Tag Archive | "manufacturing"

Tools for the future: Butler manufacturer Penn United pushes to fix trade policy

The following article by Len Boselovic about CPA association member, Penn United Technologies, appeared in the Pittsburgh Post Gazette here. Dave Frengel, Penn United’s Director of Government Relations, is on CPA’s Board of Directors.

In between recessions, Penn United Technologies has employed as many as 700 highly skilled craftsmen at its spick-and-span manufacturing plant in rural Butler County.

But the 2001 slowdown following the tech bubble collapse and the Great Recession provoked by the credit bubble sent employment tumbling to 500 at the privately held company.

Penn United makes tools and dies that manufacturers use to stamp out components for computers, electric razors, military equipment, garage door openers and hundreds of other products.

Most small businesses respond to recessions by cutting costs, improving quality, diversifying and taking other conventional measures. Carl Jones, Penn United’s late co-founder, did all of that — and more — after the decade’s first recession.

Mr. Jones, whose family 40 years ago provided the barn that served as the company’s first plant, figured U.S. trade policies were hurting Penn United and other small and medium-size manufacturers. So he decided to do something about it, creating a full-time government affairs person to lobby policymakers. Most small-business owners are too occupied with hiring, paying the bills and other day-to-day functions to give lobbying much thought, much less commit precious capital to it.

“Carl Jones was visionary,” said David W. Frengel, the former Butler County court employee Mr. Jones selected to be Penn United’s director of government affairs.

Mr. Jones, who died in 2006, directed him to move to Washington, D.C., if he had to “because if we don’t reform U.S. trade law, all U.S. manufacturing will decline and eventually cause an economic collapse,” Mr. Frengel said.

Two years after the official end of the 2008 recession, Mr. Frengel is still at it. Whether it’s speaking out against the proposed Korean-U.S. trade agreement or promoting legislation to punish China’s currency manipulation, Mr. Frengel makes a distinctly different case than lawmakers hear from U.S. multinational companies.

From his point of view, trade agreements like the one with Korea make it easier for large America manufacturers to move production offshore, taking tool and die jobs with them. Mr. Frengel said his counterparts at large U.S. companies “are not looking to help America.”

He pointed to the wave of failures in the U.S. tool-and-die industry following the tech bubble, failures he said that were caused by moving manufacturing out of the United States. Employment at Penn United tumbled during the period from 700 to 500.

“We should have gone to 400, but we had these skilled people we didn’t want to lose,” Mr. Frengel said.

Tool-and-die makers are detail-oriented craftsmen who are adept at abstract reasoning. They construct dies, complex metal jigsaw puzzles that allow metal stamping equipment to punch out intricate precision parts from a strip of metal. The parts must meet tolerances measured in millionths of an inch. About 80 percent of the cost of designing, building and testing a die represents the skilled labor that goes into it, Mr. Frengel said.

“You don’t have manufacturing unless you have toolmakers,” he said.

Electronics accounted for a significant chunk of Penn United’s business prior to the 2001 recession, Mr. Frengel said. After that, the company diversified into medical, defense and other more recession-proof industries. It automated more functions and began providing metal-stamping and other services to customers.

Mr. Frengel said employment climbed back to nearly 700 before the 2008 recession hit. That downturn eliminated 200 jobs, about 60 of which have come back thanks to a recovery that’s been manufacturing- and export-driven, he said. Exports account for about 25 percent of Penn United’s sales, which Mr. Frengel estimated will be $90 million this year.

While business has picked up, Mr. Frengel said the long-term prospects for manufacturing would not improve unless trade and tax laws and other regulations change for the better.

“This is our children, our nation, our way of life that is at stake,” he said.

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Real Conservatives Oppose NAFTA

The following article by Daniel Sayani appeared in the New American here.

One of the most important, but widely unknown bills currently proposed in Congress is legislation that would end American participation in the North American Free Trade Agreement (NAFTA). The bill, H.R. 4759, calls for America’s withdrawal from the free trade agreement, and is sponsored by several Democrats and a small cadre of Republicans, including Rep. Ron Paul (R-Texas) and Rep. Walter B. Jones (R- N.C.).

Introduced back in February, the legislation seeks to immediately terminate American participation in NAFTA. Rep. Mike McIntyre (D-N.C., left), the bill’s chief sponsor, says that “NAFTA has done way too much damage, and we need to repeal it! NAFTA has cost too many jobs, eroded our industrial base, and decimated towns and communities. Enough is enough — we need to focus on creating jobs right here in the United States — not in foreign countries!” McIntyre also says that NAFTA and similar trade agreements have resulted in a 29-percent decline in U.S. manufacturing employment since 1993, discouraging investments in U.S. manufacturing facilities while accelerating the erosion of American industry, and he is supporting a “Make it in America” plan that will help bring back our manufacturing base and create jobs right here at home.

Opposition to free trade agreements, while a minority view in today’s internationalist-oriented Republican Party, is in all actuality a robust and important part of the history of the GOP. Robert Lighthizer, a trade representative in the Reagan administration, rightfully argues that free trade agreements were a long-standing policy of leftists, including Ted Kennedy, Bill Clinton (who led the push for America’s entry into NAFTA in 1993), and Barack Obama. Lighthizer also says that those considered to be America’s leading conservatives, including former Senator Jesse Helms (R-.N.C.), former Senator Robert Taft (R-Ohio), Alexander Hamilton (one of our nation’s Founding Fathers), and even former President Theodore Roosevelt, who wrote that “pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber.” In fact, the first vocal Republican in support of free trade was Dwight Eisenhower, who was vociferously opposed by conservatives, including supporters of Robert Taft and the then-nascent John Birch Society (Robert Welch‘s damning investigation, The Politician, discussed much of Eisenhower‘s leftist tendencies).

Lighthizer also rebukes those free-traders who choose to identify themselves as Reagan Republicans. While Reagan may have chosen to follow certain free-trade policies at times, his record reflects a far more nuanced position on the issue. He arranged for voluntary restraint agreements to limit imports of automobiles and steel. He provided temporary import relief for Harley-Davidson. He limited imports of sugar and textiles. His administration pushed for the “Plaza Accord” of 1985, an agreement that made Japanese imports more expensive by raising the value of the yen.

Yet, Reagan was certainly not the first Republican President to espouse “protectionist” sensibilities. Calvin Coolidge, who was one of the most constitutionalist Presidents in American history, clearly understood the need to defend American industry by blocking free trade policies. In his Second Annual Message of December 3, 1924, Coolidge famously declared that “the protective tariff enables our people to live according to a better standard and receive a better rate of compensation than any people, any time, anywhere on earth, ever enjoyed.” In a similar vein, the Smoot-Hawley Tariff Act of 1930 is yet another example of Republican integrity on the issue of free trade; the tariff sought to protect American agriculture and industry, and in spite of criticisms that it worsened the effects of the Great Depression, monetarists such as Milton Friedman argue that this Americanist economic measure actually helped mitigate the effects of the Depression.

In recent times, however, both Democrats and Republicans have worked to deliver more failed free trade agreements, with few exceptions (especially on the Republican side). While the last Bush administration negotiated several bilateral trade agreements, the Republican Congress notably blocked several free trade policies. In March 2002, for example, Bush proudly signed “temporary safeguards” that imposed tariffs of eight percent to 30 percent on most steel imports for three years. In May 2002, Bush also signed legislation increasing agricultural subsidies by as much as 80 percent, leading economists to label Bush an “anti-globalizer.” Bush also supported steel tariffs, as opposed to Clinton, who opposed steel and other protective tariffs. In mid-November 2006, 60 House Republicans also helped block a free trade deal with Vietnam, supplying the margin of defeat and embarrassing the President on the eve of a state visit. And, in the 2008 Republican presidential debates, in contrast to the internationalism of John McCain and Rudy Giuliani, Duncan Hunter and Tom Tancredo both expressed their strong opposition to NAFTA, CAFTA, and other free trade agreements, with Rep. Hunter correctly attributing to NAFTA the surge in illegal immigration from Mexico.

While the effort to repeal NAFTA clearly has strong historical and ideological precedent within the Republican Party (evident also in the fact that 43 House Republicans voted against NAFTA in 1993), it is unclear whether the current Republican Congress will support H.R. 4759, despite the fact that many Tea Partiers bemoan the consequences of free trade. In a recent poll put out by the Mellman Group and the Alliance for American Manufacturing, 74 percent of self-described Tea Party supporters would support a “national manufacturing strategy to make sure that economic, tax, labor, and trade policies in this country work together to help support manufacturing in the United States.” Likewise, 56 percent of self-described Tea Party supporters “favor a tariff on products imported from other countries that are cheaper because they came from a country that does not have to comply with any climate change regulations in the country where the products were made.” These sentiments are inspired by both the ill-effects of free trade on American manufacturing and the desire to preserve national sovereignty, which is a key reason to defeat NAFTA, since it is under the pretext of this free-trade agreement that plans for the North American Union and the NAFTA superhighway are secretly being moved forward.

NAFTA also severely compromises America’s national defense capabilities. Opponents of NAFTA, including former Rep. Gene Taylor (D-Miss.) say that when the Defense Department needed to rapidly procure Mine Resistant Ambush Protected (MRAP) vehicles in Iraq in 2007, the Pentagon was forced to purchase 17,700 of them, and because of diminished manufacturing capacity, it took nine different contractors working together to build all those vehicles. “The decline in our manufacturing base left the contractors without a trained workforce to build these vehicles. This led to delays and choke points in production and overall delivery of the MRAPs,” he said. “This was a logistical nightmare.”

He continued, “Without a sufficient industrial base capable of mass production, we were forced to spend more tax dollars because each contractor had to train workers and re-invent the parts for production. In some cases, we were dependent on foreign countries.”

The GOP would be wise to return to its roots as an anti-free trade agreement, economically-nationalistic party that upholds national sovereignty, prosperity, national defense capabilities, and enhanced opportunity for the American middle class, and with a burgeoning protectionist stream within the Tea Party movement and an out-of-control immigration problem rallying the conservative base, now is the time to repeal NAFTA.


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Trade rules must change

The following letter to the editor was published on the Herald Journal site here.

To the editor:

In a recent Reuters article, “Does corporate America kowtow to China?” (4/27/2011), a startling number was revealed: Since 2001, and concurrent with China’s entry into the World Trade Organization, 40 percent of U.S. manufacturing plants with 250 or more employees have been closed.

It’s a truly amazing number - a number that is made all the more extraordinary by the fact that very few in positions of leadership in America today seem to care about the fact that since 2001, 40 percent of U.S. manufacturing plants with 250 or more employees have been closed.

Since 1994 and the passage of NAFTA, and in conjunction with the remainder of our wildly moronic trade concessions - including our entry into the World Trade Organization and our granting Permanent Most Favored Nation Status to the People’s Republic of China - America has racked up $7 trillion in goods and services trade deficits. We’ve lost millions of jobs. We’ve closed more than 46,000 manufacturing facilities. And we’ve dealt a crushing blow to innovation and to our leadership in key industries.

Additionally, we are actually moving down in the sector of high-value-added industries. And most importantly, we have imperiled our national security, as communist China’s industrial capacity, research capabilities, technology transfers and outright thefts, and her spending efficiencies will soon leave us at a decided disadvantage.

America is being wonderfully played by ideologues who continue to embrace that which for us is proving to be a bankrupting philosophy - “Free Trade” as it is currently practiced and codified under U.S. law and international agreements. These agreements have always been written as to disadvantage American production and send it abroad. That we continue blind adherence to these one-sided treaties is imperiling our nation - as a nation that does not produce more than it consumes will eventually lose its economy and thus its power. To say otherwise is pure nonsense. Look around you.

At this point in our history, America needs to begin a serious debate as to the course of our future. Those leaders who continue to champion the decline of production in America and its concentration in the far East should be forced to show, empirically, how this has benefited the United States. If no true benefit can be shown - then we need to change the rules, take back our production and rebuild our capacity.

Doing so would bring about an expansion, the likes of which would be unprecedented in our history. To stay our current course will lead only to more contraction, more dissention and more hollowing out of our already weakened economy.

Arthur Taylor
Hyde Park

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Chinese riots enter third day

The following article by Tania Branigan can be found at The New York Times site here.

Rioters burned police and fire vehicles in a third day of unrest in southern China’s manufacturing heartlands, witnesses have reported.

Hong Kong broadcasters reported that armed police fired teargas as they sought to disperse the crowd and detained at least a dozen demonstrators.

The clashes, which began on Friday after a fracas between security officers and a pregnant street vendor in Xintang, Guangdong province, highlight Chinese authorities’ struggle to control social frustrations. It is thought that most protesters were migrant workers like the vendor.

Last week hundreds of migrant workers clashed with police in Chaozhou, also in Guangdong, following a dispute over unpaid wages. In Lichuan, Hubei, as many as 2,000 protesters attacked government headquarters last Thursday after a local politician who had complained about official corruption died in police custody.

Inner Mongolia recently saw its biggest street protests for 20 years, over the killing of a Mongolian herder who sought to halt coal trucks trespassing on grasslands.

Although the causes seem to have been very different in each case, the spate of incidents underlines the challenge that authorities face in preventing widespread grievances bursting out.

Unrest is thought to have become increasingly frequent, although data is hard to come by. The Chinese Academy of Social Sciences has estimated that there were more than 90,000 mass incidents in 2006, with further increases in the following two years.

China has increased its domestic security budget by 13.8% this year, to 624.4bn yuan (£59bn).

Police in Guangdong said on Sunday they had arrested 25 people after violence broke out on Friday night following a row between chengguan – low-level law enforcement officers – and a pregnant vendor during a crackdown on street stalls.

State news agency Xinhua said that Wang Lianmei fell during the dispute, while other accounts said that the chengguan had shoved her. The officers have a reputation for thuggish behaviour.

Other migrant workers from her province, Sichuan, quickly gathered, with some attacking police vehicles called to the scene with bottles, bricks and stones.

Another crowd gathered on Saturday as rumours spread that police had killed Wang’s husband, Tang Xuecai, and that she had been seriously injured. Local media said he appeared at a press conference on Sunday to say that his wife and their baby were fine and that he was happy with the government’s handling of the case.

“The case was just an ordinary clash between street vendors and local public security people but was used by a handful of people who wanted to cause trouble,” said Ye Niuping, the local mayor, urging residents not to spread “concocted rumours”.

The South China Morning Post said Xintang appeared to have calmed down on Sunday afternoon, with armed police and armoured vehicles patrolling the area, but that as many as 1,000 later gathered despite the heavy police presence.

“There were many people out on the streets late last night, shouting and trying to create chaos. Some of them even smashed police vehicles,” said a worker from the nearby Fengcai clothing factory, adding that bosses barred employees from leaving the plant.

An employee at a hotel in the area said police had told them to stay indoors.

State news agency Xinhua reported on Monday that officials had sent work groups to villages, factories and residential communities to set the record straight.

Guangdong police headquarters declined to comment and calls to the local police station rang unanswered.

“There is a lot of pent up anger and frustration among ordinary people – not just migrant workers,” said Geoff Crothall of Hong Kong’s China Labour Bulletin, noting the different causes behind the recent outbreaks of unrest.

But he added: “There are many towns in Guangdong which are still very much [divided between] locals and outsiders. Migrant workers are still doing the lowest paid, dirtiest jobs and suffer discrimination on a daily basis. That’s going to cause resentment and anger to build up.”

• This article was amended on 14 June 2011. A caption on the original referred to Guangzhou as a province. This has been corrected.


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How VAT Trade Zones Can Boost American Manufacturing

The following article by Gilbert B. Kaplan and John C. Taylor appeared at the New America Foundation site here.

Exporters of goods from the United States face an enormous disadvantage every time a U.S. product leaves our shores. There is no rebate of the income tax paid with respect to that product, and as such the embedded costs of the export include a tax cost. The exact amount of that cost can vary, but it can be high given that the current U.S. corporate income tax rate is 35%. This contrasts dramatically with exporters of goods from almost every other country in the world, who receive a rebate of their Value-Added Taxes (“VAT”) upon export.

The main reason the U.S. cannot rebate income taxes upon export is because of a provision in the General Agreement on Tariffs and Trade (the “GATT”) which was later incorporated in the WTO. This provision makes the rebate or non-collection of income tax from exporters a prohibited “export subsidy.” In contrast, the rebate of a VAT upon export is permitted by the WTO agreements. In WTO parlance, VAT is an “indirect tax,” and the non-excessive rebate of an indirect tax is not an export subsidy. The rebate of a direct tax such as an income tax, however, is considered to be an export subsidy. It is prohibited, and subject to a variety of WTO offsets and penalties.

The economic effect of this divergence is enormous. It means, for example, that when a U.S. pipe company ships a ton of pipe to Europe it gets no tax rebate. In order to be profitable, the U.S. company must price its pipe at a level sufficient to pay the tax on the income generated from the sale. In contrast, when a Brazilian pipe company sells the same ton of pipe to Europe it is granted a 17% rebate upon export of that pipe as it leaves Brazil. It can therefore be sold at a much more competitive price in the EU (or any other export destination, including the United States), undercutting U.S. manufacturers.

In response to this problem, two major solutions have been offered. First, it has been proposed that the United States should change from an income tax to a VAT system. Currently this is not politically feasible.

The other potential solution is to change the WTO agreements to allow the rebate of income taxes upon export by all producers. But because the United States has the tax system in the world that suffers most heavily from this trade burden, it is very unlikely that the rest of the international community will join in agreeing to this change. The issue has been raised repeatedly over decades in the GATT, and now in the WTO, but it appears to be essentially a dead letter in the Geneva WTO negotiations.

Yet the impact of this unfairness continues to be enormous. U.S. products do not get a tax rebate on export and are thus much less competitive in foreign markets. Moreover, U.S. products can be subject to the VAT in foreign export markets, so they are essentially double taxed, once in the U.S. (with the income tax) and once abroad (with the foreign VAT). This has made it essentially impossible for anything but the most competitive U.S. products to sell in export markets. Products which are fantastic and for which there are few or no competitors-such as sophisticated semiconductors or state of the art agricultural machines from U.S. heavy equipment makers-have a chance to sell abroad. But the average U.S. product cannot overcome the price disadvantage caused by the tax incidence differences, and a commodity product made in the U.S. has almost no hope of doing so at all.

This has resulted in day-to-day disadvantages for U.S. exporters, and has hastened the migration of manufacturing out of the U.S. to foreign locations.

This paper proposes a solution to this problem which has the potential to make U.S. exporters of goods much more price competitive, and thus help to revive the U.S. manufacturing sector. Our proposal is that the United States create VAT Trade Zones, where manufacturers could choose to locate and, in these Trade Zones, would be required to pay a value-added tax in lieu of income tax. In order to simplify the tax accounting treatment for companies who use such zones, one requirement would be that the plant would have to be within its own corporation. This corporation could be a member or “affiliate” of a large U.S. corporate group of companies whose main locus was outside the zone. The rules to establish what income derives from the plant and thus would not be subject to income tax have been fairly well established under U.S. tax law, and could be applied to companies in the zone.

Within the zone, the corporation would be required to pay a U.S. VAT, which would be established as part of this proposal. The exact rate of tax would be determined to equalize the tax effect versus the payment of income tax, but preliminary estimates are that a 5-10% VAT, which is actually lower than the VAT in many other countries, would be close to the right level.

The proposal would not be budget neutral, because if the manufacturer elected to export product from the zone, the company would have the VAT rebated, as is the rule in substantially every other trading nation. But, as a result of the fact that the tax being rebated is a VAT tax, and not an income tax, such rebates would not be inconsistent with the WTO, would not be a prohibited subsidy, and would not be subject to WTO penalties. Certain other requirements would have to be met to ensure WTO consistency, such as non-discrimination as to foreign-owned companies, actual tax neutrality between the VAT and the income tax, and general availability of these VAT Trade Zones across companies and industry sectors, but these objectives could be accomplished.

The U.S. could also consider offering other assistance to companies located in such zones, similar to the incentives offered in special industrial zones in other countries.  While the lure of such zones in other countries is often superior industrial infrastructure and tax breaks, many also offer streamlined regulatory processes with “one stop” administrative offices.  Others offer assistance with worker training and have dedicated funds to assist with research and product marketing through loans or grants.  Some zones in China even offer “seed money” for recent college graduates to start entrepreneurial endeavors.  One indirect benefit from the location of manufacturing enterprises in such zones could be clustering, which leads to increased innovation and closer cooperation between input suppliers and downstream manufacturers.

Once this program went into effect it might ease the transition to a more broadly applied VAT. But even if that broader VAT were established, the other Trade Zone benefits described above could still remain in effect, such as those relating to streamlined administration, research grant money, and, perhaps most importantly, clustering of manufacturing plants.

The question then becomes, why would this VAT Trade Zone system be easier to implement than adoption of a VAT across the entire economy? There are several reasons.

First, this proposal would create U.S. jobs. Rather than making things off shore because of the advantages accruing to countries using a VAT tax and rebating it, manufacturers would be drawn to the United States because of these VAT Trade Zones that would offer similar tax benefits.

Second, the concern about the regressivity of the tax would be lessened as it would only apply to a small segment of the economy.

Next, the administrability of this program could be eased by the fact that the United States already has a Foreign Trade Zone Program where certain trade and customs benefits are provided to users. As such, there is already a mechanism for setting up trade zones (though such zones have no VAT or other tax elements) and that mechanism could be extended into this program.

And finally, this proposal would encourage    U.S. exports, a goal which is almost universally supported politically. In fact, President Obama has set a goal of doubling exports over a five year period. Nothing could more fully accelerate progress toward that goal than the immediate enactment of this program.

The issue of the revenue impact would certainly have to be considered. However, it is worth noting that the United States has one of the highest corporate income tax rates in the world, and there have been strong calls to lower that rate. Even President Obama has indicated a willingness to consider reductions in the corporate income tax rates. Our proposal, rather than lowering the corporate tax rate overall, would be to enact this VAT Trade Zone Program and provide the benefits of tax rebates to manufacturers who create or preserve U.S. plants and jobs through increased exports.

We therefore urge the Administration and the Congress to pass immediate legislation to create the American Manufacturing VAT Trade Zone Program, (the AMVATTZ Program, as we call it) and proceed to unleash the export power and imagination of U.S. manufacturers.

Gilbert B. Kaplan is an International Trade Partner at King & Spalding law firm in Washington, D.C. He formerly served as Deputy Assistant and Acting Assistant Secretary at the U.S. Department of Commerce. J.D. Harvard Law School., A. B. Harvard College.

John C. Taylor is an International Tax Partner at King & Spalding in London.  He previously was a partner at the London office of one of the “Magic Circle” firms. LL.M. in Taxation New York University School of Law, J.D. University of Tennessee, B.S. University of Tennessee.

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AISI Supports Administration’s Call For China To End Unfair Trade Policies

The following article appeared in the Daily Media Report of the American Iron and Steel Institute.

Washington, D.C. American Iron and Steel Institute (AISI) President and CEO Thomas J. Gibson issued the following statement following the conclusion of the third U.S.-China Strategic and Economic Dialogue.

“As the third U.S.-China Strategic and Economic Dialogue concludes, the U.S. steel industry strongly supports the Administration’s call to China to open up its markets to U.S. exports and put an end to its industrial policies that discriminate against U.S. and other countries’ products both in China and in third country markets.  Our government approved China’s entry into the World Trade Organization based on promises China made to open its domestic market. Instead, what we have seen in recent years has been a pushback against reform, a growing role for state-owned and state-supported enterprises, and continued Chinese government manipulation of its currency to promote Chinese exports.  It’s time for China to comply fully with its WTO obligations.  We urge the Administration to continue to press China to abandon its protectionist policies that disadvantage U.S. manufacturing companies, employees and communities.

To achieve open and free trade, China should end its import barriers on industrial goods, export restrictions on raw materials, limits on foreign investment, state subsidies to its manufacturing industries and undervaluation of its currency.  The U.S. Government must also ensure that U.S. companies have the ability to obtain relief from the injurious effects of Chinese trade and industrial policies.  We therefore urge the Congress to pass legislation to ensure that U.S. customs officials will act to stop efforts by unscrupulous traders to evade U.S. trade law orders through customs fraud, transshipment and other forms of illegal evasion.  In addition, Congress should enact currency reform legislation to give U.S. manufacturers a remedy against the injurious effects of Chinese currency manipulation.”

AISI’s member companies represent approximately 80 percent of both U.S. and North American steel capacity.  For more news about steel and its applications, view AISI’s Web site at www.steel.org.

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Need a Towel Ring? Better Try China

The following article by Shobhana Chandra and Timothy R. Homan appeared in Bloomberg Businessweek here. Joel Yudken is a member of CPA’s Advisory Board.

The Federal Register, the journal of record for the U.S. government, is not known as an exciting read. A notice in the Mar. 21 issue, though, has caused a stir. It briefly described how the U.S. Air Force, hoping to use stimulus funds to build homes at Eielson Air Force Base in Alaska, said it couldn’t meet the “Buy American” requirement for the products it needed, including screws, ceiling fans, light fixtures, towel rings, shower rods, and handrail brackets. “Extensive market research and thorough investigation of the domestic manufacturing landscape” showed these items were made almost exclusively in China, according to the notice. The Air Force got a waiver on buying American for 37 items.

The episode does not definitively prove that certain products are no longer made in the U.S. It’s also worth noting that America’s manufacturing base remains the world’s largest and that it is helping to power the current recovery. Yet the Air Force’s frustrating search, which was highlighted in the blog of economist Michael Mandel, reinforces the fear that American manufacturing risks irrevocable decline. A paper published last year by Joel Yudken, a founder of consultants High Road Strategies, notes that over 57,000 factories disappeared from 1999 to 2009. The study, commissioned by the AFL-CIO Industrial Union Council, said that imports command an increasing share of the market.

The Pentagon may have accelerated this trend. Flat-panel displays, machine tools, advanced electronics, and information technology goods once bought by the Defense Dept. from American companies are also now obtained from non-U.S. suppliers. Yudken says that buying from abroad picked up speed during the Bush Administration’s first term, when the Pentagon pushed for foreign sourcing of products and components in a bid to cut expenses and promote competition from contractors. That came at a bigger cost, he says, as it increased the military’s reliance on overseas suppliers. Now it is hard to get many critical advanced technology products in the U.S.

Armor plate steel, defense-specific integrated circuits, and night vision goggles are among the items the Defense Dept. has said it must obtain in part from overseas suppliers, according to Yudken’s report. Between 2001 and 2008, a study by Michael Webber of the University of Texas at Austin shows, 13 of 16 manufacturing sectors that underpin America’s military power suffered erosion as measured by a decrease in employment, output, and the number of factories. These industries, which include foundries, forging and stamping and machine shops, have wide applications in civilian industry too.

The resulting dependence on foreign suppliers makes the nation vulnerable to supply shocks, a notable reminder being the current shortage of automobile parts following Japan’s earthquake. It also means the U.S. may be opening itself up to the danger that an overseas manufacturer could place a “Trojan horse” component with a virus or hard-to-detect flaw into critical equipment.

A longer-term problem is that when production migrates abroad, research and development often follows, which if unchecked may chip away at U.S. technological strength. While the U.S. remains No. 1 in most advanced materials technologies, the National Research Council, which analyzes public policy, reports that the movement of manufacturing offshore is weakening American R&D capability in areas such as rare earth elements and specialty metals. The U.S. already has lost its lead in printed-circuit boards, which go into almost all electronics and are critical to the military. America’s share of global circuit-board production dropped to less than 8 percent in 2008, from 30 percent a decade before and 42 percent in 1984, according to Yudken’s “Manufacturing Insecurity” report.

Some decline in America’s low-end manufacturing is to be expected as products head for obsolescence, such as carbon paper and inked ribbon for typewriters. Yet other products that still enjoy plenty of demand in the U.S. seem to be losing their stateside manufacturing base. The worst case could be “we’re on the verge of not making anything,” says Alan Tonelson, research fellow at the U.S. Business and Industry Council. Tonelson has studied how far imports have penetrated certain industries that once flourished in the U.S. In 2007, imports already accounted for more than 95 percent of the sales in such categories as silverware, men’s non-work pants, men’s outerwear, and women’s non-athletic footwear.

Many U.S. industries keep consolidating as a result. Robert Hill, 65, just sold Hill Fastener, an Illinois maker of nuts and bolts used in lawnmowers and heavy trucks, to MacLean-Fogg, a larger Illinois industrial company. He said he was optimistic when he bought the family business in 1990. Since then, he says, “standard, easy-to-manufacture fasteners went to the Pacific Rim” or “wherever the low-cost producer seems to be.” Manufacturers like his company, he says, are “slipping away.”

The bottom line: The armed forces may be accelerating the decline in many U.S. industries as they search offshore for lower-cost alternatives.

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China-bashing Trump’s clothing line made in China

The following blog post by Justin Elliott appeared at Salon.com here.

Donald Trump has emerged in recent years as the nation’s foremost China basher, going after the Asian superpower for undervaluing its currency and for taking American manufacturing and jobs. So it’s at least ironic — and at most an example of gross hypocrisy — that Trump’s own line of men’s wear, the Donald J. Trump Signature Collection, is manufactured in China.

I discovered this after walking from Salon’s offices to the large Macy’s in midtown Manhattan, where an entire section is devoted to the Donald J. Trump Signature Collection of suits and ties. This particular corner of the store is decorated with an oversize portrait of Trump; the line promises to provide “the pinnacle of style and sophistication” and “the necessities to be boardroom ready all of the time.”

Here is the tag on one of the Trump shirts:

Yes, that says “MADE IN CHINA.” (That pink dress shirt retails, by the way, for $69.50.) Other pieces were made in Mexico and in Bangladesh.

Now, Trump has long complained about Chinese currency “manipulation” and has called for a large tariff on imports of products from China in order to bolster U.S. manufacturing. But he has also gone further, urging Americans to buy fewer products from China, claiming that Chinese goods are shoddy and maintaining that, in his own business dealings, he favors American manufacturing over Chinese manufacturing.

All of which makes it a little strange that Trump’s own brand of clothing is made in China.

The phone number listed on Trump’s website for the Signature Collection goes to the “licensing coordinator” at the Trump Organization, Amy Steinfeldt. She did not immediately return a call. But it appears that the shirts and ties are made by the Phillips-Van Heusen Corp., which owns a license on the Trump brand.

Here’s a typical Trump exchange on China from a year ago on Fox with Neil Cavuto (via Nexis):

TRUMP: And you know, again, the problem with our country is we don’t manufacture anything anymore, I mean, very little. China is doing — I just bid furniture out on a major project I’m doing, and I have six bids. Every bit of furniture is being made from China. The one from America is more expensive because of all the other problems that have been caused by us. So you know, if…

CAVUTO: Well, why wouldn’t you give — even though it’s expensive, why wouldn’t you give the American company the job?

TRUMP: I did.

CAVUTO: You did?

TRUMP: I have to tell you, I did, because you know what? They actually make a much better product. I mean, the product is 100 percent better. The product, the stuff that’s been sent over from China is — it falls apart after a year and a half. It’s crap.

In the case of his clothing line, of course, a Chinese factory was given the job.

Here’s another telling exchange between Trump and Fox’s Neil Cavuto in January:

CAVUTO: We start — I would imagine a President Trump would then start urging Americans to buy less from China.

TRUMP: Absolutely.

CAVUTO: Trade war ensues.

TRUMP: Well, I would urge that anyway.

Trump also told CNN last year: “When it comes to manufacturing, China is making all of these products. And they could be made in North Carolina, they could be made in Alabama, they could be made in lots of our places. And right now they’re not. Personally, I’d tax China very, very heavily. ”

A spokesman for Trump did not immediately respond to a request for comment. I’ll update this post if Trump’s people get back to me.

Posted in TradeComments (2)

Boeing to build factory in China

The following article by Tu Lei appeared in Global Times here.

S aircraft manufacturer Boeing and Aviation Industries Corporation of China (AVIC) on Monday unveiled a new factory as part of their composites joint venture (JV) in Tianjin, as Chinese companies are set to become more involved in global aviation manufacturing.

With an investment of $21 million from Boeing, the new plant will boost the production capacity of the JV, Boeing Tianjin Composites Co, by 60 percent, and full production will begin there by 2013.

Boeing Tianjin Composites produces components for all of Boeing’s in-production programs, including the 737, 747-8, 767, 777 and 787, and its customers also include Hexcel, Goodrich, and Korean Aerospace Industries.

Last month, rival Airbus also unveiled a new plant for its Hafei Airbus Composite Manufacturing Center in Harbin, Heilongjiang Province. The factory will produce major components for the Airbus A350 XWB, a medium capacity, long-range widebody aircraft.

“Outsourcing has been a trend in global aviation, and the expansion of manufacturing giants in China shows the increasing importance of the Chinese market in global industry chains,” said Lin Zhijie, an industry researcher from Singapore-based Kent Ridge Consulting, an aviation sector consultancy.

Ray Conner, vice president and general manager of supply chain management and operations for Boeing Commercial Airplanes, on Monday said that the company’s annual spending on aviation hardware and services in China is expected to more than double to at least $400 million by 2015.

Currently, Boeing and its supplier partners have contracts with China’s aviation industry valued at more than $2.5 billion. There are nearly 9,600 aircraft globally that use parts made in China.

Lin also said the aircraft giants’ expansion in China indicates that they intend to cooperate with Commercial Aircraft Corporation of China in production of its new C919 passenger jet. Deliveries of the new airplane are expected to begin in either 2013 or 2014.

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Manufacturing Insecurity – New Report Points to America’s Economic and National Security at Risk

The following article appeared on the American Jobs Alliance website here. One of the panelists listed, Dr. Joel Yudken, is on the CPA Advisory Board and the panel moderator, Bob Baugh, is the Co-Chair for Labor on the CPA Board.

A panel of industrial and defense experts warned today that the steep decline in America’s manufacturing base has dire consequences for the nation’s ability to provide good jobs and defend itself. Noting that because the defense industry and the manufacturing sector are tied together, whole civilian industries are linked with defense manufacturing, said Dr. Joel Yudken, author of Manufacturing Insecurity: America’s Manufacturing Crisis and the Erosion of the U.S. Defense Industrial Base.

Yudken, a Sectoral Economist and Technology Policy Analyst in the Public Policy Department, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) in Washington, D.C., said that during the last decade under the Bush administration, the Pentagon led by former Defense Secretary Donald Rumsfeld promoted policies to globalize defense procurement by going overseas in a move to cut costs and speed innovation. As a result, the U.S. is now dependent on offshore sources for items such as flat panel displays and night vision goggles. “As this tapestry unravels it undermines our economic and our national security,” Yudken said.

Yudken noted that as a result of these policies, we have seen a sustained erosion across each sector with our research and development and innovation capacities also eroding and an accelerated loss of American know how and skilled workers. Ticking off a list of worrisome trends, Yudken said these indicators should be cause for concern for federal policymakers. Manufacturing employment has shed 6 million jobs since 2001 and our industrial capacity is also on the wane with the number of establishments lost – 57,000 in the last decade, with a third of those being large firms of 500 employees or more. Our value-added manufacturing, which is an industry’s contribution to GDP, has seen a rate of growth far less than in the 1990’s. And America’s global competitiveness has seen a steady growth downwards because of the trade deficit.

Where the U.S. once dominated areas like advanced technology products, in sectors like aerospace and communications, where we had a comparative advantage, Yudken said the U.S. world share is now shrinking. “China is making semiconductor manufacturing a national priority,” Yudken said, adding that in 2009, China led the world in new semiconductor factory openings. Yudken also pointed to the import penetration rate which in industry after industry shows an “across the board increase.”

In areas such as advanced materials like metals, ceramics and photonics, “we’re losing capacity,” Yudken explained. “The signs of erosion are very clear, they’re moving offshore.” The U.S. has fallen behind China, Germany and Japan in production of machine tools and China is now the largest producer of stainless steel and is trying to corner the market on rare earth, metals that are key components of magnets and other high technology products.

The corporate research and development investments in India and other overseas locations is also having an adverse impact on the loss of domestic science and engineering workforces, Yudken said. “These are people who create wealth, they are at the heart of the erosion we are talking about,” Yudken said of the brain drain offshore. “The Department of Defense needs to play a major role on a national manufacturing strategy with business and labor Yudken said if things are going to turn around.

Panelist Owen Herrnstadt, director of Trade and Globalization for the International Association of Machinists, said “we see a threat to the leading edge industries like aerospace which are critical to high wage jobs.” Herrnstadt said that unless we do a better job of coordinating issues like taxes and investment there will be more incentives for corporations to ship jobs overseas.

Herrnstadt said IAM is developing a 10-point white paper to restore jobs in manufacturing here at home. Among the recommendations are:

• Require employment impact statements for all contract awards from the Department of Defense (DoD).
• Insure that ‘Made in the USA” actually means “Made in the USA” by having domestic content regulations contain provisions for marketing costs and intellectual property.
• Enforcement of current trade laws.
• Stopping states (most of which face large budget deficits) from battling each other for manufacturing jobs by offering tax breaks.

Panel moderator Robert Baugh, director of AFL-CIO’s Industrial Union Council, said the U.S. has to begin thinking more strategically about how we make investments in infrastructure that have the ability to help revive our domestic manufacturing base. “The rest of the world is playing soccer and we’re playing football,” Baugh lamented.

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