On March 28th the Smart Trade Conference sponsored by the Coalition for a Prosperous America brought together a broad spectrum of local business executives to discuss CPA's strategic agenda to fix America's economy by reforming U. S. international economic policies to enhance the global competitiveness of domestic manufacturers and farmers to promote genuine economic recovery and create family-sustaining private sector jobs.
Ian Fletcher, CPA's Senior Economist, began with the following chart showing that the U. S. trade deficit from 1960 to 2010 has resulted in a total $5.85 Trillion in U. S. global losses requiring net U. S. foreign borrowing/asset sales of $1.6 Billion per day.
He emphasized that trade deficits are real money, saying that when America receives goods from abroad, we must pay with: a) goods we produce today, b) goods we produced yesterday, or c) goods we will produce tomorrow. We are going more and more into debt because we are losing the manufacturing capability to produce goods today that we can use to pay for goods we receive from abroad. America has already lost the following industries: Fabless chips, Compact fluorescent lighting, LCDs for monitors, TVs, and handheld devices
like mobile phones, electrophoretic displays, Lithium, ion, lithium polymer and NiMH batteries, Advanced rechargeable batteries for hybrid vehicles, Crystalline and polycrystalline silicon solar cells, Inverters and power semiconductors for solar panels, Desktop, notebook and netbook PCs, Low-end servers, Hard-disk drives, Consumer Networking gear such as routers, access points, and home set-top boxes, Advanced Composites used in sporting goods and other consumer gear, Advanced ceramics and Integrated circuit packaging.
Mr. Fletcher said that from the early 1800s until after WW II, the Untied Stated was a protectionist nation in order to protect and grow its domestic manufacturing industry, as initially recommended by our first Secretary of Treasury, Alexander Hamilton. As a free-market capitalist country, the United States is competing against the state-controlled capitalism of China and Japan. He concluded by pointing out that it's not just cheap labor that is the problem. The U.S. is actually now a laggard in manufacturing wages among developed nations. Germany has much higher wages than the U. S. and doesn't have a trade deficit problem with China as we do.
Next, CPA's President Michael Stumo went into more detail on the trade deficit problem stating that our trade deficit set records in the last decade. Net imports hollow the U.S. economy and slow growth. He explained that GDP is the sum of "consumption," "investment," "government spending," and "net exports." Thus, our net imports subtract from our GDP.
The trade deficit equals lost jobs ─ ten thousand jobs are lost for every one billion in trade deficits. In February 2011, the real unemployment, that is, the U-6 measure, which also includes marginally attached workers and involuntary part-time workers, totaled 24.7 million Americans.
The trade deficit equals low quality jobs because we have trade deficits in virtually all industrial sectors, from low tech to high tech to green tech. Agriculture has also ceded domestic market share to imports. We are creating low wage, low benefit jobs. Our loss of
manufacturing means that workers move from manufacturing to service jobs for an average 40% pay cut.
Mr. Stumo said that the primary problem is our failure to recognize and neutralize foreign state capitalism. The Chinese government owns over 50% of its economy, using currency manipulation, value added taxes, strategic subsidies, indigenous innovation, and other means to maintain trade imbalances. Japan, Germany, South Korea and others have versions of state-managed capitalism to maintain net exports. Tariffs are a very small part of the issue. The "Washington Consensus" version of free trade focuses upon lower tariffs. But, lower tariffs do not address the many ways state-managed capitalism causes our trade deficit. State-managed capitalism is the 21st Century problem. The U.S. has failed to even articulate this problem, even as we lose jobs, wealth and innovation. We need a national trade and economic strategy designed to produce more of what we consume, balance trade, and neutralize state capitalism.
Then, he explained that border adjustable taxes (BAT) are a hidden foreign export subsidy whenever exporters receive a government tax rebate upon export. BATs are hidden tariffs because the U.S. goods pay the tax when entering the foreign country. A Value Added Tax (VAT) is a tax on consumption - as opposed to income, wealth, property or wages. It is s a tax only on the "value added" to a product, material or service, from an accounting view, at every stage of its manufacture or distribution. Over 150 countries have a VAT but the U.S. does not. VATs are "border adjustable" and average about 17%. He said this means that virtually all foreign countries tax our exports with their VATs, when our goods cross into their country. While those countries tax their domestic production as well, they rebate their 17% VAT when their companies export.
Mr. Stumo said that VATs are the biggest trade problem for the U.S. globally. They are an essentially a tariff on U.S. exports, and foreign VAT rebates are also a subsidy facilitating foreign exports to us. Trade agreements do not address VATs when tariffs are lowered. The World Trade Organization allows VATs. During the last 40 years, the U.S. has lowered tariffs and other countries lowered tariffs. However, other countries implemented and raised their VATs. The net result is that other countries replaced tariffs with VATs but the U.S. did not. No trade barrier costs us more money. No other foreign trade tactic costs the U.S. economy more. Our exports are double taxed - once in the U.S. and once upon arrival at a foreign country's shores. Foreign sales to us are partially tax free. Foreign countries rebate the VAT upon export, and the U.S. does not apply the tax at our border.
Mr. Stumo concluded his remarks with a brief discussion of the currency manipulation problem. Foreign currency manipulation is trade cheating because it is both a tariff and a subsidy. The U.S. economy cannot produce jobs and wealth without addressing this problem. China's state managed economy, poses the biggest problem to the U.S., making up 1/3 of our trade deficit. China's currency is at least 35% undervalued. Our exports cost 35% more than they should to the Chinese. Their sales to us are 35% less than free market value. China, South Korea, Japan, Taiwan and Singapore have manipulated their currency values. Our government has not protected U.S. economic and national security interests by neutralizing this practice.
He said that the U. S. has the discretion, under WTO rules, to apply its trade laws to offset the injurious effect of any subsidy, but the U. S. Trade Representative has refused to include trade agreement provisions that neutralize currency manipulation or other massive non-tariff barriers. Reciprocal tariff cuts matter very little when state-managed economies have many other modern tools to game the system, including currency cheating, border taxes, free credit, indigenous innovation requirements, and other tactics to hobble U. S. producers. The persistent failure of high level diplomatic efforts to solve this problem underscores the futility of negotiating without leverage. CPA is urging Congress to act to address this problem.
Mr. Dave Frengel, Director of Government Affairs at Penn United Technologies, Inc. was the last speaker. He told the story of how CPA was founded in 2007. At that time a group of domestic manufacturing members of the National Association of Manufacturers successfully pushed for a controversial vote on NAM's International Economic Policy Committee endorsing congressional legislation that would hold China and other nations accountable for currency manipulation. The vote was eventually overturned by NAM's Executive Committee and Board of Directors because the Executive Committee and Board of Directors is dominated by the large multinational corporations, many of which have manufacturing operations in China and other foreign countries. The overturn of the vote led to a confrontation between a group of NAM's domestic manufacturing members that supported the vote and NAM's president. Some of these companies subsequently left NAM. He said that when some agricultural and labor leaders heard about his group of domestic manufacturers who were battling the multinationals in the NAM, they invited his group to join them for a "Globalization" conference in Colorado Springs to see if there was common ground for all of them to work together on trade reform. It turned out that there was a huge amount of high middle ground. As a result, his company was part of the group that founded CPA to address currency manipulation and other trade issues hurting American manufacturers. If you would like to receive CPA's Trade reform blog, you may sign up at www.prosperousamerica.org
During the Q & A session, Senator Mark Wyland's field rep, Donna Cleary, suggested that CPA schedule a follow-up summit to address other problems to fix California's economy. The response was positive, and several people volunteered to help plan the summit. All of the San Diego County Supervisors, California legislators, and Congressional representatives had been invited to attend or send a representative, but only Donna Cleary showed up. In subsequent conference calls, a tentative date of October 10, 2012 has been set. Persons interested in sponsoring and planning this summit, may contact CPA's State Chair, Michele Nash-Hoff at email@example.com or Sara Haimowitz, Program Development Director, at firstname.lastname@example.org