In a surprisingly frank editorial today, the New York Times tacitly admitted what ManufactureThis has been saying from day one: “The loss of manufacturing jobs, coupled with an achievement gap, is a recipe for perpetually worsening poverty.”

Because we haven’t seen the Times ring alarm bells about manufacturing job losses, it caught us by surprise today to see the stodgy “Old Grey Lady” upbraid the state of Connecticut for an ever widening income gap between rich and poor.  As the editorial pointed out, “Over the past two decades, of all the 50 states, income inequality increased the most by far in Connecticut.”

And what did The Times note as the primary cause of this burgeoning wage disparity?  The loss of good paying manufacturing jobs. 

Specifically, the editorial said: Over the last 20 years, Connecticut has lost a third of its manufacturing jobs, replacing them with lower paying service-sector jobs. Virtually no additional jobs have been created.

This is precisely the problem that unfair trade from countries like China has wrought.  It’s hard to see how a laid-off manufacturing worker, who downshifts from a good-paying factory job to hourly wages earned in a retail position, can afford the basic necessities to support a family.  And so, we’re happy to see the New York Times recognize the inherent problem.

Sadly, the Times seems to have given up on U.S. manufacturing.  With 3.5 million factory jobs lost since 2000, it’s possible they see the dismantling of industrial America as a fait accompli.  But if the United States is to survive as a world leader—with First World standards and a self-sufficient military—it must remain a healthy manufacturing base.  Thus, it’s unfortunate that the Times is so ready to throw in the towel vs. China and other countries that continue to swallow large chunk’s of once-vibrant American industry.

In addition to reforming the trade policies that have allowed competitors to undercut key sectors from steel to printed circuit boards, our best and brightest in Congress need to focus more on boosting R&D, with greater investment in high-tech manufacturing sectors, and enforcement of the trade laws on our books—namely, the ones adopted to bolster our factories and protect our workers from illegal dumping, subsidies, and currency manipulation.

Perhaps if we’d been following a more vigilant course in the pat 15 years, we wouldn’t see states like Connecticut, where minimum wage service-sector jobs are depended on to do what middle class manufacturing jobs once did.

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Earlier this year, AAM was concerned that the presidential candidates were not discussing China.  Sure, they were slapping NAFTA around a bit.  But they were overlooking the bigger problem of unbalanced trade with China.

  As the recent primaries have unfurled, however, it’s clear that the debate has shifted.  In a May 3 Indianapolis Star analysis, reporter Ted Evanoff, noted the “import binge” that has taken a toll on U.S. manufacturing.   And with the presidential primaries boiling over, he pointed out that ”presidential aspirants Hillary Rodham Clinton and Barack Obama are on the campaign trail in Indiana insisting they favor trade-reform measures that could save factory jobs.”  In meetings with the Indianapolis Star, both candidates expressed support for action on China’s illegal currency manipulation, which has helped to boost China’s annual trade surplus with the U.S. to $256 billion.

In fact, Evanoff noted, “both candidates describe yuan manipulation as the speed pedal China uses to accelerate its economy.”

It would seem that the mainstream media is now asking the candidates some important questions.

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  Washington Post Global posted a piece today by John Pomfret that seems to mirror recent China pandering.  Rather than berate China for its ongoing protectionism (which distorts the free market), or address the brutality used against its own people, he’s chosen to lecture Hillary Clinton for criticizing Beijing.  Unfortunately, his editorial takes a rather convoluted approach to the facts.

THEREFORE: ManufactureThis wishes to set the record straight and offers the following rebuttal to Pomfret’s missive:

John Pomfret seems to undercut his own arguments when he freely acknowledges the “tainted imports” that come from “sleazy” Chinese companies and the Chinese government.  He also recognizes a “massive trade imbalance” with China.  And yet, inexplicably, he finds this “close relationship with China” to still be “crucial to American interests,” no matter the unfavorable terms.

Pomfret seems willing to ignore what even children understand– namely, that rules matter.  Beijing is cheating on not only currency issues, but also, dumping, subsidies, intellectual property theft, labor rights, and environmental standards.  While these may collectively produce the “low-cost imports” that he celebrates, it’s worth considering the serious net losses that come from closing U.S. factories and sending jobs overseas.

Pomfret praises the Chinese for revaluing their currency, the Yuan, by roughly 18% over the past three years.  In doing so he’s still implicitly recognizing China’s ongoing, illegal currency manipulation.  And at a time when the dollar is falling worldwide, Beijing has only marginally altered is position, leaving the Yuan still grossly undervalued by approximatey 40%.

Currency manipulation is considered one of the more serious transgressions of world trade law, and it’s hard to see why Pomfret makes apologies for Beijing’s regime.  A further irony, though, is that, while Pomfret points to a 300% increase in U.S. exports to China since 2000, he neglects to mention that the U.S. trade deficit with China has also jumped 300% in the same period.  His selective use of the facts overlooks the cost of this increasing deficit– more than 1 million manufacturing jobs lost in “Pennsylvania, Ohio, Indiana, North Carolina, and Michigan,” the states that he specifically points to as benefiting from “rapidly growing exports to China.”

Facts are stubborn things, and an objective appraisal shows the United States being taken advantage of by a repressive regime with only its own stark interests at heart.  This should be unacceptable no matter the criteria, be it sound business practice or simple humanitarianism.

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File this under: “How ironic.”  Apparently, a factory in the Guangdong province of China has been making “colorful flags” that turned out to be pro-Tibet banners.  The order for the flags had come from an overseas buyer.

  The owner of the factory told Chinese authorities that the emblems had been ordered from outside China, and he did not know that they stood for an independent Tibet.  Workers in the factory eventually recognized the flags after doing research online.

There’s two ironic points here.

One, China will manufacture ANYTHING.  If you want cheap toys, or amazingly inexpensive medicine, just order it through a Chinese factory.  They’ll happily knock out a product.  Of course the low sticker price may reflect shoddy materials or toxic ingredients.  But there’s little oversight in China, so “Let the buyer beware.” 

Two, China is currently marching through Tibet, brutally repressing its citizens as they demonstrate for self-government.  One can therefore assume that pro-Tibet messages and Tibetan flags are not currently welcome in the mainland.

And so we have a company that was merely ticking out its latest order, just running the machine as fast as possible, when it inadvertently violated national policy.  Those flags would likely have been shipped for use at one of them many pro-Tibet demonstrations that have sprung up around the world of late, as the Olympic torch winds its way toward Beijing.

  Chinese officials have raced to stop shipments of the Tibetan flags from leaving China.  There’s no word if they also tested the flags for lead-based paint.

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In an April 27 editorial, the New York Times asked, “Is trade the problem?”  And, while admitting that “trade can disrupt lives,” the piece essentially dismissed Americans’ worries about lost jobs and declining manufacturing, citing “advances in technology” as the key culprit for shifts in the economy.

AAM director Scott Paul published a rebuttal in yesterday’s Times and noted among other things that the great economic challenge of our time–China– was never mentioned in the piece:

May 4, 2008
Letter
China’s Unfair Trade

To the Editor:

A very important word was missing from “Is Trade the Problem?” (editorial, April 27): China. No thoughtful discussion about the impact of trade on workers, consumers and America’s economic future can take place without recognition of the role that China plays in today’s global marketplace.

While many factors affect employment and wages in the United States, it’s wrong to minimize or dismiss the role of trade, especially with China. Our lopsided trade deficit with Beijing — $256 billion last year alone — highlights its market-distorting practices, including subsidies, dumping, currency manipulation, counterfeiting, and lax labor and environmental standards.

These unfair trade practices have cost 1.8 million American jobs since 2001, according to an Economic Policy Institute study. American consumers pay in other ways: unsafe and uninspected food, toys and medication, and higher local taxes when factories close. Until we insist that China honor its commitments, American workers will continue to lose.

Scott Paul
Executive Director
Alliance for American Manufacturing
Washington, April 27, 2008

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Statement from AAM Executive Director Scott Paul regarding the latest jobs report: 

“We’re in a jobs crisis.  America lost another 46,000 manufacturing jobs last month.  While Washington cheers the tax rebates, it continues to ignore the structural challenges that face manufacturing.  Unless Congress and the Administration hold China accountable for its cheating—which is the single greatest factor contributing to manufacturing’s woes—and get serious about making American manufacturing more competitive, these job losses will grow every month.  The economy is top of mind for voters in Indiana, North Carolina, and all over America.  It’s time for all three presidential candidates to offer a vision for jobs and manufacturing in the future—and it’s crucial for Congress and the Administration to act now.”

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  “The debate about NAFTA has been a red herring,” said the CATO Institute’s Dan Ikenson in a debate this morning with AAM director Scott Paul on Minnesota Public Radio. 

NAFTA has been a significant topic of debate recently among the various presidential candidates and Ikenson disagrees with criticism of it by Senators Obama and Clinton.  As proof of NAFTA’s worthiness, he cites the fact that since the agreement was passed, “U.S. investors have invested about $2 billion a year in Mexican manufacturing.”

An Economic Policy Institute (EPI) study seems to clash with Ikenson’s rosy pronouncements of the trade deal’s legacy, though.  According to their study, NAFTA has claimed a net 1 million U.S. jobs in the past 15 years or so.  Perhaps that’s because the $2 billion in annual Mexican manufacturing investment that Ikenson praises has not been equaled by a concurrent investment in new American manufacturing.

With NAFTA serving as the launching point for a debate on free trade, Paul and Ikenson sparred over competing approaches to U.S. trade policy.  Paul termed NAFTA an “experiment”—“the first major free trade agreement with a country that’s still developing”—and one that, with hindsight, needs “some adjustments,” including “workers rights and environmental protection.”    

Ikenson, however, sees NAFTA as a success and views increased labor and environmental standards as “fig leaves for protectionism.”  He suggested instead that when manufacturing moves to developing countries, it “raises living standards.”

  This poses an interesting contradiction: It’s hard to raise living standards while simultaneously dismissing labor and environmental concerns.  And the projected boost in Third World living standards that Ikenson touts for U.S. trading partners very much includes countries like China, where rampant labor abuse, air pollution, and poisoned lakes vie for worldwide attention with a litany of tainted exports.

Ironically, Ikenson also dismisses the $711 billion U.S. trade deficit, saying: “I don’t think the trade deficit has anything to do with trade policy…it’s a function of different patterns of savings…the way to change that is to encourage better consumption abroad…as the U.S. economy slows down, the trade deficit is growing smaller.”

It’s true that the seemingly endless U.S. trade deficit has declined somewhat during periods of recession—when consumers have less money to spend.  But it belies common sense to think that a vast slowing of the economy in order to balance our accounts is a sound prescription for future prosperity.

Ikenson believes that the U.S. benefits overall from an abundance of ever cheaper consumer imports.  But the real problem is the long-term consequences of this approach.  Day-to-day, it seems great to buy a $5 Chinese t-shirt instead of a $10 American t-shirt.  But when the U.S. textile worker loses his good-paying job at the t-shirt factory, and downshifts to a $7/hour retail job, it’s hard to see how many t-shirts he’ll be able to buy at all. 

  The bottom line is jobs.  A large-scale disenfranchisement of millions of manufacturing workers presents a worrying scenario.  And the resulting consequences are equally troubling: Unemployed or underemployed workers can not pay the taxes to support schools, hospitals, and communities; they can’t pay for healthcare; they can’t adequately provide for their families.

Mr. Ikenson needs to look at the big picture and make serious adjustments for the failings of the current model of trade that he and his colleagues espouse.

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The New York Times reported today on a study commissioned by the Kaiser Family Foundation.  According to their research, a 1% rise in the nation’s unemployment rate could lead to more than 1 million new Americans losing their health insurance.  The possibility of this is very real, given the current, tenuous state of the economy.

  The study also noted that the number of uninsured Americans has continued to grow over the past decade, with 47 million American currently lacking healthcare, a full 16 percent of the population.

One reason for the decline in those with health insurance may be the ongoing erosion of middle class manufacturing jobs that previously supported millions of families.  More than 3.5 million manufacturing workers have lost their jobs since 2000, and unfortunately, few of them have been able to find new factory jobs offering the same pay and benefits as their previous work.  If one multiplies that 3.5 million times three or four family members dependent on a job’s healthcare benefits, we begin to see just one of the many problems that spin off of a wholesale reduction in America’s manufacturing workforce.

It’s often suggested that Americans are moving beyond manufacturing though, migrating to a purely “information services” economy.  While such a concept remains rather abstract in practice, it’s questionable whether these projected information industry jobs could avoid the same outsourcing fate that previously claimed manufacturing’s lunchbox.

Therefore it seems logical not to wantonly risk the livelihoods of millions of hardworking Americans.  A better approach might be the mature view that good-paying manufacturing work offers tangible benefits for the nation as a whole.  Employed factory workers mean families with healthcare.  Thus, the price tag of the “Made in USA” goods these people produce carries with it the self-reinforcing costs of their health insurance.

  But when these people are out of work, they no longer pay into local and state tax rolls.  At the same time, however, city and state agencies must find additional resources to help these uninsured Americans.  Possibly the most troubling consequence of the increasing uninsured is the Kaiser study’s projection that 60% of them will be children.  There’s something poorly conceived in any economic planning that fails to account for the next generation of America’s working taxpayers.

It would be nice if these worrying scenarios were not looming so close on the horizon.  And so, a pragmatic approach would be to try to stem the loss of valuable factory jobs and rebuild our more prosperous manufacturing sector.  To do so, however, requires the vision to revise current U.S. trade policy.  Until we staunch the bleeding and begin to retain these jobs, we’ll see an accelerating pattern of all the ingredients for a bad economic storm: laid-off workers, declining tax rolls, greater demand for social services from cash-strapped civic services. 

If only our elected representatives demonstrated sufficient foresight and adopted en masse a plan to save American manufacturing.

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  AAM hosted a national conference call today to discuss the impact that trade issues and manufacturing job losses will have on the Indiana primary. AAM’s Scott Paul was joined on the call by a cross-section of Indiana business and labor, including: United Steelworkers Director Jim Robinson, U.S. Steel Vice President Terry Straub, and Gary, Indiana steelworker Larry Warman.

Indiana has lost more than 109,800 manufacturing jobs since 2000.  With exit polls in Pennsylvania showing that more than half of Pennsylvania’s Democratic voters considered the economy the most important issue facing the country, it’s a good bet that job worries will be a key issue with Indiana voters as well.

During the conference call, which drew questions from leading national media, including the Wall Street Journal and Washington Post, Scott Paul made the point that flawed U.S. trade policies–and particularly the U.S. trade imbalance with China–has had a detrimental effect on U.S. manufacturing.

Echoing that sentiment, U.S. Steel’s Terry Straub emphasized that U.S. Steel is not anti-trade, but finds outright cheating by other countries “unacceptable.”  Straub said that when the U.S. “plays by one set of rules and our trading partners use another, the system doesn’t work.”  He added that China is now responsible for roughly half the world’s steel production, something he finds “stunning.”

China’s explosive growth in steel production capacity is fueled in large part by massive government subsidization.  Scott Paul cited a recent AAM study that found Beijing handing out more than $27 billion in energy subsidies to its steel producers since 2000.  As Jim Robinson of the United Steelworkers noted, these subsidies, along with illegal currency manipulation and dumping, can profoundly affect the competitiveness of U.S. manufacturers, and warned that Congress “shouldn’t wait for the next downturn in order to take action.”

As to how these issues will play in Indiana, Larry Warman, a production worker at the U.S. Steel plant in Gary, cited his fellow plant workers’ existing concerns about NAFTA.  He suggested that many of his fellow steelworkers have long been worried by NAFTA, and will bring that viewpoint to next week’s primary.  And so, whichever Democratic candidate can more fully articulate solutions to lost jobs may well win the Hoosier primary.

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AAM’s ‘China Cheats, Indiana Loses’ campaign has caught the eye of the Washington Post.