2013-05-25T13:47:12-04:00 Gilbert B. Kaplan http://www.huffingtonpost.com/author/index.php?author=gilbert-b-kaplan Copyright 2008, HuffingtonPost.com, Inc. HuffingtonPost Blogger Feed for Gilbert B. Kaplan Good old fashioned elbow grease. tag:www.huffingtonpost.com,2013:/theblog//3.3156761 2013-04-25T17:39:08-04:00 2013-04-25T17:39:17-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
First, we have the people who are making big money by moving manufacturing off-shore. This includes some retailers that make no bones about buying everything from the lowest price source possible, even if that means closing down U.S. plants and buying from producers that ignore even rudimentary environmental and labor laws. It also includes major U.S. multinationals that find it in their interests to move U.S. jobs abroad because of lower wages and because many foreign countries will give them big subsidies to abandon their U.S. roots and obligations. These companies fight against any law or policy change that will keep manufacturing here, or that seeks to incentivize bringing it back.

Second, are the people who believe without reservation in free trade -- no matter what. To them, any changes in trade law or policy to toughen our stance violates some basic philosophical belief and will never be countenanced. Certainly open trade has helped world growth and the development of many countries, such as Korea and Brazil. But it is almost impossible to talk to these people about our manufacturing decline. What they do not understand is that the U.S. is fighting, so to speak, a two-front war when it comes to trade. On the one hand, we are seeking reasonable market opening and regulatory changes to expand the benefits of free trade -- such as the effort to create a U.S./EU Free Trade Agreement. But on the other hand, we are dealing with blatantly mercantilist export machines that are seeking to harm the U.S. economy, or at least certainly couldn't care less if they do. We see this kind of conduct in China. We cannot treat both kinds of foreign trading partners (or should we say competitors) the same. It would be like saying we must -- in our foreign policy -- have totally consistent rules of the road with every other country no matter who they are -- for example the same policy toward North Korea that we have toward Italy. No one would even propose something so absurd. But classic free trade proselytizers want us to treat every country with the same set of rules, no matter how different their systems or motivations.

Third, we have the people who believe that trade is less important than foreign policy, and so any time we might want to take a position in support of U.S. manufacturing -- a position that may rub one of our trading partners the wrong way -- they are usually against it for foreign policy reasons. One example is our continual reluctance to take very strong, fast action against currency undervaluation, despite the clear evidence of the harm it is causing us. This appalling lack of action is brought about by a number of factors, one of them being the concern that our diplomatic relationships are more important than dealing with trade problems.

Fourth, there are the people who have undercut our ability to apply the trade laws to unfair trade practices. We used to have a robust body of trade laws, but years of negative decisions at the World Trade Organization ("WTO") -- which now has the right to oversee the application of our trade cases -- have cut back on their efficacy. Most recently the WTO, in a truly astounding decision, said that even when a company in China is owned by the Chinese government that does not mean the company is following the directives of the Chinese government in terms of subsidizing or assisting its customers. A rudimentary knowledge of the Chinese Communist system shows the fallacies in this thinking; a more thorough knowledge shows it is totally absurd. These WTO bureaucrats are in Geneva, but many in the U.S. government have failed to stand up strongly enough against these wrong-headed WTO decisions.

Finally, many conventional economists have long argued that there is no reason to have manufacturing in the U.S. It is just as good to have service jobs, they say. But that argument, at its root, makes no sense. Service jobs do not spin off other jobs to nearly the same extent that a major manufacturing plant does. They are also generally lower paid, and they don't spawn critical innovation and research and development.

We need to counter these arguments, and look more broadly at the problem of manufacturing decline. To that end, I would like to see the creation of a Center for United States Manufacturing Revival at a major U.S. university. The revival of U.S. manufacturing -- looked at from an academic perspective -- will be a multidisciplinary effort requiring expertise in economics, law, engineering, business, public policy, and education, among other disciplines. An academic center bringing together these different perspectives would be very helpful. Scholars should analyze the real costs of the enormous manufacturing trade deficit, of the decimation of United States families and communities, and of the destruction of R&D capacity in our country -- all the result of harm to the manufacturing base. I have begun to talk with universities and funding sources about this idea.

The U.S. problem with manufacturing was a central issue in the Presidential campaign and numerous Congressional races. Both Democrats and Republicans took up the issue. But progress in this area remains incremental. Why? The simple fact is that there are political and policy groups arrayed on the other side of the issue. Some people in Washington do not believe it is in the U.S. interest to take the actions we need to take to correct this problem. It is not that we have just made a mistake or lack the wisdom to find solutions. Nor is it the case that manufacturing base deterioration is a natural evolution that we cannot control. Rather, in the past, and in the present, we are adopting policies that are undercutting the manufacturing base. We need to confront the nay-sayers and turn this ship around.]]> tag:www.huffingtonpost.com,2012:/theblog//3.2233340 2012-12-06T19:38:00-05:00 2013-02-05T05:12:01-05:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
What is the problem? A big part of it is that the trade policy we pursue in this country is left over from the 20th century. We are utilizing the same policy and fighting the same battles we did in 1985. But it's not 1985 anymore and the world has changed dramatically. We need a trade policy for the 21st century.

In the aftermath of WWII, as the U.S. became a dominant world power and the greatest generation came home from the war, a number of basic tenets informed our trade policy. One, we needed a centralized system, based in Geneva and then called the GATT (General Agreement on Tariffs and Trade), which would promulgate the benefits of an open trade economic system. One of the main reasons for this plan was to fight back communism and to make sure development occurred on a capitalist basis. The second tenet was that the United States would be an exemplar of this system, and would encourage capitalist development by opening our market to all foreign producers.

The United States succeeded wonderfully in achieving these objectives. At our urging, we grew the GATT into a sort of world government -- now called the World Trade Organization, (WTO) -- that has the power to change our internal economic regulations as a result of the mandatory dispute settlement system that is a part of it. We also have a wonderfully open market -- and the endemic large trade deficit that goes with it. But perhaps it was worth it. For a short time, around the year 2000, we were truly on top of the world. We won.

But we are no longer in a post-WWII world, we are no longer fighting Communism (at least of the traditional kind), and capitalist economic development in the developing world is no longer a main foreign policy goal. The world has changed, but our trade policy has not.

One part of the post-WWII policy we pursued was based on the theory that every country would more or less act by the same basic set of principles. They would have a market economy, or at least would be moving toward that, would believe in the rule of law, would welcome foreign goods when they were better than what they could produce domestically, and if they occasionally subsidized, it would be the exception, not the rule.

Unfortunately, the only country in the world that the prior paragraph describes is our own. Many other countries in the world have changed the basic rules, engage regularly in adversarial trade, and have a mercantilist trade policy. We maintain our post-WWII trade idealism and lose regularly as a result. It's as if our foreign policy were still based on fighting the Vietnam War and breaking down the Berlin Wall.

Wake up, America. It's the 21st century. And when we wake up, what will we see? A trade world populated by very large countries building up manufacturing through the use of enormous subsidies, continuing very low wages and exploitation of workers throughout the world, the model of state-owned-enterprises (SOEs) becoming the center of economies in many countries, and being totally financed by governments, undervalued currency as a daily tactic to build up exports, and internet blockage to beat down commercial opportunities (among just some of the problems). In addition, we'll see that our trade deficit will be $739 billion this year, an unsustainable number that is wearing away millions of U.S. jobs.

President Obama, as he puts together his second term agenda, needs to fundamentally recalibrate his trade policy. If you want to think about the issue in the economic/political terms currently thrown around in Washington, our trade policy is good for a few rich companies, but pretty bad for members of the middle class, particularly unemployed workers trying to find a job in manufacturing. It is doing nothing for those who are poor and trying to work their way up.

What do we need to do? Let's begin be recognizing that the world has changed since the 20th century and we need to have a trade policy that deals with the current world. Five key issues should be central to this.

1) We should negotiate enough free trade agreements, on terms that really work, so we can feel comfortable leaving the WTO if it continues to go well beyond its mandate and undercut U.S. trade remedy laws. The proposed U.S./EU Free Trade Agreement and the Trans-Pacific Partnership would be a good place to start.

2) We should immediately deal with currency undervaluation in all its forms, which has devastated U.S. manufacturing.

3) We need to have a sustained policy on dealing with state-owned enterprises which flood world markets with goods subsidized by government coffers.

4) We need a Secretary of Manufacturing who will speak up at the Cabinet level for policies that will promote our manufacturing sector. After all, we have a Secretary of Agriculture and a Secretary of Energy (and those sectors are both doing much better).

5) We need to consider using special international trade rules which allow us to impose tariffs when there is a major balance of payments problem, which currently exists with China on manufactured goods, given our sustained trade deficit with them at $300 billion per year.

It's time to have a trade policy that fits the current age, not the last century.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1680835 2012-07-18T15:22:15-04:00 2012-09-17T05:12:07-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
This cannot go on. But what do we do?

Several months ago, a group of Americans committed to reviving manufacturing in this country, and having expertise in a wide range of areas relevant to that goal, met for a day-long meeting, The Second Annual Conference on the Renaissance of American Manufacturing: Jobs, Trade and the Presidential Election, in Washington, D.C. The Conference focused on what needs to be done to revive U.S. manufacturing and why this objective must be a central issue in the 2012 Presidential Election. Speakers ranged from Gene Sperling, Assistant to President Obama for Economic Policy, to Grant Aldonas, former Undersecretary of Commerce for International Trade under George W. Bush, speaking for the Romney Campaign. Corporate and labor leaders included Gordon Brinser, President of SolarWorld; Brian Toohey, President of the Semiconductor Industry Association; and Thea Lee, Deputy Chief at Staff at the AFL-CIO. Policy gurus included writer Clyde Prestowitz, Rob Atkinson, President of the Information Technology and Innovation Foundation, Ralph Gomery, former Senior Vice President at IBM, Leo Hindery from the New America Foundation, and Alan Tonelson of the United States Business and Industry Council. Present and former elected officials included Senators Rob Portman (R-OH), Jeff Merkley (D-OR), and Jeff Sessions (R-AL), and former Governor of Maryland, Bob Ehrlich.

Such a diverse group of participants has no one solution for reviving manufacturing in the United States. But a number of key ideas emerged, which are described below. These need to be followed-up on immediately by policy makers, and by candidates at the Presidential, Congressional, and State levels.

Two-Part Strategy: As a matter of process, we need to embrace a two-part strategy: (1) specifying what we need to enhance based on that we are already doing (i.e., trade enforcement, R&D tax benefits) and (2) taking on major new strategic elements (e.g., trade action against currency undervaluation, creation of a Secretary of Manufacturing, a large Economic Development fund at the Federal level).

Capitalizing on Recent Growth Areas: We need to take advantage of events that are already occurring, capitalizing on three areas of robust economic development in the United States: the communications boom, the tremendous increase in natural gas production, and the health care boom. We should think of health care in Buy American terms-in other words we should buy from domestic manufacturers--given the heavy subsidies from the U.S. Government to this industry.

Off-Shoring Policy: Many participants believe there should be a governmental and economic review of the implications of off-shoring by companies in the most sophisticated segments of the manufacturing base (such as electronics and avionics). Off-shoring of technologies in these areas is particularly problematic.

Eliminating the Trade Deficit: There is a strong belief that the trade deficit contributes to the budget deficit and we need to take steps to eliminate it -- in other words "Trade Deficits Matter." We also need better scoring on trade agreements. We should only approve trade agreements that demonstrate a "plus jobs, plus factories effect."

Addressing the SOE Problem: State-Owned Enterprises (SOEs) in China and elsewhere have become a major challenge for U.S. manufacturing. Many U.S. manufacturers are now competing against arms of the state to a much wider degree than in the past, yet our trade system is still geared toward dealing with market-oriented companies who have market-oriented motivations. We need a broader set of remedies and review mechanisms related to SOE investments and imports into the United States and their unfair practices abroad. One proposal is to create a CFIUS-like system for review of investment and sales by SOEs in the U.S. market. CFIUS, the Committee on Foreign Investment in the United States, is a governmental inter-agency committee with jurisdiction to review foreign investments in U.S. companies, and stop such investments if they pose a threat to national security. A similar program could relate to SOEs, trade, and economic security.

A Comprehensive China Policy: A central issue remains trade with China, where we had a $295 billion trade deficit last year. Almost all of it in manufactured goods. With regards to China, our Conference panelists strongly urge the passage of legislation to offset currency manipulation. We also want a standstill in any further trade benefits for China, including negotiation of an investment treaty, until the Chinese government changes its indigenous innovation program, a program which undercuts U.S. high-tech companies in their efforts to access and prosper in China. We also believe we need a broad-scale effort to combat Chinese subsidies and a more vigorous program to combat Chinese theft of U.S. intellectual property, which would include serious consequences for Chinese companies that engage in such behavior. Finally, coerced transfer of IP and even of company ownership has become a prerequisite to doing business in China and cannot be tolerated.

Incentivizing Reshoring: We support reshoring initiatives that have recently demonstrated that it does make sense to bring manufacturing plants and jobs back to the United States now. The Boston Consulting Group and the Reshoring Initiative have done important work in this area.

Structural Changes in Government: We think some structural changes are needed in the U.S. Government, including the creation of a Secretary of Manufacturing, who should be in a position to make sure sound manufacturing policies are developed and implemented throughout the Federal Government. We believe there should be an attempt to replicate the German Fraunhofer Institute system, which is a government-funded applied research organization that disseminates R&D and has successfully assisted the German manufacturing sector for many years, much of it through direct contracts with industry.

Revision of Tax Policy: It is a national scandal that we have allowed a gross tax disadvantage for U.S. exporters to go on for decades, due to a peculiarity in the WTO system. When U.S. companies export their products, they cannot obtain a rebate of their income taxes and thus their export prices must be higher, but foreign countries, which have a VAT (value added tax), are permitted to rebate the VAT on export under the WTO system. This gives many foreign exporters a 17 percent advantage over U.S. companies. No wonder our manufacturers are suffering! We also need to lower the corporate tax rate -- we now have the highest corporate tax rate in the world.

Regulatory Reform and R&D Promotion: It is critical to remember that we do not operate in a vacuum; we are in an international competition for manufacturing market share. Other countries engage in competitive efforts to attract manufacturing, whether it consists of our own, or their own, companies. To that end, and to make the United States fully competitive in this worldwide struggle, we need to lower the regulatory burdens on U.S. businesses and manufacturers, create an Economic Development Fund to match foreign support for manufacturing, increase funding for R&D and innovation in the United States, and provide larger and more dependable tax benefits for R&D and innovation. The R&D tax benefits should be tied to having the subsequent manufacturing take place within the United States. We recognize that when it comes to taxes and general business regulation, other competing demands arise within the U.S. political and economic system. Those of us in favor of a stronger manufacturing base cannot solve all of these conflicts, but we do believe the current status quo is creating disincentives for making things in America.

Enhancing Buy America Provisions: We think more can and should be done with Buy America requirements. These have been worn away to the point that they seldom operate in the way originally intended by the Congress. As infrastructure spending increases, as we believe it should, federal and state government purchases should be made from suppliers in the United States. Insofar as our international agreements prevent this preference, we need to review the operation of these agreements to see if they are benefiting U.S. exporters in foreign government procurements to any significant degree. The International Trade Commission or the Government Accountability Office should conduct a study of this issue. The regulations underlying the Buy America program must be critically examined and probably rewritten -- waivers should be curtailed and the new regulations should specify that we need a very high level of U.S. content before a product can be considered to be "Made in America."

Re-Tooling the Work Force: Finally, there are more and more instances where we do not have the right people available at the right time to fill manufacturing jobs. This does not mean it's all a question of training, as some would say. It is certainly not because of a "lack of training" that we have lost five million manufacturing jobs over the last decade. But it does appear there is a mismatch between some existing skill sets and the newest demands on manufacturing workers. To that end we should redouble our investments in community colleges and other training programs that can prepare the next generation of workers for a manufacturing career. And we need to fully support the great engineering schools of the United States, and provide funding for any student who wants to undertake this critical and challenging career.

There is no one solution that will solve the problem of a declining U.S. manufacturing base, but there are solutions. We need to have a national commitment to manufacturing, which was one of the main focuses of the Conference on the Renaissance of American Manufacturing. And we need to be prepared to revise our strategy on a real time basis. We cannot build a Maginot Line. We need to build the next space program.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1221008 2012-01-23T18:21:29-05:00 2012-03-24T05:12:01-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
Almost all of this trade deficit is in manufactured goods, and it is getting worse every year. It is not just commodity items like steel or paper (though these products are critical to our economy in themselves), or what might be considered low-end products like textiles and toys. It is also high technology products. In fact, the high-tech trade deficit with China for 2011 will be about $109 billion, another all-time record. This is for products like information and communications equipment, opto-electronics, weapons, and advanced materials.

The trade deficit is terrible and has a devastating effect throughout our economy, and the accompanying employment effects are even worse. The National Science Board reported last week that we have lost 28% of our high-tech manufacturing jobs during the last decade. Overall, manufacturing employment has dropped about 33% during the same period.

Along with the trade deficit comes striking symbolic losses such as the fact that the Martin Luther King statue on the Washington Mall was made in China, the glass in the rebuilt World Trade Center in New York will come from China and the steel will come from Germany, and the much exalted iPad -- most desired Christmas gift of 2011 -- is made in China.

Why is this happening? There are a large number of reasons that are coming together in a very bad mix for the U.S., but three are the most important: (1) Many other countries in the world have a sustained and pre-meditated plan to grab part of our manufacturing base and lure it to their countries. For example, they provide enormous subsidies to manufacturers to locate there, and many companies have had no choice but to accept the free cash; (2) The U.S. has no sustained response. We do not have a manufacturing policy or a manufacturing strategy. We hope the market and American innovation will solve all the problems, but they won't, and that's been evident for many years now; and (3) We enable China to pursue a mercantilist, protectionist policy of currency manipulation, which has the effect of making their goods very cheap in the United States and every third country market, and our goods so expensive they won't sell.

It is because of these governmental policies -- their aggressive ones and our failures -- that we are losing out to China and other countries on manufacturing. It is not because of low wages or lower costs abroad. In fact, a number of recent studies have shown that cost of production differences between the U.S. and other countries are beginning to equalize and even reverse.

Happily some changes in our manufacturing policies are beginning to occur, being driven by the upcoming elections. President Obama has created a task force on China that will examine and presumably act on Chinese unfair trade practices, and he has also proposed a full-scale reorganization of the U.S. agencies charged with trade enforcement and negotiation. Much of this appears to be in response to high-profile trade and manufacturing positions taken by the Republicans, specifically candidates Mitt Romney and Rick Santorum. Romney has boldly pledged that if he is elected he will act against Chinese currency manipulation on the first day of his term in office, and Santorum has proposed broad-scale tax benefits for manufacturers that stay in the U.S.

All these moves are promising but they are not enough. The failure of our manufacturing sector, resulting from the failure of our manufacturing policies, needs to be one of the main focuses of the upcoming presidential election. There are few problems as serious for the future of our country. To that end, the Committee to Support U.S. Trade Laws, of which I am President, and other like-minded organizations will hold a major conference on March 27th at the National Press Club in Washington. The conference, entitled "The Second Annual Conference on the Renaissance of American Manufacturing -- Jobs, Trade and the Presidential Election," is also sponsored by The Economic Strategy Institute, The U.S. Economy/Smart Globalization Initiative at The New America Foundation, The Alliance for American Manufacturing, The United States Business and Industry Council, and The Kearny Alliance, among others. We plan to have speakers from all the Presidential Campaigns, as well as CEOs from U.S. manufacturers still hanging on, and trade, policy and legal experts on the issues. Our goal is to further highlight the manufacturing issue in the upcoming election, and move things forward to a solution America can be proud of.

]]> tag:www.huffingtonpost.com,2011:/theblog//3.943363 2011-08-31T16:41:55-04:00 2011-10-31T05:12:02-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
If the president wants to find a place to create jobs, he needs to look hard at what has happened to the manufacturing sector since 2000 and figure out a way to start turning that around. At the end of the year 2000, we had 17,263,000 manufacturing jobs in this country. Today we have about 11,745,000, an astounding drop of 32% in a little over ten years, in the most important job generator in the economy. In addition to these 5,518,000 manufacturing jobs lost, it is universally recognized that manufacturing jobs have a multiplier effect. For every manufacturing job there are at least 2 or 3 additional jobs created, in services around the plants and in manufacturing communities, in R & D and finance, in transportation, in wholesale and retail trade, and in government. Let's assume it's just two additional jobs. That means the 5.5 million manufacturing jobs we have lost have resulted in total job loss of 16.5 million. Given that the total number of unemployed in the economy as of the end of July (according to the Bureau of Labor Statistics) was 13.9 million people, it is clear that these manufacturing job losses are having an astounding effect.

So what should the president do about it? The simple fact is that the majority of these manufacturing jobs are now overseas, as a result of our failure to enforce our trade laws or to adopt creative, new solutions to the trade problems we face. During the 2000-2010 period, our trade deficit in manufactured goods increased by almost 30%, roughly parallel to the loss in manufacturing jobs. Our trade deficit just in advanced technology products increased to $81 billion, from a surplus of $5.3 billion in 2000. Our trade deficit with China increased from $84 billion to $273 billion.

For those who say that the issue is lower wages in China, Vietnam or elsewhere, that's simply not true. Almost nothing we make in the U.S. or made in the year 2000, has a wage component of more than 10% of the cost of production, a cost that is readily off-set by the cost of shipping products from distant shores. The real problem is unfair trade practices by our trading partners and our foolish and destructive refusal to take actions to remedy these practices.

We have to adopt new trade strategies on manufacturing if we want to create good jobs in this country.

To do that, I hope the president will announce the following trade actions in his jobs speech next week:

1. Immediately off-set currency undervaluation by the Chinese, or at least instruct the Department of Commerce to self-initiate countervailing duty cases on the undervaluation. A few weeks ago, Fred Bergsten, President of the Peterson Institute of International Economics called the sustained currency undervaluation by the Chinese "by far the largest protectionist measure adopted by any country since the Second World War -- and probably in all of history." Yet the president just stands idly by.



2. As to other subsidies which have caused U. S. industries to move off-shore or have created unfair advantages causing U. S. industries to cut back or close plants, the president should instruct the United States Trade Representative and the Secretary of Commerce to create an unfair trade strike force that would immediately initiate anti-subsidy cases against any government that gives subsidies to its industries that cause harm to U. S. competitors. These subsidies include programs like free land, below-market interest loans, grants to build greenfield factories, free energy and tax breaks -- all actions that are endemic in China and our other trading competitors. We should expect our government to act against these economic security and job base threats the same way they act against national security threats.



3. The third major disadvantage U. S. manufacturers have is that, in every other country when manufacturers export, their VAT (value added taxes) are rebated. As a result they get a 5-17% cost and price advantage on every export sale. This is supercharging the export proclivities of every other country in the world. Because of a peculiarity we wrongfully agreed to in the international trade regime decades ago, when U. S. manufacturers export their goods, the U. S. cannot rebate the income taxes they have paid. Our manufacturers are undercut and forced out of the globalized market. The president should immediately propose a system of trade zones where manufacturers will pay a VAT tax in lieu of an income tax, and then rebate the VAT tax on goods which are exported -- equalizing competition with China, Japan, the EU and the rest of our trading competitors.

All over this country, plants remain closed down and workers are moving down the food chain, suffering from the enormous loss of manufacturing jobs, and from the disappearance of related jobs in their manufacturing communities. We are a great country but we cannot sustain a 32% drop in a very high paying sector of our economy -- manufacturing including advanced manufacturing -- and expect to remain so. Without dealing with the trade issues, there is no way to address this decline. The above steps will quickly begin the turnaround. As an added bonus, this is not a big new spending program, which would likely hit a road block in the House. President Obama, take the leap! ]]> tag:www.huffingtonpost.com,2011:/theblog//3.880600 2011-06-21T10:23:06-04:00 2011-08-21T05:12:02-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/ piece in the Financial Times, Larry Summers, former head of the National Economic Council, bemoaned the "lost decade" the United States is in the middle of. Economic growth is anemic and there is no job growth at all, only job losses.

The United States is in a lost decade, or worse. But much of the loss results from the very policies Mr. Summers promulgated in the White House, and probably still supports. It is basically the total failure to deal with the migration off-shore of much of the United States productive base. The United States economy has become like a bucket. You can pour a little water in the top and kind of keep things swirling around. But if there is an enormous hole in the bottom pretty soon it's going to be empty.

Three facts are striking in this regard. First, for the first time in 100 years the United States has dropped from first to second in terms of manufacturing output, slightly behind China. This 100-year reign roughly parallels the time when the United States became an important country in the world, and it's not something we should ignore. Perhaps more importantly, this change has been accompanied by millions of manufacturing jobs that have moved off-shore. Secondly, United States companies have at least $1 trillion in funds salted away in foreign tax-safe havens, much of it resulting from off-shore production that the United States government implicitly and explicitly encouraged. And thirdly, we run unmitigated-disaster-trade-deficits with China and our other trading partners. The deficit with China alone was $273 billion in 2010, more than three times our deficit with them in 2000. This has been a tremendously fast deterioration of our trade position. Much of this deficit results from Chinese state-owned enterprises, financed by the Chinese government to compete with the United States. We, in turn, have developed no coherent or sustained policy to counter this.

For Mr. Summers and his cohort at the White House, and in the senior economic profession, the drop in U. S. manufacturing output, the off-shoring of funds, and the Chinese state-financed build-ups are not problems. In fact, some of them are actually solutions. They keep prices down in the U. S., and they make manufacturing more efficient (by moving plants to low wage locations). In some cases, the Chinese subsidies go to U. S. companies, increasing corporate profits. But what about America? What about American jobs and American know-how and American productivity?

There is no way we are going to maintain a successful economy in this country if our productive basis is not in this country. Rather we are going to become a two-state solution. Owners of capital and investors in foreign enterprises will do well. But soon, no doubt, they will all be living in gated communities, just as the rich do in Brazil and Pakistan and other up and coming countries with no middle class, just a class of rich owners of land and capital, on the one hand, and the poor unemployed or near-slave laborers, on the other.

The remarkable thing is that President Obama has presided over the acceleration of this trend on trade, foreign investment, and manufacturing decline. It was bad enough in 2008 when President Bush left office. But we need to give credit to President Bush for one bold and game changing move, the application of the U. S. anti-subsidy law (formally called the countervailing duty law) to China. This has made a difference to many U. S. industries that have been able to file cases to off-set subsidies provided to their government-owned Chinese competitors, and put duties on imports of these products. This is a one-off solution, and not a long term macroeconomic change, but it has helped. President Obama had the opportunity to take this program to the next level, by applying the countervailing duty law to currency undervaluation by the Chinese government. That would cut across the entire U. S. economy and make an enormous difference to U. S. factories and workers. But President Obama has declined to do this. One can only assume that Mr. Summers, his chief economic advisor, played a major role in that decision.

There is one good piece of news though. We are still only half-way through the lost decade, and perhaps we can turn things around by an aggressive mid-decade course correction. Lets find the decade.

The moment to do so is in the upcoming Presidential election. Lets get the Presidential candidates to bid against each other on a real jobs recovery program. Let's embark on a trade, tax, and incentive program that brings manufacturing jobs back. For a start, when the Congress takes up Free Trade Agreements over the next few weeks, let's add legislation providing that currency undervaluation will be countervailed. Even Alan Greenspan is coming around on this issue now, as he said at a meeting Friday speaking of the Chinese government "What they are doing is the definition of currency manipulation." Which Presidential candidate will stand up to support currency legislation?

Secondly, let's provide real tax incentives to preserve and bring back U. S. factories. And thirdly, lets require that these Free Trade Agreements be judged by the Congress and then monitored on a real time basis to make sure they have what I call a "plus jobs, plus factories" effect. If it cannot be shown that the agreements create American jobs and factory builds, the benefits of these and every other trade agreement should be suspended or terminated.

It's not too late. We still have five more years, even by Mr. Summers' calculation. Given the creativity and vibrancy of the American economy and the American people, we can still make the changes that matter.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.842146 2011-03-29T17:46:40-04:00 2011-05-29T05:12:01-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/ China has made it increasingly clear they are not going to do anything about their undervalued currency. One aspect of the currency problem has been much talked about -- how it makes Chinese exports to the United States very cheap and our exports to China uncompetitive.

But it is now clear that the Chinese undervaluation has an even more nefarious and dangerous and long-term effect. It is a big driver forcing U.S. companies to leave the United States and relocate to China. This is because of the simple reason that a relatively "overvalued" dollar goes much further in China building plants and buying inputs and paying workers, than it does in the United States. This is not just a question of very low wages in China, it is about the additional accelerant of low cost renminbi making already low wages and cheap inputs even cheaper. So U. S. companies cannot afford to stay in the U. S. And once they leave it is very unlikely they will ever come back.

The other development is a Chinese government pronouncement late last year that they are pumping subsidies of $1.5 trillion into seven strategic industries. The money will be going to the same emerging industries that President Obama and substantially every governor in the United States touts as the "industries of the future" that will rescue the United States from its high unemployment and anemic growth. The industries include information technology, environmental protection, new forms of energy (read wind and solar), biology, and new materials.

On average that's $214 billion per industry, and this leaves even the best U.S. companies with a choice. They can stay in the United States and scrap for the few million dollars the local communities and states and Federal government might provide. Or they can pull up stakes, go to China, and get their share of the $1.5 trillion being passed out over there. The Chinese, by the way, have no problem giving their money to U.S. companies, if the U.S. companies will put their plants up in China and turn over their technology. Unfortunately, even for the most patriotic CEO's and Boards of Directors, this is an offer that is almost impossible to refuse.

President Obama has not done nearly enough about this. There is no unfair trade strike force to fight back against Chinese subsidies. There's no application of the countervailing duty (anti-subsidy) law to Chinese currency undervaluation. There's no new trade legislation being proposed to modernize our laws, despite the fact that our last major trade law reforms occurred in 1994, 17 years ago.

Why is this? I suspect that one reason is that President Obama does not want the United States alone to bear the brunt, economically or in terms of foreign policy, of standing up to China. All the Treasury bonds held by China, all the U. S. companies already substantially invested there, the Chinese spot on the U. N. Security Council, all militate against this much needed aggressive posture on trade.

But I urge the president to take a lesson from himself, and apply the reasoning of Monday night's speech on Libya to the international trade arena. The President should work on building an international consensus to deal with Chinese subsidies. He should direct his trade officials to meet intensively with other countries to kick-off this initiative. I think he would find allies for this effort in the European Union, and in Mexico, Turkey, Argentina, Canada, Brazil, and Japan, among other countries. I have talked to trade negotiators and industries in all these countries and they share our concerns. None of them want to see their industries moving to China, particularly the emerging industries of the future.

Conveniently, Secretary of the Treasury Tim Geithner is going to Nanjing, China this week to meet with the G-20 leadership to discuss global economic issues. He should take the opportunity to meet off-line with like minded G-20 leaders and should focus on two issues. First, he should suggest that these countries join with the United States to begin an anti-subsidy case at the WTO (World Trade Organization) regarding the Chinese undervalued currency. In my view this international case is not the ideal approach; it would be better to proceed alone under our own laws. But it may be one the Administration is more comfortable with, consistent with the new Obama Doctrine of coalition building.

Secondly Mr. Geithner should call on key members of the G-20 to begin a strategic dialogue with China, on their subsidy practices for emerging industries, which would demand a change in direction. Subsidies are as unfair and distortive as tariffs, a trade barrier the U.S. led the world in fighting back years ago when it started the GATT and the WTO. It is now time for us to exercise the same leadership on this most significant unfair trade practice of today.

]]> tag:www.huffingtonpost.com,2011:/theblog//3.812620 2011-01-24T10:05:41-05:00 2011-05-25T18:25:24-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
Just a week ago, Evergreen Solar, a leading U. S. solar panel producer, announced that it was closing its Massachusetts plant, laying off at least 800 workers, and moving its manufacturing to China.

It's a disheartening phenomenon, and by no means an isolated development. Even before the Evergreen Solar move, I heard the story of another U.S. solar company that was offered a low interest loan of well over $40 million by the U.S. government to build a plant here. The company was told it would take more than a year for the Department of Commerce to process the paperwork and provide the funds. By way of competition, the Chinese government offered hundreds of millions of dollars of interest-free funding, as well as free land, to build the plant in China, both to be delivered immediately. Where do you think the company will build its new plant?

We are losing in the global manufacturing job race and we shouldn't be. For those who think the reason is simple -- lower wages elsewhere -- they are simply wrong. Very few products we still make in the U. S., or could make, have a labor cost greater than 10% of the overall cost of production. As such, the cost of paying a reasonable wage in the United States, as opposed to less than a dollar an hour in China, is easily off set by additional shipping costs from these far away locations.

The real reason manufacturers are locating off-shore is subsidies granted by the Chinese government to lure these plants abroad. Evergreen Solar admitted as much.

There is not a simple solution to this problem. But there are a series of steps that can make an enormous difference. The first thing the President should announce in the State of the Union is the creation of a subsidies trade strike force, that would begin a series of trade cases against the subsidies China and other trade competitors are using to undercut our manufacturers. What are these subsidies and what difference would it make? Some of the biggest are grants, low-interest loans, undervalued currency, and free land given to lure manufacturing industries away from the U. S. If these practices are not curtailed, we will not have much manufacturing left in the U. S. by the end of this decade. There will be no reason to put any factories here.

Secondly, the President should announce a new cabinet position, a Secretary of Manufacturing, whose job it is to stand and fight whenever this kind of story appears. The new Secretary needs to have the economic resources to match the Chinese incentives, dollar-for-renminbi, and the power of our trade laws to limit the flexibility of U. S. executives who do not stand up for the U. S. Perhaps he should say he would stop imports of goods back into the U. S. from plants that have deserted our shores. He should also have the ability to enforce Export Control laws, which limit the export of key American technology. The sad truth is that without a Secretary of Manufacturing in this country, there is no one in the U. S. government responsible for this flight of U. S. manufacturers abroad. Responsibilities for different parts of the problem -- such as trade enforcement, providing federal grants and loans, and monitoring plant closings -- is diffused across scores of sub-cabinet officials, none of whom have the power to change the game, or the responsibility for losing it.

Finally, we need to change the cultural and political message we are delivering to companies that elect to move their plants to China. Let's face it, this is un-American. It hurts the 800 soon to be laid-off employees in Massachusetts, and the wider phenomenon has hurt millions of unemployed manufacturing workers all across this country. U. S. companies and their executives once again need to make a commitment to American jobs. And U. S. leaders need to speak up against companies that move their plants abroad. I have not seen any statements criticizing Evergreen Solar for its move from elected officials. One might think they don't care.

Who lost Evergreen Solar to China? There is not one person who caused this loss. But the President and the new Congress should stand up and take joint responsibility. And then they should enact the changes necessary to make sure it doesn't happen again. ]]> tag:www.huffingtonpost.com,2010:/theblog//3.782404 2010-11-12T11:10:27-05:00 2011-05-25T18:10:25-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
Yet there is something which can be done immediately, which will have an impact on U. S. jobs, particularly in the manufacturing sector. The Democratic party can do this now; they still have control of the Senate. If they want to send a message to America, there is a step they should take when they get back for the lame duck session starting Monday. The Senate should pass the China currency bill which already passed the House of Representatives in September, and which will make it much more likely the Department of Commerce will impose duties on imports of products from China to offset currency manipulation. The bill would remove an objection the Department of Commerce raised when it refused to investigate currency manipulation in two trade cases earlier this year, and clear the way for trade investigations of this pernicious, unfair practice.

The next step is in the hands of the large Democratic majority in the Senate, which is not altered by the election in the upcoming lame duck session. And the action could have a dramatic effect on the job base of the United States on a fast-track basis. There is hardly a manufacturing company in the U.S. that is not being impacted by low cost Chinese imports. Yet there is very little that is being done about that. The Fed's monetary moves will lower the value of the U. S. dollar, but not against the Chinese yuan, as long as the Chinese do not change their strategy of essentially pegging their currency against the dollar.

There is not a commitment by the Democrats to take action on the currency bill. What are the implications of waiting until next year? In a word, disastrous for working Americans (and even worse for the millions of not-working Americans). Representative Kevin Brady (R- Texas), the likely next Chairman of the Ways and Means Trade Subcommittee, has already said he does not expect the House to act on currency legislation next year. So assuming the Republican House would ever act, which is doubtful, we are looking at well over a year before a bill would get back to the Senate. Meanwhile Americans watch their jobs move to China.

That puts the issue starkly before the Senate Democrats. America has sent a strong message: we will not sit idly by while the folks in Washington ignore the jobs situation. And yet by not acting, that is exactly what the Senate will be doing. Once again, in the lame duck, our legislators will take up issues that most Americans don't understand and don't really care about, while a common sense pro-U. S. jobs bill is ignored. I would think this is a step the Senate should only take at its peril.

So on second thought, America, leave your work boots on the shelf, gathering mold. At least until you see if the Senate has the guts to stand up for American jobs.
]]> tag:www.huffingtonpost.com,2010:/theblog//3.709360 2010-09-08T14:46:55-04:00 2011-05-25T17:35:19-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/ Half Magic. A group of children find a lucky magic token that could work wonders, but with a big caveat. It only gave you half of what you wished for. If you asked to be transported somewhere, you would only get half the way. This is what President Obama's recently announced trade and economic policies look like to me: the President talks about exports, and infrastructure, and green jobs, but he is only doing half of what needs to be done. He is totally missing a plan for the other half of the trade and economic equation, imports.

What is the problem with imports? It is because of unfairly traded imports that major United States industries are close to death, and U.S. manufacturing cities are closed down. No one seems to want to admit that or to do anything about it, but that is the truth. It would be one thing if the imports were fairly traded, came from market economies and were not government subsidized. We live in a capitalist system based on competition and companies that can't compete should lose. But our companies are losing because foreign governments are putting billions of dollars into industries on a sustained basis and targeting them to export to the U.S.

Recently we had the largest trade deficit in goods we've had for years, over $61 billion in one month. And so we're left, on Labor Day, with unemployment at 9.6% (officially) and at a real rate closer to 19%. Happy Labor Day: almost 1 in 5 Americans is out of work.

"Green jobs" are not the answer either, because China is already well ahead in this category and is putting in more money than we are. Recently I heard the story of a U.S. company in the green jobs area that was offered a low interest loan of well over $40 million by the U.S. government to build a plant here. They were told it would take more than a year to process the paperwork to get the loan. By way of competition, the Chinese government offered not only hundreds of millions of dollars of interest-free funding but also land to build the plant on in China, both to be delivered immediately. Where do you think the company will build the plant?

So how do we build and save U. S. industries? Hard as it may be to believe, there is a formula for doing this, and it has worked well before. In 1984 the U.S. semiconductor industry was close to death, decimated by intense targeting by the Japanese government. The targeting consisted of four elements. First, the Japanese government kept their market closed. Secondly, they dumped product into the U.S. at a ferocious rate, selling at a fraction of the normal U. S. price. Thirdly, they adopted a similar strategy in third country markets such as Taiwan, where they lowered their price to whatever level was necessary to prevent U.S. companies from making any sales. Fourthly, the government provided financial assistance to the industry.

As head of Import Administration at the U. S. Department of Commerce, I and other government officials implemented a plan to counter every one of these elements of the targeting strategy. We self-initiated a major case on DRAM semiconductor dumping from Japan. We did not require the industry to come in and start the case; the U. S. government did it for them. This stopped the dumping in the U.S. It also forced the Japanese to the negotiating table, and we entered into a broad scale agreement on trade in semiconductors. One element of this was that Japan agreed to buy 20% of their semiconductor needs from U.S. companies. This opened their semiconductor market. They also agreed to stop dumping product in any market in the world. When they violated this agreement, we slapped trade sanctions on them, putting high duties on other products they were exporting to the U.S. They immediately complied with the agreement. Finally, we started a government/industry consortium, Sematech, that had government funding to assist with the revival of the industry.

This comprehensive strategy worked, and the U. S. semiconductor industry was saved. Even today, twenty years later, it is a very strong industry, certainly much stronger than the Japanese industry.

This is the kind of full-bodied strategy we need on trade if we want to save the manufacturing sector. We should counter unfairly traded imports with self-initiated trade cases at the U.S. Department of Commerce. We have to pass new trade legislation which will prevent evasion of these laws when we do get orders, and that will require off-sets against currency undervaluation. We have to insist on full and fair access to the Chinese and other foreign markets, implemented with strict agreements. We have to put enough money into manufacturing to make sure we come out on top.

The Committee to Support U.S. Trade Laws and a group of other associations deeply concerned about why we are putting in only half measures will hold a conference on this issue in Washington on September 28 of this year, called the Conference on the Renaissance of American Manufacturing. It will look at how much needs to be done. In the book Half Magic, the kids realized that if they asked for twice as much as what they wanted, they would get where they wanted to go. To like effect, we need to redouble our efforts now. We are falling way behind in manufacturing. An export strategy or a green jobs strategy is at best a half policy. ]]> tag:www.huffingtonpost.com,2010:/theblog//3.699544 2010-08-31T12:05:51-04:00 2011-05-25T17:30:22-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
First, let's be clear. It is not that manufacturing has left the planet earth. That is basically the line of the apologists for our failed trade policy -- that there is some kind of natural shift to a post-manufacturing economy. But that is simply not the case -- it is just that the jobs and the plants have left the United States. We have lost 8 million manufacturing jobs in the last several decades and are now at about 11.7 million. But China has over 100 million people employed in manufacturing. If we had a policy which resulted in recovering even a fraction of these jobs from China we would be showing long term manufacturing job growth, not decline. Similarly, our trade deficit in high technology goods is steadily growing. In 2009 we had a $56 billion trade deficit in these goods, up from a $37 billion deficit in 2006, and a positive balance of $5 billion in 2000. It's not that these goods are not being manufactured any more, it's just that they are not being manufactured here.

The United States has by far the largest trade deficit of any country on earth, last year about $375 billion. Meanwhile our major competitors all have strikingly positive balances of trade, China, plus $297 billion, Japan, plus $141 billion, Germany, plus $135 billion, even Russia is at a positive $50 billion. More and more Americans are sure we need a policy which will balance trade, not one based on failed economic theorizing.

The deficit is just the most blatant example of the war we are losing and the jobs we are exporting (on job exports we would have a positive balance!) But for those of us working in the trade law area, on the U. S. side of the battle line, there are other battles every day.

Example one: for the most part, the trade laws, such as the antidumping law which counters unfair pricing and the anti-subsidy (or countervailing duty) law which counters subsidization, are simply not being vigorously enforced. The Obama Administration has had in their hands the tool that could play a big role in turning around the trade problem with China. That would be to put on tariffs to off-set the amount of subsidies created by Chinese currency undervaluation. But they have not done this. This has resulted in increasingly strong calls from Senators Schumer, Brown, Graham and others to the Administration, demanding them to step up and take action.

Example two: the Congress is not entirely without fault. It has been 16 years since the Congress undertook a major rewrite of the trade laws. In those 16 years enormous changes have occurred in the world of trade, not the least of which is that China became a member of the WTO and began running the largest sustained trade surplus with the United States of any country in our history. We cannot be left with 16 year-old tools.

Example three: even more aggravating is that in those instances where one can get a trade case order against Chinese or other foreign unfair imports, the orders are often violated through illegal circumvention or fraud. The mechanisms to counter this are expensive and need to be updated.

Against this unfortunate background of trade problems, it simply makes no sense to focus on one or two bright spots, such as a new plant making solar cells, or a successful trade mission to one small country. We need to revamp the whole trade system and start winning the war. The U. S. is not out of the running. We still have the largest manufacturing sector in the world (measured by gross output), but we are very far off the top of our game. We are like a great athletic franchise that has had twenty years of bad results and needs a new strategy to turn it around.

What will that strategy be? That is what the Committee to Support U. S. Trade Laws and other like minded organizations will discuss at our Conference on the Renaissance of American Manufacturing at the National Press Club in Washington, on September 28. Among other issues, we will look at how to reform the trade law system in a major way, and how to make it work for U. S. manufacturers. The Conference will also look at why manufacturers are losing the trade policy battle, and at what structural changes need to be made in the U. S. economy. Finally, we will discuss what Congress can and should do to fix this problem. It's high time we get some good news from the manufacturing sector and not an unending string of defeats, job losses, and plants moving overseas.

]]> tag:www.huffingtonpost.com,2010:/theblog//3.592252 2010-05-28T11:09:48-04:00 2011-05-25T16:35:20-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
Let's first look at what's gone wrong at Foxconn, the sprawling subcontracting plant where iPads and other high tech products are made in Shenzhen, north of Hong Kong. Let's look at the most fundamental point first, at least as it relates to the United States. That is that the workers at Foxconn's plant are paid $130 a month. Assuming that they work four fifty hour weeks a month, this translates to a wage of 65 cents an hour. That is basically a slave labor wage, at least as compared to the wages in western markets where the iPad is sold. How can we continue to tolerate a trading system that not only allows this, but in fact encourages it? It is true that workers in China seem to want these jobs because the alternative is even worse, but even that conclusion has now been thrown into doubt. If it's such an ideal career path, why have ten workers thrown themselves off buildings at the Foxconn plant (nine died and the other suffered severe injuries), why have their been reports of security guards abusing workers, and why has the work been described as relentless, as "making people numb," as turning them into machines?

It is a scandal that this is where the high tech goods that people across America are enjoying are being made. And Apple does not need to make them there. The classic economic argument that the very low wages are economically necessary for a product like the iPad simply makes no sense at all. iSuppli, a well respected international economics firm, estimates that the cost of manufacturing including labor in the iPad, is about $10 in a product that retails for about $600, in other words less than 2% of the price. And the profit Apple makes on the iPad is over $300 an item. Even if this $10 manufacturing cost (which includes such other things as factory overhead and energy costs) were doubled or tripled or quadrupled by paying a U.S. worker a reasonable wage and helping restore the U.S. economy, Apple's profits would still be enormous.

About 100 years ago Henry Ford realized you cannot have a sustained industrial economy if the people who make goods don't have enough money to buy them. So he paid his workers enough money that over time they could buy his cars, buy their homes and move into the middle class. Apple, now the largest technology company in America, is trying to squeeze every penny it can out of the U.S. consumers, and give nothing back, not even a manufacturing job in Silicon Valley or somewhere else in the United States for people making the iPad. 65 cents an hour is a better wage from their point of view. I'm a lawyer and I like to make a good income. I guess I should try and figure out how to pay my employees 65 cents an hour too.

One of the saddest footnotes, to me, in the whole Foxconn suicide story came from a nonchalant comment made by one of the Foxconn employees who an AP reporter interviewed next to the company swimming pool. The pool was supposedly built for the workers. But the worker commented that the pool closes at 9 pm, and she gets off too late to ever use it. It was sad both because this is just part of the whole Foxconn picture, unending routine, depersonalization, and migrant workers coming to Shenzhen with no way out. But it was also sad because it appears that Foxconn has built a Potemkin village, a fake façade, to appeal to U. S. outsourcers and U. S. journalists, and until recently, we all bought it.
]]> tag:www.huffingtonpost.com,2010:/theblog//3.589195 2010-05-27T14:25:11-04:00 2011-05-25T16:35:20-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
The United States is playing defense everywhere in the world. Militarily we are losing influence and appear to be losing wars. Diplomatically our powers of persuasion are waning. And in international trade, jobs are moving off-shore, we have no sustained manufacturing policy, and the production sectors in other countries' economies are growing faster than ours.

There is certainly a great effort to solve the military and diplomatic problems, but what are we doing on trade? President Obama is aware of the issue, but the solutions are hard to find and are not being articulated. To me, a large part of the problem is that industrial growth in this country, indeed what used to be called industrial policy, takes a second chair to almost every other policy in Washington. The biggest example of that right now is this failure to address currency undervaluation in China, in a forthright and immediate fashion. It has now been years since the problem has been identified.

When I served in the United States government, I heard regularly that we could never deal with the Japan trade issues aggressively because we needed our military bases in Japan in order to stand up to the then-Soviet Union. Now we hear we can't stand up to China because we need their help on Iran and North Korea or on global warming issues.

But we can't keep paying for military and diplomatic victories--assuming we are even achieving these--by trading away our economic prowess. Put simply, the cost is too high and we don't have enough chips left. As Clyde Prestowitz puts it in his new book, The Betrayal of American Prosperity, "the United States fell into the habit--and the addiction continues today--of making economic concessions in order to obtain geopolitical objectives." He also notes that the blind adherence to laissez faire economics and trade policy was not the way we became a great power and world technology leader. Indeed, the time when America emerged as a world leader--broadly the beginning through the middle of the twentieth century--was when the U. S. government intervened in the economy and actively supported U. S. manufacturing.

Why aren't we able or willing to do that today? I think the biggest single reason is the failure of the policy community to come up with a sustained and powerful rationale for doing so. There are voices out there calling for this renaissance: Prestowitz, many elected representatives on Capital Hill, Leo Gerard and other union leaders. But for every one of these there are more on the other side, repeating stale mantras calling for more work on the Doha Round, saying we should only talk softly to China while they continue to engage in mercantilist policies, and standing up for a trading system that is not reciprocal.

What we need is a renaissance of American production. We need to make things in this country and balance the terms of trade or our future, and even more our children's future, will be very dim. As a country we will go further in debt and we will not have the productive capacity to work our way out of it.

How do we create this renaissance? First, we need to create a sustained policy dialogue that will challenge the current assumptions and develop alternatives. To this end, I plan to sponsor a Conference calling for the revival of American manufacturing which will meet in early fall, bringing together the key players on the issue, companies in the U. S., trade associations concerned about this issue, labor leaders, and policy and legal thinkers. This will be under the rubric of the Committee to Support U. S. Trade Laws, an organization devoted to keeping American trade laws strong, of which I am the President.

As part of this effort, we are coming up with new legislation which will strengthen the U. S. trade laws, particularly in the area of ending evasion and fraud. It is amazing that the U. S. has allowed foreign producers to take advantage of weaknesses in enforcement powers under these laws for so long.

The conference and our policy analysis needs to lead into 2010 House and Senate elections, and make it clear that, quite simply, we are not going to take it any more. The loss of jobs and manufacturing needs to be an election issue. We cannot walk away from manufacturing and remain any kind of great power in the future. Candidates who support this goal of returning production to the U. S. should be supported by the American electorate. Those who soft pedal it should not. Indeed this was a key issue in the special election in Western Pennsylvania in which Mark Critz was elected to John Murtha's seat, and where he stood up strongly against the off-shoring of U. S. jobs.

Making manufacturing a sacrificial lamb has got to come to an end as part of the 2010 elections.
]]> tag:www.huffingtonpost.com,2010:/theblog//3.522016 2010-04-01T14:25:45-04:00 2011-05-25T16:00:23-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
There has not been a major revamping of the trade laws in this country since the Uruguay Round Act passed in 1994, with much fanfare and much hope for the future. There were good things in that bill, and in the WTO Agreement it implemented. New commitments were made to allow U. S. services to be exported, subsidies were further disciplined, and a mandatory dispute settlement system was agreed to, designed to enforce United States companies' access to foreign markets.

Some of the promises have been kept, but many have led only to disappointment. More importantly, the world has changed a lot since 1994. China joined the WTO in 2001 and has became the dominant force, perhaps after the U. S. and the EU and perhaps even ahead of them, in the world trading system. The internet expanded exponentially and has reached a surprising level of maturity and importance. And perhaps most critically for the United States, our manufacturing sector has been broadly undercut by our trading system and is leaving our shores in vast and quickening waves.

It is time for the Congress and the Administration to address these issues in a comprehensive trade bill that will start turning the tide back in our favor. If we don't--and if you think things are bad now--imagine what our country will look like in ten years. At the rate of manufacturing decline we are experiencing, it is likely that soon no new factories will be built in the U. S. Is this the legacy we want to leave our country and our children?

Many people say there are problems other than international trade that are undercutting our productivity and our manufacturing sector. High wages, excessive health care costs, not enough engineers or scientists, too much regulation. There may be some truth to this, but as someone who has worked in international trade, representing U. S. companies, for over twenty years, I think the number one issue is the failure to design a trade system that helps U. S. producers. It is simply not possible to compete if our foreign trading partners heavily subsidize their industries, allow or encourage them to break every rule in the book, and keep our exports out of their markets.

Imagine two dry cleaners on a side street in Binghamton, New York (one of the many mid-size cities in the U. S. that has been largely destroyed by international trade). Imagine that one of the dry cleaners gets a million dollars a year from the city, is not required to pay any taxes, has a guaranteed, mandatory market share from a big part of all the potential customers, and is allowed to dump its noxious dry cleaning chemicals in the river out back at no cost. The second dry cleaner gets no million dollar subsidy, pays a high tax rate, has to compete for customers, and has to carefully dispose of any environmental contaminants at a high cost. Oh, and imagine that because it's fair to its workers the second dry cleaner pays them $10 an hour instead of 87 cents an hour (the average wage in China.) How long do you think dry cleaner number two is going to stay in business? That's what we're facing, not because dry cleaner number two is less competitive. But because the laws and rules of international competition cut against the U. S. They have been determined by multinational companies that don't care about our country's long term health, by free trade economists that only see one side of the picture, and by foreign governments well represented in international trade forums, and not by the U. S. in the articulation and implementation of a robust and fair and results-oriented trade policy.

A short list of the key provisions in The Trade Bill of 2010 should include the following:

1) Strengthened authority for the U. S. to offset subsidies, including currency manipulation subsidies, in China and other countries engaging in unfair trade.

2) Strengthened rules that punish any foreign companies that fail to follow our trade rules or lie to our trade enforcers.

3) Requirements to revise our trade agreements to deal with labor rights and wage disparities that undercut our workers.

4) Requirements to revise these agreements so that other countries are not allowed to rebate their taxes at the border when their companies export, while the U. S. is not.

5) Payments to communities, workers, and companies harmed by unfair trade, that would be financed by tariffs on the unfairly traded imports.

6) Special provisions financing and encouraging high-tech and innovative industries to remain in the U. S.

Certainly, other ideas will emerge. The key point is that we need to engage now, before the next election, and get something done. This should be something both parties can agree on. No one should want more jobs to move off-shore. And no one should want to watch the last factory in America shut down its assembly lines, and go dark. ]]> tag:www.huffingtonpost.com,2010:/theblog//3.501217 2010-03-16T15:44:50-04:00 2011-05-25T15:50:25-04:00

Gilbert B. Kaplan http://www.huffingtonpost.com/gilbert-b-kaplan/
But not only is Google being forced out by a series of actions and deliberate inactions of the Chinese government, but Google's affiliate, YouTube, was never even let into China in the first place. It is perennially blocked by their "great firewall". Nor do most other U. S. websites have unfettered access to China. eBay has left China. Many newspaper websites are regularly censored. The Chinese competitive sites that are willing to go along with the censorship and the dictates of the Chinese government, like Baidu and Alibaba, are the dominant players on the Chinese internet. This is not only a question of freedom of speech. It is also a trade barrier and a major economic problem for the United States. Google alone has over 20,000 employees, many in the United States, and they and the company are undercut by these actions, as are the workers at eBay and other website companies.

We are struggling to rebuild our manufacturing sector, but while that occurs, we need to make sure companies like Google have full access to the largest internet market in the world, China. If a company cannot access the largest market in the world for its product it loses enormous revenue opportunities. And as a matter of economies of scale and ability to move down the learning curve, it becomes economically disadvantaged versus its competitors going forward.

There had been an implicit agreement about the internet made between China and the United States. The United States agreed to lower all its tariffs on high technology manufactured goods to zero, and we agreed to let in all that China could send over here, no questions asked. What is the result of that? The result is that substantially all United States computers are now made in China. We even went so far as to allow the first U. S. PC maker, IBM, to sell its PC division to a Chinese company, Lenovo. That sale could have been stopped, under a U. S. law called the Exon-Florio Act, but not only did we not stop it, we did not even question it.

Why? Because we believed that as China industrialized and moved along the economic and knowledge highway they would become a great market for those goods where we continue to have an advantage, things like search engines, and streaming video, and innovative web sites. We believed they would keep their side of the bargain.

But they have not. So we are now in a completely untenable position, as a country and as an economy. The hardware of the internet, computers, disk drives, semiconductors, peripherals, are all made in China, not here. Much of the software of the internet, which is made here, advanced here, and continually reinvented here, is banned from China. So their industries grow, they develop more jobs, their economy avoids the recession. Our economy shrinks, our job base deteriorates, and our creative enterprises suffer because they are denied access to the largest internet market in the world.

And the trend is only getting worse. More and more high-tech producers are moving their factories to China, because of subsidies, cheap labor, low environmental standards, and currency manipulation. Ironically, it was only a short time ago that we thought computers and semiconductors were the kind of creative industries we would always keep in the U. S. But they have now basically left our shores, though the even more creative side of the internet has not (yet). The largest computer manufacturing area in the world is in Guangdong Province, north of Hong Kong, where Foxconn employs 200,000 people as a subcontractor to many U. S. and other worldwide computer brands. While this is occurring, thousands of U. S. engineers and assembly line workers are unemployed.

The Chinese government wants trade to be a completely one-sided affair where China builds up knowledge and industrial might and trade reserves and we get nothing. If there is any area where we clearly have a comparative advantage it is the complex and dynamically creative space that Google occupies.

In 2009, China exported $126 billion of computers and electrical equipment to the United States. We exported a paltry $14 billion to them. Given these favorable terms of trade, one would think they would be careful with our further downstream internet companies, but they are not.

Demanding reciprocity is not protectionist and should not subject us to criticism from China, the WTO, or even the most free of free traders. Reciprocity is what the trade agreements of the world are about. We let you sell in our market the goods you can make more efficiently and more creatively. You let us sell in your market the goods and services we produce. If China shuts out our internet companies, we need to shut out their hardware that the internet runs on. ]]>