A recent article in BusinessWeek posed an interesting question, namely “Can the U.S. Bring Jobs Back from China?”  Reporter Pete Engardio noted that rising oil costs and higher wages in China have cut into that country’s once rock-bottom price.  Engardio wondered if the conditions might be right for U.S. firms to start re-launching domestic production, rather than depend on increasingly expensive transoceanic shipments.

Engardio, by the way, knows his subject matter.  In 2004, he wrote a BusinessWeek cover story that analyzed the ‘China Price.’  Along with low wages, Engardio found that what makes China’s dominance unprecedented is its “humongous scale, a supply infrastructure that enables you to buy every widget and raw material from hundreds of vendors within easy driving distance of your factory, feverish domestic competition, and an entrepreneurial zeal by factories to satisfy a customer’s every desire.”

With regard to a possible revitalization of U.S. manufacturing, Engardio notes that the cost of shipping a 40-foot container from Shanghai to San Diego has climbed 150% in the past eight years and is now $5,500. A Toronto financial-services firm, CIBC World Markets, estimates that if oil climbs to $200 a barrel, that cost could reach $10,000.  Firms would simply find it more affordable to import their goods from Cleveland rather than China.

Unfortunately, it’s not that easy.  American manufacturing has taken a serious beating over the past decade and the bigger struggle would be to ramp back up to full production. 

As the old saying goes, the spirit may be willing, but the flesh is weak.  In the case of U.S. factories, much of the baseline productive capacity and hands-on experience is now gone, a victim of China’s subsidized, artificially-low productions costs.  Engardio quotes James Turk, CFO of the New Mexico-based CEMCO as saying, “American foundries now can compete head-to-head on cost, but there aren’t many foundries, welders, machinists, and quality-control engineers…What we had 10 years ago is gone.” 

At the same time that America’s manufacturing base has been hollowed out, China’s modern foundries are running at full steam, and with modern equipment.  That means that even if U.S. firms want to move their factories back to the U.S., the necessary steps could take years.  In the mean time, they’d still rely on Beijing as the manufacturer of choice.

There’s a serious wake-up call in here.  As ManufactureThis continually asks, what exactly will the United States do when it loses the capacity to produce key hi-tech goods and military equipment?  Any self-aware nation should have a plan to preserve and promote its own manufacturing capability, and indeed almost every industrialized nation has a program for sustaining domestic production.  Sadly, the United States does not, and therein are sown the seeds of a potentially calamitous future.

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Atlantic columnist James Fallows has been keeping the world posted on the view from his balcony in Beijing.  And with the Olympics only 24 days away, Fallows’ most recent snapshot of the Beijing skyline suggests that the city’s murky skies might clear somewhat in time for the big games.

  ManufactureThis was quite alarmed at one of Fallows recent postings—of thick gray smog hanging over Beijing just two weeks ago.  At that point, it seemed the Olympics would be contested in an industrially produced version of the infamous 1988 NFL “Fog Bowl,” so named because the home team Chicago Bears defeated the Philadelphia Eagles in a fog so thick that fans in the stands were unable to view the on-field action.

It’s one thing for winter fog to roll in from Lake Michigan, but it’s another thing for acrid industrial emissions to foul and pollute one of the most populous cities on earth.  With China now leading the world in the production of both CO2 and sulfur dioxide, it’s little wonder that Beijing is suffering a smog epidemic.

Unfortunately, this wanton polluting is hurting more than just China’s citizenry.  More than eight years ago, in an article captioned “When China smokes, you might get a cough,” CBS News reported that China’s unrestrained emissions of sulfur dioxide, as well as “arsenic, lead and zinc,” were already fouling the western skies of the United States.

Those emissions have only increased in the ensuing years, which means that in addition to poisoning its own people, China is now belching toxic gases and particulate matter for all the world to share. And so, rather than simply promote athletic camaraderie during the August games, Beijing is inadvertently helping to foster an accelerated sense of global environmental concern.

ManufactureThis will have more to say on the issue in the next few weeks, when AAM releases an in-depth report on unrestrained pollution from China’s diffuse steel industry.

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  As the U.S. economy teeters along a recessionary line, it’s interesting to study this month’s latest U.S. trade figures.  Historically, recessions and economic slowdowns have led to a narrowing of the U.S. trade deficit.  In the 1991 recession, for example, the annual U.S. trade deficit fell a whopping $34 billion.

As the latest Commerce Department figures show, the monthly U.S. trade deficit dropped slightly in May, dipping from $60.5 billion to $59.8 billion.  Curiously, though, despite a worried economy and a weakening dollar, the U.S. trade deficit with China rose from $20.2 billion to $21 billion. 

Just what is it about China that makes the U.S. keep racking up huge monthly deficits?

As ManufactureThis is wont to note, China is the world’s most flagrant manipulator of its currency.  While currency rigging is illegal under world trade law, China has continued to artificially depreciate its currency, the Yuan, in order to boost exports.  The result is a growing export surplus with the U.S., even during months when the U.S. trade deficit otherwise takes a dip.

U.S. manufacturers are rightly concerned about China’s cheating.  And they’re not alone.  First the EU and Japan started to speak up.  And then, more recently, the World Trade Organization (WTO) joined calls for a rise in the Yuan.

The bigger hurdle, however, will be to see if Congress and the Administration can jump on the bandwagon and get serious about dealing with China’s cheating.  Until then, ManufactureThis will continue to note, “The monthly U.S. trade deficit with China climbed again…”

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  Apparently, the U.S. Chamber of Commerce believes we need new words and not new policies to make trade policies work for more Americans.  ManufactureThis discovered a copy of their new hymnal via an interesting article yesterday in The Hill. 

Watch closely as the proponents of some of these free trade agreements begin their (dis)information campaign.  Remember, you can put lipstick on a pig, but it’s still a pig.  The debate on trade policy would be better served by an honest discussion of its merits and flaws. 

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  As ManufactureThis returns from a colorful July 4th weekend, we take note of some recent news regarding the U.S. flag.  Apparently, the U.S. imports roughly $5.3 million worth of American flags each year—with most of them coming from China.

More than one U.S. lawmaker has found the idea of foreign-made flags a bit incongruous.  Not only have a host of Chinese products been found to contain shoddy materials and lead paint, but the notion of a repressive, communist state assembling flags  for the democratic United States seems a bit illogical.

Earlier this year, West Virginia House of Delegates member Jack Yost sponsored House Bill 4150, which would require that any U.S. or West Virginia flags purchased with state funds be made in American.  His bill was signed into law on March 28, 2008.

Last week, Yost was interviewed on CNN’s Lou Dobbs to discuss the bill.  A retired Steelworker and army reserve veteran, Yost said that he was motivated to introduce the bill after seeing foreign-made flags used at a veterans memorial ceremony.  As he explained on CNN, “I lost all of my pension that was promised to me and my health care that was promised to me, as did thousands of other steelworkers. And as a veteran, I feel that it is unpatriotic and disrespectful to put a foreign-made product on a veterans’ memorial.”

Yost and thousands of other Steelworkers lost pensions when their former employers went out of business due to predatory competition from China.  And if $5.3 million in imported flags seems small change, consider that the U.S. racked up a $256 billion trade deficit with China in 2007.  Dumping, subsidies, and illegal currency manipulation have given China an unfair advantage over U.S. producers and so, as long as Beijing continues to cheat at the rules of world trade, it makes little sense to wave flags made in China.
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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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The poet Charles Reznikoff once noted that what matters is “not the five feet of water to your chin, but the inch above the tip of your nose.”  Cheerful words indeed, but particularly poignant today for the residents of Qingdao, in China’s Shadong province.  Preparing to host the boating competitions of this summer’s Olympic Games, the city’s residents are currently working non-stop to clear a stunning algae bloom that has swallowed up large swaths of coastal water.

  Qingdao officials blame the algae bloom on “increased rainfall and warmer waters in the Yellow Sea.”  However, the Algae infestation now covers more than 5,000 square miles of the sea, according to the Xinhua News Agency.

Possibly the International Herald Tribune is closer to the mark when it notes that “many coastal Chinese cities dump untreated sewage into the sea. At the same time, rivers and tributaries emptying into coastal waters are often contaminated with high levels of nitrates from agricultural and industrial runoff. These nitrates contribute to the red tides of algae that often bloom along sections of China’s coastline.”

While China does have environmental laws on its books, they are seldom if ever enforced.  As a result, Chinese manufacturers frequently violate every accepted air and water discharge standard. 

Not having to incorporate environmental restrictions into their production saves money aplenty, but it also means tons of noxious smokestack emissions and the sort of groundwater runoff that produces unnaturally vast algae fields.

   In the next few weeks, AAM will be examining the consequences of Beijing’s environmental disregard with a report focusing on lax emissions standards for Chinese steel producers.  You can be sure ManufactureThis will have much to say when that report is issued.  But for now, here’s to a safe and healthy Olympic Games in the People’s Republic.

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  ManufactureThis’ friend, Sen. John McCain, is traveling to Bogota today to help promote a free-trade agreement with Colombia.  The senator has been vocal in his support for a deal with Colombia, which he believes will be a boon to the U.S. economy.

While the good Senator is flying south, ManufactureThis wants to suggest that bigger problems lay to the east.  Secretary of State Condoleeza Rice is currently in Beijing, where Premier Wen Jiabao has expressed significant concerns about the weak state of the U.S. dollar.  Premier Wen was quoted this morning by the Wall Street Journal as saying that the Chinese “hope the U.S. will quickly pass through the subprime crisis and stabilize the exchange rate of the U.S. dollar; this is of great importance to the world economy.”

Notwithstanding Sen. McCain’s passing interest in economics, it would seem that he’s currently talking to the wrong country.  Two-way trade with Colombia in 2007 added up to $18 billion, with the U.S. charging up a mere $876 million in trade debt.  By contrast, U.S.-China trade hit $386 BILLION, and most of that ($256 billion) racked up as increased U.S. debt. 

It’s because of the huge overall U.S. trade deficit that investors are losing confidence in the dollar.  Ironically, China has continued to manipulate its currency, in violation of the free market, to continue its huge trade advantage.

If Sen. McCain wants to steady the U.S. economy, he should consider a longer plane flight—one that will take him straight to Beijing, where he can firmly remind Premier Wen that Beijing’s currency finagling has been unraveling world markets for a number of years.

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  Every once in a while, ManufactureThis sees something commendable in the mainstream press.  And so we were happy to note a piece by Gilbert Kaplan in yesterday’s Washington Post that was intended to “cut through the many myths” surrounding manufacturing in the United States.

Kaplan believes that an even “more damaging threat to the nation’s prosperity” than the troubled domestic banking industry is the “decline of the manufacturing sector.”  And Kaplan does ManufactureThis proud by citing some of the same stats that keep us awake at night—namely that U.S. manufacturing employment has fallen below 14 million for the first time since 1950, and that the country shed 49,000 factory jobs in April 2008 alone.  Losing roughly 50,000 good-paying manufacturing jobs in one month suggests a potentially stunning 600,000 industrial jobs lost in 2008.

With those cheerful points in mind, Kaplan sets out to explode some of the myths that have obscured public focus on the manufacturing debate.

For starters, Kaplan points out that American workers are not “paid too much.”  Not only are good manufacturing salaries a stabilizing hallmark of a First World economy, but they happen to be quite reasonable.  He observes that “Labor costs are already less than 10 percent of the cost of making many products, including steel and semiconductors.”  Instead, what hurts U.S. manufacturers isn’t labor costs so much as manufacturers having to compete with “currencies valued extremely low against the dollar.”  This artificial currency manipulation on the part of some of our trading partners makes U.S. exports “very expensive” for overseas consumers, a significant disadvantage in a tight global market.

Kaplan also dispels the myth that manufacturing belongs to the “old economy.”  Many pundits and candidates suggest that America’s primary business focus is transitioning to an ‘Information Economy.’  This overlooks the very basic fact that consumer demand remains strong throughout the world for high-tech equipment.  Unfortunately, though, the U.S. isn’t one of the main producers.  As Kaplan sees it, “very few high-tech companies are building new plants in the United States. The name on the box of the computer you just ordered may be Dell or HP, but the computer itself was probably made in Asia. The fancy light-up screens on your cellphone and iPod — liquid crystal display screens, or LCDs — are all made in China, South Korea, Singapore and Japan. Even our greatest semiconductor companies, such as Intel, are building new state-of-the-art facilities in China.” 

Additionally, Kaplan points out that U.S. private-sector companies can’t put as much money into technology and research and development as foreign governments do to build up their sectors.  Essentially, U.S. firms are competing against foreign governments.  The Chinese government has provided $27 billion in energy subsidies for its steel producers since 2001 and Kaplan points to the more than $12 billion that South Korea has invested in its semiconductor industry, which is “severely harming the U.S. semiconductor manufacturing base.”

Kaplan is to be saluted for making the very elemental observation that manufacturing needs to be tended and supported in the United States.  Most countries have a plan for supporting and embracing their crucial manufacturing sectors.  The United States does not, though, and it’s an oversight we may very much regret in the coming years.

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Yesterday, the House Homeland Security Committee voted unanimously to approved H.R. 5935, a bill requiring certain federal agencies to use American-made steel for public works projects.  Sponsored by Rep. Pete Visclosky (D-IN), the bill (known as the “America Steel First Act of 2008”) requires construction projects executed by the departments of Defense, Homeland Security, and Transportation to use 100 percent American steel unless an exception applies.

As ManufactureThis noted last fall, pipe made in China has been used in the construction of a border fence between the United States and Mexico. In response, Rep. Visclosky introduced the bill, explaining, “The American Steel First Act will combat unfair steel imports by requiring the increased use of domestic steel products in federal projects.  It will give our steel industry a boost, create much-needed American jobs, and save lives.”

  In April AAM field coordinator Mickey Bolt testified on this very subject before the Congressional Steel Caucus.  In his prepared testimony, he noted:
“While the American steel pipe and tube industry was closing down…DHS was using American taxpayers’ money to purchase pipe from Chinese manufacturers, securing the future of pipe workers in China, not the U.S.  This is wrong. In my view, the application of the Buy American Act was passed with the intent that American taxpayers’ money should be used to support American industries and American workers — and not to support subsidized industries in China.  The pipe that was used in the construction of the border fence should have been produced by U. S. manufacturers and by USW members, instead of being outsourced to China.  This example highlights the problem of giant contractors only being concerned with securing the cheapest goods to maximize profits, regardless of the quality of the product, or whether it was domestically produced.”

As ManufactureThis  earlier this week, dumped Chinese steel has adversely affected U.S. steel pipe producers.  Legislation requiring that national security work be sourced from reliable domestic producers seems a logical step toward retaining a strong American defense industrial base.  ManufactureThis commends the Homeland Security Committee for recognizing this.

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