Stan Sorscher, a physicist who holds his doctorate from Berkeley and a representative of the Society for Professional Engineering Employees in Aerospace (SPEEA), explains in a blog on the Huffington Post why free trade has failed.

The premise on which it is based, Sorscher says, Comparative Advantage, “is highly idealized and fundamentally flawed. It ignores the real-world conditions of 21st century globalization.”

He explains in detail why “Comparative Advantage is discredited in terms of logic, experience, policy, and common sense,” and why it survives only in the land of punditry.”

As a solution, Dr. Sorscher calls for a new trade policy and creation of an American industrial policy. He concludes:

“We need a new trade policy. No country in the world is pure free trade or pure protectionism. Countries around the world have found middle ground including an industrial policy to guide their development.

If we intend to rebuild our middle class and re-industrialize our economy, we will need a national industrial policy that recognizes the interests of environment, labor rights, human rights and public health, in balance with investor and business interests.”
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Although the federal reserve announced that manufacturing output increased 1.1 percent in July – which is a significant improvement over the .5 percent decline in June – the number may be deceptively positive.
A 9.9% gain in the output of motor vehicles and parts accounted for a significant portion of the July increase, but, as this article by Mike Mandel on the blog, Manufacturing, points out:

“Output measures the number of motor vehicles and parts leaving domestic factories. But it doesn’t take into account any increase in offshoring–that is, use of imported parts.”

Mandel points out that those imports of motor vehicle “parts, engines, bodies and chassis” rose by 79% over the past year.

As a result, he explains, “The implication is that there are a lot more imported parts and engines going into ‘American-built’ cars and trucks.”
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The Need for a Buy America Policy

Members of the House Buy America Caucus said during an inaugural meeting last month that flagrant use of waiver authority is eroding the intent of laws requiring taxpayer dollars to be used to buy American-made supplies for roads, bridges, defense products, and certain types of equipment.

Congressman Chris Murphy (D-CT), chairman of the newly-formed Buy America Caucus, opened the meeting by informing attendees that between 2007 and 2008, the number of waivers to Buy American laws issued by federal bureaucrats increased by 450 percent - a shocking total of 65,000 in 2008 alone.  In 2007, the Department of Defense granted 14,159 waivers worth more than $5.7 billion in taxpayer dollars.  In the same year, his state of Connecticut lost more than 3,000 manufacturing jobs.

A panel advocating for American manufacturing that included Scott Boos of the Alliance for American Manufacturing (AAM), Dan LaPre of the American Manufacturing Trade Action Coalition, and Laurence Lasoff of the law firm Kelley Drye, asked the caucus and attendees to close the loopholes being used to dodge the Congressional intent of Buy American laws.

The 2009 American Recovery & Reinvestment Act (ARRA) included a Buy America clause to ensure that American tax dollars intended to create jobs in America were not, in actuality, sent overseas.

Support for domestic content laws in America is strong – 84 percent of Americans favored the provision that was included in the ARRA.  In addition, more than 500 state and local governments have passed resolutions pledging to do their part to ensure that taxpayer dollars are used to purchase American-made materials and equipment.

Read more about the need for Buy America laws: Buy America Works.

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New York manufacturing activity grew this month, the Wall Street Journal reported yesterday, but at a rate slower than predicted.

The Federal Reserve Bank of New York’s Empire State Manufacturing Survey released last Monday shows that the state’s business conditions index rose from 5.08 in July to 7.10 in August. However, the increase was notably weaker than anticipated. “Economists had expected a reading of 8.5 in August,” wrote Journal reporter, Kathleen Madigan.

Economists and investors alike were disappointed by New York manufacturing’s creeping numbers, which contributed to stocks plunging on the same day that the report was released. “The Dow Jones Industrial Average shed 55 points in early trading as investors flocked to safer havens,” Kristina Peterson wrote in another Journal article published yesterday.

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The lead editorial in the New York Times yesterday says what the Alliance for American Manufacturing (AAM) has been repeating for some time: current U.S. trade policy is not sustainable.

The Times editorial was prompted by statistics released last week showing that the U.S. ran the largest trade deficit in June since October 2008, when the financial crisis hit. The Wall Street Journal reported that the trade gap widened 19 percent from just one month earlier, as imports rose 3 percent and exports declined 1.3 percent. Much of the imported goods were manufactured consumer goods like automobiles and iPads.

If America is to achieve President Obama’s goal of doubling exports within five years, America must rebuild domestic manufacturing. The Make It in America program launched recently by Democrats in Congress must be implemented. And it is imperative that foreign currency undervaluation be stopped to rebalance the trade deficit.  China is all promises on resolving currency manipulation and no action so far. Here’s what the Times says about currency manipulation:

“The central bank announced in June that it would allow China’s currency to start inching up against the dollar — but it has risen less than half a percent. China must deliver.”

The Times is correct in its advice for resolving the international economic imbalances that are damaging the U.S. economy: “Chinese leaders have to finally rebalance their economy and rely more on internal demand and less on exports . . . Rich economies with big trade surpluses and the ability to sustain budget deficits — most notably Germany — need to spend more, not less, at home and abroad.”

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Two former Bush Administration officials got it half-right in the Washington Post today.  They’re right that supporting manufacturing is key to America’s economic recovery, but they’re wrong when they contend that it’s fine for U.S-based corporations to ship jobs and investments overseas.

Robert M. Kimmitt, a Bush deputy Treasury secretary and now chairman of a Deloitte effort to promote foreign investment, and Matthew J. Slaughter, on the Bush team of  White House Council of Economic Advisers  and an advisor to Kimmitt’s group, published  a piece entitled “How to jump-start American Manufacturing.”

They state: “While there has been a slight uptick in manufacturing jobs in the last seven months, only 11.7 million Americans work in this sector, down from 17.3 million 10 years ago. That’s barely 9 percent of total U.S. nonfarm payroll jobs. More Americans now work in the leisure and hospitality industry.”

That’s not good news because those leisure and hospitality jobs tend to be relatively low-paid, which does not drive the economy the way family-supporting manufacturing jobs do.

Kimmitt and Slaughter are right that manufacturing remains important:

“Manufacturing firms have long accounted for an outsize share of U.S. capital investment, research and development, and exporting. Productivity growth — the only source of sustainable increases in standards of living — has long been faster in manufacturing than in services. As we recover from the global financial crisis, America’s economy needs to be rebalanced away from consumption demand and toward capital investment and exports. Manufacturing can play a key role in this process.”

They are wrong, however, when they contend exporting jobs “compliments” U.S.-based operations: “Our calculations from U.S. Bureau of Economic Analysis data show that from 1988 to 2007, employment in foreign affiliates rose by 5.3 million jobs — while U.S. parent companies added nearly as many positions, 4.3 million.”

One million fewer U.S. jobs is not “nearly as many” as those added overseas. It is 19 percent of the 5.3 million jobs created overseas. It is 23 percent of the 4.3 million jobs created in the U.S. It is not an insignificant number. And what’s more important is that corporations might have been far less inclined to send 5.3 million jobs overseas if the United States hadn’t given them tax breaks to do it.

Many of those American companies that shipped jobs overseas could have afforded to keep them in the U.S. and could have afforded to pay higher U.S. wages if the United States had insisted that countries like China halt the currency manipulation that makes their exports artificially cheap and U.S. exports artificially expensive.

In addition, Kimmitt and Slaughter argue that U.S. multinationals benefit from moving jobs overseas into countries with rapidly growing economies. That may be true in some cases, but in others, for example in many cases in China, multinationals are blocked from selling on the Chinese market. The goods they make in China must be exported.

Finally, Kimmitt and Slaughter conclude: “At this time of continuing high unemployment and sluggish job growth, policymakers and business leaders alike should encourage investment into and out of the United States. It would help revive American manufacturing and contribute to the nation’s economic recovery.”

Investments outside the U.S. do not revive manufacturing in America nor do they contribute to economic recovery. They support manufacturing  jobs and manufacturing in foreign nations, increase the U.S. trade deficit, and deprive U.S. workers of good-paying manufacturing jobs.
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A poll of 1,000 voters conducted July 28 -29 by Greenberg Quinlan Rosner confirms findings regarding manufacturing in an earlier poll conducted for the Alliance for American Manufacturing (AAM).

Both polls found that voters are more concerned about reinvigorating U.S. manufacturing than they are about the budget deficit.  Simply put, they want the U.S. government to provide support for American manufacturing.

The new poll was commissioned by Campaign for America’s Future and Democracy Corps, with support from MoveOn.org; the American Federation of State, County and Municipal Employees, and the Service Employees International Union. The AAM survey was conducted last spring by the bi-partisan pollsters Mark Mellman and Whit Ayres.

Poll results from both show tremendous support for government action to renew American manufacturing.

In the poll by Greenberg Quinlan Rosner, 60 percent of respondents favored investing in new industries and rebuilding the country over the next 5 years.

All groups surveyed– Democrats, Independents and Republicans– supported eliminating tax breaks for corporations that outsource jobs. Democrats favored that the most at 69 percent, but even a strong majority of Republicans – 61 percent – did.

Fifty-four percent said the nation can’t return to the old economy based on bubbles and bursts but must instead create a new economy based on investing in education and training, a 21st century infrastructure, leadership in the green industrial revolution and balancing trade so that products are made in America.

These responses mirror those in the AAM poll that prompted Democrats to create their Make It in American program to support American manufacturing. The new poll shows Americans believe that campaign is the right track for the country.
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The United States is moving closer to achieving a national manufacturing policy, something that most industrial nations, including China, India, Canada, the UK, Brazil, and Germany, already have.

The House of Representatives passed a bill (HR-4692) that would require each U.S. President to set a national manufacturing strategy and to annually assess progress on meeting its goals.

The bill passed by a vote of 379 to 38, reflecting the bi-partisan belief that action must be taken to shore up manufacturing in the United States. It is part of a new ‘Make It in America’ agenda designed to reinvigorate American manufacturing, create jobs, and aid the economy.

Here is how business and economics writer Richard McCormack described the bill in Manufacturing & Technology News:

“The bill, sponsored by Rep. Dan Lipinski (D-Ill.), will create a President’s Manufacturing Strategy Board that includes individuals from a dozen federal agencies, two governors from different political parties and nine individuals from the private sector. The board will be responsible for assessing all aspects of U.S. manufacturing competitiveness including comparisons of manufacturing policies and strategies relative to other nations’ policies and strategies. It would be tasked with identifying emerging and evolving markets, technologies and products “for which the nation’s manufacturers could compete”; making forecasts for the manufacturing sector; assessing levels of domestic production, productivity and the trade balance; assessing R&D resources, financing and investment, job creation, workforce skills and the “adequacy of the industrial base for maintaining national security.”

Rep. Lipiniski said of his bill, “The passage of the National Manufacturing Strategy Act will ensure that American manufacturing remains on the national agenda.” He said America must plan “before it is too late for middle class Americans and for our national security.”

The bill was one of four passed by the House before it recessed. President Obama signed one, the U.S. Manufacturing Enhancement Act into law this week.

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House Speaker Nancy Pelosi applauded President Obama’s signing of the Manufacturing Enhancement Act this week, stating, “In signing the U.S. Manufacturing Enhancement Act today, President Obama reaffirmed Democrats’ clear message: when we ‘make it in America,’ we create jobs and lead the world economy.”

The Speaker also criticized House Republican leaders who apposed opposed the Act. She said they chose “political gamesmanship over America’s workers,” and that a vote against the bill was “a vote to preserve tax breaks for corporations that ship American jobs overseas.”

The Manufacturing Enhancement Act adjusts import fees to benefit U.S. companies. It is one of the steps in the Democrats’ Make It in America program designed to support American manufacturing and American jobs.

President Obama said as he signed the bill into law that he disagrees with economists who have suggested that the decline in the U.S. manufacturing sector is inevitable.

“For too long, we’ve been buying too much from the rest of the world,” said the President. “It is vitally important that we reverse that trend.”

Also at the signing ceremony, the President also urged Congress to approve expansion of tax credits for companies investing in green energy.

In addition to that, the Alliance for American Manufacturing (AAM) is strongly urging Congress to stop currency manipulation by China and other countries that enable them to sell their exports at artificially low prices while making U.S. exports to those countries more expensive. Currency manipulation is linked to the loss of millions of American manufacturing jobs.

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White collar Chinese executives negotiated with blue collar American workers to create green jobs in America. In a deal with the United Steelworkers (USW) union, two Chinese companies have pledged to use American steel to build wind turbines in Texas.

The turbines will be constructed at an assembly plant in Nevada and will use American manufacturers to construct as many parts for the turbines as possible, with the help of the USW’s knowledge of suppliers.

Both sides described the deal as a win-win. The agreement came after AAM, the USW, and lawmakers like Sen. Sherrod Brown, protested the original plan to build much of the turbines in China using U.S. Recovery Act funds that would employ some 2,000 Chinese workers.

Brown and others pointed out that the point of the Recovery Act is to create jobs in America, not in China.
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