Tag Archive | "jobs"

Six Reasons for U.S. to Abandon Free-Trade Myth: Ian Fletcher


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The following opinion by Ian Fletcher appeared in Bloomberg Business Week and can be found here. Mr. Fletcher is the author of the book “Free Trade Doesn’t Work” and an adjunct fellow at the U.S. Business and Industry Council. He is also a member of the Coalition for a  Prosperous America.

The price of living in the fantasy world of free-trade economics continues to rise for America.

Failure to recognize the pitfalls will probably mean a continuing struggle to emerge from recession, as much U.S. domestic demand leaks abroad due to the trade deficit, rather than being recycled at home. And America will continue to lose key industries: not just the primitive ones a developed nation should shed, but the high-tech jobs of the future.

Any serious discussion of free trade must confront David Ricardo’s celebrated 1817 theory of comparative advantage, whose tale of English cloth and Portuguese wine is familiar to generations of economics students. According to a myth accepted by both laypeople and far too many professional economists, this theory proves that free trade is best, always and everywhere, regardless of whether a nation’s trading partners reciprocate.

Unfortunately for free traders, it is riddled with holes, some of which even Ricardo acknowledged. If they held true, the hypothesis would hold water. But because they often don’t, it is largely inapplicable in the real world. Here’s why:

– The first dubious assumption is that trade is sustainable. But when a nation imports so much that it runs a trade deficit, this means it is either selling assets to foreign nations or going into debt to them. These processes, while elastic, aren’t infinitely so. This is precisely the situation the U.S. is in today: Not only does it risk an eventual crash, but in the meantime, every dollar of assets it sells and every dollar of debt it assumes reduces the nation’s net worth.

– The second dubious assumption is that the productive assets used to generate goods and services can easily be shifted from declining to rising industries. But laid-off auto workers and abandoned automobile plants don’t generally transition easily to making helicopters. Assistance payments can blunt the pain, but these costs must be counted against the purported benefits of free trade, and they make free trade an enlarger of big government.

– The third dubious assumption is that free trade doesn’t worsen income inequality. But, in reality, it squeezes the wages of ordinary Americans because it expands the world’s effective supply of labor, which can move from rice paddy to factory overnight, faster than its supply of capital, which takes decades to accumulate at prevailing savings rates. As a result, free trade strengthens the bargaining position of capital relative to labor. And there is no guarantee that ordinary people’s gains from cheaper imports will outweigh their losses from lowered wages.

– The fourth dubious assumption is that capital isn’t internationally mobile. If it can’t move between nations, then free trade will (if the other assumptions hold true) steer it to the most-productive use in our own economy. But if capital can move between nations, then free trade may reveal that it can be used better somewhere else. This will benefit the nation that the money migrates to, and the world economy as a whole, but it won’t always benefit us.

– The fifth dubious assumption is that free trade won’t turn benign trading partners into dangerous trading rivals. But free trade often does do this, as we see today in China, whose growth is massively dependent upon exports. This is especially likely when trading partners practice mercantilism, the 400- year-old strategy of deliberately gaming the world trading system by methods like currency manipulation and hidden tariffs.

– The sixth dubious assumption is that short-term efficiency leads to long-term growth. But such growth has more to do with creative destruction, innovation and capital accumulation than it does with short-term efficiency. All developed nations, including the U.S. (which was protectionist from the Founding Fathers until after World War II), industrialized by means of protectionist policies that were inefficient in the short run.

What is the implication of all these loopholes in Ricardo’s theory? That trade is good for America, but free trade, which is not the same thing at all, is a very dicey proposition.

There is an appropriate policy response. For starters, the U.S. should apply compensatory tariffs against imports subsidized by currency manipulation, an idea that originated with the U.S. Business and Industry Council and was recently passed by the House of Representatives. Also essential is a border tax to counter foreign export rebates implemented by means of foreign value-added taxes.

The U.S. also needs tariffs on foreign goods and services that compete with existing and startup domestic producers, if only as bargaining chips to force other nations to play fair.

In 1971, U.S. President Richard Nixon set unilateral tariffs against Japan, Germany and other countries that refused to let their currencies strengthen. Far from setting off a trade war, this persuaded these nations to help rebalance the world economy cooperatively. There is every reason to expect the same outcome today.

The longer we do nothing, on the assumption that the world trading system will rebalance itself, the more likely that it will break down in unpredictable and counterproductive ways

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Made in Midtown: The future of American manufacturing


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The following piece, written by Representative Tim Ryan and Nanette Lepore, appeared in The Hill’s Congress Blog here. U.S. Congressman Tim Ryan was born in Niles, Ohio and represents the 17th Congressional District in Northeastern Ohio. Nanette Lepore was born in Youngstown, Ohio and is a well-known fashion designer based in New York City.

The warning signs are clear: without intervention and investment, the American manufacturing industry is in danger of extinction.

The United States used to be a country that made things: for over a hundred years, our economy was driven by the production of high-quality goods by American workers in American factories. And as Arianna Huffington has often commented, we are now a country that makes things up: speculation in collateralized debt obligations and mortgage-backed securities nearly led to the collapse of our economy in 2008.

In Northeastern Ohio’s Mahoning Valley, where we were raised, the loss of thousands of manufacturing jobs in the ’70s and ’80s dealt a devastating blow to the region — a setback from which we have begun to recover only recently and through painstaking effort. The plight of New York City’s Garment District follows an all-too familiar and unfortunate trajectory that we are determined to reverse.

This week, we joined over 1,000 individuals at a rally in the heart of the Garment District to address growing concerns regarding the outsourcing of American jobs. The New York fashion industry employs 175,000 people — over 24,000 in apparel manufacturing alone — but these numbers have been slipping for decades. A microcosm of other domestic manufacturing industries, New York’s fashion industry has seen many apparel manufacturers shut their doors as subsidized foreign goods and rising costs drove them out of business as production shifted offshore.

No longer a center of mass production, the Garment District is an economic cluster that links designers, suppliers, distributors and associated service providers – serving as an incubator for innovation that originates the ideas, styles and trends that will launch the next Ralph Lauren or Nanette Lepore. Nearly 850 fashion companies are headquartered in New York City (more than Paris, Milan, and London combined), and hundreds of small businesses — from pattern makers and fabric cutters to button and trim suppliers — support the designers that keep the American fashion industry dominant on a world stage.

Manufacturing’s influence on the health of the American economy cannot be understated. If we are to retain our status as a world power, we must focus on the creation of sustainable manufacturing jobs that will support a strong middle-class. Whether we’re talking about the production of steel or clothing, for every manufacturing job that is created in this country, up to six spin-off jobs are generated through supply and distribution chains. Manufacturing jobs pay a higher wage than service jobs, and create a significant amount of the patents that keep America’s economy on the cutting edge of innovation.

If we allow these jobs to be outsourced, we take the engine out of the American economy. Economic prosperity is directly tied to our capacity to innovate, and innovation is directly tied to our ability to manufacture superior goods.

An important part of the solution is to ensure that our nation stands up for its own workers by enforcing trade laws that are meant to create a level playing field for American manufacturers. The first place that Congress and this Administration can start is by standing up to China’s unfair and illegal intervention in currency markets. China’s continued manipulation of its currency amounts to a de facto subsidy of up to 40 percent on all imports that arrive in the American market. This flagrant violation of international trade law undermines our middle class – stripping jobs from both the steel industry in Youngstown and the fashion industry in New York City. Thankfully, the House of Representatives overwhelmingly passed H.R. 2378, the Currency Reform for Fair Trade Act, in September. If the Senate will take up H.R. 2378 when Congress returns to session in November, we can send this bill to the President for his signature and help to retain hundreds of thousands of sustainable American manufacturing jobs.

With the right federal, state and local policies, we believe that the American manufacturing industry can be renewed and improved. By promoting a comprehensive economic strategy, we can even bring back some of the jobs that have been lost. As the federal government continues to level the playing field and ease costs of production, corporate interests should commit to returning a portion of outsourced jobs back to the United States. And together we can educate consumers to make a conscious choice to purchase American-made goods — providing opportunity for our young, creative entrepreneurs and good paying jobs for our citizens, whether they live in the Big Apple or the Buckeye State.

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Small-Scale Farmers and Development: Assume a Different Economic Model


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The following blog post by Timothy A. Wise appeared at Triple Crisis here.

One version of an old joke features a shipwrecked economist on a deserted island who, when asked by his fellow survivors what expertise he can offer on how they can be rescued, replies, “Assume we have a boat.”

In Mexico earlier this month, I was thinking that the real-life version of the economist’s solution is: “Assume we have employment.” But it’s no joke. A World Bank economist had just spoken during a seminar at Mexico’s National Autonomous University on Mexican farm policies in the wake of NAFTA. Earlier, I had presented my recent paper, “Agricultural Dumping Under NAFTA,” which came out in the new report “Subsidizing Inequality,” released in Spanish by the Woodrow Wilson Center and its Mexican partners.

The World Bank economist on the afternoon panel delivered a barely modified version of the Bank’s longstanding diagnostic on small-scale agriculture:

Small landholdings make inefficient use of land, he explained, and the food crops smallholders grow can be produced much more efficiently by industrialized farmers in Mexico and the United States. NAFTA gives Mexico tariff-free access to those goods, so Mexico’s two million small-scale corn farmers should enjoy the cheaper tortillas and seek more productive activities, growing high-value crops or moving out of agriculture. Mexico’s agricultural policies should be geared not toward increasing smallholder food productivity but toward providing the social safety net that can help them make that transition while improving infrastructure and public services in rural areas.

Moving out of agriculture? Into what? “Assume we have employment” can be the only answer. Because just as shipwrecked survivors can’t sail home on an economist’s theoretical boat, Mexico’s small-scale farmers need real jobs, not assumed jobs, if they are to give up their lands and their homes. They aren’t blinded by neoliberal ideology and neo-classical economic training. They look out at the post-NAFTA economic landscape and they see the bleak picture we documented in our report last year with the Carnegie Endowment.

Mexico under NAFTA created barely more jobs than it destroyed in manufacturing, and the U.S. border areas are now better known for drug trafficking than maquiladora export factories. The growing service sector created more informal than formal sector jobs; only so many people can work in Cancún and other tourist areas. Fully, 57% of Mexico’s workers are stuck in informal employment, up from 52% before NAFTA. Meanwhile, the World Bank’s desired “transition” in agriculture, accelerated by the added pressure of tariff-free imports dumped by the United States, has pushed an estimated 2.3 million farmers and workers out of agriculture. Those who left went where the jobs were – in the United States – despite NAFTA’s failure to liberalize labor markets. Migration surged after NAFTA to over 500,000 people per year. Many left behind family members who, despite a 66% drop in real corn prices, increased their corn production.

Irrational? Hardly. Small-scale farmers are at least smarter than World Bank economists. They know that growing corn, with limited technology and low yields, is inefficient only if they have a more productive use for their land or their labor. The land is often the only asset the family has, and most smallholder land is unsuitable for high-value crops. As for their labor, they send family members as seasonal or permanent migrants and use the remittances to keep their farms. Are their low corn yields proof of inefficiency? Or do they show that smallholders are maximizing their available labor and resources?

The World Bank economist didn’t fare well, not with farm movement leader Victor Suarez on his panel. Since NAFTA, Suarez railed, we’ve had a flood of dumped corn and other products from the U.S., a financial crisis and recession, a rise in migration, a food price crisis that caused tortilla riots, and all the World Bank can say is that our farmers are unproductive and should get out of farming. Our farmers have increased their productivity, despite all the disadvantages, Suarez shouted, despite being written off by the World Bank and the Mexican government, despite Mexico channeling its own farm subsidies to the biggest industrial farmers. Imagine what we could do if the government valued our work, he concluded, pointing to the wide range of rejected policy proposals his organization and others have made in recent years.

Mexican researchers have estimated that Mexico could double its corn production and regain self-sufficiency in the cherished plant its indigenous farmers helped create – without the introduction of transgenic corn.

All you need to do is assume a different economic development model.

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Here’s proof import tariffs save and create American jobs


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The following article by Roger Simmermaker appeared at WorldNetDaily here. Mr. Simmermaker is the author of “How Americans Can Buy American: The Power of Consumer Patriotism.” He also writes “Buy American Mention of the Week” articles for his website, and is a member of the Machinists Union and National Writers Union.

There’s been a long standing debate as to whether import tariffs are useful in either saving or creating American jobs. Over the last several years, I have settled this debate in my own mind believing it is mere logic that import tariffs do both.

Import tariffs raise the access fee, if you will, for foreign producers to be able to participate in the American market and grab their own share. I’ve found the best analogy to explain why this is necessary is the game of poker. In poker, everyone who sits at the table to share in the same pot has to ante-up the same amount. Americans don’t ante-up two dollars while Mexicans ante-up two pesos. That wouldn’t be fair. The Chinese shouldn’t be allowed to ante-up their own depressed currency pretending it’s monetarily equal to what Americans must ante-up.

The ‘pot’ in this case is the lucrative U.S. market. Everyone wants to sell to us. Still though, even fierce opponents of free trade sometimes disagree on the necessity of import tariffs. Some who advocate a more competitive America say that giving tax incentives to domestic producers is the answer. Others go so far to say that the tax rate for American manufacturers should be zero.

I have always believed, understanding that this complex issue cannot have only one ‘silver bullet’ answer, that the strongest solution is this: Instead of lowering taxes of American producers to make them more competitive with foreign companies (which pay fewer taxes to the U.S. Treasury), which is revenue-negative, we should be raising taxes on foreign producers, which is revenue-positive. In other words, do not lower our standards to theirs; raise their standards to ours.

Reducing taxes to zero sounds salivating, but that doesn’t help pay for the cost of government. Over 75 percent of all federal spending goes to pay for Social Security,

Medicare, defense, education, farm subsidies, highways, parks, and interest on the national debt. Polls show that most Americans are against “government spending” but still strongly back these programs. It’s difficult to explain how one can rally against taxes and yet support the benefits those same taxes would pay for.

Despite the popular rallying cry these days against government in general and calls to ‘starve the beast,’ there are such things as ‘good’ taxes. More taxes collected means more benefits reaped for better public schools, public libraries, and public hospitals. More taxes collected mean a stronger military and national defense, a healthier health care system, and a safer NASA space program. If we collect more taxes we will have cleaner public parks, better construction and maintenance of our roads and bridges, and well-equipped fire and police departments.

Ok, now here comes the proof.

I recently had the pleasure of talking to Harry Kazazian, CEO of Exxel Outdoors, whose company makes sleeping bags under the brand names Suisse Sport, American Trails, Disney, and Hello Kitty. Excel currently has a 30 percent share of the American market, has a 250,000 square foot facility in Haleyville, Alabama, and produces about 2 million family-style sleeping bags a year.

Exxel began their journey purchasing their facility from Brunswick in 2000, which was slated for closure at the time. The original plan was to take the customer list and ship equipment to their Mexico plant. But Exxel decided to take the long-term investment approach and found ways to produce sleeping bags for 3 percent cheaper than in China, where they had another factory.

Exxel’s ingenuity allowed them to create the most efficient sleeping bag factory in the world. They decided to re-open the Haleyville factory, close Mexico factory, bring more jobs back from China, and hire back most of their American workers. Exxel is a large employer in an Alabama region with 18 percent unemployment and wage rates that are on the upper end of Alabama standards. Exxel also provides affordable and accessible health care for employees and families.

In 2008, they added 20 percent more American jobs as they began closing down operations in China with plans to add even more American jobs in 2010 and 2011. They had come quite a long way. In 2005, Exxel made 30 percent of their sleeping bags in American and 70 percent in China. Fast-forwarding to 2010, 80 percent of their sleeping bags are now made in American and just 20 percent are made in China.

But in October 2009 things changed when Exxel discovered there was 5,000 percent surge in sleeping bags coming into America from Bangladesh, which unlike China, enjoyed duty free access to the U.S. market. Bangladesh was getting their raw materials from China – also duty free.

Under the U.S. Generalized System of Preferences (GSP) Program, all textiles are exempt from GSP duty free treatment – except sleeping bags – since there is a loophole in the GSP that says sleeping bags are not textiles.

In November 2009, Exxel met with U.S. Trade Representative (USTR) and the Department of Commerce and ultimately filed a petition with the USTR in January 2010. In June 2010 the petition was denied under the thinking that Bangladesh only held a one percent share of the U.S. market at the time. Now, Bangladesh holds a seven percent share, which is sure to grow if nothing is done and relief is not granted.

House Resolution HR 5940 and Senate Bill SB 3823 were recently introduced in congress to remove sleeping bags from the GSP. There are 12 cosponsors to the House bill to date with seven republicans and five democrats.

Let’s move these bills forward before Bangladesh increases their market share more than seven percent. Allowing Bangladesh to take a sizeable and potentially death-dealing market share from a promising and innovative American producer is like waiting for enough crash victims to die at an intersection before installing traffic lights.

If the Bangladesh market share goes to 10 percent, then 25 percent, then 50 percent or more, we’re looking at trying to bring back the dead, and it will be ‘game over’ for yet another American industry.

Here’s the proof of my point. With a modest 9 percent tariff on Chinese sleeping bags which afforded some level of protection, Exxel was able to go for a long term investment strategy that enabled it to actually produce less expensively than their Chinese competition. The absence of duty-free treatment for China gave America “most favored nation” status, and if any nation should be given such a status, it should be us.

Once America was open to zero tariffs applied Bangladesh production, a promising and growing American industry began to decline. And make no mistake; this isn’t an industry that was resting on its laurels, fulfilling some fat-and-happy protectionist scenario which is often the view of angry free traders who regard protectionism as a system that creates inefficient, lazy, American producers.

Let’s get enough legislators on board with HR 5940 and SB 3823 to save a company and an industry that is saving jobs, creating jobs, and doing their part to reduce unemployment in America. And then, let’s take with us the knowledge once and for all that import tariffs have their place is putting Americans, who are the only workers that pay taxes to America, back to work.

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Chinese Exports Surged Again in September


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The following article by David Barboza appeared in The New York Times here.

SHANGHAI — China said Wednesday that its exports continued to surge in September and that the nation’s foreign exchange reserves ballooned last month, data that is likely to keep pressure on Beijing to appreciate its currency.

The government said its monthly trade surplus reached $16.9 billion in September, with exports up 25 percent and imports climbing 24 percent.

The surplus narrowed from August, when it had reached $20 billion, but it was still an enormous figure, analysts said.

Also Wednesday, Beijing said its foreign exchange reserves soared $194 billion in September to a record $2.65 trillion, far more than economists had forecast. China already had, by far, the world’s largest currency reserve holdings.

The gains show that China’s fast-growing economy is chugging along and that massive amounts of foreign capital continue to flow into the country, complicating Beijing’s economic policies and threatening to fuel inflation and asset bubbles.

“China’s facing a big challenge,” said Wang Tao, an economist based in Beijing at UBS. “The trade surplus is coming down, but it’s still going to be $180 billion this year. And the reserve figure was $194 billion. That’s huge.”

In the United States, Europe, Japan and elsewhere, there are growing worries about China’s trade dominance and its effect on countries struggling to emerge from a sharp global slowdown.

Nowhere are those worries more intense than in Washington, where the administration of President Barack Obama and some members of Congress are pressing China to move more quickly to appreciate its currency, hoping such a move will temper Chinese exports by making them more costly while bolstering U.S. exports to China.

As congressional elections approach, with the U.S. unemployment rate high, some in Congress are threatening to impose heavy tariffs on imports from China because of the country’s currency policies. Some lawmakers believe China is intentionally manipulating its currency to gain trading advantages.

For its part, Beijing has said repeatedly that it intends to allow its currency to appreciate and fluctuate with market forces. But the government insists it has to move at its own pace. Too sharp a move, the government says, could create huge dislocations in the country’s coastal factory zones, which employ tens of millions of migrant workers.

Beijing and some prominent economists warn that intense focus on the Chinese currency is fanning protectionist sentiment in the United States and elsewhere. They argue that China did allow its currency, the renminbi, to appreciate by over 20 percent against the U.S. dollar beginning in 2005 and that the effect on trade with the United States was marginal. Raising the value of the renminbi is no a cure-all for global ills, they say.

But China is facing challenges on all fronts. Its huge accumulation of currency reserves was partly due to a rise in the value of the euro and the yen in recent months, but also an indication that foreign investment and capital is flowing into China. Huge influxes of capital are increasing money supplies in China, and the government is already trying to deal with soaring property prices and inflation.

Ms. Wang at UBS said that China was now facing greater pressure to let its currency appreciate but that it also faces risks because the rising value of its currency could encourage even larger inflows of foreign capital from speculators betting that it will go even higher.

Even those who argue that China should not immediately increase the value of its currency are worried. They say that huge trade surpluses are contributing to global imbalances that have dangerous long-term implications for the global economy, creating massive surpluses in some regions while others sink in mounting debt.

One way or another, analysts say, China will have to consume more and export less, and the United States, above all, will have to grow by exporting more and consuming less.

But the focus for now seems to be on trade and job growth. In an report issued Wednesday, Qu Hongbin, an economist at HSBC, said that despite reaching $16.9 billion in September, China’s trade surplus narrowed, and that trend should continue through the rest of the year, weakening the case for currency appreciation.

But, he added, “pressures from the U.S. are likely to persist in the run-up to the midyear election.”

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Jobs, Trade And Mercantilism — Dealing With Reality, Part Two


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Here’s another article from Manufacturing & Technology News. This one was written by Ralph Gomory, Research Professor at NYU, President Emeritus of the Alfred P. Sloan Foundation and former IBM Senior Vice President of Science & Technology. Professor Gomory is also on the Advisory Board of the Coalition for a Prosperous America.

America’s massive trade deficit is destroying significant segments of American industry and eliminating badly needed jobs. This is happening because the United States is slow to recognize an unpleasant reality: It does not exist in a world of textbook free trade. China, America’s largest trading partner has chosen mercantilism and is using the full powers of its government to advance its industries in ways that destroy their American rivals.

The United States has turned a blind eye to this reality. If it continues to do so it will become a poor nation.

However, the United States can deal with its trade deficit. It can balance trade. There are two ways to do this, and there may be more. Tariffs are one. The second is less well known but has major advantages: balanced trade with balanced certificates. Both approaches meet two important criteria: that the actions the U.S. chooses should be under U.S. control and do not require the cooperation of a mercantilist partner; and that the actions should be effective — they should actually balance trade.

Tariffs have a long and checkered history reaching back through centuries. In the United States, no discussion of tariffs is complete without mentioning the Smoot-Hawley tariff of 1930. There are many who credit this tariff with making the Great Depression even greater. Then there was President Nixon’s 1971 across-the-board tariff imposed to compel Japan and other nations to appreciate their currencies. It is generally credited with doing so.

Tariffs meet the first criterion: They can be enacted, repealed or modified by the United States without the consent of its trading partners. Whether they are compatible with WTO Article XII, which permits extraordinary actions in the face of severe and continuing trade imbalances, is something that can be argued.

Tariffs have the advantage of being flexible. They can be applied to different countries or to different classes of goods. They can be set high or low. If they don’t initially seem to be producing the desired result, they can be set higher. As a result, they can meet the second criterion: They can get the job done. They can balance trade.

However, the effect of tariffs on the scale of trade is a major drawback. Tariffs tend to diminish trade, and therefore its benefits. There is also the unpleasant possibility that tariffs could trigger a trade war in which countries react to their trading partner’s tariffs with tariffs of their own. This is the effect that followed the U.S.’s imposition of the Smoot-Hawley tariff.

In an extreme case, one can imagine trade being balanced by tariffs, but balanced at some level far below the pre-tariff-war level. It is this potential for tariffs to limit or even eliminate trade that make tariffs so extremely unpopular among economists. And economists matter. They often directly formulate government economic policy. Economists do not want a world economy in which tariffs and counter-tariffs cut off the benefits of trade. They strongly believe and have taught it with pride to generations of students.

Tariffs are the “obvious” means to balance trade. But while economists stand against them — and label those who promote them as protectionists — it is equally true that economists have no other ideas on what to do to counter mercantilism. There is, however, a well-known economic concept worth considering to counter mercantilism.

In a remarkable article that appeared in Fortune magazine in 2003, Warren Buffett described the use of what he called import certificates that could be used to balance trade. University of Chicago Professor Robert Aliber has discussed a similar concept he calls “points.” These proposals have much in common with a well-known economic concept called cap and trade used to set limits on pollution.

With cap and trade, permits to pollute are either issued or auctioned to companies that emit pollutants. Companies must obtain enough permits to cover their emissions. If they can reduce their emissions they can sell their permits to others. Pollution cannot exceed the total of all the permit amounts issued. That is the cap.

When this same concept is applied to international trade it is called balancing trade with balanced certificates (BT/BC), an acronym that can also be used for “balancing trade with Buffet certificates.”

Here is an example. A company that exports $1-million worth of goods or services produced in the U.S. earns a certificate for that amount. These certificates are then traded on an open market. Any company that wants to import into the United States is then required to have certificates with total face value equal to the value of the proposed import.

This produces balanced trade very directly as the total value of imports is limited to the total value of certificates available, which is the total value of exports. The export total is the cap in limiting imports.

Many variations are possible. Like tariffs, the certificate system could be applied to specific nations or to specific classes of merchandise or in special situations or to all of these. The price of the certificates sold could go to the producers or in part to the government. The program could be introduced gradually by initially giving more than a dollar of imports for each dollar of exports, but decreasing that amount over time.

Unlike ordinary tariffs, the direct effect of BT/BC is not to lower or eliminate trade but to lower or eliminate the imbalance of trade. This is important. Imagine that the United States decides to balance trade with the set of countries with which it has persistently large trade imbalances. Such a group could be called China+. Here are some observations:

- When BT/BC is fully applied trade is balanced.

- The market price of the BT/BC certificates is an incentive to U.S. producers to export. This translates into jobs in this country.

- The market price of the BT/BC certificates makes the China+ group’s goods more expensive in the U.S.

- There is an incentive for the China+ nations to import U.S. goods, because that in turn will increase their own ability to export to the U.S.

- Should the China+ group respond with certificates of their own (a certificate war) they are simply moving the world toward balanced trade. Should they decide to respond with tariffs, they will be acting to reduce their own exports as well as those of the United States.

With a BT/BC plan, the China+ nations can avoid massive expenditures on certificates either by decreasing exports to the United States or increasing imports from the United States. The option of decreasing exports would allow the United States to re-grow its industries, while the option of increased imports from the U.S. would provide export-based jobs in the United States with no decrease in imports. In this case, the increase in U.S. exports would tend to drive down the price of certificates so that the real world might well come close to the world of textbook trade where trade is naturally balanced.

BT/BC is very much in line with the spirit of both the IMF and the WTO. The IMF states in Article I of its charter that one of its purposes is the balanced growth of international trade, while the WTO states in its preamble the aim of securing reciprocal and mutually advantageous trade.

Mercantilism is not going to go away. The United States must find a way to deal with its consequences despite the fact that powerful sectors of American society benefit from the present situation and therefore oppose change. If the United States is willing to face up to the reality of mercantilism it will find ways to arrest its downward slide.

The country must act before it is too late.


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The Economic Think Tanks Were Wrong: Imports And Offshore Outsourcing Have Destroyed Millions Of American Jobs


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The following article by Richard McCormack appeared in Manufacturing & Technology News here.

Outsourcing and imports are not only leading to the wide-scale destruction of American jobs, but to substantially lower manufacturing GDP growth over the decade than what has been officially reported. Imports and offshoring have also led to substantial over-reporting of productivity gains.

The problem is one of measuring. In a global economy, the federal government data collection agencies have not kept pace with changes brought about by trade, which now accounts for almost 30 percent of the U.S. economy. Researchers have verified that the U.S. government has not captured the real costs and levels of imports and their impact on the American economy.

This oversight — involving a small import data collection program run by the Bureau of Labor Statistics — turns out to be “a big problem,” says Susan Houseman of the Upjohn Institute for Employment Research and the national leader in addressing the shortcomings of government statistics.

Houseman and a group of researchers have confirmed that the dollar volume of goods coming into the country is not measured correctly. There has been a substantial under-measurement of imports.

The current import price indexes used by the federal government “fail to capture price declines associated with a shift in sourcing to low-cost suppliers,” says a new peer-reviewed research paper on the subject titled “Measurement Issues Arising from the Growth of Globalization.” As a result, the real growth in imports “has been understated and domestic productivity and real output growth have been overstated. The increased import penetration in consumer goods and intermediate inputs and the large price differentials between domestic and foreign suppliers have increased the possibility that some economic statistics are significantly biased.”

The study, which included representatives from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Bureau of the Census in its planning group, concludes that the federal government must re-assess the way it measures imports. It recommends that the federal statistical agencies create new data collection programs that capture the true effects of imports and offshore outsourcing both of products and services.

Multifactor and labor productivity measures as well as GDP are now confirmed to have been substantially overstated for the past decade, due to much higher levels of imports than have been measured. A decade of economic and trade policy predicated on the idea that productivity growth and new technology were the reasons for the rapid displacement of American workers has now proven to be wrong.

The problem arises when the government considers the import price of products entering the United States. As currently structured, the federal government compares the change in prices of the same goods that are being imported each month. What is not measured is the difference in the price of an imported product versus the one it replaced that was previously made in the United States.

Based on its current system of data collection, the government has reported that import prices have been increasing, when they should have been going down, reflecting the cost savings of up to 60 percent from buying the same products previously made in the United States from low-cost nations like China, Mexico and India.

“Import price indexes have not accurately captured the lower prices that have prompted many retailers and consumers to shift from domestic to imported goods,” says the study. “Similarly, although manufacturers increasingly have been sourcing intermediate inputs from low-cost foreign suppliers, the import materials price deflator has been rising faster than the domestic materials price deflator, indicating that these price indexes often fail to capture the cost savings driving manufacturers’ offshoring.”

When accounting for this oversight, the value of imports becomes much higher and U.S. output is lower than what has been reported. Houseman estimates that between 1997 and 2007, manufacturing GDP growth has been overestimated by as much as .5 percentage point per year, out of an average annual manufacturing growth rate of 3.0 percent due to the under-pricing of imports.

In addition, the manufacturing GDP growth rate has been widely misinterpreted because the strong growth in the computer industry has dominated the manufacturing numbers, according to the study. Technological improvements in computer capability inflate the overall industrial output numbers. Virtually all of the growth in manufacturing GDP is attributable to computers and electronic product manufacturing. Says Houseman: “Computer price indexes are falling on account of improved technology performance. So while the U.S. is losing market share in global computer shipments, it is still registering phenomenal growth rates to a large degree because of the way the price indexes are constructed for this industry. This drop in prices has nothing to do with the competitiveness of domestic manufacturing. It has nothing to do with workers being more productive. It has everything to do with improvements in the embedded technology.”

As such, given the government’s measurements, the computer industry has accounted for most of the manufacturing-value added growth during the decade ending 2007. Yet the computer sector accounts for only 10 percent of the total value in manufacturing.

When computers are excluded from the overall production numbers, the annual manufacturing growth rate from 1997 to 2007 declines by 2 percentage points. Added with the adjustment for the import price index, annual manufacturing GDP growth for the remaining 90 percent of manufacturing could be as low as 0.5 percent for the decade ending in 2007.

The computer numbers are also plagued by the same import price index issues. Most computers produced in the United States contain a majority of imported parts, the prices of which are not accounted for in government statistics. “The computers that are exported are more or less trans-shipments,” says Houseman. The federal government “needs to net out the import value of exports, which is what should be done with all domestic production, and that makes a big difference.”

The offshoring of services is also not being measured correctly. Companies are shifting their service functions overseas because it is a lot cheaper. But the federal government does not measure the prices of imported services versus those they are replacing in the United States. The difference “is even bigger than when you are importing manufactured goods because it’s all labor,” says Houseman. Currently, data on import and export prices in business services — which include IT services, engineering services and call centers and represents the most rapidly growing category of services trade — are not collected at all. “This data gap could result in significant inaccuracies in economic statistics as trade in business services expands,” says Houseman. “While the BLS recognizes this is an important gap in the statistics, there is no funding to fill it.”

There are other issues associated with offshoring and imports that need to be addressed. The federal government stimulus spending programs and tax breaks are not understood in the new global context. Borrowed money is provided to Americans who use it to buy imports, with little impact on growth and employment.

Obama’s goal to double exports is also questionable, since the United States does not know the import content of exported goods. Products that are exported with a high level of imported parts and components do not create many jobs.

Because of the lack of data on imports, do the GDP numbers need to be re-calculated for the past 10 or 15 years, Manufacturing & Technology News asks Houseman. “Ideally, the agencies would do that,” she says. “But what they are looking to do now is to fix it moving forward. What they’re trying not to do is to guess. There was no data collected on that so there is no good way of going backwards and fixing the problems.”

The Bureau of Labor Statistics has proposed a pilot program to collect import price data “and figure out a correction for all of GDP,” Houseman says. “The statistical agencies recognize this is a problem and a big enough problem that it is worthy trying to fix.” The next step is getting Congress interested enough to provide funding in a tight budgetary environment.

Houseman concludes with this thought: “The majority of Americans in public opinion polls believe that offshoring has been a major factor in the decline in employment and quite specifically in manufacturing, and yet many academic papers and think tanks are saying just the opposite. In this case, the public perception is correct and the data — and people’s interpretation of those data — are wrong.”

The Houseman paper “Offshoring and the State of American Manufacturing,” authored with Christopher Kurz, Benjamin Mandel and Paul Lengermann of the Federal Reserve Board, along with the “Conference Summary” from the meeting on “Measurement Issues Arising from the Growth of Globalization,” and conference papers on the subjects (all worth reading), are on the Upjohn Institute’s Web site, http://www.upjohninst.org/.

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Silicon Valley’s Solar Innovators Retool to Catch Up to China


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The following article by Todd Woody appeared in The New York Times here.

FREMONT, Calif. — A few years ago, Silicon Valley start-ups like Solyndra, Nanosolar and MiaSolé dreamed of transforming the economics of solar power by reinventing the technology used to make solar panels and deeply cutting the cost of production.

Founded by veterans of the Valley’s chip and hard-drive industries, these companies attracted billions of dollars in venture capital investment on the hope that their advanced “thin film” technology would make them the Intels and Apples of the global solar industry.

But as the companies finally begin mass production — Solyndra just flipped the switch on a $733 million factory here last month — they are finding that the economics of the industry have already been transformed, by the Chinese. Chinese manufacturers, heavily subsidized by their own government and relying on vast economies of scale, have helped send the price of conventional solar panels plunging and grabbed market share far more quickly than anyone anticipated.

As a result, the California companies, once so confident that they could outmaneuver the competition, are scrambling to retool their strategies and find niches in which they can thrive.

“The solar market has changed so much it’s almost enough to make you want to cry,” said Joseph Laia, chief executive of MiaSolé. “We have spent a lot more time and energy focusing on costs a year or two before we thought we had to.”

The challenges come despite extensive public and private support for the Silicon Valley companies. Solyndra, one of the biggest firms, has raised more than $1 billion from investors. The federal government provided a $535 million loan guarantee for the company’s new robot-run, 300,000-square-foot solar panel factory, known as Fab 2.

“The true engine of economic growth will always be companies like Solyndra,” President Obama said in May during an appearance at the then-unfinished factory. But during the year that Solyndra’s plant was under construction, competition from the Chinese helped drive the price of solar modules down 40 percent. Solyndra rushed to start cranking out panels on Sept. 13, two months ahead of schedule, and it has increased marketing efforts to make the case to customers that Solyndra’s more expensive panels are cost-effective when installation charges are factored in.

“It definitely puts more pressure on us to bring our costs down as quickly as possible by ramping up volume,” said Ben Bierman, Solyndra’s executive vice president for operations and engineering.

Silicon Valley companies like Solyndra, Nanosolar and MiaSolé continue to receive hundreds of millions of dollars in customer orders and some plan to expand local manufacturing. But the rapid rise of low-cost Chinese manufacturers has made investors — who once envisioned the region’s future as Solar Valley — skittish about backing new capital-intensive start-ups.

“I don’t see another Solyndra being done,” said Anup Jacob, whose private equity firm, Virgin Green Fund, has invested significantly in Solyndra.

In the third quarter of 2010, venture capital investment in solar companies plummeted to $144 million from $451 million in the year-ago quarter, according to the Cleantech Group, a San Francisco research firm.

The paucity of capital and the sheer size of Chinese solar panel makers have proved particularly problematic for companies like Solyndra and MiaSolé, which make photovoltaic cells using a material called copper indium gallium selenide, or CIGS.

Unlike conventional solar cells, made from silicon wafers, CIGS cells can be deposited on glass or flexible materials, much as ink is printed on rolls of newspaper. Though the technology is less efficient at converting sunlight into electricity, the promise of “thin film” solar cells was that they could be made cheaply. But producing CIGS cells on a mass scale has turned out to be a formidable technological challenge, requiring the invention of specialized manufacturing equipment.

While Silicon Valley companies were working on the problem, silicon prices fell and Chinese companies like JA Solar, Suntech and Yingli Green Energy rapidly expanded production of conventional solar panels, supported by tens of billions of dollars in inexpensive credit from the Chinese government as well as other subsidies like cheap land.

Arno Harris, chief executive of Recurrent Energy, a San Francisco solar developer acquired by Sharp last month, said he chose to sign a supply deal with Yingli because the Chinese company offered low prices, quality products and financing.

“We realized that would enable us to bid competitive power prices from projects that could also be efficiently financed,” Mr. Harris said in an e-mail.

Chinese solar panel makers now supply about 40 percent of the California market, the largest in the United States, and the bulk of the European market, according to Bloomberg New Energy Finance, a research and consulting firm.

“We grow every year with double revenue and almost double capacity,” said Fang Peng, the chief executive of JA Solar, in a telephone interview from the company’s Shanghai headquarters. “At end of the year, we will have 1.8 gigawatts of capacity and will have grown from 4,000 employees at the beginning of this year to more than 11,000.”

By comparison, Solyndra expects to have a total production capacity of 300 megawatts by the end of 2011.

The competition from the Chinese prompted some Silicon Valley companies, like AQT Solar, to pursue new strategies to survive.

AQT has modified off-the-shelf machines used to make computer hard drives to create CIGS cells using a proprietary process. The Sunnyvale company, which has raised $15 million from investors, further cut its capital costs by manufacturing only solar cells, which it sells to other companies to package into solar panels.

Rather than build a factory from the ground up, the company recycled a 1970s-era rental building. “We moved in here in eight weeks, put our first 20-megawatt line up and did it for under a million dollars. That’s on Chinese time,” said Michael Bartholomeusz, AQT’s chief executive.

A mile away, another start-up, Innovalight, has abandoned solar module manufacturing altogether. The company had developed what it calls a silicon ink, which increases a solar cell’s efficiency when it is printed on a standard silicon wafer.

After installing a 10-megawatt production line, in late 2008, Innovalight executives decided that, rather than compete with the Chinese, they would license the patented ink technology to them and avoid having to raise hundreds of millions of dollars to build factories of their own.

“How do you fight against enormous subsidies, low-interest loans, cheap labor and scale and a government strategy to make you No. 1 in solar?” said Conrad Burke, Innovalight’s chief. “Innovation will be the heart of the U.S. strategy, and although it might not create the same scale, we’re exporting well-protected technology to China and creating well-paying jobs here.”

As part of its corporate sustainability policy, Wal-Mart Stores last month acted to bolster American CIGS companies by signing a deal with a Silicon Valley solar installer, SolarCity, to put 15 megawatts of photovoltaic panels on its big-box stores and requiring that a significant percentage of them come from thin-film companies like MiaSolé.

Even so, SolarCity’s chief executive, Lyndon Rive, acknowledged that his company would also be installing a large number of conventional solar panels for the retail giant — nearly all of them made in China.

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Jack Davis: Surcharge on Chinese goods would restore U. S. jobs


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The following opinion by Jack Davis appeared in the Buffalo News here. Mr. Davis is an engineer, business owner, and former Military Officer. He is also on the Board of Directors of the Coalition for a Prosperous America.

A Buffalo News editorial stated the U. S. decline is serious and that leaders need to craft policies and laws that will make our country strong again. The Wall Street Journal stated “Americans Sour on Trade” and a majority says free trade pacts have hurt the United States.

Here is a solution that will create jobs and grow our industries. In 1994, in a move to create jobs and industries, China cut the value of the yuan by 40 percent and locked its value against the U. S. dollar. China knew to create wealth it had to grow, dig or manufacture. Its stated industrial policy was to make China the world’s largest manufacturer.

The decrease in the value of the yuan made all Chinese exports 40 percent cheaper. In the short term the U. S. consumer enjoyed the benefits of cheaper products. In the long term this has caused the greatest transfer of wealth and technology the world has ever seen. By 2008, it had created an economic crisis in the United States.

The main reason China was so successful was that the majority of Congress, the executive branch and academia are free traders. This group has failed to understand that both countries involved must be free traders.

If one country (China) hasapredatory trade policy and the other a free trade policy (no taxes at borders) the free trade country loses jobs, loses industries and loses wealth. Also, the original free trade theory only works when products are traded (for example, wool from Britain for wine from Spain). It was never intended and will not work when one country trades products for the other country’s currency.

No U. S. business can compete with the Chinese government’s 40 percent lower prices.

I am an entrepreneur and the owner and founder of a small business. I have been creating jobs for more than 45 years. Before I spend my money to start a business, I first consider whether I will make or lose money. If I determine a competitor can sell an equivalent product at a lower price, I will not make the investment and create jobs. Most entrepreneurs think as I do.

We cannot make China do something it doesn’t want to do. The Chinese government has too many ways to cheat and too few cultural or moral taboos against cheating. By locking the devalued yuan to the U. S. dollar, China has destroyed millions of jobs and thousands of companies.

I wholeheartedly agree with Paul Krugman’s article, “Taking On China,” in which he recommends placing a surcharge of 25 percent on all Chinese products shipped into the United States. Congress must do its duty and level the playing field.

Our Constitution’s Article 1, Section 8 states Congress shall have the power to regulate commerce with foreign nations. In my opinion, Congress has been negligent in the performance of its duties and should immediately place a surcharge on all Chinese products shipped into the United States.

Jack Davis is president of I SquaredRElement Co., Inc.


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China Emerges as a Scapegoat in Campaign Ads


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The following article by David W. Chen appeared in The New York Times here.

With many Americans seized by anxiety about the country’s economic decline, candidates from both political parties have suddenly found a new villain to run against: China.

From the marquee battle between Senator Barbara Boxer and Carly Fiorina in California to the House contests in rural New York, Democrats and Republicans are blaming one another for allowing the export of jobs to its economic rival.

In the past week or so, at least 29 candidates have unveiled advertisements suggesting that their opponents have been too sympathetic to China and, as a result, Americans have suffered.

The ads are striking not only in their volume but also in their pointed language.

One ad for an Ohio congressman, Zack Space, accuses his Republican opponent, Bob Gibbs, of supporting free-trade policies that sent Ohioans’ jobs to China. As a giant dragon appears on the screen, the narrator sarcastically thanks the Republican: “As they say in China, xie xie Mr. Gibbs!”

In an ad featuring Chinese music and a photo of Chairman Mao, Spike Maynard, a Republican challenger in West Virginia, charges that Representative Nick Rahall supported a bill creating wind-turbine jobs in China.

And on Wednesday, Senator Harry Reid, the majority leader, began showing an ad that wove pictures of Chinese factory workers with criticism that Republican Sharron Angle was “a foreign worker’s best friend” for supporting corporate tax breaks that led to outsourcing to China and India.

The barrage of ads, expected to total in the tens of millions of dollars, is occurring as politicians are struggling to address voters’ most pressing and stubborn concern: the lack of jobs.

“China is a really easy scapegoat,” said Erika Franklin Fowler, a political science professor at Wesleyan University who is director of the Wesleyan Media Project, which tracks political advertising.

Polls show that not only are Americans increasingly worried that the United States will have a lesser role in the years ahead; they are more and more convinced that China will dominate. In a Pew poll conducted in April, 41 percent of Americans said China was the world’s leading economic power, slightly more than those who named the United States.

The attacks are occurring as trade tensions continue and the United States is pressuring the Chinese government to allow its currency to rise in value, a central topic under discussion at the International Monetary Fund meeting in Washington this weekend.

The ads are so vivid and pervasive that some worry they will increase hostility toward the Chinese and complicate the already fraught relationship between the two countries.

Robert A. Kapp, a former president of the US-China Business Council, said that even though tensions had flared in the past, he had never seen China used as such an obvious punching bag for American politicians.

“To bring one country into the crosshairs in so many districts, at such a late stage of the campaign, represents something new and a calculated gamble,” he said. “I find it deplorable. I find it demeaning.”

Not all of the ads are solely about China; a few mention India or Mexico. A recent ad from Mrs. Boxer accuses Ms. Fiorina, a former chief executive at Hewlett-Packard, of outsourcing thousands of jobs to “Shanghai instead of San Jose, Bangalore instead of Burbank,” and of “proudly stamping her products ‘Made in China.’ ”

It is no accident that Democrats, in particular, have been eying China as a line of attack. This spring, national Democrats, including the House speaker, Nancy Pelosi, began to encourage candidates to highlight the issue after reviewing internal polling that suggested voters strongly favored eliminating tax breaks for companies that do business in China. The party first began emphasizing the issue in a special election for a Pennsylvania House seat in May, said Representative Chris Van Hollen of Maryland, chairman of the Democratic Congressional Campaign Committee.

Never mind that there is hardly any consensus as to what exactly constitutes outsourcing and how many of the new overseas jobs would have stayed in American hands. The Democrats cite studies this year from the Economic Policy Institute, a liberal research organization, that assert three million jobs have been outsourced to China since 2001 because of the growing trade imbalance.

But Republicans, backed by some academics, say the number is much smaller. Indeed, Scott Kennedy, director of the Research Center for Chinese Politics and Business at Indiana University, said that most of the jobs China had added in manufacturing through foreign investment had come from Taiwan, Hong Kong and South Korea, not from the United States.

Still, some Republicans clearly see the issue as potent, and they are counterattacking with ads stating that the Obama administration’s stimulus package helped to create $2 billion in wind-turbine technology jobs in China, a claim the Treasury Department and the American Wind Energy Association say is dubious.

Representative John A. Boehner, the House minority leader, in a speech Friday in Ohio, blamed President Obama and Ms. Pelosi for a “stimulus that shipped jobs overseas to China instead of creating jobs here at home.”

Evan B. Tracey, president of the Campaign Media Analysis Group, which tracks political advertising, said that “China has sort of become a straw-man villain in this election” in a way that elicits comparisons to the sentiments toward Japan in the 1980s over car manufacturing and Mexico in the 1990s over the North American Free Trade Agreement.

While China’s growth has slowed a bit recently, its economy is still projected to surge by about 10 percent this year, continuing a remarkable three-decade streak of double-digit expansion.

“In a lot of ways it’s a code word: ‘Let’s be mad at China, because then the voters will connect the dots and say our manufacturing plants have been shut down because of China, and all the unfair labor practices, and throw on the fact that we’re basically selling all our debt to China,’//” Mr. Tracey said.

Even as the ads play up Americans’ unease with the threat posed by modern China, they often employ outdated and almost cliché depictions.

In a new spot for Representative Joe Sestak, who is running for the Senate in Pennsylvania, a gong clangs as a narrator says of his Republican rival, Pat Toomey: “He’s fighting for jobs — in China.”

An ad for Ryan Frazier, a Republican running for Congress in western Colorado, shows Forbidden City-style doors opening to reveal China on a world map, as the voiceover criticizes the Democratic incumbent, Ed Perlmutter, for supporting cap-and-trade legislation, which some Coloradans believe will drive more manufacturing jobs overseas.

Consultants from both parties are monitoring polling and voter reaction to gauge the effectiveness of the ads and to determine how long to continue showing them. Based on the back-and-forth between candidates on the campaign trail, the issue does not appear to be going away anytime soon.

At a Senate debate in Connecticut on Monday night between the Democrat Richard Blumenthal and the Republican Linda E. McMahon, Mr. Blumenthal repeatedly tried to raise concerns about the business practices of World Wrestling Entertainment, the company in which Ms. McMahon served as chief executive.

A tense moment occurred when Mr. Blumenthal asked: Why does Ms. McMahon’s company manufacture its popular action figure toys in China, rather than here at home? She said it was not her decision, but that of the toy company, and moved on.

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