In today’s New York Times, commentator Steven Landsburg suggests that displaced American workers are “churlish” to critique the trade policies that have sent their manufacturing jobs (and millions others) overseas.  In Landsburg’s view “What we lose through lower wages is more than offset by what we gain through lower prices.” 

Unfortunately, Mr. Landsburg  hasn’t followed his assumption with a critical study of the facts.  AAM’s ‘Enforcing the Rules’ study (released last year) took a hard look at the impact of trade-related market distortions across 10 different U.S. industries — from steel and shrimp to furniture, cement, and raspberries.  What AAM found was striking—that there is, on average, a 50 to 1 economic advantage in keeping jobs in the U.S. through penalties on illegally subsidized or dumped imports.  Any slight increase in consumer prices was more than offset by the economic activity that wages, business, and profits contributed to the economy. 

And so, contrary to Mr. Landsburg’s “get over it” logic, the correct course for the U.S and its workers should be to strengthen domestic manufacturing, enforce fair trade laws, and, with those steps, allow more Americans to share in the benefits of the global economy.  To do otherwise is to court continuous borrowing from overseas and encourage the market-distorting practices that are now roiling world markets.

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ManufactureThis was disturbed last week to see Seattle Times’ columnist Kate Riley regurgitating tired old clichés on the benefits of free trade in a January 7 editorial.  Her piece suggested that voters who embrace populist rhetoric on lost jobs are not “sophisticated” and also characterized campaign speeches that focus on lost jobs as a “negative trade message.”  As we’ve pointed out before, this name-calling serves no purpose other than to divert attention from the facts.

That’s why AAM’s Scott Paul wrote a letter in response to Riley’s column in last Friday’s Times.  ManufactureThis reprints it here:

Kate Riley’s criticism of the Democratic presidential candidates and her blind faith in trade to grow Washington jobs [”Doing the free trade mambo,” editorial column, Jan. 7] are misguided, as are her name-calling and fear-mongering. The candidates and the American people have not been snookered into positions that are critical of existing trade policy, contrary to Ms. Riley’s beliefs.

Lou Dobbs reaches a very small audience, yet The Wall Street Journal reports that 59 percent of Republicans (and similar numbers of Democrats in other polls) have soured on existing trade policies. Perhaps that’s because we carry a $763 billion trade deficit, which serves as a drag on economic growth and jobs.

U.S. trade policy may have helped some Washington firms and workers, but it has hurt many others. Washington has lost more than 45,000 manufacturing jobs over the past seven years (source: Bureau of Labor Statistics). More than 27,000 jobs alone have been lost due to our imbalanced trade relationship with China, according to the Economic Policy Institute.

If we continue down this path, Washington’s largest export will be jobs, not products.

Any candidate — Democratic or Republican — who casts a critical eye on our trade agreements and trade policy and calls for desperately needed change is not “protectionist” or “reckless.” Moreover, they do not favor blocking trade — except for toxic and unsafe imports that kill pets and people. They want to stop countries like China from distorting the market through subsidies and currency manipulation. The candidates favor a trade policy through which more Americans share in the gains from balanced trade.
Those changes will only help Washington workers, businesses and consumers.

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“Jobs, money, jobs, money, jobs, money…”

It starts to sound like a broken record.  But what’s really broken is the understanding among our elected officials that they need to take direct action to strengthen America’s economic backbone. 

New Commerce Department figures released today show that the monthly U.S. trade deficit reached a 14-month high of $63.1 billion in November 2007.  Our bilateral trade deficit with China also continues to clip along at a record pace. 

In a brief statement, AAM’s Scott Paul noted that the growing trade deficit “underscores the urgent need for Congress and the Administration to reform America’s trade policy and hold trade partners like China accountable for their unfair practices.  Manufacturing jobs continue to disappear at an alarming rate.  Voters understand the urgent need to fix this problem.  The real question is whether or not Washington will catch up before it is too late.”

Voter concern seems to suddenly be top-of-mind for pols and pundits, if for no other reason than the candidates are finally remembering that they need to court voter approval.  The Washington Post’s Peter Baker commented on this in a piece appropriately titled “The economy slumps to the top of the campaign agenda.”  As Baker observed, in both New Hampshire and Iowa, “exit polls showed that the economy has overtaken all other issues as the top concern for Democrats and Republicans alike.”

Baker’s piece included a quote from AAM: “The economy’s number one,” said Scott Paul, director of the Alliance for American Manufacturing, a coalition of manufacturers and the United Steelworkers that has found deep apprehension about the economy at town hall meetings in early-primary states. “It’s organic. It’s not an organized effort. But it’s something the voters, Republicans and Democrats, are fretting about.”

Scott Paul had said as much earlier this week in a Huffington Post piece.  It seems that AAM’s message—that our elected officials need to stand up for American workers—is finally taking hold.

One way would be for Congress and the administration to take strong, effective action against the market-distorting practices employed by China.  AAM senior analyst Kerri Houston discussed this in-depth yesterday in an interview on Texas radio, and pointed out that the U.S. already has laws on its books to address illegal subsidies and currency manipulation.  It’s the 2008 presidential candidates who need to talk loudly about employing these remedies.
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Adherents of free trade often espouse the idea of “comparative advantage.”  This means that countries should specialize in manufacturing those products for which they are best suited, or for which they have the most natural resources.  An agricultural country might focus on growing cotton, while a more industrial country might utilize that cotton in their textile factories.  Comparative advantage suggests that it would be less beneficial if both countries tried to grow cotton and produce finished clothing.

This notion of “specialization” worked far better in the 19th Century, when it was first posited.  But in the 21st Century, countries find very little to differentiate their respective productive capacities.  The United States can make silicon chips and TV sets, but so can Mexico, Vietnam, and Taiwan.  In a “globalized age” most countries now possess essentially the same industrial capacity.  And so, in order to get a leg up on the competition, countries sometimes adopt unsavory tactics—like exploiting their own people as a source of low-cost labor.

  With that in mind, ManufactureThis wants to share an interesting video on YouTube—footage of Chinese workers laboring inside a hydraulic stamping press.  These kinds of labor conditions are absolutely prohibited in the U.S. 

Thankfully, American workers are not put in these situations.
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  Yesterday, AAM released a new report detailing massive subsidies that China is providing for its steel industry.  And word travels fast.  Wire services, including Reuters and Bloomberg, have already picked up on the story, as have Forbes and various newspapers throughout the country.

It would be nice to say that good news travels fast.  In this case, the news isn’t necessarily pleasant.  As the Bloomberg article characterized it, China is “ignoring commitments made when it joined the World Trade Organization,” an “apparent violation of World Trade Organization rules,” according to the Pittsburgh Business Times.

The Allentown Morning Call noted that China’s massive subsidies allow its producers to “undercut overseas competitors,” what AAM characterizes as “market-distorting practices.”

As ManufactureThis noted yesterday, China’s whopping energy subsidies for steel production amounted to more than $15 billion in 2007 alone.  This state-sponsored influx of cash helps explain how China moved from a net steel importer to the world’s largest exporter in a span of only two years.  At the same time, however, the rest of the world’s steel producers have moved toward consolidating their production, a shift that might ordinarily helped to stabilize prices and bring uniformity to the market.

China’s “new mercantilism,” however, as the Washington Post’s Bob Samuelson termed it, holds little room for shared global objectives.  Beijing has adopted a number of unilateral policies, like currency manipulation and the aforementioned steel subsidies, that suggest a “damn the competition attitude.”

China’s brazen policies have not made a resounding splash in the presidential campaign arena, unfortunately.  As ManufactureThis has noted, the various presidential contenders have fallen all over themselves to denounce unsafe toys from China.  But some of them stand mute on the subject of subsidies and pegged currency.

The voters are paying attention, though, and have shown in both polls and caucus voting that “The Economy” is a key issue.  The next president ought to be paying close attention to what is going on in China, because it will have a profound impact on America’s productive industry.

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Here are two good questions:  How did China shift from being a net importer of steel to the world’s largest steel exporter in the span of only two years?  Just what exactly could account for an extra 150 million tons of steel production in just two short years?

    AAM released a report today that may uncover the answer.  China’s central and provincial governments have been boosting the country’s steel production with massive, hidden energy subsidies that include supports for thermal and coking coal, electricity, and natural gas.

The report was authored by Asia business expert Dr. Usha Haley of the University of New Haven.  Dr. Haley said that the “shift from a net importer to the largest exporter in a span of only two or three years is staggering.  It shows that energy subsidies have a very strong correlation with Chinese steel exports.”  As AAM’s Scott Paul noted, these kinds of subsidies are “typical of China’s brazen subsidization as well as illegal practices like currency manipulation.”

China shipped 5.4 million tons of steel to the U.S. in 2006—more than double the amount in 2005.  No doubt, these subsidies have had a strong effect on China’s production.  We hope that this report may prompt Congress and the Administration to act before more American manufacturing jobs are lost. 

Reuters and the Pittsburgh Post Gazette have already written stories on the report.

A full copy of the report is available online.

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Well, it’s not news to ManufactureThis, but it seems ABC News found it quite surprising that “the economy” is top-of-mind for voters right now as they survey the 2008 presidential field. 

ABC and Facebook co-sponsored both the Republican and Democratic debates on Saturday night, and their viewer polls showed most voters wanting to hear more from the candidates about the economy.

Facebooks’s Bianna Golodryga, in discussing the 100,000 or so online responses said that they were “surprised…because still, just like the Republicans, the economy was a key issue here — 44 percent said the Democrats didn’t spend enough time talking about the economy. Health care followed that, by 13 percent.”

  A 44% plurality is a rather overwhelming statistic, and it yields a rather candid snapshot of America’s day-to-day worries. 

The post-mortem of the debates also revealed voters pessimism and job worries.  A full 27% of respondents said that they expect that the U.S. economy will be “very weak” in 2008, so it’s not surprising that so many viewers wished the economy had been discussed more.

For months, we’ve been actively pressing for more discussion of jobs, jobs, jobs.  In fact, if ManufactureThis had moderated the debate, you can bet we’d have asked what the various White House contenders would do to save U.S. manufacturing jobs. 

USA Today touched on this today when noting that the U.S. lost 31,000 manufacturing jobs in December 2007 despite a weakening dollar.  Reporter Sue Kirchhoff quoted AAM’s Scott Paul on the list of significant challenges, including rising energy and healthcare costs, facing the nation’s manufacturers.

ManufactureThis will keep pushing for an expanded discussion of the major economic issues of the day.  As Scott Paul said in USA Today, “We also have to look at this from a competition perspective, and our manufacturers are just getting hammered”—good analysis for both the press and presidential contenders.

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The post-mortem on Iowa has already filled megabytes and megabytes of web content.  But one key point seems to keep jumping out: THE ECONOMY.

ManufactureThis has been saying it for a while, and we hate to be right—but clearly the American people are worried about job security, and they’re taking their concerns to the polls.

How else to explain the very striking results in Iowa.  Populist, anti-outsourcing Republican Mike Huckabee won in a walk.  And former Senator John Edwards edged out current Senator Hillary Clinton for the number two spot by touting his strong opposition to NAFTA and other “job killing” trade agreements.

 The New York Times conducted a pre-caucus survey of voter attitudes that revealed just how significantly “the economy” was a big issue for voters.  Among Democrats, the economy tied “war in Iraq” as the leading Issue That Matters Most.  Among Republicans, the economy trumped both Iraq and “terrorism,” superseded only by “immigration.”

En route to New Hampshire and Super Tuesday, the candidates would be wise to focus on economic issues like jobs and China.  Hopefully they’ll start spending more time perusing ManufactureThis.

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In the wake of the Tiananmen Square protests in 1989, the U.S. Congress passed legislation banning the sale of “crime control or detection equipment” to China.  Beijing’s more recent history of human rights abuses hasn’t helped to greatly improve the country’s record in that department, and many watchdog groups remain vigilant about the sale of any equipment that could be used for further crackdowns.

However, with the 2008 summer Olympics approaching, a conflict of interest is emerging.  China will need to increase security precautions and ramp up surveillance in order to ensure a safe event.  And in the effort to do so, some multinational firms, like Honeywell, GE, and IBM, among others, are working to provide China with effective security systems.

    According to the New York Times’ Keith Bradsher, some worry that the “high-surveillance” systems China is importing could be retained after the Olympics to crack down on protests.  As Bradsher summarizes it: “Long after visitors leave, security exports say, the surveillance equipment Western companies leave behind will provide authorities here new tools to track not only criminals, but dissidents too.”

This conflict of interest bears further scrutiny, but it also leads to yet more trouble in U.S.-China trade.  In mid-2007, the Bush administration began allowing the sale of certain “politically delicate technologies” to China, according to Steven Weisman of the New York Times.  Weisman notes that the lowering of export restrictions was intended to help U.S. firms boost overall sales of high-tech equipment.  However, the issue of dual-use technology again rears its head.

These recent exports include material components relevant to “advanced aircraft engine parts, navigation systems, telecommunications equipment and sophisticated composite materials.”   Some experts believe that Beijing could find ways to utilize the equipment for military purposes, or for further sale to countries like Iran and Syria.

International trade is a complicated picture, but blind adherence to a free market philosophy can be problematic (as U.S. consumers have seen with tainted Chinese products).  The coming Olympics should help cast a spotlight on the true nature of the Beijing regime—and may help guide our future course of trade with China, calling into question the wisdom of selling security and dual-use equipment to a country that disregards accepted international norms for human rights.
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ManufactureThis took a much-needed rest at Christmas-time.  But while we were away, the world seems to have done a funny little dance in our direction…

Well, maybe not exactly the world, but a pair of Washington Post and New York Times opinion pieces sound suspiciously good to our ears.

The day after Christmas, the Post’s Bob Samuelson offered “The End of Free Trade,” a lengthy discourse on the rise of “mercantilism” among the world’s major exporters.  While Samuelson considers free trade an important, continuing step to the world economy, he’s at least acknowledging that some countries, like China, are not playing by the rules.  The result, as he sees it, is either a flagging in the world’s interest in free trade, or a disruption in the free market.  Either way, something’s got to give—what Samuelson sees as a “collision course” between “economic interdependence and rising nationalism.”

Samuelson highlights free trade’s most basic tenet, the idea of “comparative advantage,” wherein a country chooses to “specialize in what it did best.”  The collision course he laments, however, may stem in large part stem from the absence of comparative advantage in the modern world.  It’s all fine and good that 19th Century France specialized in winemaking while Spain produced cork, and Holland blew glass bottles.  But the interdependence that Samuelson touts has its own, built-in drawback: In the 21st Century, “multinational companies strengthen globalization” by sharing technology and industry.  And so, a Third World country like China is now the world’s leading steel exporter, and Vietnam is poised to become a textile juggernaut.

At least Samuelson recognizes the problem—that the “level playing field” of mutually lowered trade barriers is an untruth, and the gulf separating open trade from manipulated trade is widening, not contracting.

If Samuelson’s piece was a good start, The New York Times’ Paul Krugman added an exclamation point on Dec. 28.  In his “Trouble with Trade” column, he noted the growing imbalances inherent in U.S. trade with the rest of the world.  As Krugman notes, the “majority of our industrial trade is now with countries that are much poorer than we are and pay their workers much lower wages.”

Why is this a problem?  Krugman notes that “trade between high-wage countries tends to be a modest win for all, or almost all, concerned…By contrast, trade between countries at very different levels of economic development tend to create large classes of losers as well as winners.”  Witness the United States’ continuously mounting trade deficit with China, projected to reach $250 billion for 2007.  China exploits its cheap labor, and American workers lose their jobs.

Krugman takes a hard look at his own views on trade and offers an important mea culpa:
“All this is textbook international economics: contrary to what people sometimes assert, economic theory says that free trade normally makes a country richer, but it doesn’t say that it’s normally good for everyone. Still, when the effects of third-world exports on U.S. wages first became an issue in the 1990s, a number of economists — myself included — looked at the data and concluded that any negative effects on U.S. wages were modest.

“The trouble now is that these effects may no longer be as modest as they were, because imports of manufactured goods from the third world have grown dramatically — from just 2.5 percent of G.D.P. in 1990 to 6 percent in 2006….For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect.”

ManufactureThis commends Mr. Krugman on his honest commentary.  And what we’ve been saying tends to mesh with his views, though in a somewhat reverse fashion.  The U.S. “social safety net” grows more strained when there are insufficient resources to assist downsized workers.  Better these workers are able to maintain their jobs in the first place. 

Which brings us full circle to addressing the “mercantilism” that Bob Samuelson frets about.  It’s time for the Congress and the Administration to take action to enforce existing U.S. trade laws and strengthen U.S. manufacturing.  If not, China will keep building itself up at our own expense.
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