The Associated Press’s Marty Crutsinger reported on the latest U.S. trade figures yesterday, and cited AAM’s Scott Paul regarding U.S.-China trade:

Critics contend the administration has not done enough to combat unfair Chinese trade practices. U.S. manufacturers say the Chinese keep the yuan undervalued by as much as 40 percent against the American dollar. That makes Chinese goods cheaper for American consumers while making U.S. products more expensive in China.

“Washington needs to stand up for American workers and manufacturers before hundreds of thousands of more good jobs move offshore,” said Scott Paul, executive director of the Alliance for American Manufacturing.

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Statement on July trade deficit from Scott Paul, Executive Director, Alliance for American Manufacturing (AAM):

  “The $62.2 billion trade deficit that America racked up in July is yet another reminder of the consequences of flawed trade policies and the continued crisis in American manufacturing.  Some may take solace in export growth last month, but the real story is China’s continuing, lopsided trade relationship with the U.S. 

“Our trade deficit with China rose to $24.9 billion last month, the second highest on record.  In 2007, this trade gap cost the United States 366,000 jobs, and we’re on pace to match that in 2008. 

“The trade deficit with China is not a product of market forces.  Rather, it is the result of Beijing’s mercantilist policies and Washington’s unwillingness to respond.  China must honor its commitments on issues such as eliminating industrial and energy subsidies, ending the deliberate misalignment of its currency, and allowing greater market access for U.S. goods.  China should also enforce its own labor and environmental laws. 

“Washington needs to stand up for American workers and manufacturers before hundreds of thousands of more good jobs move offshore.”

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  New data released today shows that despite a global slowdown, China racked up a record $28.7 billion trade surplus last month, a roughly 15% jump from the previous month.

Clearly, China’s mercantilist approach to trade is working quite well for them—no matter that it may come at the rest of the world’s expense.

The EU and WTO have recently voiced concerns over China’s currency manipulation—and with good reason.  But are Sens. Obama and McCain paying attention?  Do they have plans to address China’s market distorting practices?  The U.S. presidential election campaign would seem like a good time for them to talk about it.  ManufactureThis is waiting.

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  Rising energy costs have led some reporters to suggest that manufacturing may yet return to the United States.  With the cost of transoceanic shipping climbing to record levels, it’s been suggested that companies would do better to manufacture in the U.S. rather than, say, China.  In today’s Washington Post, Ariana Cha notes that “With fuel prices at record highs, the cost of sending a standard 40-foot container of goods has gone from $3,000 in 2000 to about $8,000 today, squeezing profit…Soaring energy costs, the falling dollar and inflation are cutting into what U.S. manufacturers call the ‘China price’– the 40 to 50 percent cost advantage once offered by Chinese producers.”

Piling on in the same enthusiastic vein, the Financial Times’ Richard Milne believes that manufacturers will start returning to the U.S. due to a “huge level of incentives some US states are offering companies to set up factories in their region.”  Milne cites Tennessee as an example due to the $577 million in incentives it is providing Volkswagen to build a $1 billion plant in Chattanooga.

Unfortunately, the monkey wrench of higher energy prices is being offset by some stubborn facts on the ground.  As Cha noted in her Washington Post piece, the outsourcing of American industry means that a “lot of equipment was disassembled and shipped abroad years ago.”  Additionally, “China still offers advantages: Many raw materials remain cheap, and millions of skilled laborers work for wages that are a fraction of what their American counterparts get.”

Cha omits some of the even greater benefits that China enjoys in order to reach its infamously low price—namely, heavy subsidies, continued dumping, and a currency rigging that has aroused the ire of the U.S., EU, Japan, and even the WTO.

The result of China’s very focused mercantilism is the ongoing loss of U.S. manufacturing jobs.  As McClatchy’s Kevin Hall reported last week, the U.S. shed a stunning 61,000 manufacturing jobs in August alone, a five-year high, which prompted AAM’s Scott Paul to state: “For those naive forecasters and pundits who believe that higher international shipping costs, more exports and a weaker dollar will inevitably lead to an American manufacturing renaissance, this is surely disappointing news.”

In a further sign that manufacturing has yet to rebound, the results of a recent Philadelphia Federal Reserve survey suggest that firms are actually increasing their offshore outsourcing.  Nearly two-to-one, (11.1% to 6.2%) companies said they are continuing to offshore production rather than return it to the U.S.

The bottom line is that the conditions needed to rebuild U.S. manufacturing will come when Congress and a future Administration recognize manufacturing’s key importance in strengthening the U.S. economy.  In addition to having a self-reliant national defense, boosting a strong domestic manufacturing base creates and sustains vital, technologically advanced jobs.  China knows this.  The EU knows this.  Japan knows this.  It’s time for our elected leaders to recognize this as well.  And step one will be to stand up for domestic producers and start enforcing the very trade laws that were originally conceived to ensure a level playing field and unfettered market.

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  AAM Director Scott Paul was interviewed yesterday on Michigan Public Radio.  Host Jack Lessenberry asked Scott about the future of American manufacturing– a subject he also addressed in a blog item.  Lessenberry made a good point: “What’s baffling to me is that neither presidential candidate is talking very much about the fact that the force that made this country wealthy and strong, the manufacturing sector of our economy, is dribbling away to places like Mexico and the People’s Republic of China.”

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  As the Financial Times reported this morning, the Bush administration may soon file a case against China in the WTO to challenge export restrictions on raw materials used in steel-making and other industries.

According to the Financial Times’ James Politi, China’s export quotas and taxes on raw materials used in steel production “artificially deflate domestic prices and inflate global prices, putting US producers at a disadvantage in violation of WTO rules.”

Filing such a case would be an important step in addressing U.S.-China trade relations.  Even more compelling, though, would be a look at the massive energy subsidies that China provides for its steel producers.  According to a report issued by AAM earlier this year, those subsidies have been conservatively estimated at more than $27 billion since 2000.  Such massive subsidization no doubt is distorting global trade flows and has adversely affected U.S. producers.

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  The GOP has converged on St. Paul this week to hash out its party priorities and nominate John McCain as its new standardbearer.  And if the current party platform is to be believed, the Republicans have drawn a clear distinction between themselves and the Democratic Party when it comes to trade policy.

Some of the highlights of the Republican version of trade policy include a promise to reinstate Fast Track Trade Promotional Authority (TPA) and to push for pending free trade agreements, including one with Colombia.  On both counts, the Democrats have taken a different tack.

Interestingly, the GOP platform includes some verbatim text on trade policy that previously appeared on John McCain’s website.  Both McCain’s website and the GOP plank state exactly the following: “With 95 percent of the world’s customers outside our borders, we need to be at the table when trade rules are written to make sure that free trade is indeed a two-way street.”

ManufactureThis wishes to quibble with McCain’s and the GOP’s interpretation of “customers.”  A more accurate assessment would be that 95% of the world’s population exists outside U.S. borders.  Unfortunately, most of those people are not buying American-made products—a fact made self-evident by our glaring $700 billion annual trade deficit in 2007.

When considering America’s overall trade picture, the GOP platform seems to view manufacturing through a fairly narrow lens.  Their plank states that “America’s producers can compete successfully in the international arena — as long as they have a level playing field. Today’s tax code is tilted against them, with one of the highest corporate tax rates of all developed countries.” 

While tax issues undoubtedly have a bearing on manufacturing costs, ManufactureThis politely suggests that the much larger elephant in the room (no pun intended) would be the continued violations of both world trade law and U.S. trade agreements by our foreign trading partners, especially China.

The GOP Platform does note the need to “ensure that China fulfills its WTO obligations, especially those related to protecting intellectual property rights, elimination of subsidies, and repeal of import restrictions. China’s full integration into the global economy requires that it adopt a flexible monetary exchange rate and allow free movement of capital. China’s economic growth brings with it the responsibility for environmental improvement, both for its own people and for the world community.”

Such rhetoric sounds encouraging, especially because China’s brazen currency manipulation provides a massive, ongoing boost for China’s exporters.  Unfortunately, and as ManufactureThis has previously noted, Sen. McCain has consistently opposed any action to curb China’s illegal practices in favor of balanced trade.

And so it remains to be seen if the current Republican plank on trade will suggest any meaningful progress, or if it’s simply lip service to a worried electorate that has seen 3.5 million good-paying manufacturing jobs erased since 2000.

Manufacturing matters, though, and if Sen. McCain doesn’t grasp that—and soon—he’ll face a very uphill fight in the battleground states.

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  New York Times columnist Thomas Friedman’s recent bestseller, ‘The World is Flat,’ has cheered globalization in all its forms.  As an outspoken advocate of globalization, Friedman has celebrated the progress that results from opening markets and “leveling the playing field.”  Because his book praised the advent of the Internet and the information age as a means to interconnect global citizenry, he has frequently touted the need for improved education in the U.S.

Some would argue that Friedman’s faith in the Internet to transform and modernize countries like China and India has been misplaced.  In truth, China’s booming industrial and scientific progress has resulted in large part from the deliberate transfer of U.S.  research and technology to Beijing as companies have chosen to relocate their factories overseas.  Simply put, China’s rapid rise is not a coincidence of timing.

The comeuppance of this shift in hi-tech production is that China is quickly becoming one of the most wealthy and ambitious nations in the world. 

During the recent Olympics, Friedman was astounded to note the stunning modernization that has swept China.  Shanghai’s 220-mile-per-hour magnetic levitation train, for example, easily trumps a comparable commute into Manhattan from LaGuardia airport.  As Friedman admits, “the rich parts of China, the modern parts of Beijing or Shanghai or Dalian, are now more state of the art than rich America. The buildings are architecturally more interesting, the wireless networks more sophisticated, the roads and trains more efficient and nicer.”

What accounts for China’s boom, according to Friedman?  Like the recent spectacle of the Summer Olympics, China has focused on “national investment, planning, concentrated state power, national mobilization and hard work.”

By contrast, Friedman says that “much infrastructure has been postponed in America since 2001” and that “it’s clear that the next seven years need to be devoted to nation-building in America.”

Unfortunately, it’s hard for state and federal budgets to be applied to internal improvement when depleted tax bases are stretched to the breaking point.  America has lost 2.3 million jobs to China since 2001, at an estimated cost in lost wages of $19.4 billion just in 2007.  Unless this hemorrhaging is reversed, there won’t be the money and productive know-how to keep pace with fast-sprinting China.

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  As millions of Americans head for the beach this Labor Day weekend, ManufactureThis thought it important to revisit a recent Economic Policy Institute (EPI) study that found the U.S. losing 2.3 million jobs to China since 2001.

Losing jobs to China is an unfortunate consequence of our mammoth, ongoing trade deficit with Beijing.  Not everyone finds the situation troubling, though.  Ohio’s Chamber of Commerce tried to spin Ohio’s 102,700 jobs lost to China since 2001 as a mere drop in the bucket compared to an alleged 25 million jobs lost in China over the last decade or so.

EPI’s Rob Scott fired back with a brief paper that rebuts the Chamber’s in accurate assessment of his report.  ManufactureThis is happy to present Scott’s rebuttal, which is available here.  It should make for relaxing reading as everyone heads off for a long weekend.

A happy safe labor day.

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Profiteers and apologists:  EPI responds to flak from the U.S. Chamber of Commerce and others on The China Trade Toll (EPI, July 30, 2008). 

By Robert E. Scott
Economic Policy Institute
Washington, DC

Who speaks for Ohio’s workers and manufacturers? 

In a recent, widely reported study, I showed that growing trade deficits with China have cost the United States 2.3 million jobs over the past six years, including 102,700 jobs lost in Ohio (Columbus Dispatch Online, 7/30/08).  This study has been widely criticized by the U.S. and Ohio Chambers of Commerce and by other business groups (Columbus Dispatch Letters to the Editor, 8/16/08).   These PR attacks are full of inaccurate and erroneous information. 

For example, the Chamber claims that China lost 25 million manufacturing jobs between 1992 and 2004.  In fact, China created nearly 10 million manufacturing jobs between 2002 and 2005, when their burgeoning trade surplus was decimating U.S. manufacturing.  Judith Banister is the Conference Board expert on this issue (hired by the U.S. Bureau of Labor Statistics) and she reports that Chinese manufacturing employment has increased in this period. 

On this issue, the Chamber is using ancient history to hide the truth:  China’s illegal subsidies, cheap currency, and other unfair trade practices have beggared the U.S. and their other trading partners and are largely responsible for the growth of their own manufacturing industries.  These policies have also enriched many of the domestic and foreign companies on the Chamber’s board, firms such as Nike, IBM, CVS, Safeway, Toyota, and Siemens. 

The Chamber also claims that imports from China are “replacing imports from another foreign country”.  In fact, China’s primary competitors are other major exporting nations in Asia, including Japan and the newly industrializing countries; they have maintained large, stable trade surpluses with the United States, in excess of $100 billion in every year since 1998.  Furthermore, these countries have directly benefited from China’s growing world trade surplus.  China and its other Asian trading partners have created a regional trade and production system that is generating growing trade surpluses with the rest of the world, both in absolute dollars, and as a share of their GDP.

Ohio’s large, industrial base has been decimated by growing trade deficits in this decade.  The state has lost 223,000 manufacturing jobs since March, 2001 alone.  It is one of two states (the other is Michigan) where employment has declined since 1998.  My report estimates that the growing trade deficit with China has displaced 102,700 jobs in Ohio since 2001, including 75,600 jobs in manufacturing.  These losses have contributed to the decline of Ohio’s industrial base, and to the loss of high-wage jobs in service industries that support the manufacturing sector. 

Nearly 1,200 Ohio manufacturing establishments closed between 2001 and 2006 according to the Census Bureau. This figure includes 22 plants that employed over 1,000 workers that have closed or reduced employment, a quarter of the largest plants in the state.  The Chamber does not speak for businesses that no longer exist, nor for workers without jobs or the communities where they have lived.  My study was based on the most widely used economic models of the effects of changes in trade on U.S. labor demand.  These models have become the “industry standard” used by nearly all serious analysts in the trade debates. 

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