Industrial Policy Must Protect American Manufacturers

December 15th, 2021

On November 29, 2021, the Peterson Institute for International Economics released a 110-page brief, titled “Scoring 50 Years of  US Industrial Policy,  1970–2020,” which reviews “lessons learned from half a century of US industrial policy” with regard to what worked and what didn’t.   

The introduction references Alexander Hamilton’s plan of 1791 to grow domestic manufacturing to “compete with Britain as a producer of manufactured goods for American consumers.”  After the War of 1812, Hamilton’s plan became known as the “American System” of Henry Clay, which “consisted of high tariff walls, a central bank and, above all, government investment in ‘public improvements’ like rails, canals, and roads to help industry get goods to customers—the very essence of an industrial policy that some analysts say was crucial to US economic development after the Civil War.”

These “America first” policies remained in effect until after WWII, when we began to enter into trade agreements with many other countries that reduced tariffs and granted non-tariff trade benefits to our trading partners. The briefing states “the debate over the role of the federal government, and especially over tariffs and government spending, has gone back and forth. But by 2020, the US ideological pendulum appears to have swung back in favor of industrial policy for domestic manufacturing.”

Chapter One defines “industrial policy as government intervention against market forces to promote a favored firm or industry,” and the” Tools of industrial policy include easy credit, direct and indirect subsidies, preferential taxes, and tariff and nontariff barriers.” Additionally, “the common objective of US industrial policy is to promote ‘good jobs at good wages’ in the United States.”

The authors believe that “an examination of yesteryear cases may, at a minimum, inject a note of caution, and perhaps yield lessons to improve the design of future episodes.”

In describing their methodology, they said, “we assess individual cases from the perspective of proponents who typically count jobs created or saved, ignoring general equilibrium analysis or the value of human capital gained or lost.” They “selected high-profile federal cases plus a very few (out of hundreds) state cases. We divide the episodes into three broad categories reflecting the principal intervention tools…”

  • “cases where trade measures closed the US market or opened foreign markets (chapter 2);
  • cases where federal or state subsidies were targeted to specific firms to promote their success (chapter 3); and
  • cases where public R&D funds were spent to advance a promising technology (chapter 4).”

For their analysis, they said, “we examine three features of each episode of industrial policy and for each feature assign a letter grade: A, B, C, or D. Numerical equivalents of these grades, used for the summaries in chapter 5, are A+ = 4.5; A = 4; B = 3; C = 2; D = 1. Our assessments were based on answers to the following questions, which reflect contemporary objectives”:

  • “Did the industry become competitive in international (or in some cases national) markets? – “an analogous test is whether the industry became competitive in the national market without further public support.
  • Were jobs saved in the industry at a reasonable cost to taxpayers or purchasers? – “We do not distinguish between the creation of new jobs or the saving of existing jobs in calculating ‘reasonable cost,’”
  • Was the technological frontier advanced through government assistance? – “our assessments are qualitative judgments, not quantitative measures,,,We do not attempt to put a dollar value on technology generated by government programs.”

However, they do note that “our job counts refer only to jobs saved or created in the targeted firm or industry, not jobs lost or gained elsewhere in the economy, and we do not distinguish between skill levels.”

The authors comment that “In the United States, government-driven industrial policy claims a relatively small share of federal and state budgets…All told, the total annual cost of federal industrial policies might reach $100 billion, accounting for 2.4 percent of the annual federal budget. With Biden’s initiatives, this prospective total easily exceeds annual federal industrial policy expenditures during the period covered by this report, 1970 to 2020.”

Chapter 2 considers “Industrial Policy Through Trade Measures” stating that “The use of trade measures—usually protection against imports, but occasionally assistance for exports—is a classic form of industrial policy.” This chapter examines “five high-profile episodes to illustrate the use of trade measures to carry out industrial policy. The episodes concern steel, textiles and apparel, automobiles, semiconductors, and solar panels.”  They graded each of these industries according to the above criteria.

I do not have space to provide the data and analyses behind the grades for each of the five selected industries, but am summarizing the grades for each industry:

U.S. Steel industry – rated a “D” for all three of the above criteria.

Textiles and Apparel – rated a “D” for the first two criteria and a “C” for the third.

Automobiles – the ratings were mixed:

  • Did trade measures advance the international competitiveness of the US semiconductor industry?
  • Rated a “B”
  • Did trade measures save jobs at a reasonable cost?
  • Rated a “C”
  • Did trade measures advance the technological frontier of semiconductor production?
  • Rated an “A”

Semiconductors – split ratings for each of the criteria as follows:

  • Did trade measures advance the international competitiveness of the US semiconductor industry?
    • Failed outcome for the antidumping phase = D;
    • intermediate outcome for the market opening phase = B
  • Did trade measures save jobs at a reasonable cost?
    • Failed outcome for the antidumping phase = D;
    • successful outcome for the market opening phase = A
  • Did trade measures advance the technological frontier of semiconductor production? Intermediate outcome for the antidumping phase = C;
    • successful outcome for the market opening phase = A

Solar Panels – fared better in the ratings:

  • Did tax credits advance the international competitiveness of the solar panel manufacturing industry?
    •  Failed outcome = D
  • Did tax credits create jobs at a reasonable cost?
    •  Successful outcome = A
  • Did tax credits (together with the earlier NSF research program) advance the technological frontier of solar panel production?
    • Successful outcome = A

As a result, the conclusion was “Analysis of impacts in four US industries—steel, textiles and apparel, semiconductors, and solar panels—shows that trade protection has not been a winning formula for industrial policy, judged by the twin tests of establishing an internationally competitive industry and saving jobs at a reasonable cost to household and business consumers. The main reason, of course, is that sunset industries have been more successful in obtaining trade protection; sunrise industries rarely appeal for new tariffs or quotas. To be sure, trade protection may mitigate the pain of job displacement, but when trade protection endures for a decade or longer, new workers will replace those who retire or quit, thereby prolonging the adjustment process.”

There conclusions may be right for the data they analyzed to answer the questions posed, but I disagree with the questions establishing the criteria for the ratings. In my opinion, the following are the questions that should be asked in establishing industrial policies:

  • Are these products part of the military and defense supply chain?
  • Are these products important to maintaining the health and welfare of Americans?
  • Are these products competing with imports from China or another country within China’s sphere of influence?
  • Would it endanger the ability of American manufacturers to produce their products if imports of components and assemblies from China were cut off?
  • Would it harm America’s ability to be self-sufficient in producing critical products domestically?

If the answer to any of these questions is “yes,” then whatever policies are needed to protect these domestic industries must be implemented.  We cannot defend our country if the products needed by the military and defense industry become unavailable. I don’t just mean the steel needed to produce products for the military. Semiconductors are needed for both military and commercial systems and equipment, as well as textiles and apparel. The COVID pandemic proved that we cannot rely on imports of pharmaceuticals and PPE equipment and supplies to protect the health and welfare of Americans, both military and civilian. The automobile industry doesn’t just make cars for civilian use; they make trucks, tanks, and other military vehicles.  Solar panels are used by military bases and government agencies.  We need an integrated domestic supply chain if we want to remain a free country.  It’s time for all Americans to wake up America to the dangers of being dependent on other countries for manufacturers goods, especially one that has become our enemy – China.

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China is a Threat to our National Security

November 30th, 2021

On November 17, 2021, the U.S.-China Economic and Security Review Commission held a virtual public release of its 2021 Annual Report to Congress in Washington, DC.  This report provides “a review of economics, trade, security, political, and foreign affairs developments in 2021” with a focus on the “CCP’s economic and technological ambitions, the Chinese government’s evolving control of the corporate sector, U.S.-China financial connectivity and risks to U.S. national security, China’s nuclear forces, Chinese military capabilities and decision-making for a war over Taiwan…”

After China was granted Most Favored Nation status by President Bill Clinton and allowed to become a member of the World Trade Organization, “the U.S.-China Economic and Security Review Commission (USCC) was created on October 30, 2000 by Public Law 106-398 (the Floyd D. Spence National Defense Authorization Act for 2001) as amended. The purpose of the USCC is to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.”

Every year since 2001, the Commission has issued an annual report of its evaluation and findings as required by the law. The introduction of this year’s report notes that 2021 marked the 100-year anniversary of the founding of the Chinese Communist party, during which the CCP has “not only celebrated its successes in overseeing China’s transformation into a formidable power on the world stage but also presented its political and economic model to the world as superior to democracy and capitalism.”

The report states, “China’s strengths and the threats it presents to U.S. interests are considerable…The CCP was and is aggressively advancing its economic interests to control global resources and markets and influence decision-makers… At stake in this clash of identities and sovereignty is the safety and security of the United States and its partners, friends, and allies. The CCP is a long-term, consequential, menacing adversary determined to end the economic and political freedoms that have served as the foundation for security and prosperity for billions of people.”

The Commission found that “Despite continued tense rhetoric between Washington and Beijing during 2021, bilateral trade is returning to pre-tariff levels and U.S.  capital flows to China are on the rise.  As commercial and financial flows weave the economies closer together, the Biden Administration is consolidating a complex mix of the Trump Administration’s policy initiatives with its own to defend against China’s unfair economic policies and threats to U.S.  national security…Many U.S.  multinational corporations meanwhile, continue to view China as a priority market despite rising concerns about China’s protectionist business environment.”

China’s leaders know they are in direct competition with the U.S. for global economic leadership, and “China’s economic policy blueprint issued in March 2021, emphasizes innovation and development not only for economic growth but more importantly for technological self-sufficiency, national security, and international influence.”

Since the Executive Summary of the key findings and recommendations of the report are too lengthy to consider in depth, but I will summarize a just few of the most important as follows:

The Commission found that China faces “growing debt, income inequality, demographic decline, and technological dependence on the United States” and “the international environment as becoming increasingly hostile to the Party’s aims.”

China’s influence in Latin America and the Caribbean is expanding through trade for commodities and raw materials that China needs, as well as investment and financing through its Road and Belt Initiative.  China has cultivated political relationships at all levels of government (local, state/province, and national.)  The Commission warns that “China’s expanding control over entire supply chains in the region may also harm U.S. competitiveness and threaten U.S. access to critical inputs for emerging technologies.”

China’s government is “formalizing a legal and regulatory framework to counter foreign trade restrictions and sanctions, aimed especially at U.S. export controls on Chinese companies and financial sanctions on Chinese individuals.”

The CCP believes state control rather than economic liberalization is essential to achieving economic growth while maintaining political stability and is expanding government control of nonstate-owned companies by developing “numerous avenues through which to monitor corporate affairs and direct nonstate firms and resources toward advancing CCP priorities.”

  • China is focused on augmenting emerging technologies, such as synthetic biology and new mobility.  Synthetic biology includes chemicals, medicines, fuel, food, materials, agriculture, and human engineering. New Mobility “captures everything from ride-hailing services to autonomous vehicles [and] is a strategic imperative for the CCP as it seeks both to lower China’s carbon emissions and to improve domestic transportation.”  
  • China expansion of access to its financial markets for foreign investors “poses distinct economic risks to U.S. investors and national security risks to the United States” as China “further fuses military and civilian corporate operations” and tightens “control over China’s corporate sector.”
  • The “CCP expanded efforts to control all aspects of Chinese society and culture it viewed as threatening” and “continued its repression of ethnic minorities in the frontier regions of Xinjiang, Tibet, and Inner Mongolia.”
  • China “stepped up its use of military coercion in the East and South China Seas, the Taiwan Strait, and along the Indian border” through “forced sterilizations, coerced abortions, and other human rights abuses against Uyghurs and other ethnic and religious minorities…”
  • China “grew more confrontational toward democratic countries” [and] “expanded its partnerships with Russia and Iran and attempted to cast itself as a leader of developing countries across Africa, the Middle East, and Central Asia.”
  • “China is engaged in an unprecedented buildup of its nuclear forces…constructing hundreds of new silos for its intercontinental ballistic missiles…growing its stockpile of warheads, developing a nuclear triad, and improving the accuracy of its delivery systems…The scale of China’s nuclear buildup, however, suggests it could also be intended to support a new strategy of limited nuclear first use.”
  • ”China’s increasingly coercive approach to Taiwan puts almost daily pressure on the cross-Strait status quo and increases the potential for a military crisis…if Chinese leaders believe the United States is not militarily capable of or politically willing to intervene…,” the risk of a Chinese invasion of Taiwan increases.

Lastly, “the CCP-controlled Hong Kong government’s implementation of the National Security Law upended the city’s social and political environment…Strict implementation of the National Security Law is stripping Hong Kong of long-held advantages that made it a global financial center.  This means that

“The 1,283 U.S. companies and estimated 85,000 U.S. citizens residing in Hong Kong, as well as any who transit the territory, must now contend with the possibility of arrest…Changes diminishing corporate transparency and weakening rule of law endanger U.S. businesses in Hong Kong. “

The Commission made 32 recommendations to Congress, but emphasized 10 recommendations in the Executive Summary.  Even these 10 recommendations are too lengthy to be quoted completely.  As briefly summarized, the Commission recommends:

  1. “Congress consider comprehensive legislation to address risks to U.S. investors and U.S. interests from investments in Chinese equity, debt, and derivative instruments…”
  2. “Congress take urgent measures to strengthen the credibility of U.S. military deterrence in the near term and to maintain the ability of the United States to uphold its obligations established in the Taiwan Relations Act…”
  3. “Congress ensure the effective implementation of the Export Control Reform Act of 2018 and the Foreign Investment Risk Review Modernization Act of 2018 by enacting legislation that…”
  4. “Congress consider legislation to create the authority to screen the offshoring of critical supply chains and production capabilities to the People’s Republic of China (PRC) to protect U.S. national and economic security interests…”
  5. “Congress enact legislation expanding the jurisdiction of existing U.S. investment restrictions targeting Chinese entities placed on the Non-Specially Designated Nationals (SDN) Chinese Military- Industrial Complex (NS-CMIC) Companies List…”
  6. “Congress prevent the erosion of U.S. strategic nuclear superiority and respond to China’s qualitative and quantitative theater nuclear advantages by directing the Administration to continue implementation of the Obama-Trump Program of Record for nuclear modernization.”
  7. “Congress direct the SEC to require that publicly traded U.S. companies with facilities in China report on an annual basis whether there is a CCP committee in their operations and summarize the actions and corporate decisions in which such committees may have participated.”
  8. “Congress consider comprehensive legislation to ensure Chinese entities sanctioned under one U.S. authority be automatically sanctioned under other authorities unless a waiver is granted by the president or the authority applying the initial sanction.”
  9. “Congress mandate from Treasury an annual update of the accurate U.S. portfolio investment position in China since 2008, including money routed through offshore centers, such as the Cayman Islands.”
  10. “Congress direct U.S. Customs and Border Protection to initiate action to impose a region-wide Withhold Release Order on products originating from Xinjiang, China.”

The problem is that for the past 20 years Congress hasn’t paid much attention to this annual report and has rarely acted on any of the recommendations. Thus, I have no confidence that the current Congress will act on any of the recommendations of this report.  Very few Americans realize the dangers China poses to our freedom of our way of life and our national security. The notion of many Western experts that China would become a more liberal, democratic China as it became more prosperous has proved false.  We the people need to urge our elected Congressional representatives and senators to take this report seriously and act on these recommendations.  Our individual freedom and national security are at stake. 

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Buy Less and Buy American for the Holidays and Beyond

November 2nd, 2021

Americans are already feeling the effects of supply chain shortages even before the traditional holiday shopping season starts on Back Friday, the day after Thanksgiving.  Ads by retailers are advising consumers to do their holiday shopping early to avoid not being able to get the items they want to give as presents.  Even if you buy early, holiday shopping won’t be easy this year. Since the supply chain shortage is predicted to last well into next year, the solution is to buy less and buy American.

In the article “It’s time for Americans to buy less stuff” that appeared on Vox October 21, 2021, Terry Nguyen wrote: “Instead of opting to order our Christmas presents early, perhaps now is the time to reconsider America’s great shopping addiction.”  He asks, “When the stuff we want is so hard to get ahold of, why go to such great lengths to buy it?” He opines, “Consumers have the option to not order items manufactured overseas, to source things locally from small businesses or artisans. We also have a choice that eliminates the potential for shipping or supply chain mishaps: We can just buy less.”

The rest of the article reveals that his motivation for the “buy less” recommendation is based on his concern for the environment.  He comments, “We know that our collective consumption of consumer goods, from the creation of plastic toys to the fossil fuels that ship them to our homes, isn’t good for the environment.”  He points out “The higher-income consumers among us use far more resources than the less well-off and are responsible for influencing shopping norms at large.” He asks, “Must we continue to drown in our unlimited and unfettered need for more stuff, or could we start buying less?”

Because Chinese products are so cheap, we’ve become a nation that throws things away instead of fixing them.  When small appliances cost so little, we buy a new one instead of getting the item fixed.  We are constantly bombarded with ads encouraging us to buy the newest version of a product to keep up with the latest features. Our closets and dressers become stuffed with the latest trends in clothes, shoes, and accessories.  Adopting a personal philosophy to buy less would have personal benefits in addition to environmental and societal benefits.    

Nguyen writes, “On a recent podcast, New York Times opinion writer (and Vox co-founder) Ezra Klein encouraged listeners not to think of their consumption decisions as individual or as only affecting themselves. Rather, they serve as mechanisms for ‘social, political, and moral contagion.’”

It’s not just a question of how much to buy; it’s also a question of what to buy and where you buy it. Nguyen stated,  “About 70 percent of the US economy, after all, stems from consumer spending.” Therefore, the choices we make as consumers affects our whole economy.

As a result of the shortages experienced during the early stages of the COVID pandemic, consumers are more interested in buying American, According to a June 2020 study cited in USA Today, the results of a poll by FTI Consulting showed that “40% of Americans are no longer interested in buying products that are stamped with “Made in China. Nearly 80% are now willing to pay higher prices to companies that close their Chinese factories.”  

The results of a survey conducted last summer by the Reshoring Institute showed that nearly 70% of Americans prefer “Made in USA” products and over 50% would be willing to pay more for American-made products. 

Many people may say, “I can’t find American-made products to buy.”  However, as more and more consumers choose to buy American, there are more and more products available that are “Made in USA.”  When I attended the first “Made in America” trade show held in October 2019 in Indianapolis, IN, I was amazed at the variety of products on display at the show.  It was a pleasure to see American made bedding, mattresses, furniture, rugs, draperies, flatware, dinnerware, cook ware, cabinets, and other kitchen goods. These are all industries that some said were lost forever.  There were also bicycles, sports equipment, tools, and children’s toys, clothing, cleaning products, skin care and makeup, specialty foods, and tools, toys. 

While there were the more traditional plastic, rubber, and metal fabricators that exhibit at shows like WESTEC, FABTECH, and Design2Part shows, there were also companies that probably don’t exhibit at traditional trade shows, including a company that builds roller coasters. I had the pleasure of briefly meeting My Pillow’s founder and President, Mike Lindell, after he was interviewed by radio talk show host Mike Gallagher in a studio set up on the show floor.

I had the pleasure of participating in a panel featuring the following women business owners: linens. 

  • Barbara Creighton, CEO Sarati International, Inc. — offers custom formulation formulations and private label skin care products.
  • Beverlee Dacey, owner of Amodex Products — Ink and Stain Remover liquid solution
  • Connie Sylvester, owner of ARM-LOC — producer of the ARM-LOC Water Rescue Innovation that slides onto the victim’s forearm and locks into place for a rescuer to pull the victim to safety
  • Leigh Valentine, founder of Leigh Valentine’s Beauty — offers high quality skin care, wellness and beauty products that are clinically proven

At the show, I also met the Regional Sales Manager of the Made in America store, which has a store located in Elma, NY that features over 9,000 Made in USA products. In addition, there are hundreds of products that can be purchased online at their website. 

In addition, you can also find the names of companies that make products in America at the website of The Made in America Movement.  You can search by category, such as automotive, beauty and skin care, children, clothing – men, clothing – women, footwear, home goods, kitchen, pets, etc.  

The above resources should help you be able to buy more “Made in USA” products. I encourage you to choose to buy more American-made products in the future.

 After the 2019 Made in America show, the Made in America company began publishing a weekly newsletter highlighting companies making their products in America.  I was very disappointed that the 2020 show scheduled for Detroit, MI and the 2021 show scheduled in Louisville, KY had to be canceled because of the COVID pandemic.  I am looking forward to attending the 2022 show in Louisville, Kentucky on Oct. 6-9, 2022. Put the date on your calendar and plan to attend.

When we choose to buy “Made in China,” we create jobs in China, cause job loss in the United States, and provide China the money to build up their military. When we choose to buy “Made in USA,” you can be sure you’re getting American quality and not a cheap, foreign knock-off. Buying American increases the demand for domestic products, which creates more higher paying jobs in America, and puts more money into the national budget. In addition, every manufacturing job generates several other jobs that support the primary manufacturing employee. It also reduces our imports and encourages more exports, which would reduce our trade deficit and reestablish balance in American trade. Most importantly, we reduce our overdependence on China every time we choose to buy American. We cannot remain a free nation if we are not self sufficient in making the products needed for the health, safety, and national defense of our country.

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American Manufacturers and Consumers Funded Chinese Military Buildup

October 19th, 2021

October 20, 2021

Major retailers and thousands of small businesses face a bleak holiday season without Chinese goods to sell because of the long line up of container ships from China waiting to enter major ports to offload their cargo.  

It seems like Americans have to learn lessons the hard way.  During the early stage of the COVID pandemic, there was a serious shortage of masks, ventilators, and other PPE equipment and supplies because we had become dependent on China for these goods. Now, American consumers are experiencing shortages in common consumer products at retail stores, and manufacturers are facing long lead times for components, ICs (chips), and other parts and assemblies. These shortages are projected to get worse before they improve sometime in 2022.

We have become dependent on goods from China over the past 20 years because American manufacturers outsourced manufacturing to China save money and increase their profits. Then, they set up their own manufacturing facilities in China even though they had to submit to transferring their technology to Chinese partners in order set up their plants.

American consumers contributed by choosing to buy cheap Made in China goods instead of supporting fellow Americans through “Buying American.”  The combination of American consumers choosing to buy “Made in China” goods and China’s mercantilist policy of dumping products at prices below cost destroyed thousands of small American manufacturers. More than 60,000 manufacturers were driven out of business in the past 20 years because of the unfair mercantilist policies of China.  This made it more and more difficult for American consumers to find products “Made in USA” to buy. 

As a result, our trade deficit with China escalated from $83.8B in the year 2000 to a high of $418.2B in 2018.  Out deficit dropped to $344.3B in 2019 and down further to $310.2B in 2020 because of the effect of the Trump Administration’s tariffs on certain goods.  Our 2021 trade deficit with China runs at $260B through September, so may exceed 2020.

A November 12, 2019 article titled, “China’s Grand Plan To Take Over The World” in Forbes, by John Mauldin states: “In The Hundred-Year Marathon, Michael Pillsbury marshals a lot of evidence showing the Chinese government has a detailed strategy to overtake the US as the world’s dominant power. They want to do this by 2049, the centennial of China’s Communist revolution.”

Mauldin comments, “Xi’s vision of the Chinese Communist Party controlling the state and eventually influencing and even controlling the rest of the world is clear. These are not merely words for the consumption of the masses. They are instructions to party members.”

He adds, “Over the last 20–30 years, we have equipped the Chinese with almost everything they need to match us, technologically and otherwise. Hundreds of billions of Western dollars have been spent developing China and its state-owned businesses.”

A slide show titled “China wants to rule the world in these industries” reveals the following industries China is targeting:  “ Global logistics and infrastructure, Steel, electric cars, Cobalt mining, rare earth minerals, autonomous vehicles, Artificial Intelligence, Additive manufacturing, Industrial Internet of Things, Advanced Robotics, Cybersecurity, Blockchain, Green energy, smart phones, 6G communications, Semiconductors, Biotech, satellite navigation and digital mapping, Orbital space station construction, Orbital telescope construction, Lunar exploration, Mars exploration, Venus exploration, Jupiter exploration, Asteroid sampling, comet exploration and more.”

Without the transfer of wealth from the U. S. to China, none of this would even be possible. The Chinese Communist Party has used the wealth our manufacturers and consumers sent them to build a military second to none. 

It’s bad enough that we transferred production of goods to China, but in the past few years, we have also been allowing Chinese companies and individuals to buy American companies, real estate property and farmland.  We didn’t allow the Soviet Union to do this during the Cold War, so why are we allowing China? 

In an article published October 13, 2021 titled “The Biden administration lacks a coherent China policy,” Peter Morici states: “President Joe Biden has identified China as the pre-eminent international competitive challenge confronting America, but his administration appears distracted and lacks a credible policy.”

It’s not enough to recognize China as the major international competitor.  We must recognize them as an enemy to our democracy. If we ignore this threat and do nothing about it, we will reap unpleasant if not catastrophic consequences.

In an article titled “Americans vanquished, China triumphant: 2021’s hit war epic doesn’t fit Hollywood script” in The Washington Post of October 16, 2021, Christian Shepherd comments “War epics showing the victories of the People’s Liberation Army have become increasingly common and studios often work closely with the government and army to ensure that their films fit with the official narrative of events.”

He explains, “The Battle at Lake Changjin” was commissioned by the propaganda department of the Chinese Communist Party and made with support from the central military commission and local governments in Beijing and the Hebei and Liaoning provinces.”

He cautions, “However, unlike films made in the early days of the People’s Republic, the emphasis of recent features is less about aiding North Korea and more about resisting America, a shift in tone that scholars suggest reflects Beijing’s growing focus on national security in its confrontation with Washington.”

The movie was released on September 30th and “broke $667 million in ticket sales within two weeks, making it already the fourth-highest-grossing film of the year worldwide.”

The success of this movie suggests to me that the Chinese public are just as eager for a rematch with us as their military. Considering that our military leader’s priority is now being woke-compliant, it’s a strong possibility that our military would be defeated with thousands of casualties thanks to the ”free-trade” supporters that sold our government leaders on the “benefits” of transferring our wealth to China in return for cheap goods from China.

I am concerned that China’s saber rattling in the South China Sea is a prelude to the invasion of Taiwan. Instead of facing a third-world military like we did in the Korean War, our service members will be facing a technically advanced enemy, who can match us weapon for weapon. What if our causalities reach such an unsustainable point that we are forced to sue for peace? We could be faced with recognizing China’s dominance over the Pacific and giving up Hawaii to China as part of a peace settlement.

It’s time for all Americans to wake up to the danger of continuing our dependence on goods from China.  We must decouple our economy from China’s economy, change our trade policies, and rebuild our manufacturing base to the point that we are self-sufficient. There is no simple solution, but I spent several months writing my book, Rebuild Manufacturing – the key to American Prosperity, published in 2017 and available on Amazon.  My book outlines how to rebuild American manufacturing through reshoring, new trade and tax policies, and workforce training and development.  Now, it’s not just time to create prosperity; it’s time to save our national sovereignty and freedom.

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COOL Online Act Benefits Consumers Better than Shop Safe Act

October 4th, 2021

As more and more American consumers turn to buying products online instead of in person at brick-and-mortar stores, they become increasingly vulnerable to counterfeit goods and are unable to determine where the products have been made.  Country of Origin information is missing from the major online platforms so consumers are unable to fellow Americans by choosing to “Buy American” for products sold online.  Without knowing Country of Origin, they are not able to boycott buying products made in China by slave labor or protest the ethnic cleansing of the Uyghurs by the Chinese government. 

Over the last two years, a few Congressional Representatives and Senators have introduced bills in Congress to address these problems and protect consumers. This year, H. R. 3429, the Shop Safe Act of 2021, was introduced on May 20, 2021 by House Judiciary Committee Chairman Jerrold Nadler (D-NY), Internet Chairman Henry C. “Hank” Johnson, Jr. (D-GA), Internet Ranking Member Darrell Issa (R-CA), and Representative Ben Cline (R-VA).

Senator Christopher Coons (D-DE) also introduced S. 1843, the Shop Safe Act of 2021, in the Senate on May 26, 2021. These bills would supposedly protect consumers by stopping the online sale of harmful counterfeit products.

The Press Release issued by the sponsors on May 20, 2021, states: “The SHOP SAFE Act will:

  • Establish trademark liability for online marketplace platforms when a third-party sells a counterfeit product that poses a risk to consumer health or safety and that platform does not follow certain best practices;
  • Incentivize online platforms to establish best practices such as vetting sellers to ensure their legitimacy, removing counterfeit listings, and removing sellers who repeatedly sell counterfeits; and
  • Call for online marketplaces to take steps necessary to prevent the continued sale of counterfeits by the third-party seller or face contributory liability for their actions.”

This sounds good, but the online platform has to rely on the integrity of the distributor or manufacturer in stating that the product is not counterfeit.  I don’t know about you, but I wouldn’t have any confidence in China companies adhering to the “honor system.” Other concerns I have:  Does someone have to report a counterfeit product to the online platform?  How are counterfeit products identified?  Who investigates the charge? What proof has to be provided to prove a product is counterfeit?

Recently, the directors of US Inventor, Inc sent out an email to their supporters saying, “Big Tech is trying to pull a fast one again… This legislation grants immunity for trademark infringement to online selling platforms like Amazon, provided that their Chinese suppliers ‘attest’ that they ‘have taken reasonable steps to verify the authenticity of the goods’ and ‘agree not use a counterfeit mark’. Seriously…Congress is offering up a proposal to waive liability for Amazon based on their implementation of an “honor system” for their Chinese suppliers!”

I can understand the skepticism of US Inventors because one of the co-sponsors, Rep. Isa) was a co-sponsor of the America Invents Act of 2011 and two other co-sponsors voted in favor of the America Invents Act.  Readers of my articles are familiar with the harm caused by this Act.

US Inventors urged supporters not to believe the hype, stating:

  • “The SHOP SAFE Act of 2021 is HAZARDOUS to inventors, entrepreneurs, and small business.
  • The SHOP SAFE Act HURTS, not helps, intellectual property owners.” The SHOP SAFE Act limits your ability to protect your IP online.
  • The SHOP SAFE Act makes protecting your brand online harder not easier.
  • The SHOP SAFE Act lets the platforms off the hook for their misdeeds.
  • The SHOP SAFE Act hurts small business

They suggest asking yourself: “When was the last time you saw huge corporations and big special interests all support a bill containing MORE (not less) regulation? Why would the giant platforms who make more money from counterfeiting online like Amazon, eBay, Etsy, and Wish hail the SHOP SAFE Act as a cure?”

They conclude that the Shop Safe Act “does not fix the real problem” and “doesn’t close the loopholes.” Instead, “It adds a “safe harbor” for online marketplaces that lets them off the hook for legal liability.”  They say “The SHOP SAFE Act gives the online platforms and the counterfeiters MORE LOOPHOLES!  It’s “best practices” have already been tried and failed to stem the tide of pirated goods sold on sites like Amazon and eBay.”

A far better bill to protect consumers was S. 3707, the COOL Online Act, introduced by Senator Tammy Baldwin on May 13, 2020, and cosponsored by Rick Scott (R=FL), Kelly Loeffler (R-GA, and Christopher Murphy (D-CT).  While it wasn’t voted on in the 116th Congress, the provisions were included in Section 2510 of the United States Innovation and Competition Act of 2021 (S. 1260) passed on June 8, 2021 by the Senate.

The National Law Review wrote:  “The Act as passed by the Senate is virtually unchanged from the proposed legislation that we reported on. As a recap, the legislation would require that a wide variety of imported commodities sold online be accompanied by the following disclosures on the website ‘in a conspicuous place’:

  • The country of origin of the product, consistent with U.S. Customs and Borders Protection (CBP) marking requirements; and
  • The country of origin in which the seller is located (and, if applicable, the location of any parent corporation)
  • Further, the online disclosures for certain categories of goods already subject to existing specialized COOL requirements would also be required to comply with these existing requirements. Importantly, products covered by USDA’s Agricultural Marketing Service (AMS) COOL would have to comply with AMS’s COOL requirements in the online disclosure.
  • The legislation would be enforced by the Federal Trade Commission (FTC), but would require that FTC and CBP sign a memorandum of understanding to provide for consistent implementation of the legislation.”

This legislation will now move to the House of Representatives for consideration. We can only hope that the provisions of the COOL Online Act will be added to the House version of the United States Innovation and Competition Act of 2021. 

The Coalition for a Prosperous America, of which I have been a member since 2011, supports the COOL Online Act. I have been a member of the Buy America committee since it was started two years ago.  Recently, James A. Stuber, Co-Chair of the Buy America Committee and the author of What If Things Were Made in America Again, wrote “Congress must fight to ensure that America’s families know exactly what they’re buying online with their hard-earned money. Both the House and Senate should support country-of-origin labeling for all e-commerce transactions. Anything less could potentially put American lives at risk.”

We need the help of everyone who supports rebuilding American manufacturing by encouraging more people to Buy American.  Here’s what you can do:  Call the Capitol main number (202-224-3121) and ask to speak to the office of your Representative.  Ask them to vote against the Shop Safe Act. Ask them to sponsor or co-sponsor the COOL Online Act.  If you can’t get through on the main Capitol line, call the local office.  I’ve called my Representative.  Will you?

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Adrian Pelkus – An Inventor Devoted to Helping Other Inventors

September 7th, 2021

When my first book, Can American Manufacturing Be Saved? Why We Should and How We can was published in May 2009, I introduced it as a speaker at the Del Mar Electronics & Design Show in San Diego, CA and  displayed it at my company’s booth. One of the persons who stopped by and bought my book was Adrian Pelkus, President of A Squared Technologies, Inc. and leader of a group called the San Diego Inventors Forum.  Adrian invited me to the next meeting of the group and I accepted his invitation. Since June 2009, I have regularly attended SDIF meetings and became a board member when it was formally incorporated in 2014.  Our meetings provide information that helps inventors take a product from design concept, fundraising, producing, and successfully marketing the product. I give an annual presentation titled “How to Select the Right Processes and Sources for Your Product” and we hold annual inventors contest with cash prizes. We haven’t held in-person meetings since the COVID pandemic shutdown started in March 2020, but will start meeting again this fall.

In 2018, Adrian and his wife Amy moved to Lexington, South Carolina so he could devote more time to inventing new products. I keep in touch with them and learned that Adrian couldn’t stay away from helping other inventors. Last August, in the middle of the COVID pandemic, he started the South Carolina Inventors Forum using Zoom.

I recently interviewed Adrian to learn more about SCIF.  Adrian said, “After moving here from San Diego and recovering, I decided to build a new inventor nonprofit organization like we had in San Diego. To build new bridges here, I wanted to know and meet “who is who” in town, so I attended a few business group networking events. I discovered 1 Million Cups, which was developed by the Ewing Marion Kauffman Foundation in 2012.  The name came from the notion that entrepreneurs discover solutions and engage with their communities over a million cups of coffee. 1 Million Cups is a free program designed to educate, engage and inspire entrepreneurs around the country. Through the power of volunteers, 1 Million Cups has grown to more than 160 communities.

He explained, “1 Million Cups works with entrepreneurs, empowering them with the tools and resources to break down barriers that stand in the way of starting and growing their businesses. Mr. Kauffman believed it was a fundamental right for anyone who had a big idea to be able to bring it to life—and we’re here to fulfill that mission.”

I told him I was familiar with the Kauffman Foundation and used their curriculum when I taught high school students how to start their own business as one of the teachers for the Millennium Entrepreneurs after school program in the early 2000s. I also met the people who headed up the 1 Million Cups program in Fargo, ND in 2017 when I was the guest of the North Dakota Economic Development Department to visit manufacturers to write articles.

I asked how he recruited support for SCIF.  Adrian responded. “My decades of trade show and networking meeting experience like at CONNECT taught me to spot the group leaders and that’s how I met Sergio Aparicio, who is Manager of the City of Columbia’s Economic Business Development office. Sergio is also an organizer for the Columbia 1 Million Cups group that was meeting weekly prior to the pandemic at the downtown Richland Library with a 150-seat amphitheater.

He added, “I also met Tom Ledbetter, who is the Associate Vice Provost with the Center for Entrepreneurship and Educational Support at Midlands Technical College. A third organizer I met is Dr. Thaddeus Jones, who is a videographer and producer. I spoke to all of them about the idea of a forming a nonprofit organization with the mission to assist inventors with protecting, developing and commercializing their intellectual property through motivation, education, mentoring, a network of local service providers, and national networking opportunities.

He explained, “The main differentiation from the other organizations in town for high tech and business startups was that SCIF is a grass roots way to build business, encourage entrepreneurship of the everyday citizen at the community level, and the fact that my “curriculum” had been vetted in San Diego over a long period of time. The three of them vetted me and came back eager to assist.

Then, the pandemic came and caused mass business closures everywhere including here in South Carolina. 1 Million Cups stopped meeting, but I decided to go forward and start the SCIF meetings on Zoom. Tom Ledbetter and Dr Jones joined the SCIF Board of Directors. Midlands Technical College helped host and Thaddeus created the videos this first year.”

Adrian said, “I am very grateful Sergio has convinced both the city to support SCIF with a grant and for 1Million Cups to assist our mission as well. 1 Million Cups has secured a new meeting place and in fact hosted our SCIF first Invention Contest in August. At that meeting, I announced that the City of Columbia became our first Gold Sponsor. This contribution is appreciated beyond its monetary amount in that it represents the great connection we have made and how the city supports our SCIF Vision statement:

SCIF will contribute to South Carolina becoming known as an Innovation Hub here in the southeast. Economic development in the South Carolina region depends heavily on entrepreneurship and entrepreneurship depends heavily on creativity and invention. By assisting inventors in leveraging their intellectual property and becoming more entrepreneurial, SCIF will play an important role in furthering South Carolina’s reputation as supporting startups, general creativity, launching quality businesses and creating good paying jobs. SCIF will become a recognized valued partner in South Carolina’s economic re-development.”

I asked about his other networking activities, and he said, “I have busy building connections with GoFundMe and SBA to provide avenues for funding inventors and creative folk from concept to commercialization.  I met Valerie Torstenson, Outreach and Marketing Specialist for the South Carolina District Office of the U.S. Small Business Administration. She helped SCIFsign a Strategic Alliance Memorandum (SAM) that connects us to the SBA for assistance in getting loans for startups. Valerie will participate in our group meetings and share news, instructions and opportunities from the SBA.”

He added, “During my 13 years running the SDIF, I met individually with over 1500 inventors at my office. The method I created to standardize the interview allowed me to determine in one hour if an idea is feasible, already patented or on the market, what progress had been made, whether the goal is to start a company or license, and how the goal may be accomplished. Along with 37 years running my own company, I benefitted from the experience of joining over 300 people in their quest to become successful entrepreneurs. I also pursued over a dozen of my own ventures, and learned that we all had something in common —the need for funds.

With that in mind, I recently spoke with GoFundMe co-founder Andy Ballester and their VIP team about creating a special campaign for finding funds for inventors to test their ideas prior to company launch. They agreed to do a pilot program to assist many struggling inventors and innovators get started. These funds will allow them to search for IP, file patents, and build prototypes to show for raising capital to launch or license. They are working on putting together a fundraiser creation and how to share guide that will help our members. Our alliance with GoFundMe will be awesome for American inventors and innovators just getting started.”

Adrian said, “SCIF also joined the United Inventors Association of America(UIA).  I’ve known Warren Tuttle as Director of the UIA for over a decade and served on the board of the UIA for two years with him. Warren is the author of “Inventor Confidential, the Honest Guide to Profitable Inventing” in which I’m honored to be mentioned. We have been working together to co-create an organization called the UIA-CIO consisting of 20 nonprofit inventor clubs to start that will now be linked coast to coast. We invited Valerie Torstenson to the UIA-CIO inaugural meeting in August to announce our new alliance and was delighted to hear her tell us that she had introduced SCIF to the rest of SBA that day via their internal newsletter.” 

I asked Adrian for his parting thoughts, and he said, “I’ve worked long to protect inventor rights and realize now that it will take a unity of never-before-seen segments of society to restore the patent system to where it was prior to the American Invents Act of 2011.  The pandemic has created a swelling of interest in working from home and starting a business for a living to become entrepreneurs. The “industry” of inventing has long been plagued with get rich schemes and people claiming to be gurus and masters of getting a product to market. People I’ve met spent their life savings and many years being misguided and taken advantage by these invention submission companies, phony marketers, and hype hustlers.  It must stop!  That’s why I am excited about the new collaborations we are establishing with the SBA and crowd funding giant GoFundMe.  They may make entrepreneurial pursuits by inventors and innovators a bit easier and more successful.”

I told Adrian that San Diego Inventors Forum is happy to join the UIA-CIO, and we will look forward to participating in the collaborations he has generated to help our local inventors. It will be very beneficial for the clubs in the AIA-CIO to share resources and presentations.  I told him that my updated presentation on “How to Select the Right Processes ad Sources for Your Product” has been recorded on Zoom and will be available for viewing for free on September 9th and thereafter at this link.

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U S. Inventors Continue Fight to Restore Patent Rights

August 24th, 2021

September 16, 2021 marks the 10th anniversary of the America Invents Act (AIA) at the Decade of Stolen Dreams Inventor Rally organized by US Inventor, Inc., a non-profit association of inventors devoted to protecting the intellectual property of individuals and small companies. It represents its 13,000 inventor and small business members by promoting strong intellectual property rights and a predictable U.S. patent system through education, advocacy and reform.

There are six locations across the U.S. where inventors plan to make their voices heard about the consequences of the AIA and the Patent Trial and Appeal Board (PTAB) — Alexandria, VA • Burlington, VT • Dallas, TX • Denver, CO • Detroit, MI • San Jose, CA. Join US. Inventor Inc. on September 16th at a rally near you, and unite against the injustice of the America Invents Act and the PTAB.

The USI website states: “today, inventors are discouraged from pursuing research, development, and commercialization of inventions due to the implementation of the Patent Trial and Appeal Board (PTAB) under the America Invents Act of 2011 (AIA). Rather than helping small businesses as intended, the PTAB is often weaponized by large corporations to block competition from those who created superior technology. PTAB uncertainty, risk, and expense has become an overwhelming burden for entrepreneurs, stifling our ability to innovate and compete.

Having invalidated 84% of the 3,000 patents they have reviewed and destroyed the hopes and dreams of hundreds of inventors – the PTAB is still going strong. Even Chinese companies like Huawei, ZTE, HTC, and TikTok are regularly utilizing the PTAB to invalidate patents of U.S. inventors.”

For those new to the issue of inventors having lost the ability to stop large corporations from just taking valuable, patented technologies, here’s a quick rundown:

1. Patent Trial and Appeal Board (PTAB): The America Invents Act of 2011 (AIA) created an easier way to invalidate (revoke) an issued patent. The PTAB is an administrative court with no jury and much less due process than a real court. Rather than a lifetime-appointed judge, a PTAB trial typically has three attorneys who are called Administrative Patent Judges (APJs).

2. Injunctive Relief (the ability to stop an infringer after you have won your case): The U.S. Supreme Court decided that it was in the “public interest” for a proven infringer to continue infringing because it could serve the market better than a startup (Ebay, 2006). As a result, even if you win your case, you will have to pass a “public interest” test before an injunction can be issued to stop the infringer.

3. Abstract Idea: The U.S. Supreme Court’s Alice decision (2014), put into law that an “abstract idea” cannot be patented, but did not define this term. The result is that a sharp attorney can often convince a judge, who may have little tech experience, that a patent should have not been issued.

Article I, § 8, Clause 8 of the Constitution grants Congress the enumerated power “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” In my opinion, this makes the invalidating of patents by the PTAB unconstitutional.

A U.S. Patent is supposed to provide the inventor with the exclusive right to his or her invention. Inventors should be able to legally stop any infringer, no matter how large or powerful. They should be able to create a disruptive startup or license their invention at a market rate. This is what provided the incentive to invent that enabled America to lead the world in innovation for over 200 years. This is the right that US Inventor Inc. is fighting to restore.

Josh Malone, Policy Director for US Inventor, Inc. told me that in the 116th Congress (2019-2020) 35 representatives sponsored a bill to end the PTAB – H.R.4792 – Cyber Shield Act of 2019, but it was referred to the Subcommittee on Consumer Protection and Commerce and never got out of committee.

Also, on December 18, 2019, “H.R. 5478 – Inventor Rights Act was introduced by introduced by Representatives Danny K. Davis (D-IL) and Paul A. Gosar, D.D.S. (R-AZ), and on January 28, 2020, it was referred to the Subcommittee on Courts, Intellectual Property, and the Internet. This Act that would “restore patent protection for inventors and mitigate a generation of laws, regulations, and court decisions discouraging innovation by failing to secure to inventors the exclusive rights to their discoveries.”

The text of the Act stated “Recent changes to patent laws and procedures and Supreme Court decisions have adversely affected inventors such that the promise of Article 1, section 8 of the Constitution of ‘securing for limited times to inventors the exclusive right to their discoveries’ is no longer attainable.”

The Act stated that “Inventors are denied the fundamental right to ‘exclude others’ by the Supreme Court’s 2006 decision in eBay Inc. v. MercExchange, LLC.” Thus, inventors have lost their injunctive rights granted by the Constitution.  It also states that “Inventors were stripped of the right to file suit in their own judicial district by the Supreme Court’s 2017 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC.”

Unfortunately, H.R. 5478 also never got out of committee to be voted on by the House. US Inventors is working to have the Inventor Rights Act reintroduced in Congress this year.

On February 8, 2021, US Inventor, Inc. filed suit against the US Patent Office (USPTO) “to stop patent validity challenges at the Patent Trial and Appeal Board (PTAB) until the required, official rulemaking regarding the procedure has been done. The America Invents Act of 2011 (AIA) created an administrative court, the PTAB, for patent validity challenges. Prior to this, an inventor would defend his or her patent in a real court with a jury, lifetime-appointed judge, and a lot of due process. The PTAB has no jury, much less due process, and a panel of attorneys called Administrative Patent Judges (APJs) who have invalidated (revoked) 84% of the patents that have gone through the process. The AIA said that the USPTO Director “shall” involve stakeholders in notice and comment rulemaking that takes into account things like the economic impact of the law and its effect on the reputation of the Patent Office. After ten years, this rulemaking has still not been done, and US Inventor believes this is unlawful as well as unfair and very bad for American inventors and the future of American innovation. A number of inventors were present at the hearing in Marshall, TX on July 1st, 2021.”

US Inventor President, Randy Landreneau stated, “”Our patent system is supposed to enable patent-based startups to compete with entrenched interests. It did this pretty well for 200 years, and America’s leadership in worldwide innovation is the proof. But in recent years, our lawmakers and officials have listened to Big Tech rather than inventors and patent-based startups. The result is the loss of the ability to stop a large corporation from taking a significant, patented invention, which is why American innovation is declining, Big Tech faces little competition and China threatens to take the lead in future technologies. The purpose of this lawsuit was to make our voices heard through the rulemaking process that has been avoided for ten years. The judge decided that we don’t have standing and dismissed our suit. We are appealing, but regardless of the outcome of this suit, US Inventor will continue to fight on many fronts to restore the rights of inventors in America.”

For further information on the patent crisis, you may watch the trailer for the documentary Invalidated: The Shredding of the U.S. Patent System  The full version is available on Amazon and iTunes.

You can help the efforts of US Inventors by signing the Inventor Rights Resolution “to restore patent protection for inventors and mitigate a generation of laws, regulations, and court decisions that have discouraged innovation by failing to secure to inventors the exclusive right to their discoveries.”  Click here to sign.

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USITC Report Reveals Only Small Positive Effect from Trade Agreements

July 20th, 2021

On June 29, 2021, the U.S. International Trade Commission (USITC) released a report on the economic impact of the many bilateral, regional, and multilateral trade agreements that the U.S has signed since 1984. These include NAFTA, that went into effect in 1994, the multilateral trade deal that created the World Trade Organization in 1995, as well as bilateral trade agreements such as KORUS (Korea-U. S). It also examined the one-year-old U.S.-Canada-Mexico Agreement, which replaced the original NAFTA. However, it did not examine the effects of the agreement struck by the United States to pave the way for China to enter the WTO in 2001.

The press release stated, “The USITC, an independent, nonpartisan factfinding federal agency, conducted the investigation pursuant to Section 105(f)(2) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (19 U.S.C. § 4204(f)(2)). This is the second of two reports that are required by the statute.”  Congress ordered the report as part of the 2015 Trade Promotion Authority law, which expired on July 1st. TPA facilitated the approval of trade agreements by allowing the president to submit them to Congress for a straight up-or-down vote without any amendments.

Each of these trade agreements were projected to expand “market access through both tariff and nontariff provisions, which both lowered barriers to trade and reinforced market certainty that such free trade regimes will remain in effect.” 

The ITC press release states, “the Commission has used a variety of quantitative and qualitative approaches to analyze the impacts of these agreements, and specific provisions within them, on U.S. industry and workers.”

A highlight from the report states:

  • “The Commission estimates that, to the extent quantifiable, the agreements have had a small but positive effect on the U.S. economy as a whole.  U.S. energy product exports to Korea rose sharply in both value and volume in recent years, as U.S. producers and exporters took advantage of broad reductions in trade barriers under the U.S.-Korea Free Trade Agreement (KORUS).”

Public Citizen, a nonprofit consumer advocacy organization that champions the public interest –in the halls of power, published their analysis of the ITC report, pointing out the following:

  • “Estimates that U.S. trade agreements have increased the wage gap in America between higher-and lower-skilled workers (page 122).
  • Tried to cover up the reality that the United States has a large and growing trade deficit with its Free Trade Agreement (FTA)partners. The aggregate U.S. trade deficit with FTA partners has increased by about $141 billion, or 418 percent, since the FTAs were implemented while the aggregate trade deficit with all non-FTA countries has decreased by about $46 billion, or 6 percent, since 2005 (the year before the median entry date of existing FTAs).
  • Estimates all the U.S. bilateral and regional FTAs combined have led to an increase in real GDP and aggregate U.S. employment by less than 1 percent (page 122).
  • Fails to discuss or review the 2.9 million jobs certified by Trade Adjustment Assistance (TAA)as trade job losses since the passage of the North American Free Trade Agreement (NAFTA)…
  • Finds that certain trade agreements have lowered employment levels in many industries including autos as well as textiles and apparel.
  • Finds that all the U.S. FTAs since 1985 have increased real GDP by a minuscule0.21 percent (page 127).”

In an article on 6/29/21 in Politico, Doug Palmer commented, “Nearly four decades of U.S. trade agreements have had only a “small, positive effect” on U.S. economic growth and employment, the U.S. International Trade Commission…Using 2017 as its base year, the ITC estimated the trade deals had increased U.S. economic output by $88.8 billion or 0.5 percent. The trade pacts increased overall U.S. employment by 485,000 full-time equivalent jobs or 0.3 percent, based on a model that assumes the economy is at its long-run full employment level.”

Proponents of all of the trade agreements projected increases to our national Gross Domestic Product and the creation of more U.S. jobs. China’s entry into the WTO in 2001 was supposed to require China to open its markets to imports from the U. S. and other nations by reducing Chinese tariffs and addressing nontariff barriers to trade. Proponents argued that the U. S. would benefit because of increased exports to a large and growing consumer market in China. However, history has shown that the reverse has been true.  

In a 2003 article, “The high price of ‘free’ trade,” Robert E. Scott of the Economic Policy Institute wrote, “Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries.”

On January 30, 2020, Robert E. Scott and Zane Mokhiber of the Economic Policy Institute released the report, “Growing China trade deficit cost 3.7 million American jobs between 2001 and 2018.” Key findings include:

  • “1.7 million jobs lost since 2008 (the first full year of the Great Recession, which technically began at the end of 2007). Three-fourths (75.4%) of the jobs lost between 2001 and 2018 were in manufacturing (2.8 million manufacturing jobs lost due to the growth in the trade deficit with China).
  • The U.S. trade deficit with China rose from $347billion in 2016 to $420 billion in 2018, an increase of 21.0%
  • The growing trade deficit with China has cost jobs in all 50 states and in every congressional district in the United States.
  • The five hardest-hit states based on total jobs lost were California (654,100 jobs lost), Texas (334,800), New York (185,100), Illinois (162,400), and Florida (150,700).
  • The trade deficit in the computer and electronic parts industry grew the most, and that is reflected in job losses:1,340,600 jobs were lost in that industry, accounting for36.2% of the 2001–2018 total jobs lost.
  • Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China.”

According to the U. S. Census Bureau, the U. S. trade deficit with China dropped from $418.2B in 2018 to $310.3B in 2020.  We also had a trade deficit of $344.3B for 2019. This downward trend may reflect the beneficial effect of the tariffs imposed by President Trump on specified Chinese imports.

However, according to an analysis by Jeff Ferry, Chief Economist for the Coalition for a Prosperous America, we are still losing jobs from trade deficits.  “The Coalition for a Prosperous America’s research center has found, in an economic analysis of federal government data, that every $1 billion increase in imports causes a loss of 4,552 US jobs.”  

Using the Census data, this means that we lost 1.9 million jobs in 2018, 1,6 million jobs in 2019, and 1.4 million jobs in 2020. 

In my opinion, it’s time for the United States to stop this horrific loss of jobs by drastically changing our trade policies with China.  China is not our friend; they are not just our competitor.  They are our enemy.  Perhaps it’s even time to withdraw from the World Trade Organization.

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Sales Factor Tax Apportionment is Better than G-7 Tax Proposal

June 22nd, 2021

For many years, the Organization for Economic Cooperation and Development (OECD) has been coordinating talks among 140 countries on cross-border tax reform in order to get multi-national corporations to pay their fair share of taxes.  Currently, multinational corporations that have subsidiaries or divisions in other countries use legal accounting strategies to reduce their taxes by transferring profits to lower corporate tax rate countries or set up shell corporations in tax haven countries. It’s not fair for multinational firms to sell products in the U.S. market and then pay little or no federal taxes on the resulting profits. Domestic companies bear the brunt of our country’s tax burden, making it more difficult for them to compete in the global marketplace.

On June 5th, the G-7, which is an informal grouping of seven of the world’s advanced countries:  Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, reached an agreement on two pillars of global tax reform.

Pillar One of the agreement “changes allocation of taxing rights. Under the proposal, companies wouldn’t only owe taxes where they’re established and have assets and employees, but would also owe taxes where they have sales.” This new rule would apply to only the world’s 100 largest and most profitable companies.

Pillar Two “imposes a global minimum tax on potentially any company that has a low effective tax rate on foreign earnings. If companies pay lower rates in a particular country, their home countries could “top-up” their taxes on foreign earnings to the minimum rate, removing the benefits of shifting profits. A proposed global minimum tax rate of “at least 15 percent on a country by country basis,” is designed to discourage multinational corporations from shifting profits to low-tax countries. Hopefully, a “worldwide minimum corporate tax rate would reduce the attractiveness of tax havens, which have increasingly become a common part of global business practice in the last three decades.”

“Corporate profit shifting into tax havens by U.S. multinationals has jumped from roughly 5 to 10 percent of gross profits in the 1990s to roughly 25 to 30 percent in 2019, according to a report by the International Monetary Fund. And the use of tax havens costs governments $500 billion to $600 billion per year in lost corporate tax revenue, according to a study cited by the IMF.”

Daniel Bunn, vice president of global projects at the Tax Foundation, told the Epoch Times, “This agreement is subject to further agreements, there’s a lot of work still to be done to ensure that the policy works well. “I’m concerned that if policymakers aren’t careful, they could impact global foreign direct investment flows and hurt business investments globally.”

“It is a whole new way of doing tax policy for multinationals. And one of the reasons I think that Treasury has tried to limit this to the 100 largest companies is because it has the potential to be really, really complex,” Bunn said.

One advantage of the proposed global minimum tax is that it could potentially end the discussion of digital services taxes on big tech companies, more of which are in America than any other country.

One potential problem is whether OECD would be the organization that would designate the top 100 companies in the world. If so, what criteria would they use and how often would the rating be updated, as the ranking could fluctuate from year to year.

Another consideration is what would be the impact of a 15 percent global minimum tax on U.S. companies combined with the substantial tax increases proposed by President Joe Biden that includes a 15 percent minimum tax on large corporations’ book income, as well as increases to the tax rates on both domestic and foreign income.

These two pillars will be the subject of the meeting of the G-20 countries scheduled for later this summer.

On June 8th, the Coalition for a Prosperous America (CPA) issued a statement, saying they “support the Organization for Economic Cooperation and Development’s (OECD) efforts ‘to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax.’ This represents a positive step towards eliminating the ability of multinational companies to avoid paying U.S. corporate tax by shifting profits offshore to tax havens.”

“While not perfect, the G7 announcement represents a positive step forward, especially for family companies like mine that pay a higher corporate tax rate than foreign and multinational competitors,” CPA Chair Zach Mottl said. “To truly end the game of multinational profit shifting, the OECD should implement Sales Factor Apportionment.”

“For too long, multinational corporations have used an army of lawyers and tax accountants to offshore production and avoid U.S. corporate taxes,” said Michael Stumo, CEO of CPA. “It is welcome news that the G7 economies are supportive of addressing the harm to domestic producers from multinational profit shifting. However, it is concerning that the G7 announcement would allow the first 10 percent of profits to be exempt, which would allow some profit shifting to still occur. The Biden administration, which called for implementing Sales Factor Apportionment for the top 100 multinational corporations, should urge the G7 economies and the OECD to fully implement a sales-based apportionment system for all companies shifting profits.”

This OECD proposal would be similar but more limited in scope to the Sales Factor Tax Apportionment (SFA) framework supported by the Board of the Directors of Coalition for a Prosperous America since 2017. One of CPA’s members, Bill Parks, a retired finance professor and founder of NRS Inc. was the originator of the SFA framework. Mr. Parks stated “Currently MNEs manipulate loopholes in our tax system to avoid paying U. S. taxes…MNEs can legitimately choose a cost that reduces or increases the profits of its subsidiaries in different countries. Because the United States is a relatively high-tax country, MNEs will choose the costs that minimize profits in the United States and maximize them in what are usually lower-tax countries.” 

Under SFA, the amount of corporate taxes that a multinational company would pay “would be determined solely on the percent of that company’s world-wide sales made to U. S. customers. Foreign MNEs would also be taxed the same way on their U. S. income leveling the playing field between domestic firms and foreign and domestic MNEs.” Thus, if a company generates $1 billion of profit on its U.S. sales, then it should pay corporate taxes on that $1 billion.

On May 18, 2017, CPA submitted written testimony to the House Ways and Means Committee, stating in part, “The US corporate tax system harms America’s trade competitiveness, overtaxes income from wages, under taxes consumption, and is bad at actually collecting what is owed. It also enables rampant base erosion through transferring profits to tax havens or countries with lower corporate tax rates. Full reform centered around destination based, border adjustment principles can result in an efficient, trade competitive, and largely tamper-proof tax system. SFA is a destination-based profit tax. Pretax income is allocated to the US in proportion to the percentage of a company’s total sales in the U. S. Pre-tax income earned outside the US is not taxed. Tax rates can be lowered substantially while still meeting revenue targets…SFA eliminates the disparate tax treatment between domestic companies (who pay the full income tax burden on worldwide income), multinationals (many of which shift profits to tax havens), and foreign companies (which pay a territorial income tax).” 

In September 2020, ”CPA published an analysis of the federal corporate tax paid by the S&P 500 companies in 2019 and found they paid on average less than 9% in cash federal tax last year. The analysis also found that by replacing the current corporate tax system with an SFA system at 21 percent, the United States could have expected to earn an additional $97.8 billion in federal corporate tax receipts for 2019.”

If the OECD doesn’t expand Pillar One into a SFA plan for all multinational companies, not just the top 100, then the U. S. Congress should act unilaterally to establish this plan here. Multinationals should no longer be allowed to employ convoluted profit calculations or reincorporate in a tax haven country as a means to avoid U.S. tax obligations. We need to take bold action if we want to rebuild our American manufacturing industry to create jobs and prosperity.

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Blacks & Hispanics Suffer from Loss of High Paying Manufacturing Jobs

June 1st, 2021

On May 24th, the Coalition for a Prosperous America released a new working paper, “Job Quality Index for Black, Hispanic and Asian American workers.  In this working paper, Jeff Ferry, CPA Chief Economist, and Amanda Mayoral, CPA Economist, present Job Quality Indexes for three important minority groups within the U.S. workforce: Asian, Black, and Hispanic Americans.

In November 2019, CPA published the first U.S. Private Sector Job Quality Index (JQI) report in partnership with Cornell Law School, The JQI “measures the quality of U.S. jobs as distinct from their quantity” using Bureau of Labor Statistics (BLS) data to calculate the average weekly wage for all Production and Nonsupervisory (P&NS) employees. These workers “make up 80% of the total U.S private sector workforce, 98 million out of a total 122 million workers.”

“The JQI is the ratio of high-quality jobs to low-quality jobs, multiplied by 100 and expressed as an index. By calculating the national average weekly wage for all P&NS employees, we can establish a threshold to split high- and low-quality jobs. The jobs in all sectors delivering a weekly wage above the threshold are termed high quality and all jobs below the threshold are low quality. The average weekly wage, or threshold, as of December 2020 was $857.60.”

Since its inception, the “JQI shows that the U.S. creates millions more low-quality jobs than high-quality jobs each year. The JQI for December 2020 was 80.5, indicating that 55% of nonsupervisory workers worked in low-quality jobs, and only 45% in high-quality.”

The results of the new working paper “show that Black and Hispanic American Job Quality Indexes are far below that for the total U.S. population. Asian American JQI however is substantially higher than the overall U.S. JQI.  The key findings were:

  • “Black American job quality is far worse than that of the total population. The Black Job Quality Index (JQI) for 2020 was 38.7, more than 40 points below the JQI for the total U.S. private sector production and nonsupervisory workforce. For the Black nonsupervisory workforce, 72% of their jobs are low quality, and only 28% rank as high-quality…”
  • The JQI for Hispanic Americans was 38.1 in 2020, 42 points below the U.S. JQI. In 2002, 28% of Hispanic American employees held high-quality jobs and 72% were in low-quality employment. Although far below the U.S. JQI, the Hispanic American JQI rose by 29% since 2007, when it was just 29.5. The increase in the Hispanic American JQI was driven largely by the growth of Hispanic jobs in high-quality health care and construction service jobs.
  • The Asian American JQI began the period well above the total U.S. figure and rose further, to reach 158.3 in 2020. At that level, 61% of Asian American employees were in high-quality jobs, with just 29% in low-quality. The high and rising Asian American JQI was driven by high-quality professional business service, health care, and finance/insurance jobs.

Ferry and Mayoral offered the following opinion: “Despite rising incomes for many Americans since 2007, Black Americans are not getting their fair share. Job growth for Black Americans since 2007 has been concentrated in low-quality jobs, notably in service sector jobs such as food service and social assistance. The slow growth in high-quality jobs since 2007, including a decline in many manufacturing sectors, has made it more difficult for Black and Hispanic Americans to gain access to these jobs. The JQIs for Black and Hispanic Americans reflect the economic inequality faced by these groups.”

They added, “The changing composition of the U.S. workforce in the years since 2000 hits Black Americans harder than it hits other ethnic groups, in particular whites, because Black Americans are more strongly concentrated among the 64% of the U.S. workforce that does not have a four-year college degree. For workers without four-year degrees, the traditional route to a middle-class income has been the manufacturing sector. That sector’s abrupt decline, which began in the 1980s but accelerated after 2000, has forced these workers to look elsewhere for employment. Unfortunately, the service sectors where jobs have grown most rapidly in this century pay well below manufacturing wages.”

It wasn’t “systemic racism” that caused the loss of higher paying manufacturing jobs —it was the greed of large American corporations with multinational presence that wanted to increase profits by shifting manufacturing to cheaper labor countries reduce costs of regulations.  Manufacturing was first shifted to Mexico after NAFTA and then to China after China was allowed into the World Trade Organization in the year 2000 and tariffs were reduced or eliminated. The loss of manufacturing jobs was made worse by   China’s flooding the U.S. with cheap imports that put domestic manufacturers out of business. 

The loss of high paying manufacturing jobs in cities like Detroit, Chicago, Philadelphia, and Pittsburgh, all cities with high Black populations, turned these cities and others into “job deserts” for high paying jobs.

When I visited Cincinnati in 2016 as the guest of Source Cincinnati, I learned that the city had lost 67% of its manufacturing base, and they were implementing a multi-pronged approach to reviving manufacturing jobs. Some cities in the southern states of North and South Carolina lost nearly all of their textile and furniture manufacturers. In 2017, I saw evidence of this devastation when I visited Greensboro, Raleigh, and High Point in North Carolina and Charleston, South Carolina.

Even in my long-time home of San Diego County, I documented the loss of 185 companies out of my database of about 1,000 manufacturers between 2001 and 2010. I wrote periodic reports starting in 2003, which led me to write my first book, Can American Manufacturing be Saved” Why we should and how we can” published in 2009.  This edition and the 2012 edition described the ramifications of losing 5.8 million manufacturing jobs in the U.S. between 2001 – 2010 and made recommendations on how to save American manufacturing.

In conclusion, Ferry and Mayoral recommended: “Policy initiatives to address the inequality of Black and Hispanic Americans suffering from much lower job quality than the total American population include supporting high-wage industries, notably manufacturing. These industries offer the best opportunity for Black and Hispanic Americans, who have relatively less educational qualifications than other Americans, to find high-quality jobs capable of supporting middle class lifestyles.”

Addressing the problem of rebuilding American manufacturing to create more high paying jobs for all Americans, including Black and Hispanic workers, is the whole focus of my book, Rebuild Manufacturing – the key to American Prosperity published in 2017. Reshoring manufacturing to America and personal decisions by consumers to buy Made in USA products are just two of the simpler ways we can rebuild American manufacturing.

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