March 30, 2012    Volume 19, No. 5

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Is Momentum Building For Adopting A New Manufacturing Policy Agenda, Or Is The Interest Due Only To The Upcoming Election?

By Richard A. McCormack

The planets are beginning to align for a new manufacturing policy agenda in Washington, but doubts remain as to whether appropriate action can or will be taken to improve the fortunes of domestic manufacturers and the overall economy.

At the Second Annual Conference on the Renaissance of American Manufacturing held in Washington on March 27, speakers from the Obama administration, the Mitt Romney and Rick Santorum presidential campaigns, Republican and Democratic senators, CEOs, and representatives from labor, think tanks and trade associations all agreed: the renewal of American manufacturing should be a top economic priority.

"There has been a lot of progress and we're close to some kind of breakthrough," said conference organizer Gilbert Kaplan, a partner at King and Spalding in Washington, D.C., and president of the Committee to Support U. S. Trade Laws. "A lot more needs to be done, but there is a real feeling around this town that we have to take some big action." Added former National Association of Manufacturers President Jerry Jasinowski: "We are at a turning point where the substance and some of the politics are coming together. . . There are not the same number of idiots running around saying that manufacturing isn't important."

Among those who support a more aggressive manufacturing agenda were Obama's top economist Gene Sperling, Romney economic advisor and former head of the International Trade Administration Grant Aldonas, and Sens. Jeff Merkley (D-Ore.), Rob Portman (R-Ohio), and Jeff Sessions (R-Ala.), who surprisingly stated that he has been persuaded away from his embrace of free trade by reading the works of Alan Tonelson of the United States Business and Industry Council and Clyde Prestowitz of the Economic Strategy Institute. "I'm a strong believer in trade, but if free trade means they can cheat us but we can't retaliate, then count me out," Sessions said. The fact that China manipulates its currency, making it impossible for domestic manufacturers to compete, "is just stunning," Sessions added. "This is absolutely unacceptable."

Maybe it is "unacceptable" to Sen. Sessions, but it seems acceptable to Republican leaders in the House of Representatives who have not moved on the currency manipulation bill. It is also "acceptable" to the Obama administration, which has refused to label China as a manipulator of its currency in the bi-annual currency report to Congress issued by the Treasury Department.

There was criticism at the conference of the politicians' prescriptions, which centered on lowering corporate taxes, increasing production of oil, reducing regulations, "leveling the international playing field," reforming health care, tort reform and restructuring the educational system. Businessmen and others who took to the rostrum weren't buying it. "My company and my competitors never, never made a decision based on taxes," said Roger Berkley, former chairman of the National Textile Association and executive at Weave Corp. Berkeley described the U.S. textile industry as having been "raped" by U.S. trade policies that have destroyed the industry.

As for the worker shortage issue, Allegheny Technologies Inc. (ATI), Chairman and CEO Richard Harshman said his technology-intensive company hired 1,800 employees over the past two years and had no problem finding qualified employees. Clyde Prestowitz summed it up by saying that "without being critical or leveling any bias toward anyone, much of what we have heard is conventional wisdom and that is what we have been preaching to ourselves for a very long time." That conventional wisdom has done nothing to revive American manufacturing and, while there are "reshoring" trends that look propitious, there are also dangers associated with the United States continuing to run massive and growing trade deficits in manufactured and high-tech goods.

Kaplan said the U.S. needs a far more aggressive trade policy in which the United States denies access to its market in order to gain access to foreign markets. "We have to say to the world that we are not going to engage in business as usual and keep our markets wide open unless you fundamentally change what you are doing," he said.

Most in attendance agreed, with questions from the audience mirroring the frustration. Prestowitz and others noted that a U.S. policy favoring free trade is incompatible with foreign countries' embrace of mercantilism, stating that the United States is playing baseball while its Asian competitors are playing football. Said ATI's Richard Harshman: "We are not looking to start a trade war, we are looking for support to respond to the trade war that has already been started by many of the foreign governments that we and other U.S. manufacturers are competing against today and will be competing against in the future. We are looking for more than rhetoric from our leaders in Washington. We are looking for a comprehensive National Manufacturing Strategy."

Speculation as to why so little has been done to take on China's mercantilist behavior centered on the role of U.S. multinational corporations that have located production in China and are reaping record profits from the arrangement. These companies have rigged the system against domestic manufacturers. The theme was most ardently articulated by Ralph Gomory, who spent 30 years as a senior executive at IBM before becoming president of the Sloan Foundation. "There is a fundamental divergence of the goal of our corporations to maximize profit and the goal of rebuilding manufacturing in the United States," Gomory stated. "Our great American companies can maximize their profits by taking their technology and know-how to Asia where they can get tax breaks. It's just plain more profitable. They don't see their mission as taking care of the American economy. In a mercantile world, that is what has been happening on a large scale and continues to happen on a large scale. None of this is addressed by the standard response of cheaper energy and a better educational system."

The situation could worsen as multinational corporations start flooding the political system with money, due to the "Citizens United" decision by the Supreme Court, Gomory added. "I'm not sure if everyone appreciates that the scale of money available is totally different than what people are used to in politics," he said. "A company with billions in profits can take a tiny fraction of that" amount -- millions of dollars, and invest it in their political champions. It is a "scale of money that politicians are not used to," said Gomory.

Sen. Merkle (D-Ore.) reflected this dilemma in his speech, noting that his middle-class neighbors "feel the American dream slipping through their fingers." But he also has to deal with large multinational companies in his state that have a different agenda. The divergence of interests between them "is something that we have to wrestle with," he said.

Jerry Jasinowski said that he doesn't dispute the fact that multinationals are complicit in supporting Asian mercantilism, but "to suggest that we are separate and cannot be united is wrong." Corporations have woken up to the fact that China is stealing their intellectual property and favoring Chinese companies. In the United States, Jasinowski noted, American labor and companies are working together. Both Republicans and Democrats are on board favoring a more aggressive trade enforcement effort. "The whole business that outsourcing for profit has peaked and there is renewed interest in onshoring makes sense," he said. "We can put together an agenda to further the competitiveness of manufacturing and do it in a bipartisan, labor-business way."

Labor representatives said they've been on board for a long time, fighting a lonely battle. In looking over the filled conference room, Linda Andros, legislative counsel at the United Steelworkers (USW), said that it was gratifying to see how important manufacturing is becoming in the nation's capital, but the USW has been "facing a relentless assault for decades" from illegally imported goods. Both Republicans and Democrats genuflect at the altar of free trade, leading to the evisceration of the American manufacturing sector and the American middle class. Now the political cycle has started anew, with the President in a battle for his survival in the industrial Midwest. "They will say we really care about manufacturing. We want to make it here," said Andros. "We have heard that before, so we have to wonder after the election how important manufacturing will be. Will they get down to the hard work of incentivizing manufacturing, or will they be in people's bedrooms, or what? I still think it is an open question."

Beri Fox, President of Marble King, Inc., of West Virginia, also expressed worry. In her lifetime, Fox has seen the number of glass manufacturers in West Virginia decline from 245 to only three. "Just because we are sitting here surviving today as a manufacturer doesn't mean that if we don't make positive change in this country -- positive change to create not only free trade but fair trade -- there isn't going to be a manufacturing base left," she said. "So because you are surviving today -- which is great and I'm tickled to death and I count my blessings every day -- it doesn't mean that we are guaranteed to survive five years from now under the current economic structure."

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