On his very first day in office, President Biden signed an Executive Order canceling the permit for the Keystone XL pipeline. Halting work on the “pipeline in South Dakota immediately eliminated 1,000 union jobs. TC Energy, the company that was developing the project, predicts that more than 10,000 jobs will be lost in 2021 due to the order.” Only a week later, he signed an Executive Order freezing new oil or natural gas leases and drilling permits on federal land. These orders put American energy independence at risk, which will hurt American manufacturers.Read more
During his campaign, Biden laid out his economic agenda for the country: “Build Back Better, which includes a $700 billion investment in procurement and research and development for new technologies such as biotech, clean energy, and artificial intelligence.” The goal is that “the new plan will help create 5 million new jobs.” As Vice President under President Obama, Biden advocated engagement with China but changed his tune during the campaign, “calling Chinese President Xi Jinping a “thug. ” While he repeatedly criticized “Trump’s trade and tariff war with China as being ineffective and failing to protect the US economy,” the Biden Administration must maintain the steel and aluminum tariffs to have any hope of achieving his goal.Read more
Reshoring of Manufacturing Increases in 2020
The United States gradually lost manufacturing jobs from the peak of 19.5 million in 1979 to 17.3 million by early 2000. However, after China was granted Most Favored Nation status that year, the loss of manufacturing jobs in the U.S. accelerated dramatically as American manufacturers moved manufacturing offshore and cheaper Chinese goods drove U.S. manufacturers out of business.Read more
China was granted Most Favored Nation status through presidential proclamation on an annual basis from 1980 – 1998. This was because the Trade Act of 1974 stated that “MFN status may not be conferred on a country with a nonmarket economy if that country maintains restrictive emigration policies” China was, and still is, a nonmarket economy and restricted emigration, but the Act allowed the president to “waive this prohibition on an annual basis if he certifies that granting MFN status would promote freedom of emigration in that country.”
According to CRS Report 98-603 for Congress, “China’s Most-Favored-Nation (MFN) Status: Congressional Consideration, 1989-1998:” After the Tiananmen Square protests in 1989, there was enough opposition to granting MFN status to China that the “House passed joint resolutions disapproving MFN for China in both 1991 and 1992,” but the Senate didn’t pass the joint resolution. However, the real focus of the debate was not whether to deny MFN status for China altogether, but whether or not to “place new human rights conditions on China’s MFN eligibility.” Congress passed legislation in 1991 and 1992 that would have placed further conditions on China’s MFN status, but President Bush vetoed the legislation.
In 1993, President Clinton announced he would link China’s MFN status to human rights progress beginning in 1994. However, President Clinton reneged on his campaign promise and reversed himself: “On June 2, 1995, President Clinton transmitted to Congress his intention to waive the emigration prohibition and extend MFN status to the People’s Republic of China for an additional year, beginning July 3, 1995.”
An L.A. Times article of May 27, 1994, reported: “President Clinton, abandoning a central foreign policy principle of his Administration, announced Thursday that he has decided to “de-link” China’s privileged trading status from its human rights record. While acknowledging that China “continues to commit very serious human rights abuses,” Clinton said that he has come to believe that broader American strategic interests justify the policy reversal.”
The annual granting of MFN status to China by a presidential waiver continued through 1998. Note that “On July 22, 1998, legislation was enacted which replaced the term “most-favored-nation” in certain U.S. statutes with the term “normal trade relations.” This made it easier for Congress to make the fateful decision to extend “permanent normal trade relations,” or PNTR, to China when the Senate voted to give China permanent most-favored-nation status on September 19, 2000. This vote paved the way for China’s accession to the World Trade Organization.
As Reihan Salam, President of the Manhattan Institute wrote in an article titled
“Normalizing Trade Relations With China Was a Mistake,” in the June 8, 2018 issue of The Atlantic, “PNTR was a euphemism designed to get around the fact that the traditional term for “normal trade relations” was “most-favored-nation” (MFN) tariff status…MFN status meant imports would be treated as favorably as those arriving from “the most favored nation.” Absurd as it might sound, this linguistic convention had meaningful political consequences. To argue that we ought to have normal trade relations with China was one thing. Sure, why not? To make the case that China ought to be treated as our most favored nation was a more vexing PR challenge, not least in the wake of the brutal crackdown that followed the Tienanmen Square protests in 1989.”
An article in the American Economic Review, “The Surprisingly Swift Decline of US Manufacturing Employment,” by Justin R. Pierce and Peter K. Schott, July 7, 2016, states:
“The permanence of PNTR status made an enormous difference: Without PNTR, there was always a danger that China’s favorable access to the U.S. market would be revoked, which in turn deterred U.S. firms from increasing their reliance on Chinese suppliers. With PNTR in hand, the floodgates of investment were opened, and U.S. multinationals worked hand-in-glove with Beijing to create new China-centric supply chains.” https://www.aeaweb.org/articles?id=10.1257/aer.20131578
This change in U.S. trade policy that eliminated potential tariff increases on Chinese imports resulted in industries that were more vulnerable to the change experiencing greater employment loss, increased imports from China, and higher entry into the U.S. market by U.S. importers and foreign-owned Chinese exporters. My three books and the hundreds of articles I’ve written since 2009 have described what has happened to U.S. manufacturing since 2001. Besides the loss of 5.8 million manufacturing jobs and the closure of an estimated 67,000 American manufacturers, American manufacturing shifted toward more high-tech, less labor-intensive production. However, as China upgraded their technology in the past few years, we started losing our high-tech manufacturing also.
In addition to the annual reports to Congress by the U.S.-China Economic and Security Review Commission documenting China’s violation of World Trade Organization rules along with human rights violations, the U.S. Department of State submits an annual report on International Religious Freedom in accordance with the International Religious Freedom Act of 1998. According to the 2018 International Religious Freedom Report :
“Multiple media and NGOs estimated the government detained at least 800,000 and up to possibly more than 2 million Uighurs, ethnic Kazakhs, and members of other Muslim groups, mostly Chinese citizens, in specially built or converted detention facilities in Xinjiang and subjected them to forced disappearance, torture, physical abuse, and prolonged detention without trial because of their religion and ethnicity since April 2017. There were reports of deaths among detainees. Authorities maintained extensive and invasive security and surveillance, in part to gain information regarding individuals’ religious adherence and practices.”
Therefore, it gave me great pleasure when I read that on September 17, 2020, Senator Tom Cotton (R-Arkansas) introduced a bill (S.4609) that “would strip China of its permanent most-favored-nation status—also known as Permanent Normal Trade Relations—a designation it has held for the last twenty years. If passed, the legislation would make extending most-favored-nation status to China an annual decision for Congress and the president.”
Cotton said, “Twenty years ago this week, the Senate gave a gift to the Chinese Communist Party by granting it permanent most-favored-nation status. That disastrous decision made the Party richer, but cost millions of American jobs. It’s time to protect American workers and take back our leverage over Beijing by withdrawing China’s permanent trade status.”
Senator Cotton’s press release states:
“The China Trade Relations Act would revoke China’s permanent most-favored-nation status and return to the pre-2001 status quo, whereby China’s MFN status must be renewed each year by presidential decision. Congress could override the president’s extension of MFN by passing a joint resolution of disapproval.
The bill also would expand the list of human-rights and trade abuses under the Jackson-Vanik Amendment that would disqualify China for MFN status, absent a presidential waiver. The abuses that would make China ineligible for MFN status, absent a presidential waiver, are as follows:
- Uses or provides for the use of slave labor;
- Operates ‘vocational training and education centers’ or other concentration camps where people are held against their will;
- Performs or otherwise orders forced abortion or sterilization procedures;
- Harvests the organs of prisoners without their consent;
- Hinders the free exercise of religion;
- Intimidates or harasses nationals of the People’s Republic of China living outside the People’s Republic of China; or
- Engages in systematic economic espionage against the United States, including theft of the intellectual property of United States persons”
China’s strategic goal is to dominate the sectors of economic growth that historically have held the key to world power: transportation energy, information, and manufacturing. Their “Made in China 2025” plan is designed to dominate key technology sectors such as artificial intelligence, quantum computing, hypersonic missiles, and 5G. They also plan to become the dominant power in space by 2049.
If this bill isn’t passed in the Lame Duck session, I strongly urge that it be reintroduced into the next Congress and passed unanimously next year. It’s time China for us to stop treating China as a friend and recognize China as the enemy to our national sovereignty it is.
Over the past ten years that I have been writing blog articles, one of my reoccurring themes has been the danger posed to the U.S. by China because of their predatory mercantilism through product dumping, currency manipulation, intellectual property theft, and government subsidies. More recently, I have written about China’s written plan to become the superpower of the 21st Century through a combination of economic coercion, industrial espionage, and the buildup of their military.Read more
How has the COVID Pandemic Affected Makerspaces?
In the past several years, I have visited four makerspaces in southern California, and I recently decided to see how the COVID pandemic had affected these facilities. Makerspaces play a role in reviving the entrepreneurial “maker spirit” necessary to rebuild and grow American manufacturing.Read more
For those of us who support the Made in America/Buy American movement and want to rebuild American manufacturing by returning manufacturing to America through reshoring from China, it’s important to consider the policies of President Trump and former V.P. Biden in their bid to be president.
Two policies, tax rates and the cost and availability of energy, have a major effect on where a company chooses to locate their manufacturing or headquarters, if they have multiple plants globally. If the corporation has a plant in a country with a lower tax rate, they may choose to shift their profits to the subsidiary in that country. Bulgaria and the Czech Republic at 10% and Ireland at 12.5% have the lowest corporate tax rates in Europe. American manufacturers that don’t have plants in other countries face the brunt of the tax burden. Personal tax rates are also important as only 30-35% of manufacturers are C corporations; the others are LLCs, partnerships or sole proprietorships where taxes are passed through to the owner(s).
Biden’s Tax Policies:
- Raise the corporate tax rate to 28%.
- Require a true minimum tax of 21% on ALL foreign earnings of United States companies located overseas (double the current rate).
- Impose a tax penalty on corporations that ship jobs overseas in order to sell products back to America.
- Impose a 15% minimum tax on book income so that no corporation gets away with paying no taxes.
- Raise the top individual income rate back to 39.6%.
- Require those making more than $1 million to pay the same rate on investment income that they do on their wages.
- The U.S. had a corporate tax rate ranging from a low of 15% to a high of 35% until the Tax Cuts and Jobs Act (TCJA) was passed by Congress on December 20, 2017, which reduced the corporate tax rate to flat tax of 21%. TCJA also cut capital gains tax to 15 percent and increased the estate tax basic exemption amount from $5 million to $10 million.
President Trump’s tax policy platform for re-election focuses largely on promoting and preserving the tax cuts of TCJA and making various tax rate reductions scheduled to expire in 2025 permanent. Before the Republican convention, his campaign released his agenda, which included:
- Cutting taxes “to boost take-home pay and keep jobs in America”
- Enacting “Made in America” tax credits
- Expanding opportunity zones
- Enacting new tax credits “for companies that bring back jobs from China
- Permitting 100% expensing “for essential industries like pharmaceuticals and robotics that bring their manufacturing back to the United States.”
Biden’s Energy Policies:
Biden’s campaign website.states that he plans to “Move ambitiously to generate clean, American-made electricity to achieve a carbon pollution-free power sector by 2035. This will enable us to meet the existential threat of climate change while creating millions of jobs…”
His plan is for America to achieve a 100% clean energy target by means of:
- advanced nuclear reactors, that are smaller, safer, and more efficient at half the construction cost of today’s reactors;
- refrigeration and air conditioning using refrigerants with no global warming potential;
- using renewables to produce carbon-free hydrogen at a lower cost than hydrogen from shale gas through innovation in technologies like next generation electrolyzers;
- decarbonizing industrial heat needed to make steel, concrete, and chemicals and reimagining carbon-neutral construction materials
- leveraging research in soil management, plant biologies, and agricultural techniques to remove carbon dioxide from the air and store it in the ground; and
- capturing carbon dioxide through direct air capture systems and retrofits to existing industrial and power plant exhausts, followed by permanently sequestering it deep underground or using it to make alternative products like cement.”
Trump’s Energy Policies:
- Since he took office, President Trump has rolled back hundreds of environmental protections, including limits on carbon dioxide emissions from power plants and vehicles, and protections for federal waterways across the country, fulfilling a campaign promise from 2016.
- On June 1, 2017, Trump announced the U.S. withdrawal from the Paris Climate Agreement, saying the deal disadvantaged the US “to the exclusive benefit of other countries.”
- His administration approved oil and gas drilling in Alaska’s Arctic National Wildlife Refuge, which has been off-limits for drilling for decades.
- President Trump supports development of all forms of energy without subsidies, including product of natural gas through fracking
Biden’s Trade/Tariffs Policies
- Take aggressive trade enforcement actions against China or any other country seeking to undercut American manufacturing through unfair practices, including currency manipulation, anti-competitive dumping, state-owned company abuses, or unfair subsidies.
- Rally our allies in a coordinated effort to pressure the Chinese government and other trade abusers to follow the rules and hold them to account when they do not.
- Confront foreign efforts to steal American intellectual property.
- Address state-sponsored cyber espionage against American companies.
- Apply a carbon adjustment fee against countries that are failing to meet their climate and environmental obligations to make sure that they are forced to internalize the environmental costs they’re now imposing on the rest of the world.
Trump’s Trade/Tariffs Policies:
- On January 23, 2017, Trump signed an order to withdraw from further negotiations on the Trans-Pacific Partnership.
- On September 2, 2017, Trump instructed aides to withdraw from the U.S. trade agreement with South Korea and later renegotiated a better trade agreement.
- On August 16, 2017, the Trump administration began renegotiating NAFTA with Canada and Mexico. NAFTA was replaced with the new United States–Mexico–Canada Agreement (USMCA), signed on November 30, 2018.
- On January 22, 2018, Trump imposed tariffs and quotas on imported solar panels and washing machines.
- On March 1, 2018, he announced a 25% tariff on steel imports and a 10% tariff on aluminum.
- On April 3, 2018, Trump announced 25% tariffs on $50 billion in Chinese imported electronics, aerospace, and machinery.
- On April 6, 2018, Trump announced tariffs on $100 billion more of Chinese imports.
- On October 7, 2019 the United States and Japan signed two agreements intended to liberalize bilateral trade. The U.S.- Japan Trade Agreement (USJTA) provides for limited tariff reductions and quota expansions to improve market access.
- On January 15, 2020, President Trump and Vice Premier Liu H of China the US–China Phase One trade deal in Washington DC.
Buy American/Made in America
Biden’s Buy American/Made in America Policies:
- Make a $400 billion Procurement Investment in American products, materials, and services and ensure that they are shipped on U.S.-flagged cargo carriers.
- Retool and Revitalize American Manufacturers, with a particular focus on smaller manufacturers and those owned by women and people of color, through specific incentives, additional resources, and new financing tools.
- Make a New $300 Billion Investment in Research and Development (R&D) and Breakthrough Technologies
- Bring Back Critical Supply Chains to America so we aren’t dependent on China or any other country for the production of critical goods in a crisis.
- Tighten domestic content rules to require more legitimate American content
- Crack down on waivers to Buy American requirements by federal Agencies
- End false advertising by companies that label products as Made in America even if they’re coming from China or elsewhere
- Strengthen and enforce Buy America provisions
- Update international trade rules and associated domestic regulations for Buy American
Trump’s Buy American/Made in America Policies:
Trump’s campaign slogan revolves around continuing his promise to Make America Great Again. One of the ways is to rebuild American manufacturing and create higher paying jobs. He uses protectionism to defend U.S. industries from foreign competition. According to the National Association of Manufacturers (NAM), the U.S. manufacturing sector, added about 450,000 workers during the first three years of Trump’s presidency before the pandemic. Here are some of the actions he has taken as President.
- Launched “opportunity zones” program in 8,766 distressed areas, which, so far, have attracted $75 billion in private capital.
- Cut regulations for businesses
- Issued the following Executive Orders strengthening different aspects of the Buy American Act of 1933:
- EO 13788: “Buy American and Hire American,” April 18, 2017
- EO 13858: Strengthening Buy-American Preferences for Infrastructure Projects,” January 31 2019
- EO 13881: “Maximizing Use of American-Made Goods, Products, and Materials,” July 15, 2019
- EO 4511: Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States
- Reduce U.S. dependence on Chinese manufacturing and bring back 1 Million Manufacturing Jobs from China
- No Federal Contracts for Companies who Outsource to China
- Grant tax credits to companies that move manufacturing back to United States; tariffs on those that don’t.
Remember that actions speak louder than words, so be sure to compare what a candidate has done and not just what they promise to do in their campaign platform. Be sure to vote. The future of our country is at stake.
In July 2017, the Coalition for a Prosperous America (CPA) released a paper titled, “The Threat of U.S. Dollar Overvaluation: How to Calculate True Exchange Rate Misalignment & How to Fix It” by Michael Stumo (CEO), Jeff Ferry (Research Director) and Dr. John R. Hansen, a 30-year veteran of the World Bank and Advisory Board member.
The purpose of the paper is to explain the problem of the dollar overvaluation, to show how to accurately calculate the dollar’s misalignment against trading partner currencies, and to propose a solution this serious threat to America’s future. At the time, the dollar was overvalued by 25.5% compared to other major currencies.
The solution developed by Dr. Hansen is a Market Access Charge (MAC) “as a system to discourage overseas private investors and return-sensitive official investors such as sovereign wealth fund managers from excessive speculation and trading in U.S. dollar assets.” He believed that the MAC would reduce “the incentive for foreigners to invest in dollars, gradually and safely reduce its overvaluation, benefiting the U.S. economy and restoring control over our own currency.”
In February 2019, CPA released the working paper, “Quantifying Economic Growth and Job Creation from a competitive Dollar,” showing that a 27 percent realignment in the trade weighted US dollar exchange rate over five years would eliminate the US trade deficit, result in an additional $1 trillion in GDP and create 5.2 million new jobs.
The MAC was proposed in a Senate bill introduced in July 2019, S.2357, titled the “Competitive Dollar for Jobs and Prosperity Act.” It was introduced by Sen. Tammy Baldwin (D-WI) and Josh Hawley (R-MO), and is languishing in the Senate Committee on Banking, Housing, and Urban Affairs.
On October 5, 2020, CPA released a working paper, “Modeling the Effect of the Market Access Charge on Exchange Rates, Interest Rates and the US Economy,” by Steven L Byers, PhD. and Jeff Ferry.
In Section 1, The Relationship Between International Capital Flows and the Exchange Rate, the authors state that
“The standard open-economy macroeconomic models predict that under a floating exchange rate regime, when a country runs a trade deficit/surplus, the exchange rate will adjust to eliminate the imbalance. However, exchange rates have not adjusted and imbalances have persisted. The US trade and current account deficits have continued to run at some 2%-3% of US GDP for decades (Figure 1), suggesting that other forces are preventing the deficits from correcting themselves.”
The authors go into detailed economic models that establish the relationship between equity inflows and the currency dollar exchange rate.
In Section 2, The MAC, Capital Flows and the Dollar Exchange Rate, the authors examined how a charge on capital inflows is likely to impact inflows and the exchange rate, focusing on the Market Access Charge (MAC) discussed above. The authors state:
“The MAC would be a one-time fee paid on the purchase of any U.S. dollar financial asset by a foreign entity or individual. The MAC is designed to moderate foreign demand for dollar assets and realign the US dollar exchange rate to a trade-balancing level. The Baldwin-Hawley bill specifies that the Federal Reserve Board would set and manage the MAC to achieve current account balance within a five-year time horizon. Once balance was achieved, the Fed would manage the MAC to keep the US economy close to current account balance over time. “The Baldwin-Hawley bill specifies that the Federal Reserve Board would set and manage the MAC to achieve current account balance within a five-year time horizon. Once balance was achieved, the Fed would manage the MAC to keep the US economy close to current account balance over time.”
This section covers detailed economic models on how the MAC would affect different kinds of equity flows, such as bonds, Treasury notes
In Section 3, How the MAC Impacts Interest Rates, the authors “sought to estimate the impact of the MAC on the financial sector with a focus upon interest rates and government debt service costs.” They investigated and modeled the effect of a 1%, 3%, and 5% MAC on the nominal exchange rate, 10-year interest rates, and interest rate on outstanding Federal debt.
With regard to revenue the MAC would generate for the US Treasury, the authors comment,
“Though the MAC would reduce capital inflows significantly, our model suggests that even with a 5% MAC, gross equity inflows would continue at a rate in excess of $3 trillion a quarter, with inflows into debt securities at similar levels. MAC transaction fees, paid by foreign purchasers of US securities, would provide a large new source of revenue to the US Treasury. Table 4 shows that these revenues could reach $672 billion, equivalent to 19% of last year’s total federal tax revenue.”
In Section 4, Effects on the Economy, the authors state:
“…US producers of goods and services would gain market share in the US market and export markets. Our model estimates the impact of increased domestic production over the five-year period on US GDP and employment. In the case of a 5% MAC, the dollar’s exchange value would fall by 27…the more competitive dollar would balance trade, increasing exports by $765 billion or 29.5% over the baseline, and reducing imports by $167 billion (5.1%). The fall in imports is modest because while imports lose share in the domestic market, the rise in economic growth from the more competitive exchange rate boosts GDP, which leads to higher imports. But trade would be balanced. The GDP would rise by $1.01 trillion or 4.6%. Compared to the baseline forecast, the economy would create 4.9 million new jobs by 2025… the new jobs would be weighted towards internationally competitive sectors, notably manufacturing and natural resources, which offer higher pay (and often better benefit packages) than the average US job.”
The authors conclude that “The model shows large benefits to the US economy and the US Treasury. Further study is warranted and should be pursued.”
I would go one step further and say that the Baldwin-Hawley “Competitive Dollar for Jobs and Prosperity Act.” (S. 2357) should be released out of committee as soon as possible to be debated and then passed in the full session of the Senate. Reducing our trade deficit, increasing our GDP, and creating more higher-paying manufacturing jobs are important actions to be taken to create prosperity in America.
One of the consequences of President Clinton’s granting China Most Favored Nation status and allowing them to become a member of the World Trade Organization is that China took over production of consumer goods previously made in the USA. As a result, the consumer products you buy that are “Made in China” may be made by slave labor.Read more
How much the impact of the COVID-19 Pandemic has had on manufacturing depends on the state in which a manufacturer is located and what is the industry of the manufacturer.Read more
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