Manufacturers fret candidates' trade bashing
Despite the challenges posed by increased competition from abroad, the National Association of Manufacturers, the sector’s main lobbying group, remains committed to trade agreements, which it sees as key to future exports and job growth. | AP
U.S. manufacturers have something to say to Donald Trump, Bernie Sanders and even Hillary Clinton: Please stop trying to “protect” us with simplistic slams on free trade.
As the Wisconsin primary approaches on Tuesday, the candidates have kept up their tirades against China, Mexico and U.S. trade policies in general, aiming to tap into working-class anger about millions of lost manufacturing jobs since the signing of the North American Free Trade Agreement and China’s entry into the World Trade Organization.
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But as the attacks continue, critics, including many in the business community, are accusing the politicians of misrepresenting the facts: China’s rise as a manufacturing power, for example, followed the path of many other countries after World War II that have whittled away the United States’ once dominant position; and Washington didn’t cut tariffs on Chinese goods under the WTO deal, although it did give up the right to raise them above current levels in granting the country “permanent normal trade relations” status.
What’s more, U.S. manufacturing output is at record high levels: If the manufacturing sector were its own country, industry officials proudly point out, it would be the ninth-largest economy in the world.
“I represent a manufacturer, [a] farm equipment manufacturer, here in Wisconsin that directly employs many thousands of people,” Jim Walker, vice president of Case IH North America, said Tuesday night at CNN’s GOP Town Hall during the segment with Ohio Gov. John Kasich, who is alone among the candidates in supporting the Trans-Pacific Partnership. “To spark a trade war right now would not only be detrimental to business, but all of those people.”
But the candidates’ trade rhetoric is resonating, and there are real economic losses to draw from. The U.S. share of global manufacturing exports has dropped from 18 percent to 12 percent since 2000, one year before China joined the WTO. Meanwhile, China’s share has quadrupled from 6 percent to 24 percent.
Trump’s proposed response is to declare China a currency manipulator and impose anti-subsidy duties on its exports in a bid to force Beijing to the negotiating table. That propelled him to victory in the Michigan primary, just as tough talk did for independent socialist Sanders in the state’s Democratic primary and for Democratic front-runner Clinton a week later in Ohio — another heavily industrial state that lost at least 20 percent of its manufacturing jobs between 2006 and 2011. Kasich, who is still struggling for a second Republican primary victory, stands out as winning the state he governs despite his pro-trade message.
Wisconsin fared slightly better in the 2007-09 economic crisis than its two neighbors did, but it still lost 12 percent of manufacturing jobs. In hopes of repeating his Michigan upset, Sanders laid the blame for the job drain squarely on trade in a rally at Carthage College, in Kenosha, on Wednesday.
“Over the last 35 years, we have had trade policies written by corporate America designed to allow companies to shut down plants in Wisconsin and Vermont and all over this country,” Sanders told the crowd. “They’d rather move to Mexico and pay people pennies an hour.”
Kasich, meanwhile, has continued his pro-trade strategy, emphasizing, as he did in CNN’s Town Hall meeting, the need for strong enforcement to stop countries that cheat in trade, but also embracing the 12-nation TPP as a way to knock down barriers to agricultural and manufacturing exports and counter China in the fast-growing Asia-Pacific region — the very reasons President Barack Obama cites in aggressively pushing for the pact.
“You worry about the Chinese and their growing strength, particularly in Asia?” Kasich asked. “Make a trade agreement. Integrate ourselves with our friends in Asia, who can become a bulwark against the strength of the Chinese.”
The impact of trade on U.S. jobs is a critical concern in Rust Belt states like Michigan, Ohio, Wisconsin and Pennsylvania, which will hold its primary April 26. At its peak in 1979, U.S. manufacturing employed nearly 19.6 million people, and the sector still totaled 17.3 million in early 2001, seven years after NAFTA went into effect. But those numbers fell by nearly half in the first decade of the 21st century, to less than 11.5 million in 2010. As the United States claws its way back from the Great Recession, manufacturing employment has risen slightly, to about 12.3 million.
Despite the challenges posed by increased competition from abroad, the National Association of Manufacturers, the sector’s main lobbying group, remains committed to trade agreements, which it sees as key to future exports and job growth. To explain why, the group cites this statistic: The 20 countries that have free trade agreements with the United States represent less than 6 percent of the world’s population but purchase about half of U.S. exports.
“Every year we sell $60 billion more in manufactured goods to these countries than we buy from them,” NAM President Jay Timmons said in a speech shortly after the group formally endorsed the Trans-Pacific Partnership in January. “Where we don’t have agreements, we’re running a trade deficit exceeding $500 billion.”
“Unfortunately, some politicians didn’t wait to read the language before issuing their condemnations [of TPP],” Timmons added. “While we understand there are principled concerns about the agreement, knee-jerk opposition and political gamesmanship won’t strengthen our competitiveness or put more people to work.”
Rather than for calling protective tariffs like Trump or walking away from trade agreements like Sanders, the manufacturing group has put congressional approval of the TPP and the conclusion of the Transatlantic Trade and Investment Partnership with the European Union near the top of its agenda for 2016 and beyond.
“U.S. manufacturers, exporters face higher trade barriers than most other major countries,” Linda Dempsey, NAM’s vice president for international economic affairs, said in an interview. “A lot of that is because most other countries — from China to Mexico to every member state in the European Union — are part of a lot more trade agreements.”
And NAM also has a long list of other issues that it thinks would make U.S. manufacturers more competitive in world markets, including tax reform.
“It’s becoming more and more apparent that the U.S. tax code is out of whack with the rest of the world and that this is really having a direct impact on our economy and our companies,” Dorothy Coleman, the group’s vice president for tax and domestic economic policy, told POLITICO. “We have been pushing for tax reform for a number of years and feel even more strongly than ever we really have to do something as soon as possible.”
Meanwhile, the United States has a growing skills gap that looms over the sector as manufacturing becomes more sophisticated. Workers increasingly need higher math, science and analytical skills as product development and manufacturing systems become increasingly interwoven and production cycles shorten, even as the hiring pool shrinks.
Twenty-two percent of the manufacturing workforce is expected to retire over the next decade, creating about 2.7 million jobs openings, and another 700,000 workers could be needed as manufacturers expand operations, the consulting firm Deloitte and the Manufacturing Institute, a NAM-affiliated nonprofit devoted to workforce development, said in a joint 2015 report.
Manufacturers told the report’s authors that about 60 percent of their open positions were unfilled because of a lack of skilled workers. Extrapolating from that, the report estimated there could be as many as 2 million unfilled jobs in U.S. manufacturing by 2025 because workers don’t have the proper training or education.
Compounding the problem, slightly more than half of all teenagers have no interest in manufacturing as a profession, according to a poll conducted by the Foundation of Fabricators and Manufacturers cited in the report. Another survey of 19- to 33-year-olds ranked manufacturing “as their least preferred career destination.”
“There’s a real concern about the skills gap and finding the types of manufacturing employees that can fill that,” Dempsey said.
Still, some in the sector see the need for a more muscular trade policy, including Ernie Preeg, senior adviser for international trade and finance at the Manufacturers Alliance for Productivity and Innovation, an industry education and analysis group.
The United States should make a “clear and forceful statement” early in the next administration that the trade imbalance with China is no longer acceptable and be willing to back that up with unilateral action, Preeg said in a new report in which he argues that Beijing has disrupted the rules-based multilateral trading system by manipulating its currency for an unfair advantage.
The next president should demand that “they’ve got to have a convertible exchange rate and do other things to reduce the trade deficit or else we will be putting sanctions on,” Preeg told POLITICO. “It is having a showdown. … But it’s in the context of rebuilding a multilateral free trade system, so it’s part of a much broader strategy.”
Dempsey said the United States should avoid any action that runs afoul of World Trade Organization rules, which bar countries from raising tariffs above certain “bound” levels. “When I say all countries should follow the rules, the United States should as well,” she said.
But Preeg, whose experience in trade policy dates back to the talks on the General Agreement on Tariffs and Trade during the Kennedy administration, argued the United States is “in extremis” for many of its strategic manufacturing sectors “and in extremis, we have to act now with an interim import barrier” to force China to negotiate.