An op-ed in The Indianapolis Star yesterday is definitely worth a look. It’s from the co-chairs of the Central Indiana Corporate Partnership’s Advanced Manufacturing and Logistics Initiative, in response to a recent Star editorial (April 2, subscription access only):

“…we take issue with one aspect of the editorial - the disparaging comments about Indiana’s “over-reliance” on manufacturing. This feeds a common misconception that manufacturing is part of our economic past, and has a marginal place in the high-tech future.”

They then lay out facts to help clear up the misconception:

“Manufacturing today is a high-tech, innovation-focused economic cluster; it may create a smaller number of jobs, but ones that demand 21st-century skills and command higher wages.”

“Manufacturing workers these days are more likely to be working with computers and robotic systems than standing on an assembly line for an eight-hour shift.”

“…nearly 80 percent of all patents filed in the U.S. originate from the manufacturing fields…products that represent more than 70 percent of current manufacturing sales will be obsolete in the next six years. That means that the manufacturing sector will have to become even more focused on research, product development and speed to market.”

“Manufacturing requires a strong work force, a critical mass of intellectual property and a solid technology base.”

They point out the glaring contradiction on the part of those who feel the loss of manufacturing jobs is inevitable.

“Ignoring the needs of today’s manufacturers would sacrifice many of the best high-tech, high-wage opportunities that we profess to be our economic development priorities.”

And, finally point out that “manufacturing isn’t the problem — it’s an important part of the solution.”

China’s foreign reserves have risen past $1.2 trillion, bolstered no doubt through unfair trade practices and currency manipulation that have helped to create a $233 billion trade imbalance with the U.S. Today, the WSJ (subscription required) looks closer and raises interesting questions.

“The rise is far more than economists had expected – and more than can be explained by reported flows of money into the country…after subtracting the first quarter’s $46.4 billion trade surplus and $15.9 billion in foreign direct investment from the increase in reserves, a gain of $73.3 billion remains that cannot be explained by those documented flows.”

Speculation is that the increases can be explained through possible foreign-currency swaps, and…

“Few economists say unexplained sums of $50 billion to $60 billion could cross China’s borders without notice.”

Yet, there it is, $73.3 billion that can’t be explained. Once again it looks like China is playing by its own set of rules and as the WSJ points out in this case, “the explanation matters.”

China is the world’s fourth largest economy…and growing. What’s clear is that the lack of transparency means we don’t know what we’re dealing with. It’s a scary thought given the ripple effect China’s economy can have on the rest of the world.

China’s export growth is “outstandingly strong” according to the WTO. That description came with the news today that in the last six months of 2006 China surpassed the U.S. as the world’s second largest exporter, along with the WTO’s prediction that China…

“…will almost certainly finish above the U.S. in the 2007 totals… (and will) overtake Germany as the world’s biggest exporter in 2008.”

Outstanding is not a word that should be used to describe China’s surge, given that it’s the result of an undervalued currency, illegal subsidies that give Chinese exporters the upper hand, barriers that prevent goods from other countries from entering the vast Chinese market, and widespread piracy and copyright violations.

China is taking advantage of the inability, and in many cases unwillingness, of the WTO and policy makers around the globe to enforce trade laws and hold China accountable. As a result, they are being allowed to play by a different set of rules than is required of their trading partners. Outstanding? No. Outrageous? Yes.

In his recent conversation with Princeton economist Alan Blinder, Marketplace’s Kai Ryssdal pointed out that some are rethinking “their assumptions about free trade” as a result of news like Citigroup’s plans to cut 17,000 jobs and move 9,500 to “lower-cost locations.”

In Blinder’s comments, a few things stand out, including that he feels in the end the U.S. has much to gain, but he worries about “getting from here to there”:

“Well, what has to happen is a whole lot of people, many millions of people, are gonna lose jobs to foreign competition. And a whole lot of other people — overlapping but not exactly the same people — are gonna gain jobs. And we in America don’t do a very good job of taking care of our job losers.”

“And if you go to a real person…and say ‘You know, it may be a rough 20 years, but then things will be fine’ . . . that’s not much solace.”

Blinder’s thoughts on how the U.S. remains prosperous: 1) Don’t succumb to protectionism, 2) Do a better job of taking care of displaced workers, 3) Train kids for the jobs that will be available in 20 years, not for jobs that have “migrated overseas,” and 4) Don’t hang on to “sunset industries,” instead specialize in “sunrise industries.”

We’re not sure if Blinder has visited one of America’s high-tech manufacturing facilities lately. If he had, he’d come away convinced that manufacturing is poised to do great things.  In this, one of the most innovative and productive periods in world history, we can’t simply dismiss manufacturing to the “sunset.”  The U.S. must be a leader in manufacturing. From nanotechnology and robotics, to lasers and biotechnology, the U.S. must be a producer of what we need and what the world needs.

What we can find solace in is that the 21st Century economy is about innovation and a highly skilled workforce, and in those things, the U.S. is and can continue to be a leader.

Despite China’s “deep regret” and “strong dissatisfaction” over the Bush Administration’s recent trade actions, and concern expressed by some here in the U.S., analysts expect China to take additional steps to avoid a trade war.

“…Qing Wang, an economist with Bank of America in Hong Kong, said that while Beijing was frustrated at the complaints, it understood that it needed to make some changes to its trade regime, for its own good.”

China recently took steps to reduce or eliminate some of the tax rebates it offers to exporters, a measure aimed at trimming the country’s trade surplus.

“Similarly, China will probably compromise with Washington on the latest WTO complaints by intensifying its efforts to crack down on piracy and granting greater access to foreign firms in sectors ranging from film to aviation, said David Li, director of the Centre for China in the World Economy at Tsinghua University.”

With China so dependent on the U.S. market for its exports, of course they won’t let the dialogue devolve into a trade war.

The Bush Administration correctly lodged complaints on some of China’s trade practices at the World Trade Organization.  These actions did not go nearly far enough, yet the apologists for unfair trade at any cost are already howling, including the NY Times editorial page:

“The last thing a country with a record trade deficit can afford is to hurt its exporters.” 

But how about our highly productive workers and companies who play by the rules when their Chinese competition refuses to?  We need the Administration and Congress to stand up for all manufacturers.

Not only do 9-in-10 Americans in a recent World Public Opinion poll favor requiring minimum labor standards in international trade agreements, but so do the majority of respondents in nine other countries. The poll found that even in the developing countries of China, India, Thailand and the Philippines, where minimum labor standards have been generally opposed by their governments, the majority of respondents favored minimum requirements for working conditions.

The poll also found that the majority of respondents supported including minimum standards for environmental protection in international trade agreements in all countries except the Philippines (48 percent).

The list keeps growing.  Already this year, some great bills to strengthen America’s trade laws and ensure a level playing field have been filed in Congress by Sen. Rockefeller and others. In recent weeks, bills like the Japan Currency Manipulation Act, the Fair Currency Act of 2007 and the Trade Prosecutor Act have been introduced to make sure our foreign competitors are playing by the rules.  Many American manufacturers have supported these efforts, and now they are joined by America’s automobile makers. 

Although some of these efforts have generated predictable criticism,  Congress appears to be serious about doing something, with support coming from both sides of the aisle.  We hope this signals that real changes in trade policy are underway. 

In a long overdue action…

“The U.S. plans Tuesday to ask for dispute-settlement consultations from the WTO on two matters: one claiming deficiencies in China’s legal structures to protect and enforce copyrights and trademarks; and the other challenging barriers to China’s market for books, music, videos and movies.”

This is an important step forward.  But will the Administration continue to apply pressure and challenge all of China’s illegal, harmful trade practices such as currency manipulation, subsidies and dumping?  That’s the real test. 

“A significant amount of work remains to knock down trade barriers and ensure that American exporters have new economic opportunities across the globe,” Mrs. Schwab said.

Definitely an understatement. In any event, this week the Administration released a report identifying 63 so called trading partners including China and the European Union who have erecting illegal barriers to American exports.

“In discussing China, the administration said that unless the country does more to crack down on the theft of U.S. copyrighted products such as movies, music and computer software, the administration would consider filing a case against China before the World Trade Organization….. In addition to copyright piracy, the report criticized China for using government subsidies to give its companies unfair advantages over American companies.”

“The 2007 National Trade Estimate report covered 63 major trading partners from Angola to Vietnam. It has been prepared annually for more than two decades under legislation that requires the administration to give an accounting of the trade barriers that are most harmful to American businesses and farmers.”