While campaigning in Michigan earlier this year, Sen. John McCain said that lost U.S. manufacturing jobs “aren’t coming back.”  Instead, McCain has ardently championed a new, post-industrial economy—one that will lift displaced manufacturing workers to new heights of specialized service work.  It’s unclear whether these projected service jobs are immune, though, to the outsourcing that has claimed everything from call center jobs to x-ray technicians.  However, Sen. McCain has consistently suggested that American workers will transition to rewarding, intellectualized work in the new “Information Age.”

Minnesota Public Radio recently noted that this particular worldview was already in place in 2000 when the Senator dismissed the concerns of a laid-off paper mill worker.  The unemployed worker regretted that his son would not have a chance to share in the family tradition of working at the local mill, to which McCain retorted “I’m sorry that I wanted better for your son.”

  McCain may have underestimated both the pride of achievement and economic security offered by a modern paper mill, though.  Not only do mill jobs provide healthcare and benefits, but some positions pay as much as $70,000 per year—a comfortable middle class living.

The merits of a reliable mill job also offer more than might immediately meet the eye.  As the New York Times discussed in a piece today, two downsized New York paper mill workers labored for more than six years to re-launch the upstate plant that had employed their family for three generations.  Newton Falls paper closed in 2000, but Andy Leroux and Levi Durham Jr., two of its longtime employees, dedicated much of their free time to preserving the shuttered plant’s infrastructure and to locating new owners who might want to restart operations.  While supporting themselves with construction and auto repair jobs, the two made a point of returning to the mill to lubricate machines, dust crevices and corners, and shovel heavy rooftop snow in order to keep the mill functional in case it could eventually return to production.

As they explained it: “In our hearts, we never considered the mill closed.  To us, the mill was idle. There’s a difference between closed and idle… If you were there the day this place closed, you had people working their hearts out to make the best paper possible. We knew we had something special.”

When Newton Falls closed, it was one of about 600 paper mills operating in the U.S.  Of those 600, another 150 or so have closed since, affecting communities throughout the country.

Fortunately, Leroux’s and Durham’s hard work paid off.  In 2006, they located someone interested in buying the plant; in September, 2007, Newton Falls re-opened as a full-time paper mill.

Currently, the Newton Falls Fine Paper company is one of the largest private employers in New York’s St. Lawrence County, with pay ranging from $15-22 an hour.  Workers also receive medical and dental insurance as well as 401(k) plan.  A county official said that the mill “is a huge stabilizing factor in the community” and contributes roughly $18 million a year to the economy, including a $4 million payroll.  This has meant increased business and earnings for the surrounding community, with the owner of a nearby general store expanding his business and a neighboring motel transitioning to year-round service.

It would be nice to bring Sen. McCain along for a visit to the Newton Falls mill.  Not only would he see manufacturing jobs that have indeed come back, but he’d likely recognize the spirit of indomitability, ingenuity, and enterprise that built the United States as an industrial power in the first place.

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Here’s a scenario worth pondering: the U.S military relies on a vital component X to detect bombs and to scan for explosive materials.  Demand for that component keeps growing.  In response, U.S. military officials continue to purchase greater quantities of component X from overseas.  But with demand continuing to climb, what might the military do to secure more reliable supplies of component X?

  If we’re talking about bomb-sniffing dogs used by both the U.S. military and the Department of Homeland Security, the decision has been to simply to buy more and more dogs from European breeders.  Unfortunately, and as one Congressman noted, not all of these dogs are top-notch: “European sources are getting first choice; we’re getting second choice.”

There might be some good news, though.  New language inserted into the House-passed FY09 defense authorization bill would require the military to move toward buying only American-bred dogs to sniff out bombs, to patrol bases, and to perform other tasks in the United States and overseas.

Currently, the military sources its dogs from both domestic breeders and European vendors.  But with only 19 domestic breeders providing a handful of dogs to meet the Defense Department’s strict requirements, U.S. military officials often travel to Europe to procure more top-breed dogs.  The problem, though, is that the U.S. isn’t necessarily receiving the pick of the European litters.

With the military’s use of contractor-dog teams in Iraq and Afghanistan increasing the need for qualified canines, it makes sense to boost domestic breeding of top-line dogs.  The U.S. is currently paying an average of $3,000-4,000 for each European dog, and could simply expand the breeding of top bloodline U.S. dogs for the same price. 

The new canine language in the FY09 bill would rectify this by increasing the breeding of reliable domestic sources, leaving the U.S. military less vulnerable to a potential dog shortage.

A question, then: if the U.S. Congress can think strategically to increase domestic production of strategically important military dogs, why can’t it apply the same thinking to even more high-value items?  Americans might be surprised and troubled to learn that such key components as naval sonobuoys and Hellfire missile propellant are now being sourced from China, a country that the U.S. Department of Defense has already designated as a potential threat.

Shortsightedness for military procurement has become such a problem, though, that the Pentagon has created a ‘Diminishing Manufacturing Sources and Materials Shortages’ system to identify domestic material and manufacturing scarcities. 

If the U.S. is to retain a reliable military, it must also maintain the ability to manufacture both hardware and replacement parts at home.  So whether it’s dogs, bullets, missile parts, or computerized naval systems, it would seem prudent to have someone at home do the breeding.

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  Earlier this week, the American Enterprise Institute (AEI) held a conference that asked “Is China Taking Unfair Advantage of Its Trade Partners?”  AAM Executive Director Scott Paul was among the panelists and, as Inside U.S. Trade noted, he had some ready answers to the question of how the U.S. should handle China.

With both the EU and Japan joining U.S. calls for Beijing to revalue its artificially depreciated currency, it’s clear that something has to give regarding China’s unprecedented current account surplus.  The issue, though, is whether dialogue will push the Chinese to revalue, or whether concerted unilateral action must be taken.  It’s suggested that China would benefit from a more flexible exchange rate in order to lower potential inflation at home, but so far the Chinese regime has made only token adjustments.

It’s important to note that China foreswore currency manipulation when entering the WTO in 2001.  But not until 2005 did it even begin to budge its currency, the Yuan, by any token increments.  Most economists consider the currency still undervalued by as much as 40%, a helpful, continuing boost for its exports.

The June 2 panel discussion at AEI offered some diverse approaches to the currency issue, with several panelists favoring ongoing discussions, such as the upcoming semi-annual ‘Strategic Economic Dialogue’ (SED), to push for a resolution of the currency issue.  AAM’s Scott Paul suggested that enforcement of U.S. laws to press China on its commitments could also be a sensible and fair step. There was a definite consensus among the panelists, though, that the currency is pegged and should be revalued, which would be of benefit to both China and the U.S. in the long run.

China has been pegging its currency to the dollar since 1994.  In those intervening 14 years, Chinese exports to the U.S. have jumped from $39 billion annually to $321 billion, a stunning increase, something the panelists were quick to note.

The issue needs resolution, and soon.  Dropping trade barriers such as currency manipulation would be a useful gesture to enhance the free market.  Scott Paul suggests that a currency revaluation agreement similar to the 1985 Plaza Accords could be a good start—something interesting to aim for, rather than just another round of dialogue at the SED.
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  In the New York Times today, Louis Uchitelle notes a wee bit of a problem that could begin to ripple across the U.S. economy this summer.  And no, it’s not “the housing bust, the credit crunch, shrinking consumption, rising unemployment and faltering business investment”—any of the culprits cited for recent woes.  No, this is a slightly different bit of a cash crunch…

Uchitelle’s concern is that, while the economy has slowed in recent months, state and city governments have continued to spend money allocated in budgets that were passed before things began to get dicey.  And so, as he sees it, “state and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels.”

The problem, though, is that on July 1, new fiscal year budgets start coming on line.  Many of these municipal governments are now warning of impending cuts in spending due to declining tax revenues.  And so, the states and cities will no longer be able to draw on “rainy-day savings” to compensate for spending lost at the national level.

Where does Uchitelle see these spending gaps falling?  He explains that “When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles.”

The essential point, then, is the interconnectivity of the U.S. economy. Simply put, lost jobs mean lost tax revenue, which means lost services for unemployed workers.. 

Much of the pain of this declining employment can be seen in the manufacturing sector, which has suffered the loss of 3.5 million good-paying jobs since 2000.  In heavily industrial states like Michigan, the ripple effect of lost jobs is more pronounced: one in eight Michigan residents now receive food stamps, according to the New York Times.

Tightening the noose is manufacturing’s unique ability to generate additional jobs.  Manufacturing offers a tremendous “multiplier” benefit, creating four spin-off jobs in the local economy for every manufacturing job.  But when viewed in reverse, one sees that each lost manufacturing job (like the 280,000 that have been lost in Michigan alone since 2000) can also mean the loss of four other dependent jobs.

Manufacturing’s linkages run deep into the overall economy.  As Uchitelle and many others rightly worry about a shrinking economy, it would seem wise to consider manufacturing premium ability to create jobs.  And so, a national policy of supporting and promoting manufacturing should be an urgent priority.  Hopefully this message will reach our elected officials rather soon.
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  After weeks of hearings and investigation, the U.S. Department of Commerce determined on Friday that Chinese producers of circular welded steel pipe are dumping their products in the U.S. at below the cost of manufacture.  Additionally, the Commerce Department noted that Chinese pipe exporters are benefiting from illegal government subsidies ranging from 29.57 to 615.92 percent. 

In a statement, the United Steelworkers noted that this is the first investigation involving Chinese government subsidies to the steel industry. 

In its report, the Commerce Department also made final determinations that would allow for the retroactive imposition on duties for the offending producers. 
 
On June 20, the International Trade Commission (ITC) will vote on whether the U.S. industry producing circular welded pipe has been injured as a result of dumped and subsidized pipe from China.  On July 31, 2007, the ITC made a preliminary finding that, indeed, U.S producers were being harmed. 

AAM field coordinator Mickey Bolt, who worked at Wheatland Tube in Pennsylvania, would welcome a Commerce Department ruling in favor of domestic U.S. producers.  He said that it would mean  American steel pipe and tube manufactures would finally “be competing against pipe producers in China and NOT the Chinese government.”
 
These dumped and subsidized steel imports have had a serious negative impact on American producers.  The Steelworkers reported that 500 U.S. jobs have been lost in this segment of the domestic pipe industry since 2002 as a result of Chinese imports (approximately 25 percent of the total work force employed).
 
It’s good to see the Commerce Department recognizing the adverse consequences of China’s illegal trade practices.  The rules of world trade are not arbitrary, and neither are U.S. trade laws.  Remedies exist against cheating, and they should be employed judiciously and promptly.

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