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.

The following article by Andrew Higgins appeared in the Washington Post here.

DONGGUAN, China — China’s export juggernaut is not unstoppable: Just ask Lawrence Yen, president of Woodworth Wooden Industries. His factory here in southern China used to ship 400 containers of bedroom furniture to the United States each month. It now sends 60.

That is just what Yen’s struggling American competitors were hoping would happen when, back in January 2005, the Commerce Department slapped import tariffs on Chinese-made beds, nightstands and related wares.

What happened next, though, was not part of the plan: Yen opened a factory in Vietnam and began exporting to the United States from there. Others did the same. He is now building a big plant in Indonesia and hopes to sell even more to the United States.

America’s own furniture industry, said Yen, “can never compete with Asia.”

The result: Imports now account for about 70 percent of the U.S. market for beds and similar items, up from 58 percent before Washington intervened to try and protect domestic manufacturers from Chinese “dumping,” or the export of goods at unfairly low prices.

The United States and China have exchanged accusations of dumping for years and imposed tit-for-tat duties. All along, though, China has generally come out on top: Its trade surplus with the United States rose to $273 billion in 2010, according to U.S. Census Bureau figures, more than three times the level of a decade earlier.

The trade concerns have led to growing calls for tougher action from Washington to stem the tide and protect U.S. jobs. But do tariffs work? In the case of bedroom furniture, they’ve clearly helped slow China’s export machine. In 2004, before tariffs went into force, China exported $1.2 billion worth of beds and such to the United States. The figure last year was just $691 million.

Over the same period, however, imports of the same goods from Vietnam — where wages and other costs are even lower than in China — have surged, rising from $151 million to $931 million. The loss of jobs in America, meanwhile, only accelerated. The number of Americans now employed making bedroom furniture is less than half what it was when the tariffs began.

Furniture workers in Dongguan, a throbbing industrial city near Hong Kong, earn about $170 a month, compared with less than $80 in Vietnam. Their American counterparts make about $12 an hour.
“This whole saga is a perfect example of good intentions gone completely haywire,” said Keith Koenig, president of City Furniture, a big Florida-based retailer and critic of the tariffs. Like many retailers, he relies on imported goods, which are cheaper than those made in America.

The only Americans getting more work as a result of the tariffs are Washington lawyers, who have been hired by both U.S. and Chinese companies. Their work includes haggling each year over private “settlement” payments that Chinese manufacturers denounce as a “protection racket.”

Fearful of having their tariff rates jacked up, many Chinese furniture makers pay cash to their American competitors, who have the right to ask the Commerce Department to review the duties of individual companies. Those who cough up get dropped from the review list.

David Cai, manager of the Dongguan Huada Furniture Co., likens the process to a shakedown: “It is like the mafia: You buy protection.” He, too, has slashed bedroom furniture exports to the United States.

How much gets paid in “settlements” each year depends on negotiations with Washington lawyer Joseph Dorn, who represents American furniture makers who first petitioned for the anti-dumping tariffs. Dorn said, “It is wrong for Chinese companies to criticize” the practice, as they “came up with the idea” and “voluntarily agreed” to pay.

The ruin caused to U.S. furniture manufacturing by a tsunami of Chinese goods is beyond dispute. Since the 1990s, hundreds of factories in North Carolina, Virginia and other furniture centers have closed as production moved offshore, often to Dongguan. In 1992, U.S. furniture imports from China totaled $129 million, according to Census Bureau data. By 2003, they had ballooned to $5.28 billion — an increase of nearly 4,000 percent. That was when a small group of American manufacturers banded together to try and stop at least some of the rot.

They formed the American Furniture Manufacturers Committee for Legal Trade and, warning of dire consequences to “our way of life, our culture and the competitiveness of American in the world,” begged Washington to throw them a lifeline. Along with labor unions, they filed a petition that accused their Chinese rivals of “dumping” bedroom furniture on the U.S. market.

After lengthy debate, the Commerce Department ruled that China had sold beds and related items “at less than fair value” and “materially injured” American producers. To level the playing field, it imposed duties on Chinese exporters, a modest 7 percent for most but much higher for a few companies.

In Dongguan, furniture makers held a meeting in a hotel to decide how to respond. Most were from Taiwan and, unlike local Chinese businessmen, didn’t have close ties to the Chinese state. Furious at being accused of benefiting unfairly from China’s Communist Party-dominated system, they set up a fund to support lobbying efforts in Washington and started hiring lawyers.

Yen had another idea. “I told them I would set up a factory in Vietnam,” he said.

That, he explained, would shield his business not only from U.S. tariffs but also from the rising costs of manufacturing in China, where wages, electricity and other costs have all gone up steadily.

Today, Yen still makes furniture not covered by tariffs in Dongguan but has moved nearly all his bedroom production out of China. His Dongguan factory has cut its workforce from 3,000 to about 1,200. His factory outside Ho Chi Minh City, formerly Saigon, which didn’t exist when the Commerce Department imposed duties, now employs 2,800 Vietnamese.

Supporters of the tariffs — extended in December for a further five years — acknowledged at hearings by the U.S. International Trade Commission last fall that jobs haven’t returned to America but argued that the domestic furniture industry would be worse off without the anti-dumping campaign.

“There would be nobody here today if we had not done this,” said John Bassett, chairman of Vaughan-Bassett, a Virginia company that has been in the vanguard of the drive to slow imports from China. “We turned a stampede. No, we didn’t bring it to a screeching halt, but we turned it, and we slowed it down.”

The stampede from Vietnam, meanwhile, has only gathered pace. Thanks largely to transplants from Dongguan and elsewhere, Vietnam has now replaced China as the biggest source of wooden bedroom furniture sold in America.

Travis Belle, an American buyer who moved from Virginia to Dongguan at the height of China’s now fading furniture export boom, scoffed at claims that the anti-dumping cause has helped America’s own industry. “The only thing that has changed is where you have your dinner at night,” he said. “Before it was Dongguan, but now it is Ho Chi Minh City.”

The following testimony can be found here.

Testimony of former U.S. Senator Slade Gorton before The U.S.­China Economic and Security Review Commission hearing on China’s intellectual property rights and indigenous innovation policy

U. S. corporations consistently lose billions of dollars in intellectual property every year due to patent, copyright and trademark piracy and infringement, together with the impacts of Chinese indigenous innovation policies. All in all, not surprisingly, China is the greatest offender.

How to measure these losses presents huge challenges, but let’s start with a study by the International Data Corporation. It estimates China’s software piracy rate in 2009 to have been 79%, with a value of about $7.6 billion. Another study found direct losses to copyright industries in 2005 to have been on the order of $58 billion in lost output and accompanying lost jobs, earnings and tax revenues. A reasonable assumption might be that China accounts for about 25% of this number, or $14 billion.

We can, of course, take for granted that these losses have been matters of great concern to several American administrations and therefore the subject of constant negotiations, the only common feature of which is a lack of success.

And it is, of course, the resulting frustration, coupled with the huge imbalance in our bilateral trade with China, that has spawned retaliatory schemes like Senator Schumer’s proposal to sanction China’s artificial valuation of its currency.

But while I believe that the senator’s ideas stem from an appropriate concern over those trade imbalances and unfairness, I do not feel that his approach is likely to succeed.

We should recognize that the control of a nation’s own currency to the maximum extent possible is in its clear vital sovereign national interest. One need only reflect on the reaction here in the United States to any Chinese attempt to order us to raise interest rates so as to strengthen the dollar to understand and even to sympathize with China’s view on the same subject.

At the same time, however, the protection of our national intellectual property is clearly a vital national sovereign interest of the United States. We have the sovereign right to adjust our trade policies so as to protect that interest. Unfair trade policies should be met by trade sanctions.

Thus, our protection of that intellectual property having been so ineffectual, I submit to you once again an idea first brought to your attention several months ago by my friend, Leo Hindery.

The United States should impose on all imports from China a goods tariff designed to produce each year 150% of the losses of US intellectual property in the previous year. The GAO should determine that number, and the policy should continue for as long as that piracy exceeds an appropriate share of US exports to China, say 10%. The policy should be universal, that is to say it should apply equally to all other trading partners the piracy in which exceeds a certain level. The president should be given some, but very little, authority to waive the policy, in whole or in part, upon a determination that it is in our clear national interest to do so.

The goal, of course, is not to produce revenue for the federal treasury, but to reduce intellectual property piracy, and any degree of presidential discretion should be directed at rewarding success in that endeavor.

It will be objected that this policy violates a number of our international trade agreements, as it does, thus allowing retaliatory trade sanctions against US exports to China, though it should be pointed out that Chinese piracy is so extensive as to constitute such violations as well.

True as that right of retaliation is, and perhaps effective in the case of any trading partner with whom we have a trade surplus, it is clear that a China with a $273 billion surplus (2010) with the United States can only lose, and lose big, by any set of tit for tat retaliatory trade sanctions with the United States.

This general proposal does not, of course, answer all relevant questions. Do we treat patent, copyright and trademark piracy and violations in the same fashion? And what about government indigenous innovation policies? To what extent do they differ from trade secret sharing in the normal course of corporate negotiations? And how do we fairly and accurately determine the losses resulting from IP piracy?

Each of these questions is food for examination by this Commission, but the time for decisive action has already passed and we should not wait on the results of future fruitless negotiations.

For immediate release: 

Contact: Christopher Kilcullen  at 303-250-8338 or America’s Got Product website here.

TEST DRIVE AMERICA! June 1-June 30th!

With our national debt at crisis levels and the stubborn unemployment continuing to hamper our recovery AmericasGotProduct.com is asking every American to get out and Test Drive America during the month of June!

“In March of this year, we the people bought just over 1.2 million cars and trucks according the Wall Street Journal and MotorIntelligence.com.  When we deduct all the foreign and domestic models build in over 30 communities all across this country, there were more than 350,000 pure imports left.  These are the Kia’s, Audi’s, Lexus, VW, Volvo and other brands with models not built in America.  At a $30,000 average price, that is just over $10 billion that left this country, one buy at a time and in just 30 days.” Said Christopher Kilcullen, founder of AmericasGotProduct.com.

Test Drive America is a job creation event that can generate billions of dollars in economic stimulus with no tax payer dollars.  This event is designed to create thousands of jobs, build consumer confidence and consumer spending that ripples back through this economy.  By simply making better choices, our spending will create jobs, today.

The multiplier effect of one job in the auto industry is 10 additional jobs created, according to Kim Hill from The Center for Automotive Research.  That does not even touch the additional jobs created in the service industries as these companies and their employees buy computers, pizza, clothing and  the travel industry with both business and vacation travel.  This is simple supply and demand, basic economics and represents the low hanging fruit of job creation for the US economy!

Every purchase produces paychecks and with the national debt now at $54,000 per person it is time we start putting more Americans back to work and off unemployment to help pay down this debt.  We the people have to accept some of the responsibility for this recovery and become more intentional about our nations future.

AmericasGotProduct.com is a web site designed to celebrate the products and companies that support this economy.  This is cause marketing that the American consumer can get excited about and our rating system helps the consumer identify products that produce paychecks.  Along with our rating system, we are highlighting the community behind the product to hep the consumer see real people and real economic have an impact on.

“The American public has an unprecedented sense of concern for the future. AmericasGotProduct.com provides a resource to help empower the consumer to leave a positive economic footprint with their purchases” said Kilcullen.  Mr. Kilcullen, who spent most of his career in franchise sales and development in the real estate and hotel business created this site out of a passion for this country and a frustration for this economy.

“I am not a politician, not an economist not am I in the manufacturing business, just an average American who wants his economy back.  We have to start looking at our nation as a business.  Last year alone, we lost $500 billion through trade alone and that has to stop,” say Mr. Kilcullen

The following article by Bill Lambrecht appeared on the stltoday.com site here.

WASHINGTON • Officials at Mid Continent Nail Corp. of Poplar Bluff, Mo., rejoiced in 2008 when the U.S. International Trade Commission ruled that Chinese companies were harming American businesses by dumping cheaply made nails, breaking laws that guard against unfair trade.

The Commerce Department followed up by ordering tariffs that in some cases would double the cost of the Chinese nails and discourage their importing. Mid Continent expected a boon to its business of distributing nails for home and industrial use.

But those Chinese nails kept coming. So, after spending more than $1 million to win the case, Mid Continent, a family-owned business employing 300 people, invested another $75,000 to hire private detectives to find out what was happening.

The detectives discovered that Chinese manufacturers were sending their nails to Korea and Taiwan, where they were reboxed and shipped on to the United States. In some cases, manufacturers in China merely packaged the nails in boxes marked “Made in Taiwan” before shipping to the United States.

A lawyer in Washington for Mid Continent showed the Post-Dispatch “Made in Taiwan” nail boxes that investigators brought back from China — evidence the company turned over to U.S. Customs and Border Protection.

Yet nothing has changed, says Mid Continent president David Libla.

Customs officials “basically turn their heads. They say they don’t have the resources or they don’t have the time. They say they can’t do this, can’t do that,” he said. “We spend all that money to win the case and then assemble the truth, and our government lets the Chinese get by.”

FAMILIAR RESULT

Libla’s experience has become familiar to American companies: After winning trade cases that cost them dearly, Customs fails to collect the duties and give them the protection that the law requires. Customs officials say the task is almost impossible, and they are doing the best they can.

Missouri is at the center of a growing coalition of companies such as Mid Continent that are pressing President Barack Obama’s administration and Congress to get tough on the Chinese. An alliance that sprang up in 2009 has grown to 12 industries from around the country — from nails and bed springs to shrimp and honey.

American companies have many vexing trade issues with China, where inexpensive labor, government subsidies and predatory pricing can prove lethal to competitors. Companies like Mid Continent turn to the government’s International Trade Commission when they see evidence of “dumping” — exporting products at artificially low prices in hopes of killing the competition. If companies prove allegations of dumping or unfair subsidies, the Commerce Department orders duties to bring prices on imported goods in line with the cost of U.S.-made goods.

But Chinese manufacturers routinely evade the duties by shipping through third countries in schemes that Customs officials often are slow to unravel. That translates to Chinese products flowing illegally into U.S. markets, American jobs lost and hundreds of millions of dollars in uncollected duties.

From mid-2008 through December, Customs and Border Protection — part of the Homeland Security Department — received some 300 complaints about evasion of duties, according to congressional sources. But a relatively modest $13 million was assessed in fraud penalties last year, with just $117,000 collected so far.

MILLIONS UNCOLLECTED

The Government Accountability Office reported in 2008 that more than $600 million in duties — 90 percent related to Chinese goods — remained uncollected over six years. The GAO study added that the likelihood of collecting all that money was slim because companies under investigation often disappear.

M&B Metal Products, a manufacturer in Alabama of wire coat hangers, joined the Missouri companies in the fight for enforcement. Milton Magnus, president of the company, estimates that uncollected duties on Chinese hangers alone last year exceeded $50 million.

His company won its trade case in 2008 while competition from Chinese companies was devastating the American hanger industry. Two hanger plants were shuttered in western Missouri and another, in the hard-pressed Southern Illinois town of Metropolis, closed its doors in 2006.

Magnus said his company is working at 60 percent of capacity and trade figures show why: More than 1.3 billion hangers reached the United States last year from Malaysia, Taiwan, Vietnam and South Korea, Magnus said. He estimates that 800 million of them were manufactured in China and shipped through other countries.

He produced e-mails from Chinese manufacturers to American distributors offering ways to avoid the duties by shipping through other countries. He has given those e-mails and other evidence obtained by investigators to Customs officials and was told they are looking into the matter.

Collecting the duties, Magnus said “would put a lot of people to work” in the United States.

At Leggett & Platt Inc., a maker of innersprings for beds since 1883, collecting duties would translate to enough additional sales to add 60 full-time jobs, company officials say.

After Leggett & Platt, based in Carthage, Mo., filed its trade case in 2007, investigators received false information and little cooperation from Chinese manufacturers, their reports show. In 2008, the six-member commission voted unanimously that the domestic industry had been injured and the government imposed duties that in some cases would triple the imports’ cost.

‘WE HAVE A LIVE FISH’

At first, sales of Leggett’s bedsprings — for everything from baby cribs to king-sized mattresses — increased. It looked as though the system had worked. But the Missouri company soon noticed bedsprings arriving from Hong Kong, where none had come from before, and later from Malaysia.

In Hong Kong, private investigators hired by the company found an empty building and a tiny factory with two nonworking assembly machines — supposedly the sources of tens of thousands of bedsprings arriving in the United States.

Leggett & Platt estimates that $50 million in duties went uncollected last year on some 900,000 Chinese-made imports.

The company has turned over investigative reports, shipping documents and videos to Customs. Last month, company officials traveled to Washington with fresh evidence of illegal shipments, along with names of people willing to testify to having witnessed fraud.

“We have a live fish on the line,” remarked Wendy Watson, Leggett & Platt’s associate general counsel.

The company hasn’t heard back.

“It gets worse all the time,” Watson said. “From a cheater’s perspective, success breeds success.”

In interviews, Customs officials insisted they are working diligently to collect duties — but described challenges akin to chasing ships in the fog.

“It’s very easy to find someone willing to trans-ship for you,” said Brian Lewandowski, director of the commercial targeting division in the Customs trade office.

Investigators, he said, often run into trouble getting cooperation from foreign governments. Then, he added, both the foreign company and the U.S. importer can disappear “even before we have a chance to look at them. And depending on the commodity, they can re-emerge under new names.”

Chinese companies are increasingly open about their willingness to evade U.S. Customs law.

One of them, Hanhen Shipping, based in the Chinese port city of Shenzhen, advertises “triangular” shipping — routing products through a third country.

“According to traders’ demands in commercial interests and import tariff reduction, we provide BL (bills of lading) switch for triangular trade, etc. in order to protect the interests of traders and save tariff expenses,” Hahnen’s Internet ad reads.

FINDING ‘TRADE CHEATS’

The flouting of U.S. law has received far less attention in Congress than other trade issues with China. So in November, at the urging of Missouri companies, Sen. Ron Wyden, D-Ore., who heads a Senate subcommittee on trade, set out to find “trade cheats.”

Wyden’s staff members, portraying themselves as the fictitious company AvisOne Traders Inc., received 47 responses when they contacted companies stating the desire to avoid paying the trade duties. Of those, ten Chinese companies provided written confirmation of their willingness to help AvisOne evade duties on several products — including nails and bedsprings.

Wyden said in an interview that he intends to hold a congressional hearing on the problem shortly and introduce legislation to force the U.S. government to act more swiftly on allegations of fraud.

“There are two key agencies dealing with this issue. One of them, Customs, in my view treats allegations of evasion of duties like junk mail. The other, ICE (Immigration and Customs Enforcement) is more interested in stopping illegal downloads of music than taking steps to protect tens of thousands of manufacturing jobs,” he said.

Despite the complaints, Customs’ international trade office has scored successes. Earlier this month, a California man pleaded guilty after being indicted on federal charges of trying to circumvent trade duties imposed on Chinese-made hangers. An associate pleaded guilty earlier.

Chinese honey has drawn the most attention from authorities. Last month, a Chinese agent for several companies was arrested on federal charges filed in Chicago that she allegedly avoiding $534,000 in duties on Chinese honey from South Korea, Taiwan and Thailand. The woman had worked with another Chinese national sentenced to 30 months in prison in November for avoiding $5 million in duties.

The U.S. Attorney’s office in Chicago thus far has charged 20 people or companies in the honey fraud importation ring.

“We’ve seen CBP really step up to the plate,” said Jill Clark, of Dutch Gold Honey Inc., an industry leader in Pennsylvania and a partner with the Missouri companies.

Others in the coalition say that successes are few. One of their lawyers asserted that Customs is intent on long-term investigations leading to “perp walks” rather than focusing on the constant flow of fraudulent goods.

Don Yando, executive director for commercial targeting and enforcement in Customs’ trade office, described the complexity both in the rooting out the fraud and in communicating with victims. During investigations, he said, the government is prohibited from talking to companies about what actions are being taken.

“I can understand that industry may perceive that we’re not doing anything,” he said.

But with those Chinese nails still flooding American markets, Mid Continent’s David Libla said he wants action, not understanding.

“His understanding isn’t going to help our hourly employees and our pocketbooks,” he said. “It’s incomprehensible to me that our government is so weak-kneed that they’re letting China run over us like this.”

The following piece appeared on Bloomberg.com.

Chinese President Hu Jintao said greater cooperation with the U.S. on economic and security issues must include recognition of each nation’s sovereign rights as he rejected American arguments for yuan appreciation.

Hu, who will arrive in Washington tomorrow for a state visit, said the two nations should abandon the “zero-sum Cold War mentality.” He cited trade, energy and terrorism as areas for strengthening cooperation, according to a transcript of answers to written questions from the Wall Street Journal and the Washington Post.

“We should respect each other’s sovereignty, territorial integrity and development interests,” Hu said. Inflation can’t be the “main factor” in determining yuan gains, he said, after U.S. Treasury Secretary Timothy F. Geithner said Jan. 12 that higher prices in China will lead to “necessary” exchange rate adjustments.

Allegations of unfair Chinese treatment of foreign companies, the awarding of the Nobel Peace Prize to jailed dissident Liu Xiaobo and China’s refusal to condemn North Korea’s shelling of a South Korean island have been sources of tension since President Barack Obama visited China in 2009.

“The biggest achievement for this trip will be a strengthening of mutual trust and setting a tone for future strategic development,” said Liu Qin, a researcher at the China Institute on International Studies in Beijing. “This visit serves as a connection point for the next generation of Chinese leaders and will lay a solid foundation for the next 10 years.”

Congressional Meetings

Hu’s visit from Jan. 18-21 will include meetings with members of the U.S. Congress and a visit to Chicago. Chinese Commerce Minister Chen Deming and Lou Jiwei, chairman of the nation’s sovereign-wealth fund, will accompany Hu.

In response to the newspapers’ questions, Hu said China had adopted a “package plan” to curb inflation, including interest-rate adjustments. On Jan. 14, the central bank ordered lenders to set aside more deposits as reserves for the fourth time in three months, draining cash from the economy to cool price pressures. Hu said that the increase in the cost of living is “on the whole moderate and controllable.”

Prices are climbing faster in China than in the U.S., making Chinese goods less competitive, Geithner said last week. Speaking in Washington on Jan. 12, he said that while the yuan was still substantially undervalued, the “fundamental forces that are pushing Chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates.”

The yuan fell for the first day in five today, trading at 6.5950 per dollar as of 10:48 a.m. in Shanghai.

Dollar’s Role

The dollar’s primacy as a reserve currency and in trade is “the product of the past,” Hu told the newspapers. He pointed to China’s effort to expand the role of the yuan in cross border trading and investment, while acknowledging a “fairly long” road to making it a fully fledged international currency.

U.S. lawmakers argue that an undervalued yuan hurts American manufacturers and widens the trade deficit with China by holding down the price of exported Chinese goods.

While “there are some differences and sensitive issues” between the two countries, Hu said, “we both stand to gain from a sound China-U.S. relationship, and lose from confrontation.”

In an allusion to the Federal Reserve’s policy of buying $600 billion of Treasuries to stimulate the economy, Hu told the newspapers that U.S. monetary policy has a “major” impact on global liquidity and on capital flows.

Foreign Investment

Hu pledged to continue to improve laws and regulations concerning foreign investment, and to offer a stable and transparent legal and policy environment. U.S. companies’ “innovation, production and business operations in China enjoy the same treatment as Chinese enterprises,” he said.

China will continue to develop a “socialist democracy,” the Chinese president said. He called for an “increased dialogue and contact” with the U.S. and said the countries should “respect each other’s choice of development path.”

Hu answered only some of the questions submitted by the newspapers, not addressing one about Nobel Peace Prize winner Liu and another on China’s growing naval power, among others, according to the Journal.

China has “made relentless efforts to help ease the tension” between South Korea and North Korea and “pays a great deal of attention to the Korean nuclear issue,” he said. China stands “for achieving denuclearization of the peninsula in a peaceful way through dialogue and consultation to maintain peace and stability of the peninsula and Northeast Asia,” the president added.

-Sandrine Rastellow in Washington, Yidi Zhao in Beijing.
Editors: John Liu, Paul Panckhurst.

The following paper was written by Allen Rosenstein, founder of Pioneer Magnetics and member of CPA’s Policy Committee.

According to Dr. Rosenstein:

The enclosed paper, “An American Tragedy, Demise of the American Dream,” was written to offer the required practical, time-proven roadmap [to save our country].

Ø      Chapter II:  Describes the policy failures that converted the world’s leading economy into a post industrial nation

Ø      Chapter III:  Outlines steps necessary to achieve:
Balanced trade
U.S. manufacturing domination of our domestic market -   the world’s largest
Ø      Financial Responsibility:  Notes, pages 15 through 20

America cannot afford to hemorrhage money and assets at the present rate.  A 4-part program is described to balance all U.S. deficits within 5 years or less.  The viability of each section has been proven in the U.S. or abroad by our major trading competitors.

PREAMBLE:

Success of any rational proposal ultimately is based upon a set of fundamental ideas (assumptions).  Societal principles are not as precise as those of the physical sciences.  However, the effectiveness of any societal action program will flow from an array of beliefs.  The rise, fall and potential future of the American democracy can be chronicled in three brief chapters and explained by two governing root causes (principles).  The basic root causes – trade policy and technology delivery – provide the tools to analyze the past and explore realistic future alternatives.

INTRODUCTION:

Beginning in the 1850’s, America’s spectacular one hundred year economic rise, sixty year accelerating fall and grim future, are analyzed in three chapters.  The analysis is based upon only two root causes:  trade policy and technology delivery.

Today, America is at a crucial crossroads.  Our nation faces a choice between taking the path of least political resistance and do nothing or return to the time-proven root causes of an enlightened self-interest trade policy and a vibrant technology delivery system.  As a first step, the President/Congress must find the foresight and courage to pass a balanced trade policy bill.  With a level international trade playing field, provided by balanced trade policy, America can successfully rebuild competitive domestic manufacturing to recapture the domestic market.  Implementation of a National Policy and Technology Foundation is essential to assuring coherent industrial policy and a world-class technology delivery system.

“Reality Economics” is used as a pragmatic tool to choose between competing economic paradigms.  For example, the current debate between “free trade” and “mercantilism/protectionism” is resolved by comparing economic performance over decades of large nations following either of the two paradigms.

“Notes” are appended to challenge the rationality of some of our most cherished, conventional wisdom.

A simple internationally proven, Financial Responsibility is offered to allow the United States to be deficit free within five years.  (Pp. 15-19)

Chapter I – The Rise

COMMENTS:  Industry frequently analyzes the reasons for any type of significant failure in terms of their basic “root causes.”  Less frequently but equally useful is the application of root cause analysis to understand success.  These are commonly drawn from documented real life results rather than abstract unverified theory.  In this paper, economic conclusions are proposed and verified by recorded international performance.

ROOT CAUSES:  In 1850, America was largely an agrarian nation.  One hundred years later, by 1950, the United States had become the world’s uncontested, dominant financial and manufacturing power.  This unprecedented ascent is attributed to two well-defined root causes.

Trade Policy: Unadulterated mercantilist protection and support of American industry.

Technology Delivery:  The uniquely American land grant college/extension system.

Together, the above fueled America’s phenomenal growth until their inadvertent replacement beginning sixty years ago.

Trade Policy – The American System

Adam Smith had argued that America’s role was to supply raw materials to more advanced British manufacturers.  In contrast, Alexander Hamilton and George Washington believed that America should adapt Britain’s mercantilist industrialization practice in what became known as the American System.  Protected subsidized industry with adequate financial support, quickly expanded to achieve the economies of scale, which made for more competitive prices.

As early as 1816, Thomas Jefferson promoted “Buy American” protective tariffs of 30% on iron and 25% on clothing.  Even further, Clyde Prestowitz observed, “From the Civil War to WWI, U.S. tariffs never fell below a 40% rate . . . tariffs were substantially raised again in 1922.” (1)

Tariff protection was accompanied by direct and indirect government subsidies for struggling American industry.  Government investment in the nation’s physical and human infrastructures provided a favorable, efficient industry-operating environment.  Transportation and communication facilities were improved.  Harbors, roads and bridges were constructed.  Massive land grants provided the financial basis for the transcontinental railroads.  The national highway grid was built with public defense funds.  In the 1930’s, struggling airlines, bolstered by Post Office Air Mail contracts, survived to form an efficient air transport system.

Technology Delivery

Britain’s mid-19^th century Industrial Revolution forever changed the international trade equation.  Technology became as important as tariffs, exchange rates and monetary policies, in building a nation’s trade competitiveness and life quality.  With the 1862 passage of the Morrill Land Grant College Act and the subsequent addition of extension information distribution, the U.S. invented a comprehensive technology delivery system. (2)

The land grant colleges laid America’s higher education foundation for technology leadership.  The great state universities were basically professions schools, turning out the practitioners of teaching, engineering, manufacturing, management, etc. needed to build a nation.

The tradition of low-cost quality education for all its citizens was extended to higher education.  Land grant college fees were quite low.  Any motivated youth could easily work his/her way through college to acquire a first degree with negligible personal debt.  After WWII, the G. I. Bill furthered this tradition.

The role of the federal government was critical to manufacturing.  Government, in cooperation with industry and academia, gave vital support and often promoted fundamental industries and manufacturers.  New industries were brought to light and older industries revitalized.  In spite of the Wright Brothers’ genius, America entered WWI without an aviation industry.  U.S. pilots fought in borrowed French and British aircraft.  After the war, the government established the National Advisory Council on Aviation (NACA) whose wind tunnels and generic development supplied the technological foundations for America’s leadership in military and commercial aviation.  After WWII, America’s national laboratories joined with industry to create an entirely new energy industry for nuclear power.

II: The Fall

COMMENTS:  After 100 years of growth, the United States abruptly and inadvertently began drastic changes in the two root causes credited with the nation’s phenomenal growth.  Beginning in the 1950’s, there was a slow perceptible loss of world leadership continuing over the past sixty years.  U.S. domination of trade, manufacturing, finance, technology, life-quality, GDP, etc. has faded.  A factual comparison of the recorded performance of America’s economy and technology during the 1850-1950 period with that of the last sixty years is telling. (3,4) America has effectively eliminated the engines of its success.

As America weakened, the rate of decline increased.  Annual average wages have fallen.  Life quality has been reduced.  The American Dream is dimming for the average citizen.  Current account trade deficit, federal budget deficit, offshore manufacturing and massive job losses, etc., cannot be sustained for many more years without endangering our democratic government.  Historically, democracies unable to provide jobs and satisfactory life quality for their populations have given way to totalitarian regimes:  Russia, Germany, Italy, Cuba and now, Venezuela.

ROOT CAUSES:

Trade Policy:  The American System Discarded

Mercantilism/protectionism is no longer intellectually or politically acceptable in the U.S.A.  Enlightened self-interest trade policy/manufacturing has been replaced by “free trade” which depends upon enforcement of international trade rules that are not accepted by competitors.

One can observe that with the possible exception of the oil-rich nations, there is no case of any major free trading nation, such as the U.S., maintaining even balanced trade with mercantilist major trading nations such as China, Japan, Germany, etc. The myth of free trade in international competition has been carefully explored and found inoperable. (5)  The 2006 current account trade balance tells the sad story. (6)

Technology Delivery

The university has responsibility for collecting, extending and teaching society’s collective wisdom and knowledge.  These are organized and presented within three great categories and their corresponding responsibilities:

Technology             –            Professions – Societal Resources

Science             –            Research

Humanities             –            Societal Values

As mentioned, from the mid-1800’s, the land-grant college/extension system was a prolific American technology delivery conduit.  The National Science Foundation (NSF) was created in 1950 to improve U.S. scientific research and delivery.  Shortly thereafter, the Arts and Humanities Foundation was established.

The National Science Foundation (NSF) has served the nation well.  A comprehensive science delivery system has been developed.  That system continuously surveys science frontiers, picks future program winners and funds them from initial investigation through large-scale, multi-discipline projects.  Responding to its charter, the NSF has been successful by measures such as Nobel Science Awards, publications, world status, etc.  Our nation has been grateful.

While U.S. Nobel Prize winning scientific delivery awards have been growing, there have been unfortunate side effects.  The research university’s science delivery system rapidly replaced America’s land grant college/extension technology delivery system.  Declining U.S. technology leadership and trade competitiveness have contributed to the world-class trade deficits that undermine the nation’s financial stability. (7)

Both science and technology delivery have essential societal roles.  However, technology and science are two entirely different but mutually complimentary, animals.  Science seeks answers to the nature of our universe, from the sweep of the most remote galaxy to the microscopic causes of infectious diseases.  Science produces knowledge that is a universal free good.  Technology creates the “know-how” to effectively utilize societal resources for the improvement of the nation’s quality of life .

A nation’s technology delivery system is its instrument for envisioning the future and the policies needed to acquire the world’s best technology.  Technology delivery systems continuously work to improve their citizens’ life quality and particularly to compete in a very competitive world. (7, 17)

The sheer power of technology to improve manufacturing productivity, is well documented.  When the land grant colleges were established in the mid 1800’s, it took 50% of the U.S. working population to feed our nation.   After the turn of the 21^st century, it took less than 4% to produce 120% of the nation’s food and fiber needs.  Technology has continued to drive manufacturing productivity.  Today, U.S. manufacturing employs barely 10% of the working population.  It is projected that within 10 to 15 years, manufacturing, agriculture and mining, together will occupy no more than 10% of the gainfully employed population.  The remaining 90% will be found in services, government, recreation, etc.

R & D vs. D & R:  It should be noted that most of the U.S. research budget goes into R & D – research leading to subsequent development.  An overwhelming percentage of China, Japan and Germany’s reported research budgets, are in reality, D & R market technology/development driven economies followed by research where needed. (6, 18)

United States’ conventional wisdom now holds that a Scientific Research Driven Economy (R & D) will prevail in international trade. (8)  Our trade competitors believe just the opposite.  James C. Fletcher, head of NASA, in discussing the rapid industrial development of Japan with business members of the Japanese, Keidarnen was told:

“. . . it was very simple.  We made a conscious decision after WWII to develop new technology wherever we could find it; if we had to borrow it, fine; or if it made sense to develop it ourselves, that was also quite acceptable.  We did this at the expense of the more basic sciences.  As a result, you will notice that the Nobel prizes all went to the United States, whereas the new technology was nearly always applied first, or at least best in Japan.”

After WWII, modernized versions of the U.S. land grant/extension system were invented by Japan’s MITI and Germany’s Fraunhofer Gesellsehoft (FhG), to provide and implement national policy for industrial competence and trade competitiveness.  Their success cannot be denied.  Within eighteen years, war-ravaged Japan had become the world’s second largest industrial nation and Germany the third.  Most developing nations, including China, followed Japan and Germany’s mercantilist lead.  The original British and American export-enhancing policies and domestic industry subsidization, were reinforced with predatory exchange rates, printing money to buy U.S. debt to maintain these rates and state capitalism.

Germany and Japan’s comprehensive, well-funded long-term technology-delivery programs were instituted to develop their domestic industries or “kidnap” entire American and other nation’s industries and their supporting technology:  robotics, semiconductors, solar cells, plasma screens, computers, printers, semi-conductor processing machinery, cell phones, energy, green technology, space communication satellites, lithium-ion batteries and pharmaceuticals, among others. The list of lost manufacturing and jobs continues to grow.  (3, 4, Appendix I, p. 15).

State capitalism, backed by government funding, appears to have effectively challenged traditional market capitalism competing with limited private funding (the U.S.).  In this contest for the massive manufacturing plants of the future, state capitalism is winning.  As but one example, the current  building of new semiconductor manufacturing plants in Asia greatly exceeds that in the western nations.  Individual technology/manufacturing opportunities are now so large and so expensive that government participation is essential.  Although, America calls them “bailouts” the U.S. has a long history of large emergency government cash infusions to critical industry:  finance, banking, insurance, automotive manufacturing, etc.

Chapter III – The Future – Alternatives

COMMENTS:  America faces a choice between two realistic but starkly different alternatives.  These are:

1.     Take the path of least political resistance and do nothing!  Thus, follow the past sixty-year trajectory of national decline, marked by ideological conflict and ruthless partisan politics, to arrive at the third-world graveyard of former democracies.

2.     Return to time-proven root causes, (Chapter 1).  Reclaim and dominate our own domestic market – the world’s largest.  Resurrect American trade and technology delivery systems to re-ignite the American Dream.  In a few years, protected/nurtured U.S. industry can recapture the economies of scale and productivity that have always ensured domestic manufacturing competitiveness.

ROOT CAUSES:

Trade Policy – The American System

The magnitude of the current trade deficit threatens the very financial future of our nation and overshadows all other political, financial, federal budget and economic considerations.  Using the same profitable trade tactics Britain and America had practiced for decades (but abandoned after WWII), trading competitors are now waging aggressive economic war for world markets. (6)

Competition unilaterally erected a thicket of rules, regulations, tariffs, predatory exchange rates, monetary policies, state capitalism, etc., to enhance their exports, discourage imports and incidentally, destroy, cripple and often seduce U.S. manufacturing.  The American System has employed these same logical, self-serving tactics to advance U.S. trade.  It is illogical and hypocritical to continue to whine about the same trade tactics that the U.S. inadvertently abandoned.  If current account trade balances are any measure, nations using America’s time-proven trade strategies have won the economic war.  Nations with coherent economic/industrial strategies and state-managed economies lead the world with record trade surpluses.  Safely ensconced at the very bottom of the trade competition is the USA – a capitalistic free-trade democracy.  In essence, successful competitors have a rational trade and economic strategy.  We do not.

For the U.S. to continue as a stable democracy, its present outflows of capital assets, manufacturing jobs and technology are unsustainable.  There have been six decades of counterproductive policies.  America cannot afford even another half decade before it alters course.  (7, 8 )

BALANCED TRADE:  The President and/or the Congress, must find the foresight and courage to pass a balanced trade policy bill informing the world that the present trade unbalance is unacceptable for world prosperity.  The U.S. Constitution gives the Executive and Legislative branches the power to manage trade:  Article I, Section 8.

With a return to a modernized American system, the U.S. will, once again, aggressively nurture and protect its domestic manufacturing and markets.  The U.S. will also correct the restrictions unilaterally imposed by American trade competitors.  Effective tools must be created and utilized to balance trade quantitatively.  Current account trade deficit can be subdivided into goods and services vs. foreign energy.

Energy Independence:  Energy independence is quietly taking its place, along with global warming and the current account trade deficit in the pantheon of U.S. fiscal issues.  The increasing U.S. foreign fuel bill is now over 50% of the total U.S. 2006 trade deficit.

There are a large number of promising technologies, including nuclear power, but there is no single energy independence silver bullet.  The ultimate answer will probably be found in a combination of improved technologies.  However, time is growing short.  The energy problem is every bit as large, complex and expensive, as the Apollo Moon and Manhattan Atomic programs.  The United States also has little chance of sharing in the growing energy equipment manufacturing market without a stand-alone, adequately funded:

Energy Independence Agency:  U.S. energy efforts are a decade behind our competitors.  Every significant (non-oil producing) trading nation already consumes 35% to 50% less oil per day per capita, than the United States.  Time proven technology and policies are available for immediate U.S. application.  We have only to adopt them.  (10)

Technology Delivery

The Untied States is the only major nation that now lacks the means for timely rational development and implementation of long-term economic/technology policy. (15)

A show-stopping song in the musical “South Pacific,” asked:  “If you don’t have a dream, how you gonna’ have a dream come true?”  To realize a desired national future, there must be means to create a vision of that future and the policies for its realization.

Without exception, our trade competition has built upon permanent, well-funded and respected institutions charged with providing a credible vision of the nation’s desired life quality and the policies and technologies to realize that dream, i.e. market/technology “winners.”  These nations frequently systematically select and acquire promising U.S. industry/technology.  (Appendix 1, p. 14)

To provide a 21^st century replacement for the lost land grant college/extension technology delivery system, an early study was made of four successful delivery systems:

1.     U.S. Land Grant College/ Extension:             Technology Delivery (2)

2.     Japan’s Ministry of Economy, Trade & Industry:         Technology Delivery (9)

3.     Germany’s “Fraunhofer Gesellsehoft , FhG”:           Technology Delivery (20)

4.     U.S. National Science Foundation (NSF):                 Science Delivery (13)

Comparison Among National Technology & Science Delivery Systems

(China was not a major trading nation when this study was conducted)

Staff and budget comparisons may be misleading.  However, the trade performance of much smaller nations with a fraction of the U.S. population (Germany 25%, Japan 40%), call for further mission examination:

Japan’s – METI Mission Statement: (11) Expanding the national wealth, constantly examining and promoting reform of the economic and industrial systems required to ensure a bright future for Japan, including:

Ø    Becoming a center for world innovation

Ø    International industry strategy

Ø    Creating quality job opportunities

Ø    Improving productivity

Ø    Service industry innovation

Ø    Fostering future diversified local industry

Germany’s – FhG Mission Statement:  “Our efforts are geared entirely to peoples’ needs:  Health, Security, Communications, Energy and the Environment.  As a result, the work undertaken has a significant impact on people’s lives.  We are creative.  We shape technology.  We design products.  We improve methods and techniques.  We open up new vistas.  In short, we forge the future.” (12, 20)

United States’ – NSF Mission Statement (13): To promote the progress of science, to advance the national health, prosperity and welfare; to secure the national defense.

In 1986, engineering was accorded equal status with science:

Ø    Basic scientific research and research fundamental to the engineering process

Ø    Programs to strengthen scientific and engineering research potential

Ø    Science and engineering education programs at all levels

Ø    Programs that provide a source of information for policy formulation

Ø    Promote the discovery, integration, dissemination and employment of new knowledge and service to society

The 2011 NSF budget request for research and related activities totals $7.424 Billion.  This is distributed among selected Directorates.  The three largest are:

Mathematics & physical sciences                        $1,409.9 Million

Geosciences                                                   $955.3 Million

Engineering                                                   $825.7 Million

The NSF has given the United States unquestionable science preeminence.  On the other hand, METI and Fraunhofer Gesellsehoft market/technology delivery systems, have afforded Japan and Germany decades of financial, manufacturing and technology leadership.  The sixty-year competitiveness decline of the United States, cannot be stemmed without a comparable world-class policy/technology delivery system*.  Briefly described on the following page is such an entity to be known as:

The National Policy & Technology Foundation

* Laura Tyson, in her 1992 book entitled, “Who’s Bashing Whom?” stated, “. . . a defensive trade policy cannot substitute for supportive domestic policies. . .  Despite its pitfalls an industrial policy approach is also required. If the United States fails to choose, the semiconductor industry as a winner, American producers may well become long-run losers in the rigged game of international competition.” – AND SO THEY HAVE BECOME, TODAY.

The  National Policy & Technology Foundation

A large 1955-68 UCLA Ford Foundation Study, recognized the genesis and magnitude of the continuing U.S. decline.  From 1973 to 1987, eight bills were introduced into the Congress.

The National Policy and Technology Foundation Act (NPTF) – 1987, was submitted by George E. Brown, Jr. (D) and Claudine Schneider (R), with fifty-four bipartisan cosponsors.  to correct the institutional void that ensured the loss of U.S. competitiveness during the past six decades. (7, 14)

NPTF highlights include creation of the:

Ø     National Information Office to provide a comprehensive international database supplying a reliable factual information foundation for American decision making; individual, corporate, labor, business, industry, technology, science, trade, customs, etc.

Ø     National Office of Policy, Analysis and Assessment to offer comprehensive analysis for future U.S. policy, structure and structural interrelations.  Functions of the highly successful Office of Technology Assessment and ARPA, would be included to restore Congressional technology vision.  The Policy office would offer an early warning system to identify emerging national and sectorial problems, opportunities and needs, such as energy independence and global warming.  Alternative policies and technologies would be subjected to impartial feasibility analysis and assessment for legislative/executive consideration. (19)

Ø     A World-class Technology Delivery System, building upon the U.S. Land Grant/Extension system tradition, to identify, procure and deploy industrial/commercial winners.  Appropriate consortia of participating industry, government, academia and national laboratories would be established.  Adequate financing would be provided for the entire delivery process from initial exploration through production, adequate capitalization and mass distribution.  Particular consideration would be given to small and medium-size business.

Ø     Councils serving as deliberative public forums for national policy are the crucial links to the public and the keys to successful functioning of the Foundation.  Essentially, every major Congressional decision-making, resource-allocating responsibility would have a standing nonpartisan Public Council.

Our nation’s commitment to its citizens’ future life quality is embodied in three great societal entitlements:  Health delivery, Social Security and education.  The recent Health Delivery debate would have benefited from the process followed in the 1992-1993 National Commission on Social Security Reform.  That commission’s proposal extended Social Security for an additional thirty years, when it must be reset again.  This process should be followed for all NPTF Councils, including societal entitlements.

Appendix I

Japan’s 1981 Plan to Kidnap The Robotic Market: (9)

Policy Implementation – National Project

Example: Flexible Manufacturing System Complex Provided with Laser

Policy: The industrial structure of Japan in the 1980′s (Summary). Future Outlook and Tasks, May 1981; BI-44, P. 45. Based on materials furnished by the Industrial Structure Division, Industrial Policy Bureau, MITI.

“Processes. Areas of automation will expand through utilization of industrial robots, with greater flexibility to adapt the operations to the need for producing larger varieties of products in smaller quantities.”

Object: To establish a complex manufacturing system that offers rapid and flexible production of machine components in small batches.

Project Manager: Agency of Industrial Science and Technology, MITI.

Duration: Seven years.

Budget: $50,000,000.

Participation: Three government Laboratories, Twenty Private Companies

Organization: Five technical subcommittees include four R&D groups organized to address critical technology problems.

Advanced Robotics was invented in the United States.  By 1980, America had a flourishing world-leading robotics industry.  Japan had nothing comparable.  But, Japan’s 1981 plan was highly successful.  A complete line of advanced robotics was developed.  The government then set up a corporation that gave very low cost loans to their domestic industry to buy Japanese robots.  As a consequence, Japan now has the world’s largest robotics manufacturing industry and domestic usage

Today, America has little robotics manufacturing and no mechanism to formulate industrial policy to bring robotics back.  The old American system would not have hesitated. Our domestic market is large enough to comfortably support a competitive robotics manufacturing industry.

NOTES

FOR A BETTER FUTURE

Financial Responsibility (17)

A successful, rational economic industrial strategy, can build upon a prosperous growing economy.  After one hundred years of continuous growth (Chapter I) the United States was the world’s premier financial and industrial nation.  In 1950 (Chapter II), America abandoned the two basic root causes of its phenomenal growth and began the present sixty-year decline.  Particularly damaging has been the loss of financial responsibility that must be regained for our nation to recover.

In spite of the bleak picture, there is every reason to believe, that within five years the damage can be repaired by a conservative but aggressive financial responsibility program.  Although only four critical economic paradigms must be addressed, the feasibility and practicality of the following changes have been fully demonstrated over decades.

Accompanying each proposed action, is a first estimate of expected annual national returns to be reached within five years.  Re-aligning just a modest amount of America’s current conventional economic wisdom to conform to international reality, offers a path to an early return for a fully balanced economy, fiscal stability and prosperity.  No assumptions have been made of the sacrifices our nation will assume for a five-year program of financial responsibility.

1. Balanced Trade – The current account trade imbalance is, by far, the nation’s greatest financial millstone.  It is three times the total 2006 federal operating budget deficit.  Chapter III has considered trade balance correction in two categories:

   Ø    Goods, Services, etc. (except energy).  The U.S. has traditionally maintained a comfortable trade surplus.  Countering the unilateral trade practices of trade competitors and rebuilding domestic manufacturing, will eliminate the current account trade deficit.

   Trade deficit = 0

   Ø    Energy:  Lulled by initial abundant domestic energy sources, America has missed the energy independence boat.  In the year 2010, our foreign energy bill exceeded $400 billion and is rising.  Many competitors have had long-standing programs to reduce energy consumption and build a manufacturing capability for future energy conservation equipment. (10)

   The U.S. is busily inventing promising technologies such as lithium ion batteries, advanced solar cells, nuclear power plants, etc. that are going overseas to be manufactured.  With a dedicated five-year effort, America can cut its foreign energy bill in half and also regain the manufacturing of energy equipment.

   Foreign Energy Deficit = $200 billion

2. 2. Federal Operating Budget Surplus – Can be accomplished without new taxes or reduced benefits.  From a deficit of $269 billion in 1992, an eight-year bipartisan effort produced a $236 billion surplus in 2000.  The same bipartisan fiscal policies, including low-cost, readily available patient capital, will provide identical results in five years.  (17)

   Federal Budget Surplus = $250 billion

3. Treasury Note Interest Expense Reduction – For the payment of federal obligations, printing interest bearing Treasury Notes is actually more inflationary than printing money (dollar bills).  Treasury notes have an obligation to repay a loan and interest with federal currency.  Thus, at the end of the day, Treasury notes are more costly than the simple printing of equivalent paper money.  There are substantial advantages to reduce or eliminate Treasury note interest, i.e. long-term interest rates are pushed down.  The nation’s public and private interest expenses are reduced.  The dollar may depreciate to help the trade balance.  The threats of foreign refusal to lend money for U.S. government needs are no longer meaningful.

   Tom Petruno, Los Angeles Times columnist, October 20, 2010, reported a federal process called quantitative easing (or QE), has already begun to create money out of thin air.  “The Fed creates money at will and uses that cash to buy Treasury bonds or other assets . . . It did so in 2009, to the tune of about $1.75 Trillion in treasury and mortgage bonds.” (16)

   Financial history is, once again, repeating itself.  From the mid-1930’s through 1947, industry enjoyed a 1.5% prime rate.  The Federal Reserve discount rate was 1.0%.  Prime rate remained below 3% until the early 1950’s, when industry hobbling prime rates skyrocketed to 18.8%.

   At the same time, creation of a formal U.S. mechanism to manage state capitalism must be undertaken.  There will be no reason for the unnecessary sell-off of U.S. assets, ports, businesses, patents, industry, technology, etc., at bargain-basement prices.  We have entered a new era, which requires a form of “State Capitalism” that the U.S. had invented nearly two hundred years ago.  At that time, federal land was given to build the U.S. transcontinental railway system.  Today, our leading trade competitors have reinvented a sophisticated form of state capitalism to build their export trade and buy America.  Led by Japan and China, nations subsidize their domestic industries by maintaining a favorable exchange rate and printing money to buy U.S. obligations and assets.  Since they control their domestic economy, exchange rates and prolific printing of money have little effect upon internal or external inflation.

   Reducing or eliminating Treasury note interest, will have an immediate effect on debt service costs.  Assuming at least a 50% reduction of today’s federal Treasury note interest rates and, therefore, interest payments:

   Five-year Target Reduction = $150 billion

4. Capital Investment Budget – Long-term infrastructure financing, including stimulus:  Every human societal system from the largest, such as government and business, down to subsystems such as local health, recreation, transportation, etc., must have means to continuously anticipate and prepare for future needs, disasters, technology, etc.  (See Chapter III)  This is particularly important at the national level, which must anticipate human and physical infrastructure growth and maintenance for life quality improvements.  (NPTF).

   Any growing organization, government and/or private, must increase its annual return on its assets to meet growth cost.  The U.S. population increases every year with an attendant increased demand for delivery of housing, food, education, transportation, etc.  In the simplest form, government provides physical and human infrastructure to increase the GDP and the tax base to finance the infrastructure investments.

   Although, its need has been recognized by past administrations, the U.S. has a very limited long-term infrastructure budgeting process.  Highways deteriorate, bridges collapse, the efficiency of new technologies are not recognized, provisions for life quality improvements are often not realized without emergency stimulus programs.  All of these real factors would be better served with a Federal capital investment budget.  It should be apparent that both private and public institutions require extensive cooperation.  The U.S. government has a long history of stimulus of major institutions from civil aviation, Chrysler, General Motors, and more recently, the largest U.S. financial institutions.  Obviously, there are less costly and more efficient processes than administering a last-minute stimulus.

   For normal capital improvements, budget consideration would be given to the magnitude of investment, return on investment, obsolescence, maintenance and the possibility of failure.  As a first attempt to size such a budget that would promote improvement in GNP and national life quality, an initial annual $500 billion per year capital budget, is assumed with a 40% allowance for maintenance and program failures.  This would give.

   Capital investment budget deficit = $200 billion

Summary:

1. ITEMS	DEFICITS	SURPLUS – SAVINGS
   I.               Trade Energy	$ -0- $200 billion
   II.              Federal budget		$250 billion
   III.            Treasury interest		$150 billion
   IV.            Capital budget	$200 billion
   TOTAL	$400 billion	$400 billion

   
   

UNITED STATES BUSINESS AND INDUSTRY COUNCIL FIGHTING FOR AMERICAN COMPANIES AND AMERICAN JOBS SINCE 1933

Contact: Kevin L. Kearns, 202-266-3980 or Alan Tonelson, 202-266-3985 or 202-746-9366

DOMESTIC MANUFACTURERS SLAM DALEY WHITE HOUSE PICK, CITE STRONG TIES TO CHINA OUTSOURCING LOBBY

USBIC’S Kearns: “As a director of the US-China Business Council, William Daley for years helped footloose multinational companies send critical masses of America’s jobs, production, and technology to the People’s Republic. These outsourcing multinationals can now save big-time on lobbying. After all, one of their cabal has a key to the White House.”

WASHINGTON, D.C., January 6 – The 2,000 domestic companies of the U.S. Business and Industry Council today charged that President Obama’s choice of William M. Daley as White House Chief of Staff rewards the multinational business and financial interests whose massive offshoring moves have weakened America’s productive economy and helped trigger the ongoing economic crisis.

Citing Daley’s position on the board of the nation’s main organization of corporate China outsourcers, the Council called Obama’s decision a towering obstacle to hopes for overhauling the failed China and global trade policies that ballooned America’s national debt and set the stage for the nation’s near financial collapse.

According to USBIC President Kevin L. Kearns, “As a director of the US-China Business Council, William Daley for years helped footloose multinational companies send critical masses of America’s jobs, production, and technology to the People’s Republic. These outsourcing multinationals can now save big-time on lobbying. After all, one of their cabal has a key to the White House.”

Kearns noted that Daley also played a major role as Clinton administration Commerce Secretary in winning Congressional approval for permanent normalized trade relations with China, and for Beijing’s admission into the World Trade Organization.

These decisions, Kearns explained, “created overwhelming new incentives for offshoring to China by at last guaranteeing unfettered access to the U.S. market for the China-based factories of the multinationals, which were then free to engage in labor, regulatory, currency, and tax arbitrage. But Daley helped push the deceptive Clinton administration line that these China trade deals mainly aimed at opening China’s market for U.S.-based producers.”

Continued Kearns, “No wonder America’s trade deficits with the PRC have exploded, along with our national debt, since Daley’s tenure as Clinton Commerce Secretary. No wonder our domestic productive base can no longer supply our national needs. No wonder we careened from crisis to recession. No wonder real unemployment is still more than 17 percent. And no wonder Daley’s multinational partners showered China with advanced technology – much of which has been put to military use and now endangers American security interests.”

Kearns concluded, “For the last two years, Democrats up to and including President Obama have consistently blamed Bush-era policies for the current economic crisis. They need to be better historians and look back at all the outsourcer-enabling trade deals negotiated by the Clinton administration and its members. Although the Bush administration continued these policies, they stemmed from the Clinton administration, accelerated the hollowing out of American industry, and are a root cause of the present economic crisis.”

The U.S. Business & Industry Council is a national business organization founded in 1933. Its 2,000 members are mainly family-owned domestic manufacturing companies.
______________________________________________________________________________
UNITED STATES BUSINESS AND INDUSTRY COUNCIL • 512 C ST. NE • WASHINGTON, DC 20002
(202) 266-3980 • (202) 266-3981 FAX • [email protected] •WWW.AMERICANECONOMICALERT.ORG

The following article appeared in Newsweek on December 14, 2010.

A proposal by U.S. senators to include a China currency measure in legislation to allow for higher duties on imports is based on an inaccurate analysis and assessment of U.S.-China trade relations, Yao Jian, a spokesman for China’s commerce ministry said at a regular briefing in Beijing today.

U.S. export controls are a key factor behind the trade imbalance between the two countries, he said.

The U.S. should recognize China’s market economy status, lower barriers for Chinese investment and facilitate agricultural exports to the U.S., he said.

The following article by Sewell Chan appeared in the New York Times here.

WASHINGTON - The Obama administration filed a case against China with the World Trade Organization on Wednesday, siding with an American labor union, the United Steelworkers, in accusing Beijing of illegally subsidizing the production of wind power equipment.

The decision is the second time in less than four months that the United States has accused China of violating world trade rules.

It represents an escalation of trade tensions between the United States and China over clean energy, viewed by the Obama administration as a frontier in which American companies are struggling to remain competitive.

The United States is challenging a special Chinese government fund that awards grants to makers of wind power equipment. The Americans say the fund provides subsidies that are illegal under W.T.O. rules because the grants appear to be contingent on manufacturers using parts made in China.

“Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under W.T.O. rules,” Ron Kirk, the United States trade representative, said in a statement. “These subsidies effectively operate as a barrier to U.S. exports to China. Opening markets by removing barriers to our exports is a core element of the president’s trade strategy.”

China’s Ministry of Commerce issued a brief statement on its Web site early Thursday afternoon in Beijing, defending the country’s policies but providing few specifics. “Measures to develop wind energy in China are conducive to energy conservation and environmental protection as well as an important means of achieving sustainable development, and are consistent with W.T.O. rules,” the statement said.

The individual grants available under the Chinese program range from $6.7 million to $22.5 million. Chinese makers of wind turbines and associated parts can receive multiple grants as the size of the wind turbine models increases.

Total subsidies under the program since 2008 could amount to several hundred million dollars, according to Mr. Kirk’s office.

The United Steelworkers, which had protested the Chinese wind power fund as part of a larger, 5,800-page trade complaint it filed with the American government on Sept. 9, said the administration’s decision was only a first step in addressing a “vast web of protectionist policies” by Beijing.

“The goal is not litigation,” Leo W. Gerard, the union’s president, said in a statement. “It’s to end their practices.”

The accusation on Wednesday is the first step in the W.T.O.’s process for settling disputes.. If China and the United States cannot reach a solution through consultations, the United States may request the establishment of a W.T.O. dispute settlement panel.

Members of Congress who have been pushing for a bolder stance against China on trade, currency and other commercial matters, applauded the decision to file the case.

“The United States needs to take a more assertive approach to China’s mercantilist policies, and the administration’s action today is a welcome step in the right direction,” said Representative Sander M. Levin, a Michigan Democrat and the chairman of the House Ways and Means Committee, which oversees trade.

Senator Sherrod Brown, an Ohio Democrat, said in a statement that China was on track to make half of the world’s wind turbines and solar panels and urged the administration to make trade enforcement a priority.

“The United States cannot replace its dependence on foreign oil with a dependence on clean energy technology made in China,” he said. “American manufacturing must lead the way - and to do this, they need a level playing field.”

The action grows out of an investigation Mr. Kirk’s office initiated on Oct. 15 in response to the Steelworkers’ case, which covered a range of practices in the clean-energy sector, including prohibited subsidies, export restraints and discrimination against foreign companies and imported goods.The case, known as a Section 301 complaint under the Trade Act of 1974, has been the subject of several talks between Chinese and American trade officials.

After two days of meetings last week in Washington, part of an annual forum known as the United States-China Joint Commission on Commerce and Trade, China agreed to lift one barrier to foreign developers seeking to build wind farms there. The Chinese government will allow overseas experience in wind farm development, and not just experience in China, to qualify the developers for Chinese projects.

But several other barriers remain: foreign developers are banned from offshore projects for what China describes asnational security reasons, are not allowed to borrow as much money as domestic developers and are prohibited from selling carbon credits from their wind farms.

Mr. Kirk said his office would continue to investigate other parts of the Steelworkers’ complaint but was not planning additional filings under Section 301, which authorizes the president to take “all appropriate action,” including retaliation, against practices by foreign governments that violate international trade agreements or discriminate against American commerce.

“We will continue to work closely with the U.S.W. and other stakeholders in the months ahead on the remaining allegations,” Mr. Kirk said. “If we are able to develop sufficient evidence to support those allegations and they can be effectively addressed through W.T.O. litigation, we will pursue the enforcement of our rights at the W.T.O. independently of Section 301.”

That statement prompted Mr. Levin and Mr. Gerard to call for trade enforcement to receive greater priority and more resources. Trade complaints are notoriously complex and involve extensive investigations before the government can file a case before the W.T.O. in Geneva.

General Electric, which is a major supplier of wind energy equipment but has been sensitive about antagonizing officials in China, where it has substantial business, declined to comment on the decision.

John Frisbie, the president of the United States-China Business Council, which represents American businesses working in China, reacted cautiously.

Mr. Frisbie said the decision “appears to be an appropriate first step,” but that disputes between W.T.O. members are “nothing new or unique.”

Rob Gramlich, senior vice president for public policy at the American Wind Energy Association, said that the United States “can be a world leader in turbine manufacturing and exports” and that “any practice that tilts the global playing field unfairly would be of serious concern to our members who want to play a role in China, which has become the world’s largest wind market.”

Keith Bradsher contributed reporting from Hong Kong.