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

September 4th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Posted in Economy, Manufacturing, Outsourcing | No Comments »

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

August 14th, 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted in Innovation, Manufacturing, Reshoring | 1 Comment »

National Manufacturing Strategy? Stop Talking—Just Do It!

August 7th, 2012

In the past three years, one business or government leader after another has proposed developing a national manufacturing strategy. For example, the Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” in April 2011 that builds the intellectual case for why the United States needs a serious national manufacturing strategy. The Alliance for American Manufacturing is a strong proponent of a national manufacturing strategy, and has repeatedly put forward a “Plan to Save Manufacturing,” calling for a national manufacturing strategy to reverse the decline in U.S. manufacturing and the good jobs that come with it. A bill to set up a process to develop a national manufacturing strategy even passed the House of Representatives in 2010 by a vote of 379 to 38, but died in the Senate.

Now, a new bill, “The American Manufacturing Competitiveness Act” (HR-5865), co-sponsored by Illinois Reps. Dan Lipinski (D) and Adam Kinzinger (R), passed the House Energy and Commerce Committee on June 20, 2012 and was sent to the House as a whole for consideration.

It is great to hear issues concerning U. S. manufacturing being discussed at this level, but it’s time to stop talking about developing a national manufacturing strategy and just do it. There is no assurance that this bill will not suffer the same fate as the similar 2010 bill because just 29% of all House bills reported favorably by committee in 2009–2010 were enacted.

Four Democrats and six Republican signed on as co-sponsors of the bill while it was being considered in committee, and four Democrats and two Republicans have signed on as co-sponsors since then for a total of 18 co-sponsors. It will take many more Republican sponsors to ensure that it is brought to a full vote of the House this fall.

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

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

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

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

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

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

In his press release about this bill, Rep. Lipinski states, “American companies and their workers are operating at a severe disadvantage as they face foreign competitors who benefit from coordinated, strategic government policies that benefit manufacturing,” Rep. Lipinski said. “We need to recognize this reality and bring the public and private sectors together to develop a national manufacturing strategy that specifies recommendations for the optimal tax, trade, research, regulatory, and innovation policies that will enable American manufacturing to thrive. Manufacturing is critical for national security, an essential source of good-paying jobs for the middle class, and drives high-tech innovation. This bill is a fully bipartisan document, and I believe that when the strategy is issued it could have as immediate an impact on U.S. manufacturing policy as the Rising Above the Gathering Storm report had on U.S. science policy when it led directly to passage of the America COMPETES Act.”

In his press release, Rep. Kinzinger states, “Since coming to Congress, I’ve heard from manufacturers in my home state of Illinois about the importance of creating an environment that will allow American manufacturing to thrive in a global economy.”

“Manufacturing is one of the most vital components of our economic and national security. Not only is it the leading industry in terms of value, but it also has the highest multiplier effect. We must encourage an environment that will allow businesses to compete globally. We will not be able to predict where the next growth sector for manufacturing will be, nor should we try to implement a top down government policy that would benefit manufacturing. We should instead insist upon a long-term strategy constructed by private sector and government leaders to focus our attention on the challenges inhibiting our global competitiveness.”

Bi-partisan efforts to revitalize American manufacturing are laudable, but my questions are: What expertise in the manufacturing industry would two governors have to contribute to the board? By what criteria will the board members be selected?  Will board appointments be “political plums” awarded to key supporters of the president and the majority party in Congress? Why should we spend an estimated $15 million to set up another board that would take three years to develop a national manufacturing strategy? We could accomplish a great deal towards revitalizing manufacturing in this time period by utilizing work that has already been done.

Anyone involved in efforts to revitalize American manufacturing like myself already has a file drawer or computer full of books, studies, and reports containing recommendations on a national manufacturing strategy. My book, Can American Manufacturing Be Saved? Why we should and how we can has a chapter on “How Can We Save American Manufacturing?” that contains a summary of the recommendations of such organizations as the Alliance for American Manufacturing, American Jobs Alliance, Coalition for a Prosperous America, Economy in Crisis, National Association of Manufacturers, Small Business and Entrepreneurship Council, TechAmerica, and the U. S. Business and Industry Council, among others. Of course, it also includes my own recommendations.

We could ask the heads of these organizations to form a committee that would come up with a consensus on a manufacturing strategy that incorporates the most important policies to implement and action steps to take. This committee could work under the auspices of the existing Office of Manufacturing that is under the Department of Commerce, which was set up as a result of the America Competes Act.

In the past seven years since the National Summit on Competitiveness in 2005, there has been a summit or conference scheduled every year on the topic of revitalizing American manufacturing. A first Conference for the Renaissance of American Manufacturing was held in September 2010, and a second Conference on the Renaissance of American Manufacturing: Jobs, Trade and the Presidential Election was held on March 27, 2012. This one-day conference focused on solutions to the decline of manufacturing in America and highlighted manufacturing and trade as critical issues for the upcoming presidential and congressional elections. I am sure that some of the participants in these conferences would also be interested in being involved with the committee itself or a subcommittee.

More recently, the President’s Council of Advisors on Science and Technology (PCAST) released a report, “Capturing Domestic Competitive Advantage in Advanced Manufacturing,” in July 2012 prepared by the Advance Manufacturing Partnership Working Group. This group makes 16 specific recommendations for policy steps to take to enable the United States to resume its leadership in the manufacturing industry and strengthen our position in advanced manufacturing technologies.

In other words, why do we have to “keep reinventing the wheel?” Let us review the recommendations on a national manufacturing strategy we already have and select the ones that will have the most impact to enable the United States to have a real renaissance in the manufacturing industry. It is time for our leaders to “stop fiddling while Rome burns” and show some real leadership. Action, not lip service is what we need now!

 

Posted in Economy, Manufacturing | 2 Comments »

San Diego Region Prepares for Increased “Reshoring” Opportunities

July 31st, 2012

On June 25, 2012, the South County Economic Development Council released the “San Diego Regional Manufacturing Sector Report,” funded by a grant from the San Diego Workforce Partnership.  The purpose of the report was to identify challenges and opportunities for local manufacturers in order to provide the necessary resources as a region and recommend actions “to capture previously lost manufacturing opportunities that had gone overseas.”

Manufacturing is returning to the United States because “overseas production has become increasingly more costly due to high transportation costs, expensive reverse logistics to correct product defects, and increasing labor costs.”   The report states “San Diego County is poised to reap the benefits of the return of manufacturing to America.  Just-in-time, product oversight, and cost efficiencies are bringing manufacturers back to the U.S.  There is a unique advantage for manufacturers with San Diego’s prime location along the international border and on the Pacific Rim. This allows for easy shipping of products and co-producing products with Mexico.”

To prepare for the influx of manufacturing opportunities, South County Economic Development Council (SCEDC) and its partners surveyed 283 manufacturers between October 2011 and June 2012 about conducting business in the San Diego region. The survey included questions on business history, growth projections, employment level, business challenges, labor climate, business location, markets, products, and capabilities. The report summarizes and analyzes data gathered from those interviews.

The U. S. as a whole lost 5.7 million manufacturing jobs from 2000 – 2010, and the San Diego region went from 128,738 down to 90,205 in the same period for a loss of 33,533 jobs…  California lost over a half a million in the same period.  Job creation and new hires during this period slowed considerably resulting in a seriously slowing manufacturing industry in San Diego County.   The results of the survey for level of employment were mixed ? 36% had fewer employees than in 2002 and 32% had more employees.  However, 50% indicted that a reduction in employees had occurred within the last 12 months showing that the recovery from the recession is fragile.  On the plus side, 54% have hired in the past year, 26% are currently hiring, and 36% plan to hire in the next 12 months.

The survey reveals that a large percentage of San Diego’s manufacturers specialize in prototype development, low-volume production, and just-in-time delivery. “Moreover, many of the products that are made in the San Diego region offer the customer better oversight and more opportunities for collaborative approaches to product development. This makes “near shoring” a viable option (as opposed to ‘off shoring.’)” More than one-third of the manufacturers surveyed stated that customers have brought product manufacturing back from Asia.

The vast majority of manufacturers indicated they were pleased with their current location. Of the 283 companies surveyed, 238 business owners indicated they are pleased with their location. They cited a historical presence, family ties, customers and suppliers located nearby and quality of life as the reasons they liked their location. When asked about their location challenges, the top four were:

  • Government regulations ? Manufacturers felt they were overburdened by regulations: overlapping and complex regulations, employment laws, including cost of workers’ compensation insurance, burdensome hiring laws,  numerous regulations governing employees, stringent compliance requirements, and the multiplicity of agencies was cited as putting them at a disadvantage.
  • Taxes ? compared unfavorably with taxes in other states, with adjacent states having a more business “friendly” tax structure.
  • Environmental issues ? “environmental regulations “getting stricter.” They also noted “the State of California had more stringent guidelines than the federal government and most other states. This puts companies at a competitive disadvantage.”
  • Utility cost and availability ? “especially concerned about electricity costs, noting that manufacturers use a large amount of energy to produce a product.”

In an effort to determine the commitment manufacturers have made to their existing locations, companies were asked if they owned or leased the facility.  When a company owns a building, they have made a long-term commitment to that location, and it is not easy for them to relocate. When a company leases a site, it is easier for them to relocate.  Companies that have month to month leases or rent are at the greatest risk of relocation. Ninety-eight companies (35%) indicated they owned their existing site, and 120 companies or 42% had long-term leases.

However, there is cause for concern because “many manufacturers indicated they were located in the San Diego region because their suppliers or customers were located here…Fifty-five percent of the manufacturers indicated their customers and/or suppliers have relocated within the past three years.”

Manufacturing companies are being courted by other states to relocate with attractive incentives to do so.  The survey revealed that “Almost 75% of the manufacturers surveyed were unaware of various assistance programs available to them…Seventy-six percent of the respondents indicated they had not worked with college or job training programs…Only sixteen percent of those surveyed said they had forged a business relationship with local educational institutions…Nine percent of the businesses indicated they had participated in a State job training program.”

Several manufacturers said there was a shortage of qualified CNC machinists and they had to recruit from all over the region.  The need for classes at both the high school and college level was cited as a necessity to grow these types of workers.  More efforts toward preparing the future manufacturing workforce are required. Manufacturers expressed difficulty in finding qualified employees noting many of the training programs have been downsized or no longer exist due to budget cuts.  There is a need to retrain current employees and offer additional training classes related to computerized manufacturing equipment.

Additionally, manufacturers were not aware of finance, tax credit and permit assistance programs being offered.  Only 20% were aware of small business finance and business assistance programs, and less than 20% were aware of various tax credit programs, permit assistance and employment assistance programs.

To ensure San Diego can maximize the opportunities provided by manufacturing returning to the U. S., the report found that “there is a need to link the innovation companies with local manufacturing…to capture the “lab to shelf” full chain of product within our region. To accomplish this, there needs to be a better connection between the innovation companies and the manufacturers. There also needs to be a better way to link local manufacturers with each other as well as link companies to local suppliers.”

An efficient way of connecting companies is through the Connectory.com database, which is an online resource containing detailed capabilities and profiles of manufacturers and supply chain companies.  San Diego County currently has over 5,000 company profiles on Connectory.com.  Profiles make it easier to understand the capabilities of the manufacturing supply chain and find core capabilities and capacities that are needed for the large amount of contracts and subcontracts available in San Diego County.

According to the report, the San Diego Military Advisory Council states that the manufacturing industry is the largest business sector that provides goods and services to the military in San Diego County.  The total economic impact of output for manufacturing is $7.2 billion. Manufacturing related expenditures totaled $4.8 billion or forty-five percent of all procurement for the military industry in FY2009.

Therefore, the looming potential threat to San Diego’s manufacturing industry is “sequestration, the legislatively mandated, across the board 10 percent cut in Department of Defense budgets on January 2, 2013 (if Congress does not act to make other deficit reduction decisions).” Over 1,700 companies reported military and government contracts so “an orchestrated approach to future defense downsizing and its impact on the manufacturing sector is needed.”

The report provides numerous recommendations ? a few of the most important are:

Change State Tax ? Amend the State Tax and Revenue Code to allow cities to rebate their portion of the property and sales tax for business transactions that occur locally. The authority to rebate the local jurisdictions portions of the taxes could be held at the local level. Local cities and counties could be empowered to choose to rebate their portion of a specific tax and use this as an incentive to encourage companies to create new jobs through company expansion and location within their respective areas.

Holiday on New Regulations ? take a one-year moratorium on regulations impacting the manufacturing industry while information and education is provided to manufacturing business owners about forth-coming regulations.

Streamline and Reduce Existing Regulations ? Combine regulation requirements from the various local, state and federal agencies to avoid confusion by the business owner.  It is recommended that the state and local agencies work together to consolidate the number of required inspections and approvals, especially fire department, air pollution control district, and environmental health compliance inspections.

Cohesive Proactive Communication with Manufacturers ? Governing bodies should prepare industrial businesses to comply more efficiently and cost-effectively with forthcoming regulations, well in advance of the enforcement period. Local government should provide more communication and work with local business owners through a series of educational awareness campaigns prior to enacting new laws or regulations. An active and open discussion prior to making changes will allow industrial businesses to plan and ensure that they are part of the implemented solutions.

Made in the San Diego Region Campaign ? Spread the word and provide the information to consumers on the diverse manufacturing base to assist them in making choices that support the local economy.  Initiate a “Made in the San Diego Region” campaign that includes some type of identification on the product that will increase the awareness around the world of what is made in the San Diego Region.

Connectory.com ? All government and non-profit entities should encourage the manufacturers to use the Connectory.com. The government entities should provide resources to link and publicize the Connectory.com linking businesses to each other and to provide information about the industrial and technology base of the economy.

Prepare for Sequestration ? In the San Diego region, one-third of all companies reported some dependency on the defense industry.  San Diego’s residents are unaware of this impending crisis, believing that we are protected from sequestration by the nation’s increased focus on Asian-Pacific Defense posture. We recommend the region engage in a pointed, targeted, and unvarnished reporting of the potential negative impacts of sequestration.

The report concludes that the “San Diego region has one of the largest economies in the world, resilient in its diversity and blessed with multiple sources of incoming investment…the San Diego region has a very good opportunity to flourish, but it lacks the acknowledgement from local government and the appreciation of the overall population, of the risks it faces, and the rewards its success can offer.”

Four of the above recommendations have been made as a result of previous manufacturing industry reports, conferences, summits, and task forces of which I was a part, but there has been no action on the part of California’s legislature or regional and local governing bodies.  Until we change the complexion of the State legislature to one friendlier to employers, it is unlikely that we will see any action on these statewide issues.

We need to foster a business environment that is conducive to the manufacturing sector in both San Diego as a region and California as a whole. This would necessitate bringing manufacturers into discussions about regulations, taxes, and government purchasing.  Manufacturing today requires highly skilled workers proficient in a wide range of advanced technologies.  More preparation of the workforce is necessary to meet the anticipated increase in demand for manufacturing through training and retraining.  Providing training opportunities to address the skill gap of existing workers would go a long way to enabling growth of the manufacturing sector.

The report states that regional leadership is the key to help the manufacturing industry thrive in the San Diego region. I agree, but leadership is also the key to restoring California as the “golden state of opportunity” for manufacturers and all other businesses.

The SCEDC study concludes that the manufacturing sector lacks the necessary resources to conduct business successfully on a large scale.  The wealth of tax credits and business assistance programs are not as widely used as expected, further emphasizing the need for leadership and an expansive educational campaign.  This report is meant to spark discussion and action to enable San Diego to grow its existing manufacturing industry. As a follow up to the report, the South County EDC is planning an Economic Summit on Friday, September 21, 2012.

We also need to spark discussion and action on a state level.  To this end, the Coalition for a Prosperous America (CPA) is facilitating an economic summit on October 11, 2012, entitled, “Manufacturing in the Golden State ? Making California Thrive,” co-hosted by California State Senator Mark Wyland and Assembly member Toni Atkins.  As the newly appointed State Chair for CPA, you may contact me to become involved at Michele@savingusmanufacturing.com or Sara Haimowitz at sara@prosperousamerica.org

 

Posted in Economy, Manufacturing, Reshoring | 1 Comment »

Will Countervailing and Anti-Dumping Duties Help or Hurt America’s Solar Industry?

July 24th, 2012

The answer to this question depends on what role you play in America’s solar industry ? manufacturer, distributor, or retail installer ? and what China will do in retaliation.

In May 2012, ChinaGlobalTrade.com, a program of non-profit organization The Kearny Alliance, released a well-researched and well-documented report titled “China’s Solar Industry and the U. S. Anti-Dumping/Anti-Subsidy Trade Case. The purpose of the report is to “present a balanced, fact-based discussion of the trade case; an exploration of how China’s solar industry has grown so big so fast; and a thorough analysis of what might be the consequences – many of them likely unintended – of likely outcomes of this trade case” to encourage readers to look at the issue from new angles.

As background to the case, the report presents these facts about the global solar industry:

  • On-grid installation of solar photovoltaic (PV) systems grew an average of 45 percent per year on average between 2003 and 2009, driven mainly by government policies in Germany, Spain, Italy, Japan, and the U.S. “These policies are designed, in one way or another, to subsidize the cost of solar power so that it is competitive with other on-grid electricity sources.”
  • Global production of solar PV systems rose dramatically in the last decade – from 371 megawatts in 2001 to more than 24 gigawatts in 2010, an increase of 6,376 percent.
  • The price of solar cells and modules started declining rapidly beginning in 2008 from about $3.30 per watt in 2008 to about $1.80 per watt at the beginning of 2011 and $1.00 per watt at the end of 2011. The price is projected to fall to $0.74 per watt by 2014.

During this time period, China’s growth in solar manufacturing was rapid. “In 2001 China produced 1 percent of the world’s solar cells and modules. By 2010 it produced nearly half. Today, four of the top 5 solar cell producers are Chinese; three of the five module producers are. Of the top fifteen solar cell manufacturers in 2010, six were Chinese companies. Two were American. Of the fifteen solar module manufacturers in 2010, eight were Chinese. One was American.”

Estimates of the cost advantage of Chinese cell and module manufacturers compared to their U.S. counterparts range from about 18 percent to 30 percent, but GTM Research analyst, Shyam Mehta, estimates the cost differential to be about 25 to 30 percent in 2012.

As a result of this loss in market share by American companies, in October 2011 an anti-dumping and anti-subsidy trade case was filed by SolarWorld Industries America, the U.S. division of German manufacturer SolarWorld AG, and six other U. S.-based solar manufacturers with the U. S. International Trade Commission and Department of Commerce to seek relief for U. S. producers injured by Chinese imports of crystalline silicon photovoltaic (CSPV) products.

The report says “the stakes are high. For one thing, countervailing (anti-subsidy) duties, if high enough, could dramatically affect the solar industry in the U.S. and around the world, as could anti-dumping tariffs. There are potentially severe unintended consequences of any policy action in this case – or inaction, for that matter.”

On March 20, 2012, U.S. Department of Commerce announced its preliminary determination in the countervailing duty (anti-subsidy) investigation. Chinese companies received preliminary countervailing duties ranging from a high of 4.73 percent for Trina Solar down to 2.90 percent for Suntech Power, with all other Chinese producers at 3.61 percent.

The report states that “Chinese reaction to the preliminary countervailing duties was relatively mild. Two Chinese trade groups asked the China Ministry of Commerce (MOC) to start an investigation against U.S. into dumping and illegal subsidies. However, the Chinese reaction to the May 17th preliminary anti-dumping determination, in which the Department of Commerce found that Chinese manufacturers dumped solar cells on the U. S. market and assessed tariffs of about 31 percent, was very different.

The report states that the reactions to this case could have significant ramifications for the global solar industry and presents several potential reactions by China.

  • China could remove its subsidies and stop dumping – the precedent for this is that when the U.S. Trade Representative (USTR) launched an investigation into export restraints, subsidies, and discrimination against foreign companies for imported goods by China in green technologies in October 2010, the pressure from the petition led China to remove local content requirements for wind technology.
  • Chinese manufacturers could retaliate in a number of ways against the imposed tariff, which is “why only three of the seven companies behind the petition have named themselves publicly (and two of those only after the preliminary countervailing duties were announced).”
  • Chinese manufacturers could ramp up their own production of polysilicon (which they have already begun doing) and turn to Germany and Switzerland to fill the equipment gap – effectively cutting out the U.S. firms that are still competitive in the solar supply chain.
  • Chinese firms could move cell manufacturing to Taiwan, which the authors of the report feel “could be their best solution because it would allow Chinese manufacturers to keep their upstream supply chains intact…Then, they could assemble the modules anywhere in the world ? in Taiwan, in China, in Mexico, or in the end-use country.”

According to Melanie Hart, Policy Analyst for Chinese Energy and Climate Policy at the Center for American Progress, “Retaliation can also spread beyond the actual petitioners to harm the U.S. economy more broadly.” China could block market access for U.S.-based firms in other cleantech industries.

Tom Zarrella, a former chief executive of GT Solar, a New Hampshire supplier of solar manufacturing equipment, said, “It would be a travesty for the solar industry.” The U.S. is still an important supplier of polysilicon, as well as CSPV manufacturing equipment.

In addition, Chinese solar manufacturers could ramp up production in the U.S. similar to how trade cases against Japanese automakers in the 1970s and 1980s pushed Japanese companies into building factories in the U.S. “Chinese solar manufacturer Canadian Solar already said that would be one possible response to countervailing duties and anti-dumping duties in this case too.”

However, this would not be a way for Chinese manufacturers to circumvent tariffs because the trade case applies to Chinese-made cells as well as modules comprised of Chinese-made cells, no matter where those modules are assembled. To avoid the tariffs, Chinese manufacturers would have to locate not just module assembly plants but cell production facilities in the United States as well.

The trade case “will only accelerate the setting up of solar module and solar cell manu-facturing in the United States,” said the president of Grape Solar, a company based in Eugene, Ore., that is a big importer of solar panels from China, Korea and Taiwan, as quoted in the New York Times. Grape Solar has already been in discussions with big Chinese panel makers on ways to move more manufacturing to the United States.”

The report states that around 100,000 Americans are employed in the solar industry in the U.S with about 24,000 manufacturing, including manufacturers of equipment and polysilicon producers. About 50 percent work in installation, construction, and engineering; another 18 percent in sales and distribution. Of the 24,000 people who work in solar manufacturing in the U.S., just about 5,000 manufacture cells or modules that compete with those made in China (and are the subject of the trade case).

Adam Hersh, Economist at the Center for American Progress, argued that if Chinese producers have an unfair advantage, it will undermine the world’s transition to renewable energy as a source of power. “If the producers are being given unfair advantages in China it’s going to undermine innovation in the sector of renewable energy infrastructure and will set back the pace of our transition to using sources of renewable energy. That’s why it’s so important to have a level playing field in this…There are some who argue that we should let in these subsidized, dumped products from China because it makes it cheaper to install and build out renewable energy here in the U.S. But that is a very shortsighted view of the dynamics of the industry. We need to have the innovation competition which will allow us to scale up and produce the most efficient and next generation of solar and other renewable energy sources going forward.”

The main petitioner in the trade case is SolarWorld Industries America, the U. S. division of a German company. SolarWorld operates factories in the United States and Germany and has been the largest U.S. solar panel manufacturer for more than 35 years. SolarWorld is the only vertically integrated company left in the U. S., meaning that it combines all stages of the photovoltaic value chain, from the raw material silicon to turn-key solar power plants. SolarWorld has its U.S. headquarters in Hillsboro, Ore. and a second plant located in Camarillo, Calif.

The other top American company is First Solar that “manufactures thin-film cells and modules (not crystalline silicon photovoltaics) and held the top spot among solar cell and module manufacturers in 2009. It is still the world’s largest producer of thin-film solar modules, accounting for more than 40 percent of world output. First Solar is headquartered in Tempe, Arizona, but the “lion’s share” (68 percent in 2010) of its output is produced in Malaysia.”

The main target of the anti-subsidy and anti-dumping trade case is Chinese company, Suntech Power, which was the world’s biggest producer of solar cells and solar modules in 2010. The company was founded in 2001 by Dr. Shi Zhengrong, who had been a research director of Pacific Solar Pty., Ltd., an Australian PV company. Suntech built its first manufacturing plant in the U.S. in Goodyear, Arizona in 2010, making it the first Chinese cleantech company to set up a manufacturing facility in the U.S. The 50 MW module assembly plant enables Suntech to label solar modules assembled there as “made in U.S.A.” As a result, Suntech now qualifies for federal “Buy American” subsidies.

Andrew Beebe, Chief Commercial Officer at Suntech, wrote an op-ed in the Wall Street Journal stating, “the fact that 95 percent of U.S. solar-related jobs are outside of cell or module manufacturing, is the reason why “many large and small U.S. solar industry leaders – including AES Solar, Dow Corning, Grape Solar, GroSolar, GT Advanced Technologies, MEMC/SunEdison, REC Silicon, Rosendin Electric, SolarCity, Swinerton and Verengo Solar – have banded together in the Coalition for Affordable Solar Energy to oppose tariffs and defend free trade. They not only represent American consumers; they represent thousands of American manufacturing jobs and 95% of all American solar-industry jobs.”

The Coalition for Affordable Solar Energy (CASE) states that punitive tariffs against Chinese cell imports could affect solar PV sellers, distributors, and installers and the 76,000 Americans they employ in a number of ways. The imposition of tariffs could cause costs to increase and cause demand for solar products to decline, which would result in an associated reduction in American jobs in areas like installation, construction, engineering, sales, and distribution.

This report makes clear that “China’s solar cell and module manufacturers are highly competitive for many more reasons than having received subsidies on the order of 3-5 percent. Chinese manufacturers will still have the scale, the vertical integration, the discounted materials and equipment, and the low labor costs that allow them to sell cells for significantly less than their American competitors…And they will still have the significant support of the Chinese government’s industrial policy.”

The report then considers actions the U.S. or U.S. manufacturers could take that would help improve their competitiveness in the global solar industry. According to Shyam Mehta, Senior Analyst at GTM Research, Western and Japanese crystalline silicon manufacturers will never beat China at the CSPV game because China has such lower costs. He said that the future lies in either differentiated technology or a new business model. They must either:

  • Commercialize a revolutionary technology at high scale that lowers the PV cost curve. China has had no success developing non-crystalline silicon PV technology. Elsewhere, there is only one notable semi-success, and that is First Solar thin-film technology; or
  • Find a different business model. For example, First Solar and SunPower build and operate solar farms, and have done so successfully in the U.S. The advantage of building and operating solar power plants is that then the company has a dedicated sales channel that insulates its profit margins against China’s low-cost panels.

Others suggest that the U.S. develop an industrial policy and develop U.S. incentives to level the playing field. At present, the scale of Chinese incentives dwarf U.S. efforts. Access to capital is a critical compliment to the United States’ capacity to innovate.” To that end, the SEMI PV Group recommends:

  • Large, long-term, stable, market-side support policies, including a national Renewable Clean Energy Standard (RES), state Renewable Portfolio Standards, buyer incentive programs, and sales and property tax credits;
  • Maintain the Investment Tax Credit (ITC) through 2016;
  • Extend the Section 1603 Treasury Grant Program that has provided a grant in lieu of the advanced energy investment tax credit (ITC);
  • Increase Department of Energy funding for both R&D and manufacturing infrastructure development of the U.S. solar industry;
  • Establish the R&D tax credit on a long-term basis to assure solar manufacturers greater consistency in tax and investment planning;
  • Revive the Advanced Energy Manufacturing Tax Credit (MTC), and creation of a federal Green Bank to supplement PV and other green energy projects, particularly for manufacturing; and
  • Work with foreign counterparts and the WTO to develop a strong, effective and enforceable rules-based international trading system that promotes free and open trade.

“We need to make sure we are investing in the foundations of innovation here in the United States to give our companies the policy environment they need to remain competitive against a rising China…we have to make sure that we do not cede critical American jobs to the Chinese – in solar manufacturing as in other U.S. industries – just because we were lax on the policy side,” argues Melanie Hart, Policy Analyst for Chinese Energy and Climate Policy at the Center for American Progress.

Speaking at the Conference on the Renaissance of American Manufacturing, Gordon Brinser, President of SolarWorld Industries America, said that the U.S. must respond more quickly when there is evidence that China is violating international or domestic trade laws. Brinser recommended some specific policy improvements:

  1. The administration’s new trade unit should closely monitor import data for early signs of market distortions spurred by foreign governments;
  2. Our trade agencies must look hard at ways to preserve an open, transparent process for trade cases but in fewer steps and less time;
  3. They also must, in conjunction with U.S. Customs, aggressively find ways to anticipate and stop circumvention of trade remedies and theft of intellectual property;
  4. The government should bring legitimate cases for industries that are too small or injured to afford them; and
  5. The government must shed light on foreign companies that raise capital on U.S. exchanges and then withhold audit information from securities regulators.

I believe implementing these recommendations would benefit American manufacturers in all industries. The solar industry has not been the only target of Chinese “dumping.” We must enforce international and domestic trade laws to protect our entire manufacturing industry if we ever want to revive our economy and create more American jobs.

Posted in Cleantech, Energy, Manufacturing, Outsourcing | No Comments »

American Inventiveness is Alive and Well in San Diego

July 10th, 2012

About 150 inventors, “wannabes”, entrepreneurs, and service providers gathered for the annual San Diego Inventors Forum contest on June 21, 2012, held at the corporate headquarters of Jack in the Box.  The venue was a first for the Inventors Forum, which customarily meets the second Thursday of each month at the law offices of Sheppard Mullin.  Ten contestants were selected out of 15 applicants to present their latest inventions for the audience to pick the top three inventions.  The entrance criteria was made stiffer this year so that an invention had to be either already patented or “patent pending” and have either a working model or be ready for sale to the marketplace.

Tana and Myla Zapf won the first place prize of $1,000 for their “Curly Petz,” a small plush toy that can be worn as a slap-on bracelet. The toys are an extension of their “Slapitz” slap-on bracelet, which won second prize at the contest two years ago. Tana, 13, and Myla, 11, are daughters of inventor Eric Zapf and San Diego City Councilwoman Lorie Zapf, who were both in attendance.  For more information on Curly Petz, email Eric Zapf at ericdzapf2@gmail.com.

Eric Zapf was also among the ten competitors for his invention of Apex Iris Disposal System ? a trash container with a self-opening and closing lid with a circular aperture like an eye’s iris.

Second place went to Raad Khaleel for his Self-Irrigating Container, which collects rainwater and then distributes the collected water to plants for use in drought-prone regions, especially in the Middle East and Africa.  Those interested in the Self-Irrigating Container should send email to ertaqaco@hotmail.com.

Third place went to Gene McGuinness for his Magic Blade, an all-in-one stainless steel kitchen knife and grater that chops, slices, dices, grates, shaves, and strains.  For more information on the Magic Blade, email McGuinness at president1956@gmail.com

Other inventions presented were:

RollOnRack, invented by Chris Lindsay and Chris Baker ? a new, universal mount, roof-rack system that uses rollers and an automatically expanding load bed to provide simple, safe and secure transportation of oversized cargo (like plywood) that no existing roof-rack can.  The 4X6 cargo rack expands to 4×10, and the rollers on the tailgate simplify and aid in loading large items into the rack.  The roller on the front allows one person to mount the rack on the vehicle.  It is made from lightweight and strong extruded aluminum, and the Universal mounting system attaches to almost any vehicle with factory luggage rails.  Chris Lindsey may be reached at chris@rollonrack.com

“Capture and Route“ ?  a Patent Pending device that sends POS Receipts to cell phones and web receipt accounts.  The “Capture and Route” comes in two models with either model simply “added to” the existing system with no changes to the existing POS computer or the existing POS printer.  The first model is a stand-alone device that connects between the output of an existing computer and the input to an existing printer. The second model is a printer interface board that is inserted into the existing printer, replacing the previous printer interface board.

The “Capture and Route” is controlled by a Cell phone or Handheld Device and captures the computer output that would normally be printed on paper and prints this data into the handheld device or cell phone. Once the printer data is in the handheld it can be digitally searched, sorted, categorized, totaled or sent automatically to your home, office, accountant, your website or multiple destinations.   For further information contact Bruce L Hall at Info@TicketingSystems.com

Tinnitus Solution ? a diagnostic test for objectively measuring tinnitus (ringing in the ears) in humans and animals, developed by Michael Kinder, President/CEO of Kinder Scientific Company, LLC.

One Little Drop for Tannin Reduction ? an additive that changes the taste of the wine by removing some of the tannins and therefore reduces the astringency of the wine, reduces the bitterness, and improves the body.  Wine Improvement Inc. has been working with additives to accelerate this process.  Our process is well known in the wine industry and is commonly used to improve the balance of the wine.  This material is added from a dropper bottle as one or two drops stirred into a glass of wine. Although this by-the-glass is a new concept, it uses the same materials that wine makers use. The goal is to get a balanced wine so that the acids and tannins do not dominate the taste; this is called a supple wine.  Also, the drop has additives to reduce bitterness.  Other additives are used to build up the body after removing some of the tannins.  Thus, the Tannin Reduction Product is a complex mixture of materials to make wine more balanced or supple.  Scot Clark, a retired entrepreneur in the semiconductor industry and amateur wine maker, and his daughter, Libby Simon, are the co-founders of Wine Improvement Inc.

JackHawk 9000 ? Titanium bottle-opening sunglasses, invented by a group led by SDSU slums Matt Decelles and Zach Luczynski and Patrick Eckstein, an alum of Cal State San Marcos. The dual-use sunglasses came to be through an informal network called “The Commons Designs Group,” defined as consisting of “a few friends who recently graduated from colleges around California”.  CDG has members from Southern and Northern California.  Although the sunglasses didn’t win the contest, they are already a winner, raising more than their original goal of $16,000 on Kickstarter to enter into production.

Are you ready to turn that idea into a product?  Then, let us help you get it started.  Come and get motivated, hear successful local San Diego inventors speak at the San Diego Inventors Forum and learn how they developed their marketable products.  Come network in a room filled with fellow creative people and get guidance and encouragement to take your first or next steps necessary to turn your ideas into a reality.  At our meetings, you meet our Mentor inventors and professionals in many fields.  You can introduce yourself, ask financing, business, licensing, marketing, legal and engineering questions and present your ideas to private individuals or for focus group review. You get to ask for what you are seeking, and we try to match your needs.

We members of the SDIF steering committee invite all innovators, inventors, engineers, artists and start-up entrepreneurs to attend our monthly meetings, held the second Thursday of the month from 6:30pm to 7pm for networking and 7pm to 8:30pm for the meeting.

 

Now that the annual contest is over, the 2012-2013 topics schedule begins again.  July’s topic will be “Innovation and Entrepreneurship” – harnessing your creative mind, and August will continue with “IP 101” – when, why and how to search for patents, trademarks and copyrights.   During the course of the year, topics to be covered include marketing, licensing, branding, networking, and funding.  I will be giving my annual presentation in November on “Manufacturing 101” – how to select the right manufacturing processes and sources to make your product.  For further information, the San Diego Inventors Forum can be reached at http://www.sdinventors.org or by calling forum president Adrian Pelkus at 760-591-9608.

 

The entrepreneurial spirit that made this country great is still going strong amongst us.  You have an opportunity to make a difference and help make American great again by making products in America.  We welcome you to join us at our next meeting!

 

Posted in Economy, Innovation | No Comments »

Does this book hold the key to Restoring American Prosperity?

June 26th, 2012

Every day Americans face choices on what products to buy to meet their every day needs.  A 2010 Harris poll, showed three in five Americans (61%) say they are more likely to purchase something when the ad touts it is “Made in America.”  Recently, an ongoing poll on www.ewednewz shows that 61 percent say they would buy American products if they existed.

Take a look at what you have in your own home and check the country of origin label.  If you have set up your residence in the last 15 years, it is likely that most everything was made somewhere else besides America.  It is highly likely that the majority of the products were “Made in China” because so much of the manufacturing of consumer products has been shifted offshore to Asia, especially China.

As our country slogs along in a recession that has never ended for many, more and more Americans are realizing that making and buying products made in America is essential to strengthening our economy, creating jobs and balancing our trade deficit.

San Diego entrepreneur and businessman, Alan Uke, has written a book, Buying American Back:  A Real-Deal Blueprint for Restoring American Prosperity, that provides a simple solution that “puts control in the hands of American consumers to make powerful buying choices to boost our economy and create jobs,” as well as reduce our trade deficit.

Mr. Uke is the founder and president of Underwater Kinetics, which he started 41 years ago as a sophomore at the University of California San Diego.  He holds more than 40 patents, and the majority of his SCUBA diving and his industrial lighting products are exported to more than 60 countries.

In his introduction, he writes, “Our future as a nation and as individuals is being threatened.  Since our spending habits as consumers have contributed to this situation we can change our spending habits to reverse it… in order for a change to happen, consumers must demand to be more honestly and completely informed about what they are buying and where their money goes.  To this end, we are starting a consumer movement to bring this to the attention of Congress…The goal of this movement and of this book is to encourage people to change their buying habits toward purchasing things that help the U. S. economy and job situation.”

In chapter 1, Mr. Uke states that because consumer spending makes up 70% of the U. S. economy, we consumers have been encouraged to spend in order to spur the economy.  The problem is that when the majority of the consumer goods we buy are imported, our shopping doesn’t support our own economy and create jobs.  Our money goes to support the economies of foreign countries.  Mr. Uke writes, “In order to support our economy and American industries, we must have easily accessible, clearly communicated, and truthful information about a product’s entire origins.”

In chapter 2, Mr. Uke shares his perspective as a business owner stating that “despite the challenges and the heartache, I like making my products in the U. S. because I want to help our country.”  He could move his production to Asia like many of his competitors, but he wants to keep his factory here in America, see more companies return, bringing jobs back with them, and see the American worker regain security and prosperity.  As I have pointed out in my book and previous articles, he writes that “U. S. factories lost 5.2 million jobs from 2000 to 2010” while large, multinational corporations hired 2.4 million workers at their oversees operations.

In chapter 3, “The Importance of Manufacturing in America,” I really like his illustration of the jar of marbles that we as a nation have to use to trade with.  When we buy something within the U. S., the marbles stay in the jar, but when we buy something from another country, the marbles go out of the jar.  If they buy from us in the same amount that we buy, then the number of marbles in the jar stays the same, but if we buy more than they buy, our jar of marbles begins to empty.  Our jar is becoming empty because in 1960, only 8% of the manufactured consumer products Americans purchased were imported, but today 60% are imported.   Our deficit with China alone reached $260 billion in 2010, and the Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs.  Manufacturing jobs now only make up 9% of the American workforce.

Imports to the U. S. now represent 17% of the gross domestic product (GDP) while manufacturing’s share of the U. S. GDP has dropped to 11.5%.  Alan quotes economist Ian Fletcher, who stated, “We could quite literally export our entire manufacturing output and still not balance our trade,” and concludes that “we are importing almost 25% more than we are exporting.”

Mr. Uke emphasizes that he isn’t against trade because “it’s good for business,” “good for foreign relations,” and good for development in all sectors of the economy.”  However, it’s important for us to have balanced trade because “in 2010, each person’s share of the annual trade deficit adds up to about $2,700.”   He comments that “creating free-trade agreements around the world are devastating for our country because they only benefit big businesses that can boost their profit margins by replacing our American workforce.”

In chapter 4 on “How Competing Countries are Succeeding,” Mr. Uke provides insights into how Germany, Japan, and South Korea have managed to keep a strong manufacturing base and successfully export more manufactured goods than they import.  One of the key factors is that consumers in these countries prefer to buy products made in their own country even if they cost more than imports.

Chapter 7, “The Label Game,” discusses the fact that current information provided on country of origin labels is “misleading, incomplete, inaccessible, or all of these.”    In order to have a “Made in USA” label, a product has to be “substantially all” made in the USA, defined as follows by the Federal Trade Commission:

  • “The product was last substantially transformed in the United States and U. S. manufacturing costs are at least 75% of the total manufacturing costs; or
  • The product was last substantially transformed in the United States and all significant parts or components of the product were last substantially transformed in the United States.”

The vagueness and looseness of these definitions have led companies to intentionally mislead the public with brand names that imply that the product was made in one country when it was actually made in another, such as expensive “American Girl” dolls that are actually made in China.  Labels that say “assembled in the United States from domestic and foreign components” are even more confusing and vague.

It’s even worse for consumers who purchase products online or from catalogs ? no information on country of origin is required to be provided.  It is estimated that 11% of all retail sales will be Internet sales by 2015.  A few companies, such as Levi Strauss, Patagonia, and Nike provide the locations of manufacturing plants around the world on their websites, and New Balance goes a step further in providing a comprehensive listing “detailing exactly which of its shoes are made in the United States, which ones are assembled or only partially made in the U. S., and which ones are entirely imported.”  Mr. Uke recommends that consumers be provided the country of origin information they need at the point of sale whether at a store or online.

In chapter 6, Mr. Uke presents his proposal for the U. S. government to require detailed country-of-origin labels for all manufactured products similar to the nutritional information labels now required on packaged food products.  These labels now list all ingredients, the nutritional information about the food, and the possible presence of eight of the most common allergens in the product.    He feels that it is important for consumers to not only “see the last place where the product was manufactured. You should be able to discern what portion of its components came from other places.”

So far the only industry that provides detailed country of origin information is the automobile industry.  The American Automobile Labeling Act of 1992 “requires all cars to  have labels displaying the percentage of American/Canadian parts content, the country of its assembly, as well as the country of origin of the engine and transmission…Any car with less than 70% American/Canadian content is classified as an “import.”

Chapter 7 describes what “The Transparent Label” would be:  one that would include the cost by country of origin by both percentage and trade ratio, as well as the location of the company’s headquarters.  The percentage is the total cost of the product that is produced or transformed in a particular country.  The trade ratio describes the amount of exports vs. imports for a country in relation to the United States.  “A healthy, balanced trade ratio is close to 1.0” ? equal exports to imports.  A number more than one means more U. S. exports to that country than imports from that country, and a number less than one means more imports from that country than U. S. exports to that country.   Part Two of the book provides information on our major trading partners by detailing the state of their manufacturing and what kind of trade balance we have with that country.  For example, we have a balanced trade relationship with New Zealand at 1.02, Switzerland at 1.06, and the United Kingdom at .97 whereas our balance with China is .25.

According to Mr. Uke, accessibility is just as important as accuracy.  A consumer shouldbe able to review this data before making a purchase whether it is in a store, online, or through a catalog.    Since manufacturers succeed by providing products that consumers want to buy, the “ultimate goal is to apply consumer pressure on companies in order for them to see a direct, profitable benefit in relying on American labor and components.”

Accurate labeling of the percentage of the product that is attributable to the U. S. will benefit manufacturers because consumers can select products that have the highest content of American parts and labor even if it doesn’t qualify for a “Made in USA” label under current law.

The last chapter shows how Americans can make every dollar count by choosing what products to buy.  Mr. Uke writes that “it is really, we, the consumers, who are the power that can initiate the change…This power is located in the sum of our buying decisions.  Our climb back to the top begins with where you spend your next dollar.”

If every American would make the decision to buy American products and avoid imports from countries with which we have a deficit trade balance, we could make a real difference in our nation’s economy.  That’s why Mr. Uke has called on Congress to pass a resolution to make July 1 to 7 “Buy American Week.”  Whether or not this resolution passes, I urge every American to make a personal resolution to “buy American” that week and continue doing so thereafter.

Posted in Economy, Manufacturing, Outsourcing | 1 Comment »

What’s Really Wrong with Corporate America?

June 19th, 2012

A common refrain is that the purpose of a business is to maximize profits.  It’s obvious that a company has to make a profit to stay in business, grow, and prosper, but I don’t think this should be the main purpose of a company.  Most entrepreneurs have some kind of “vision” or bigger reason for starting a company ? whether it’s to produce a new product that will benefit others or to provide a service they feel they can provide better than others.

What’s wrong with companies today, especially publicly trade corporations, is that they have lost their “soul” ? their vision or bigger reason for being a company.  They have become too focused on the “bottom line” of maximizing profits and forgotten the real reason the company was founded.  Our history as a country is filled with men and women of vision who changed the world by the products or services they invented or provided ? Thomas Edison, Henry Ford, George Westinghouse, and Aaron Montgomery Ward.

Today, you need to be able to provide or add value to have a place in the global supply chain of goods and services.  If you don’t provide or add value, you won’t be able to stay in business in the long run.  Providing or adding the maximum value possible is the goal behind all of the steps and tools used to become a “Lean Six Sigma” company whether you are a manufacturer of a service provider.   You focus on the customer by removing wasted and non-value added steps to become “lean” and reduce variation and improve quality to achieve the “Six Sigma” level.

However, this renewed focus on the customer by becoming a “Lean Six Sigma” enterprise won’t restore the soul of a company.  To do this, you need to create or revive the concept of “for the sake of others;” that is, serving others by what you do or make.  This is the main concept presented in Dr. Tony Baron’s book, The Art of Servant Leadership.  This book shows you how to design or redesign your organization for the sake of others and is “a guidebook on how a private or public company can achieve its true purpose in the world.”  The book has a lofty purpose:  “To equip, inspire, and encourage those we influence in order to make a profound positive difference in the world.

In a 1970 Times magazine article, the economist Milton Friedman argued that businesses’ sole purpose is to generate profit for shareholders, as long as it is doing so legally and ethically. In contrast, Dr. Baron believes that the “sole goal of a business is to exist for the sake of others.”

The book provides “a case study of the principles and practices Art Barter used as a servant leader to reform Datron and transform lives inside and outside the company.”  Datron World Communications, Inc. (DWC) is a privately owned company located in Vista, California. For over 40 years, Datron has provided tactical military and public safety radio equipment to a diverse worldwide customer base doing business in over 80 countries through an international sales representative network and regional support centers.

Part 1, “The Need for a New Kind of Leader,” discusses leadership and the common misguided use of “applied power” vs. “true power” in the first chapter.  Chapter 2 examines a leader’s epiphany or defining moments that transforms him/her into a “servant leader.”  In Art Barter’s life, his father’s example, his work at Disney Company as a young man, and the teachings of Ken Blanchard and John Maxwell led to his being ready to become a “servant leader.” with the guidance of Dr. Baron.

In chapter 3, we learn that a leader often is best revealed by adversity and what was the adversity that contributed to the transformation of Art Barter and Datron.  Mr. Barter had started at Datron in 1997 as Chief Financial Officer, assumed the position of General Manager after Titan Corporation bought Datron in 2001, and purchased Datron in 2004 during the depths of  adversity.

Chapter 4 considers the fact that most corruption and disruption in corporations results from leaders’ failure to lead themselves and what are the seven essential elements of leading yourself before leading others.

At the end of each chapter, there are Table Talk” questions you can ask yourself and others to use the book as a guide to help you transform yourself or your company.  For example, after chapter 1, some of the questions are:  “What is your organization’s story?  Who are your leadership role models?   How did they shape your beliefs about leadership?”

Part 2 provides “The Formula for Success:  Living for the Sake of Others,” beginning with how to create a servant leadership culture in a company or organization in chapter 5.  Dr. Baron’s definition of corporate culture “is a way of life cultivated over time through shared experiences, values, and behaviors.”  He states that every corporation must share the following at a minimum in order to sustain a healthy environment:  shared beliefs, shared experience, and shared expressions; that is, “a verbal commitment to do what they know they can do.”

In chapter 6, “Cultivating a Servant Leadership Culture,” Dr. Baron writes that the four components necessary for transformation within an organization are:

  • Cultural Architect – a person with the highest level of positional, power within the corporate circle of influence
  • Commitment level – a personal commitment of belief, behavior, values and vocational activities that align with servant leadership by the cultural architect
  • Climate control – creating an atmosphere of balance with the right people, opportunities and resources
  • Culture formation – based on new experiences repeated and reinforced through modeling, teaching, affirming, and rewarding to transform people and the business

Dr. Baron writes, “Because most corporations have taught that profitability is the sole purpose of the organization, the workforce has lost its faith in business and in people.  They have lost the confidence that leaders have their best interests in mind when considering corporate decisions that affect the bottom line.  They have lost trust.  I don’t blame them. Over the last twenty years in various boardrooms around the country, I have seen executives choose to receive their year-end bonuses over keeping employees on the payroll.”

Teaching servant leadership progresses through four stages:

  1. Instruct-  solid instruction on the principles of servant leadership
  2. Invest – use some of the principles with varying degrees of success
  3. Influence – high discussion and consensus building
  4. Incarnate – the servant leader is building other servant leaders

Chapter 7 considers “Vision, Values and Virtues.”  Dr. Baron writes, “In corporate language, vision describes the vivid mental image created by a leader so that people will have the experience of truly seeing into the future.”  The vision statement of Datron states the company’s purpose “a self-sustaining, profitable communications company which positively impacts the lives of others today and in the future.”   Dr. Baron laments that so many Fortune 500 companies don’t consider that “their primary mission is to exist for the sake of others” outside of their shareholder family.  He believes that “the stakeholders for every company are our local, national, and global community.”

The book concludes with the chapter on “Extending the Servant Leadership Culture to the Community” describing how Art Barter, his wife, and the employees at Datron have worked “for the sake of others.   Shortly after acquiring Datron, Art Barter and his wife set up a charitable fund with a donation of $600,000.  Datron employees can submit a request for donations to a charity of their choice.  From 2004 – 2010, over $2.5 million dollars was contributed to causes as diverse as the Boys and Girls Club, an orphanage in Kenya, the Special Olympics, Breast Cancer Research, AIDS research, and women’s shelters.  Datron also founded the Servant Leadership Institute, headed, by Dr. Tony Baron, whose mission is “to create servant leaders who will transform organizations.

Datron has been able to make these contributions because of its financial success, increasing revenue from $10 million in 2004 to $200 million in 2010, while being organically funded internally and debt free.  New products introduced include the Scout Air Reconnaissance System unmanned vehicle designed to capture and transmit high quality video and images in the field and the PRC7700H variant of its high frequency software-defined radio.

Datron has been my customer for over 25 years, and a long-time employee, Mark Satttel, said, “although the transformation was difficult at times, servant leadership is gaining at Datron.”  A new employee recently told me that working at Datron is different than working at any other company ? “it works as if the pyramid is upside down, with the president at the bottom.  Everyone keeps asking me “what can I do to help you.’”

Every American has the choice of using your talent and experience for the sake of others by becoming a servant leader. Doing this would make American great again and make the world a better place.  What’s your choice?

Posted in Economy, Education, Manufacturing | 2 Comments »

Senate Report Reveals Extent of Chinese Counterfeit Parts in Defense Industry

May 29th, 2012

On May 21, 2012, the Senate Armed Services Committee released a report on counterfeit parts in the Department of Defense supply chain.  The Committee discovered counterfeit electronic parts from China in the Air Force’s C-130J and C-27J cargo plane, in assemblies used in the Navy’s SH-60B helicopter, and in the Navy’s P-8A surveillance plane, among 1,800 cases of bogus parts.

“The systems we rely on for national security and the protection of our military men and women depend on the performance and reliability of small, incredibly sophisticated electronic components.  Our fighter pilots rely on night vision systems enabled by transistors the size of paper clips to identify targets.  Our soldiers and Marines depend on radios ad GPS devices, and the microelectronics that make them work, to stay in contact with their units and get advance warning of threats that may be around the next corner. The failure of a single electronic part can leave a soldier, sailor, airman, or Marine vulnerable at the worst possible time,” the report says. “Unfortunately, a flood of counterfeit electronic parts has made it a lot harder to prevent that from happening.”

The year-long investigation launched by Sen. Carl Levin, D-Mich., the committee’s chairman,and Ranking Member Sen. John McCain, R-Ariz., found over a million suspect counterfeit parts involved in those 1,800 cases.

“Our report outlines how this flood of counterfeit parts, overwhelmingly from China, threatens national security, the safety of our troops and American jobs,” Levin said. “It underscores China’s failure to police the blatant market in counterfeit parts – a failure China should rectify.”  The Chinese government denied visas to Committee staff to travel to mainland China as part of the Committee’s investigation.

The investigation revealed that China was the dominant source of counterfeit electronic parts ? more than 70 percent of the parts tracked were traced to China, coming from more than 650 companies.  Counterfeit parts included unauthorized copies of an authentic product and previously used parts that were made to look new and sold as new.  The parts often change hands multiple times before being bought by defense contractors, who may know little about the source of the parts they buy, the report said.

“Our committee’s report makes it abundantly clear that vulnerabilities throughout the defense supply chain allow counterfeit electronic parts to infiltrate critical U.S. military systems, risking our security and the lives of the men and women who protect it,” said McCain. “As directed by last year’s Defense Authorization bill, the Department of Defense and its contractors must attack this problem more aggressively, particularly since counterfeiters are becoming better at shielding their dangerous fakes from detection.”

In November 2012, the Committee held a hearing on the investigation’s preliminary findings.  Following that hearing, Committee Chairman Carl Levin and Ranking Member John McCain offered an amendment to the National Defense Authorization Act for Fiscal Year 2012 to address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by DOD and the defense industry. The amendment was adopted in the Senate and a revised version was included in the final bill signed by President Obama on December  31, 2011.

The law requires the Secretary of Defense to conduct an assessment of Department of Defense acquisition policies and systems for the detection and avoidance of counterfeit electronic parts not later than 180 days after the date of the enactment of the Act to:

  • establish Department-wide definitions of the terms “counterfeit” or “suspect counterfeit electronic part”
  • issue guidance regarding “training personnel, making sourcing decisions, ensuring traceability of parts, inspecting and testing parts, reporting and quarantining counterfeit electronic parts and suspect counterfeit electronic parts, and taking corrective actions (including actions to recover costs…”
  • issue or revise guidance “on remedial actions to be taken in the case of a supplier who has repeatedly failed to detect and avoid counterfeit electronic parts or otherwise failed to exercise due diligence in the detection and avoidance of such parts, including consideration of whether to suspend or debar a supplier until such time as the supplier has effectively addressed the issues that led to such failures.”
  • require contractors or subcontractors that suspect a counterfeit part provide “a report in writing within 60 days to appropriate Government authorities and to the Government-Industry Data Exchange Program
  • “establish a process for analyzing, assessing, and acting on reports of counterfeit electronic parts and suspect counterfeit electronic parts” that are reported.
  • Require the Secretary to revise the Department of Defense Supplement to the Federal Acquisition Regulation to address the detection and avoidance of counterfeit electronic parts not later than 270 days after the date of the enactment of this Act.

The law includes provisions to help stop counterfeit electronic parts before they enter the U.S, strengthens the inspection regimen for imported parts, and gives the government wider berth in seeking assistance from the private sector in determining whether parts are authentic.  It also requires that contractors or subcontractors “obtain electronic parts that are in production or currently available in stock from the original manufacturers of the parts or their authorized dealers, or from trusted suppliers who obtain such parts exclusively from the original manufacturers of the parts or their authorized dealers manufacturers or authorized distributors.”

The investigation revealed that the defense industry also has routinely failed to report cases of suspected bogus parts.  For example, the majority of the 1,800 cases involving counterfeit parts appear to have gone unreported to the DOD or criminal authorities.  Boeing failed to report a case of a suspect counterfeit part used in the Navy’s P-8A surveillance airplane until the Senate Armed Services Committee began inquiring, the report said.  And L-3 Communications didn’t report the suspect memory chip to the Air Force until the day before the committee’s staff was scheduled to meet with the Air Force program office responsible for the program.

The Committee’s report includes detailed descriptions of how counterfeits are flooding the supply chain, risking the performance and reliability of critical defense systems. In just one example described in the report, the U.S. Air Force says that a single electronic parts supplier, Hong Dark Electronic Trade of Shenzhen, China, supplied approximately 84,000 suspect counterfeit electronic parts into the DOD supply chain. Parts from Hong Dark made it into Traffic Alert and Collision Avoidance Systems (TCAS) intended for the C-5AMP, C-12, and the Global Hawk.  In addition, parts from Hong Dark made it into assemblies intended for the P-3, the Special Operations Force A/MH-6M, and other military equipment, like the Excalibur (an extended range artillery projectile), the Navy Integrated Submarine Imaging System, and the Army Stryker Mobile Gun.

The Armed Services Committee reached the follow conclusions on counterfeit parts:

Conclusion 1: China is the dominant source country for counterfeit electronic parts that are infiltrating the defense supply chain.

Conclusion 2: The Chinese government has failed to take steps to stop counterfeiting operations that are carried out openly in that country.

Conclusion 3: The Department of Defense lacks knowledge of the scope and impact of counterfeit parts on critical defense systems.

Conclusion 4: The use of counterfeit electronic parts in defense systems can compromise performance and reliability, risk national security, and endanger the safety of military personnel.

Conclusion 5: Permitting contractors to recover costs incurred as a result of their own failure to detect counterfeit electronic parts does not encourage the adoption of aggressive counterfeit avoidance and detection programs.

Conclusion 6: The defense industry’s reliance on unvetted independent distributors to supply electronic parts for critical military applications results in unacceptable risks to national security and the safety of U.S. military personnel.

Conclusion 7: Weaknesses in the testing regime for electronic parts create vulnerabilities that are exploited by counterfeiters.

Conclusion 8: The defense industry routinely failed to report cases of suspect counterfeit parts, putting the integrity of the defense supply chain at risk.

Of course, China denies any culpability.  On May 25, 2012 an article appeared in China Defense News that stated, “The U.S. government has found yet another reason to ignore its own problems and bash China, this time accusing the country of compromising national security via the manufacture of counterfeit electronic components used by the U.S. military…The accuracy of the claims is questionable at best, but bigger questions should be answered first: how did counterfeit parts end up slipping into the U.S. military system in the first place? And for what purpose were the parts originally shipped for?

The U.S. has maintained a military embargo on China for 23 years. Military components and weapons aren’t supposed to be officially traded between the two countries to begin with. Taking this into consideration, the U.S. ought to find out precisely who purchased the parts and how they passed muster before accusing China of wrongdoing.”

I answered the question of how counterfeit parts ended up “slipping into the U. S. military system in the first place” in my blog article last fall, titled “What Led to the Problem of Chinese Counterfeit Parts.”  I detailed the following four main reasons for the problem of Chinese counterfeit parts:

  1. Mil. Spec. qualified components replaced by off the shelf components by allowing use of “dual use technology” of commercial components
  2. Relaxing “Buy American” requirements for Federal procurement
  3. American companies sourcing manufacturing offshore, mainly in China
  4. Rapid obsolescence of components, especially micro chips

The provisions of the National Defense Authorization for FY 2012 don’t directly address these four main reasons for the counterfeit part problem.  This is another typical example of Congressional legislation where they attempt to have their cake and eat it too by seeming to crack down on counterfeit parts while not endangering U. S. corporate investments in China.  In order not to anger their big political donors, who include some of the corporations that export our jobs to China, they place the burden of identifying and reporting counterfeit parts on contractors and subcontractors instead of addressing the root causes I have listed above.

The new Federal procurement regulations being drafted by the Department of Defense are supposed to “address the detection and avoidance of counterfeit electronic parts,” but there has been no mention of eliminating “dual use technology” of commercial parts for military/defense applications.  And, there has been no discussion of tightening or strengthening the “Buy American” requirements for Federal procurement to what they were prior to 1993.

Worst of all, there has been no action by Congress on addressing the trade and tax laws that currently incentivize American manufacturers to continue to offshore manufacturing in China and other foreign countries.  Congress must act to eliminate the incentives for offshoring and provide incentives for bringing manufacturing back to America.  Until these root causes are addressed, we will continue to have counterfeit parts slip into the military/defense procurement system and endanger the lives of our military personnel and threaten our national security.

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Posted in Economy, Manufacturing, National security, Outsourcing, Trade Policy | No Comments »

Changing to WTO’s “Made in the World” Labeling Would Harm Americans

May 22nd, 2012

How would you like to go shopping and find that everywhere you went, the label said “Made in the World” instead of “Made in China,” “Made in India,” “Made in USA” etc.?  The label on products Americans purchase that names the country in which they are made may soon be gone.    How could this be possible?

The World Trade Organization has been working on the “Made in the World” initiative for years, and in 2008, the WTO and Organization for Economic Co-operation & Development (OECD) began cooperating with other stakeholders to provide data that would shed lights on what is called “trade in tasks” i.e., the domestic value added content of trade.   While traditional statistics are necessary, they don’t identify the contribution of each trade partner to the total value of the final good in the supply chain. By contributing to specific segments of a global value chains, trade partners are actually “trading tasks” rather than trading final products.

In 2011, Andreas Maurer, chief of the WTO’s International Trade Statistics Section, “… in the past two or three years there has been huge momentum to get the necessary information” that would be used to rationalize elimination of country of origin labeling.”

The World Trade Organization and the European Union moved one step closer to eliminating “country of origin” labeling. On April 16, 2012, the European Commission and WTO held a conference to mark the launch of the World Input-Output Database (WIOD).  This new database allows trade analysts to have a better view of the global value chains created by world trade.

Globalization is changing business models and increasing fragmentation of production.  Companies divide their operations around the world, from product design, manufacturing, to assembly and marketing, creating global production chains.  More and more products are ‘made in the world’ rather than in any particular country.

Today’s traded products are not produced in a single location but are the end-result of a series of steps carried out in many countries around the world.  For example, cars and trucks produced by General Motors or Ford may have parts and assemblies coming from several other countries, including China.

Instead of counting the gross value of goods and services exchanged, the new database reveals the value-added that make up these goods and services as they are traded internationally.  The findings The Europe-based organizations instead want to adopt a “Made in the World” logo for all products on the grounds that global supply chains have rendered country of origin labeling inaccurate and obsolete. are significant as they may change the perception of the competitiveness of certain industrial sectors in some countries.

The WTO and OECD have been working with the U.S. International Trade Commission and the World Bank in the United States, the Institute of Developing Economies (IDE) and the Japan External Trade Organization in Asia, and the recently created World Input-Output Database (WIOD) consortium in Europe to implement the new trade statistics. The WTO has signed a contract with the OECD to start issuing official statistics on international trade based on value added.

The WTO’s Made in the World initiative is part of the process of “re-engineering global governance,” said WTO Deputy Director General Alejandro Jara at the event launching the opening of the World Input-Output Database.  With the rise of global supply chains “it is misleading to rely solely on gross trade flows as a measure” of a country’s competitive position.  As companies have created global supply chains, “attributing the full commercial value of imports to the last country of origin can skew bilateral trade balances, pervert the political debate on trade imbalances and may lead to wrong and counter-productive decisions,” says the WTO.

The intent of the WTO’s “Made in the World” initiative is to modernize global trade statistics, reduce public pressure on politicians for protectionist trade policies, and reduce public opposition to free trade.

Director-General Pascal Lamy has said that “improved measurement and knowledge of actual trade flows will help better understand the interdependencies of today’s national economies, supporting the design of better policies and better trade regulation worldwide.”

In an article on the Economy in Crisis website, “WTO Pushes ‘Made in the World’” on May 16, 2012, Karl Rusnak commented, “This may be a good PR move for the WTO and its agenda, but it doesn’t change the facts: trade still picks winners and losers, and the United States consistently finds itself in the “losers” column…This new initiative takes the same ill effects that have been occurring from free trade and attempts to reframe them in a more positive light…Trade deficits lead to bad results, but ultimately it is the bad results we need to look at, not the nominal number that represents the trade deficit.  If the numbers had shown that the United States was running a trade deficit but maintaining strong job growth, the WTO’s new calculation method might be something worth looking at.  Instead, we have lost millions of jobs as a result of free trade. Whether you calculate our trade deficit as $100 billion or $600 billion, those job losses can still be directly attributed to our failed free trade agreements.”

This Initiative could have dire consequences for America’s manufacturers and consumers. For manufacturers, it could eliminate one of the options allowed by the WTO ?  filing a charge for product  “dumping” against another country to have countervailing duties applied against that country.  For consumers, “Made in the World” labels wouldn’t allow you to protect your family from the tainted, harmful, and even life threatening products coming from China.  You wouldn’t be able to support saving and creating jobs for other Americans by buying “Made in USA.”

Alan Uke, founder of Underwater Kinetics, a company that manufactures high intensity lighting and other products, believes that “country of origin” labels could change consumer behavior and revive U.S. manufacturing.  He wants the government to require a detailed country-of-origin label on every product sold in America. The label would include sourcing information on all of the product’s parts and components along with the trade balance the U.S. maintains with each of those countries. Uke outlines his proposal in his book, Buying America Back, a Real-Deal Blueprint for Restoring American Prosperity.

The labels would be similar to those that have been successfully implemented in the U.S. food industry, describing such things as fat content, calories and nutritional values. Those labels have changed consumer behavior, forced producers to change ingredients, and motivated retailers to stock items that are demanded by customers.

“I am trying to start a movement of American consumers,” says Uke. “We need a home-team preference.” Uke is convinced that only the American consumer, whose spending represents 70 percent of the economy, will change the international trade dynamic in favor of U.S. manufacturing.  Knowledgeable consumers demanding products made in the United States or in countries that have employ ethical business practices could motivate companies to change their sourcing practices.

During my interview, Uke said, “The “Made in the World” label is the antithesis of my proposal. This initiative was probably promoted by those who profit from environmental abuse and child labor.  It makes countries that rape our environment and support child labor unaccountable to the world.  Knowing the sources for products is the only way that people can make countries accountable for their actions. Consumers can’t determine their own destiny if they have no idea of the sources.  If we want a better world, consumers need to be able to send their money to countries whose policies they support.  This isn’t free trade, it is slave trade.”

Peter Navarro and Greg Autry, the authors of Death by China – Confronting the Dragon, A Global Call to Action, also recommend that “country of origin” information be provided for all products sold on the Internet by online retailers that “Congress should require all food and drug producers to clearly label the countries of origin for all major ingredients that go into a product – and do so in a standardized and legible manner” in order to protect American consumers from tainted and poisonous products coming from China.

Greg Autry told me, “The “Made in the World” label is an obvious attempt to disguise the political differences between countries and normalize despotic regimes like China. This initiative can only result in the reduction of critical information to consumers.  I agree that we don’t have full information provided on the sources for products today, but this is the exact opposite direction to go.”

The authors believe that if 10% or more of Chinese products were boycotted by Americans, it could be enough to destabilize the Chinese economy and topple the Communist regime.  Converting to “Made in the World” labels would eliminate this possibility.

 

I urge everyone to contact your current representative to urge them to oppose this initiative and ask all candidates for federal office if they support our current “country of origin” labeling laws and oppose “Made in the World” labeling.

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

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