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September 1, 2005

The Fight to Save American Manufacturing

North American manufacturing faces severe challenges from Asia. Some in the Senate think we must do better.

South Carolina’s Republican Senator Lindsey Graham’s conservative credentials are impeccable, and he has a solid reputation for adhering to his party’s agenda. But that commitment hasn’t stopped him from forging his own path when it comes to the critical issues facing North American manufacturing.

In 2000, Graham’s state had 336,200 manufacturing jobs; by April 2005 that number was down to 263,800. The senator has parted ways with those in his party who favor moderation in U.S.-Chinese trade relations, allying himself with New York Democratic Senator Charles Schumer. The two focused on Chinese exports to the U.S. that have been greatly aided by an undervalued yuan. Graham and Schumer called for a 27.5% tariff on Chinese imports unless China changed its currency policies.

Graham again split with his conservative colleagues to join forces with New York’s other Democratic senator, Hillary Clinton. Graham and Clinton have launched the Senate Manufacturing Caucus to focus on the ailing sector. This follows formation of the Congressional Manufacturing Caucus in mid-2003 by Reps. Don Manzullo and Tim Ryan. (See Forward, January/February 2005.) Seventeen other Senators, mostly Democrats, have since joined the Senate Caucus. The group met for the first time in late July.

Graham serves on the Senate Armed Services, Judiciary, Budget and Veterans Affairs committees. He was elected to the Senate in November 2002 after serving in the South Carolina House of Representatives for one term and was elected to the U.S. House in 1994 as the first Republican from the Third Congressional District since 1877. Graham spent 61/2 years on active duty as an Air Force lawyer and still is a member of the Air Force Reserves. He is the only member of the Senate currently serving in the National Guard or Reserves.

WHAT ARE SOME OF THE IMPORTANT CHALLENGES TO U.S. MANUFACTURING TODAY?

One problem is the environment here at home. When it comes to taxation, regulation and litigation, it is very difficult to start a manufacturing business. We need to do better in our own backyard.

But the big pressure is coming from China and India, and other places overseas. The Chinese subsidize manufacturing concerns, particularly steel. For example, steel companies in China don’t have to worry about paying the power bills. The Chinese government has an unhealthy relationship with their manufacturing community in terms of competition with Americans.

Additionally, I believe that the biggest threat to manufacturing, beyond our own backyard, is a growing, emerging China that cheats. Stealing intellectual property makes doing business deals with China very tenuous. And the manipulation of Chinese currency puts American manufacturing at risk.

A free-floating currency is a basic tenet of free trade. When currencies float, the free market self-corrects when trade imbalances accumulate. China wants the advantages of free trade without the responsibilities.
It’s not as if China were a developing country that needed time to adjust. It’s already a trading giant. China’s approach to global trading is mercantilist, rather than free trade. Mercantilists are more interested in accumulating wealth and maximizing exports, rather than competing fairly in a free trade world.

An artificial valuation of a major trading country’s currency throws the entire trading system out of balance, which is why the European Union and Japan also want to see China play fair.

But currency is only one area where the Chinese government ignores the rules. Chinese companies regularly appropriate our intellectual property while the government looks the other way. And we hear stories from American companies of the Chinese routinely barring them from selling products in China, in direct contradiction of World Trade Organization rules.

 MANUFACTURING CAUCUS CHARTER MEMBERS
Co-Chairs    
Hilary Clinton
(D-N.Y.)
Lindsey Graham
(R-S.C.)
 
     
Members    
Evan Bayh
(D-Ind.)
Mark Dayton
(D-Minn.)
Ben Nelson
(D-Neb.)
Saxby Chambliss
(R-Ga.)
Mike DeWine
(R-Ohio)
Barack Obama
(D-Ill.)
Tom Coburn
(R-Okla.)
Richard Durbin
(D-Ill.)
Charles Schumer
(D-N.Y.)
Thad Cochran
(R-Mo.)
Dianne Feinstein
(D-Calif.)
Arlen Specter
(R-Pa.)
Norm Coleman
(R-Minn.)
Tom Harkin
(D-Iowa)
Debbie Stabenow
(D-Mich.)
Kent Conrad
(D-N.D.)
Edward Kennedy
(D-Mass.)
 
 

CAN THE GLOBAL ECONOMY ENDURE A TRADING PARTNER LIKE CHINA?
You have to understand that as the world economy becomes more integrated and trade among countries increases, two outcomes are almost certain. First, there will be greater dislocation of workers caused by free trade, but at the same time, each country—whether developed or developing—will benefit overall.

Not only do China’s practices distort the economic picture and create inefficiencies, they undermine support for free trade in countries that have adopted it. When a major trading country like China can flout the rules in areas that would lead to more jobs in America, it makes it very hard for Americans to embrace free trade. Instead, it causes people to focus on the jobs that are lost.

YOU’VE SAID THAT FOR EVERY MANUFACTURING JOB CREATED IN THE UNITED STATES, THERE ARE FOUR JOBS CREATED THAT DEPEND ON THAT MANUFACTURING JOB. CAN YOU ILLUSTRATE HOW THAT WORKS WITH A REAL-LIFE EXAMPLE?
BMW produces SUVs and sports-car type vehicles in South Carolina. There are over 60 businesses allied with BMW that are parts suppliers and suppliers of goods to BMW. Any time you have a big manufacturing process, people tend to locate around that manufacturing plant to provide the essential ingredients to make the product. It is every bit four to one.

Not only does manufacturing create an offshoot of other employment, these jobs are the top of the heap in the American workforce. They tend to pay more, they have better benefits, and they’re worth fighting for. The manufacturing caucus is going to fight for jobs to be created and kept in America.

WHAT ARE THE STRENGTHS OF U.S. MANUFACTURING?
Our big advantages are intellectual capacity, innovation, and a free country to live and think in. But if you allow intellectual property to be stolen and you don’t protect patents, that can be lost.

When we protect intellectual property, it allows the manufacturing of tomorrow to get an edge, because innovation has always been our edge. When it comes to mass production, when it comes to repetitive manufacturing processes, we’re going to have to protect our intellectual property—our patents. We can’t chase China to the bottom.

IS THERE A WAY TO PARTNER RATHER THAN COMPETE WITH CHINA? 
There have been some efforts to partner that have paid some dividends. When the Chinese play fair, they can be a good partner. When they cheat, they can destroy your business.

China doesn’t have a rule of law when it comes to protecting intellectual property. And the Chinese government subsidizes industry in a very direct way. The company that tried to buy Unocal was getting an interest-free loan from the Chinese government, which owns 70% of the company.

We’ve got to look at those relationships and try to get China to change those relationships. China can be a very good partner in terms of doing business if they will adopt a rule of law, if they control piracy, if they will stop dishonoring trade agreements and live within the WTO’s view of the world community.

There are many things they could do that would make them a better partner. If they continue to create an economic advantage by cheating, then they become a tremendous threat to manufacturing.

HOW WILL CHINA’S DECISION TO REVALUE THE YUAN AFFECT AMERICAN PRODUCERS?
I’m pleased with the Chinese government’s decision to revalue the yuan. While the initial revaluation was small, it is encouraging. They’ve taken a small first step which I hope over time will turn into more revaluations and the eventual floating of the Chinese currency.

With the yuan tagged to the dollar, it creates an artificially low value, up to a 40% discount, on all Chinese-produced products. This puts American manufacturing at a disadvantage. By beginning to move away from pegging their currency, China will create a better climate for doing business. Over time, it can become a win for both countries. That’s the goal Senator Schumer and I have hoped to achieve with our actions on this issue.

China needs to float its currency like other industrialized nations do. If they do that, it would make us more competitive, and neighboring Asian countries would float their currencies because they’re tied to China. In light of China’s decision, Malaysia has decided to begin revaluing its currency. A revaluation of China and other Asian currencies will greatly benefit American manufacturers in the global economy.

By working together I’m optimistic that China will move toward a revaluation and eventually a float of their currency, which, down the road, will tremendously help manufacturing.

WHERE DO YOU EXPECT THE MANUFACTURING CAUCUS TO HAVE AN IMPACT?
We want to create a legislative focus where there is none, to have bipartisanship where there is very little, and to come up with solutions that will improve manufacturing’s backyard in America.

We’re looking at regulation, litigation, and taxation—changes that will make it easier to keep manufacturing going in America. We have a two-pronged strategy of improving the domestic climate and being more effective when it comes to international trade abuses.

WHAT ARE THE INITIAL EFFORTS OF THE CAUCUS?
Initially, we’re going to go around and start talking to manufacturing communities—people who have done very well competing against China, and people who are doing very poorly.

We’ll try to inventory where we’re at. Then, we’ll build upon that knowledge base of what’s working and what’s not, and see what we can do as legislators to improve the climate of success.

Legislation won’t follow until we find out where we’re at as a nation.

HOW LONG WILL THE PROCESS TAKE?
I think it will take several months to get up and going, and get the information we need. Then we’ll come up with a legislative agenda.

We’re very serious about making it bipartisan. Congress is very evenly divided, in many ways. You need Democrats and Republicans working together to save American jobs. In the manufacturing caucus, I hope we’ll create a climate so we can work better for the common good.

This kind of partnership has paid dividends, and I think it will continue to pay dividends through the manufacturing caucus.