November 2010

Roadblock to Recovery: 'Made in China'
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What will it take to put Americans back to work making things again? Will we ever see more "Made in U.S.A." labels on the shelves of big box stores like Wal-Mart, Best Buy and Target? Or will the flood of Chinese-made products continue, adding to an alarming 26,000 U.S. manufacturing plants that have shut down since China joined the World Trade Organization in 2001, and pushing more hard-working men and women out of jobs?

On September 29, the voices of frustration burst through Washington's gridlock. With a bipartisan vote of 348-79, the House took the strongest action yet by passing a bill, sponsored by Reps. Tim Ryan (D-Ohio) and Tim Murphy (R-Pa.), to challenge China's practice of undervaluing its currency.

A Hidden Tax on Companies

The Ryan-Murphy bill gives U.S. trade officials the right to impose tariffs against exports that are priced artificially low because of currency manipulation.

"China's currency manipulation is a hidden tax on our companies that seek to export," said IBEW International President Edwin D. Hill in a letter to Congress urging representatives to vote for the Ryan-Murphy bill.

Currency manipulation may sound complex, inside baseball to everyone but professional economists. But for trade unionists who take pride in not being cheated—whether at the car dealership or the bargaining table—this is a knowable, real-life phenomenon—one that has picked pockets and torched good-paying jobs from Peoria to Providence to Pensacola.

Robert Scott has conducted research on U.S. trade with China for many years at the Economic Policy Institute. Scott agrees with other analysts who say that eliminating Chinese currency manipulation would generate between 300,000 and 1 million U.S. jobs. His work shows that the U.S. trade deficit with China—the difference between what the U.S. imports and exports—is deeply affected by China sandbagging the price of its currency, the yuan.

U.S. Wages, Jobs, Exports Under Pressure

First, Chinese imports are 35 percent cheaper in the U.S. than they would be if the two nations had a fair trading relationship. Second, U.S. manufacturers are tempted to spend more dollars outsourcing operations to China. Not only is labor cheaper and government regulation of environmental quality and labor standards weaker than at home, but the dollar buys more equipment abroad.

As the trade imbalance with China drags on, the wages of workers who remain in the U.S. manufacturing sector are put under greater pressure. Right-wing economists contend that U.S. working families gain from cheap imported consumer goods and so-called "free trade." But lost jobs and reduced wages from outsourced competition neutralize the benefits of cheaper toasters and TVs.

In 2003, mechanic Matt Slifer lost his job when Agere shut down its Allentown, Pa., microelectronics plant and moved to China. Almost 4,000 members of now-defunct Local 1522 at the former Western Electric plant began collecting their pensions, severance packages or went looking for work. Also losing work was Allentown Local 375, which frequently dispatched inside journeyman wiremen to work in the plant.

Slifer, who earned $30 an hour before the shutdown, was hired in the public works department of Upper Macungie Township, where he and another former Agere worker, Burt Serfass, organized a bargaining unit of Local 375. Seven years after the plant shutdown, Slifer makes $21.50 an hour. "Agere is still making their stuff for somebody," says Slifer, contending that stronger action on China back then could have saved the only good manufacturing jobs left in Allentown.

The wage gap between Slifer's current and past jobs mirrors a national trend, exacerbated by unfair trade. Between 2001 and 2007, 66 percent of personal income growth went to the top 1 percent of Americans.

IBEW Raised Alarm Years Ago

The IBEW, says Hill, is no newcomer to challenging China's predatory trade and monetary policies. In 2003, the union joined the IUE-CWA in testifying before the International Trade Commission, charging that China was "dumping" TVs on the U.S. market, or selling them below the cost of production. Despite the lobbying and legal efforts, thousands of IBEW members lost their jobs to China's aggressive trade actions, adding to the pyramid of job losses in the 1990s when Zenith and RCA moved production to Mexico.

Jim Repace, former business manager of North Canton, Ohio, Local 1985, (see correction) sounded the alarm years ago, long before Whirlpool sold the town's iconic Hoover vacuum cleaner plant to China-based Techtronic Industries Inc. (See " Ohio Members Hold Tight to Hoover Vacuum Cleaner Plant," IBEW Journal, January/February 2007). The facility that once employed 2,400 IBEW members shut down in the fall of 2007.

"I remember telling people that manufacturing was the real driver of the U.S. economy and that we couldn't survive a service-based economy," says Repace, who regularly hears from members who are angered when they see Hoover's label on vacuum cleaners produced in China on local shelves.

A down economy, and years of lobbying by labor organizations and some domestic manufacturers—working in coalition with farmers and environmentalists—have contributed to the growing consciousness that something must be done about unfair trade with China and other nations.

'Economic Patriotism'

The AFL-CIO's call for "economic patriotism" has taken root, fertilized by reports that the U.S. Chamber of Commerce accepted donations from several foreign countries to help fund midterm election attack ads against incumbent members of Congress who support fair trade.

A June bipartisan poll conducted by Mark Mellman and Whit Ayres showed that 86 percent of voters want Washington to focus on manufacturing, and 63 percent feel that working people who make things are being forgotten while Wall Street and banks get bailouts. Lost jobs drive the poll numbers.

Since China entered the World Trade Organization in 2001, Scott estimates that the trade deficit with China displaced 2.4 million jobs.

National Defense at Risk

Even the nation's defense is at stake. "As the industrial base has hollowed out, it will become much more difficult to ramp up domestic production in a time of national emergency," economist Jeff Faux told the House Subcommittee on National Security and Foreign Affairs in late September. Faux called attention to the "weakening sense of loyalty" among the managers of U.S. companies that outsource, citing the example of Cisco Systems, a major military contractor that has set up research and development in China. "What we are trying to do," says Cisco's CEO, "is to outline an entire strategy of becoming a Chinese company."

Many North Americans place their hopes on rebuilding domestic manufacturing to equip a growing renewable energy sector. But without a more balanced trading system with China and other nations, some of the benefits of green energy will be blown away by foreign-made wind turbines or dry up on imported solar panels. The EPI reports that U.S. manufacturing in wind energy components actually dropped 33 percent in 2009.

Fair Trade Helps Workers in Both Countries

Despite the overwhelming evidence of damage from China's unfair currency and trade policies, some economists and politicians continue to argue against reining in the Asian giant. They say that a trade war would backfire on the U.S. because China holds a massive amount of U.S. treasury bonds. This argument ignores how much the success of the Chinese economy is tied to consumer demand in the U.S.

"The U.S. and China must coexist in a complex, global economy. Our trade representatives need to bargain smart and hard," says Hill. Like in labor negotiations, says Hill, sometimes the seemingly vulnerable partner retains significant leverage to close a better deal.

Progressive economists say tougher trade and currency policy alone cannot rebuild U.S. manufacturing. That will take investment incentives for employers who are setting up shop at home, as well as penalties for employers who offshore production—measures currently being considered by the Obama administration as part of the Creating American Jobs and Ending Offshoring Act introduced by Democrats in Congress.

While helping to rebuild demand for U.S. manufactured goods here, increasing the value of China's currency through tougher diplomacy on trade can help ward off inflation there, increasing the incomes of Chinese workers and giving them access to many of the same consumer goods that are now exported to the detriment of industrialized nations.

Tougher Policies Are Not 'Protectionist'

Despite the current trade imbalance, the U.S. still exports billions of dollars of electrical machinery, power generation equipment, and other industrial output to China. An increase in those exports would put tens of thousands of U.S. citizens to work.

The high-profile currency conflict is even bringing traditional free traders around to the need for more balanced exchange of goods and services.

In a recent Washington Post story, Robert J. Samuelson writes: "The trouble is that China has never genuinely accepted the basic rules governing the world economy. China follows those rules when they suit its interests and rejects, modifies or ignores them when they don't." Demanding currency reform, writes Samuelson, is not protectionism by the U.S. It is [aimed] at "curbing Chinese protectionism."

Abandoned factories in the United States are the legacy of China's predatory monetary policies.

Photo used under a Creative Commons license from flickr user Ol.v!er [H2vPk].