Does manufacturing matter?

Jan. 27, 2006
Many in the manufacturing community felt a sense of optimism in 2003

Many in the manufacturing community felt a sense of optimism in 2003 when the Bush Administration held 23 manufacturing roundtables around the country, culminating in a January 2004 report, on the state of manufacturing titled Manufacturing in America. The report stated how government policies affected industry and recommended ways those policies could be improved. It seemed industry's concerns were finally being heard.

A number of AMT members had participated in these forums, including then-Chairman Robert J. Weskamp, president of Wes-Tech Automation Solutions LLC in Buffalo Grove, Ill. Grant Aldonas, the under secretary of commerce for international trade, listened attentively to various complaints voiced by Weskamp and hundreds of other industry representatives who attempted to educate the administration on the problems that faced U.S. manufacturing two years ago.

In the summer of 2004, Albert Frink, a new assistant secretary of commerce for manufacturing and services, was appointed and confirmed by Congress. As a successful West Coast carpet manufacturer, Frink was knowledgeable regarding industry concerns. He pledged to pursue a pro-manufacturing agenda and to aggressively represent it in interagency economic debates. Still, problems persisted.

Aldonas heard complaints on China's emergence as a manufacturing powerhouse and its effect on U.S. industry. Admittedly, China offered lower cost parts and components and new opportunities to reduce labor costs through outsourcing. However, it also proved unwilling to play by the rules of the trading system it had recently joined.

The direction of our bilateral trade deficit with China has not changed in the last two years. Indeed, it has gotten much worse, growing by an additional 50 percent. When the figures come out for 2005, we are likely to see something on the order of a $200 billion imbalance. This dangerous growth cannot continue without harm to our economy.

While the press focused on China's unwillingness to enforce its commitments regarding intellectual property protection, the core problem is China's under-valued currency. That under valuation has persisted virtually unchanged despite two years of congressional and industry pleas for action. The Commerce Department has no jurisdiction over currency issues. The Treasury Department jealously guards its sole jurisdiction over currency matters. So it is wrong to fault Commerce for any lack of progress.

The Treasury Department has been in intense discussions with China for more than two years, and has little to show for it. All the Chinese were willing to do was to revaluate their currency upwards by 2.1 percent last summer and add a mechanism for further revaluations. It is unwilling to budge any further.

Attempts to force a revaluation upwards have been made through unfair trade petitions filed by industry and labor, and through a proposed 27.5 percent tariff amendment offered by Senators Lindsey Graham (R-SC) and Charles Schumer (D-NY) and pending on Senate legislation.

Despite these efforts, the administration has fiercely resisted adopting a more aggressive stance or providing the Treasury Department with leverage in negotiations.

Most frustrating of all, however, has been the Treasury Department's unwillingness to cite China for currency manipulation in its most recent report to Congress, despite evidence that the Chinese clearly fit both the IMF and the WTO's definition of that practice.

It would seem that the patience of many in the United States has run out. It is unlikely that Congress will continue to accept the administration's "go-slow" approach to this problem. Expect to see a trade confrontation with China early this spring. It is impossible to predict the outcome. I would note, however, that legislation is a blunt instrument, and with that tool we are just as likely to hurt our own economy as to push the Chinese into doing the right thing.

You can help revitalize U.S. manufacturing! Send this page to your Congressman, local and state government leaders, or your local newspaper editor. Add your own comments on the importance of manufacturing innovation to the health of our economy. Your comments are also welcome at pfreedenberg@