Posts Tagged ‘job loss’

USITC Report Reveals Only Small Positive Effect from Trade Agreements

Tuesday, July 20th, 2021

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

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

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

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

A highlight from the report states:

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

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

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

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

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

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

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

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

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

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

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

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

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

Tuesday, 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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CPA’s Balanced Trade Message has Impact on Congress

Wednesday, April 27th, 2016

I just returned last Friday night from the Coalition for a Prosperous America‘s 9th annual Fly-In to Washington, D. C. It was my 4th time to participate with CPA members from across the country to meet with Congressional Representatives and/or their staff. I noticed a big difference in the reception we got during our visits compared to my first trip. The Coalition for a Prosperous America is a nonprofit organization representing the interests of 2.7 million households through our agricultural, manufacturing and labor members, and I’ve been a member since 2011.

In his report, CEO Michael Stumo wrote, “It was an amazing experience to finally have the wind at our backs instead of facing headwinds…CPA is taken very seriously by congressional offices. They trust what we say. One-fourth of our meetings included the congressman/woman themselves, which is significant and a new high for us. Senior staffers attended our meetings rather than junior staffers as was the case only a few years ago.”

However, we have not just been doing an annual visit to D. C. once a year since 2008. Teams of CPA members led by Michael Stumo have made visits to D. C. once or twice a month since January 2015. Here in California, teams of members led by me have visited the offices of 37 of the 53 Representatives from one to six times since 2013. In addition, CPA has co-hosted four manufacturing summits in California starting in 2013 ? two in San Diego, one in Orange County, and our recent one in Sacramento in February. The same kinds of activities have taken place in other states where CPA has a state chapter, such as Ohio, New York, and Pennsylvania.

In all of our visits, either in district or in D. C., we have constantly focused part of our message on simply establishing why our huge trade deficit not only matters, but is core to our national economic malaise. As I have written in past articles, our annual trade deficit over the past 20 years has a relationship to our national debt and is a major cause of the loss of 5.8 million manufacturing jobs and the nearly 95 million people that are no longer part of the workforce.

For years, we have been emphasizing the following:

  1. Trade deficits matter, they kill jobs and growth: This may sound obvious to you and me, but many Representatives and their staffer did not believe trade deficits mattered in the past. They were unwilling to admit the serious consequences in having a huge deficit in goods. So, if trade deficits were not a problem, there was no need to pursue a solution. Michael Stumo wrote, “This past week showed we have largely won that argument. We can only grow jobs and our economy if we focus upon a national strategy to balance trade by identifying the biggest trade cheating problems and aggressively fixing them.”

Our teams distributed a flyer titled, “Balanced Trade: Fighting the New Mercantilism” recommending that Congress establish a national goal to balance trade over a reasonable period of time by means of:

  • Direct trade negotiators to pursue trade deficit reduction as a primary negotiating objective.
  • Review past agreements for compliance with this objective. Renegotiate those that fail the test.
  • Utilize tax, fiscal and monetary policies to achieve the goal.
  • Aggressively and systematically attack and neutralize foreign mercantilism.
  1. Past trade agreements have not improved our trade performance: For years, we have heard this line from the establishment and Congressional Representatives: “Trade agreements establish American leadership, grow exports and create jobs.” The refrain was: “Trade is beneficial. We are increasing exports, and we have a surplus in services.” The only time I heard this refrain this year was by a legislative assistant in Senator Dianne Feinstein’s office.

We were able to trounce this argument this year by distributing a flyer that clearly showed the poor trade performance of our past agreements through visual aids CPA spent a lot of time developing (see below). We clearly showed that modern foreign mercantilism has moved beyond the tariff and non-tariff barrier provisions in trade deals. Indeed, those deals often made our trade problems worse. For example, our trade deficit with Korea has nearly doubled since it went into effect in 2012 (from $14.7 billion to $28.4 billion in 2015.)

The TPP will likely make America worse off: CPA read and digested the pro-TPP studies by Petri and Plummer, Peterson Institute for International Economics, Working Paper 16-2, Jan 2016 and the “Global Economic Prospects: Potential Macroeconomic Implications of the Trans-Pacific Partnership,” by the World Bank, Jan 2016. These reports tried to hide the problems and exaggerate gains. Our CPA teams distributed a flyer that “displayed the results through insightful infographics showing that any projected gains were embarrassingly meager and fundamentally implausible”[because] “The studies assume, without analysis, (a) no currency misalignment, (b) no foreign border taxes that replace tariffs, (c) no industrial subsidies and state-influenced enterprises, and (d) no mercantilism.” As Michael Stumo wrote, “These assumptions are untrue. Therefore, we cannot achieve the meager growth projected. We showed how those studies were built upon a series of demonstrably false assumptions to produce those meager gains. Then we showed why losses to American workers, industry and the economy were nearly certain when you eliminated the false assumptions.”


This year we also proposed tax reform that can fix some major foreign trade cheating on a large scale. As Michael Stumo, wrote, “Tax reform is a challenge because K Street lobbyists rig the game for special interests and no connection is made with our success in producing here and winning the international trade competition. However, we made significant gains in showing how we can fight foreign consumption taxes that act as tariffs by smartly adding a US consumption tax and funding the reduction of other regressive taxes and costs to fix the problem. We also showed how we can fix the corporate income tax system with sales factor apportionment to halt tax haven abuse by transnationals, incentivize US domestic production, and make foreign companies pay their fair share of income tax when selling into the lucrative American market.”

The good news is that everyone we saw seemed to agree that the TPP does not have the votes to pass before the election. The danger will be in the “Lame Duck” session. We seem to be in a far better position to prevent future passage than we were last year at this time with regard to passage of the “Fast Track” Trade Promotion Authority. Michael Stumo, wrote, “We almost beat Fast Track last June. Indeed we won the first votes in regulation time but lost in overtime when the Empire Struck Back. Now, it seems that the anti-Fast Track block is holding strong and quite a lot of pro-Fast Track congressional members have either declared opposition to TPP or are leaning against it.”

Michael added, “GOP House leadership pushed Fast Track through last year but they seem to view TPP as toxic now. The GOP rank and file are letting House leadership know they do not want to vote on TPP at any time in the foreseeable future. The Senate side is less solid and has always posed the bigger challenge. Senate majority leadership wants changes to TPP but still wants get to ‘yes.’ However, the changes being demanded are difficult (but perhaps not impossible) to deliver.”

We are being helped by the stand against trade agreements by two of the major presidential candidates, Trump and Sanders, who bring up our broken trade policy in almost every speech. “Trade has become one of the few, rare ‘voting issues’… an issue that actually moves voters to support or oppose a candidate.”

While this has been a several year battle, we haven’t won yet and still have a lot to do. The establishment will continue say that the voters simply don’t understand the “greater good.” Pundits will continue to write many “reasoned” articles about why the voters should support trade agreements such as the TPP. But the success of Trump and Sanders shows that the establishment has not only lost its clout, it is actively disbelieved by many now.

Help us to grow this movement and increase our effectiveness. Encourage your friends and colleagues to participate. Let’s keep up the good fight!

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CPA Criticizes Peterson Report on Trans Pacific Partnership Agreement

Sunday, March 13th, 2016

On January 25, 2016, the Peterson Institute for International Economics (PIIE) released a report  on the Trans-Pacific Partnership trade agreement. The Coalition for a Prosperous America (CPA) promptly released their commentary on the Peterson Institute report the same day, which was based on oral and written testimony CEO Michael Stumo had given to the U. S. International Trade Commission on January   15, 2016.

The Peterson Institute used the “”computable general equilibrium (CGE) model.” I’m not an economist. I live and work in the real world of manufacturing. Thus, I am not familiar with some of the terms economists use for economic models, and had not heard of this term previously. I try to find explanations that make sense, but even the Wikipedia definition was complex; “A CGE model consists of (a) equations describing model variables and (b) a database (usually very detailed) consistent with the model equations… CGE models are useful whenever we wish to estimate the effect of changes in one part of the economy upon the rest. For example, a tax on flour might affect bread prices, the CPI, and hence perhaps wages and employment. They have been used widely to analyse trade policy.”

The World Bank states, “Computable General Equilibrium (CGE) models offer a comprehensive way of modeling the overall impact of policy changes on the economy… However, CGEs are significantly affected by the assumptions that they are based on which, depending on their definition, can impact on the results.”

CPA criticized the PIIE for using “the controversial computable general equilibrium (CGE) model to analyze the TPP rather than models that produce less optimistic results.” Stumo stated that the CGE model is increasingly recognized as unreliable because:

Untrue Facts Assumed ? “full employment always exists, trade is in balance, that wages and productivity stay in alignment rather than diverge, and that all countries have perfectly free markets with rational economic behavior.” These assumptions are false ? “full employment rarely exists; trade is almost never in balance; wages have diverged downward from productivity for the past several decades; and many TPP countries have state-directed capitalism or strong industrial policies to influence and alter market outcomes.”

Untrue Past Results ? The CGE model was used to analyze China’s being granted Permanent Normalized Trade Relations with China (China PNTR) in 2000 and the Korea-U. S. trade (KORUS) agreement in 2012. A reduction in the trade deficits were predicted for both countries, but the reality is that U. S. trade deficit with China increased from $68.7 billion in 1999 to $337 billion in 2015, and the Korea trade “deficit worsened by $12 billion annually between 2012 (date of KORUS implementation) to 2015.” (US Census Bureau)

Untrue Assumption of No Net Job Losses? “The CGE model wrongly assumes that there are no job losses to produce its results. The International Trade Administration assumes that for every billion dollars of U.S. exports supported 5,796 jobs, down from 7,117 jobs per billion dollars of U.S. exports in 2009. Conversely, every billion dollars of imports has the opposite result. Thus, where trade agreements result in worsening trade deficits, as is the case for the NAFTA, Korea and China PNTR deals, the job losses are drastic.”

Additionally, Stumo criticized the Peterson report because it ignores the fact the Trans Pacific Partnership Agreement does not address problems with currency misalignment, border taxes (VATs), and industrial policies, such as state-owned enterprises and government subsidies.

Stumo stated, “The PIIE model incorrectly assumes that currency valuations will be set by the perfectly free market and will not be manipulated. It does not take into account rising foreign value added taxes – which replace tariffs – charged to imports from the US.  It also ignores the industrial policy and state-directed strategies that Japan, Vietnam and others use to give an advantage to state-influenced or national champion domestic industries.”

Stumo criticized the fact that PIIE admits the TPP will create no new jobs and little growth even if the CGE model’s conclusions are true.

Job Creation Will Not Occur ? “…while the TPP is not likely to affect overall employment in the United States, it will involve adjustment costs as US workers and capital move from less to more productive firms and industries. Section 4 estimates that 53,700 US jobs will be affected—i.e., that number is both eliminated in less productive import-competing firms and added in exporting and other expanding firms—in each year during implementation of the TPP. This kind of movement between jobs and industries is what economists refer to as “churn,” and most kinds of productivity growth cannot occur without it taking place. For perspective, 55.5 million American workers changed jobs in this way in 2014—so the transition effects of the TPP would represent only less than 0.1 percent increase in labor market churn in a typical year. Most workers who lose jobs do find alternative employment, but workers in specific locations, industries, or with skill shortages may experience serious transition costs including lasting wage cuts.”

The Peterson report even admits job loss from past trade agreements, stating “The largest loser is the United States, whose trade and current account deficits have been $200 billion to $500 billion per year larger as a result. The United States has thus suffered 1 million to 5 million job losses.

The reality is that we lost 6.2 million manufacturing million jobs in the past 20 years as a result of NAFTA, China’s being granted PNTR in 1999, and the subsequent trade agreements with Central America, Korea, and other countries. Since manufacturing jobs create three to four other supporting or related jobs, we really lost 18 – 20 million jobs, which partly explains why 94,610,000 Americans are no longer in the labor force, which is the lowest participation rate in 38 years.

What do the report’s authors mean by “import-competing firms”? It appears to me that this means American manufacturing firms whose domestically-made products compete with imports for market share in the U. S. In addition, the Made in USA products are also competing as exports to other countries against the exports of China, Korea, our other trading and non-trading partners. So what guarantee do we have that the people losing jobs at import-competing firms will find jobs at exporting companies? None!

In addition, the CPA commentary highlighted the following:

Income gains are Negligible ? “The study projects that, by 2020, US incomes will rise a mere 0.1% of GDP. (Table 2).  This means that 99.9% of growth will happen without regard to the TPP.  The number 0.1% is equivalent to, or less than, a rounding error. It can only come true if all untrue assumptions in the CGE model are true. It will take another 10 years for the optimistic projection to deliver a meager 0.5% income gain by 2030.”

Middle Class Will Not Benefit ?  “Assuming (which we do not) the small income gains are realized, the study is silent on who benefits from them. The Economic Policy Institute reported that trade agreements account for 90% of wage inequality. If there are any income gains, the middle class will be a net loser.”

Other countries will “benefit” more than the US ? “The Peterson Study projects that Japan, Malaysia and Vietnam will gain far more than the United States.  The US Trade Representative, by pushing the TPP, is helping open markets for competitors in Japan and other countries. Japan is estimated to gain five times more income (in relation to GDP) than the US, Vietnam 16 times more, and Malaysia 15 times more. (Report, Table 2).”

Finally, the CPA commentary points out that other economic models show losses to the U.S. and other TPP countries. The commentary cites the fact that scholars at the Global Development And Environment Institute of Tufts University released a working paper in January 2016 that used the United Nations Global Policy Model (GPM). The Executive Summary of this paper states, “This GDAE Working Paper employs a more realistic model that incorporates effects on employment excluded from prior TPP modeling. We find that any benefits to economic growth are more limited, and even negative in some countries such as the United States. More importantly, we find that TPP would lead to losses in employment and increases in inequality. This is particularly true for the United States, where GDP is projected to fall slightly (-0.54 percent), employment to decline by 448,000 jobs, and inequality to increase as labor’s share of income falls by 1.31 percent.”

The paper states that the job loss would not be limited to the U. S, stating, The TPP would lead to employment losses in all countries, totaling 771,000 lost jobs…Participating developing economies would also suffer employment losses, as greater competitive pressures force them to limit labor incomes and increase production for export.”

In fact, it also states that job losses would not be limited to TPP trading partners: “The TPP would lead to losses in GDP and employment in non-TPP countries. In large part, the loss in GDP (-3.77 percent) and employment (879,000) among non-TPP developed countries would be due to losses in Europe, while developing country losses in GDP (-5.24%) and employment (-4.45 million) would reflect possible losses in China and India.”

The CPA commentary concludes that “the PIIE report as revealing the lack of any economic benefit from the TPP under the most optimistic, albeit implausible, circumstances. It is more likely that job destruction and industry shrinkage will continue being the net result.”

I will be even more emphatic in my predictions if the TPP is approved by Congress. The TPP will result in millions of job losses since past predictions were always exceeded. It will be another nail in the coffin of American manufacturing. The TPP is so overreaching in its scope that it would change many aspects of American life. I’ve written several previous articles posted on the blog section of my website under “trade” on the dangers of the TPP and why we must stop it from being approved by Congress. Do your own research and don’t be fooled by the rhetoric of its supporters. You can read the full text of the agreement for yourself here.

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Why it is Important to Know Where Products are Manufactured

Tuesday, September 3rd, 2013

At a time when more consumers are paying attention to where products are made and expressing greater interest in buying “Made in USA” products even if they cost more, there are changes proposed that could impact consumers being able to make decisions on the products they buy.

The first reason we need to know where products are manufactured is to have a clear picture of whether the nearly six million manufacturing jobs we have lost since 2000 have been mainly the result of technologic advances and higher productivity in the U. S. or whether outsourcing to foreign countries like China has been the main cause.

For decades, there have been companies referred to as manufacturers that I called “virtual manufacturers.” in my book. These companies have no manufacturing capability in-house. Sometimes they don’t even have the personnel to design the product. The founders of the company may have a concept of the new product they wish to develop and market, but they don’t have the technical expertise to do the design and development themselves. They hire outside consultants to design and develop the product or subcontract the design, development, and prototyping to a company specializing in these services. At the extreme end, they subcontract out everything from start to finish, including engineering design, procurement of parts and materials, assembly, test, inspection, and shipping to the end customer. They may handle marketing and customer service themselves, but sometimes they even subcontract these functions to marketing and customer service firms. There was no real impact on U. S. manufacturing data as long as these U. S. companies outsourced their manufacturing to other domestic manufacturers.

However, in the past 20 years, these virtual manufacturers have increasingly outsourced most or all of their manufacturing offshore. This resulted in U. S. federal agencies involved in economic data labeling them as “factoryless goods producers” and classifying them as “wholesale traders,” if they didn’t do any domestic manufacturing themselves. Apple, Nike, and Cisco are some of the more well known “factoryless goods producers” because of having their manufacturing outsourced offshore.

Now, U.S. federal agencies involved in economic data want to change the way they classify companies that have outsourced their U.S. production to foreign manufacturing companies. They are proposing to reclassify these “wholesale traders” as “domestic manufacturers.” This means that their sales would be counted as U.S. production and their products that are made offshore and imported into the U. S. for sale would no longer be counted as imports.

As reported in the August 20th issue of Manufacturing & Technology News, the purpose of this change is supposedly “to determine how much products are been offshored and to pinpoint the number of American companies that are linked to manufacturing, even though they don’t make the products they design and sell.”

For the past decade, “U.S. statistical agencies found that the North American Industry Classification System (NAICS) did not provide a clear definition of companies that outsourced their production overseas, but that still owned the design and controlled the production and sale of goods from that foreign production.” A Manufacturing Transformation Outsourcing Subcommittee was formed in 2008 by the Economic Classification Policy Committee “to define outsourcing and identify “characteristics of establishments that outsource manufacturing transformation activities.” The committee was made up of representatives from the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Census Bureau and the White House Office of Management and Budget.

“The committee decided that all factoryless goods producers should be classified in manufacturing, the specific industry classification based on the transformation production process used by the contractor”  and recommended that the classification changes be implemented in the 2017 North America Industry Classification System.

There is disagreement on whether this change would be beneficial as it would impact a dozen major government statistical series, such as industrial production, producer price indexes, and industrial productivity.

In my opinion this change would result in data that is misleading and wouldn’t be giving a true picture of American manufacturing. We would not be able to know how much is actually being produced in the United States if we count imports from offshore as if they are domestic production. This change could radically increase U.S. production statistics and reduce our import statistics making our trade balance artificially look better.

A better way to find the answer to this question has been provided by San Diego entrepreneur and businessman, Alan Uke in his book, Buying America Back:  A Real-Deal Blueprint for Restoring American Prosperity. Mr. Uke writes, “Our future as a nation and as individuals is being threatened. Since our spending habits as consumers have contributed to this situation, we can change our spending habits to reverse it… in order for a change to happen, consumers must demand to be more honestly and completely informed about what they are buying and where their money goes. To this end, we are starting a consumer movement to bring this to the attention of Congress…The goal of this movement and of this book are to encourage people to change their buying habits toward purchasing things that help the U. S. economy and job situation.”

He points out that the current information provided on country of origin labels is “misleading, incomplete, inaccessible, or all of these…In order to support our economy and American industries, we must have easily accessible, clearly communicated, and truthful information about a product’s entire origins.”

Mr. Uke recommends that consumers be provided the country of origin information they need at the point of sale whether at a store or online and presents a proposal for the U. S. government to require detailed country-of-origin labels for all manufactured products similar to the nutritional information labels now required on packaged food products. He feels that it is important for consumers to “see the last place where the product was manufactured” and “to discern what portion of its components came from other places” by use of what he calls a “Transparent Label.” It would include the cost by country of origin by both percentage and trade ratio, as well as the location of the company’s headquarters. The percentage is the total cost of the product that is produced or transformed in a particular country. The trade ratio describes the amount of exports vs. imports for a country in relation to the United States. This label would enable consumers to make better decisions when they buy manufactured goods.

The second reason we need to know where products are manufactured is to protect ourselves from unsafe, defective, toxic, and counterfeit products. The U. S. Consumer Protection Safety Commission’s website provides a monthly list of products that have been recalled, and month after month, more than 90% are made in China.

A label similar to Mr. Uke’s recommendation would help companies comply with the new product safety standard (ISO 10377) recently released by the International Standards Organization (ISO):  The “Consumer Product Safety — Guidelines for Suppliers” standard (ISO 10377). The summary written by Dr. Elizabeth Nielsen, Chair of ISO/PC 243, Consumer product safety and a Canadian government Scientist, Regulator and Policy Analyst, states, “Regardless of company structure and organization, ISO 10377 will affect all suppliers irrespective of their role in the supply chain and all types of products whatever the origin.”

“Products should be traceable and carry a unique identifier that is labelled, marked or tagged at the source. This also goes for raw materials, components and subassemblies. Suppliers should insist on properly identified products from vendors and be able to trace products back to their direct source and identify the next direct recipient of the product in the supply chain.”

This standard has a different purpose for labeling than Mr. Uke’s label:  to protect consumers from unsafe, defective, toxic, and counterfeit products. “Products are safer when they carry documentation about the product, its design, its production and its management in the market…Suppliers should be able to recognize a product’s development through its documentation and trace its design, risk assessment, hazard analysis and testing decisions back to its conception.”

ISO 10377 is “aimed at small and medium sized enterprises (SMEs) as well as larger firms and offers risk assessment and management techniques for safer consumer products. This standard will allow retailers and OEMs to trace every part and component of a product through the supply chain to determine exactly where a defect or a counterfeit has occurred.” The standard is divided into four main sections outlining general principles that promote a product safety culture in a company, safety in design, safety in production and safety in the retail marketplace.

Either Mr. Uke’s “Transparent Label” or the label required by ISO 10377 would satisfy both reasons for wanting to know where products are manufactured. This type of label would provide protection for consumers from unsafe, defective, toxic, and counterfeit products and would help us to recognize the main cause of the loss of manufacturing jobs in the United States. We need to face up to the true cause of the loss of manufacturing jobs before we can get any consensus of what to do about it by means of our national policies. We need to oppose reclassifying “wholesale traders” as domestic manufacturers and support “country of origin” labeling by contacting our Congressional representatives.

 

 

 

 

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American Manufacturing Has Declined More Than Most Experts Have Thought

Tuesday, March 27th, 2012

A new report released by the Information Technology & Innovation Foundation (ITIF) presents a strong case that manufacturing has declined more during the last decade than it did during the Great Depression of the 1930s.  It’s gratifying to finally see a well-respected non-partisan “think tank” release a report based on empirical data that corroborates what those of working in the manufacturing industry have experienced, about which I have been speaking and writing since 2003.

One of the main points of the report is that during the Great Depression, we lost 30.9% of manufacturing jobs, but in the decade of 2000-2010, we lost 33.1% of manufacturing jobs.  It becomes more serious when you realize that in the Great Depression, manufacturing accounted for 43% of jobs lost and 34% of all jobs at the time, but now manufacturing only represents about 11% of all jobs, but nearly one-third of the job loss.  This percentage loss represents 5.7 million manufacturing jobs. The report states, “On average, 1,276 manufacturing jobs were lost every day for the past 12 years.   A net of 66,486 manufacturing establishments closed, from 404,758 in 2000 down to 338,273 in 2011. In other words, on each day since the year 2000, America had, on average, 17 fewer manufacturing establishments than it had the previous day.”

When you understand the multiplier effect of manufacturing jobs, creating 2-3 supporting jobs, this loss of manufacturing jobs represents 11 to 17 million jobs.  The report states, “In fact, in January 2012 there were more unemployed Americans (12.8 million) than there were Americans who worked in manufacturing (just under 12 million).”  No wonder we have the high local, state, and federal deficits that we are experiencing ? there are fewer taxpayers and more benefit collectors.

The two million manufacturing jobs we lost during the Great Recession was added to the over 3.7 million we had already lost.  After the recession ended, the report states “just 166,000, or 8.2 percent, returned. That leaves 91.8 percent of jobs to be recovered.  At the rate of growth in manufacturing jobs in 2011, it would take until at least 2020 for employment to return to where the economy was in terms of manufacturing jobs at the end of 2007.   In reality…U.S. manufacturing has been in a state of structural decline due to loss of U.S. competitiveness, not temporary decline based on the business cycle.”

It’s obvious that with unemployment at 8.3 percent, “all those jobs have not been recreated in other industries.”  If manufacturing declines further, there are no guarantees that other jobs will appear to replace those lost in manufacturing.  The authors validate what I’ve written in my book and previous articles:  “manufacturing jobs pay more; manufacturing is a source of good jobs for non-college-educated workers; and manufacturing is the key driver of innovation—without manufacturing, non-manufacturing innovation jobs (for example, research and design) will not thrive.”

For years, most economists, experts, and government officials have said that the decline in manufacturing is a natural outcome of our transformation from an industrial society to a post-industrial society. “This decline is often cited by defenders as “normal” and in line with what is happening in other countries. In this “post-industrial” view, advanced nations are transitioning from factories to services; the greater and faster the loss of manufacturing, the more successful nations are in mastering the transition.”

The authors concede that there is “some truth to the post-industrialists’ view.  Advanced economies naturally see manufacturing jobs contribute to a smaller share of total employment, since manufacturing productivity is typically higher than non-manufacturing productivity.  But normally the loss is modest and gradual, in contrast to the United States where in the last decade it was sudden and steep.”  In addition, “advanced nations do lose some lower-value-added, lower-skill, commodity-based manufacturing to lower-wage nations.   But …they also increase their demand for the higher-value-added products that developed nations should naturally produce…the process of global integration does not and should not naturally lead to the deindustrialization of developed economies, but rather to the transformation of their industrial bases toward more complex, higher-value-added production.”

These same experts have denied that manufacturing has been in decline, arguing that manufacturing became incredibly productive just like agriculture did a century earlier so that fewer workers are needed in the industry.  The authors state that “Virtually everyone makes the argument that massive manufacturing job decline is a sign of success: manufacturers are using technology to automate work and to become more efficient…Manufacturing is like agriculture” has been the dominant story.  The United States produces more food than ever, but because farming has become so efficient, it requires a very small share of U.S. workers to grow and harvest the food. So while manufacturing productivity growth may be tough on workers, job loss is seen as a sign of strength, not weakness.”

It’s true that job loss could be result of increased productivity, but what these experts have ignored is that manufacturing’s share of the Gross Domestic Product (GD) declined from 15% in 2000 to 11.0% in 2009.   While manufacturing has declined as a share of GDP in the United States and some other nations, such as Canada, Italy, Spain, and the United Kingdom,” it is stable or even growing in many others (including Austria, China, Finland, Germany, Japan, Korea, the Netherlands, and Switzerland.)”

The ITIF report dispels the myth that increased productivity is the reason for the job loss with a review of the productivity of various manufacturing industry sectors, showing that in 2010, “13 of the 19 manufacturing sectors (employing 55 percent of manufacturing workers) were producing less than they there were in 2000 in terms of inflation-adjusted output.”

In addition, the authors assert that “the government’s official calculation of manufacturing output growth, and by definition productivity, is significantly overstated.  ” Correcting for biases in the official data, ITIF finds that from 2000 to 2010, U.S. manufacturing labor productivity growth was overstated by a remarkable 122 percent. Moreover, manufacturing output, instead of increasing at the reported 16 percent rate, in fact fell by 11 percent over the period.”  This was during a period when the U. S. GDP increased by 17 percent.

Besides, the report states that “it is not clear how productivity could be the culprit behind the large share of job loss in the 2000s when manufacturing labor productivity (as measured by the official value added data) was not substantially different in the 1990s than it was in the 2000s.  During the 1990s, manufacturing jobs fell by one percent, while labor productivity increased by 53 percent. In the 2000s, manufacturing jobs fell by 33 percent while productivity increased by 66 percent…the 2000s productivity number is actually significantly overstated, even more so than the 1990s figure. Adjusting for bias in the data, the actual productivity growth in the 2000s was just 32 percent.”

The authors provide evidence that “there are serious problems with how the U.S. government measures manufacturing output that cause it to significantly overstate output and, by extension, productivity.   In order to see how productivity and output are overstated, it is necessary to understand both concepts.”

Their explanation is too complicated to consider in this short article, but is well worth reading in the report.  They conclude “that there are substantial upward biases in the U.S. government’s official statistics and that real manufacturing output and productivity growth is significantly overstated. The most serious bias relates to the computers and electronics industry (NAICS 334)—its output is vastly overstated. Correcting for these statistical biases, we see that the base of U.S. manufacturing has eroded faster over the past decade than at any time since WWII, when the United States began compiling the statistics.”

I can substantiate this conclusion from my experience as a manufacturers’ representative for American companies who perform fabrication services, such as plastic and rubber molding, metal stamping and casting, machining, and sheet metal fabrication for other American manufacturers.  While many of the manufacturers in my sales territory of southern California may still be assembling their products in the U. S., many of the components and subassemblies they are using have been produced offshore.  Obviously, it takes fewer American workers to produce the end product because part of the work was actually done by foreign workers.

The problem is that there is no way for the government to track the value of the components and subassemblies that have been produced elsewhere from the value of the product that is sold by the American company. Therefore, the value of the whole product is counted as American productivity without deducting the value of the parts produced outside of the U. S.  You can see how American productivity becomes inflated.

I hope this report will convince the majority of economists, experts, and government officials recognize that manufacturing is truly in serious decline so that they will look at what are the main reasons:  outsourcing manufacturing offshore and the economic warfare being waged by China against the U. S.

 

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Will President Obama’s Blueprint Save American Manufacturing?

Tuesday, February 7th, 2012

In his State of the Union address, President Obama laid out a blueprint for an economy that’s built to last – an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

I share the President’s believe that “this is a make or break moment for the middle class and those trying to reach it.  Manufacturing is the foundation of the middle class, and we are losing the middle class because of the loss of manufacturing jobs.  I’ve seen the middle class eroding for decades because manufacturing and the good jobs the industry provides began leaving our shores long before the recession.  Too many manufacturers have sourced all of most of their manufacturing offshore, especially in China.  It’s the loss of manufacturing jobs that is keeping unemployment so high and creating budget deficits at the local, state and federal level.  People who are working pay taxes that generate revenue for our government whereas the unemployed create expenses to government for their “safety net.”

The President’s blueprint has one section covering manufacturing titled, “Manufacturing: Create New Jobs Here In America, Discourage Outsourcing, And Encourage Insourcing,” so let’s examine the points one by one to see if they will make enough difference to “save American manufacturing.”

1.        Remove tax deductions for shipping jobs oversees and providing new incentives for bringing them back home:  It’s been outrageous that we’ve been giving tax incentives to companies to outsource manufacturing offshore by allowing companies moving operations overseas to deduct their moving expenses and reduce their taxes in the United States.  This proposal would eliminate deductions for moving their operations offshore and give a 20 percent income tax credit for the expenses of moving operations back to the U. S. to create jobs for Americans.  Eliminating this tax incentive for outsourcing offshore is one of the recommendations mentioned in my book.

2.        Target the domestic production incentive on manufacturers who create jobs here at home and double the deduction for advanced manufacturing:  This proposal would reform the current deduction for domestic production by more narrowly focusing it on manufacturing activities, expanding the deduction for manufacturers, and doubling the deduction for advanced manufacturing technologies from its current level of 9 percent to 18 percent.  This proposal would benefit manufacturers utilizing advanced manufacturing technologies, but I see no reason why it shouldn’t apply to all domestic manufacturing and why oil production should be eliminated from this deduction.

3.       Introduce a new Manufacturing Communities Tax Credit to encourage investments in communities affected by job loss:  “The President is proposing a new credit for qualified investments that help finance projects in communities that have suffered a major job loss event … would provide $2 billion per year in incentives for three years.”  For example, if a major employer closes a plant or substantially reduces the workforce with a mass layoff, the tax credit would support qualified investments in the affected community that would improve local economic growth.   This proposal would help communities that lose manufacturing companies or suffer mass layoffs, but would have no effect in preventing manufacturers from leaving or closing plants.

4.       Provide temporary tax credits to drive nearly $20 billion in domestic clean energy manufacturing: The President is proposing to extend the Advanced Energy Manufacturing Tax Credit tax credit for investment in domestic clean energy manufacturing to ensure new windmills and solar panels will incorporate parts that are produced and assembled by American workers.  However, the U.S. solar industry filed a trade case at the Department of Commerce late last year alleging dumping and unlawful subsidies by China.  Until we address China’s currency manipulation and dumping of products including solar panels and windmill parts, America’s clean energy industry will remain at a competitive disadvantage to China.  Senate bill 1619 that passed the Senate last fall, and H. R. 639 waiting for a vote in the House would be a good start in addressing China’s currency manipulation.  Unfortunately, President Obama has indicated he would veto the bill if passed.

5.      Reauthorizing 100% expensing of investment in plants and equipment: The President is proposing to extend for all of 2012 a provision that allows businesses to expense the full cost of their investments in equipment, spurring investment in the United States.   This provision was part of the Bush administrations tax cuts and will sunset at the end of this year unless it is extended.  It needs to be extended well beyond the end of this year for it to have any real impact in benefitting manufacturers.

6.      Closing a loophole that allows companies to shift profits overseas: Corporations right now can abuse the tax system by inappropriately shifting profits overseas from intangible property created in the United States.  The President is proposing to close this loophole.  This is one of the several steps we need to take to incentivize companies to maintain manufacturing in the U. S. or bring manufacturing back from overseas.

At the same time the President is calling for immediate enactment of this plan, he is pushing forward on a framework for corporate tax reform that would encourage even greater investment in the United States, while eliminating tax advantages for outsourcing.  This framework would include:

Making companies pay a minimum tax for profits and jobs overseas and investing the savings in cutting taxes here at home, especially for manufacturing: The President is proposing to eliminate tax incentives to ship jobs offshore by ensuring that all American companies pay a minimum tax on their overseas profits, preventing other countries from attracting American business through unusually low tax rates.  The savings would be invested in cutting taxes here at home, especially for manufacturing.

This would only encourage more companies to reincorporate in tax haven countries to avoid paying any corporate taxes in the U. S., which has the second highest rates in the world.  A better plan would be to reduce corporate taxes down to the globally competitive 25 percent so that corporations will have less incentive to avoid paying U. S. taxes by building facilities in foreign countries.

Making permanent an expanded Research and Experimentation Tax Credit: The President is proposing to make the Research and Experimentation Tax Credit permanent, while enhancing and simplifying the credit.  Again, this is one of the recommendations in my book and would encourage manufacturers to keep R&D in the United States as only research and experimentation performed in the United States is eligible.
Simplify the tax code and close loopholes:  The Fact Sheet states that over the last 30 years since the last comprehensive reform, the tax system has been loaded up with special deductions, credits, and other tax expenditures that help well-connected special interests, but do little for our country’s economic growth.  The President’s framework will close these loopholes and simplify the tax code so businesses can focus on investing and creating jobs rather than filling out tax forms.  As I mentioned in a recent article, the Department of Treasury issued a report in 2007 that made many recommendations of how to simplify the tax code and close loopholes.  We don’t need to “reinvent the wheel” to study how to simplify the tax code.  Let’s just implement some of the previous recommendations immediately.

Cracking down on overseas tax avoidance and loopholes:  The Fact Sheet states that the President has taken strong steps to crack down on overseas tax evasion and loopholes, including signing into law the Foreign Account Tax Compliance Act, which targets tax evasion by U.S. citizens holding investments in foreign accounts, as well as measures to crack down on abuse of foreign tax credits  that have allowed multinational companies to inappropriately reduce the amount of taxes they paid in the U. S.
The Fact Sheet touts the tax incentives that President Obama signed into law in the last three years that have helped manufacturers, but he actually only signed legislation extending the tax cuts and tax incentives through 2012 that were originally passed by Congress under the Bush administration.  These tax cuts and incentives will end in 2013, if not extended again, and far higher taxes will be imposed under certain provisions of the Affordable Health Care Reform Act of 2010.

One of the big reasons manufacturers and other types of businesses are sitting on millions of dollars in corporate profits without expanding plants, buying new equipment, and hiring more workers is the fear of the higher taxes and health care costs they are facing in 2013 as a result of the Health Care Reform Act.

Therefore, a careful review of the President’s blueprint shows that it doesn’t do enough to save American manufacturing.  The few beneficial policies will be more than undone by the tax increases and regulations that will take effect in 2013 and thereafter.  What we need is an all encompassing national manufacturing strategy if we truly want to provide enough incentives to retain or bring back manufacturing to the U. S. and discourage corporations from outsourcing their R&D and manufacturing overseas.

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