U.S. exports to China last year totaled $52 billion, which pales in comparison to the $285 billion in Chinese imports coming into the U.S. The result is not only a record trade deficit, but also a blow to our GDP, lost jobs, unsafe products, and an erosion of our manufacturing base.
 
By the way, some of our fastest growing exports to China are waste — scrap metal, scrap copper, scrap paper and the like. Not products that will create the good-paying jobs of the future.

Ironically — or perhaps not — a study released last week concludes that the Chinese government is subsidizing its steel industry to the tune of $52 billion. While American companies are eager to compete in the global marketplace, it’s impossible to compete with these subsidies, which violate all sorts of trade rules.

Congress is poised to act on China’s illegal currency manipulation, which gives Chinese producers a 40 percent price advantage over American production, for the first time. But the Bush administration indicates that it still opposes any and all interventions.

That opposition is shortsighted. Unless the Chinese government understands that there are consequences for its market-distorting practices, the regime in Beijing won’t be inclined to change them, no matter how many trips Treasury Secretary Henry Paulson makes there.

There is another opportunity to secure good-paying jobs. The International Trade Commission has been reviewing the case of below-cost steel imports from China and other countries. It has heard testimony from dozens of Senators, Members of Congress, workers and domestic steel companies about the damage this dumped steel causes to one of our nation’s most important strategic industries. Hopefully, the ITC will make the right call and continue to ensure that American workers and manufacturers have the same opportunity to compete as their overseas competitors.

Standing up for accountability and fairness in our trade policy doesn’t mean you are anti-China or protectionist. Rather, it means you support the rule of law and eliminating market-distorting practices. These are lessons the Bush administration and mainstream media should learn.

Our friends at EPI have an interesting report out today that looks specifically at the portion of the U.S. trade deficit with China that is due to U.S.-based Wal Mart, the world’s largest retailer.

As previously reported by EPI, the between 2001 and 2006, the $235 billion trade deficit with China cost the U.S. 1.8 million jobs. Today’s report shows that Wal Mart was responsible for $27 billion of the trade deficit, which resulted in nearly 200,000 American jobs being displaced, and American manufacturing was the hardest hit.

“The manufacturing sector and its workers were hardest hit by the growth of Wal-Mart’s imports. Wal-Mart’s increased trade deficit with China eliminated 133,000 manufacturing jobs, 68% of those jobs lost from Wal-Mart’s imports.”

As ManufactureThis has pointed out before, the trade deficit with China is the result of the continuing efforts to bypass the rules it agreed to when it entered the WTO in 2001. From illegal subsidies, dumping and currency manipulation to suppressed wages of workers, China continues to play by a different set of rules, and as the EPI report clearly points out, the it’s costing American jobs and undercutting American producers and manufacturers.

 Some great news from one of ManufactureThis’ partners – Arcelor Mittal USA’splant in Cleveland is gearing up to ship 12,000 tons of hot-rolled steel coils to Europe. The Cleveland Plain Dealer has an article that makes note of the highly competitive market, includes comments from Arcelor Mittal and from the president of the local United Steelworkers, who says:

“It speaks a lot of us that we can still make a competitive product.”

It certainly does, and points to the strength of the labor-management partnership between the United Steelworkers and leading manufacturers like Arcelor Mittal USA.

On Wednesday, AAM Executive Director Scott N. Paul will be in Cleveland, as the keynote speaker for WIRE-Net’s 19th Annual Meeting, and he’ll be talking about exactly this type of collaboration. WIRE-Net, like AAM, is committed to strengthening manufacturing and is a partnership made of up of a diverse group of organizations.

As the Plain Dealer article points out, and Scott will echo in his remarks on Wednesday, American workers and manufacturers can compete. NE Ohio, like regions all across the U.S., is home to a highly skilled and productive workforce, a workforce that can compete and win against any workforce in the world.

The 12,000 tons of U.S. produced steel headed to Europe is evidence of that…someday, we’ll know that all is right with the world, and our policymakers have stepped up to the plate to enforce the rules of international trade, when 12,000 tons of U.S. produced steel is headed to China.

Over the weekend, there were two interesting local news stories on manufacturing job loss that caught the attention of ManufactureThis.

One comes out of Port Washington, Wis., where Briggs and Stratton announced that it would be closing a plant that makes lawn mowers and snow throwers. With its closing, 325 jobs will be cut, and according to the local machinists union, the average worker at the plant has a tenure of about 20 years.

“Tool room machinist Mike Helminger is 59 and has worked with the company for 37 years. He says more manufacturing jobs are disappearing and he worries who will hire him at his age.”

To get a good look at what the future holds, Helminger need only read a story posted the same day in the Santa Cruz Sentinel:

Headline: Santa Cruz yet to rebound after manufacturers left town starting 10 years ago

The story comes on the 10 year anniversary of the closing of a Wrigley chewing gum factory, which cost the area 300 jobs. The next few years following that plant closure saw the closing of other facilities, including Salz Leathers, Texas Instruments, Raytek, Giro and Lipton Tea.

“City finances have not only dipped since the manufacturing foldings, they’ve tumbled to the tune of several million dollars because of lost tax revenue — a combination of sales, utility, property and other miscellaneous taxes. The city has yet to fully recover, even a decade after Wrigley pulled the trigger.

“And, the manufacturing jobs — once considered a bridge to the middle class for workers with less education — have not been replaced, leaving few alternatives for people living in one of the nation’s most expensive communities.”

The story points out that countywide, the manufacturing sector has shrunk by more than 40 percent, from 10,700 in 1996 to less than 7,000 now, and points out that the significant loss has been:

“the elimination of good-paying jobs with health benefits and retirement.”

As MT has said before, unfortunately, this is a story that sounds all-too-familiar to far too many communities around the country.

MT has raised the questions before: What are we going to do to strengthen the American manufacturing base that is the cornerstone of our nation’s economy? How can we ensure American workers the economic security to realize their American dream?

It’s going to take a tremendous amount of determination, a commitment to working together, and an acceptance on the part of many that our nation’s economy isn’t humming along for everyone with nothing to worry about. Too many families, like hundreds in Port Washington and Santa Cruz, are far too close to the possibility of losing their jobs and their livelihood. 

There is no silver bullet that will strengthen manufacturing on its own, but there are many steps that will help, including enforcing and strengthening trade laws, reducing the trade deficit, addressing health care, pension and energy costs, and providing incentives for creating good paying jobs in the U.S.

It’s worth noting this bit of possible good news for New Hampshire – Velcro USA is adding 90 jobs at their Somersworth facility. Why is this good news? 90 jobs doesn’t seem like much.

New Hampshire has lost more than 27,000 manufacturing jobs since 2001. It is also the state that has been hit the hardest by the trade deficit with China – which has displaced more than 13,000 jobs across all sectors since 2001, equaling 2.1% of its total employment.

In light of these facts, presidential hopefuls who are blanketing the state with their campaign messages, have every reason to be talking about their plans for strengthening this important economic base.

AAM Executive Director Scott Paul, in his latest post on The Huffington Post, urges presidential candidates in both parties to continue to ramp up their discussion of the economy, jobs and need for a change in America’s international trade policy. That’s despite the recent flurry of criticism coming from editorial pages in major media outlets across the country:

“The charges: the candidates are thinking small, pandering to labor, and failing to grasp the benefits of free trade.

“The reality: the candidates are witnessing the toll those agreements are taking on America, and they are courageous enough to say it’s time to change course.”

The Christian Science Monitor’s Mark Trumble takes a look at the climate for change in Congress when it comes to U.S. international trade policy. AAM’s Executive Director Scott Paul is quoted:

“It’s no longer a matter of free trade versus protection, which is really the old paradigm,” says Scott Paul, who heads the Alliance for American Manufacturing, a group lobbying for a tougher approach toward trade-law enforcement. “The momentum [for enforcement] has never been greater than it is now.”

Paul Craig Roberts writes in his most recent column that “My hat is off to Business Week” for their cover story on “phantom GDP” and the acknowledgement by federal officials that domestic manufacturing output has been “substantially overstated” in recent years. Business Week’s article stated that the gains in domestic manufacturing output since 2003 could have been overstated by as much as 40%.

Hopefully this is a sign that even more economists are going to take a closer look at the real costs of offshoring and manufacturing job loss…and stop passing off the anxiety American workers have about the economy as “phantom concerns.”

Another story today, this one out of North Carolina, that serves as a stark reminder of the ripple effect on communities when manufacturing jobs disappear.

Southern Tool Manufacturing, a small family-owned business that once employed more than 60 people in Winston-Salem, is shutting its doors. Its owners point to the closing of Thomasville and Broyhill furniture facilities in the area as the reason for lost business, which created a hurdle the small company couldn’t get over.

This article says that despite more than 45,000 manufacturing jobs lost in the area in the past five years, unemployment hasn’t moved above 5.5 percent. However, ManufactureThis will point out that a low unemployment rate doesn’t mean these workers who’ve lost their jobs aren’t any worse off. The real question is what jobs are available to these workers. Are they jobs that are on par with the high-paying manufacturing jobs they’ve lost?

According to this week’s Business Week cover story – The Real Cost of Offshoring – government statisticians have acknowledged that the growth of domestic manufacturing has been “substantially overstated” in recent years. What does that mean? Well, it could mean a lot.

The ripple of this miscalculation means that productivity gains and overall economic growth have been overstated as well:

“And that raises questions about U.S. competitiveness and ‘helps explain why wage growth for most American workers has been weak,’ says Susan N. Houseman, an economist with the W.E. Upjohn Institute for Employment Research.”

Business Week’s analysis traces the problem back to the import price data published monthly by the Bureau of Labor Statistics. In short, many of the cost cuts and productivity innovations being made overseas by global companies and foreign suppliers “aren’t being counted properly.” The government then uses this “erroneous” import price data as part of its calculation for many other major economic statistics, including productivity, the output of the manufacturing sector, and the real gross domestic product. (Click here for an explanation how the data are calculated.)

“The result? Business Week’s analysis…reveals offshoring to low-cost countries is in fact creating ‘phantom GDP’ – reported gains in GDP that don’t correspond to any actual domestic production. The only question is the magnitude of the disconnect.”

Is this cause for real concern? Yes.

“There are potentially big implications. I worry about how pervasive this is,” says Matthew J. Slaughter, an economist and former member of President Bush’s Council of Economic Advisers.

Business Week’s “admittedly rough estimate” shows that about $66 billion in phantom GDP gains may have been created since 2003 as a result of this problem.

“That would lower real GDP today by about half of 1%, which is substantial but not huge. But put another way, $66 billion would wipe out as much as 40% of the gains in manufacturing output over the same period.”

And:

“The official statistics show that productivity, or output per hour, grew at 1.8% over the past three years. But taking the phantom GDP effect into account, the actual rate of productivity growth might be closer to 1.6% — about what it was in the 1980s.”

So, what are the implications of phantom GDP?

“For one thing it calls into question the economic statistics that the Federal Reserve uses to guide monetary policy.”

“In terms of trade policy, the new perspective suggests the U.S. may have a worse competitiveness problem than most people realized. It’s easy to downplay the huge trade deficit as long as it seemed as though domestic growth was strong. But if the import boom is actually creating on a façade of growth, that’s a different story.”

Business Week reports that there is still much to be sorted out in this analysis to truly understand all the implications. However, just the acknowledgement by government officials that domestic productivity has been overstated is significant and far reaching.

While many have countered the 3.2 million manufacturing jobs lost since 2000 with a quick response that manufacturing productivity and technology is on the rise, it looks like those big gains they point to might not be true. In fact, once we look past this “façade of growth,” we will likely see what most Americans already know – that they have good reason to feel anxious about their economic security.