The Anti-Manufacturing Forces in Washington

Gilbert B. Kaplan
Former Deputy Assistant and Acting Assistant Secretary of the U.S. Department of Commerce

Hard as it may be to believe, there are forces in Washington that oppose the revival of the U.S. manufacturing sector. Who are they, and how do we counter their efforts? I think — roughly — they fall into five groups.

First, we have the people who are making big money by moving manufacturing off-shore. This includes some retailers that make no bones about buying everything from the lowest price source possible, even if that means closing down U.S. plants and buying from producers that ignore even rudimentary environmental and labor laws. It also includes major U.S. multinationals that find it in their interests to move U.S. jobs abroad because of lower wages and because many foreign countries will give them big subsidies to abandon their U.S. roots and obligations. These companies fight against any law or policy change that will keep manufacturing here, or that seeks to incentivize bringing it back.

Second, are the people who believe without reservation in free trade — no matter what. To them, any changes in trade law or policy to toughen our stance violates some basic philosophical belief and will never be countenanced. Certainly open trade has helped world growth and the development of many countries, such as Korea and Brazil. But it is almost impossible to talk to these people about our manufacturing decline. What they do not understand is that the U.S. is fighting, so to speak, a two-front war when it comes to trade. On the one hand, we are seeking reasonable market opening and regulatory changes to expand the benefits of free trade — such as the effort to create a U.S./EU Free Trade Agreement. But on the other hand, we are dealing with blatantly mercantilist export machines that are seeking to harm the U.S. economy, or at least certainly couldn’t care less if they do. We see this kind of conduct in China. We cannot treat both kinds of foreign trading partners (or should we say competitors) the same. It would be like saying we must — in our foreign policy — have totally consistent rules of the road with every other country no matter who they are — for example the same policy toward North Korea that we have toward Italy. No one would even propose something so absurd. But classic free trade proselytizers want us to treat every country with the same set of rules, no matter how different their systems or motivations.

Third, we have the people who believe that trade is less important than foreign policy, and so any time we might want to take a position in support of U.S. manufacturing — a position that may rub one of our trading partners the wrong way — they are usually against it for foreign policy reasons. One example is our continual reluctance to take very strong, fast action against currency undervaluation, despite the clear evidence of the harm it is causing us. This appalling lack of action is brought about by a number of factors, one of them being the concern that our diplomatic relationships are more important than dealing with trade problems.

Fourth, there are the people who have undercut our ability to apply the trade laws to unfair trade practices. We used to have a robust body of trade laws, but years of negative decisions at the World Trade Organization (“WTO”) — which now has the right to oversee the application of our trade cases — have cut back on their efficacy. Most recently the WTO, in a truly astounding decision, said that even when a company in China is owned by the Chinese government that does not mean the company is following the directives of the Chinese government in terms of subsidizing or assisting its customers. A rudimentary knowledge of the Chinese Communist system shows the fallacies in this thinking; a more thorough knowledge shows it is totally absurd. These WTO bureaucrats are in Geneva, but many in the U.S. government have failed to stand up strongly enough against these wrong-headed WTO decisions.

Finally, many conventional economists have long argued that there is no reason to have manufacturing in the U.S. It is just as good to have service jobs, they say. But that argument, at its root, makes no sense. Service jobs do not spin off other jobs to nearly the same extent that a major manufacturing plant does. They are also generally lower paid, and they don’t spawn critical innovation and research and development.

We need to counter these arguments, and look more broadly at the problem of manufacturing decline. To that end, I would like to see the creation of a Center for United States Manufacturing Revival at a major U.S. university. The revival of U.S. manufacturing — looked at from an academic perspective — will be a multidisciplinary effort requiring expertise in economics, law, engineering, business, public policy, and education, among other disciplines. An academic center bringing together these different perspectives would be very helpful. Scholars should analyze the real costs of the enormous manufacturing trade deficit, of the decimation of United States families and communities, and of the destruction of R&D capacity in our country — all the result of harm to the manufacturing base. I have begun to talk with universities and funding sources about this idea.

The U.S. problem with manufacturing was a central issue in the Presidential campaign and numerous Congressional races. Both Democrats and Republicans took up the issue. But progress in this area remains incremental. Why? The simple fact is that there are political and policy groups arrayed on the other side of the issue. Some people in Washington do not believe it is in the U.S. interest to take the actions we need to take to correct this problem. It is not that we have just made a mistake or lack the wisdom to find solutions. Nor is it the case that manufacturing base deterioration is a natural evolution that we cannot control. Rather, in the past, and in the present, we are adopting policies that are undercutting the manufacturing base. We need to confront the nay-sayers and turn this ship around.