Rebuilding American Manufacturing Wayne State University June 5, 2012 Keynote Address by M. Brian...

Rebuilding American Manufacturing

Wayne State UniversityJune 5, 2012

Keynote Address byM. 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 farmingin 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?

GDP = C + I + G + NE

Consumption

Investment

Government Procurement

Net Exports

Biggest Most Volatile

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 Revereby a customer)

CENTRIFUGAL CHILLER COST COMPARISON

Material Labor

0

20

40

60

80

100

USA China

WITHOUT 40%CURRENCY MANIPULATION

0

20

40

60

80

100

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 REBATEOF 17%

0

20

40

60

80

100

USA China

Material Labor

Traded Products & ServicesVAT Impact at $100 Value

USAVAT = 0

MexicoVAT = 15%

GermanyVAT = 19%

$119$81$85

$115

$85

$81

Some Countries Using VAT Tax to Support Factory, Farm &

Service Jobs

Australia

Austria

Belgium

Brazil

Belgium

Canada

China

Czech Republic

Denmark

Finland

France

Germany

Greece

Hungary

Iceland

India

Ireland

Italy

Japan

Korea

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Russia

Singapore

Slovak Republic

Spain

Sweden

Switzerland

Thailand

Turkey

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

0%

5%

10%

15%

20%

25%

30%

1968 1973 1988 1996 2006

Total EU Trade Barrier Average EU VAT Rate Average EU Tariff Rate

Total EU Trade Barrier

Avg. EU VAT

Avg. EU Tariff AMTAC

TWENTY FIRST CENTURYTRADE 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 CENTURYTRADE PRINCIPLES

1. Balanced Trade2. National Trade, Economic andSecurity

Strategy3. Reciprocity4. State Owned Commercial Enterprises5. Currency6. Rules of origin

TWENTY FIRST CENTURY TRADE PRINCIPLES

8. Border Adjustable 9. Perishable and Cyclical Products10. Food and Product Safety and Quality11. Domestic Procurement12. Temporary vs. Permanent Agreements13. Labor

TWENTY FIRST CENTURYTRADE 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.

WALL

STREET

MULTINATIONALS

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