Paul: Unlocking America's Factories

Master Lock is synonymous with manufacturing, for all the wrong reasons. After all, the 54,000 U.S. manufacturing facilities shuttered since 1998 needed a padlock on the front gate. In some cases, even those padlocks were made in China.

Until recently.

Today, President Obama visits Master Lock in Milwaukee. The company recently brought back 100 jobs from China.

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Is it possible that factory work is back after a decade of sustained and steep decline?

Don't hold you breath just yet.

Here are three reasons to be skeptical.

First, the administration is triumphantly hailing new "agreements" with the Chinese to follow the rules they agreed to more than a decade ago. The carefully choreographed visit of president-in-waiting Xi Jinping to Washington yesterday couldn't have gone better for China and the outsourcers, and couldn't have gone worse for American workers. For those of us who monitor U.S.-China summitry, it's akin to dining at a freshly painted restaurant with the same lousy food. Yes, Vice President Biden gently chided China's practices over a champagne toast to Xi. But we need to establish deadlines, objective criteria for progress and consequences in the form of trade sanctions, tariffs and a loss of market access if China doesn't honor its commitments. Friendship is a lovely thing, but not if one guy continues to bully and get away with it.

Second, the companies touting themselves as champions of the factory worker (General Electric(*Note GE and Comcast are the parent companies of CNBC and NBCUniversal) or being touted by the president (Master Lock) are dubious poster children for an American manufacturing renaissance. GE has brought back a little work from overseas, and they have hired back a small percentage of the workers they laid off over the past decade at their American factories. But GE has also recently closed more than 20 factories, shifted avionics and radiology businesses to China, and pushed for public policies that will allow them to continue that course. As Josh Boak smartly noted today, some of the CEOs on the President's Jobs and Competitiveness Council are making the job of growing manufacturing in America more difficult.

Third, the data are unconvincing. Yes, we've gained 370,000 manufacturing jobs since 2010 and 50,000 last month, but that is a drop in the bucket compared to the 5.5 million we lost last decade. There are reasons why manufacturing is growing again, but there is no guarantee that we will be so lucky in the future. Consumer demand is up, meaning depleted inventories are being restocked. The Japanese yen is so highly valued that it makes American production look more appealing. And, the Big Three automakers are doing reasonably well thanks to restructuring, federal loans and major problems in the Japanese auto sector. But we can't count on any of those trends to continue.

The $295 billion trade deficit we posted with China last year shattered the previous record and revealed the ugly underbelly of our bilateral trade. China's high-tech exports to America are growing rapidly. Our commodity exports to China are growing rapidly as well: coal, scrap metal, scrap paper, unprocessed oilseeds. That's not the foundation of a "built to last" economy. On the other hand, we sold a little more than 100,000 of the 18 million vehicles bought in China last year.

KEYS TO UNLOCKING AMERICA'S FACTORIES

What's really needed to unlock America's factories? How do we get our workers to start punching the clock again? Here's how we get there in nine steps:

• We need to identify strategic industries to support. The automotive sector, and in particular clean energy vehicles, is an obvious candidate. Add to that solar, wind and other renewable energy manufacturing, which will be in growing demand. In an age of automation, it’s quite possible to recapture high-tech manufacturing, from semiconductors to tablet production. Aerospace and national-security related industries must be on the list. Emerging technologies like nano and bio, as well as opto-electronics also make sense. Finally, industries where proximity to market is critical, like heavy steel and made-to-order consumer goods.
• Next, we need to identify the right policies. The State of the Union was helpful in that it outlined some of the basic issues, such as tax policy. Tax credits for hiring, producing, and innovating domestically are a good start. All of this can be done without cutting the corporate tax rate, which would predominantly benefit big banks.
• While 154 nations have a value-added tax (VAT), which is rebate-able for exports, the United States does not. It is worth exploring what sort of a border-adjustable tax system makes sense to incentivize exports rather than imports.
• There must be incentives to make capital more patient, as it is in Germany. Requiring a longer holding of assets to receive preferential tax treatment is one way to do this.
• Our system of vocational education must be rebuilt from the bottom up and provide a seamless period of skills development and training through high school, vocational school and apprenticeship. Young men and women should be encouraged to fill skilled manufacturing jobs (where demographic shifts will create millions of openings over the next five years) rather than fleeing them.
• Our trade policy must become more results-oriented and less philosophical. Our trade deficit matters as much as the rest of our debt, but it receives scant attention. Penalizing China's currency manipulation is a good start. Such a move would empower Chinese consumers, raise the wages of Chinese workers and make American production more competitive. Moreover, labor rights must be treated at least as well as investor and corporate rights, and not as an afterthought. Boosting the wages of workers overseas will, among other things, permit them to buy more of our goods.
• We must develop a national economic development model that is built around the idea of competitive clusters to avoid a state vs. state race to the bottom, which is our status quo.
• Public investment is critically important to build up a 21st century system of transportation and energy transmission. We must steer those tax dollars to American suppliers.
• Rebuilding the "industrial commons," a system of public-private support for basic scientific research and applied research, will require a renewed allocation of resources.

What happens to manufacturing will impact all of us. Manufacturing plays an outsized role in our innovation (providing two-thirds of all private sector research and 90 percent of patents), economic development (adding a multiplier of four to five jobs for every manufacturing job created), and revenues (manufacturers often have the highest revenue impact locally).

When the president speaks at Master Lock, remember that we need real policies to back up the amazing rhetoric. A $26 million trade enforcement unit can't counter hundreds of billions of dollars worth of Chinese subsidies unless we are willing to sanction. Companies won't invest in America unless they have the incentives to do so. I'm sure the workers at Master Lock have some good ideas for the president, too. If the demand for padlocks on shuttered American factories declines, I'm sure they won't mind.

EDITOR'S NOTE:In response to this post, Gary Sheffer, Vice President of Corporate Communications and Public Affairs at GE sent this comment:

Mr. Paul has his facts wrong. GE is not shifting its Avionics or X-ray businesses to China. Those jobs remain in Wisconsin, Florida and Michigan. Today, GE is building or refurbishing 16 factories in the U.S., adding 13,000 workers. Looking further back (as Mr. Paul does), GE employment in our core U.S. manufacturing businesses is up 20 percent in the past decade (in that time, we have tripled our exports from U.S. factories). GE now has more than 200 U.S. manufacturing facilities, compared to 83 in 1995 and 150 in 2000. Last week we opened our first new product line in 50 years at our appliances plant in Louisville, Kentucky. Mr. Paul is right that creating manufacturing jobs isn't easy, but GE is committed to making it happen.

Scott N. Paul is the founding executive director of the Alliance for American Manufacturing (AAM), which was launched in April 2007. AAM, a unique partnership between the United Steelworkers union and leading U.S. manufacturers, has rapidly developed into an effective research and advocacy organization, publishing reports on the effectiveness of domestic trade laws and the consequences of China’s market-distorting practices. The alliance has sponsored several successful “Keep It Made in America” tours and events, including an 11-state bus tour focused on the auto sector, town hall meetings on manufacturing issues and a nationally televised presidential candidates forum on manufacturing.