Both the performance and knowledge examinations are industry-designed and industry-piloted. There are 52 distinct NIMS skill certifications.  Industry uses the credentials to recruit, hire, place and promote individual workers.  Training programs use the credentials as performance measures of attainment, often incorporating the credentials as completion requirements and as the basis for articulation among training programs.

NIMS accredits training programs that meet its quality requirements.  The NIMS accreditation requirements include an on-site audit and evaluation by a NIMS industry team that reviews and conducts on-site inspections of all aspects of the training programs, including administrative support, curriculum, plant, equipment and tooling, student and trainee progress, industry involvement, instructor qualifications and safety.   Officials governing NIMS accredited programs report annually on progress and are subject to re-accreditation on a five year cycle.
NIMS has launched a new Competency-based Apprenticeship System for the nation’s metalworking industry.  The NIMS system represents a dramatic departure from the time based system and integrates the NIMS national standards and skill certifications in defining and measuring required competencies.

Developed in partnership with the United States Department of Labor, the new system is the result of two years of work.  Over 300 companies participated in the deliberations and design.   The new National Guideline Standards for NIMS Competency-based Apprenticeship have been approved by the Department of Labor.  NIMS has trained Department of Labor apprenticeship staff at the national and state level in the new system.

Another professional organization that provides certification is the Society of Manufacturing Engineers (SME), the world’s leading professional society advancing manufacturing knowledge and influencing more than half a million manufacturing practitioners annually.  Through its local chapters, technical communities, publications, expositions, and professional development resources, SME promotes an increased awareness of manufacturing engineering and keeps manufacturing professionals up to date on leading trends and technologies.  SME provides the following professional certifications:  Manufacturing Technologist, Manufacturing Engineering, Engineering Manager, Lean Certification (Bronze, Silver, and Gold), and Six Sigma.

SME’s Certified Manufacturing Technologist program is utilized as an outcome assessment by numerous colleges and universities with Manufacturing, Manufacturing Engineering or Engineering Technology programs.  Students who successfully earn the certification demonstrate broad knowledge and its application as related to the fundamentals of manufacturing, which sets them apart from other potential job candidates.In addition, the SME Education Foundation has the mission to prepare the next generation of manufacturing engineers and technologists through outreach programs to encourage students to study Science, Technology, Engineering, and Mathematics (STEM) as well as Computer Integrated Manufacturing (CIM) education.  Over its 30-year history, SME has invested $17.3 million in grants to 35 colleges and universities to develop industry-driven curricula.

In 2010, the Society of Manufacturing acquired Tooling University LLC (Tooling U) based in Cleveland, Ohio to provide online, onsite, and webinar training for manufacturing companies and educational institutions. With more than 400 unique titles, Tooling U offers a full range of content to train machine operators, welders, assemblers, inspectors, and maintenance professionals.  These classes are delivered through a custom learning management system (LMS), which provides extensive tracking and reporting capabilities. The competencies tie the online curriculum to matching hands-on tasks that put the theory to practice.

The Fabricators and Manufacturers Association, International (FMA) champions the success of the metal processing, forming, and fabricating industry.  FMA educates the industry through the following programs:

FabCast – FMA’s webinar platform utilizes Internet connection and telephone to deliver live, interactive technical education programs directly to manufacturers on such topics as laser cutting, roll forming, metal stamping, etc.  Companies can train their whole team at once, even from multiple locations.  Companies can break up full days of instruction into modules and spread out over a period of time (i.e. two hours four days a week, four hours once a week for a month, etc.).

Precision Sheet Metal Operator (PSMO) Certification – FMA’s PSMO Certification is the metal fabricating industry’s only comprehensive exam designed to assess a candidate’s knowledge of fundamental precision sheet metal operations.  Fabrication processes covered in the exam include shearing, sawing, press brake, turret punch press, laser cutting, and mechanical finishing.

FMA offers on-site, live training conducted at companies on their equipment as well as on-line training (e-Fab) that allows a company to get the training that they need, when they need it.  E-Fab courses combine a full day’s worth of instruction by FMA’s leading subject matter experts with the flexibility of online delivery, available 24/7, 365 days a year.

Finally, there is ASQ, which is a global community of people passionate about quality who use the tools, the ideas, and their expertise to make the world work better.  ASQ certification is a formal recognition that an individual has demonstrated a proficiency within, and comprehension of, a specific body of knowledge.  ASQ certification crosses industry lines, ranging from Biomedical Auditor, Quality Technician, Inspector, and Engineer, Reliability Engineer, Six Sigma Black Belt to Software Quality Engineer.  Nearly 150,000 certifications have been issued to dedicated professionals worldwide.

Training and retraining workers who are unemployed or underemployed are critical for the health and growth of the manufacturing industry, which will create good-paying jobs.  The focus of a one-stop website for employment should be to distribute the training and certifications provided by the above-listed organizations at the national level down to the local level.

 

 

 

 

 

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Why is it Important to Lower Corporate Tax Rates?

January 24th, 2012

Last fall the Manufacturers Alliance/MAPI and the National Associations of Manufacturers Manufacturing Institute released a report on their analysis of production costs in the United States relative to its top nine trading partners ? Canada, Mexico, Japan, China, Germany, United Kingdom, Korea, Taiwan, and France.  The report revealed that on a trade-weighted basis, the U. S. tax rate is 8.6 percentage points higher than its trading partners in the 2011 cost study, considerably higher than the 5.6 percentage points of the first cost study in 2003.

While the U. S. federal and state combined tax rate has remained the same, every other country in the study has lowered corporate tax rates at least once since 1997, and most countries have done so several times.  The result is that the U.S. rate is now second-highest to Japan in the Organization for Economic Co-operation and Development (OECD).  The increase in the foreign advantage since the 2008 tax study is due to rate reductions in Canada (36 percent to 31 percent), Germany (38.4 percent to 29.4 percent) and Taiwan (25 percent to 17 percent).

If you think that a reduction in corporate tax rates would only benefit the large, multinational corporations doing business globally, think again.  According to last MAPI/MI report, “Facts About Modern Manufacturing,” produced in 2009, 95 percent of the 286,039 manufacturers were companies of under 100 employees.

It isn’t just manufacturing corporations and their trade associations that recommend a reduction in corporate taxes.  On July 26, 2007, the Treasury Department hosted a conference on Global Competitiveness and Business Tax Reform that brought together distinguished leaders and experts to discuss how the U.S. business tax system could be improved to make U.S. businesses more competitive. As a follow-up to this conference, on December 20, 2007, the U.S. Department of the Treasury released a 121-page report titled “Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century.”

The report acknowledges that, “Globalization … has resulted in increased cross-border trade and the establishment of production facilities and distribution networks around the globe. Businesses now operate more freely across borders and business location and investment decisions are more sensitive to tax considerations than in the past.” Further, as globalization has increased, “nations’ tax systems have become a greater factor in the success of global companies.” The report notes, “Many of our major trading partners have lowered their corporate tax rates, some dramatically.”

In the 1980s, the United States had a low corporate tax rate compared to other countries, but now has the second highest. Japan has the highest corporate tax rate at 39.54 percent. According to the OECD, Ireland’s tax is lowest at 12.5 percent, while most of the other major industrial nations have corporate tax rates ranging from 19 to 30 percent.

The Treasury Department says, “As other nations modernize their business tax systems to recognize the realities of the global economy, U.S. companies increasingly suffer a competitive disadvantage. The U.S. business tax system imposes a burden on U.S. companies and U.S. workers by raising the cost of investment in the United States and burdening U.S. firms as they compete with other firms in foreign markets.”

The report states that the U. S., tax system “discourages investment in the United States” and “may also slow the pace of technological innovation.  The pace of innovation is a key determinant of economic growth, and innovation tends to take place where the investment climate is best…Given this interplay between innovation and capital accumulation, allowing     U. S. corporate taxes to become more burdensome relative to the rest of the world could result in a cumulative effect in which U. S. firms fall increasingly behind those in other nations.”

The study concludes that the current system of business taxation in the United States is making the country uncompetitive globally and needs to be overhauled. A new tax system aimed at improving the global competitiveness of U.S. companies could raise GDP by 2 to 2.5 percent.  Rather than present particular recommendations, the report examines the strengths and weaknesses of the three major approaches presented:

Replacing the business income tax system with a Business Activity Tax (BAT)

  • The BAT tax base would be gross receipts from sales of goods and services minus purchases of goods and services (including purchases of capital items) from other businesses.
  • Wages and other forms of employee compensation (such as fringe benefits) would not be deductible.
  • Interest would be removed from the tax base – it would neither be included as income nor deductible.
  • Individual taxes on dividends and capital gains would be retained.  Interest income received by individuals would be taxed at the current 15 percent dividends and capital gains rates.

Broadening the business tax base and lowering the statutory tax rate/providing expensing

  • The top federal business tax rate would be lowered to 28 percent.
  • If accelerated depreciation were retained, the rate would drop only to 31 percent.
  • Acquisitions of new investment could be partially expensed (35% could be written off immediately)

Specific areas of our current business tax system that could be addressed

  • Multiple taxation of corporations (corporate capital gains and dividends receive deduction)
  • Tax bias favoring debt finance
  • Taxation of international income
  • Treatment of losses
  • Book-tax conformity

If the business tax rate were lowered to 31 percent, it would mean that the United States would have the third highest tax rate, while a 28 percent corporate tax rate, would mean the United States would have the fifth-highest tax rate.  The report acknowledges that these lower rates might not be enough as other countries are continually changing their tax systems to gain competitive advantage.  The Treasury Department study says, “Thus, it remains unclear whether a revenue neutral reform would provide a reduction in business taxes sufficient to enhance the competitiveness of U.S. businesses.”

The Executive Summary also comments on the importance of individual income tax rates. Roughly 30 percent of all business taxes are paid through the individual income tax on business income earned by owners of flow-through entities (sole proprietorships, partnerships, and S corporations). These businesses and their owners benefited from the 2001 and 2003 income tax rate reductions. This sector has more than doubled its share of all business receipts since the early 1980s and plays a more important role in the U.S. economy, accounting for one-third of salaries and wages. Moreover, flow-through income is concentrated in the top two tax brackets, with this group receiving more than 70 percent of flow-through income and paying more than 80 percent of the taxes on this income.

The Executive Summary concludes that “now is the time for the United States to re-evaluate its business tax system to ensure that U.S. businesses and U.S. workers are as competitive as possible and Americans continue to enjoy rising living standards.”

Unfortunately, the recommendations of the Treasury Department haven’t been addressed by Congress in legislation in the more than four years since the report was released.

At the same time that we address the corporate tax rate, we need to close a huge tax loophole that multinational corporations are enjoying at the expense of American workers and which is a big incentive for U. S. firms to invest abroad in countries with low tax rates.

In June 2006, James Kvaal, who had been a policy adviser in the Clinton White House and was then a third-year student at Harvard Law School, published a paper “Shipping Jobs Overseas: How the Tax Code Subsidized Foreign Investment and How to Fix It.”  In this well-researched paper, Kvaal points out that “American multinationals can defer U.S. taxes indefinitely as long as profits are held in a foreign subsidiary.  Taxes are only due when the money is returned to the U.S. parent corporation.  The result is like an IRA for multinationals’ foreign investments: foreign profits accumulate tax-free.  U.S. taxes are effectively voluntary on foreign investments.”

There’s no rule saying American companies ever have to bring that money home.  As long as they reinvest earnings overseas, they pay only the host country’s (usually lower) tax rate.  Many companies just put the money they make overseas back into their foreign operations, which means more economic growth for other countries, and less here at home.  Kvaal wrote that “when multinationals choose to return profits to the U.S. they can offset any foreign taxes against their U.S. tax. … As a result, the effective tax rate on foreign non-financial income is below 5 percent, well below the statutory rate of 35 percent.”

He recommends changing the tax code to a “partial exemption system” that “would tax foreign income only if a foreign government failed to tax it under a comparable tax system. As a result, all corporate income would be taxed at a reasonable rate once and only once.” He opines that this system would reduce incentives to invest in low-tax countries, simplify the taxation of corporate profits, and reduce tax competition by removing the benefit of tax havens. He urged immediate action “to ensure that our tax code no longer exacerbates incentives to move offshore.”

The importance of low tax rates to the success of start-up companies is emphasized by Henry Northhaft, CEO of Tessera Corporation, in his book Great Again, co-authored by David Kline. They wrote, “… lower tax rates on the last dollar earned encourage individuals and businesses to work harder, take more entrepreneurial risks, and expand their operations because they can keep more of the fruits of that added labor or activity … a reduction in the marginal tax rate of 1 percentage point increases the rate of start-up formation by 1.5 percent and reduces the change of start-up failure by more than 8 percent. … Tax rates don’t just influence how much investment and growth a firm will choose to undertake.  In an increasingly globalized economy, they also profoundly affect where a business will chose to invest or expand … the relative tax and regulatory burdens on U.S. start-ups have grown exponentially, whereas those on European and other foreign ventures have declined sharply.”

Nothhaft “As a result, America now has the highest corporate rate in the world (with the lone exception of Japan). At 39.2 percent, it’s more than 50 percent higher than the OECD average of 25.5 percent. … A number of empirical studies by OECD economists and others have discovered that the best “revenue-maximizing” tax rate – the rate that brings in more total revenues than either a lower or a higher tax rate – is around 25 percent.”

Comprehensive tax reform is needed because under the current system multinational corporations are favored over domestic companies.  Taxes can foster economic growth or hinder it.  Our domestic economic growth is being hindered by the current tax system and must be addressed by Congress in the near future if we want to help American compete successfully in the global economy and create more jobs.

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What Could We Do Right Now to Create Jobs?

January 17th, 2012

There are numerous ideas and recommendations on how we could create jobs that range from the cautious to the extreme.  Most job creation programs proposed by commentators, politicians, and economists involve either increased government spending or reductions in income or employment taxes at a time of soaring budget deficits and decreased government revenue.  Other recommendations would require legislation to change policies on taxation, regulation, or trade that would be difficult to accomplish. Many of these solutions involve borrowing money or taking money from one group of citizens or a future generation to give to another.  Let’s start with what we as individuals can do from the viewpoint of entrepreneurs, business owners, employees, and consumers.

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

If you are the owner of an existing manufacturing company, then you could do a Total Cost of Ownership analysis for component parts that you are having made offshore to see if you could “reshore” some of all of them to be made in the United States.  Check out www.reshorenow.org for a TCO worksheet estimator to conduct your analysis.  Also, you could choose to keep R&D in the United States or bring it back to the United States if you have “offshored” it.    Every manufacturing job you keep or bring back to the United States will create an average of three to four support jobs for other Americans.  If you are a service company, you could choose to keep your customer service department in the United States or bring it back if it is “offshored.”  If enough manufacturing is “reshored” from China, we would drastically reduce our trade  $600 billion trade deficit .  We could create as many as three million manufacturing jobs, which would, in turn, create 9 – 12 million total jobs, bringing our unemployment down to 4 percent.

If you are an inventor ready to get a patent or license agreement for your product, select American companies to make parts and assemblies for your product as much as possible.  There are some electronic components that are no longer made in the U. S., so it may not be possible to source all of the component parts with American companies.  As I’ve written previously, there are many hidden costs to doing business offshore so that in the long run you may not save as much money as you expect by sourcing your product offshore.  Don’t forget about the danger of having your Intellectual Property stolen by a foreign company that will use it to make a copy-cat or counterfeit product sold at a lower price than your product.

If you are fortunate enough to have a regular, stable job, do everything in your power to contribute to the success of your company.  Do your job to the best of your ability.  Be willing to learn new job skills to increase your value to your employer.  No matter what your job, adopt the marketing mindset where you realize that everyone in a company is part of the marketing team regardless of their job function.  Every interaction that a customer or potential customer has with anyone in a company influences his or her opinion about doing business with that company.  Even though you are being paid by your employer, it’s actually your company’s customers that provide you with a job.

You may not realize it, but you have tremendous power as a consumer.  Even large corporations pay attention to trends in consumer buying, and there is beginning to be a trend to buy ‘Made in USA” products.  Pay attention to the country of origin labels when you shop and buy “Made in USA” products whenever possible.  Be willing to step out of your comfort zone and ask the store owner or manager to carry more “Made in USA” products.   If you buy products online, there are now a plethora of online sources dedicated to selling only “Made in USA” products.   Each time you choose to buy an American-made product, you help save or create an American job.  There is a ripple effect in that every manufacturing job creates three to ten other manufacturing jobs, depending on the industry.  If 200 million Americans bought $20 worth of American products instead of Chinese, it would reduce our trade imbalance with China by four billion dollars.  During the ABC World News series called “Made in America,” Diane Sawyer has repeatedly said, “If every American spent an extra $3.33 on U. S.-made goods, it would create almost 10,000 new jobs in this country.”

Now, let’s consider what Congress could do to create jobs.  First, Congress must enact legislation that addresses China’s currency manipulation.  Most economists believe that China’s currency is undervalued by 30-40% so their products may be cheaper than American products on that basis alone.  To address China’s currency manipulation and provide a means for American companies to petition for countervailing duties, the Senate passed S. 1619 last fall.  Even though the corresponding bill in the House, H. R. 639, had bi-partisan support with 231 co-sponsors, GOP leadership bottled up the bill in committee and prevented it from being brought up for a vote, so the session ended without action to address this serious issue.  The 112th Congress lasts two years, starting in Jan 2011 and ending December 2012, so there is the opportunity for the bill to be voted on this year.

We  voters need to pressure our elected representatives in the House to pass this bill this year so that American products can compete against Chinese imports.  It’s an obvious fact that if American companies can increase sales of their products, then they will be able to hire more workers.

Second, Congress should pass legislation allowing American corporations to “repatriate” income earned by plants in foreign countries at a reduced tax rate of 5-5.5% if the income is permanently reinvested in the United States.  This would bring nearly 1.2 billion dollars of monies back to the U. S. to be invested in R&D, plants, equipment, and hiring workers.

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

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

  • Reduce corporate taxes to 25 percent
  • No negotiation or ratification by Congress of any new Free Trade Agreements
  • Make capital gains tax of 15 percent permanent
  • Increase and make permanent the R&D tax credit
  • Eliminate the estate tax (also called the Death Tax)
  • Improve intellectual property rights protection and increase criminal prosecution
  • Prevent sale of strategic U.S.-owned companies to foreign-owned companies
  • Enact legislation to prevent corporations from avoiding the U.S. income tax by reincorporating in a foreign country
  • Change the tax code to a “partial exemption system” to eliminate incentives for companies to move offshore by taxing all corporate income at a reasonable rate once

In this election year, it is unlikely that legislation proposing any of these recommendations would have a chance of being passed by Congress.  The problem is that no Democrat would want to allow any credit to go to a Republican, which might help them win re-election, and no Republican would want to allow any credit to go to a Democrat, which might help them win re-election.   We will need to wait until after the 2012 election before we have any hope of such legislation being considered.

Finally, the Obama administration is considering a high-level task force to manage China trade enforcement issues. Such a task force is desperately needed and long overdue.  The challenge will be to ensure that the task force has the authority to take bold steps to lower our trade deficit with China.  Holding China accountable for their compliance with terms of their membership in the World Trade Organization would be a major step in helping American manufacturers compete in the global marketplace to be able to succeed, grow and create jobs in America instead of China.

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