Huffpost Business
The Blog

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Gilbert B. Kaplan Headshot

The Manufacturing Sector as Sacrificial Lamb

Posted: Updated:

The outcome of today's Security and Economic Dialogue (S & ED) talks in Beijing is discouraging for those of us who want to see an immediate effect on Main Street. No specific movement has taken place on currency issues. China's President Hu says he will take action on currency, but he doesn't say what action he will take or when he will take it. China's currency is undervalued by about 40%. It is unlikely that anything he is even contemplating would close that gap. And while we wait for him to make up his mind, more jobs in the U. S. will be lost to China.

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.