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China Trade: A 'Target Rich Environment.' Now, It's American Auto Parts

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The post-Crash intervention by the Obama administration in mid-2009 in righting the General Motors and Chrysler ships was an extraordinary example of ideal cooperation between industry and government. And anyone who argues against it ignores the realities of the surrounding financial marketplace, which at the time offered absolutely no luxury of time and no market-available means of restructuring these two companies so integral to the American economy. A cascade into bankruptcy or liquidation by GM and Chrysler -- with Ford following in their wake -- would have led to the immediate loss of hundreds of thousands of jobs, with disastrous effect throughout the nation, but especially in Michigan, Ohio and Indiana where employees directly and (with the multiplier effect) indirectly associated with motor vehicle manufacturing (autos, parts and tires) account for around 8 percent of total non-farm employment (of 11.9 mm).

For a decade, many of us have been calling on the White House -- first, Mr. Bush's, and now, Mr. Obama's -- to demand that the U.S. have a formal national all-of-government Manufacturing Policy to rival the Policies of our major trading partners. If such a Policy had been in place in mid-2009, the appropriateness of and the mechanisms for restructuring the auto manufacturing industry would have been more obvious to all and the "prove-it-to-me" naysayers would not still be arguing, even today, over either the clear imperative or the now very obvious positive outcomes of the ultimate effort.

But the continuing absence of such a Policy has left stranded, so to speak, many thousands of the 1.6 million combined direct and indirect jobs in the auto industry related to parts and tire manufacturing. The overall motor vehicle manufacturing sector is the second-largest employer among all U.S. manufacturing industries, and parts and tire manufacturing contribute the most direct jobs (two-thirds or more), of which many are now at grave risk of being offshored, especially to China.

Despite the Obama administration's highly successful reorganization of the end-of-the-line manufacturing companies (GM, Chrysler and, indirectly, Ford) -- which has eliminated, at least for Chrysler and GM, the roughly $2,000-a-car cost disadvantage that these companies previously had due to high legacy costs, specifically wages and retiree benefits -- a large number of employees, in the tens and tens of thousands, are still jeopardized by often unfair trade policies.

In laymen's terms, the vital link between the growth of automobile production jobs and automobile parts jobs has been broken: the direct manufacturers are recovering, but the parts companies are still shrinking, with significant continued threat to our ongoing economic recovery. The Obama administration now needs to use its authority and capabilities, within the limits of global trade and trade-related agreements, to protect these jobs as well.

The realities associated with this unfair and often illegal overseas competition need to be fully understood before solutions can be crafted and applied.

Right now, China, in accordance with its "Twelfth 5-Year Plan" and the Plan's stated commitment to promote all aspects of its domestic auto industry, indisputably favors its own domestic auto parts industry in ways that are in direct violation of commitments it made when it officially joined the WTO in December 2001. Evidence of this includes:

  • The Chinese government's subsidy of auto parts for export into the U.S. market -- according to EPI, to the tune of a staggering 27.5 billion just since 2001 -- while using its draconian "Indigenous Innovation Act" to effectively limit imports from America parts manufacturers into its markets. In those few instances when an American supplier is allowed access to Chinese purchasers, the American company has to set up shop in China and transfer its proprietary technology, i.e., its "intellectual property".
  • China's imposition of restraints on the export of key raw materials -- especially the so-called 'rare earth' minerals -- needed for high-end parts production. The industry and the nation can take a lot of comfort from President Obama's resolve just last week to attack these restraints head on by bringing, along with Japan and certain of our European allies, a trade case solely directed at China's rare earth minerals trade practices, which today have China controlling more than 95 percent of the globe's overall trading in these vital commodities.

The results of these aggressive actions -- which can't be any surprise to anyone -- are that imports of Chinese auto parts into the U.S. have increased by 25 percent in only the last two years and, even more sobering because it confirms a now seemingly irreversible trend, the U.S. trade deficit with China in auto parts has increased an almost unbelievable 900 percent since 2000.

Thankfully, there are solutions to this trade imbalance-cum-nightmare, and if everyone would simply acknowledge that it is indeed a "nightmare," they are solutions which are eminently achievable.

  • To start, the Obama administration needs to take action, under WTO, against China's unfair auto parts export practices, exactly as he has just proposed doing related to rare earth metals.
  • President Obama needs to insist that the American auto parts industry be a priority consideration of the recently announced Interagency Trade Enforcement Center that he established to police trade compliance.
  • As in the same way that President Obama, with great leadership, recently signed into law the legislation (SB 2135/HR 4105) that allows for countervailing duties on subsidized goods imported into the U.S. from China and Vietnam, he needs to ignore the thinly veiled threats of the Chinese government regarding auto parts..
  • Congress needs to enact the Reciprocal Market Access Act, the bipartisan legislation sponsored in the House by Representatives Louise Slaughter (D-NY) and Walter Jones (R-NC) as HR 1749 and in the Senate by Senators Sherrod Brown (D-OH) and Kay R. Hagan (D-NC) as SB 1766. The Reciprocal Market Access Act would immediately break down the 'barrier' which exists between traditional tariff barriers and the increasingly much larger non-tariff barriers (NTBs) (such as China's oppressive and illegal 'buy Chinese' purchasing requirements) that prevent fair market access by American suppliers, and it would give our government -- triggered by either a private sector or Congressional request -- the automatic negotiated right to revoke concessions made to a trading partner if it doesn't implement the commitments it made to us.
  • Finally, in order to put a stop to the theft of American intellectual property, Congress also needs to adopt former U.S. Senator Slade Gorton's (R-WA) recommendation last year to the U.S. China Economic and Security Review Commission that the U.S. impose tariffs equivalent to 150 percent of the estimated annual IP losses suffered by American companies.

Some would say that we are making appropriate progress in trade reform, and that it's time to slow down a bit. Yes we are progressing, but I, for one, am not satisfied that it is yet the degree of progress we need -- and the Sword of Damocles hanging over the American auto parts manufacturing industry proves the point.

My mantra continues to be that we still need to take a much more pro-active stance in trade in order to better balance the nationalistic economic policies and mercantilist practices of our trading partners with our own trading rights as a nation. And this stance will pretty obviously not come from either of the two remaining major Republican candidates for President. Governor Romney, after first stating that America's Big Three car manufacturers could go bankrupt for all he cared, further showed his true colors by opposing relief for tire workers in the U.S. when that industry faced a verifiably unfair increase in Chinese imports. And Senator Santorum believes tax cuts alone are sufficient to keep the entirety of the overall automobile industry prospering here at home, no matter what unfair behaviors our overseas trading partners adopt.

American-made products can compete globally just fine, thank you -- their manufacturers only need to be in fair fights in order for these products to do so.

Leo Hindery Jr. is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media, and is currently an investor in media companies.

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