Biden Administration Must Maintain Tariffs on Chinese Goods

January 26th, 2021

During his campaign, Biden laid out his economic agenda for the country, called “Build Back Better, which includes a $700 billion investment in procurement and research and development for new technologies such as biotech, clean energy and artificial intelligence.”  The goal is that “the new plan will help create 5 million new jobs.”  As Vice President under President Obama, Biden advocated engagement with China, but changed his tune during the campaign, “calling Chinese President Xi Jinping a “thug. ” While he repeatedly criticized “Trump’s trade and tariff war with China as being ineffective and failing to protect the US economy,” the Biden Administration must maintain the steel and aluminum tariffs order to have any hope of achieving his goal.

During his Jan. 19th confirmation hearing, Biden’s incoming secretary of state, Antony Blinken, told the Senate Foreign Relations Committee: “President Trump was right in taking a tougher approach to China. I disagree very much with the way that he went about it in a number of areas, but the basic principle was the right one. And I think that that’s actually helpful to our foreign policy.”

An article in The Balance reported that the U.S. trade deficit with China was $315.1 billion in 2012, rose to $367.3 billion by 2015 before dropping to $346.8 billion the next year. By 2018, it had increased to $418.9 billion, before falling to $345.2 billion in 2019.”

The big drop was partly due to the 25% tariff on steel imports that President Trump enacted on top of a 10% tariff previously leveraged on aluminum. The tariffs went into effect on July 6, 2018, impacting $34 billion worth of Chinese imports.

The article reported that “The U.S. trade deficit with China for 2020 was $283.6 billion as of November of that year. That’s 18% less than 2019’s $345.2 billion deficit.”

The article explained that “The trade deficit exists because U.S. exports to China were only $110 billion while imports from China were $393.6 billion. The biggest categories of U.S. imports from China are typically computers; cell phones; apparel; and toys, games, and sporting goods.2?? A lot of these imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports.” 

In the same vein, Reuters reported that the U. S. trade deficit narrowed in 2019 for the first time in six years, stating “At the height of the U.S.-China trade war last year, Washington slapped tariffs on billions worth of Chinese goods, including consumer products, thumping imports. The politically sensitive goods trade deficit with China plunged 17.6% to $345.6 billion in 2019 “

On November 17, 2020, IndustryWeek published an opinion article by Jeff Ferry, chief economist at the Coalition for a Prosperous America.  Ferry wrote “it’s clear that the Trump administration’s steel tariffs have generated a boom in steel investment and a shift to newer technologies that are creating high-paying jobs for thousands of new steelworkers…The steel tariffs have succeeded by reducing the level of these imports in the U.S. This has allowed domestic steel producers to make needed investments while taking the industry forward with confidence.”  He cited that “U.S. Steel Corporation produced the first ton of steel at a brand-new facility in Fairfield, Alabama, “Nucor Steel has started building a new steel plate mill in Brandenburg, Kentucky, that will employ 400 workers at an average annual salary of $72,800,” and “Commercial Metals Company announced plans to build a second rebar steel mill in Mesa, Arizona, that will employ 185 workers.”

He noted that “With steel imports down, America’s steelmakers have started investing at home. In addition to Nucor and US Steel, companies like Cleveland-Cliffs, Steel Dynamics, CMC, and AK Steel have invested billions of dollars in at least 16 major new projects throughout the nation. The top five US steel companies more than doubled their total annual investments between 2017 to 2019, from $1.5 billion to $4.2 billion.”

It’s been great that the 25% tariffs on steel have saved our critical American steel industry, but the tariffs have not been high enough to benefit most of the manufacturers in the parts producing domestic supply chain.  As a sales representative for American manufacturers that produce molded and other fabricated mechanical parts, we sometimes get feedback on quotes we lose showing that we would need tariffs of between 200 – 300% to be able to compete with Chinese prices, especially for molded rubber and plastic parts.  Sometimes, the finished part price is less than or equal to the prices for the material used to make these parts. Our industry would love for tariffs to be higher and across the board on all products produced in China and imported to the U.S.

As I wrote in my last article of 2020, tariffs have helped manufacturers return to the U.S. through reshoring.  We gained business in 2019 and 2020 from companies returning metal fabrication from China to the U.S. 

In an article on January 22, 2021, “Biden’s Team Could Be as Hawkish on China as Trump’s, Kenneth Rapoza, CPA Industry Analyst, wrote: “The Trump Administration got China right. It set the table on China going forward, changing the age-old establishment centerpiece of waiting for allies to okay things following one diplomatic meeting after the next. Lighthizer, Peter Navarro, Wilbur Ross and Trump himself took action, and showed that tariffs on China do not mean prices will rise across the board. The stock market didn’t collapse because of the trade war. There seems to be good momentum on China.”

I urge the Biden Administration to keep up the momentum on reducing our trade deficit with China and increasing higher-paying manufacturing jobs by maintaining or expanding tariffs on Chinese imported goods. To appease his “Green Deal” followers, he could call the tariffs “Greenhouse Gas Emission fees” because China’s manufacturers depend on polluting coal-fired power plants due to lack of environmental regulations like we have in the U.S. Many American power plants use cleaner-burning natural gas.  The welfare of our economy and our national security depend on using every tactic we have available to thwart China’s goal of becoming the world’s superpower of the 21st Century.

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Reshoring of Manufacturing Increases in 2020

December 23rd, 2020

The United States gradually lost manufacturing jobs from the peak of 19.5 million in 1979 to 17.3 million by early 2000.  However, after China was granted Most Favored Nation status that year, the loss of manufacturing jobs in the U.S. accelerated dramatically as American manufacturers moved manufacturing offshore and cheaper Chinese goods drove U.S. manufacturers out of business. According to the Bureau of Labor Statistics, we lost 5.8 million manufacturing jobs from the middle of the year 2000 to the middle of 2010.  Fortunately, we have been slowly regaining manufacturing jobs since 2010 thanks to a great extent to the efforts of the Reshoring Initiative.

In April 2010, the Reshoring Initiative was founded by Harry Moser, retired president of GF AgieCharmilles LLC, a leading machine tool supplier in Lincolnshire, Illinois.to facilitate returning manufacturing to America from offshore by providing the right tool at the right time to with the creation of the Total Cost of OwnershipTM  worksheet calculator spreadsheet. To help companies make better sourcing decisions, the Reshoring Initiative provides the Total Cost of OwnershipTM  spreadsheet for free to help manufacturers calculate the real impact offshoring has on their bottom line. The website provides an online library of more than 7,000 articles about cases of successful reshoring.

The brief definition of TCO is an estimate of the direct and indirect costs related to the purchase of a part, sub-assembly, assembly, or product. However, a thorough TCO includes much more than the purchase price of the goods paid to the supplier. For the purchase of manufactured goods, it should also include all of the other factors associated with the purchase of the goods, such as:  geographical location, transportation alternatives, inventory costs and control, quality control, as well as reserve capacity, responsiveness, and technological depth of the vendor.

Mr. Moser’s TCO spreadsheet includes calculations for the hidden costs of doing business offshore, such as Intellectual Property theft, danger of counterfeit parts, the risk factors of political instability, natural disasters, riots, strikes, technological depth and reserve capacity of suppliers, and currency fluctuation as well as effect on innovation, product liability risk, annual wage inflation, and currency appreciation.

Previous studies have shown that about 60% of companies made the decision to offshore based on comparing wage rates, FOB prices or landed costs, while ignoring the hidden costs and risk factors. Thanks to the Reshoring Initiative’s TCO worksheet, companies are becoming familiar with the broad range of factors they had previously ignored. The reasons that thousands of other companies have given for reshoring in the Reshoring Initiatives library of cases helps companies to determine whether those reasons are applicable to them.

According to the annual report released on December 7, 2020 by the Reshoring Initiative, “The projected job announcements for 2020 is 110,000, which will bring the total to over 1 million by year’s end…The combined reshoring and foreign direct investment (FDI) announcements in 2019 totaled more than 117,000 manufacturing jobs, plus an additional 24,800 in revisions to the years 2010 through 2018…Additionally, the number of companies reporting new reshoring and FDI was at the second highest annual level in history:  1,100 companies.”

Jobs Announced, Reshoring and FDI, Cumulative 2010-2019

The report states: “Only products that have been offshored/imported can be reshored. Thus, the products least suitable for offshoring never left, such as heavy, high volume minerals, high mix/low volume items or customized automation systems.

The most active reshoring is by those that left and probably should not have done so, including machinery, transportation equipment and appliances. As the data indicates, reshoring is focused on products whose size and weight, e.g., transportation equipment, or frequency of design change/volatility of demand, e.g., some apparel, suggest that offshoring never offered great total cost savings.”

The term “FDI” means “Foreign Direct Investment” and refers to foreign companies that are investing in manufacturing plants in the U.S. to produce products closer to their major market of the U.S.  Plants established by Japanese companies such as Toyota and Nissan, and plants established by German-owned BMW are examples of foreign investment.

However, we still have a long way to go as the report states: “When measured by our trade deficit of about $500 billion/year, there are still three to four million U.S. manufacturing jobs offshore at current levels of U.S. productivity, representing a huge potential for U.S. economic growth.”

The report states, “Companies have consistently reported Positive Factors more often than Negative, probably because the companies place more value on demonstrating the wisdom of their current reshoring decision than on what went wrong with their earlier offshoring decision. “

The top ten positive factors that influenced a reshoring decision are:

  1. Proximity to customers/market
  2. Government Incentives
  3. Eco-system synergies/Supply chin optimization
  4. Skilled workforce availability/training
  5. Image/brand
  6. Infrastructure
  7. Impact on domestic economy
  8. Lead time/time to market
  9. Automation Technology
  10. Customer responsiveness improvement

The top ten negative factors influencing the decision to reshore are:

  1. Quality/rework/warranty
  2. Freight cost
  3. Total Cost
  4. Delivery
  5. Rising Wages
  6. Inventory
  7. Supply chain interruption/Natural disaster risk/Political instability
  8. Green considerations
  9. Intellectual Property Risk
  10. Communications

The report states that the top industries that are reshoring or benefitting from FDI are:

  • Transportation Equipment
  • Computer & Electronic Products
  • Electrical Equ8ipment, Appliances & Components
  • Chemicals
  • Plastic & Rubber Products
  • Wood & Paper Products
  • Apparel & Textiles
  • Fabricated Metal Products
  • Machinery

It’s not surprising that China ranks number one as the country from which companies are reshoring, with Mexico, Canada, India, and Japan filling out the top five.  The top countries that are investing in manufacturing sites in the U.S. are: Germany, China, Japan, Canada, and Korea. 

The authors note that “The South and Midwest continue to dominate cumulatively. The Midwest and Texas dominate reshoring and the South dominates FDI.” It was surprising to me that Michigan and New York were in the top five states for the number of jobs that were reshored, as they are not states where the cost of business is low. However, Texas ranked highest for both number of jobs announced and the highest number of companies reshoring.

The report authors state, “We believe the continued strength of the trends thru the end of 2019 is largely based on greater U.S. competitiveness due to corporate tax and regulatory cuts and increased recognition of the total cost of offshoring.”

It was interesting to note the impact of the COVID Pandemic on reshoring.  The authors report: “The COVID Pandemic has increased in interest in reshoring as “Two in three (69%) manufacturing companies are looking into bringing production to North America (compared to 54% in February).”

In addition, “Repeated surveys show that more companies, driven by the virus crisis, have decided to reshore. We expect to see the data respond to this shift in 2021. Also due to the pandemic, we are seeing U.S. reshoring outpacing FDI for the first time since 2014…The national demand to shorten and close supply chain gaps for essential products to make the U.S. less vulnerable is most likely to benefit the following industries: PPE, medical, tech, and defense. Already, 60% of cases after March mention the pandemic as a factor in reshoring decisions. Medical equipment and PPE are the first responders of new reshoring with cases already double from last year.”

In conclusion, the authors state: “The revised rate of reshoring plus FDI job announcements in 2019 was up about 2000% from 2010. The 600,000+ jobs brought back represent about 5% of U.S. manufacturing employment. The acceleration of jobs coming back combined with the decline in the rate of offshoring has resulted in a plateauing of the goods trade deficit at about $800 billion/year. The COVID crisis has revealed the U.S.’s over-dependence on imports.

This data should motivate companies to further reevaluate their sourcing and siting decisions by considering all of the cost, risk and strategic impacts flowing from those decisions. Policy makers can use the continued reshoring successes as proof that it is feasible to bring millions of jobs back.”

Government policies do have an influence on reshoring and FDI. If the next administration reverses the corporate tax and regulatory cuts, it could have an adverse effect on the reshoring trend.

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It’s Time to End China’s Most Favored Nation Status

December 1st, 2020

China was granted Most Favored Nation status through presidential proclamation on an annual basis from 1980 – 1998. This was because the Trade Act of 1974 stated that “MFN status may not be conferred on a country with a nonmarket economy if that country maintains restrictive emigration policies” China was, and still is, a nonmarket economy and restricted emigration, but the Act allowed the president to “waive this prohibition on an annual basis if he certifies that granting MFN status would promote freedom of emigration in that country.”

According to CRS Report 98-603 for Congress, “China’s Most-Favored-Nation (MFN) Status:  Congressional Consideration, 1989-1998:” After the Tiananmen Square protests in 1989, there was enough opposition to granting MFN status to China that the “House passed joint resolutions disapproving MFN for China in both 1991 and 1992,” but the Senate didn’t pass the joint resolution. However, the real focus of the debate was not whether to deny MFN status for China altogether, but whether or not to “place new human rights conditions on China’s MFN eligibility.” Congress passed legislation in 1991 and 1992 that would have placed further conditions on China’s MFN status, but President Bush vetoed the legislation.

In 1993, President Clinton announced he would link China’s MFN status to human rights progress beginning in 1994. However, President Clinton reneged on his campaign promise and reversed himself:  “On June 2, 1995, President Clinton transmitted to Congress his intention to waive the emigration prohibition and extend MFN status to the People’s Republic of China for an additional year, beginning July 3, 1995.”

An L.A. Times article of May 27, 1994, reported: “President Clinton, abandoning a central foreign policy principle of his Administration, announced Thursday that he has decided to “de-link” China’s privileged trading status from its human rights record. While acknowledging that China “continues to commit very serious human rights abuses,” Clinton said that he has come to believe that broader American strategic interests justify the policy reversal.” 

The annual granting of MFN status to China by a presidential waiver continued through 1998. Note that “On July 22, 1998, legislation was enacted which replaced the term “most-favored-nation” in certain U.S. statutes with the term “normal trade relations.”  This made it easier for Congress to make the fateful decision to extend “permanent normal trade relations,” or PNTR, to China when the Senate voted to give China permanent most-favored-nation status on September 19, 2000. This vote paved the way for China’s accession to the World Trade Organization.

As Reihan Salam, President of the Manhattan Institute wrote in an article titled “Normalizing Trade Relations With China Was a Mistake,” in the June 8, 2018 issue of The Atlantic, “PNTR was a euphemism designed to get around the fact that the traditional term for “normal trade relations” was “most-favored-nation” (MFN) tariff status…MFN status meant imports would be treated as favorably as those arriving from “the most favored nation.” Absurd as it might sound, this linguistic convention had meaningful political consequences. To argue that we ought to have normal trade relations with China was one thing. Sure, why not? To make the case that China ought to be treated as our most favored nation was a more vexing PR challenge, not least in the wake of the brutal crackdown that followed the Tiananmen Square protests in 1989.”

An article in the American Economic Review, “The Surprisingly Swift Decline of US Manufacturing Employment,” byJustin R. Pierce and Peter K. Schott, July 7, 2016, states: “The permanence of PNTR status made an enormous difference: Without PNTR, there was always a danger that China’s favorable access to the U.S. market would be revoked, which in turn deterred U.S. firms from increasing their reliance on Chinese suppliers. With PNTR in hand, the floodgates of investment were opened, and U.S. multinationals worked hand-in-glove with Beijing to create new China-centric supply chains.” 

This change in U.S. trade policy that eliminated potential tariff increases on Chinese imports resulted in industries that were more vulnerable to the change experiencing greater employment loss, increased imports from China, and higher entry into the U.S. market by U.S. importers and foreign-owned Chinese exporters. My three books and the hundreds of articles I’ve written since 2009 have described what has happened to U.S. manufacturing since 2001. Besides the loss of 5.8 million manufacturing jobs and the closure of an estimated 67,000 American manufacturers, American manufacturing shifted toward more high-tech, less labor-intensive production. However, as China upgraded their technology in the past few years, we started losing our high-tech manufacturing also.

In addition to the annual reports to Congress by the U.S.-China Economic and Security Review Commission documenting China’s violation of World Trade Organization rules along with human rights violations, the U.S. Department of State submits an annual report on International Religious Freedom in accordance with the International Religious Freedom Act of 1998. According to the 2018 International Religious Freedom Report : “Multiple media and NGOs estimated the government detained at least 800,000 and up to possibly more than 2 million Uighurs, ethnic Kazakhs, and members of other Muslim groups, mostly Chinese citizens, in specially built or converted detention facilities in Xinjiang and subjected them to forced disappearance, torture, physical abuse, and prolonged detention without trial because of their religion and ethnicity since April 2017.  There were reports of deaths among detainees.  Authorities maintained extensive and invasive security and surveillance, in part to gain information regarding individuals’ religious adherence and practices.” 

Therefore, it gave me great pleasure when I read that on September 17, 2020, Senator Tom Cotton (R-Arkansas) introduced a bill (S.4609) that “would strip China of its permanent most-favored-nation status—also known as Permanent Normal Trade Relations—a designation it has held for the last twenty years. If passed, the legislation would make extending most-favored-nation status to China an annual decision for Congress and the president.”

Cotton said, “Twenty years ago this week, the Senate gave a gift to the Chinese Communist Party by granting it permanent most-favored-nation status. That disastrous decision made the Party richer, but cost millions of American jobs. It’s time to protect American workers and take back our leverage over Beijing by withdrawing China’s permanent trade status.”

Senator Cotton’s press release states: “The China Trade Relations Act would revoke China’s permanent most-favored-nation status and return to the pre-2001 status quo, whereby China’s MFN status must be renewed each year by presidential decision. Congress could override the president’s extension of MFN by passing a joint resolution of disapproval.

The bill also would expand the list of human-rights and trade abuses under the Jackson-Vanik Amendment that would disqualify China for MFN status, absent a presidential waiver. The abuses that would make China ineligible for MFN status, absent a presidential waiver, are as follows:

  • Uses or provides for the use of slave labor;
  • Operates ‘vocational training and education centers’ or other concentration camps where people are held against their will;
  • Performs or otherwise orders forced abortion or sterilization procedures;
  • Harvests the organs of prisoners without their consent;
  • Hinders the free exercise of religion;
  • Intimidates or harasses nationals of the People’s Republic of China living outside the People’s Republic of China; or
  • Engages in systematic economic espionage against the United States, including theft of the intellectual property of United States persons”

China’s strategic goal is to dominate the sectors of economic growth that historically have held the key to world power:  transportation energy, information, and manufacturing. Their “Made in China 2025” plan is designed to dominate key technology sectors such as artificial intelligence, quantum computing, hypersonic missiles, and 5G. They also plan to become the dominant power in space by 2049.

If this bill isn’t passed in the Lame Duck session, I strongly urge that it be reintroduced into the next Congress and passed unanimously next year. It’s time China for us to stop treating China as a friend and recognize China as the enemy to our national sovereignty it is.

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U.S. Must Face up to the China Threat

November 18th, 2020

Over the past ten years that I have been writing blog articles, one of my reoccurring themes has been the danger posed to the U.S. by China because of their predatory mercantilism through product dumping, currency manipulation, intellectual property theft, and government subsidies. More recently, I have written about China’s written plan to become the superpower of the 21st Century through a combination of economic coercion, industrial espionage, and the buildup of their military.

In this article, I want to share some of the points made in the September 2020 issue of Imprimis, published by Hillsdale College. The article was “adapted from a speech delivered on September 29, 2020, in Rapid City, South Dakota, at a Hillsdale College National Leadership Seminar,”by Brian T. Kennedy, “president of the American Strategy Group, chairman of the Committee for the Present Danger: China, and a board member and senior fellow of the Claremont Institute.”

Kennedy catches your attention immediately saying, “We are at risk of losing a war today because too few of us know that we are engaged with an enemy, the Chinese Communist Party (CCP), that means to destroy us. The forces of globalism that have dominated our government (until recently) and our media for the better part of half a century have blinded too many Americans to the threat we face. If we do not wake up to the danger soon, we will find ourselves helpless.”

He points out that our relationship is based on two beliefs initiated during the Cold War: “President Nixon’s strategic belief that China could serve as a counterweight to the Soviet Union” and “economic liberalism would lead to political liberalism, and China’s communist dictatorship would fade away.” History has shown that these two beliefs were false and “America’s China policy from the 1970s until recently was very costly because it involved a great deal of self-deception about the nature of the Chinese regime and the men who were running it.”

He comments that after the Cold War, “pursuing the China dream appeared a safe course of action, given that the U.S. was then the world’s preeminent military power.” During the last year of the Clinton administration, “China was granted “Most Favored Nation” trading status and membership in the World Trade Organization.” We know the disastrous consequences of this action:  the lost of over 5 million good paying manufacturing jobs between 2001 – 2010 and the closure of some 67,000 manufacturers.

Under the subsequent Bush and Obama administrations, “the U.S. failed to build a military that could challenge Communist China’s aggression in the Pacific—specifically its building of a modern navy and its construction of military installations on artificial islands in the South China Sea—and acquiesced in the export of much of the U.S. manufacturing base to China and elsewhere.”

He explains that China’s 1.4 billion population is “governed by the Chinese Communist Party, which has 90 million members, and by an elite class of approximately 300 million additional Chinese who are deeply invested in the regime’s success…The system benefits these elites, whose businesses, mostly state-owned enterprises, are privately run with active participation by the CCP. Once a business reaches a certain size, it will take on board a cadre of party members who serve as a direct liaison between the business and the government.”

He goes on to explain that “the CCP operates a massive global intelligence network through its Ministry of State Security. This network does its part to assist Chinese business and industry through industrial espionage, cyber warfare, and economic coercion.”

With regard to China’s military buildup, he states that China “has a military of two million men, including the world’s largest navy. This military may not be qualitatively on par with the U.S. military, but quantity has a quality of its own. In the last five years of U.S. naval war game simulations, in which the U.S. is pitted against China, the U.S. has failed to come out victorious. We do not have enough ships and munitions to defeat China’s navy absent the use of nuclear weapons… “As for China’s air force, it possesses and is building today advanced fighter aircraft that rival anything the U.S has built. They may not yet have the quantity, but that will come with time.”

Next, he mentions the book, “Unrestricted Warfare, written in 1999 by two People’s Liberation Army colonels. It argues that war between the PRC and the U.S. is inevitable, and that when it occurs China must be prepared to use whatever means are necessary to achieve victory. This includes economic warfare, cyber warfare, information warfare, political warfare, terrorism, and biological warfare, in addition to conventional and nuclear warfare. The book’s purpose was not only to shape Chinese policy, but also to plant the idea in the minds of U.S. policymakers that China will consider nothing out of bounds.”

He comments that “In thinking about the implications of the word unrestricted, it is useful to look at the CCP’s treatment of its own people. Estimates put the number of those killed at the hands of the CCP—whether through war, starvation, or execution—at roughly 100 million…. And these numbers do not even take into account the forced abortions stemming from China’s one-child policy. That number is conservatively estimated to be 500 million—500 million children murdered in the womb.”

He reminds us of “CCP’s imprisonment in concentration camps of one to two million Muslim Uyghurs in Xinjiang province. Fewer of us are aware of how the Chinese government facilitates the abduction of Uyghur women for sexual use by Chinese soldiers—or even worse, if that were possible, how the government harvests the organs of the Uyghur population for sale both in China and abroad.”

Next, he states that “The CCP operates a vast intelligence network in the U.S as well. It is made up not merely of intelligence operatives working for the Ministry of State Security, but also a myriad of business and industry officials, Chinese scholar associations, Confucius Institutes operating on American campuses, and 370,000 Chinese students attending American universities.…It should not be surprising that a combination of the efforts of this network and of China-based cyber criminals yields $500 to $600 billion of intellectual property theft annually.”

Of particular importance to me is his comment that “Perhaps the greatest threat to the U.S. posed by the CCP is its corruption of America’s business and financial elites, who view the economic benefits of dealing with China as more important than America’s national interests. If there is a single group committed to the globalist project and the delusory China dream, it is Wall Street. Our great investment banks are now selling trillions of dollars in debt and equity in Chinese corporations to American investors and retirees. They are literally betting on the success of China at the expense of the U.S.”

I’ve long written about how American companies have put short term profits before their loyalty to America by transferring so much of their manufacturing to China. As a result, we have decimated our middle class as manufacturing jobs are the foundation of the middle class.

He concludes saying, “Americans are not looking for war with Communist China, but Communist China appears to be at war with us. As a first order of business, we must continue what we have at long last begun: building a military designed to deter Chinese aggression and pursuing trade and other policies that put our own national interests first.

Equally important—especially given the violence in our cities that our foreign enemies cheer—is defending our American way of life and teaching our countrymen why America deserves our love and devotion, now and in the days ahead.”

It’s past time to wake up.  It’s time for action. The next administration must make putting American first if we want to remain a free democratic republic and maintain our national sovereignty.

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How has the COVID Pandemic Affected Makerspaces?

November 4th, 2020

In the past several years, I have visited four makerspaces in southern California, and I recently decided to see how the COVID pandemic had affected these facilities.  Makerspaces play a role in reviving the entrepreneurial “maker spirit” necessary to rebuild and grow American manufacturing.  

The first center I had visited several years ago was MakerPlace, located in San Diego, California. MakerPlace was founded in 2012 by Brian Salmon, Michael Salmon, and Steve Herrick. It was touted for its promising concept of a shared “dream garage,” where hobbyists or professionals could use high-end tools and industrial equipment to make their creations. It had equipment for metalworking, electronics, embroidery, sewing and specialty tools such as laser cutters and engravers.  It also rented out studio and office space, making it a sort of workshop/coworking hybrid.

When I called to talk to the owner, I was unable to connect, so I searched online and found two articles in the San Diego Union Tribune. The first article from December 6, 2019 said that the sole remaining business head of the company, Steve Herrick “decided he was ready for retirement and sought a buyer.” In December 2019, Joseph Henseler and his wife and partner, Lorena Isabelle took over as the new owners.  Hensler had ran his construction and design firm, Duende out of the MakerPlace for six years.

The second article, dated February 2, 2020, stated that MakerPlace “has abruptly shut down, asking members to remove all their belongings in less than 10 days. The shop sent an email to its members with few details about the closure. ‘MakerPlace is officially closing,’ the email reads. The building will be open “only for picking up your own personal items/tools/materials. Anything that’s not picked up by Feb. 14 will be forfeited.” The announcement of the closure came as a shock to members, and some had paid in advance for months of use.

Since the announcement of the closure occurred prior to the shutdowns for the COVID pandemic, it is likely that MakerPlace closed for financial reasons not caused by the pandemic.

The second makerspace that I had visited on Manufacturing Day in October 2016 was Open Source Maker Labs (OSML) in Vista, California.  OSML is the only makerspace in North San Diego County.  Dan Hendricks opened OSML in 2013 to provide a high-tech digital fabrication lab where members can learn, collaborate, innovate, design, and build almost anything.  Their lab is filled with open workspace and tools:  electronics, CNC machines, 3D printers, laser cutter, panel saw, press brake, welding and soldering tools, drawing and modeling programs, and a computer lab.

When I spoke to Dan last week, he said they closed down for two weeks until they realized they fit the definition of an essential business that was allowed to stay open under Governor Newsome’s order. 

I asked what he has had to change.  He said, “We follow the stage 2 guidelines and limit the use of our labs to members by appointment only and limit the number of people based on our square footage. We practice a smart sanitization routine for our Maker Lab. We only lost a couple of older members worried about their health, but have picked up some new, younger members. We haven’t had to turn anyone away.  We focus on R&D technology and have a lot of the software needed for designing new products.  We offer a co-working incubator-type atmosphere for startup and existing small to medium-sized companies.”

He added, “I’m an Adjunct Professor at Cal State San Marcos, so we are doing some online classes in partnership with the college. I will be doing an online class on IIoT for the next term.  Our strategy was to ride out the pandemic and not change to be ready to help with the recovery and support the new companies that will form during the recovery and provide R&D resources for existing small and medium sized companies to do their R&D at our facility.

In 2016, I also visited Vocademy – a Maker Space in Riverside, California, founded by Gene Sherman. Vocademy was a combination of the “best parts of makerspaces, school shop classes, trade schools, R&D labs, and dream garages, all in one place. His dream was “to solve the skills gap for the manufacturing industry.” Unfortunately, it was Sherman’s focus on providing shop classes for schools and being a vocational trade school that made Vocademy an early casualty of the COVID pandemic so that it closed down on March 20, 2020 after Governor Newsome ordered all schools and non-essential business to shut down because of the COVID pandemic.  An article in the Press-Enterprise of March 28th, stated: “Vocademy…can’t afford to stay open due to the state order mandating business and school closures, wrote Gene Sherman, the nonprofit’s founder and CEO.

The academy partners with schools, and when those schools closed until next school year, 70 to 80% of Vocademy’s revenue was lost, Sherman said in an email.

In addition, many of our current students did not wish to attend class and other potential community students told us they will not be signing up because of virus fears, Sherman wrote. “We are a small business and, unlike a public school, our revenue does not come directly from educational funding.”

It broke my heart to hear that Vocademy has closed because providing vocational shop classes to youth is critical to providing the next generation of manufacturing workers need to rebuild American manufacturing.

I had visited Urban Workshop in May 2018 after attending a conference. The Urban Workshop Is located in Costa Mesa and was founded by and is privately owned by, Steve Trindade. The 28,000 square foot floor plan includes workshop areas for a variety of manufacturing processes, co-working office space, a work assembly area with assorted hand and power tools, storage space for work in process and materials for members, a conference room, a large meeting room, and a retail store offering convenience materials and consumables.

When I interviewed Steve last week, he said, “We were closed for 60 days before re-opening. I sent a heart-felt message to members and most of them continued to pay their membership dues and monthly charges for storage space. We told them we would make it up at the end after we reopened. We lost our hands-on contract work with a charter school, but we were able to make 50 videos for their online education program.”

He explained, “What saved us is that we have four different revenue streams:  membership dues, fees for storage space for members, fees for classes, and co-working space. We made some decisions early on that were based on my experience in ramping up and down for the racing industry I was in previously. We went down from 330 members to 180 members, but went back up to 335 members within 80-90 days of reopening. We implemented a stringent sanitizing program and members have to make appointments”

He added, “We are continuing our program to license our operational procedures and class documentation to other makerspaces as a “Maker Space Blueprint,” provide operational training in setting up and running a makerspace, and provide instructor training to enable them to succeed and prosper.”

I told him I was glad they have survived the effects of the pandemic because makerspaces play an important role in rebuilding American manufacturing.  We agreed that new businesses will be formed by people who have lost their livelihood during the pandemic just as previous recessions spurred the formation of new businesses

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Comparing Trump’s and Biden’s Policies that Support Rebuilding American Manufacturing

October 20th, 2020

For those of us who support the Made in America/Buy American movement and want to rebuild American manufacturing by returning manufacturing to America through reshoring from China, it’s important to consider the policies of President Trump and former V.P. Biden in their bid to be president.  Two policies, tax rates and the cost and availability of energy, have a major effect on where a company chooses to locate their manufacturing or headquarters if they have multiple plants globally. If the corporation has a plant in a country with a lower tax rate, they may choose to shift their profits to the subsidiary in that country.  Bulgaria and the Czech Republic at 10% and Ireland at 12.5% have the lowest corporate tax rates in Europe. American manufacturers that don’t have plants in other countries face the brunt of the tax burden. Personal tax rates are also important as only 30-35% of manufacturers are C corporations; the others are LLCs, partnerships or sole proprietorships where taxes are passed through to the owner(s).

Taxes

Biden’s Tax Policies:

  • Raise the corporate tax rate to 28%.
  • Require a true minimum tax of 21% on ALL foreign earnings of United States companies located overseas (double the current rate). 
  • Impose a tax penalty on corporations that ship jobs overseas in order to sell products back to America.
  • Impose a 15% minimum tax on book income so that no corporation gets away with paying no taxes.
  • Raise the top individual income rate back to 39.6%.
  • Require those making more than $1 million to pay the same rate on investment income that they do on their wages.

Trump’s Tax Policies:

The U.S. had a corporate tax rate ranging from a low of 15% to a high of 35% until the Tax Cuts and Jobs Act (TCJA) was passed by Congress on December 20, 2017, which reduced the corporate tax rate to flat tax of 21%. TCJA also cut capital gains tax to 15 % and increased the estate tax basic exemption amount from $5 million to $10 million.

President Trump’s tax policy platform for re-election focuses largely on promoting and preserving the tax cuts of TCJA and making various tax rate reductions scheduled to expire in 2025 permanent.  Before the Republican convention, his campaign released his agenda, which included:

  • Cutting taxes “to boost take-home pay and keep jobs in America”
  • Enacting “Made in America” tax credits
  • Expanding opportunity zones
  • Enacting new tax credits “for companies that bring back jobs from China
  • Permitting 100% expensing “for essential industries like pharmaceuticals and robotics that bring their manufacturing back to the United States.”

Energy

Biden’s Policies:

Biden’s campaign website.states that he plans to “Move ambitiously to generate clean, American-made electricity to achieve a carbon pollution-free power sector by 2035. This will enable us to meet the existential threat of climate change while creating millions of jobs…”

His plan is for America to achieve a 100% clean energy target by means of:

  • advanced nuclear reactors, that are smaller, safer, and more efficient at half the construction cost of today’s reactors;
  • refrigeration and air conditioning using refrigerants with no global warming potential;
  • using renewables to produce carbon-free hydrogen at a lower cost than hydrogen from shale gas through innovation in technologies like next generation electrolyzers;
  • decarbonizing industrial heat needed to make steel, concrete, and chemicals and reimagining carbon-neutral construction materials
  • leveraging research in soil management, plant biologies, and agricultural techniques to remove carbon dioxide from the air and store it in the ground; and
  • capturing carbon dioxide through direct air capture systems and retrofits to existing industrial and power plant exhausts, followed by permanently sequestering it deep underground or using it to make alternative products like cement.”

Trump’s Policies:

  • Since he took office, President Trump has rolled back hundreds of environmental protections, including limits on carbon dioxide emissions from power plants and vehicles, and protections for federal waterways across the country, fulfilling a campaign promise from 2016.
  • On June 1, 2017, Trump announced the U.S. withdrawal from the Paris Climate Agreement, saying the deal disadvantaged the US “to the exclusive benefit of other countries.”
  • His administration approved oil and gas drilling in Alaska’s Arctic National Wildlife Refuge, which has been off-limits for drilling for decades.
  • President Trump supports development of all forms of energy without subsidies, including production of natural gas through fracking

Trade/Tariffs

Biden’s Policies

  • Take aggressive trade enforcement actions against China or any other country seeking to undercut American manufacturing through unfair practices, including currency manipulation, anti-competitive dumping, state-owned company abuses, or unfair subsidies.
  • Rally our allies in a coordinated effort to pressure the Chinese government and other trade abusers to follow the rules and hold them to account when they do not.
  • Confront foreign efforts to steal American intellectual property.
  • Address state-sponsored cyber espionage against American companies.
  • Apply a carbon adjustment fee against countries that are failing to meet their climate and environmental obligations to make sure that they are forced to internalize the environmental costs they’re now imposing on the rest of the world.

Trump’s Policies:

  • On January 23, 2017, Trump signed an order to withdraw from further negotiations on the Trans-Pacific Partnership.
  • On September 2, 2017, Trump instructed aides to withdraw from the U.S. trade agreement with South Korea and later renegotiated a better trade agreement.
  • On August 16, 2017, the Trump administration began renegotiating NAFTA with Canada and Mexico. NAFTA was replaced with the new United States–Mexico–Canada Agreement (USMCA), signed on November 30, 2018.
  • On January 22, 2018, Trump imposed tariffs and quotas on imported solar panels and washing machines.
  • ? On March 1, 2018, he announced a 25% tariff on steel imports and a 10% tariff on aluminum.
  • On April 3, 2018, Trump announced 25% tariffs on $50 billion in Chinese imported electronics, aerospace, and machinery.
  • On April 6, 2018, Trump announced tariffs on $100 billion more of Chinese imports.
  • On October 7, 2019 the United States and Japan signed two agreements intended to liberalize bilateral trade. The U.S.- Japan Trade Agreement (USJTA) provides for limited tariff reductions and quota expansions to improve market access.
  •  On January 15, 2020, President Trump and Vice Premier Liu H of China the US–China Phase One trade deal in Washington DC.

Buy American/Made in America

Biden’s Policies:

  • Make a $400 billion Procurement Investment in American products, materials, and services and ensure that they are shipped on U.S.-flagged cargo carriers.
  • Retool and Revitalize American Manufacturers, with a particular focus on smaller manufacturers and those owned by women and people of color, through specific incentives, additional resources, and new financing tools.
  • Make a New $300 Billion Investment in Research and Development (R&D) and Breakthrough Technologies 
  • Bring Back Critical Supply Chains to America so we aren’t dependent on China or any other country for the production of critical goods in a crisis.
  • Tighten domestic content rules to require more legitimate American content
  • Crack down on waivers to Buy American requirements by federal Agencies
  • End false advertising by companies that label products as Made in America even if they’re coming from China or elsewhere
  • Strengthen and enforce Buy America provisions
  • Update international trade rules and associated domestic regulations for Buy American

Trump’s Policies:

Trump’s campaign slogan revolves around continuing his promise to Make America Great Again. One of the ways is to rebuild American manufacturing and create higher paying jobs. He uses protectionism to defend U.S. industries from foreign competition. According to the National Association of Manufacturers (NAM), the U.S. manufacturing sector, added about 450,000 workers during the first three years of Trump’s presidency before the pandemic. Here are some of the actions he has taken as President.

President Trump’s campaign website also lists the following goals for his next term:

  • Reduce U.S. dependence on Chinese manufacturing and bring back 1 Million Manufacturing Jobs from China
  • No Federal Contracts for Companies who Outsource to China
  • Grant tax credits to companies that move manufacturing back to United States; tariffs on those that don’t.

Remember that actions speak louder than words, so be sure to compare what a candidate has done and not just what they promise to do in their campaign platform. Be sure to vote. The future of our country is at stake.

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Market Access Charge Would Eliminate Trade Deficit & Increase GDP

October 6th, 2020

In July 2017, the Coalition for a Prosperous America (CPA) released a paper titled, “The Threat of U.S. Dollar Overvaluation: How to Calculate True Exchange Rate Misalignment & How to Fix It” by Michael Stumo (CEO), Jeff Ferry (Research Director) and Dr. John R. Hansen, a 30-year veteran of the World Bank and Advisory Board member.

The purpose of the paper is to explain the problem of the dollar overvaluation, to show how to accurately calculate the dollar’s misalignment against trading partner currencies, and to propose a solution this serious threat to America’s future. At the time, the dollar was overvalued by 25.5% compared to other major currencies.

The solution developed by Dr. Hansen is a Market Access Charge (MAC) “as a system to discourage overseas private investors and return-sensitive official investors such as sovereign wealth fund managers from excessive speculation and trading in U.S. dollar assets.” He believed that the MAC would reduce “the incentive for foreigners to invest in dollars, gradually and safely reduce its overvaluation, benefiting the U.S. economy and restoring control over our own currency.”

In February 2019, CPA released the working paper, “Quantifying Economic Growth and Job Creation from a competitive Dollar,” showing that a 27 percent realignment in the trade weighted US dollar exchange rate over five years would eliminate the US trade deficit, result in an additional $1 trillion in GDP and create 5.2 million new jobs.

The MAC was proposed in a Senate bill introduced in July 2019, S.2357, titled the

“Competitive Dollar for Jobs and Prosperity Act.” It was introduced by Sen. Tammy Baldwin (D-WI) and Josh Hawley (R-MO), and is languishing in the Senate Committee on Banking, Housing, and Urban Affairs.

On October 5, 2020, CPA released a working paper, “Modeling the Effect of the Market Access Charge on Exchange Rates, Interest Rates and the US Economy,” by Steven L Byers, PhD. and Jeff Ferry.

In Section 1, The Relationship Between International Capital Flows and the Exchange Rate, the authors state that “The standard open-economy macroeconomic models2 predict that under a floating exchange rate regime, when a country runs a trade deficit/surplus, the exchange rate will adjust to eliminate the imbalance. However, exchange rates have not adjusted and imbalances have persisted. The US trade and current account deficits have continued to run at some 2%-3% of US GDP for decades (Figure 1), suggesting that other forces are preventing the deficits from correcting themselves.”

The authors go into detailed economic models that establish the relationship between equity inflows and the currency dollar exchange rate.

In Section 2, The MAC, Capital Flows and the Dollar Exchange Rate, the authors examined how a charge on capital inflows is likely to impact inflows and the exchange rate, focusing on the Market Access Charge (MAC) discussed above. The authors state: “The MAC would be a one-time fee paid on the purchase of any U.S. dollar financial asset by a foreign entity or individual. The MAC is designed to moderate foreign demand for dollar assets and realign the US dollar exchange rate to a trade-balancing level. The Baldwin-Hawley bill specifies that the Federal Reserve Board would set and manage the MAC to achieve current account balance within a five-year time horizon. Once balance was achieved, the Fed would manage the MAC to keep the US economy close to current account balance over time. “The Baldwin-Hawley bill specifies that the Federal Reserve Board would set and manage the MAC to achieve current account balance within a five-year time horizon. Once balance was achieved, the Fed would manage the MAC to keep the US economy close to current account balance over time.”

This section covers detailed economic models on how the MAC would affect different kinds of equity flows, such as bonds, Treasury notes

In Section 3, How the MAC Impacts Interest Rates, the authors “sought to estimate the impact of the MAC on the financial sector with a focus upon interest rates and government debt service costs.” They investigated and modeled the effect of a 1%, 3%, and 5% MAC on the nominal exchange rate, 10-year interest rates, and interest rate on outstanding Federal debt.

With regard to revenue the MAC would generate for the US Treasury, the authors comment, “Though the MAC would reduce capital inflows significantly, our model suggests that even with a 5% MAC, gross equity inflows would continue at a rate in excess of $3 trillion a quarter, with inflows into debt securities at similar levels. MAC transaction fees, paid by foreign purchasers of US securities, would provide a large new source of revenue to the US Treasury. Table 4 shows that these revenues could reach $672 billion, equivalent to 19% of last year’s total federal tax revenue.”

In Section 4, Effects on the Economy, the authors state: “…US producers of goods and services would gain market share in the US market and export markets. Our model estimates the impact of increased domestic production over the five-year period on US GDP and employment. In the case of a 5% MAC, the dollar’s exchange value would fall by 27…the more competitive dollar would balance trade, increasing exports by $765 billion or 29.5% over the baseline, and reducing imports by $167 billion (5.1%). The fall in imports is modest because while imports lose share in the domestic market, the rise in economic growth from the more competitive exchange rate boosts GDP, which leads to higher imports. But trade would be balanced. The GDP would rise by $1.01 trillion or 4.6%. Compared to the baseline forecast, the economy would create 4.9 million new jobs by 2025… the new jobs would be weighted towards internationally competitive sectors, notably manufacturing and natural resources, which offer higher pay (and often better benefit packages) than the average US job.”

The authors conclude that “The model shows large benefits to the US economy and the US. Treasury. Further study is warranted and should be pursued.”  I would go one step further and say that the Baldwin-Hawley “Competitive Dollar for Jobs and Prosperity Act.” (S. 2357) should be released out of committee as soon as possible to be debated and then passed in the full session of the Senate.  Reducing our trade deficit, increasing our GDP, and creating more higher paying manufacturing jobs are important actions to be taken to create prosperity in America.

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Buying “Made in China” May Support Slave Labor

September 22nd, 2020

One of the consequences of President Clinton’s granting China Most Favored Nation status and allowing them to become a member of the World Trade Organization is that China took over production of consumer goods previously made in the USA. As a result, the consumer products you buy that are “Made in China” may be made by slave labor.

The Global Slavery Index published by the Minderoo Foundation “estimates that on any given day in 2016 there were over 3.8 million people living in conditions of modern slavery in China, a prevalence of 2.8 victims for every thousand people in the country. This estimate does not include figures on organ trafficking…Much of its rapid economic development has been the result of a domestic economy specialising in the production of labour-intensive, cheap goods for export. Forced labour mainly occurs in the production of these goods, including in the manufacturing and construction sectors, as well as in more informal industries…,Other labour-intensive industries in China are also creating a demand for low-paid foreign labour. The sugarcane industry in China’s southern Guangxi province attracts an estimated 50,000 illegal Vietnamese workers. Factory towns in Southern China have been found to employ illegal workers from Vietnam on a widespread basis.”

The Index commented that “The Chinese government officially announced in November 2013 that it would abolish the Re-education through Labour (RTL) System, in which inmates were held and routinely subjected to forced labour for up to four years. However, a 2017 report by the US-China Economic and Security Review Commission alleges that China still maintains a network of state detention facilities that use forced labour.”

The purpose of the U.S.-China Economic and Security Review Commission is to monitor, investigate, and submit to congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and China, and to provide recommendations to Congress. If you read a chapter or two from any of the reports from 2017 – 2019, you would realize that Congress is not doing enough to address the threats China poses to the U.S.

In the staff research report, “U.S. Exposure to Forced Labor Exports from China,” Alexander Bowe, Research Fellow, write, “China maintains a network of prison labor facilities that use forced labor* to produce goods intended for export—a violation of U.S.-China trade agreements and U.S. law. U.S. officials continue to face considerable difficulty in combating exports of these forced labor products, since cooperation from Chinese interlocutors has remained at low levels for years. U.S. Immigration and Customs Enforcement (ICE) agents have not been permitted to make site inspections in China since 2009…”

In an article on June 11, 2019, the Epoch Times reported, “In undercover footage shot inside China’s notorious Masanjia labor camp, prisoners are shown hunched over work tables, with piles of wire diodes—an electronic component—on either side of a rubber mat. They do this work 15 hours a day, while being fed subsistence meals and receiving a pittance or no pay at all. Some inmates, exhausted, are shown lying down to sleep under their work tables.”

Another Epoch Times article of August 25, 2020, states, “For three years on and off, Li Dianqin worked for about 17 hours a day making cheap clothing—from bras to trousers—in a Chinese prison. She worked for no pay and faced punishment by prison guards if she failed to meet production quotas. One time, a team of about 60 workers who couldn’t reach their quota were forced to work for three days straight, not allowed to eat or go to the bathroom. The guards would shock the prisoners with electric batons whenever they dozed off.”

On March 1, 2020, the Australian Strategic Policy Institute released a report that stated, “Since 2017, more than a million Uyghurs and members of other Turkic Muslim minorities have disappeared into a vast network of ‘re-education camps’ in the far west region of Xinjiang…This report estimates that more than 80,000 Uyghurs were transferred out of Xinjiang to work in factories across China between 2017 and 2019, and some of them were sent directly from detention camps.”

The report explains, “Under conditions that strongly suggest forced labour, Uyghurs are working in factories that are in the supply chains of at least 82 well-known global brands in the technology, clothing and automotive sectors…”  The whole list is too long to publish in this short article, but it includes: Amazon, Apple, BMW, Calvin Klein, Carter’s, Cisco, Dell, General Motors, Google, Hitachi, HP, L.L.Bean, Mercedes-Benz, Microsoft, Mitsubishi, Nike, Panasonic, Polo Ralph Lauren, Puma, Samsung, Sharp, Siemens, Skechers, Sony, Toshiba, Victoria’s Secret, and Volkswagen.

It is noted that “ASPI reached out to these 82 brands to confirm their relevant supplier details. Where companies responded before publication, we have included their relevant clarifications in this report. If any company responses are made available after publication of the report, we will address these online…a small number of brands advised they have instructed their vendors to terminate their relationships with these suppliers in 2020.” The full report can be downloaded here.

On August 13, 2020, The New York Times updated a visual investigation revealing that “As the coronavirus pandemic continues to drive demand for personal protective equipment, Chinese companies are rushing to manufacture the gear for domestic and global consumption. A New York Times visual investigation has found that some of those companies are using Uighur labor through a contentious government-sponsored program that experts say often puts people to work against their will.”

The next time you are ready to buy an article of clothing or a pair of shoes “Made in China,” think about what the working conditions were like for the workers who made these items. Remember that “Made in China” could mean being made in prison by slaves or forced labor at private companies. Avoid buying from online websites as much as possible as current law doesn’t require information on where a product is made. Choose to buy Made in USA whenever possible. Take a look at the variety of products available at these websites:  www.madeinamericastore.com, www.buydirectUSA.com, and of course, www.themadeinamericamovement.com, which publishes my articles.

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What Has Been the Impact of COVID-19 Pandemic on U. S. Manufacturing?

September 15th, 2020

How much the impact of the COVID-19 Pandemic has had on manufacturing depends on the state in which a manufacturer is located and what is the industry of the manufacturer.  According to Ballotpedia, “Seven states—Arkansas, Iowa, Nebraska, North Dakota, South Dakota, Utah, and Wyoming—did not issue orders directing residents to stay at home from nonessential activities in March and April 2020 in response to the coronavirus pandemic. The 43 other states all issued orders at the state level directing residents to stay at home except for essential activities and closing businesses that each state deemed nonessential.” Only South Dakota did not require any businesses to close.

On May 8, 2020, CNBC reported that by the end of the first month of the shutdown, manufacturing had lost 1,330,000 jobs, and its supporting  industry of transportation and warehousing had lost 584,000 jobs, out of the total job loss of 20.5 million. 

Accenture reported: The automotive industry is a critical component of economic growth with extensive interconnections to upstream (e.g. steel, chemicals, textiles) and downstream industries (e.g. repair, mobility services). With nearly 8 million employed in the U.S., employment in the automotive industry has taken a big hit. The automotive industry is considered essential for the global economy and the resulting prosperity.

CNBC reported that the “Aerospace Industries Association estimates that more than 200,000 jobs in the sector are at risk. Boeing earlier this year said it would aim to cut 10% of its workforce, which stood at 160,000 as of the end of 2019. While it is hiring for its defense unit, the commercial aircraft division has been hit by hundreds of cancellations this year, and CFO Greg Smith told investors on July 29 that 19,000 employees are departing Boeing. About 6,000 had left as of the end of June…At General Electric, which makes engines for both Boeing and Airbus planes, the company is cutting a quarter of the jobs, or 13,000 people in its aviation unit, which is based in Ohio.”

An article on PWC.com commented, “On the defense side of the industry, the situation appears less dire, with demand protected by budgeted government spending and a supply chain with minimal exposure to hard-hit jurisdictions such as Asia. However, events outside the US are affecting the US defense industry, as some US military partner nations may experience challenges in military readiness and ability to maintain equipment. Additionally, some defense companies may be financially weakened, but most likely to a lesser extent compared to consumer-facing aerospace companies.”

My manufacturers sales rep agency, ElectroFab Sales, was fortunate in that all of the California companies we represent were able to stay open because they were in the supply chain of one or more of the 16 essential industries allowed to stay open by California Governor Newsome. However, our open sales orders have dropped by 50% since February. This is primarily because too many of  our customers are in the defense and military sector, and all new product development for new systems has been put on hold indefinitely. In addition, repeat orders for existing systems have dropped.

The summer newsletter of the Coalition for a Prosperous America reported: The term ‘Made in USA’ is currently tracking at an all-tie high since 2004” on Google Trends.  Zach Molti of Atlas Tool Works said that “his company’s recent sales are up roughly one-and-a-half times their usual volume.”  “Bryan Hurley, the owner of Florida-based Americraft Cookware says that his sales have been up 167% of late compared to 2019.” Greg Owns, CEO of Liberty Tabletop, the only flatware manufacturer in the U.S., reported on our Buy American Committee call last Thursday, that orders are up 200% compared to 2019.

A number of CPA member companies had retooled and repurposed their operations to respond to the COVID-19 pandemic to make PPE goods and equipment. Numerous other manufacturers all over the country did the same thing.  Even Ford and GM retooled their factories to make ventilators.

Five months after the COVID-19 shutdowns began, manufacturing is bouncing back faster than everyone expedted. The September 1st Manufacturing ISM® Report On Business®  issued  by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee showed that “The August PMI® registered 56 percent, up 1.8 percentage points from the July reading of 54.2 percent. This figure indicates expansion in the overall economy for the fourth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth. The New Orders Index registered 67.6 percent, an increase of 6.1 percentage points from the July reading of 61.5 percent.  U.S. manufacturing activity came back strong and exceeded expectations for August, expanding at the fastest rate in almost two years.”

However, “…(1) commercial aerospace equipment companies, (2) office furniture and commercial office building subsuppliers and (3) companies operating in the oil and gas markets — as well as their supporting supply bases — are and will continue to be impacted due to low demand. These companies represent approximately 20 percent of manufacturing output. This situation will likely continue at least through the end of the year,” says Fiore.”

In an article on Manufacturing.net, Melvin Bosso, a principal with Myrtle Consulting Group, stated, “Reshoring is also an example of a dynamic that had started long before COVID-19 and will continue far beyond the emotional reaction to the catastrophic effects of the crisis.” He said, there are “four major clusters of reasons why a company makes a decision on how to deploy their supply chains: Costs, Service, Technology and Risk…most organizations have had to rethink their understanding of the fourth cluster – Risk…. All supply chains that run with a just-in-time inventory strategy had to deal with a shortage risk when China, and more broadly Asia, locked down. All essential industries are coming out of the crisis thinking about alternatives. Many are working, or will be working, to find ways to change their exposure.”

Harry Moser, Founder and President of the Reshoring Initiative® recently stated, “COVID has caused companies to reevaluate their supply chains. Often, shorter is better. By 4Q20 we expect to be helping 50 to 100 companies either buy smarter or sell smarter against imports. In most cases, we are providing this support through MEPs (Manufacturing Extension Partnerships) which exist in every state.”

We need to take advantage of this wake-up call to the risk of global supply chains, particularly our reliance on China, to create incentive plans to bring back manufacturing segments that are considered critical for national sustainability. Now is the time to reshore key industries from China to reduce the risk of future supply chain disruptions due to unforeseen events.  American consumers want to buy more “Made in USA” products.  Our government needs to use domestic manufacturing as part of its plan to build up strategic resilience in the aftermath of the current crisis.  It’s time for Congress to support reshoring with the right trade, tax, and currency policies to facilitate making the reshoring trend permanent.

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Why Software Should be Made in USA

September 1st, 2020

Our modern world runs on computers and the software that controls them.  Software makes our computers usable for such activities as word processing, accounting, engineering design, production planning, Enterprise Resource Planning (ERP), communication, CGI, 3D printing, teleconferencing, and videoconferencing, not to mention the thousands of Apps for iPhones and Android phones. Software controls many functions of automobiles, trains, boats, ships, and airplanes. If software fails, it can mean the loss of life.  This is why is just as important for software to be Made in USA as it is for manufactured goods.  It is also important for software to be developed in the USA so we can make sure that there is no embedded malware, spyware, or backdoors.

My own manufacturers rep sales agency has been computerized since 1988, and I couldn’t function without my systems. I have also been participating in teleconferencing since 2011 for monthly meetings of  the Coalition for a Prosperous America and giving webinars since 2013 after publishing my second edition of Can American Manufacturig be Saved? Why we should and how we can in 2012.  I have used a variety of programs for videoconferencing, such as Cisco’s Webex, www.GotoWebinar.com, and www.vimeo.com.  Earlier this year I gave a webinar using Zoom. 

After the COVID-19 pandemic hit and shutdowns on nonessential businesses went into effect, many of my customers and prospects started working from home. Many of my customers are in the defense and military supply chain, and my contacts are purchasing agents and engineers. My contacts began to tell me that they were participating in staff meetings using Zoom. The meetings were most likely discussing current contracts and new products in development, but may have included proprietary or classified material.

As the months went by, it became more and more common to hear about Zoom meetings.  I began to wonder how Zoom had taken over the marketplace for videoconferencing from all of the other programs I had previously used. Then, one of my business associates told me that Zoom was allowing people to use its teleconference software for free.  I also heard that Zoom was a Chinese company, but I learned that is not true when I checked it out.

According to Wikipedia, “Zoom Video Communications, Inc. (Zoom) is an American communications technology company headquartered in San Jose, California…Eric Yuan, a former Cisco Webex engineer and executive, founded Zoom in 2011, and launched its software in 2013.”

On April 15, 2020, CNBC reported “Co-founder and CEO Eric Yuan, who previously worked on the Webex video calling product that Cisco acquired in 2007, is the largest individual shareholder of Zoom with 3.9% of the stock’s outstanding shares. He emigrated from China in 1997, when he was 27, CNBC previously reported, but he is a U.S. citizen, according to a December regulatory filing.” The concern about China is probably because CNBC also reported “Zoom’s product development team is based “largely” in China, and it operates research and development centers in that country, according to the company’s most recent annual report.”

Wikipedia explained its exponential growth: “During the COVID-19 pandemic, Zoom saw a major increase in usage for remote work, distance education, and online social relations. Thousands of educational institutions switched to online classes using Zoom. The company offered its services for free to K–12 schools in many countries.”  Chinese companies often sell products at or below cost to take over market share, so Zoom may be following this example. But, I don’t know how any company can afford to give away its product for free unless it is receiving funding from another source.

Regarding Zoom, Wikipedia states “Its software products have faced public and media scrutiny related to security and privacy issues.”  These criticisms cover “security lapses and poor design choices” and “its privacy and corporate data sharing policies.”

An article titled, “Zoom security flaws and Chinese links make US authorities nervous,” on Telecoms news of April 6, 2020, clarifies the connection to China, stating, “the software appears to be developed by three companies in China, all known as Ruanshi Software, only two of which are owned by Zoom. The ownership of the third company, also known as American Cloud Video Software Technology, is unknown. The article states “700 employees are currently in China, which is not unusual as it can save on salaries in comparison to the US, though it does open up the firm to pressure and influence from the Chinese Government.”

This same article reported that Zoom has servers in China that were used by mistake during the initial surge of usage after the COVID-19 pandemic struck. The article’s author, Jamie Davies wrote:

“By default, all participants’ audio and video in a Zoom meeting appears to be encrypted and decrypted with a single AES-128 key shared amongst the participants. The AES key appears to be generated and distributed to the meeting’s participants by Zoom servers. Zoom’s encryption and decryption use AES in ECB mode, which is well-understood to be a bad idea, because this mode of encryption preserves patterns in the input.”

These encryption keys could also be distributed through Chinese servers, which is a bad idea for anyone as companies can be legally compelled by the Government to hand over these keys. Zoom has said this oversight has been corrected and no international meetings will be routed through Chinese servers, but the damage may well have already been done.”

As a result of these concerns, Wikipedia states, “In March 2020, New York State Attorney General Letitia James launched an inquiry into Zoom’s privacy and security practices; the inquiry was closed on May 7, 2020, with Zoom not admitting wrongdoing, but agreeing to take added security measures. Also, in May 2020, the Federal Trade Commission announced that it was looking into Zoom’s privacy practices.

While there is no evidence of wrong-doing on the part of Zoom as of this writing, the fact that their programming is said to be done in China raises troubling security concerns, as programmers in China could easily be pressured by their government to put back doors into the software they write. This is why it is as essential to our national security to keep computer software development in our own country, just as it is important to keep drug development and medical equipment manufacturing in our own country.

Until the FCC investigation is concluded, some security experts are recommending that the President issue an executive order prohibiting the use of Zoom by government agencies, as well as defense contractors to insure no classified or proprietary information is compromised.

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