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The label on America's economic ruin: 'Made in China'

Rochester Business Journal
July 24, 2009
Let me begin with the biggest impact on our economy due to trade with China, the deindustrialization of America and the myth that this is inevitable and necessary. Though in some areas this process began long before permanent trade relations with China were established by legislation, the record of the last 10 years in different manufacturing sectors and our trade deficit with China lead one to the undeniable conclusion that deindustrialization and attendant reduction in manufacturing over the last decade have greatly increased to the detriment of the United States and New York State.

There are those representing the corporate sector, from the Chamber of Commerce to the International Monetary Fund, who have continued to put forth the view that deindustrialization and the loss of manufacturing in the United States is inevitable in a globalized market economy and not detrimental to our economy because of the expansion of the service economy. The statistics refute this view beyond any doubt.

Just a decade ago, manufacturing was about 30 percent of U.S. gross domestic product; today it is less than 12 percent. From 2000 to 2007, 3.5 million jobs were lost in U.S. manufacturing. Yet as of 2007, U.S. manufacturing still employed 14 million Americans and created 8 million additional jobs in other sectors.

When it comes to the jobs of the future, whether in robotics, lasers, computer sciences, photonics or biomedical advances, American manufacturers are the leading buyers of new technology in the United States. In fact, American manufacturers are responsible for two-thirds of research and development investment in the U.S., and nearly 80 percent of all patents filed come from the manufacturing sector.

Though the great recession has reduced these numbers, at the end of 2007 manufacturing contributed $1.2 trillion to America's economy, and every 100 steel or auto jobs created 400 to 500 jobs in the rest of the economy. Contrast this with the retail economy, where every 100 jobs generate about 94 jobs elsewhere.

The fact is that China's cheating trade practices have cost Americans millions of jobs. This was expected to change when China joined the World Trade Organization in 2001, with WTO rules on illegal subsidies, illegal dumping and currency manipulation expected to reduce this problem. But in fact it has gotten worse, with 2.3 million U.S. jobs lost to China from 2001 to 2008.

Add to this labor rights abuses against international standards, which contribute to the low cost of Chinese goods. Millions of child workers and forced labor are used to make products for export to the United States. Independent labor unions are forbidden, and organizing attempts result in firing, imprisonment or worse. The Chinese allow companies to pay as little as 15 cents to 50 cents an hour, depressing consumer demand and thus forcing reliance on an export economy.

Costs of production are also depressed by low safety and environmental standards. As one example, 80 percent of the products recalled by the Consumer Product Safety Commission in the past year have been Chinese, from 17 million toys with lead, to poison pet food and toothpaste, to tainted and contaminated seafood.

To apply this to the local area, since 2001 New York State has lost the third-highest number of jobs to China: 127,000. Manufacturing is the third-largest contributor to the gross state product, with about $61 billion per year.

Rochester has been devastated by the loss of manufacturing jobs. Kodak, Bausch & Lomb, Valeo and Delphi, among others, have moved jobs to China. Hickey-Freeman has lost a number of jobs and been in danger of closing in the past year because of the dumping of subsidized Chinese suits.

On average, the jobs created in service industries, health care and government pay $8,100 less per year nationwide. These jobs have not been of sufficient quantity or wage quality to make up for the losses in the manufacturing sector. Additionally, we now have significant job losses in the government sector, which will not only decrease employment but further depress average wages.

State government has grants for companies, economic development funding and IDA and Empire or enterprise zones for tax subsidies, but for the most part they haven't been sufficient to stop the bleeding. Since these tax subsidies do not require family-sustaining wages, they will not rebuild an economy based on consumer spending.

Interestingly, anti-dumping laws and countervailing duty laws on subsidies have been around for more than a century and are part of WTO rules, and they go hand in hand. These regulations have the support of most trade partners, except many American CEOs.

Subsidies that favor home industries in China have hindered and denied access to the Chinese market for foreign companies manufacturing in China so that most of what they make in China is for export. In less than a decade, more than $27 billion in government subsidies in energy for China's steel industry have made it the No. 1 producer and exporter of steel, producing more steel than the next three countries together, Japan, the U.S. and Russia.

As our own New York Nobel laureate in economics, Joseph Stiglitz, writes, all countries have the ability to levy tariffs to balance trade and protect jobs with a value-added tax on imports, except the U.S. However, the majority of countries do not have the money to subsidize their own industries to compete with the massive subsidies that China gives to its industries. Such subsidies are the epitome of protectionist, unfair trade.

Congress must pass laws requiring corrections in WTO rules and enforcement of existing rules or pull out. The Constitution charges our government to promote the general welfare, not some tribunal that is not accountable to the electorate. Economists still agree that when America sneezes, the rest of the world catches cold. China needs our consumer market, especially in a country where workers are low-wage and not free, suppressing internal consumer demand. Yet there are still plenty of big-business types and economists from the IMF, the Chicago school, the "My head is flat" Tom Friedman people who say this is OK, natural, evolutionary, that the loss of 100 manufacturing jobs in Rochester is OK because 100 customer service call-center jobs replaced them in Tucson.

In a democracy, they don't get to decide that it is OK if our children have no family-sustaining jobs after school. It's not OK that 45 percent of Rochester children live in poverty and that poverty is crumbling our city and contributing to a culture of crime and fatalism.

In a democracy, they don't get to decide for the rest of us that it's OK to sacrifice and destroy once-thriving communities like Rochester and Flint and Detroit and Buffalo and Syracuse and Akron and Newark. We need trade laws for the global community that are enforced and that promote the general welfare.

James Bertolone is president of the Rochester Labor Council, AFL-CIO. He also is president of the American Postal Workers Union Local 215.

07/24/09 (C) Rochester Business Journal

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