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May 1, 2007

WHO CARES ABOUT MANUFACTURING?

The front runners for the 2008 presidential campaign mention manufacturing, but no one has a platform to advance free and fair trade.

On paper at least, the best presidential candidate for domestic manufacturing barely registers in the national polls and is hardly known outside his San Diego Congressional district.

He is Duncan Hunter, the Republican who is a lead sponsor of a House bill that tackles the problem of China’s currency manipulation. Hunter has a plan to remedy some of the unfair trade practices that have undermined the health of North American manufacturing jobs.

Let us hasten to note that neither Forward magazine nor its owner, the Metals Service Center Institute, endorses presidential candidates. Both are non-partisan observers of the world of industrial metals. Yet Hunter is worth noting because his consistent position on behalf of manufacturing is so startlingly unusual.

That’s more than you can say about the leading candidates of both major parties. No one so far has articulated a comprehensive agenda to support domestic manufacturing. Such a platform surely would demand that international trade be conducted on a free and fair basis without such mercantile practices as currency manipulation, tax breaks, loans that are never repaid, free infrastructure, free land and a web of subsidies—all elements of China’s policies to promote the health of its export industries.

So our ideal candidate should be for a level playing field in international trade, which includes two parts. One is steady opposition to such bad trade behavior by others, consistent with our mutual World Trade Organization agreements; the other should be a willingness to enforce our own existing legal trade laws when other nations don’t play by the rules.

Other points on anyone’s pro-manufacturing agenda might include:

  • A keen appreciation of the damage done to communities and families by unfair or illegal trade policies
  • An equal understanding of the ways in which even free and fair trade can do lasting harm, under some circumstances, to the public’s well-being
  • Support for a vigorous, consistent, ongoing trade promotion program by the government
  • Support for renewal of the technical and job training aspects of basic public education
  • Support for expansion of engineering and scientific education
  • Attention to wasteful yet costly government programs that put our manufacturing sector at a significant cost disadvantage to overseas competitors
  • A general appreciation for the need for the U.S. and Canada to make things (i.e., have the capability to manufacture the goods necessary to support our society and security) as part of our overall economic well-being.

Advisers close to the candidates argue it’s early in the game, and detailed plans for bolstering manufacturing will be unveiled, likely starting this summer or fall. Forward asked the leading candidates, including Democratic Sen. Hillary Rodham Clinton of New York, Democratic Sen. Barack Obama of Illinois and Republican Sen. John McCain of Arizona, to discuss their views on manufacturing, but they declined.

Say it Ain’t So

One problem is that the war in Iraq dominates the headlines, absorbing much of the nation’s energy and consequently the focus of the candidates. In a New York Times/CBS News poll conducted in early March, 29% of respondents said the war was the most important problem, followed by the economy and jobs at 8%.

Moreover, manufacturing’s clout has diminished because of outsourcing and productivity gains that often lead to fewer jobs. The percentage of the workforce employed in manufacturing has declined steadily and stood at 9% as of February, compared with 18% in early 1980 and 22% in 1970, data from the Bureau of Labor Statistics (BLS) shows. Organized labor, a consistent champion of manufacturing jobs, is less of a force in political campaigns, as union membership dropped to 12% of U.S. workers last year, down from a third in the 1950s, BLS data shows.

Another problem is that manufacturers don’t speak in a single voice. Domestic manufacturers have been pummeled by cheap imports from China, while large multinationals have found it profitable to build plants or form partnerships in China and import from the emerging giant. The conflict has played out at NAM, which has been unable to serve both masters and has been a muted voice at best for domestic manufacturing (see “Who Represents Domestic Manufacturers?” Forward, May/June 2006). Hunter, in fact, now publicly declares that NAM does a better job of representing the interests of China than it does representing the trade interests of domestic manufacturers.

Douglas Kittenbrink, chairman of the Specialty Steel Industry of North America and executive vice president, corporate planning and international business development for Pittsburgh-based Allegheny Technologies Inc., says he is not sure that any of the major candidates have articulated a position on manufacturing, although he acknowledges that it is still early in the process.

China’s engagement in unfair trade—including subsidized loans and most significantly currency manipulation—is the single most pressing problem facing specialty metals, he says. At stake is nothing less than surrendering our jobs and allowing China to use the proceeds of our trade imbalance to mortgage the U.S. government.

“Something has to be done in the next four to eight years,” Kittenbrink says. “It will be addressed, or it will explode. We need to have someone that recognizes that it’s a problem.”

Free Trade, Lower Costs

The Republican hopefuls appear to favor a continuation of the free trade trend of recent years, seemingly more interested in opening new markets for U.S.-based multinational corporations with factories abroad than protecting producers at home.

For example, Arizona’s McCain is a free-trade advocate. He has consistently voted in favor of free-trade agreements in the Senate, including the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), which slashes barriers to trade and investments between the U.S. and six countries in that region. President George W. Bush signed DR-CAFTA into law in 2005, and so far, it has taken effect for all countries except Costa Rica, which has yet to approve it.

McCain also voted for permanent normal trade relations with China and favors “fast-track” authority, which allows the president to push through trade agreements more quickly because Congress can vote “yes” or “no” on the deals but not amend them. The Cato Institute’s Center for Trade Policy Studies, a prime free-trade supporter, ranks him at 100%.

“He is a champion of free trade, not only because it helps American consumers, but it also helps what we’re able to produce and export overseas,” says Chuck Larson, a senior advisor for McCain’s campaign in Iowa.

Other Republican candidates, including Rudolph W. Giuliani, the former New York mayor, and Mitt Romney, former governor of Massachusetts, have no track records in international trade and haven’t presented specific proposals. Both, however, are generally seen as pro-big business and are expected to favor free-trade deals.

In a February speech to the Detroit Economic Club, Romney warned that isolation and protectionism would end up putting the U.S. at a competitive disadvantage, but that it was essential to ensure the rules of free trade are fair and China’s markets are open to U.S. goods.

He also said it is a fallacy to believe that the U.S. can export manufacturing but retain design and engineering. “If the Chinese are making a product, you better expect them someday to be engineering it and designing it as well,” he said. “It’s critical, therefore, that America maintain our lead in manufacturing if we also want to maintain our lead in innovation.”

Republicans say they do more to help business and manufacturers, in particular, by advocating lower taxes, reduced regulations and expanded energy exploration.

Ed Gillespie, a former chairman of the Republican National Committee, disagrees that the Republican Party has abandoned manufacturing. “I think the Republican Party has been very responsive and attentive to the needs of manufacturing,” he says. “The manufacturing sector, as a percentage of our economy, I believe has remained fairly constant [during the Bush administration]. I know it’s going through tough adjustments, but the fact is we do recognize and understand the need for a strong, vital manufacturing sector in our economy.”

Gillespie adds that it is still early in the process for candidates to be laying out policy platforms. “That will happen, and they will address manufacturing because it’s a huge political issue,” he says.

In Search of a Level Playing Field

The Democrats, especially since regaining control of Congress in November, have taken aim at Bush’s free-trade policies. Terry McAuliffe, the former Democratic National Committee chairman who is also chairman of the Clinton presidential campaign, says a Democratic president would enforce trade laws and ensure that “free trade is fair trade.”

“We will stop any unfair trade practices, like countries that manipulate their currencies and subsidize their industries. We will be very tough in making sure it’s a level playing field,” McAuliffe says. He expects Clinton to unveil a detailed plan for manufacturing in the coming months.

“It will be a top concern,” he says. “Hillary understands that free trade has to be fair trade. She has seen the devastating effects that unfair trade has done to communities in upstate New York. She understands how important it is to ensure our workers and manufacturers can compete on a level playing field when it comes to international trade.” China’s currency manipulation also is on Clinton’s radar screen, he says.

As for her track record on manufacturing, Clinton voted against DR-CAFTA, but in favor of several smaller trade deals, including those with Oman, Singapore and Chile. She scored points with manufacturers in June 2005 when she, together with Sen. Lindsey Graham (R-South Carolina), formed the Senate Manufacturing Caucus to strengthen the nation’s manufacturing base.

A month later, in a speech to the Aspen Institute, Clinton expressed support for the federal Manufacturing Extension Partnership Program, which helps manufacturers take advantage of technology for better productivity, and recognized the need for lower pension and health care costs that are dogging companies. She said the U.S. must “pursue trade agreements that lift lives everywhere, including in our own country.” She also scolded the government for failing to help manufacturing in this age of globalization and rapid change.

“I fault us for a lack of a transition strategy to get us from the old manufacturing economy to the new one,” Clinton said. “As far as I can tell, our current manufacturing strategy is one person in an office in the Commerce Department.” More recently, she has warned that the U.S. has become too dependent on China for manufactured goods.

But critics say Clinton has been more talk than action on manufacturing. They note that the manufacturing caucus has done next to nothing. The caucus hosted a single roundtable discussion last year where the senators got input from a few manufacturing experts. So far, it has not proposed legislation.

“That shows you what’s wrong with Congress and manufacturing,” says Kevin Kearns, president of the U.S. Business & Industry Council, which represents about 1,500 mostly small and mid-sized manufacturers. “It’s a PR move. It’s an attempt to pretend they know and care about manufacturing.”

Clinton’s main rival, Obama, has enjoyed broad appeal in part because he has such a limited track record—he can’t be pilloried for past positions and can reflect voter aspirations. His votes in the U.S. Senate include one against DR-CAFTA and one for the Oman trade deal.

When Obama was in the Illinois Legislature, his votes often agreed with positions of the Illinois Manufacturers Association (IMA), although he was generally sympathetic to labor and environmental issues, says IMA President and CEO Greg Baise.

“Overall, the general impression was that he was willing to listen and hear both sides,” Baise says. “He was not going to be locked into an issue just because he was on the Democratic side of the aisle. That’s one of the things we’re going to look upon fondly.

“However, I must say we cannot call Barack ardently pro-business by any means. He certainly would be more on the labor side of the issues, and he might be on the side of trial lawyers more often than not. But at least he was somebody who was willing to listen to our point of view.”

The third Democrat in a strong position, John Edwards, has stressed that trade deals should include robust protections for Americans. As the Democratic nominee for the vice presidency in the 2004 campaign, Edwards advocated that NAFTA be renegotiated to better protect labor and the environment. He also said then that he “would give tax breaks to American companies who would keep manufacturing jobs here in America.”

Edwards, who in March announced he might scale back some campaign appearances because of his wife’s recurrence of breast cancer, appears to be just as skeptical of free-trade agreements today.

“If you look at the candidates that have a chance of winning the primaries and winning the general election, then I think John Edwards is the one who could be called upon to do something serious about manufacturing,” Kearns says.

NAM is less enthusiastic about Edwards. In 2003 and 2004, Edwards’ last two years in the Senate, he scored a mere 8% on NAM’s vote ranking. In the previous two years, the record was even lower, at 6%. But while the ranking looks at votes on such issues as litigation reform and taxes, Edwards’ low scores are also due to his opposition to several trade deals—an area where many domestic manufacturers actually agree with him and disagree with NAM.

Which brings us back to Duncan Hunter. The California congressman, along with Democratic Congressman Tim Ryan of Ohio, has sponsored legislation that would give domestic manufacturers a legal mechanism for fighting China’s currency manipulation. The bill, re-introduced earlier this year as the Fair Currency Act of 2007, H.R. 782 (it was H.R. 1498 in the previous session), would permit the use of U.S. countervailing duty law to seek relief from injuries caused by the Chinese government’s intervention to keep its currency at an artificially low value. The bill provides for three tests to establish that exports are being subsidized in violation of WTO rules.

It’s difficult to say if Hunter’s quest will make any difference. But manufacturing must make its way into the national dialogue. Robert Johns, recently retired director of marketing for Nucor Corp.’s Sheet Mills Group who also led trade law efforts for the Charlotte, North Carolina, steelmaker, says it must be a top priority for the next president to “stop the bleeding in the manufacturing sector.” Johns is optimistic that voters in 2008 will speak out on the different issues important to manufacturing and that the candidates will be forced to listen.

“We obviously have a national security issue” that will continue to demand attention, he says. “However, the jobs and manufacturing issues will continue into 2008. I think you’re going to see mobilization on the part of manufacturing.”