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President Obama, Enact a Jobs Program Based on Real Trade Reform

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Press reports make clear that the president and the White House staff are working non-stop to put together a jobs program to announce on Labor Day. Obviously a good thing to do, given that unemployment appears to be stuck permanently above 9%. At that level, and with other financial indicators tanking, President Obama may soon find his name among the 9.1% unemployed.

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!