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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What is the Vision for the Factory of the Future?

August 18th, 2020

In April 2017, the Manufacturing Leadership Council published its “Vision 2030:  The Factory of the Future, which was a Frost & Sullivan White Paper sponsored by General Electric and Intel. In their vision, the factory of the future “will look like an integrated hardware and software system and “is highly automated and information-intensive… fueled by vast quantities of information from every corner of the enterprise and beyond, moderated by analytical systems that can identify and extract insights and opportunities from that information, and comprised of intelligent machines that learn, act, and work alongside highly skilled human beings in safe and collaborative environments.”

The key trends and developments of the factory of the future were identified as:

  • “Digitization  – transforming how manufacturers think about human capital management”
  • “Modularization, with micro factories capable of mass customization using such technologies as 3D printing as well as digital manufacturing technologies”
  • “Manufacturing innovation process will evolve to be more open and extended, with collaborative models that span internal as well as external constituencies”
  • “Supply chains will become highly integrated, increasingly intelligent, and even self-managing”
  • “New business models incorporating outcome-based services will emerge, enabling manufacturers to diversify their revenue streams and provide greater value to customers”
  • “Cognitive computing and analytic techniques will enable production environments to self-configure, self- adjust, and self-optimize, leading to greater agility, flexibility, and cost effectiveness”

The paper also identified four categories of “Mega Trends” that will have implications for manufacturers over the next 15 years:

  • Globalization/Urbanization/Regionalization/Uncertainty:  Global economic forces are “creating shifts in how manufacturers must think about how they design their production and supply networks. As globalization provokes responses such as the erection of trade barriers and as urbanization and the growth of regional economies lead to a demand for localized products and rising labor costs even in previously low-cost areas, manufacturers must continuously recalibrate where and how they produce, whether they outsource, and how they serve emerging markets”
  • Smart/Material/Open/Green: New, smart approaches to innovation…focus on waste reduction fueled by innovations in material science, open systems, and new forms of social collaboration.”
  • Business Model Innovations: Technology forces are transforming the industrial world. “Smart, connected products and real-time analytics will allow manufacturers to sell outcomes-such as jet engine uptime-not just products. This means manufacturers will need to fundamentally rethink their relationships with customers. It also means they will face an entirely new competitive landscape.”
  • Ambient Intelligence: “Advances in technologies such as cloud-based solutions, digital platforms and applications, machine learning, and the Internet of Things are combining to provide all institutions with the unprecedented ability to gain and act on insights.”

Within the Mega Trends, there are “four major themes and eight sub-themes that, taken together, will transform the manufacturing landscape over the next 10-15 years.”  The four major themes are:

Intelligent Design – “personalization and mass customization of products and the location of production closer to the point of consumption”

  • Federated Manufacturing – “Networks of smaller, more nimble factories”
  • Smart Innovations – integrated product design, production, and support processes”  

Services Revolution – “from product-as-a-service to anything-as-a-service model”

  • New Value Networks – “Suppliers will transform from providers of parts to partners in “as-a-service” business models”
  • Outcome-based – “services sold on the basis of usage and guaranteed outcomes”

Platform Revolution – “connected platforms will allow machine learning of a different order…will unleash an era of cognitive learning and improvements.”

  • Connected Platforms – “Enabled by IoT and cloud technologies as well as advanced, real-time analytics, products will become connected platforms, featuring a range of services that will deliver new revenue sources.”
  • Cognitive Platforms – “Connected products-or platforms-will collect vast quantities of usage, performance, and diagnostic data that can be used to improve next-generation designs.”

Human-to-Machine Convergence (Artificial intelligence advancements and robotic process automation)

  • Machine Dominance – “evolving as robots transition from being programmed only to execute repetitive tasks to being collaborative and even sentient”
  • Human Capital Transformation – …manufacturers must clearly define the skills that will be required, take an inventory of current capabilities, and provide tools that enable self-training and skills certification.”

Each of these themes and sub-themes are expanded upon in detail in the body of the paper leading to the authors conclusion that “The general outlines of what future factories and plants will look like are now discernable. They will be organized for greater speed, flexibility, productivity, and efficiency. The people who work in them will be highly skilled about advanced digital technologies and able to work cross-functionally across the connected enterprise…rapidly changing and increasingly sophisticated information and operational technologies are facilitating a shift to mass customization, from mass production, making it possible to satisfy individual needs from transportation to medicine.”

When this paper was published, I was finishing the last chapters of my book Rebuild Manufacturing – the key to American Prosperity, published in September 2017.  While I agree with many of the trends, themes, and subthemes of the paper, I completely disagree with their conclusion that “the globalization of manufacturing, powered by the relentless march of technology, will continue…” 

In my chapter, “Advanced Technology is critical to Rebuilding American Manufacturing,” I discuss how “advanced industries” are utilizing new technologies, such as artificial intelligence, robotics, 3-D printing/ additive manufacturing, the “digitization of everything, machine learning, and Internet of things (IoT).  As a result, American companies are able to be more competitive in the global market place with domestic production and are returning manufacturing to America through reshoring.  The trend of mass production converting to mass customization and the regionalization of manufacturing and creation of manufacturing networks will also increase the ability of American manufacturers to be able to reshore manufacturing to the USA.

In a Forbes article of Apr 7,2020, “New Data Shows U.S. Companies Are Definitely Leaving China”  Kenneth Rapoza wrote, “U.S. companies are leaving China thanks to the trade war. They’ll leave even more thanks to the pandemic…Last year saw companies actively rethinking their supply chain, either convincing their Chinese partners to relocate to southeast Asia to avoid tariffs, or by opting out of sourcing from China altogether.”

As a director on the board of the San Diego Inventors Forum and as a mentor for CONNECT’s Springboard Program, I have seen how 3D printing/additive manufacturing can accelerate the development of a new product and  enable inventors to have a sample product to show/demonstrate in person or by means of a video to secure potential investors. A 3D printed prototype can be the essential ingredient of a video to do a crowdfunding campaign via Kickstarter or Indiegogo or seek investors. 

I conclude my chapter by saying, “The increased efficiency of additive manufacturing/3-D printing, IoT, and automation/robotics could spell a bright future for American manufacturing. The shift to smart manufacturing using these new technologies will save our corporations money and translate into greater profits, more jobs, and more prosperous economies, locally and nationally. As our manufacturing industry moves into a more complex age, so will our workers and products, ushering in a new era of production.

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U.S. Must Stop Trafficking of Counterfeit and Pirated Goods

August 4th, 2020

One of the dangers of reliance on foreign manufacturers is the increase of U.S. vulnerability to receiving counterfeit goods.  Over the last ten years, there have been several reports prepared to determine the extent of the infiltration of counterfeits into U.S. defense and industrial supply chains, to provide an understanding of industry and government practices that contribute to the problem, and to identify best practices and recommendations for handling and preventing counterfeit electronics.

The first was the Defense Industrial Base Assessment: Counterfeit Electronics prepared by the U.S. Department of Commerce on January 2010as a result of a three-year study. “This assessment focused on discrete electronic components, microcircuits, and circuit board products – key elements of electronic systems that support national security, industrial, and commercial missions and operations. A few of the findings of the study were:

  • all elements of the supply chain have been directly impacted by counterfeit electronics
  • companies and organizations assume that others in the supply chain are testing parts;
  • lack of traceability in the supply chain is commonplace
  • there is an insufficient chain of accountability within organizations
  • recordkeeping on counterfeit incidents by organizations is very limited
  • most DOD organizations do not have policies in place to prevent counterfeit parts from infiltrating their supply chain

The Bureau of Industry and Security’s (BIS) Office of Technology Evaluation (OTE) made the following key recommendations:

  • Consider establishing a centralized federal reporting mechanism for collecting information on suspected/confirmed counterfeit parts for use by industry and all federal agencies
  • Modify Federal Acquisition Regulations (FAR), including Defense Federal Acquisition Regulations (DFAR), to allow for “best value” procurement
  • Require U.S. Government suppliers and federal agencies to systematically report counterfeit electronic parts to the national federal reporting mechanism;
  • Issue clear, unambiguous legal guidance to industry and U.S. federal agencies with respect to civil and criminal liabilities, reporting and handling requirements
  • Establish federal guidance for the destruction, recycling, and/or disposal of electronic systems and parts sold and consumed in the United States
  • Consider establishing a government data repository of electronic parts information and for disseminating best practices to limit the infiltration of counterfeits into supply chains
  • Develop international agreements covering information sharing, supply chain integrity, border inspection of electronic parts shipped to and from their countries, related law enforcement cooperation, and standards for inspecting suspected/confirmed counterfeits

However, implementing these recommendations didn’t solve the problem.  On May 21, 2012, the U.S. Senate Armed Services Committee released a report as a result of a congressional investigation into counterfeit goods.  “The year-long investigation launched by Sen. Carl Levin, D-Mich., the committee’s chairman, and Ranking Member Sen. John McCain, R-Ariz., found a total number of suspect counterfeit parts involved in those 1,800 cases exceeding 1 million.” Counterfeit electronic parts “were uncovered in items ranging from night vision equipment to Global Positioning System (GPS) navigation modules.”

The Committee “discovered counterfeit electronic parts from China in the Air Force’s largest cargo plane, in assemblies intended for Special Operations helicopters, and in a Navy surveillance plane among 1,800 cases of bogus parts.

“Our report outlines how this flood of counterfeit parts, overwhelmingly from China, threatens national security, the safety of our troops and American jobs,” Levin said. “

As a result, “the Committee adopted an amendment to the FY12 National Defense Authorization Act (NDAA) to “address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by DoD and the defense industry.”

In the next four years, progress was made as shown by the follow-up report to Congress of February 2016 Government Accountability Office (GAO), which  “found that while the number of counterfeit parts in the DoD supply chain decreased significantly between 2011 and 2015, there were still nearly 50 parts per year that were identified as being counterfeit.  As a percentage of total parts, this was a mere .006% of the DoD supply chain.”

However, a single counterfeit part can have a disastrous impact and identifying counterfeit parts is extremely difficult when they are deliberately manufactured to pass as the “real deal.” Moreover, the threat of counterfeit parts being introduced by U.S. adversaries, such as China, has increased, and these foreign companies are good at figuring out ways to make their counterfeits blend in with other components.

Counterfeit goods are not limited to the defense and industrial supply chain.  The January 24, 2020 report to the President of the United States, “Combating Trafficking in Counterfeit and Pirated Goods,” states, “Counterfeiting is no longer confined to street-corners and flea markets. The problem has intensified to staggering levels…information collected by the U.S. Department of Homeland Security (DHS) between 2000 and 2018 shows that seizures of infringing goods at U.S. borders have increased 10-fold, from 3,244 seizures per year to 33,810.”

This report recommended the following immediate actions for the Department of Homeland Security and other agencies:

1.” Ensure Entities with Financial Interests in Imports Bear Responsibility

2. Increase Scrutiny of Section 321 Environment

3. Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts

4. Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products

5. Leverage Advance Electronic Data for Mail Mode

6. Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) Plan

7. Analyze Enforcement Resources

8. Create Modernized E-Commerce Enforcement Framework

9. Assess Contributory Trademark Infringement Liability for Platforms

10. Re-Examine the Legal Framework Surrounding Non-Resident Importers

11. Establish a National Consumer Awareness Campaign”

These recommendations were very timely since there has been a big problem with counterfeit pharmaceuticals, personal protective equipment (PPE), and medical devices during the COVID-19 pandemic this year. Counterfeit goods in the healthcare industry can cause immediate loss of lives just like counterfeit parts in the defense industry can cause loss of life for our military personnel in defending our country.

Since taking office in January 2017, President Trump has issued three Executive Orders strengthening different aspects of the Buy American Act of 1933: 

EO 13788: “Buy American and Hire American,” April 18, 2017

EO 13858: Strengthening Buy-American Preferences for Infrastructure Projects,” January 31 2019

EO 13881:– “Maximizing Use of American-Made Goods, Products, and Materials,” July 15, 2019

I laud the President’s focus on strengthening the Buy American Act, but the best way to eliminate the problem of counterfeit goods is to return manufacturing to America of all critical goods for our defense and military, as well as our pharmaceutical, PPE, and medical device industries.  This is referred to as “reshoring” by Harry Moser, who founded the Reshoring Initiative in 2010. In an article for Assembly magazine of February 12, 2019, Harry Moser wrote: “The Reshoring Initiative has aggregated consumer surveys from 10 sources, gleaning insight into the preferences of more than 14,000 U.S. consumers. Findings show that there is a decisive preference for U.S.-made goods: 97 percent have a positive view of goods manufactured in the U.S. Americans also have a positive opinion of companies that manufacture in the U.S.: 91 percent believe it is important to manufacture in the U.S. and think the government should take steps to support American manufacturing.”

Only Made in USA products will be able to provide confidence in the quality of the products, but government agencies, the health care industry, and consumers need to know where products are being made to make the choice of buying Made in USA products. Currently, there are limitations of county of origin labeling on products, and no information is provided for products sold on the internet and through catalogs.  We must address this situation if we are truly going to be able to stop trafficking of counterfeit and pirated goods. 

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Manufacturing is Critical to Our National Defense

July 21st, 2020

The final reason that manufacturing is important is that manufacturing ensures that the U.S. has a strong industrial base to support its national security objectives. We need to preserve our national and homeland security to be able to produce the goods that allow us to defend our national sovereignty.

American manufacturers supply the military and Defense Department with the essentials needed to defend our country, including tanks, fighter jets, submarines, unmanned vehicles (drones) and other high-tech equipment. The same advances in technology that consumers take for granted support the military, particularly soldiers fighting overseas.

In the keynote address “Lessons for a Rapidly Changing World” at the CA World conference in 2003, Dr. Henry Kissinger, former U.S. Secretary of State, said, “The question really is whether America can remain a great power or a dominant power if it becomes primarily a service economy, and I doubt that. I think that a country has to have a major industrial base in order to play a significant role in the world. And I am concerned from that point of view.” He added, “But if the outsourcing would continue to a point of stripping the U.S. of its industrial base and of the act of getting out its own technology, I think this requires some really careful thought and national policy probably can create incentives to prevent that from happening.”

As more and more manufacturing was outsourced offshore, the warnings of the dangerous consequences continued.  Joe Muckerman, former director of emergency planning and mobilization in the Office of the Secretary of Defense, wrote a guest editorial entitled “Without a Robust Industrial Base DOD Will Lose Future Wars” in the April 17, 2008 edition of Manufacturing & Technology News. He opined:

Joe Stalin said that World War II was not won on the battlefields of Europe but in Detroit. Had Stalin lived until the end of the Cold War, he probably would have arrived at a similar conclusion. The U.S. won the Cold War because it maintained technologically superior strategic weapons at a level that deterred the Soviet Union from attacking our vital interests. The United States was able to sustain this force for half a century during which the U.S. economy prospered while that of the USSR collapsed. … Today the U.S. industrial base is fast becoming global and the U.S. economy is in trouble.

In April 2011, the Information Technology & Innovation Foundation (ITIF) released the report, “The Case for a National Manufacturing Strategy,” by Stephen Ezell and Robert Atkinson which  echoed my strong belief that manufacturing is critical to our national security:

They wrote, “If we lose our preeminence in manufacturing technology, then we lose our national security. This is because:

  • As the U.S. industrial base moves offshore, so does the defense industrial base.
  • Reliance on foreign manufacturers increases vulnerability to counterfeit goods.”

The report revealed that the “United States has diminishing or no capability in lithium-ion (Li-ion) battery production, yttrium barium copper oxide high-temperature superconductors, and photovoltaic solar cell encapsulants, among others. … Additional examples of defense-critical technologies where domestic sourcing are endangered include propellant chemicals, space-qualified electronics, power sources for space and military applications (especially batteries and photovoltaics), specialty metals, hard disk drives, and flat panel displays (LCDs).”

On July 21, 2017, President Trump issued Exec. Order 13806, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” whose “primary goal was to conduct a comprehensive assessment of the industrial base and develop a set of specific, actionable recommendations to mitigate or eliminate the identified impacts.”

In December 2017, President Trump set forth “The National Security Strategy of the United States of America,” to put American First in which he stated, “A healthy defense industrial base is a critical element of U.S. power and the National Security Innovation Base. The ability of the military to surge in response to an emergency depends on our Nation’s ability to produce needed parts and systems, healthy and secure supply chains, and a skilled U.S. workforce.”  Since then, President Trump’s economic policies have focused on putting America First to protect our national security through the following:

  • Renegotiating NAFTA and KORUS
  • Corporate and personal tax cuts
  • Regulatory reform
  • Tariffs on steel, aluminum, and other Chinese goods tax cuts
  • Strengthening Buy America requirements for federal government procurement 

As required by E.O. 13806, on Oct. 5, 2018, Deputy Secretary of Defense Pat Shanahan, on behalf of Secretary of Defense Jim Mattis, presented the report, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” to President Trump. Note:  The  unclassified version is available here.  This 146-page report comprehensively assesses every aspect of the defense industrial base. 

One important factor noted was “The decline in the U.S. manufacturing industry, relative to prior periods of great power, creates a variety of risks for America’s manufacturing and defense industrial base and, by extension, for DoD’s ability to support national defense. Risks range from greater reliance on single sources, sole sources, and foreign providers to workforce gaps, product insecurity, and loss of innovation.”

 The U.S. cannot rely on other countries to supply its military because their interests may run counter to its own.  If we faced a real military threat to our homeland, how would we assure access to the industrial and military goods needed to defend our country when most of these items are being manufactured in China? We cannot risk being held hostage to foreign manufacturers when it comes to products that are essential for our national security and the U.S. military. The COVID-19 pandemic has taught us that we must source critical pharmaceuticals, PPE, and medical devices in the U.S. to protect the health and safety of American citizens.  In turn, it is crucial that key components and technologies that are critical to the production of U.S. weapons and other products needed by our military and Department of Defense be produced within the United States.  This is the only way that we will be able to protect our national security and keep America a free country.

 

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Manufacturing is the Engine of American Technology Development and Innovation

July 7th, 2020

The fourth reason why manufacturing is important is that American manufacturers are responsible for more than two-thirds of all private sector R&D, which ultimately benefits other manufacturing and non-manufacturing activities. Nearly 60 percent of new patents derive from the manufacturing sector and the closely integrated engineering and technology-intensive services.

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

The competitive status of U.S. manufacturing had been increasingly challenged by the state-of-the-art technologies being developed by established nations such as Japan, Germany, Korea, and Taiwan. China has acquired advanced manufacturing capability through R&D tax incentives, incentives for direct foreign investment, and theft of intellectual property.

According to the 2018 annual survey conducted by the Industrial Research Institute (IRI), 59 percent of the companies responding said they plan to increase R&D spending in 2018; only 29 percent reported anticipating little or no change, and 13 percent are expecting a decrease in total R&D spending.” Note:  This is the last year that the report is available for free, 2019 and 2010 reports now cost $51.)

“The State of U.S. Science and Engineering 2020” report by the National Science Board of the National Science Foundation states, “Although the levels of federal R&D funding rose across performing sectors between 2000 and 2017, the share of total U.S. R&D funded by the federal government declined from 25% to 22%…By type of R&D, the shares of federal government funding for basic research and experimental development declined since 2000 despite rising levels of funding. The federal government is a major funder of basic research, and between 2000 and 2017, the share of basic research funded by the federal government declined from 58% to 42%. Federally funded applied research was an exception during this period, as both the level and share rose.”

America’s manufacturing innovation process leads to investments in equipment and people, to productivity gains, the spreading of beneficial technology to other sectors, and to new and improved products and processes. It is an intricate process that begins with R&D for new goods and improvements in existing products. As products are improved in speed, accuracy, ease of use, and quality, new manufacturing processes are utilized to increase productivity. Education and training of employees is required to reap the benefits of such improvements in manufacturing processes.

Innovation is the hallmark of U.S. manufacturing, and it requires a certain mass of interconnected activities, which, like a snowball rolling downhill, grows in size as it proceeds toward end users. Substantial R&D is required to keep the ball rolling to ensure more successes than failures.

Innovation and production are intertwined. You need to know how to make a product in order to make it better. “Most innovation does not come from some disembodied laboratory,” said Stephen S. Cohen, co-director of the Berkeley roundtable on the International Economy at the University of California, Berkeley. “In order to innovate in what you make, you have to be pretty good at making – and we are losing that ability.”

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

The ability to fund R&D comes largely from the profits that a company can invest back into its business. Thus, the available cash flow of manufacturing companies is closely linked to their ability to conduct R&D as well as make capital investments.

The process through which R&D promotes economic prosperity is complex and multi-faceted. First, there are direct benefits to firms from their own R&D investments. Second, other companies derive benefits from the R&D of the innovating company in a “spillover” effect. Third, the feedback from R&D and its spillovers improves other products, processes, and distribution networks. Fourth, one industry’s investment has a beneficial effect on other industries and the U.S. economy as a whole. “Spillover” effects are increased through sales transactions and knowledge transfers when the parties involved are interdependent and closer in geographic proximity.

Consumers have benefited greatly from the large selection and quality of manufactured goods available as a result of the innovative new products resulting from R&D. U.S. consumers now have a dizzying array of products from which to choose. Quality improvements in manufactured goods have also reduced the frequency of repair and reduced the cost of operation.

The maintenance of an effective U.S. R&D network is essential for attracting domestic and foreign R&D funds and the subsequent manufacturing that results from the innovation process, which increases U.S. value added, resulting in economic growth.

The problem today is that with the offshoring of so much manufacturing, certain tiers in the high-tech supply chain have disappeared in the U.S. When a tier in a supply chain has been moved offshore, domestic research and other supporting infrastructure are degraded, which can be a major problem for U.S. manufacturers transitioning to the next product life cycle.

In the past, technology would flow from new domestic R&D-intensive industries into the remainder of the economy, boosting overall national productivity. Today, such emerging technologies are flowing at least as rapidly to the innovators’ foreign partners or suppliers.

In the report “The Case for a National Manufacturing Strategy,” authors Ezell and Atkinson wrote, “manufacturing, R&D, and innovation go hand-in-hand.” They concur with my argument that “the process of innovation and industrial loss becomes additive. Once one technological life cycle is lost to foreign competitors, subsequent technology life cycles are likely to be lost as well.”

They add “[T]here is a deeply symbiotic, interdependent relationship between the health of a nation’s manufacturing and services sectors: the health of one sector greatly shapes the health of the other. In particular, the technology-based services sector depends heavily on manufactured goods.”

In my opinion, it doesn’t matter whether American companies do their R&D within their own facility or hire it to be done by outside American consultants or product development firms, but it does matter whether the R&D is done within America. We need to keep innovation within our country if we want to remain on the cutting edge of technology and maintain the critical mass of our manufacturing industry. Outsourcing R&D to China is like a mayor giving the key to his city to a would-be conqueror. We need to protect the key to our future security as a nation and keep R&D and manufacturing within the United States.  

This intricate process of R&D and product development generates greater growth and higher living standards than any other economic sector. But it requires a critical mass to generate this wealth. If the U.S. manufacturing base continues to shrink at its present rate, the critical mass will be lost. The manufacturing innovation process will shift to other global centers, and a decline in U.S. living standards will be the result.

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