Rebuilding American Manufacturing

Rebuilding American
Manufacturing
Wayne State University
June 5, 2012
Keynote Address by
M. Brian O’Shaughnessy
Coalition for a Prosperous America
•  CPA is a coalition of domestic manufacturing
companies, organized labor and farmers and
ranchers
•  Its membership represents 1.8 million
households in the USA
•  Its objective is balanced trade through a
National Economic Strategy
•  M. Brian O’Shaughnessy serves CPA as
Chief Co-Chair
Tradereform.org
My remarks today particularly on
a New Economic Strategy
reflect my own views and
have not been considered by CPA
Revere Copper Products, Inc.
•  Revere was founded by Paul Revere in
1801 and is the oldest basic
manufacturing company in the USA
•  Revere produces copper and brass sheet,
strip and coil; copper busbar; and,
copper alloy extruded shapes
•  Most Revere customers are
manufacturing companies in the USA
•  Since 2000, more than 30% have shut
down & moved offshore mostly to China
Oneida Ltd
•  For years, Revere shipped copper
coils about 20 miles to another
manufacturing company named
Oneida Ltd.
•  Oneida cut and formed the copper
•  Then plated silver on the form to
produce...
…a silver bowl designed by Paul Revere
That’s as American as apple pie? Right?
WRONG…
…ON TWO COUNTS!
The Paul Revere silver bowl
•  Now made in China
•  Today, Oneida buys the silver bowl,
silver flatware and other products
from China
•  How can China produce that silver
bowl over there and ship it over
here and compete?
The American Apple Pie
•  America now imports apples from
China
•  So you really can’t say “…as American
as apple pie…”
•  How can apples from over there be
refrigerated, shipped and still
compete with apples grown just down
the road?
It’s the cheap labor, right?
WRONG
First, let’s first look at the benefits
of producing that silver bowl
in
China vs. USA
…as China manipulates its currency…
The Paul Revere Silver Bowl
Assume production cost of 元 100
if made in China
@ manipulated exchange rate
of 元 6.3 to $1, the production cost
in China is $15.87
@ free market exchange rate
of 元 3.8 to $1, the production cost
in China would be $26.31
Currency manipulation
works the same way
for apples grown in China…
In other words, the government of China
manipulates its currency to subsidize the
cost of manufacturing and farming
in China
The manipulation of its currency reduces the
competitiveness of every other product, good
and service in the world when compared to its
production in China.
It’s not only currency
•  Tax structure
•  Health care
•  Environmental Stewardship
•  Government loans not repaid
•  Piracy of intellectual property/
reverse engineering
•  Other Subsidies
Currency manipulation
on top of
these subsidies can reduce costs
as much as 80%
when producing in China
This happens
without even considering
the cost of labor
That’s how China competes…
…AND THAT’S
AS CHINESE AS APPLE PIE !
What is economic growth?
•  An expansion of GDP
•  A recession is a contraction of GDP
What is economic growth?
GDP = C + I + G + NE
What is economic growth?
Biggest
Most Volatile
 GDP = C + I + G + NE
Investment
Consumption
Government Procurement
Net Exports
What is economic growth?
•  Consumption runs about 70%,
Investment about 10% and Government
Procurement about 20%
•  Net Exports adds to GDP or economic
growth
•  But we are experiencing Net Imports
which subtract from GDP
•  These numbers are cumulative
•  Net Imports in recent years adds up to a
decline in economic activity in the
United States equal to the economy of
Canada
Let’s take a look at how the
rest of the world uses taxes
and legal tariffs to
fair trade the USA
out of jobs…
(this is a real world example
given to Revere
by a customer)
CENTRIFUGAL CHILLER
COST COMPARISON
100
80
60
40
20
0
USA
China
Material
Labor
WITHOUT 40%
CURRENCY MANIPULATION
100
80
60
40
20
0
USA
China
Material
Labor
Currency Reform for Fair Trade Act
(HR 639)
Companion bill passed Senate
Similar bill passed previous House
HR 639 being held up by Republicans
President Obama clearly against
Romney wants China labeled “Manipulator”
WITH VAT REBATE
OF 17%
100
80
60
40
20
0
USA
China
Material
Labor
Traded Products & Services
VAT Impact at $100 Value
USA
VAT = 0
$85
$81
$119
$115
$85
$81
Mexico
VAT = 15%
Germany
VAT = 19%
Some Countries Using VAT Tax
to Support Factory, Farm &
Service Jobs
Australia
Finland
Japan
Russia
Austria
France
Korea
Singapore
Belgium
Germany
Luxembourg
Slovak Republic
Brazil
Greece
Mexico
Spain
Belgium
Hungary
Netherlands
Sweden
Canada
Iceland
New Zealand
Switzerland
China
India
Norway
Thailand
Czech Republic
Ireland
Poland
Turkey
Denmark
Italy
Portugal
United Kingdom
Notes: 150+ countries have a Value Added Tax (VAT) or border adjustable tax which
discriminates in favor of domestic production of goods & services. One province in India
boasts of a VAT tax over 50% in promoting itself as a prime location for jobs.
Countries Not
USA
TRADE AGREEMENTS
•  The next chart shows what happens when the USA negotiates
trade agreements that allow our trading partners to adjust
VAT tariffs.
•  During the negotiations, the USA agrees to lower tariffs and
our trading partners does likewise (in the best cases)
•  Then our trading partners raise VAT tariffs which are not
included in the Free Trade Agreements
•  Sometimes they manipulate their exchange rate with the USA
to offset any reductions in their trade barriers
VAT Hikes Keep Aggregate European
Trade Barrier Constant
30%
Total EU Trade Barrier
25%
20%
15%
Avg. EU VAT
10%
5%
Avg. EU Tariff
AMTAC
0%
1968
1973
Total EU Trade Barrier
1988
Average EU VAT Rate
1996
2006
Average EU Tariff Rate
TWENTY FIRST CENTURY
TRADE PRINCIPLES
CPA formed a coalition of domestic
manufacturing, organized labor, farmers
and ranchers to develop a set of trade
principles that would not allow trade
agreements that are so easily
circumvented.
Numerous other principles were added
after discussions lasting months to
establish a set of principles to guide the
negotiation of future trade agreements.
TWENTY FIRST CENTURY
TRADE PRINCIPLES
1. Balanced Trade
2. National Trade, Economic andSecurity
Strategy
3. Reciprocity
4. State Owned Commercial Enterprises
5. Currency
6. Rules of origin
TWENTY FIRST CENTURY
TRADE PRINCIPLES
8. Border Adjustable
9. Perishable and Cyclical Products
10. Food and Product Safety and Quality
11. Domestic Procurement
12. Temporary vs. Permanent Agreements
13. Labor
TWENTY FIRST CENTURY
TRADE PRINCIPLES
Please go to: tradereform.org
to learn more and sign up
your organization or association
in support of these principles
So you can appreciate that
this is more than
a currency problem.
This results in a price war that
American factories and farmers
cannot win.
How can a US producer compete
if it must carry the burden
of the health care costs of its workers
and its foreign competitor does not?
Revere’s fabricating costs
•  About 10% of Revere’s fabricating costs
are for the health care of its people and
their families
•  If you buy a product made from Revere
copper or brass, you are paying for the
health care costs of our people
•  If you are buying a foreign product, you
are not paying for any US producer’s
health care
What about Revere’s exports?
•  Of course, the cost includes the health care
costs of Revere people
•  The foreign country’s VAT imposed on
Revere’s exports helps pay for the national
health care cost of that nation
•  So, in order to compete, Revere people have
to cover their own health care cost and those
of the foreign workers they compete against!!!
•  That’s just as true for farm products whether
you are considering taxes or health care…
Creation of a national health care system
funded by a VAT is critical to the health of
farming and manufacturing in the USA.
Financing the federal government
Today the US government is financed
<1% by taxes and duties on imports
Today the government of China is financed
>21% by taxes and duties on imports.
But this is more than an economic battle.
The importance of a strong domestic
manufacturing base to national security and
national defense cannot be overstated.
Revere was founded with $10,000 loan from
the US Navy to supply copper sheets to sheave
the USS Constitution
Personally I admire the culture of China
…and it’s people
But make no mistake about it,
China is waging a mercantile war on the world
and the world is sleeping.
W
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They have to choose between
their company
and
their country.
So, the looming
question is, What
should be done to
counter this offensive
and protective behavior
by China and other
nations?
LESSONS FROM HISTORY
•  Our nation was not founded on free trade between nations
•  Free speech, freedom of religion, freedom of the press, yes
•  Democracy does not equal free trade between nations
•  Capitalism does not equal free trade between nations
•  In the beginning, the US Federal Government was financed
mostly by duties & tariffs on imports
LESSONS FROM HISTORY
•  From 1850 to 1940’s duties & tariffs in
the USA on some goods ran 30 to 40%
•  In 1850, Great Britain’s economy was
much bigger than ours
•  Then GB adopted Free Trade
•  The US continued mercantilist policies
•  That’s when our economy roared past
GB
ECONOMIC POLICIES
•  Today the US has adopted Free Trade
as an economic policy
•  China has adopted a mercantilist
economic policy
ECONOMIC POLICIES
Mercantilism eats Free Trade
Free Trade
doesn’t equal democracy
Teddy Roosevelt,
“Thank God, I’m not a Free Trader!”
FREE TRADE
•  If we continue on this path, we will lose our
precious freedoms
•  First we lose manufacturing jobs and service
jobs
•  Then we lose our middle class
•  Rich vs. poor for the crumbs
•  No ability to sustain national defense
•  The result is the loss of our liberty
Conclusion
Sounds like our nation needs advice from the
real world…
A New Economic Strategy
•  Free Trade within our borders
•  Mercantilism not Free Trade must guide
our international trading strategy
•  National Security is a priority
•  Control import quality
•  Some form of national health care that lifts
the cost off of job providers
•  Some form of Social Security that lifts the
cost off of job providers
•  Smart taxes not dumb taxes
Tradereform.org
Wake up, America!
Visit:
reverecopper.com
and learn more