Tag: manufacturing jobs

Media Darken Americans’ Perceptions of Trade

Today’s Wall Street Journal headline screams: “Americans Sour on Trade.” And why shouldn’t they? After all, the public is routinely bombarded with misleading or simplistic trade coverage that too often relies on cliché, innuendo, and regurgitated conventional wisdom: it’s Team America versus the world. Without the war metaphor, trade is just a peaceful, mutually-enriching endeavor between consenting parties. BO-RING!

Dan Griswold attributes the declining sentiment to the business cycle and goes on to suggest that this “collective attitude is more reflective of the complaints people hear in the media than of any hard reality on the ground.” Let me continue with that theme because I’ve made no secret of my concern about media’s inclination to eschew context and fact to pitch a particular narrative about trade.  The polling data at the heart of today’s WSJ article bears out that concern. A nation that has strong misgivings about trade is less likely to stop a conspiracy of politicians and special interests from taking away their right to do so.

The problem is not just limited to one or two newspapers; the problem is endemic. Here are just a few examples of faulty trade reporting that my colleagues and I have criticized over the past year or so (Exhibit A, B, C, D, E, F, G, H, I, …). And here’s a more recent example from the editorial board of USA Today on Friday, October 1:

“From 2000 to 2009, America’s trade deficit with China surged nearly 300%. During that same time, 5.4 million American jobs in manufacturing were eliminated. It’s tough for U.S. manufacturers to compete against China’s lower wages, looser regulations and cheaper currency.”

Yes, the facts about the trade deficit and the American manufacturing jobs are correct. But the point is to imply that trade is responsible for the destruction of U.S. manufacturing. Nowhere does it mention that U.S. manufacturing jobs peaked in 1979 (well before trade with China was more than a statistical rounding error in our total trade figures) and has been trending downward ever since. Nowhere does it mention that China has lost many millions more manufacturing jobs than we have in the United States because of the same phenomenon: productivity growth. Nowhere in the editorial does it mention that U.S. manufacturing has been breaking records year after year during the decade (with the exceptions of recession years 2002 and 2009) with respect to output, value-added, revenues, profits, return on investment, and exports. Nowhere does it mention that U.S. manufactures are the world’s most prolific, accounting for the largest share of global manufacturing value added. Nowhere does it mention that China has been America’s fastest growing export market for a decade and that U.S. goods exports to China are up 36 percent compared to the same period last year, which is a 50 percent faster growth rate than U.S. exports to the rest of the world.  Obviously, that fact would undermine the assertion that “it’s tough for U.S. manufacturers to compete against China’s lower wages, looser regulations and cheaper currency.” Nowhere does it caution that the use of statistics from 2009, the nadir of the recession, might be a bit misleading. Nowhere does it mention that as U.S. manufacturing jobs declined by 3.8 million between 2000 and 2008, a total of 8.8 million new jobs were created in the U.S. economy, for a net gain of 5 million jobs.

Americans have soured on trade largely because of the way media conveys its stories about trade.  There is no alternative explanation for a majority of Americans harboring ill-will toward trade. Most Americans enjoy the fruits of international trade and globalization every day and in countless ways, and less than 3% of U.S. jobs loss is attributable to import competition or outsourcing.  It is simply implausible that the degree of antipathy toward trade reflected in opinion polls is driven by past personal experiences or realistic fears about the future.

Rather than focus so much on shaping public opinion, media should rid itself of the curse of group think and get back to the basics of objectively reporting the facts, challenging the conventional wisdom, and citing multiples sources. The kind of lazy acceptance of unsubstantiated theories of cause and effect that are evident in international trade reporting these days is reminiscent of the media’s passive role in the months leading up to the invasion of Iraq.

China Bill All about Saving Lawmakers’ Jobs

The House is expected to vote today on a bill that would allow U.S. companies to petition the Commerce Department for protective tariffs against imports from countries with “misaligned currencies.” Everybody knows the bill is aimed squarely at China.

Advocates of the legislation say it is about jobs, and they are partly right. The bill is about saving the jobs of incumbent lawmakers who are desperate to appear tough on China trade, which they blame for the loss of U.S. manufacturing jobs.

As my colleague Dan Ikenson and I have argued at length, in blog posts, op-eds, and longer studies,

Let’s hope cooler, wiser heads in the Senate and the White House save us from this election-season folly.

U.S. Antidumping Regime Restrains U.S. Export Growth

In honor of World Trade Week—and for its decreed purpose of educating Americans about trade—this post is about U.S. trade policy working at cross-purposes with other policies or goals of the administration. So numerous are these examples of trade policy dissonance, that a committed wonk could devote an entire website to the task of documenting them.

If the administration were serious about making trade policy work—rather than just paying it lip service—it would compile its own exhaustive list of laws, regulations, policies, and practices that actually undermine its stated objectives of facilitating economic growth, investment, and job creation through expanded trade opportunities. Then, it would make the changes necessary to ensure that our policies are paddling in the same direction. But that is not happening—at least as far as I can see.

At the beginning of the year, President Obama announced his goal of doubling U.S. exports in five years. He even formalized the goal by granting it an official name—the National Export Initiative. Well, I see no imminent harm in setting the ambitious goal of reaching $3 billion in exports by 2015 (although I am wary of the tactics under consideration and the evocation of Soviet Five-Year Plans). But it betrays a lack of true commitment to that goal when nothing is being done to reduce the competitive burdens imposed on U.S. exporters by our own myopic, anachronistic trade remedies regime. The president exhorts U.S. exporters to win a global race, yet he overlooks the fact that Congress has tied many of their shoes together.

The costs of the U.S. Antidumping and Countervailing Duty laws on U.S. exporters are manifest in various forms, but this post concerns the burdens imposed on U.S. producer/exporters who rely on the raw materials and other industrial inputs that are subject to AD and CVD measures. Indeed, most of the products subject to the 300 U.S. AD and CVD orders currently in effect (like steel and chemicals) are, in fact, inputs to downstream U.S. producers, many of whom compete (or try to compete) in foreign markets. (Just take a look at this list and decide for yourself whether these are products that you’d buy at the store or if they are inputs a U.S. producer would use to produce something else that you might buy at a store.)

AD and CVD duties squeeze these U.S. producer/exporters’ profits, first by raising their input costs and then by depriving them of revenues lost to foreign competitors, who, by producing outside of the United States, have access to that crucial input at lower world-market prices, and can themselves price more competitively. This is not hypothetical. It is a routine hindrance for U.S. exporters. And one that has eluded the president’s attention, despite his soaring rhetoric about the economic importance of U.S. exports.

Consider the case of Spartan Light Metal Products, a small Midwestern producer of aluminum and magnesium engine parts (and other mechanical parts), which presented its story to Obama administration officials, who were dispatched across the country earlier this year to get input from manufacturers about the problems they confronted in export markets.

Beginning in the early-1990s, Spartan shifted its emphasis from aluminum to magnesium die-cast production because magnesium is much lighter and more durable than aluminum, and Spartan’s biggest customers, including Ford, GM, Honda, Mazda, and Toyota were looking to reduce the weight of their vehicles to improve fuel efficiency. Among other products, Spartan produced magnesium intake manifolds for Honda V-6 engines; transmission end and pump covers for GM engines; and oil pans for all of Toyota’s V-8 truck and SUV engines.

Spartan was also exporting various magnesium-cast parts (engine valve covers, cam covers, wheel armatures, console brackets, etc.) to Canada, Mexico, Germany, Spain, France, and Japan. Global demand for magnesium components was on the rise.

But then all of a sudden, in February 2004, an antidumping petition against imports of magnesium from China and Russia was filed by the U.S. industry, which comprised just one producer, U.S. Magnesium Corp. of Utah with about 370 employees. Prices of magnesium alloy rose from slightly more than $1 per pound in February 2004 to about $1.50 per pound one year later, when the U.S. International Trade Commission issued its final determination in the antidumping investigation. By mid-2008, with a dramatic reduction of Chinese and Russian magnesium in the U.S. market, the U.S. price rose to $3.25 per pound (before dropping in 2009 on account of the economic recession).

By January 2010, the U.S. price was $2.30 per pound, while the average price for Spartan’s NAFTA competitors was $1.54. Meanwhile, European magnesium die-casters were paying $1.49 per pound and Chinese competitors were paying $1.36 per pound. According to Spartan’s presentation to Obama administration officials, magnesium accounts for about 40-60% of the total product cost in its industry. Thus, the price differential caused by the antidumping order bestowed a cost advantage of 19 percent on Chinese competitors, 17 percent on European competitors, and 16 percent on NAFTA competitors.

As sure as water runs downhill, several of Spartan’s U.S. competitors went out of business due to their inability to secure magnesium at competitive prices. According to the North American Die Casting Association, the downstream industry lost more than 1,675 manufacturing jobs–more than five-times the number of jobs that even exist in the entire magnesium producing industry!

Spartan’s  outlook is bleak, unless it can access magnesium at world market prices. Its customers have turned to imported magnesium die cast parts or have outsourced their own production to locations where they have access to competitively-priced magnesium parts, or they’ve switched to heavier cast materials, sacrificing ergonomics and fuel efficiency in the face of rapidly-approaching, federally-mandated 35.5 mile per gallon fuel efficiency standards.

And to add insult to injury, the Obama administration recently launched a WTO case against China for its restraints on exports of raw materials, including magnesium. Allegedly, since January 2008, the Chinese government has been imposing a 10 percent tax on magnesium exports. How dissonant, how incongruous, how absolutely imbecilic it is that, in the face of China’s own restraints on its exports (which the U.S. government officially opposes), the U.S. antidumping order against imported magnesium from China persists!  How stupid.  How short-sighted.

Spartan’s is not an isolated incident. Routinely, the U.S. antidumping law is more punitive toward U.S. manufacturers than it is to the presumed foreign targets. Routinely, U.S. producers of upstream products respond to their customers’ needs for better pricing, not by becoming more efficient or cooperative, but by working to cripple their access to foreign supplies. More and more frequently, that is how and why the antidumping law is used in the United States. Increasingly, it is a weapon used by American producers against their customers—other American producers, many of whom are exporters.

If President Obama really wants to see exports double, he must implore Congress to change the antidumping law to explicitly give standing to downstream industries so that their interests can be considered in trade remedies cases. He must implore Congress to include a public interest provision requiring the U.S. International Trade Commission to assess the costs of any duties on downstream industries and on the broader economy before imposing any such duties.

The imperative of U.S. export growth demands some degree of sanity be restored to our business-crippling trade remedies regime.

Should the U.S. Withdraw from NAFTA?

Rep. Gene Taylor, D-MS, thinks so. According to CongressDaily, Taylor is about to introduce a two-page bill that would withdraw the United States from the North American Free Trade Agreement.

Taylor blames the agreement with Canada and Mexico for the loss of 5 million manufacturing jobs since it was enacted in 1994. This is a popular but false charge. Manufacturing jobs have declined in the past 15 years for one big reason: soaring productivity.

Overall output at U.S. factories was actually 37 percent higher in 2009 compared to 1993, the year before NAFTA took effect, according to Table B-51 in the latest Economic Report of the President. We are producing a higher volume of stuff with fewer workers because individual workers are so much more productive than they were in the early 1990s.

As I’ve argued before, NAFTA has spurred more trade and deeper integration among the three partner countries. It has created new opportunities for American companies and their workers to raise their competitiveness in global markets. It has strengthened ties to our two closest neighbors.

The U.S. government would be foolish to withdraw from an agreement that continues to pay huge dividends.

Injustice of Federal Subsidies

Ohio lawmakers are hot under the collar about federal stimulus dollars possibly helping Georgia bid away one of its big employers. Here’s the Dayton Daily News:

NCR’s news release touting its decision to move jobs from Dayton to the Atlanta, Ga. suburbs includes one factoid that has Ohio lawmakers in a fury: The City of Columbus, Ga. plans to use federal stimulus dollars to buy a building and construct another to accommodate the 870 manufacturing jobs expected to come to the that Atlanta suburb. ‘The fact that economic stimulus dollars were used to move an Ohio company to Georgia at taxpayer expense is an outrage,’ said state Sen. Jon Husted.

Added U.S. Rep. Pat Tiberi, R-Columbus: “Federal stimulus money is being used to create winners and losers among workers in different states and that’s just not right; it’s dirty.”

All I can say to both parties is that’s what you get for building an imperial city on the Potomac and spending the last few decades destroying the constitutional principle of federalism. As I’ve described in this study, regional warfare over federal subsidies has escalated in recent years. It’s horribly wasteful, and it’s getting worse.