What are the Republican Candidates’ Economic Plans to Create Jobs?

January 9th, 2012

Every Republican candidate has an economic plan they say will create jobs.  The truth is that the ability of any president to directly create private sector jobs is very limited, but he can set the focus and present a plan that his/her administration can follow and solicit the support of Congress and the American people to approve and implement his plan through legislation and funding.  The legislation that Congress passes and the President signs can either help or hinder the private sector to create jobs.  The funding that Congress allocates provides the fuel to accomplish the plan.

Most of us are familiar with the old adage that small businesses create up to 80 percent of all jobs; however, the new Census Bureau database called Business Dynamics Statics shows that it’s not so much small businesses that create jobs as it is new businesses.  In his book, Great Again, CEO Henry Nothhaft wrote, “all the major innovations that powered the American economy to unrivaled prosperity over the last fifty years – from semiconductors and personal computers to software, biotech, and the Internet – were all created by small start-ups.  So were all of the 40 million new jobs created in this country since 1977…”

However, not every new business has the potential to grow and produce a significant number of jobs.  As Rodney Stark wrote in The Victory of Reason, the basis economic fact is “all wealth derives from production.  It must be grown, dug up, cut down, hunted, herded, fabricated or otherwise created.”   Because of the jobs multiplier effect, businesses that manufacture a product, whether it’s a hardware or software product, have the highest potential for creating jobs as they grow and succeed.  However, these companies will only create American jobs if they manufacture their products or perform their services in the United States.

Most of the plans of the Republican candidates’ plans involve cutting taxes, cutting government spending, reducing the size of government, eliminating burdensome regulations, and repealing what they consider onerous legislation.  Do their specific plans provide a platform to create jobs from production?  Do their plans provide incentives to manufacture products in America?  If they don’t, what should their plans include?

Since all of the Republican candidates recommend reducing corporate taxes, let’s examine why this would be beneficial for creating jobs.  Right now, American corporations are at a disadvantage compared to other countries:  our tax rates are the second highest in the world next to Japan’s, averaging 35 percent at the federal level.

The Organization for Economic Co-operation and Development (OECD) has conducted a number of empirical studies by OECD economists and others that discovered the best tax rate that maximizes revenue and compliance is 25 percent.  The studies found that high corporate income tax rates have the most harmful impact on long-term growth and lowering tax rates can lead to significant productivity gains in the very companies that have the most potential to contribute to economic growth.

Governor Mitt Romney and Ron Paul propose reducing corporate tax rates to 25 percent; Governor Perry proposes a reduction to 20 percent; Rick Santorum to 17.5 percent; while Newt Gingrich proposes a reduction to12.5 percent.  There were no specific recommendations on former Utah Governor Jon Huntsman’s campaign website on reducing corporate taxes.  He seems to base his American Jobs Plan predominantly on increasing free trade through additional free trade agreements.

Three candidates, Governor Romney, Governor Perry, and Rick Santorum propose to create immediate jobs by allowing corporations to “repatriate” profits being held offshore by foreign subsidiaries or divisions at a reduced rate of 5 to 5.5 percent.  Over 1.2 trillion dollars could be brought back to America in a matter of days that would provide capital for investment in plants and equipment in the U. S. and hiring more workers to run the equipment.

Currently, the U. S. operates under what is known as a “worldwide” tax system, meaning that business income is taxed at the U. S. rate regardless of whether the income is earned within American borders or overseas.  American companies pay the corporate tax in the host country, and when profits are repatriated back to the U. S., they pay the difference between what was paid to the host country and what would have been owed under the U. S. rate. Our higher corporate tax rate provides an incentive for companies to keep their profits offshore and not repatriate them.   The U. S. is now the only country in the OECD that adheres to the “worldwide” tax system while imposing a corporate tax rate above 30 percent.  A reduced rate for “repatriation” of corporate profits was provided by the Bush administration in 2004, and corporations have been hoping for the opportunity to do so again.  To prevent this problem in the future, Governor Romney and Governor Perry propose switching to a “territorial” tax system in which income is taxed only in the country where it is earned.

In order to succeed and grow, businesses, and especially manufacturers, need to make long-range plans on allocating funds for R&D and capital investment.  Thus, businesses would benefit by making the R&D tax credit permanent and either reducing or eliminating the capital gains tax.  Governor Romney, Governor Perry, and Newt Gingrich support eliminating the capital gains tax altogether; Ron Paul proposes cutting and simplifying the corporate capital gains tax and Rick Santorum proposes to reduce it to 12 percent.  They all support increasing and making permanent the R&D tax credit.  In addition,  all the Republican candidates support eliminating the  Estate Tax, aka the Death Tax, which especially hurts small, family owned businesses where the heirs frequently have to sell the business to pay the Estate taxes instead of maintaining the business for the next generation of their family.

All of the above proposals for changing tax policies are included in the ten immediate recommendations for saving American manufacturing in chapter 10 of my book, Can American Manufacturing be Saved?  Why we should and how we can.  Only one candidate, Governor Romney, has included my top recommendation in his campaign economic plan:  enact legislation to address China’s foreign currency manipulation.  He also proposes to “direct the Department of Commerce to assess countervailing duties on Chinese imports if China does not quickly move to float its currency.”  Some criticize this proposal by saying it would start a trade war.  What they don’t understand is that we are already in a trade war, and China is winning.

We need a president who recognizes that currency manipulation is just one of the tactics China is using in their economic warfare with the United States.  Other tactics they use have been described in my previous blogs and are well documented in the writings of Ian Fletcher, Senior Economist for the Coalition for a Prosperous America in his book, Free Trade Doesn’t Work, What should replace it and Why, and CPA’s blog www.tradereform.org.

In his book Great Again, CEO Henry Nothhaft provides additional recommendations of what tax policies should be changed to dramatically help start-up companies:

  • Forgive or defer use taxes levied against start-ups for the purchase of new equipment
  • Reduce or defer the statutory and marginal income taxes paid by start-ups in their first three years of existence
  • Create special tax breaks, capital grants, and incentives for capital-intensive start-ups, especially manufacturing start-ups
  • Provide an innovation tax credit that would give small start-ups half of the money back that they spend on getting a patent

I heartily concur with these recommendations based on my own experience working with start-up companies in business and as a member of the steering committee of the San Diego Inventors Forum (SDIF),

Additional economic proposals of the Republican candidates that would help create jobs would be to repeal the Dodd-Frank act and Sarbanes-Oxley act.  At the very least, we need to exempt firms under $500 million in market value from the costly audit and report requirements of Sarbanes-Oxley.  These onerous requirements have hindered technology-based companies from securing growth funding through the IPO market according to Henry Nothhaft.

Of course, all of the Republican candidates have pledged to play a role as president in the goal of repealing Obama’ Health Care Act, which would add at least $500 billion in taxes to the burden already borne by American individual and corporate tax payers.

I urge every American voter to not just pay attention to the candidates’ sound bites from their ads, debates, and interviews.  Check out their websites and read for yourself what they propose to do as president.  Don’t just vote along party lines.  Make your own personal decision based on facts and gut feelings.  Support the candidate you choose by donating and volunteering.  Join your voice with others who want to create jobs and save American manufacturing.  Besides the Coalition for a Prosperous America already mentioned, check out the American Jobs Alliance, a new independent, non-profit, non-partisan organization.

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What are the Positions of Presidential Candidates on Trade?

December 20th, 2011

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

But as president, Obama’s flip-flops on trade rank up there with the best moves of an Olympic gymnast.  He pushed hard for passage of the trade agreements with Korea, Colombia and Panama, all based fail NAFTA template.  He has instructed his team at the U.S. Trade Representative’s office to spearhead the proposed Trans-Pacific Partnership, a trade agreement involving nine Pacific region nations, including Vietnam and Brunei, two undemocratic countries with serious and well-documented human and labor rights problems.

So how about the Republicans?  Former Massachusetts governor, Mitt Romney, has the most detailed position on trade of all the GOP candidates.  Romney supports the free trade agreements with Korea, Colombia and Panama that were passed by Congress and signed by Obama.  He also calls for passage of the Trans-Pacific Partnership, in addition to new FTAs with nations such as Brazil and India.

However, Romney would get tough with China by imposing “targeted tariffs” or economic sanctions for unfair trade practices or misappropriated American technology.  He would also designate China as a currency manipulator and instruct the Commerce Department to impose countervailing duties.  Romney would also pursue the “formation of a ‘Reagan Economic Zone.’ This zone would codify the principles of free trade at the international level and place the issues now hindering trade in services and intellectual property, crucial to American prosperity and that of other developed nations, at the center of the discussion.”

Not much can be said for Newt Gingrich on the subject of trade and jobs. The once-powerful House speaker wants to make “mutual trade”–neither free trade nor protectionism–the country’s goal,” whatever that means.  Back in 2006, Gingrich felt that protectionism helps China and India challenge U.S. supremacy.  Writing on his website, he said, “In the US, there exists a coalition of union leaders who prefer protection over competition. This liberal coalition complains about companies’ outsourcing jobs while insisting on corporate taxes that encourage companies to go overseas. They prefer that government impose on business obsolete, absurd work rules, even though these raise costs, lower productivity, and make America less competitive in the world market. The challenge to American economic supremacy from 1.3 billion Chinese and more than 1.1 billion Indians is vastly greater than anything we have previously seen.  India’s embrace of capitalism and China’s bizarre combination of Marxist-Leninist government and free market initiatives will create a future where one-fourth of the world’s markets will be controlled by these countries.  Those who advocate economic isolationism and protectionism are advocating a policy that could help China and India surpass the US in economic power in our children’s or grandchildren’s lifetime.”

Texas Governor Rick Perry’s plan for “Energizing American Jobs and Security” on his campaign website makes no mention of trade issues.  However, in his 2010 book Fed up!, Perry says “I see an America where the innovation and hard work of the American people creates still more opportunities, jobs, and wealth. I see a nation that is not cowering to the prospect of a united Europe or an ever-growing China and India, but rather welcomes those markets and many others as opportunities for the entrepreneurial and industrious spirit of the American people. I see a world where free trade opens up more doors and where people embrace trade’s benefit to both America and the rest of the world.”

Congresswoman Michele Bachmann pledges to cut spending and the size of government, reduce taxes, and repeal onerous legislation, such as ObamaCare and the Dodd-Frank Act.  The first of the 11 points of her “American Jobs, Right Now” blueprint is to repatriate the foreign earnings of American corporations to create immediate jobs, but the other ten points make no mention of trade issues.  However, she voted for the Peru FTA in 2007, her first year in the House, and she backed the Korea, Colombia and Panama FTAs this year.

Former Pennsylvania Senator Rick Santorum pledges to negotiate five Free Trade Agreements and submit them to Congress in the first year of his presidency.  During his tenure in Congress, Santorum voted for Permanent Normal Trade Relations with China and all of the free trade agreements of the George W. Bush era including CAFTA, Chile, Oman and Singapore.  All of these votes resulted in Senator Santorum compiling a perfect 100% rating from the CATO Institute, the libertarian think tank co-founded by Charles Koch, one of the Koch brothers that own the conglomerate Koch Industries, Inc.

U.S. Rep. Ron Paul is another candidate whose economic planks are standard Republican positions.  To understand Paul’s views it is best to look at his quotes and votes. During his two stints in Congress, Paul voted against NAFTA and free trade agreements with Australia, CAFTA, Chile, Peru and Singapore.  In addition, Paul voted to withdraw from the WTO and to not renew the “fast track” authority for the president to negotiate FTAs because he feels it cedes power from Congress to the executive branch.

In his 2008 presidential campaign, Paul explained his opposition to FTAs as threats to American sovereignty, saying “I opposed both the North American Free Trade Agreement and the World Trade Organization, both of which were heavily favored by the political establishment.  Many supporters of the free trade market supported these agreements. Nearly six decades ago when the International Trade Organization was up for debate, conservatives and libertarians agreed that supranational trade bureaucracies with the power to infringe upon American sovereignty were undesirable.”

Jon Huntsman is selling himself as an unabashed free trader. The former Utah governor boasts of leading trade missions overseas that helped grow his state’s exports, and he touts his appointment as deputy U.S. trade representative under President George W. Bush as giving him experience in helping to negotiate trade agreements across the globe. Like Romney, Huntsman would push for completion of the Trans-Pacific Partnership, and he would initiate FTAs with Japan, India, Taiwan and other nations. Huntsman also supports the Doha Development Round of World Trade Organization (WTO) negotiations.

In contrast, Buddy Roemer has taken a hard line against Free Trade Agreements and China. In a September 1, 2011 speech in front of the Chinese Embassy in Washington, DC, the former Louisiana congressman and governor unveiled his jobs plan where he slammed open trade with China as the “biggest disaster for the American economy.”  He claims to be “the only presidential candidate who is speaking the truth about global free trade.”   To level the playing field on trade, Roemer called for an elimination of the foreign tax credit for taxes paid to a foreign country.   In addition, he proposed the elimination of tax deductions for business expenses and costs of goods sold for companies that buy goods or services outside the United States.  Only businesses that employ American workers and buy American products would be allowed these tax deductions.  He also called for importers to pay the government an adjustment fee “equal to the unfair advantage they gain from importing goods from foreign countries to the United States.”

It’s a shame that the Republican candidate with the best position on trade has garnered less than 1% support in the polls so that he isn’t being included in the debates with the other Republican candidates.  This is the same position that Congressman Duncan Hunter occupied in the 2008 election when he was the only candidate on the right side of the trade issue and supported American manufacturing.  He wasn’t included in the 2008 debates so millions of people missed out on hearing his message.

When are Americans going to wake up to what is really causing the lack of jobs in the United States?  The real culprits are free trade agreements with Mexico, China, and other countries, as well as the outsourcing of manufacturing offshore..  They have led to the loss of nearly six million manufacturing jobs since the year 2000.   Since manufacturing jobs create an average of three to four other jobs, we’ve really lost 18 to 24 million jobs.  We need to review our unilateral free trade agreements with China and other countries that only seem to benefit other countries at the cost of jobs and even whole industries in the United States.  We need to let all the candidates for president know that we don’t want any more free trade agreements.  We need to let them know that we want them to support the American manufacturing industry and stop giving our wealth and jobs to foreign countries.

 

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What Have Been the Consequences of China’s Accession to the WTO?

December 13th, 2011

The recently-released U.S.-China Economic and Security Review Commission report states that is has been ten years since China joined the World Trade Organization (WTO), and “the concerns that originally surrounded China’s accession to the WTO—that China’s blend of capitalism and state-directed economic control conflict with the organization’s free market principles—have proven to be prophetic.”  What have been the consequences of China’s accession to the WTO and what are the implications for the future?

At that time, China did not meet all of the traditional requirements for accession, but the WTO took a calculated gamble that China could effectuate the reforms necessary to conform to those requirements within a reasonable period of time. The U.S.-China Economic and Security Review Commission was established by the United States Congress in part to monitor the outcome of that gamble.

Ten years later, it’s obvious from the reports that the WTO lost the gamble.  The recent Commission reports that China’s state-directed financial system and industrial policy continues to contribute to trade imbalances, asset bubbles, misallocation of capital, and dangerous inflationary pressures…China’s adherence to WTO commitments remains spotty despite the decade that the country’s rulers were given to adjust.”  As a result, these circumstances create an uneven playing field for China’s trading partners and threaten to deprive other WTO signatories of the benefit of their bargain.  This is an understatement of the effect on the economy of China’s main trading partner ? the United States.

Chapter one analyzes these issues, beginning with an examination of U.S.-China trading and financial relations and concluding with an evaluation of China’s role in the WTO.    It also examined the implications of China’s being relieved of its burden of facing an annual review by the WTO of its compliance due to the fact that the ten-year probationary period ends this year

U.S.-China Trading Relations

For the first eight months of 2011, China’s goods exports to the United States were $255.4 billion, while U.S. goods exports to China were $66.1 billion, yielding a U.S. deficit of $189.3 billion.  This represents an increase of nine percent over the same period in 2010 ($119.4 billion). During this period China exported four dollars’ worth of goods to the United States for each dollar in imports China accepted from the United States. In 2010, the United States shipped just seven percent of its total exports of goods to China; China shipped 23 percent of its total goods exports to the United States.

In the ten years since China joined the WTO, the U.S. trade deficit with China has grown by 330 percent.  This trade deficit is not explained by a broader trend of American dependence on imports.  In the first eight months of 2011, Chinese goods accounted for 20 percent of U.S. imports, while U.S. goods accounted for only five percent of Chinese imports.  China’s portion of America’s trade deficit has nearly tripled  ? from 22 percent in 2000 to 60 percent in 2009 and 55 percent in 2010 – while the overall U.S. trade deficit with the world has grown from $376.7 billion in 2000 to $500 billion in 2010.

China’s Share of the U.S. Global Trade Deficit (by percentage), 2000–2010

Source: U.S. Bureau of the Census, U.S. Trade in Goods and Services (Washington, DC: U.S. Department of Commerce, August 15, 2011).

The Commission states “These data suggest that the growth in the U.S. global trade deficit reflects growth in the U.S. trade deficit with China and that other emerging economies are being replaced by China as a final supplier of finished exports to the United States.”  Of more serious concern is not the size of the U.S. trade deficit with China but the composition of goods.   Chinese manufacturing has undergone a dramatic restructuring during the last ten years, away from labor-intensive goods toward investment-intensive goods.  Production now is driven less by low-cost labor and more by low-cost capital, which is being used to build next-generation manufacturing facilities and to produce advanced technology products for export.  This is demonstrated by the decrease in Chinese exports of labor-intensive products, such as clothing, footwear, furniture, and travel goods as a percentage of total exports.  In 2000, exports of these labor-intensive products constituted 37 percent of all Chinese exports. By 2010, this percentage had fallen to just 14 percent.

It’s apparent that this shift has serious implications for the U.S. economy.  When China joined the WTO, the United States had already lost production of low-value-added, low-wage-producing commodities such as clothing and toys.  But America’s export strength lay in complex capital goods, such as aircraft, electrical machinery, generators, and medical and scientific equipment.   “From 2004 to 2011, U.S. imports of Chinese advanced technology products grew by 16.5 percent on an annualized basis, while U.S. exports of those products to China grew by only 11 percent.6 In August 2011, U.S. exports of advanced technology products to China stood at $1.9 billion, while Chinese exports of advanced technology products to the United States reached $10.9 billion, setting a record one-month deficit of more than $9 billion. On a monthly basis, the United States now imports more than 560 percent more advanced technology products from China than it exports to that country.

U. S. Exports to and Imports from China of Advanced Technology  Products in the Month of June ($ billion) 2004-2011 Source: U.S. Bureau of the Census, U.S. Trade in Goods and Services (Washington, DC: U.S. Department of Commerce, August 15, 2011).

The Commission states that “the weakness in U.S. exports of advanced technology products to China is explained in part by barriers to market access experienced by U.S. companies attempting to sell into the Chinese market.”  Import barriers are part of China’s policy of switching from imports to domestically produced goods.  China’s policy of ‘‘indigenous innovation’’ protects domestically produced goods by discriminating against imports in the government procurement process, particularly at the provincial and local levels of government.

Seventy-one percent of American businesses in China believe that foreign businesses are subject to more onerous licensing procedures than Chinese businesses according to a recent survey conducted by the American Chamber of Commerce in China.  A similar 2011 study by the European Chamber of Commerce in China found that inconsistencies in the procurement process employed by the Chinese central government resulted in a lost opportunity for European businesses that is equal in size to the entire economy of South Korea, or one trillion dollars.

China’s Role in the WTO

Since the last Report, the U. S. brought three new, China-related disputes to the WTO.  “On December 22, 2010, the United States requested consultations with China over its subsidies for domestic manufacturers of wind power equipment (DS419).  The European Union (EU) and Japan joined the consultations in January.  The case has not yet advanced to the hearing stage.  In the second case, the U. S. requested consultations with China regarding its imposition of antidumping duties on chickens imported from the United States.   In addition, on October 6, 2011, the U.S. Trade Representative submitted information to the WTO identifying nearly 200 subsidies that China, in contravention of WTO rules, failed to notify to the WTO.  Three previous WTO cases involving U.S.-China trade are both open and active. The Raw Materials case, which resulted in a decision favorable to the United States, is under appeal as of August 31, 2011.  The Flat-rolled Electrical Steel case and the Electronic Payments case have both advanced to formal dispute settlement, though no decision has been reached…The United States has brought a total of seven cases against China at the WTO concerning subsidies or grants. Of the seven, four were settled through consultation, two were decided in favor of the United States, and one remains undecided.”

China’s WTO Probationary Period Ends This Year

During the 15 years of negotiations leading up to China’s accession, the United States and the European Union expressed concern about potential negative consequences that might befall the WTO due to China’s sheer size and lack of a market-based economy and they insisted on a series of China-specific admission requirements.  “The centerpiece of this ‘WTO–Plus’ admission package was the Transitional Review Mechanism, which required China to submit to an annual review for the first eight years of its membership in the organization, as well as a final review in the tenth year.  The Transitional Review Mechanism is in addition to, rather than in lieu of, the normal review procedure, known as the Trade Policy Review Mechanism that all WTO members must undergo every few years in perpetuity.”

The temporary Transitional Review Mechanism appeared to be more stringent than the Trade Policy Review Mechanism.  “However, the procedural aspects of the Transitional Review Mechanism rendered it a paper tiger.  Reports produced by the Transitional Review Mechanism require the unanimous consensus of all members involved, including China.  This puts China in the position of acting as judge in its own trial,” so that the result consistently has been ‘‘light and generally unspecific criticism,” according to trade scholars such as William Steinberg.

The Transitional Review Mechanism provided the United States with a somewhat useful tool for fact-finding and focusing attention on controversies within the U.S.-China trade relationship, but this is the final year of the Transitional Review Mechanism as China’s tenth year of WTO membership.  The consequences of this are:

  • The tools available to the United States to carry out fact-finding related to China’s compliance with WTO obligations will now be limited to the Trade Policy Review Mechanism and the various review channels of individual subsidiary bodies.
  • China’s membership in the WTO has reached a point of chronological maturity at which China was expected to be in full compliance with its WTO obligations.

China initially “accepted the China-specific rules contained in the protocol of accession, avoided litigation within the WTO, and was quick to comply with all demands of the WTO’s dispute resolution process.”  But after ten years of observing and learning the subtleties of WTO procedural law, “Beijing has become much more aggressive about bringing claims against trading partners, appealing decisions that are rendered against its favor, and pushing the envelope of noncompliance. Additionally, China has grown very savvy about using the dispute settlement process and bilateral free trade agreements to undermine the effectiveness of China-specific rules.”

According to a recent study by international trade law scholars at the University of Hong Kong, of the five WTO cases filed by China between September 2008 and March 2011, four of them were designed to use the dispute settlement process to change or undo rules contained in China’s Accession Protocol and purposely focused on the vague terminology found in the Protocol.

China has exploited the vague terminology by using creative interpretations to render entire provisions inapplicable.  “Since 2002, China has concluded nine free trade agreements and commenced negotiations for five more.  In all 14, a precondition to negotiation has been agreement by the other party to grant China market economy status.  These preconditions are targeted toward eliminating certain restrictions placed upon China during accession to the WTO,”  particularly, “the one in which the instituting party is allowed to use price comparisons from third-party countries in order to show dumping behavior by Chinese companies” when antidumping proceedings are instituted against China.

Also, for purposes of identifying illegal subsidies and calculating countervailing measures, “the instituting party may act with reference to prices and conditions prevailing in third-party countries in lieu of China.”  However, under the terms of the Accession Protocol, “China’s nonmarket-economy status is set to expire in 2016, at which time these provisions will cease to have effect.”

However, “the expiration in 2016 of China’s status as a nonmarket economy under the Accession Protocol does not negate applicable U.S. domestic law, which will continue to have effect beyond 2016.   If enough WTO members accord market economy status prematurely to China, it will diminish support for Washington’s position that China has a long way to go to merit market economy status.  China has more bargaining power in bilateral negotiations with smaller nations than it does in multilateral negotiations at the WTO.”  The Commission concluded that “China hopes gradually to undermine the Washington consensus, strong-arm its way into market economy status, and shake free of restrictive terms and obligations in its accession agreement” by pushing for concessions from a series of bilateral negotiations under the auspices of free trade agreements.  In addition, “China is not willing to comply fully with the decisions of the WTO dispute settlement process and prioritizes the preservation of its own political system above fidelity to WTO commitments.”

Implications for the United States

The Report states, “The U.S. trade deficit with China has ballooned to account for more than half of the total U.S. trade deficit with the world and creates a drag on future growth of the U.S. economy.  This problem has many causes, among which are barriers to U.S. exports and continued undervaluation of the RMB.  The result is lost U.S. jobs. While the exact number of U.S. jobs lost to China trade is hotly disputed—economist C. Fred Bergsten has estimated 600,000 jobs on the low end, while the Economic Policy Institute has estimated 2.4 million jobs on the high end—many parties agree that the costs are staggering.”

While the Chinese RMB has appreciated by roughly six percent over the course of the last year, there is widespread agreement that it remains deeply undervalued (30-40 percent according to some economists). As a result, “U.S. exports to China remain subject to a de facto tariff, Chinese exports to the United States remain artificially discounted, and Chinese household consumption remains suppressed.  The Report states this “contributes to a persistent pattern of massive and dangerous trade distortions, unnatural pools of capital, and dangerous inflationary pressures that threaten the stability of the global economy.”  China is no longer content to be the low-end factory of the world ? the government is intent on moving up the value chain into the realm of advanced technology products, high-end research and development, and next generation production  at the expense of America’s high-technology industries.  The Commission opines that “it no longer seems inconceivable that the RMB could mount a challenge to the dollar, perhaps within the next five to ten years.  Chinese financial authorities are laying the groundwork for these ambitions via a series of bilateral arrangements with foreign companies and financial centers.”

The U. S. and the EU went to considerable lengths during the 15-year negotiation process “to design and negotiate a system of checks and balances that would permit China to accede to the WTO without jeopardizing the smooth functioning of the organization or endangering the position of existing members in the international trading system.”  In less than ten years, “China has learned the nuances of WTO law and has begun to use it systematically to undo the finely wrought balance that U.S. and EU negotiators designed.  At the same time, China has shown that it will subordinate its international commitments to its domestic political preferences and deny to its trading partners the benefit of their bargain.”

This chapter concludes with the comment, “China has grown more assertive and creative in using WTO procedures to alleviate, eliminate, and avoid certain restrictions in the Accession Protocol.  At the same time, the WTO has ruled that China’s existing system of state monopoly over imports of cultural products is inconsistent with WTO obligations.  China has not yet complied fully with the WTO ruling, and the United States has the right to initiate further proceedings to compel China to do so.”  This is an understatement to say the least.

Has President Obama or his staff read any of the last three reports?  Has any Congressional rep, Senator, or their staffs ever read through any of the Commission’s reports during the past ten years?  If they did, why didn’t they insist on the Bush administration and now the Obama administration initiating proceedings to compel China to comply with their WTO obligations?   Why didn’t our government do anything about China’s currency manipulation, product “dumping,” and subsidies to State-owned enterprises before they destroyed many of our domestic industries?   Why is China’s ten year probationary period concluding without anybody doing anything to prevent their becoming a full member of the WTO?  Why hasn’t the news media asked any of these questions of our elected officials?   Americans have been betrayed by their leaders, and we need to hold them accountable.  Every candidate for president and President Obama better read this latest report and tell the American people what they intend to do to address China’s threat to our economy and national security. The question is whether the news media will have the courage to ask these hard questions during the campaign for president.  The future of the United States as a sovereign nation is at stake.

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Trends that are Changing the Future

December 6th, 2011

A trend is a pattern of gradual change in a condition, output, or process that moves in a certain direction over time.  There are many trends that have occurred this year, but some are changing the way we work and conduct business.   We will take a look at just a few of them that are beginning to have an impact and could dramatically impact our lies if they continue in the future.

Biomimicry:  Humans have always looked to nature for inspiration to solve problems. One of the early examples of biomimicry was the study of birds to enable human flight.  The Wright Brothers, who created and flew the first airplane in 1903, derived inspiration for their airplane from observations of pigeons in flight.

The term biomimicry was popularized by scientist and author Janine Benyus in her 1997 book Biomimicry: Innovation Inspired by Nature. Biomimicry is defined in her book as a “new science that studies nature’s models and then imitates or takes inspiration from these designs and processes to solve human problems”.  Today, biomimicry is changing the way we research, invent, design, develop, and manufacture products.

The San Diego Zoo started its biomimicry programs in 2007, and the Zoological Society of San Diego recently partnered with Point Loma Nazarene University on an economic impact report looking into the feasibility of bringing another spoke into the region’s burgeoning green economy.  The report titled Biomimicry: An Economic Game Changer and estimated that biomimicry would have a $300 billion annual impact on the US economy, plus add an additional $50 billion in environmental remediation.

“The completed report articulates a compelling case for making the San Diego region a global biomimicry hub,” said Randy M. Ataide, executive director of the Fermanian Business & Economic Institute at Point Loma Nazarene University.  “Biomimicry could represent a revolutionary change in our economy by transforming many of the ways we think about designing, producing, transporting and distributing goods and services.”

An informal alliance to transform an esoteric concept into what they hope is the beginning of a future industry cluster has formed the Biomimicry Bridge (Business, Research, Innovation, Development, Governance and Education).  A memorandum of understanding to facilitate growth of the Bridge organization has been in place since 2008 between the San Diego Zoo, the City of San Diego, CONNECT, UC San Diego, San Diego State University, Point Loma Nazarene University, and the University of San Diego.

“The key to biomimicry is the value we place on natural systems and species,” said Paula Brock, chief financial officer for the San Diego Zoo. “Biomimicry offers an opportunity to bring successful economics together with conservation. We hope this study will inspire new companies and entrepreneurs to focus upon the development of this field.”

A key finding of the report is that biomimicry holds the potential to attract sizable capital inflows, driven by the prospects of rapid growth and high rates of return, and that venture capital potentially could flow into the field at a pace at least equal to that of biotech, estimated to be about $4.5 billion in the U.S. in 2010.

The San Diego Zoo and San Diego Zoo Safari Park house nearly 8,000 animals representing 840 species, and the San Diego Zoo’s accredited botanical garden has close to 40,000 species.  Allison Alberts, chief conservation and research officer for the San Diego Zoo, said “We are poised to offer the opportunity to be a living laboratory in helping biomimicry-based businesses grow.”  She added that the inspiration that comes from studying animals and plants could also be a revenue generator for the zoo. The study determined that the zoo is the only facilities-based provider of biomimicry services in the world and a natural to drive research and commercial applications.

A range of businesses in the region already are incorporating aspects of biomimicry in the design of products or ones they have on the drawing boards, said Ruprecht von Buttlar, director of finance and commercialization programs at CONECT, which serves as a networking group for investors, entrepreneurs and high-tech and life sciences professionals.

The San Diego Zoo’s Biomimicry website features a page on the latest news, research, and development of biomimetic products, a few of which are:

GreenShield: An environmentally friendly stain-resistant fabric finish inspired by lotus leaves:

Mirasol®, a display innovation by Qualcomm, mimics the microstructure of a butterfly’s wing to generate color without pigment in their handheld display technologies:

Biomatrica has developed DNA and RNA preservation technology based on the process in nature called anhydrobiosis:

Columbia Forest Products developed PureBond by manipulating soy proteins to behave like mussel byssal threads. Is the only urea-formeldehyde (carcinogen) free plywood glue on the market:

Cloud Computing: Cloud computing has become one of the hottest buzzwords in technology and  its birth as a term can be traced “to 2006, when large companies such as Google and Amazon began using ‘cloud computing’ to describe the new paradigm in which people are increasingly accessing software, computer power, and files over the Web instead of on their desktops.  It is an expansion of what has been known as software as a service (SaaS) in which cloud computing providers deliver applications via the internet that are accessed from web browsers and desktop and mobile apps, while the business software and data are stored on servers at a remote location.

This type of data center environment allows companies to get their applications up and running faster, with easier manageability and less maintenance, and enables IT to more rapidly adjust IT resources (such as servers, storage, and networking) to meet fluctuating and unpredictable business demand.

Cloud computing is all the rage. “It’s become the phrase du jour,” says Gartner senior analyst Ben Pring, echoing many of his peers. The problem is that (as with Web 2.0) everyone seems to have a different definition.

On the Hyland blog, Glenn Gibson offers a simpler definition:  “The Cloud” is a term used to describe a wide range of technologies, which are accessible through high-speed connections to the internet and private networks.

Cloud computing is at an early stage, with a growing number of providers large and small delivering a variety of cloud-based services, from full-blown applications to storage services to spam filtering.  Today, for the most part, IT must plug into cloud-based services individually, but cloud computing aggregators and integrators are already emerging.

Cloud computing is a long-running trend with a far-out horizon.  This year, TechAmerica San Diego added the new category of SaaS/Cloud for the first time at the 2011 High Tech Awards held on October 28th.    Four companies were finalists, and the winner, ServiceNow develops and delivers a comprehensive suite of cloud-based services for enterprise IT management. For a single low subscription price, ServiceNow customers have access to nearly 20 native applications built on a common, extensible platform. ServiceNow supports all common ITIL processes including incident, problem, change, request fulfillment, service level management and others.  The three other finalists were:  Kyriba, Syntricity Inc., and The Active Network.

Cloud computing is also changing the way manufacturing companies can become ISO Certified at a price affordable for companies as small as less than 25 employees and under $1.5 million in sales.   ION Quality Systems provides an innovative Quality Management System designed to revolutionize businesses. Their customizable management tools, experience, and exemplary customer service make them a partner in quality assurance. They can prepare you to get your AS9100, ISO 9001:2008 or other certification more efficiently, economically, and effectively than a traditional quality system in as little as 90 days.

However, there are concerns about the cyber security of cloud computing, and the June issue of National Defense magazine featured an article on “Cloud Computing Trend Sparks Compliance Concerns.”   Because the Obama administration has focused on cloud computing for future information technology needs, there is concern that “data stored in the cloud must always be accessible from any location, thereby increasing hacker vulnerability and the need ? without degrading fast encryption and decryption ? for robust measures to deflect security breaches.” This same cyber security concern was the focus of a symposium on “CLOUD.GOV?

The Promise, Limits, and Reality” held by the San Diego chapter of the National Defense Industry Association on October 11-13, 2011.

Social Media:  Social networking is not new; social networks have been around for far longer than people have been online. Everyone has belonged to social networks, and they still participate in social networks whether they know it or not.  What is new is social media that provides online social networking.  In addition to the more popular, Facebook, LinkedIn, and Twitter, there are Foursquare, Yelp, Groupon, and Living Social.   The BLÜ Group – Advertising & Marketing has published a free social media guide to help businesses of all sizes, particularly small and mid-sized businesses, connect with customers and potential customers, stay engaged with them, and ultimately grow their bottom line.

LinkedIn, Facebook and Twitter:  Most of us have been adding to our social media network to expand business opportunities, express opinions, and keep connected with people who change from one job to another.  Now, it is literally changing the way people conduct business, and view customers’ opinions and product ideas.  .

In the September 2011 issue of Industry Week, the article “Fueling Auto R&D with Social Media,” reported that Kia Motors Corporation  “decided to modify the seat design for their 2012 Optima as a result of a groundswell of complaints from consumers and automotive writers percolating on the Internet.”  Kia uses business intelligence software to monitor online comments about it vehicles and determined that it was bigger problem than they realized and needed to be fixed before the next major change in the model in a few years.

Ford also pays close attention to what people say about its products on social media such as Facebook and Twitter, and elsewhere on the internet.  Nissan Motor Company is also trying to grow it fan base on social media sites such as Facebook and Twitter to leverage the maximum impact when it launches new models.  Nissan is also using social media as a research tool.  In August 2011, Nissan invited its more than 300,000 Facebook fans to suggest names for a new optional interior package for the Nissan Cube.  Eric Marx of Nissan said using social media to make ”real business decisions it absolutely the future. “  A cottage industry is emerging to aggregate the vast amount of online comments into actionable data.  Nielsen Online’s BuzzMetrics software promises to deliver consumer insights and real-time market intelligence, and WiseWindow’s MOBI (Mass Opinion Business Intelligence) software to predict consumer purchasing intent and behavior.

According to one of my friends that owns a staffing agency, LinkedIn is actually changing the way people seek and are being recruited for jobs.  Having a good LinkedIn profile can mean the difference between being hired or not.

Recruiters are searching the LinkedIn database to find candidates for specific positions.  They can use the free, “Advanced People Search” function available to all LinkedIn members. They can search members and activities within specific LinkedIn groups, and many others are using a paid service called LinkedIn Recruiter that provides significantly more search functionality.

In addition, similar to the way job seekers sign up for “job alerts” to get notified via email whenever a new job gets posted that meets a certain set of criteria, recruiters can also sign up for candidate alerts to notify them of new candidates who fit their requirements.

Unemployed people and those seeking better jobs need to learn how to optimize their LinkedIn profile to align with this process of job search and recruiting.  According to Marci Reynolds, CEO of J2B Marketing, a “Job Seeker 2 Business,”™ there are many things a job seeker can do to optimize their profile to help ensure that they “show up in the appropriate search results, show up higher than other candidates (LinkedIn SEO), and stand out among the search results. Some of her tips are:

  • Your profile should be 100% “complete,” per LinkedIn standards
  • Include a detailed work history, with clear job titles and well written job descriptions that describe both your responsibilities and your key accomplishments
  • Make sure your “industry” selection is tied to the job you want, not the job you had.
  • Make sure you have some recommendations from your connections
  • Use a professional, flattering profile photo that looks like you already have the role you’re seeking
  • Use a headline to effectively market your skills and abilities. Your LinkedIn headline is like your personal tagline

Klout: If you’re new to Twitter and haven’t heard of Klout, you will soon. Klout is the gold standard for measuring your influence on Twitter.  Klout uses several measurements to come up with a Klout Score for each and every Twitter user.

The Klout Score measures influence based on your ability to drive action. Every time you create content or engage you influence others. The Klout Score uses data from social networks in order to measure:

  • True Reach: the number of people you influence. When you post a message, these people tend to respond or share it.
  • Amplification: how much you influence people. When you post a message, how many people respond to it or spread it further? If people often act upon your content you have a high Amplification score.
  • Network Impact: the influence of the people in your True Reach. How often do top Influencers share and respond to your content? When they do so, they are increasing your Network score.

Klout assigns a number between 0 and 100 to represent how influential you are on Twitter.  This number may seem arbitrary, but it’s important for several reasons.

Firstly, Klout is a much better measurement of how “well” you’re doing on Twitter than your follower count. Not all followers may really be interested in what you have to say, so using this to measure your Twitter success is not a great strategy.  Klout uses a robust suite of different measurements – which includes engaged follower count – to come to one single Klout Score.

Secondly, Klout is important because it’s the standard measurement for influence in social media, and knowing your Klout score shows that you know a thing or two about tweeting.

Thirdly, focusing on increasing your Klout score will make you a better tweeter.  Klout emphasizes things like getting retweets and using @mentions to engage with your community. So if you change your Twitter strategy to try and increase your score, you will likely end up tweeting more frequently, replying to more users, and sharing more retweetable tweets.

There are several other contenders for influence measurement on Twitter, but Klout is the most talked-about, well-known influence measure out there, so it’s a good idea to familiarize yourself with it so you can join in the conversation.

Reshoring: Reshoring simply means returning manufacturing to America from offshore.

To help accelerate this trend, there is a new initiative with a plan to efficiently reduce our imports, increase our “net exports” and regain manufacturing jobs in a non-protectionist manner.  The Reshoring Initiative was founded by Harry Moser, retired president of GF Agie Charmilles LLC, a leading machine tool supplier in Lincolnshire, Illinois.  The Initiative shows how outsourcing within the United States can reduce a company’s Total Cost of Ownership (TCO) of purchased parts and tooling and offer a host of other benefits while bringing U.S. manufacturing jobs home.

Harry Moser said, “Reshoring breaks out of the waiting-for-policy-decisions problem, the economic zero-sum-game and the increases in consumer prices and assures that the pie grows to the advantage of all Americans.  Reshoring also focuses on the manufacturing sector that has suffered so many job losses for decades and the Small-to-Medium Enterprises (SMEs) that offer the best potential for job growth.”

The Initiative documents the benefits of sourcing in the United States for large manufacturers and helps suppliers convince their U.S. customers to source local.  Archstone Consulting’s 2009 survey showed that 60% of manufacturers use “rudimentary total cost models” and ignore 20% of the cost of offshoring.   If a manufacturer is not accounting for 20% of their costs to offshore, offshoring may not be the most economical decision.  In tough economic times and stiff global competition, no company can afford this.  To help companies make better sourcing decisions the Reshoring Initiative provides:

  • A free Total Cost of Ownership (TCO) software that helps manufacturers calculate the real offshoring impact on their P&L
  • Publicity to drive the reshoring trend
  • Access to NTMA/PMA Contract Manufacturing Purchasing Fairs to help manufacturers find competitive U.S. sources.

Manufacturing companies can reshore to:

  • Reduce pipeline and surge inventory impacts on Just-in-time operations
  • Improve the quality and consistency of products
  • Cluster manufacturing near R&D facilities, enhancing innovation
  • Reduce Intellectual Property and regulatory compliance risk
  • Reduce Total Cost of Ownership (TCO)

The Initiative has received increasing visibility and influence: recognition by Industry Week magazine through inducting Harry Moser into its 2010 Manufacturing Hall of Fame, inclusion of the TCO concept in Cong. Wolf’s (R VA) “Bring Jobs Back to America Act” (H.R.516); numerous webinars; dozens of industry articles; presentations in major industry and government policy conferences in Chicago and Washington, DC; and coverage by CBS, CNBC, WSJ, USA Today and the Lean Nation radio show.

The Initiative is succeeding in changing OEMs’ behavior. Companies have committed to reshore after reading Initiative articles.  Fifty-seven representatives from large manufacturers and 113 custom U.S. manufacturers attended the May 12, 2011 NTMA/PMA Contract Manufacturing Purchasing Fair, where OEMs found competitive domestic suppliers to manufacture parts and tooling.  Sixty-four percent of the OEMs brought back to the U. S. at least some work that was currently offshored.

Of all the trends mentioned above, the Reshoring Initiative has the potential to provide the most benefit for America as a whole by reducing our trade deficit and providing increased job opportunities jobs for the millions of unemployed.   Let’s embrace these present trends to create a better future!

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China Poses Increasing Threat to U. S. Economy and National Security

November 29th, 2011

Last week the U.S.-China Economic and Security Review Commission submitted their annual report to Congress.  The Commission was created on October 30, 2000, by the Floyd D. Spence National Defense Authorization Act of 2001.  The 418-page unclassified report reveals the increasing threat that China poses to the U. S. economy and national security, so one can only imagine how much more serious threats were detailed in the separate classified report that was also submitted.  The report covers the following areas (abbreviated):

•Proliferation Practices—The role of China in the proliferation of weapons of mass destruction and other weapons (including dual-use technologies);

• Economic Transfers—The qualitative and quantitative nature of the transfer of U. S. production activities to China, including the relocation of high technology, manufacturing, and research and development facilities, the impact of such transfers on U. S. national security, the adequacy of U. S. export control laws, and the effect of such transfers on U. S. economic security and employment;

• Energy—The effect of the large and growing economy of China on world energy supplies and the role the U. S. can play (including joint research and development efforts and technological assistance), in influencing the energy policy of China;

• U. S. Capital Markets—The extent of access to and use of U. S. capital markets by China, including whether or not existing disclosure and transparency rules are adequate to identify China companies engaged in harmful activities;

• Regional Economic and Security Impacts—The triangular economic and security relationship among the United States, [Taiwan] and China (including the military modernization and force deployments of China aimed at [Taiwan);

• U. S.–China Bilateral Programs—Science and technology programs, the degree of noncompliance by China with agreements between the U. S. and China on prison labor imports and intellectual property rights, and U. S. enforcement policies with respect to such agreements;

• World Trade Organization Compliance—The compliance of China with its accession agreement to the World Trade Organization (WTO);

• Freedom of Expression—The implications of restrictions on speech and access to information in China for its relations with the U. S. in the areas of economic and security policy.

Since it would difficult to summarize the key points of the whole report, this article only highlights the areas posing a threat to the economy and national security of the U. S.

The report states that China is now the second-largest economy in the world and the world’s largest manufacturer, surpassing the U.S. in this ranking for the first time.  Its market exceeds that of the U. S. in industries such as automobiles, mobile handsets, and personal computers.  China’s gross domestic product (GDP) has grown from $1.32 trillion in 2001 to a projected $5.87 trillion in 2011, representing an increase of more than 400 percent.

China continues to maintain an export-driven economy with policies that subsidize Chinese companies and undervalue their currency (renminbi or RMB).  While the RMB rose by roughly 6 percent over the last year, it is still widely believed to be undervalued by as much as 30-40 percent.  “For the first eight months of 2011, the U.S. trade deficit with China increased 9 percent over the same period in 2010.  The U.S. trade deficit with China is now more than half of the total U.S. trade deficit with the world.  In the year to date ending August 2011, the United States exported about $13.4 billion in advanced technology products to China, but imported over $81.1 billion in advanced technology products from China, for a deficit of about $67.7 billion.  This is a 17 percent increase in the advanced technology products deficit for the same period over the previous year, ending in August 2010.”

The Chinese economy and its product exports are moving up the value chain.  On a monthly basis, the U. S. now imports roughly 560 percent more advanced technology products from China than it exports to China.  Exports of low-cost, labor-intensive manufactured goods as a share of China’s total exports decreased from 37 percent in 2000 to 14 percent in 2010.

“China’s foreign currency reserves are skyrocketing. A major contributor to this phenomenon is China’s continued policy of maintaining closed capital accounts.  China’s foreign currency reserves exceed $3 trillion, three times higher than the next largest holder of foreign currency reserves, Japan.”  Building currency reserves is one of the main goals of China’s predatory mercantilism trade policies.

China’s domestic money supply is becoming out of control. “Between 2000 and 2010, China’s money supply grew by 434 percent.  China’s money supply is now ten times greater than the U.S. money supply, despite the fact that China’s GDP is only one-third as large.”

The Commission reported that China assumed a more assertive role on the global stage in 2011 as shown by a more aggressive trade agenda, a push for a larger role in international institutions, and provocative moves in the South and East China Seas.  These actions are a result of China’s growing economic prominence and resource needs, as well as China’s view that the U. S. is in decline while China is ascendant.  “Chinese policies have had an impact on the       U. S., ranging from a negative effect on the economy to increased pressure from some parts of the international community for the U. S. to ensure the security of the global commons.”

Last year, the Commission highlighted China’s backsliding from market reforms in favor of an increased role of the state in the economy, which continued in 2011. “China subsidizes its state-owned enterprises to the detriment of both private Chinese firms and international competitors. The Chinese government’s special treatment of state-owned enterprises (SOEs) is of particular concern to U.S. businesses, as it can overcome comparative advantages of competitors, harming American economic interests.  China’s SOEs are also an issue of contention in government procurement, as China seeks to wall off a large portion of its economy from foreign competition.” The Commission estimates the SOE sector accounts for nearly 40 percent of China’s economy, but if the output of urban collective enterprises and government-run proportion of township and village enterprises are considered, the broadly defined state sector likely surpasses 50 percent.

China appears to be reversing the privatization reforms of the past two decades and renewing use of industrial policies aimed at creating SOEs that dominate important portions of the economy, especially in the industrial sectors reserved for the state’s control.  “The Chinese government promotes the state-owned sector with a variety of industrial policy tools, including a wide range of direct and indirect subsidies, preferential access to capital, forced technology transfer from foreign firms, and domestic procurement requirements, all intended to favor SOEs over foreign competitors.”

In 2010, the amount of foreign direct investment (FDI) flowing into China jumped to $105.7 billion, up from $90 billion in 2009.  Foreign-invested enterprises were responsible for 55 percent of China’s exports and 68 percent of its trade surplus in 2010.  The value and scope of U.S.-China bilateral investment flows have expanded significantly in the past ten years.  However, U.S. direct investment in China is more than 12 times greater than Chinese direct investment in the United States.  Official U.S. statistics show that U.S. cumulative FDI in China was $60.5 billion in 2010.  What this means is that American companies and companies from other foreign countries are investing money in China through expanding, building or buying plants in China, buying equipment, and hiring workers.

On the other hand, there has been a more than 100 percent year-on-year growth of Chinese investment in the United States during the past two years.  Chinese investments have focused on manufacturing and technology, with an emphasis on brand acquisition. The report notes that some critics of China’s foreign direct investment in the U. S. contend that these investments are focused on acquiring and transferring technology to Chinese firms.  The Chinese Ministry of Commerce estimated that in 2010, cumulative Chinese FDI in the United States was $4.9 billion.

Due to the considerable government ownership of the Chinese economy, Chinese companies supplying products to the U.S. government or acquisition by Chinese companies of U.S. firms with sensitive technology or intellectual property could be harmful to U.S. national interests.  The Committee on Foreign Investment in the U. S. investigates the national security implications of mergers and acquisitions by foreign investors of U. S. assets.

In March 2011, China ratified its 12th Five-Year Plan (2011– 2015), a government-directed industrial policy that focuses on the development and expansion of seven strategic emerging industries:  new-generation information technology, high-end equipment manufacturing, advanced materials, alternative-fuel cars, energy conservation and environmental protection, alternative energy, and biotechnology.  The report predicts that China will likely continue to combine targeted investment with preferential tax and procurement policies to ensure that Chinese firms emerge as global leaders, or national champions, in these industries within the next five years.

China’s continuing lack of enforcement of intellectual property rights and indigenous innovation plans that limit government procurement to Chinese companies are problematic.  In addition, China maintains policies of forced technology transfer in violation of international trade agreements and requires the creation of joint venture companies as a condition of obtaining access to the Chinese market.

“Foreign-invested enterprises seeking to be considered for government procurement contracts or public works projects are expected to file for patents and copyrights within China in order to qualify for preferential treatment in government contracting.  Foreign affiliates risk the unintended transfer of their technology to Chinese firms if they do so, because of the nature of the Chinese intellectual property system and the lax enforcement of intellectual property laws and regulations in China.”  In 2001, China agreed to stop explicitly requiring foreign companies to surrender their technology in return for market access and investment opportunities, but the government still employs several tactics to coerce foreign firms to share trade secrets with Chinese competitors. China’s industrial policy seeks to circumvent accepted intellectual property protections and to extort technology from U.S. companies.

China continues to be one of the largest sources of counterfeit and pirated goods in the world (confirmed by the recent Senate hearings on counterfeit parts in the defense and aerospace supply chain.)  “The Chinese government itself estimates that counterfeits constitute between 15 and 20 percent of all products made in China and are equivalent to about 8 percent of China’s gross domestic product (GDP).  Chinese goods accounted for 53 percent of seizures of counterfeits at U.S. ports of entry in 2010, and the U.S. International Trade Commission estimates that employment in the U. S. would increase by up to 2.1 million jobs if China were to adopt an intellectual property system equivalent to that of the U. S.”

China progress in its military modernization efforts poses an increasing threat to U. S. national security.  “The People’s Liberation Army (PLA) is acquiring specific means to counter U.S. military capabilities and exploit U.S. weaknesses.  Since January 2011, China has conducted a flight test of its next-generation fighter aircraft, continued development of its antiship ballistic missile, and conducted a sea trial of its first aircraft carrier. These developments, when operational, will allow China to better project force throughout the region, including the far reaches of the South China Sea.”

The Commission reports that the PLA’s military strategy is designed to provide the army with the means to defeat a technologically superior opponent, such as the U.S. military. It focuses on controlling the regions surrounding China, especially the western Pacific Ocean, degrading an opponent’s technological advantages, and striking first in order to gain surprise over an enemy in the event of a conflict.  While U.S. bases in East Asia are vulnerable to PLA air and missile attacks, Japanese, Philippine, and Vietnamese bases are just as vulnerable, if not more so.

China has demonstrated progress in modernizing the PLA over the past year, and recent developments confirm that the PLA seeks to improve its capacity to project force throughout the region.  Continued improvements in China’s civil aviation capabilities, as first noted in the Commission’s 2010 Annual Report, enhance Chinese military aviation capabilities because of the close integration of China’s commercial and military aviation sectors.

Tensions continued in 2011 between China and other claimants in the South China Sea territorial disputes as well as with Japan over territory in the East China Sea.  China’s policy in the region appears driven by a desire to intimidate rather than cooperate.  Despite intermittent statements of cooperation, Chinese assertiveness in the South China Sea indicates that China is unlikely to concede its sovereignty claims. Many of China’s activities in the region may constitute violations of the United Nations Convention on the Law of the Sea and the Declaration on the Conduct of Parties in the South China Sea.  An implication of China’s growing assertiveness, especially its harassment and intimidation of foreign vessels, is the growing risk of escalation due to miscommunication and miscalculation. As chances of confrontation grow, so could the consequences for the U. S., especially with regard to the Philippines, with which the United States holds a mutual defense treaty.

In 2011, as in previous years, the U.S. government, foreign governments, defense contractors, commercial entities and various nongovernmental organizations experienced a substantial volume of actual and attempted network intrusions that appear to originate in China.  “Of concern to U.S. military operations, China has identified the U.S. military’s reliance on information systems as a significant vulnerability and seeks to use Chinese cyber capabilities to achieve strategic objectives and significantly degrade U.S. forces’ ability to operate.”

The report identifies China as one of the top space powers in the world today, and the implications of China’s civil and military space activities are dangerous to the U. S.  China’s leadership views all space activities through the prism of comprehensive national power, using civil space activities to promote its legitimacy in the eyes of its people, to produce spin-off benefits for other industries, and for military-related activities.  The nation’s capabilities, which are state of the art in some areas, follow from decades of substantial investment and high prioritization by China’s top leaders.  The prestige of space exploration and the national security benefits of space systems serve as primary motivators for Chinese decision makers.

China’s civil space programs have made impressive achievements over the past several decades.  “If Chinese projections hold, these programs are poised for continued accomplishments over the next ten to 15 years, such as the development of a space laboratory and eventually a space station. As part of an active lunar exploration program, China may attempt to land a man on the moon by the mid-2020s.”

China seeks new opportunities to sell satellites as well as satellite and launch services in international commercial space markets. Chinese firms’ prospects for greater success remain uncertain over the near term.  However, China’s international space-related diplomatic initiatives and their firms’ ability to offer flexible terms on sales to developing countries may provide additional opportunities.

China views all space activities in the context of ‘‘comprehensive national power.’’ This concept includes many dimensions, but military aspects are fundamental.   “PLA’s primacy in all of China’s space programs, including nominally civil activities, illustrates this emphasis.”  For example, China appears to be making great strides toward fielding regional reconnaissance-strike capabilities.  China has also continued to develop its anti- satellite capabilities, following up on its January 2007 demonstration that used a ballistic missile to destroy an obsolete Chinese weather satellite, creating thousands of pieces of space debris.  “In addition, authoritative Chinese military writings advocate attacks on space-to-ground communications links and ground-based satellite control facilities in the event of a conflict.”

“In the military sphere, China appears to seek ‘space supremacy.’  The PLA aims to implement this policy through two tracks.  First, they increasingly utilize space for the purposes of force enhancement.  The best example is China’s integration of space-based sensors and guided weapons.  Second, they seek the capabilities to deny an adversary the use of space in the event of a conflict.  To this end, China has numerous, active, counterspace weapons programs with demonstrated capabilities.”

These threats to America’s economy and national security need to be taken seriously.  Perhaps if the executives of American manufacturing companies would read this report, or at least the executive summary, they would change their minds about sourcing their R&D and manufacturing in China and investing in expanding, building or buying manufacturing plants in China.  China is no friend to the U. S. and Americans better wake up to that fact before it’s too late.

 

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What Led to the Problem of Chinese Counterfeit Parts?

November 15th, 2011

Last week, the Senate Armed Services Committee reported that an investigation found and examined about 1800 cases of suspected counterfeit electronic parts dating from 2009 to last year, totaling about a million individual components.  Tracing the supply chain, 70% of the components came through China, where a variety of methods were used to misrepresent the parts as new and genuine.  Hearings now being conducted by Senator Carl Levin (D-Michigan) and Senator John McCain (R-Arizona).

At a news conference on Monday, November 7, 2011, Sen. Carl Levin told reporters, “There’s a flood of counterfeit parts entering the defense supply chain.  It is endangering our troops and it is costing us a fortune.”

Sen. John McCain said the investigation documents the alarming “threat counterfeit parts pose to the safety of our men and women in uniform, to national security and to our economy.”  He added, “We can’t tolerate the risk of a ballistic missile interceptor failing to hit its target, a helicopter pilot unable to fire his missiles, or any other mission failure because of a counterfeit part.”

This dangerous state of affairs has taken over 20 years to develop and is a complex web of unintended consequences of seemingly innocuous changes in policies.  There are four main reasons for the problem of Chinese counterfeit components:

1.      Mil. Spec. qualified components replaced by off the shelf components

2.      “Buy American” requirements relaxed

3.      Manufacturing outsourced offshore, mainly in China

4.      Rapid obsolescence of components, especially micro chips

It all started with the scandals of the 1980s over the $600 toilet seats and $400 wrenches that President Reagan’s Defense Department, under Caspar Weinberger, was accused of wasting its money on by the Democrat-controlled Congress.

At the time, the news media ignored reasonable voices pointing out that tooling often has to be made to produce metal, plastic, rubber, and fiber glass parts in certain manufacturing processes.  This tooling cost then has to be amortized into the piece price of the part; i.e., tooling cost divided by the number of parts ordered plus piece price equals selling price. Since defense and military parts are produced in much lower volume than commercial products, the amortized tooling costs add much more to the part cost than it does for commercial parts.

The $600 toilet seat was actually a uniquely shaped, molded fiberglass shroud that fits over the toilet and had to satisfy specifications for vibration resistance, weight, and durability for the P-3C Orion antisubmarine aircraft, which went into service in 1962.  Since the airplane had been out of production for years, new tooling was required to produce the part.  The price reflected the design work and the cost of the equipment to manufacture them, and Lockheed Corp. charged $34,560 for 54 toilet covers, or $640 each.  The president of Lockheed at the time, Lawrence Kitchen, adjusted to the price to $100 each and returned $29,165.

Because of the public outcry over these scandals, the procurement regulations were changed.  The Defense Department, branches of the military, and their supply chain of vendors were allowed to purchase commercial off the shelf parts (COTS) if they met the same fit and function of parts made to strict military specifications.  In the early 1990s, most commercial parts were still being made in the United States, with some outsourcing to the Philippines, Hong Kong, and Singapore, so this change was pretty safe.  Permitting commercial parts to replace Mil. Spec. parts probably drove out of business the small companies that catered exclusively to the military and that provided traceability, per Mil. Spec., for parts supplied to government agencies, military contractors, and subcontractors.  This was all done in the name of cost savings.  Now, however, most commercial electronic components and micro chips are fabricated in China.

Second, after the end of the Cold War and the successful conclusion of the first Gulf War, the provisions of the “Buy American Act” were eased to allow purchasing off the shelf commercial parts from foreign countries by the Defense Department and other government agencies.  Previously, parts, assemblies, and systems were required to be substantially made in the United States or in a NATO country, such as Great Britain, France, and Germany.

This led to parts being made in China as more and more American companies started to outsource manufacturing in China either by selecting Chinese companies as vendors or setting up their own manufacturing plants in China.   This trend accelerated after China received “most favored nation” status with the approval of the World Trade Organization treaty in the year 2000, and American companies started to build semiconductor wafer fab plants in China to produce micro chips.

The problem with counterfeit parts is not something new to industry – there were always a small number of rejected parts that went out the “back door” of companies to be sold on the black or “gray” markets by individual employees.  What is new is the purposeful production of counterfeit parts by a foreign government, namely, China, as a form of economic warfare and counter espionage.

Brian Toohey, president of the Semiconductor Industry Association (SIA), testified Tuesday before the Senate Armed Services Committee calling counterfeit parts “a ticking time bomb.”   He added, “The catastrophic failure risk inherently found in counterfeit semiconductors places our citizens and military personnel in unreasonable peril,” said Toohey. The SIA estimates that counterfeits cost US-based semiconductor companies more than $7.5 billion a year.

EBN Editor, Barbara Jorgensen wrote in her blog, “Counterfeits have been appearing in the consumer and industrial sectors for as long as anyone can remember, but their presence in mission-critical defense equipment and military and passenger aircraft threatens lives  The efforts have a ways to go, but the dialogue between industry associations such as the SIA and the Defense Department and Justice Department are a major step in the right direction.”

Bruce Rayner, Contributing Editor, EE Times, wrote “counterfeiting is on the rise and it is getting harder to detect.  Counterfeit computer hardware, including chips, was one of the top commodities seized in 2010 by the US Immigration and Customs Enforcement agency (ICE) … up five-fold over 2009…The reason for the increase is that there’s a lot of money to be made.  Many obsolete components are in demand by the military because they need to repair very old equipment, such as 1980s-vintage fighter jets.  But the parts are no longer manufactured, and only a few authorized distributors stock the vintage components.  In some cases, the only place to buy these chips is from independent distributors or brokers who don’t have formal sourcing relationships with the original component manufacturer. They buy them over the Internet from sources they don’t know and who can’t validate their authenticity.”

The August 2011 issue of Industry Week reported, “In 2010, government agents seized fake goods totaling $188.1 million, which if genuine would have been worth $1.4 billion.  Goods from China accounted for 66% of the value of seizures by U. S. Customs and Border Protection.”  In the same article, Wes Shepherd, CEO of Channel IQ, said that the outsourcing of manufacturing in China combined with online selling “introduced the specter of counterfeiting as a much more serious problem.”

Joe O’Neill, owner of O’Neill Technologies and formerly with Intel, Samsung and Toshiba, told me in an interview, “the counterfeit problem is a product life cycle mismatch between consumer and more traditional applications, such as industrial, medical, and defense.  The life cycle of micro chips, also referred to as micro processors and controllers, are very short in the networking, computer, and telecommunications industries.  The life cycle of a cell phone model may range from six to 12 months, while industrial and military products may have a life cycle of decades.  Products for the military are a small piece of the market so there is a real problem with part obsolescence.  Availability of these parts that have been made ‘end of life’ force manufacturers to go into the Gray Market or other non-traditional sources to keep their factories supplied with parts.  There are a few companies that specialize in making obsolescent microprocessors for industrial, medical or military manufacturers by “cloning” the parts.” One such company is Innovasic, which makes the X86 series of Intel and AMD micro processors.

During the Senate hearings, part of which I watched after work, photos of bins of electronic parts were shown as Thomas Sharpe, V. P. of SMT Corporation, described visiting electronic component marketplaces in July 2008, where scrapped electronic parts were washed in rivers or left for the daily monsoon rains, dried on river banks, and collected in bins to be ready for counterfeit processing.  Counterfeiters buy used parts for pennies in the street markets of Shenzhen and other Chinese cities, re-mark them, fix broken leads and buff them up, then ship them to brokers in the West who unknowingly or knowingly sell them to other brokers or to OEMs for multiples of what they paid.

Last year, the Department of Justice’s Task Force on Intellectual Property was created specifically to prosecute counterfeiters, and last week Stephanie McCloskey was sentenced to 38 months in federal prison for her role in a scheme by VisionTech Components to import fake chips from China into the U. S. that were sold to a variety of customers including defense contractors and the military.

Until we implement more stringent procurement regulations, strengthen “Buy American” procurement regulations for defense and military components, and return more manufacturing to the United States from offshore, it will be up to manufacturers to have a system to detect and deter counterfeits.  Many defense contractors have put in place strict regimen for inspecting, testing, and reporting counterfeits, but all companies need to be vigilant by inspecting, testing, and reporting.

 

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Posted in General, Outsourcing, Trade Policy | 2 Comments »

Why John Stossel is All Wet ? “Buy American” is Smart, not Stupid

November 8th, 2011

John Stossel’s blog article on WorldNetDaily® on November 1, 2011, “The stupidity of ‘Buy American,’ is based on a premise so fallacious that one wonders how a usually intelligent commentator like Stossel could have been taken in by it.

The premise is that “we should buy things where they’re cheapest.  That frees up more of our resources to buy other things, and other Americans get jobs producing these things,” according to the explanation of why “Buy American” is “nonsense” by economist David Henderson of the Hoover Institution.

First of all, “buying things where they’re cheapest” isn’t always the best decision on where to spend your money ? the old adage “you get what you pay for” is more often true.  Most of the everyday items that people buy today at “big box” and other retail outlets are being manufactured in China and other countries in Asia.

What do you get for your money when you buy products that are made in China and other Asian countries?  Clothes and shoes that don’t fit or fall apart, toys that choke or strangle children, baby buggies, strollers, and cribs that maim or even kill, household items that either don’t work properly, cause fires, and explode, and tainted food.  The U. S. Consumer Protection Safety Commission’s website provides a monthly list of products that have been recalled, and month after month, more than 90% are made in China.   For example, there have been eight recalls thus far in November, and seven of the eight products were made in China.  In October, there were 21 product recalls: 12 were made in China, two were made in Taiwan, two were made in Vietnam, two were made in Mexico, and three were made in the U. S.  The products ranged from glass bowls and toys to tents, battery packs, and baby strollers.

Recently, a Senate Armed Services Committee investigation led by Sens. Carl Levin (D-MI) and John McCain (R-AZ) reviewed more than 100,000 pages of DOD documents and found that U.S. Department of Defense had purchased counterfeit electronic parts (defective and with “back doors”) from China in 1,800 cases, running to more than 1 million parts.

Second, buying cheap goods that are made offshore only creates American jobs if you use the money to buy American products.  If you just buy more products made “offshore,” you don’t create any new American jobs.   About the best it does is keep people who work in wholesale and retail employed.  That’s why tax rebates and refunds haven’t created the jobs that were expected.  Consumers used the extra money to pay down debt, add to savings, or bought the everyday products that are now made mostly in China.

Why does it matter where products are made and why is it smart to “Buy American?”  A  report released in April 2011 titled, “The Importance and Promise of American Manufacturing, Why It Matters if We Make It in America and Where We Stand Today,” co-authored by Michael Ettlinger and Kate Gordon of the Center for American Progress provides the answer to these questions.  The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all.

The authors opine that “Manufacturing is critically important to the American economy.  For generations, the strength of our country rested on the power of our factory floors—both the machines and the men and women who worked them.  We need manufacturing to continue to be bedrock of strength for generations to come … The strength or weakness of American

In addition to maintaining our standard of living as Americans, there are several other important reasons why it’s smart to “Buy American.”  They are:

Manufacturing is critical to our national defense ? American manufacturers supply the military with the essentials needed to defend our country, including tanks, fighter jets, submarines, and other high-tech equipment. The same advances in technology that consumers take for granted support the military, particularly soldiers fighting overseas.

The U.S. cannot rely on other countries to supply its military because their interests may run counter to its own.   America cannot risk being held hostage to foreign manufacturers when it comes to products that are essential for its national security and the U.S. military. It is crucial that key components and technologies that are critical to the production of U.S. weapons and the related industrial capacity to produce such items be located within the United States.

Manufacturing supplies millions of jobs ? Manufacturing jobs are the foundation of the U.S. economy and the basis for its middle class. Manufacturing provides high-paying jobs for nearly 12 million Americans.

Manufacturing Jobs Pay Higher Wages than Service Jobs ? Manufacturing wages and benefits are approximately 25 – 50 percent higher than in non-manufacturing jobs.

In an opinion article in Industry Week magazine, John Madigan, a consultant with Madigan Associate, wrote “Jobs paying $20 per hour that historically enabled wage earners to support a middle-class standard of living are leaving the U.S… only 16% of today’s workers earn the $20-per-hour baseline wage, down 60% since 1979.   Service and transportation jobs, per se, cease to exist in the absence of wealth. Rather, they exist and thrive as by-products of middle-class incomes buying products and services.”

Manufacturing Creates Secondary Jobs ? There is a multiplier effect of manufacturing jobs that reflects linkages that run deep into the economy. For example, every 100 steel or automotive jobs create between 400 and 500 new jobs in the rest of the economy. This contrasts with the retail sector, where every 100 jobs generate 94 new jobs elsewhere, and the personal and service sectors, where 100 jobs create 147 new jobs.  It is manufacturers who hire services such as banking, finance, legal, and information technology.

Manufacturing is the Engine of American Technology Development and Innovation ? American manufacturers are responsible for more than two-thirds of all private sector R&D, which ultimately benefits other manufacturing and non-manufacturing activities. More than 90 percent of new patents derive from the manufacturing sector and the closely integrated engineering and technology-intensive services.

Manufacturing R&D is conducted in a wide array of industries and businesses of all sizes. The heaviest R&D expenditures take place in computers and electronics, transportation equipment, and chemicals (primarily pharmaceuticals.)

Manufacturing is an incubator for technology and science, which require proximity to facilities where innovative ideas can be tested and worker feedback can fuel product innovation. Without this proximity, the science and technology jobs, like customer service jobs, follow the manufacturing jobs overseas.

Manufacturing Generates Exports — The United States was the world’s first-largest exporter until 1992 when Germany took over this position.   Germany remained number one until 2009 when China surpassed it to become the world’s top exporter, and the United States fell to being the third-largest exporter.  The difference between the top three was small:  Germany exported $1.17 trillion compared to the $1.057 trillion of the U. S., but China’s exports were $1.2 trillion in 2009.

Manufactured goods make up more than 60 percent of the value of U.S. exports, double the level of ten years ago. While agricultural exports amount to about $50 billion a year, manufacturers export about that much each month.  High tech products are America’s largest export sector, and the European Union was the top importer of these goods, followed by Canada, and Mexico.

Manufacturing Supports State Economies ? Manufacturing is a vital part of the economies of most states – even in those areas where manufacturing has declined as a portion of the Gross State Product (GSP). As a share of GSP, manufacturing was among the three largest private-industry sectors in all but ten states and the District of Columbia. Manufacturing is the largest sector in ten states and in the Midwest region as a whole. It is the second largest in nine states, and the third largest in 21 others.

For the past decade, manufacturing corporations paid 30 to 34 percent of all corporate tax payments for state and local taxes, social security and payroll taxes, excise taxes, import and tariff duties, environmental taxes and license taxes.  Since many small manufacturers are not incorporated and pay individual taxes as sole proprietors, the tax revenue generated by all manufacturers is impossible to calculate.

In summary, it’s smart, not stupid to “Buy American” because manufacturing is the foundation of the U.S. national economy and the foundation of the country’s large middle class. Losing the critical mass of the manufacturing base will result in larger state and federal budget deficits and a decline in U.S. living standards. This, in turn, would result in the loss of a large portion of our middle class, which depends on manufacturing jobs. America’s national defense will be in danger, and it will be difficult, if not impossible to maintain the country’s position as the world’s super power.  “Buying American” will help ensure that American manufacturing survives and grows in the global economy.

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What Can I do to “save” American Manufacturing?

October 25th, 2011

You may feel that there is nothing you can do as an individual to stop the total destruction of American manufacturing and watch the United States go over the precipice. Don’t think this way!   American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.” Eleanor Roosevelt echoed this sentiment saying, “Never doubt that a small group of thoughtful, committed citizens can change world; indeed, it’s the only thing that ever has.” Remember that our country was founded by a small group of people that did indeed change the world by forming the United States of America.

Here are suggestions of what each one of us can do:

As a Consumer:  It matters if we buy American-made products.  First, our addiction to imports has helped create our high trade deficit, especially with China, where most of the consumer goods we import are manufactured.  Second, American-made products create American jobs.  Each time you choose to buy an American-made product, you help save or create an American job.

Look at the country of origin labels of goods when you go shopping. Most imported goods are required to have these labels.  Buy the “Made in U.S.A.” even if it costs more than the imported product. It is a small sacrifice to make to insure the well being of your fellow Americans. The price difference you pay for “Made in USA” products keeps other Americans working.

If the product you are looking for is no longer made in America, then avoid countries such as China, who have nuclear warheads aimed at American cities. It would not be an exaggeration to say that American consumers have paid for the bulk of China’s military buildup. American service men and women could one day face weapons mostly paid for by American consumers. Instead, patronize impoverished countries such as Bangladesh or Nicaragua, which have no military ambitions against the United States.

In addition, you will be reducing your “carbon footprint” by buying a product made in America instead of a product that is made offshore that will use a great deal of fossil fuel just to ship it to the United States.

If you have a “Made in USA” appliance that needs repair and all the new ones are imported, have it repaired. If it can’t be fixed, and it is a small appliance that you can live without, then don’t buy a new one.

We Americans buy many things that we really don’t need just because they are so cheap. If a product that you are considering purchasing is an import, ask yourself, “Do I really need this?” If you don’t need it, then don’t buy it.

If you are willing to step out of your comfort zone, you could ask to speak to the department or store manager of your favorite store. You could tell the person that you have been a regular customer for x amount of time, but if they want to keep you as a customer, they need to start carrying some (or more) “Made in USA.” products.  If you buy products on line or from catalogs, you could contact these companies via email with a similar message. Your communicating with a company does have an effect because the rule of thumb in sales and marketing is that one reported customer complaint equals 100 unreported complaints.

If you think that Americans no longer care about where goods are made or have concerns about the safety of foreign products, you may be surprised to learn that poll after poll shows that the majority of Americans prefer to buy American.

A nationwide poll conducted by Sacred Heart University in September 2007 found the following:

  • 68.6 percent of Americans check labels for information like manufacturer, nation of origin and ingredients
  • 86.3 percent of Americans would like to block Chinese imports until they raise their product and food safety standards to meet U.S. levels.3

Buying American has been made even easier by a book by Roger Simmermaker – “How Americans Can Buy American: The Power of Consumer Patriotism” released in March 2008 and updated in 2010.  According to Simmermaker, “buying American” is not just about buying “Made in USA.”  “Buying American, in the purest sense of the term, means we would buy an American-made product, made by an American-owned company, with as high a domestic parts content within that product as possible . . . ‘American-made’ is good. ‘Buying American’ is much better!”

One of our greatest statesmen, Thomas Jefferson, stated, “I have come to a resolution myself, as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may.”

Simmermaker has made it easy by listing companies and their nation of ownership. You can see his list of American-owned companies at his website: www.howtobuyamerican.com However, Simmermaker’s website isn’t the only one available. You can also check many other websites, found simply by “Googling” “buy American.” These include:

www.buyamericanmart.com

www.ionlybuyamerican.com

www.madeinusa.org

www.americansworking.com

www.shopunionmade.org

www.MadeInUSAForever.com

www.stillmadeinUSA.com

There are also brick and mortar stores springing up around the country that are either stocking only “made in America” products, such as the American Apparel stores or primarily “made in America” products, such as the Urban Outfitters stores.

As American consumers, you have many choices to live safely and enjoy more peace of mind with American products. It’s high time to stop sending our American dollars to China while they send us all of their tainted, hazardous, and disposable products. If 200 million Americans refuse to buy just $20 each of Chinese goods, that’s a four billion dollar trade imbalance resolved in our favor – fast!

As a Voter:  There’s only one way for manufacturers to find relief from high taxes, burdensome regulations, and unfair trade laws and that’s through Washington, D.C.  Voter apathy is partially responsible for the state of our affairs as a country. Too many people have decided that there is nothing we can do on an individual basis and have even stopped voting.

Americans have been “sold down the river” by politicians on both sides of the aisle – Democrats and Republicans. Democrats profess to support “blue collar workers” and unions, yet NAFTA and the WTO treaties were approved and went into effect under the presidency of Democrat Bill Clinton. Republicans profess to support business, yet they primarily support large, multinational corporations, rather than the small businesses that are the engine of economic growth in the U.S. and the foundation of the middle class.

In his 2008 book, “Where Have all the Leaders Gone” Lee Iacocca said, “Am I the only guy in this country who’s fed up with what’s happening? Where is our outrage? We should be screaming bloody murder. We’ve got corporate gangsters stealing us blind. The most famous business leaders aren’t the innovators, but the guys in handcuffs. And, don’t tell me it’s all the fault of right wing Republicans or liberal Democrats. That’s an intellectually lazy argument and it’s part of the reason that we’re in this stew. We’re not just a nation of factions. We’re a people and we rise and fall together.  We didn’t elect you to sit on your butts and do nothing and remain silent while our country is being hijacked and our greatness is being replaced with mediocrity.  What is everybody so afraid of?  Why don’t you guys in Congress show some spine for a change?”

In a poll asking Americans if they’ve ever contacted their elected representatives, eight out of ten said that they never had. It’s never been easier to contact members of Congress. All you have to do is click on www.house.gov or www.senate.gov and type in your zip code, and you’re automatically directed to your representative. A window automatically pops up where you can type a message to that representative.  It takes less than two minutes, on average.  Well, we now need to let our elected representatives know how we feel about the bad trade laws, bad tax laws, and over burdensome regulations on manufacturers. It’s time to shed apathy, become involved, and vote.

If people whose lives are affected by manufacturing would contact their legislators and tell them they want trade reform and tax reform and would follow up to watch to see how they voted, the results would be amazingly effective.

We cannot afford to export our wealth and be able to remain a first-world country. We cannot lose our manufacturing base and be able to remain a “superpower.” In fact, we may not be able to maintain our freedom as a country because it takes considerable wealth to protect our freedom. You can play a role as an individual in saving our country ? the company you save or the job you save by your actions may be your own.

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

How Can We Attract Youth to Manufacturing Careers?

October 18th, 2011

If we want to attract today’s youth to manufacturing careers, we need to change their perceptions about what the manufacturing industry is like and show them what great career opportunities exist in the industry.  If more people would watch TV programs such as “How it’s Made” and “Made in America,” they would soon realize that manufacturing has changed for the better – it’s cleaner and high tech compared to what it was a generation or two ago.

In a blog article, Derek Singleton, ERP Analyst for Software Advice, wrote, “This means reacquainting youth with the process of designing and building products from an early age – and then providing the creative freedom to build those things on their terms.”  He shared two examples from industry and suggested a third:

  1. Manufacturing summer camps – A recent New York Times article highlighted an innovative summer camp, called Gadget Camp, where teenagers learn how to build things from concept to creation. Attendees are required to design a product through computer-aided design (CAD) technology and oversee the design to completion.
  2. Gamification of manufacturing – Gamification is a hot topic in many aspects of business at the moment – one driven by the idea that adding gaming elements to non-gaming activities encourages action and participation. It’s a movement that seeks to capitalize on our youth’s obsession with video games as well as our competitive nature. According to Diana Miller and Simon Jacobson’s recent Gartner First Thing Monday Morning newsletter, Invensys has been using 3D gaming technology to teach new hires how to operate oil refinery equipment for the past few years. In the same vein, Siemens recently released Plantville, a program designed to teach manufacturing processes and technologies to young people and new hires.
  3. Restore shop classes to our high schools – The elimination of these courses from our school systems has inevitably had a negative impact on the way we view making a living with our hands. We can all learn from building something with our hands because it teaches us a different way to think. And more importantly, hands-on learning through shop classes helps young people move an idea from concept to creation – which is useful regardless of one’s future occupation.  (quoted with permission)

The good news is that more than one non-profit organization has recognized the need to introduce the opportunities of engineering and manufacturing careers to middle school age youth because by high school, students may already be on a different career track.  The benefits of summer camps for middle school youth is why the Fabricators and Manufacturers Association, International (FMA) sponsored the Gadget Camp mentioned above.  FMA sponsors the Nuts, Bolts and Thingamajigs Foundation (NBT) whose mission is to nurture the tinkering spirit.

NBT and the National Association for Community College Entrepreneurship (NACCE) have partnered together to launch a unique summer camp program that combines elements of manufacturing and entrepreneurship—how things are made and how businesses develop. The summer camp will eventually develop into a national program with as many as 300 locations across the United States.

FMA also offers grants for manufacturing summer camps at numerous locations across the country.  Each camp is aimed at changing the image of manufacturing for youths. Through partnerships with nonprofit organizations, such as the Boys and Girls Clubs of America, FMA provides guidelines on the basic structure of how a camp should be conducted.  The organizations then use their community resources to develop the camps based on local manufacturing needs.

The camps provide a positive hands-on experience so young people will consider manufacturing as a career option. They target youths at the critical level of early secondary education, exposing them to math, science and engineering principles, and giving them opportunities to see the technology being used in industry and the high level of skills that will be required from the workforce.

Campers design and build a product experiencing the start to finish satisfaction of creating something they can show off with pride. Throughout the process, they learn how to do CAD design and operate various kinds of manufacturing machinery under the close supervision of expert manufacturing trainers.

They also tour local manufacturing facilities learning what kinds of jobs exist, what skills and training are required, and how those businesses developed. They have the opportunity to hear directly from local manufacturing company owners how they started their businesses, applying basic entrepreneurship principles to understand how a single product idea becomes a business.

Another non-profit organization with similar goals is Project Lead The Way® (PLTW).  The list of PLTW sponsors includes such companies as:  BAE Systems, Biogen Idec, Boeing, Caterpillar, Chevron, General Atomics, Intel, Lockheed Martin, Northrop Grumman, Qualcomm, Solar Turbines.  Non-profit sponsors include the Girard Foundation, the McCarthy Foundation, and TechAmerica (formerly AeA).

PLTW has been working since 1997 to promote pre-engineering courses for middle and high school students. PLTW forms partnerships with public schools, higher education institutions, and the private sector to increase the quantity and quality of engineers and engineering technologists graduating from our educational system.  The PLTW curriculum was first introduced to 12 New York State high schools in the 1997-98 school years. A year later, PLTW field-tested its four unit Middle School Program in three middle schools. Today, the programs are offered in over 1,300 schools in 45 states and the District of Columbia.

The Society of Manufacturing Engineers Education Foundation is one of the major funders of Project Lead the Way® and sponsors a  week long day camp for 6th – 8th graders, called Gateway Academy, which is a project based, hands-on curriculum designed by PLTW to introduce middle school students to the fundamentals of science, technology, engineering and math.  Campers work together in a fun, exciting environment using leading-edge technologies to sample such disciplines as robotics, aeronautics and eco-design.  They brainstorm ideas, solve problems and build bridges, race cars and other working models. Participation in a Gateway Academy prepares students for the middle school Gateway to Technology pre-engineering curriculum.  The PLTW Middle School program is called Gateway To Technology, consisting of nine-week, stand-alone units, which can be implemented in grades six through eight, as determined by each school. The curriculum exposes students to a broad overview of the field of technology.  The units are:

  • Design and Modeling
  • The Magic of Electrons
  • The Science of Technology
  • Automation and Robotics
  • Flight and Space

SME also sponsors the ”Manufacturing is Cool” award winning, interactive website, which challenges and engages students in basic engineering and science principles and provides interesting and useful educational resources for teachers.  This fun and information rich website was recently “re-engineered” (updated) and marketed around the country.  SME has received positive feedback from teachers, parents, and students about its usefulness.  This website is a good start towards fulfilling the “Gamification of manufacturing” mentioned by Mr. Singleton.

There is also good news with regard to Mr. Singleton’s suggestion of restoring shop classes to schools.  States are starting to add shop classes back into the curriculum.  During his terms as California’s governor from 2003-2010, Arnold Schwarzenegger identified workforce skills, referred to as Career Technical Education (CTE), as a priority for California.  The passage of the education bond in 2006 provided $500 million for CTE initially, and subsequent budgets have continued to fund the program.  The State plan was approved by the California State Board of Education on March 12, 2008 and approved by the U.S. Department of Education on July 1, 2008.  The CTE is delivered primarily through K-12/adult education programs and community college programs.  The Career Technical Education includes the following:

K-12/Adult Programs:

  • Elementary school awareness and middle school introductory CTE programs
  • High school CTE, offered through 1,165 high schools in single courses, in course sequences or through over 300 integrated “learning communities”
  • ROCPs offering career pathways and programs through 74 ROCPs
  • Adult education offered through 361 adult schools and over 1,000 sites
  • Apprenticeship offered through over 200 apprenticeship program and adult schools

Community College

  • Occupational programs offered at all 109 colleges, leading to certificates, associate degrees, and transfer to four-year universities
  • Noncredit instruction for short-term CTE programs offered by 58 colleges
  • Apprenticeship offering over 160 apprenticeship programs at 39 colleges
  • Middle College High Schools (13) and Early College High Schools (19)
  • Tech Prep programs delivered through 80 Tech Prep “consortia,” comprising 109 colleges and their feeder high schools
  • Economic and Workforce Development Program activities implemented through 115 “regional delivery centers” and 10 initiatives in emerging industries
  • Contract education provided to organizations for their employees

This is a good start, but we have a long way to go if we want to have enough skilled workers to replace the “baby boomers” as they retire over the next 20 years.  Perhaps when more young people have exposure to the various career opportunities in manufacturing and realize that manufacturing careers pay 25-50 percent higher than non-manufacturing jobs, they will choose to be part of modern manufacturing.

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What’s Being Done to Address the Lack of Skilled Workers?

October 11th, 2011

For the past 15 years, manufacturing companies have been focused on training existing employees in the tools and methodologies of lean manufacturing and Six Sigma in order to improve efficiency, productivity, quality, and customer service to be more competitive in the global economy. However, this training doesn’t address the lack of workers trained in the specific skills needed for today’s advanced and higher tech manufacturing.

Mark Tomlinson, CEO of the Society of Manufacturing Engineers, sees the skilled worker shortage as an iceberg looming on an uneasy sea.  “We’re just approaching it; we haven’t hit it yet but we know it’s there,” he says. “People are starting to see it. They just don’t know how to deal with it…Now there is an increased need to fill manufacturing jobs associated with aerospace, energy, medical device manufacturing and aspects of transportation,” Tomlinson says.

At the imX event in Las Vegas that I attended September 12-14, 2011, I interviewed Experience Partner companies that are very involved in workforce development and training.  Mark Logan, V. P. Business Development & Marketing, Mag IAS, LLC said that MAG has a very comprehensive training program.  MAG America restarted its apprenticeship program in 2005 in partnership with local community colleges. Students in the program work full-time at MAG while taking college classes, working toward an associate’s degree. MAG invests approximately $200,000, including tuition, salary and benefits, for each apprentice earning a degree. This program gained national attention in an NBC Nightly News report “America at the Crossroads.”

Other internal programs include Future Leaders and the Accelerated Leadership Program (ALP), which are designed to fill the pipeline at the company’s management and executive levels.  Future Leaders participate in a one-year program combining classroom training with developmental assignments and mentoring from senior managers.  Accelerated Leadership candidates are employees who have the potential to assume executive-level positions within MAG, and the program provides a series of high-impact job assignments coupled with advanced educational opportunities.  The company also has co-operative education programs with a number of well-known regional and national engineering schools.  MAG IAS joins manufacturing leaders Boeing, Caterpillar, United Technologies and others as the newest partner in MIT’s prestigious Leaders for Global Operations (LGO) dual-degree graduate program that equips students with master’s degrees in engineering and management.

Another Experience Partner, Sandvik Coromant, provides training for their employees in collaboration with technical schools and colleges in addition to performing internal training utilizing curriculum they have developed, according to Robert Page, Productivity Center and Training Manager.  They also provide training for their customers at Smart events in metal cutting technology ranging from the basics of terms and definitions to specialized metal cutting of “hard” parts in super alloys.

Another imX Experience Partner was Fanuc FA America, one of the world’s leading factory automation companies.  Fanuc has developed simulator software, which is ideal for training.  Mark Brownhill, Program Manager, Machine Tool Distributor/Education, said, “We offer regular training programs for end-users as well as machine tool builders, agents or distributors. The training combines practical lectures with hands-on lab exercises to ensure that you get the value-added skills needed.  Our NCGuide simulates the CNC operator environment featuring, by selection, ISO programming or Fanuc Job Shop Programming Software while our NCGuidePro provides development tools as used by machine builders and OEMs.  Both these products run on standard PC equipment with no need for additional hardware.”  Fanuc also has two training centers, one near Chicago and one that just opened in Cypress, California.

Since its founding in 1932, the Society of Manufacturing Engineers (SME) has provided lifelong-learning programs, certification and skills assessment, technical resources, publications and industry expertise through its members.  SME has several certification programs in specialized fields that are used by both industry and academia to develop today’s and tomorrow’s workforce, such as Certified Manufacturing Technologist, Certified Manufacturing Engineer, Lean Certification, and Green Manufacturing Specialist.

In 2010, SME acquired Tooling University LLC (Tooling U) based in Cleveland, Ohio. Tooling U provides online training to more than 1,200 manufacturing companies and 400 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. Tooling U online classes help to round out SME’s current offering of instructor led training, certifications, webinars, books and videos.

A free Workforce 2021 Readiness Assessment was introduced at the Tooling U booth at the imX event.  This customized and targeted workforce assessment program gives manufacturers the opportunity to assess their own capabilities in the face of challenges they will need to solve before they are confronted with the severe skilled workforce shortages predicted by 2021.  The first component of the assessment requires companies to answer questions about how they are preparing to meet the needs of the 2021 workforce.  Tooling U and SME professional development experts were available to explain solutions for readiness deficiencies identified in the assessments.

After the imX event, I interviewed two of Tooling U’s clients.  One client is Midmark Corporation, which brings efficient patient care to millions of people each day in the human and animal healthcare industries around the world. Midmark is committed to providing innovative products and services for the medical, dental and veterinary healthcare equipment industry. Headquartered in Versailles, Ohio, Midmark Corporation maintains four subsidiaries in the United States and has over 1,100 employees worldwide.

Casey Webster, Human Resources Manager, said, “We are experiencing a shortage of skilled machinists.  So far this year, Midmark has hired 7 machinists from the outside.  Finding this talent was a major struggle.  We tried several different recruiting tactics such as advertising in the newspaper, online, offering referral bonuses, radio ads, and professional recruiting services.”  She said, “We chose Tooling U because it was recommended to us by Edison Community College.  After doing some research and course trials, we decided to partner with Tooling U.  The kind of training courses we are utilizing includes 45 online modules and five labs.  It was important that we implement a program that allowed teammates to confirm their learned knowledge.  Once a teammate completes a set of online modules, he attends an eight-hour, hands-on lab at Edison Community College.  Classes range from mathematics, blueprint reading, cutting, lathe, mill, turning, and CNC.   The Tooling U training program has benefited our company by:

1.      Providing development opportunities to current teammates wanting to become machinists

2.      Reducing training time

3.      Verification program that a teammate has the skills to be successful in a machining role

Kellogg Community College, located in Battle Creek, MI, is the other client I interviewed.  Chris Walden, Interim Director, Workforce Services, said, “Manufacturers are coming to us as part of the ‘Michigan Works’ program.  We purchased full-year subscriptions to ToolingU courses in machining and welding because they are the perfect supplement for lab and class work.  The ToolingU courses are a cost-efficient and beneficial tool and have saved taxpayers thousands of dollars by our not having to develop our own curriculum.  The courses are translatable to both certificate programs and associate degrees.”  He added that the current president of the college, Dr. Dennis Bona, started out as a welder in private industry, and then became a part-time welding instructor before going on to higher education so he is very supportive of workforce training programs.

Another trade organization that also provides workforce training is The Fabricators and Manufacturers Association, International (FMA).  The 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 to deliver live, interactive technical education programs directly to shops 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).

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.

On-site – Live training conducted at a company on their equipment. Rather than releasing a limited number of staff to attend an off-site training program, it can be more cost effective to bring the expert into a facility to work with all team members engaged in a particular process.  Training can be offered modularly and when needed (first, second, third shifts or weekends).

FMA’s e-Fab – online training that allows a company to get the training 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. The training is available 24/7, 365 days a year.

Educating current and future manufacturing workers is critical for the health and growth of the manufacturing industry, and the training programs provided by SME and FMA will aid in addressing the lack of skilled workers.

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