ManufactureThis will be taking a few days off for the Fourth of July weekend.  But we want to wish everyone a Happy July 4th, and a great summer.

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Marketplace Radio’s John Dimsdale ran a piece yesterday that noted the resurgence of the steel industry, with rising prices helping both domestic and international steel companies to renewed profits.  Dimsdale noted that a “cheap dollar and overseas demand are pumping new life into an old, domestic industry.”

  It’s only recently, though, that the steel industry has seen a turnaround from all its difficulties.  Dimsdale interviewed AAM director Scott Paul, who noted that there’s been roughly “18 months of prosperity for steel, but that comes on the back of about three decades of bloodletting.”

U.S. steel manufacturers have seen rough times in the past two decades, in large part because of subsidized competition from overseas.  China has boosted steel production exponentially in recent years, in large part due to energy subsidies for its steel producers. 

And while U.S. steel producers may continue to earn profits in the near future, Scott Paul remarked to Dimsdale that competition from China is also growing: “China has brought on about 400 million metric tons of new steel capacity just over the last couple of years. And if there is a worldwide economic downturn and demand in China and other countries decreases, we’re gonna see a glut of overcapacity.”

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From Saturday’s Wall Street Journal: 

China Trade Isn’t Helping U.S. Jobs
May 10, 2008; Page A10

Your editorial (”Indiana to Beijing,” May 6) flunks a basic test that most of our children learn in high school: how to balance an account. The Journal chides Hillary Clinton’s criticism of China’s mercantilist trade policies that distort the free market by citing export figures from Indiana.

However, the Journal does not factor in imports, which have led to a record $256 billion trade deficit with China, costing Indiana more than 45,000 jobs since 2001.

China’s unfair trade practices, including currency manipulation, dumping, subsidies, and lax labor and environmental enforcement have contributed to these market distortions and job losses. Criticism of these policies is not anti-China, but rather pro-rule of law and pro-free market.

Why is the Journal — or for that matter the U.S.-China Business Council — supporting practices by an authoritarian regime that distort the free market?

Perhaps remedial lessons in arithmetic and trade theory are in order.

Scott N. Paul
Executive Director
Alliance for American Manufacturing
Washington

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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  “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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  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.

  With economic worries entrenched in the minds of voters – and no end in sight – AAM brought its ‘China Cheats’ campaign to Indiana today, and the Indianapolis Star has already taken notice.

The campaign, ‘China Cheats, Indiana Loses,’ will continue through the May 6th Indiana primary and urge the presidential candidates to hold China accountable for unfair trade practices that result in job losses. 

AAM director Scott Paul said: “Voters who care about the economy are the dominant demographic for the primary candidates.  The candidate who clearly commits to solving the China crisis is going to win Indiana.”

Paul noted that Indiana has lost over 45,200 jobs to China since 2001 and that until Washington shows the resolve to confront China’s brazen dumping, subsidies, and currency manipulation, these job losses will continue.

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 In today’s Wall Street Journal, John McKinnon noted that “Ahead of Tuesday’s primary in Pennsylvania, the focal point of unhappiness over trade might have begun shifting toward China, in part due to the influence of steelworkers and steel companies. Through a group called the Alliance for American Manufacturing, the steel interests launched a statewide ad campaign criticizing Chinese export practices.”

 It’s nice to see that our work is paying off.  Perhaps John is referring to our recent Presidential Candidates’ forum in Pittsburgh, which received extensive news coverage.  Over the weekend, the St. Louis Post Dispatch ran a front page piece by Bill Lambrecht that did an excellent job of both covering the event and explaining how illegally subsidized steel from China is undercutting domestic U.S. producers.

AAM’s “force of nature” Senior Analyst, Kerri Houston, clocked in with a strong editorial in the Scranton Times-Tribune last week.  Kerri noted that Pennsylvanians need to ask serious questions of the candidates as to how they’ll address China’s cheating on trade agreements.

  We’ve included Kerri’s op-ed below, for your interest.

Time for bull in China shop 
BY KERRI HOUSTON
GUEST COLUMNIST

A big red boot with a prominent yellow star is running roughshod over Pennsylvania, stomping on jobs in its wake.

Pennsylvania’s workers and business owners are well aware of the impact of its footprint, as are the state’s governor, legislators, and the employees of the Pennsylvania’s Unemployment Compensation office.

It appears that the only souls that have not noticed the state’s devastating and ongoing job losses to China belong to presidential candidates.

Although manufacturing still accounts for $73.9 billion of Pennsylvania’s gross state product and is the largest individual contributor to the statewide economy, the state has lost more than 207,400 manufacturing jobs since 2000; 78,000 of those have been lost to China since 2001.

As a result of its cheating, China has accumulated the largest trade surplus in global history, and a $256 billion annual trade deficit with the U.S. alone. Despite winning through dishonest trade, China has so far incurred no cost.

Pennsylvania is an ideal manufacturing state. With a sophisticated highway and railway network and water transport links, goods quickly can be shipped from Pennsylvania. The state also has a highly skilled work force and an April 22 primary showdown between Democratic candidates Sens. Hillary Clinton and Barack Obama that is currently giving it a loud voice.

Pennsylvania’s unemployment rates took a sharp upward turn five years ago, and its current 4.9 percent rate belies pockets of higher unemployment. Some mid-state counties such as Cambria and Somerset have unemployment rates above 6.1 percent.

In our global economy, it is reasonable to expect a flow of labor and trade, but Pennsylvanians should not have to compete with economic cheating and worker exploitation.

China ignores international treaty obligations and flaunts its non-compliance fearlessly. Although it promised to end currency manipulation when joining the World Trade Organization in 2001, it continues undervaluing its currency, making its goods cheaper and ours more expensive. Chinese manufacturers, predominately owned by the government, are given free land, infrastructure, and “loans” with no expectation of payback.

In the last five years, the Chinese government poured $52 billion of subsidies into its state-owned steel industry.

Chinese manufacturing benefits financially from ignoring accepted environmental safety regulations. Waterways and wells in China run red and purple with dyes and toxins. Many Chinese factories disregard international norms for workers by embracing low pay, forced labor and deplorable conditions for workers.

The migration of jobs to China also has serious national security implications. Military equipment sits idle in repair centers as the few American companies that provide spare parts or the tools needed to attach them have dwindled. Humvees receive armor at an agonizing pace as only one U.S. manufacturer of armored steel remains.

China’s profits from its highly subsidized manufacturers that allow it to increase its military funding rapidly — by 18.2 percent last year, much of it focused on emerging military space applications.

Despite the ability for the U.S. to address China’s cheating through existing trade laws, our government has done little. But Pennsylvania’s place as an important swing state in November provides an opportunity for Pennsylvanians to pose questions to presidential hopefuls about U.S. job losses and China’s economic threat.

None of the frontrunners from either party have addressed China’s cheating or its effect on our nation’s manufacturing and security.

Pennsylvania citizens have earned the right to ask: “If you are president, what are you going to do about enforcing our trade laws and reversing the cheating that makes it impossible for us to compete fairly in the global marketplace?”

If the people don’t ask, the candidates can’t answer.
 
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