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Manufacturing: Making Things in America for Global Trade

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In 2003, Hurricane Isabel tore through eastern North Carolina, causing more than $3.6 billion in damage. At the time, I was working in our plate mill, then in Hertford County, NC. I had called our general manager, Giff Daughtridge, after the storm subsided to ask him the status of the plant. He said trees had fallen everywhere and it would take the county two weeks to open River Road, a six-mile, two-lane stretch, that dead-ends at the Nucor plant. He told me we could not get into the site, despite a group of teammates in the plant working their way out. "Do you have a chain saw?" he asked me. "I do," I replied. He said, "Better bring it. Come by and get me and we'll go together and cut our way in." And we did... all day, with a whole crew of Nucor team members.

When I read Peter Goodman's story about the steel industry and Nucor, I cringed. To think the U.S. steel industry, or Nucor in particular, simply blames China for its sagging fortunes greatly distorts reality. Nucor is not a culture of complaint. Nucor is a culture of action. We see problems, identify their root cause, and then implement solutions. We won't let fallen trees keep us from making steel. Nor will we accept mercantilist governments damaging American's manufacturing sector.

Nucor and the U.S. steel industry are hardly alone in their concern about Chinese trade practices. In widely reported comments from a speech in Rome last summer, General Electric Chairman & CEO Jeffery Immelt stated that China was increasingly hostile toward foreign multinationals and showing growing protectionist tendencies. It has also been reported that executives of BASF SE and Siemens AG in a meeting with Chinese Premier Wen Jiabao criticized rules that require foreign companies to transfer valuable intellectual property to Chinese companies in order to gain access to their market.

We have been talking about the dangers of China's trade practices and the impact on all of American manufacturing for 10 years, well before the recession and during some of the most profitable years in our company's history. We view China's currency policy and trade practices as a long-term threat to our country. But the trade issues are just one piece of a much bigger pie. The pie also includes the need to create and legislate a U.S. manufacturing turnaround strategy. Elements of this strategy include better trade enforcement, infrastructure investment and a comprehensive plan to develop domestic energy resources.

With regard to American manufacturers' views of Chinese trade practices, Mr. Goodman asserts, "Much of this talk is overheated nonsense motivated more by political convenience and emotion than analytical integrity." We find that claim difficult to substantiate. There is a great deal of data and facts readily available from institutions as varied as the Federal Reserve Bank, which examined China currency pegs going back to 1981-1989, 1990-1999 and 2000 to Jan 7 of this year, to industry experts providing the facts behind the United States' steel trade deficit.

It's important to note that the U.S. should not singularly call out China for undervaluing its currency. In fact, many countries undervalue their currencies, including India, Malaysia, Thailand, Taiwan, Korea, Brazil and Mexico, among others. But certainly, China serves as the proverbial 800-pound gorilla. It has amassed its trade account surplus by undervaluing its currency and providing a broad range of subsidies to targeted industries.

Take steel. With many products, China has the production advantage because of low labor costs. But steelmaking is not labor intensive. Steelmaking is energy and raw material intensive, and America has some of the lowest cost energy and raw materials on the planet. China has to import both, increasing its costs. The U.S. is the low cost producer, but China gains a cost advantage by heavily subsidizing the cost of energy and manipulating its currency. That is not a free market and it is not the terms China agreed to abide by when it joined the World Trade Organization (WTO).

This kind of intervention in the market goes against the theory of comparative advantage: the idea that the benefits of trade emerge when each nation exports what it does best. Providing subsidies to capital-intensive industries results in China exporting both products warranted by its comparative advantage -- the ubiquitous t-shirts -- and products where it does not have this advantage like steel and solar panels. The result? A huge trade deficit with China, something in the neighborhood of $250 billion, after accounting for all the technology and machinery the United States sells China, as noted by Mr. Goodman.

Chinese currency manipulation, subsidies and other predatory trade practices impact demand in our country and contribute to U.S. job losses. When dollars leave our country to buy imports and do not return to purchase U.S. products, and if Americans only spend what they earn, demand for what Americans make becomes insufficient to maintain full employment. Either Americans must borrow to live beyond their means, as we did during the bubble to sustain full employment, or the government must run huge deficits, as it is doing now, to keep the country going.

Now, I need speak to Mr. Goodman's description of our CEO, Dan DiMicco, as "... more the sort of guy you might encounter at a bar, asking you to pass the peanuts while bemoaning globalization, than the head of a corporation worth $14 billion with some 20,000 employees scattered around the world. "

Mr. Goodman got part of it right: Dan DiMicco is an ordinary guy. But Dan DiMicco is also an extraordinary thinker. Do you want to know his latest idea? It is to allow multinationals to expatriate profits to the U.S. tax-free, considering profits have already been taxed once. The money that comes back, however, would go into infrastructure bonds, where the government would use it to repair America's crumbling infrastructure. Each $1 billion spent on infrastructure creates 35,000 jobs. Then over time, the multinationals would be able to draw that money back after the economy has recovered and the government has recouped the cash in tax revenue.

This is a great idea, and one Dan is sharing with everyone he can. It would allow us to fix our aging infrastructure, put Americans back to work, and enable our multinational corporations to bring their money back home. So I was surprised when I did not see it in the article. And I'm left confused as to how this idea reconciles with "bemoaning globalization" over peanuts in a bar.

Some people don't believe the problems of currency manipulation and the U.S. trade deficit can be solved. That's an attitude we at Nucor can't comprehend. We believe every problem has a solution. That's our culture. That's why we grabbed chainsaws and cut a path to our mill after Hurricane Isabel instead of waiting around two weeks for someone else to show up. We don't think that kind of initiative is limited to just Nucor; it is American exceptionalism in action.

In today's global marketplace, Nucor and other U.S. manufacturers have no shortage of chainsaws, let alone motivated and skilled men and women to cut through the wreckage of past storms. But when trade hurricanes continue to bear down without a break in the weather, there's a limit to what we can accomplish without changing the underlying patterns. It's time for our country to step up and respond to the relentless and intentionally engineered trade distortions being employed by China and other countries, before we lose our entire manufacturing base. That's not a complaint. That's an expectation that our American government demand mutuality in our trade relationships. That expectation is firmly based on the belief that America needs to make and build things to fuel our economy and that what is good for America, will also be good for Nucor and our team members.