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 moreIn 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.
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 moreOne of the dangers of reliance on foreign manufacturers is the increase of U.S. vulnerability to receiving counterfeit goods. Over the last ten years, there have been several reports prepared to determine the extent of the infiltration of counterfeits into U.S. defense and industrial supply chains, to provide an understanding of industry and government practices that contribute to the problem, and to identify best practices and recommendations for handling and preventing counterfeit electronics.
Read moreThe UPC barcode myth for Country of Origin
Can you tell if an item is Made in USA from the UPC barcode?
No. It is FALSE that you can see where a product was manufactured from the barcode.
We’ll show you why it is false below.
Read moreSherrill Manufacturing is the only company left in the United States making American Made flatware. They pride themselves on producing some of the best high-quality Made in USA flatware at different price points making it easy to fit all budgets.
A V8-Powered, Manual, Lifted, Jeep-Slaying 2020 Ford Truck! Read more
Army Regulation 670-1, Wear and Appearance of Army Uniforms and Insignia, is the governing authority for the wear of Army uniforms. Paragraph 28-18 governs the wear of the United States Flag on Army Uniforms. Read more
In today’s economy, many consumers are faced with endless choices about where their products come from. But behind every “Made in USA” label lies a much larger story — one that touches American jobs, national security, small businesses, and the strength of our supply chain. Supporting American manufacturing and buying American-made products isn’t just a patriotic gesture; it’s a decision with powerful ripple effects for workers, communities, and the nation as a whole.
As global supply chain disruptions, skills gaps, and trade imbalances continue to dominate the headlines, consumers, policymakers, manufacturers, and small business owners are reevaluating the true cost of offshoring and the significant benefits of reshoring and insourcing. Now more than ever, buying Made in America can fuel sustainable economic growth and restore our country’s manufacturing backbone. Read more
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The Reshoring Initiative (Kildeer, IL) and the Precision Metalforming Association (PMA; Independence, OH) invite companies that have successfully reshored parts or tooling made primarily by metal forming, fabricating or machining to apply for the first National Reshoring Award. There will be one award for buyers and one for suppliers. Read more
Today is Flag Day. The national observance commemorates the adoption by Congress of the Stars and Stripes as the flag of the United States on June 14, 1777, according to the National Flag Day Foundation. Read more
Many companies that offshored manufacturing American jobs didn’t really do the math.
For decades, U.S. companies have been chasing cheap labor offshore and then importing products to sell in the U.S. market.
Now, a broader focus on Total Cost of Ownership (TCO quantifies all relevant costs, risks, and strategic factors) and advanced manufacturing together have the potential to end the manufacturing stagnation of the past 30 years and create millions of manufacturing jobs in the U.S.
Over the past 20 years, the boom in offshoring drove our goods trade deficit up by about $640 billion a year, costing us three to four million manufacturing American jobs.
The most direct way to reduce the trade deficit, is to substitute domestic production for imports, i.e. via reshoring and foreign direct investment (FDI) in the U.S. The result of eliminating the trade deficit would be a rapidly growing manufacturing workforce for the first time in 40 years, a rise in average wages and a 25% to 30% increase in manufacturing output and American jobs.
Related Article: Read about The Made in America Roundtable at the White House
Many companies that offshored manufacturing didn’t really do the math. An Archstone study revealed that 60% of offshoring decisions used only rudimentary cost calculations, typically just price or labor costs and ignored other costs such as freight, duty, carrying the cost of inventory, delivery and impact on innovation. Most of the true risks and cost of offshoring were being ignored.
Now is a good time to re-evaluate the cost of domestic vs. offshore production.
Chinese wages have been rising by about 15% a year since 2000. As a result, the Chinese labor cost in dollars per unit of output is now about four times what it was in 2000. We estimate that about 25% of what is now offshored would come back if companies quantified the total cost. These products would generally have characteristics such as high freight cost vs. labor cost, frequent design changes, volatility in demand, intellectual property risk, and regulatory and compliance requirements.
For these most-reshorable products, such as large appliances with high freight costs, medical devices requiring high technology and quality standards, and plastic products that are getting cheaper thanks to declining natural gas and oil prices, the offshore manufacturing cost gap vs. the U.S. is now smaller than the offshoring “hidden costs” mentioned earlier.
[clickToTweet tweet=”About 25% of what is now offshored would come back if companies quantified total cost. | #reshore ” quote=”About 25% of what is now offshored would come back if companies quantified the total cost. “]
These costs are readily quantified using the Reshoring Initiative’s free online TCO Estimator. Since our trade deficit represents four million manufacturing American jobs, the returnable 25% is equal to 1 million manufacturing American jobs.
In addition to the 25% reshorable if companies would just do the math correctly, another 25% of the offshored manufacturing jobs could come back if America can become just 15% more competitive via sustainable strategies like advanced manufacturing using robots and other forms of automation, lower corporate tax rates, and regulations and a lower U.S. dollar. In total, adding approximately two million manufacturing jobs over the next 10 to 15 years is feasible. A 3.6 multiplier effect, as per the Manufacturers Alliance for Productivity and Innovation, would take the total to a gain of about 7 million jobs across the economy.
Advanced manufacturing helps level the global playing field for the U.S. First, the number of labor hours per unit of output is reduced. Second, the gap in the labor cost per hour shrinks. For example, a highly skilled robot engineer in China makes a third to a half of American pay and not the small fraction (5% or 10%) of the low-skilled Chinese workers.
In addition, acquiring capital equipment is more expensive in China because of China’s value-added tax of 13% or 17% on imports. Fortunately, the U.S. can have automation and more jobs as we reshore and draw down the four million jobs lost to offshoring.
The jobs won’t be the same, but we see a huge potential for economic growth.
The U.S. will need to fill approximately 3.5 million manufacturing American jobs over the next 10 years, according to a recent study from Deloitte and The Manufacturing Institute. Given our low rate of training, they estimate there will be a shortage of 2 million skilled workers. This shortage is one of the largest barriers to reshoring. Fortunately, high visibility for reshoring will help increase the rate of recruitment, as students increasingly understand that manufacturing is, once again, a solid career choice.
[clickToTweet tweet=”Good news is the bleeding of #manufacturing #jobs to #offshore has stopped. #reshore #mfg” quote=”The good news is that the bleeding of manufacturing jobs to offshore has stopped.”]
According to Reshoring Initiative data, the availability of a skilled workforce and training are essential for bringing jobs back, ranking second among the reasons given by U.S. companies moving jobs back to the U.S. and foreign companies creating manufacturing facilities here. When companies reshored and failed to find the needed workforce, the transition was painful. The availability of a sufficient quality and quantity of skilled workers is often the No. 1 criterion in selecting the location for a factory and a key issue for retention and expansion.
The good news is that the bleeding of manufacturing jobs to offshore has stopped. Reshoring, including FDI, balanced offshoring in 2015, as it did in 2014. In comparison, in 2000-2003 the United States lost a net 200,000 or so manufacturing jobs a year to offshoring.
The Road Home
There are many alternative paths that might lead to a dramatic reduction in the trade deficit: stronger skilled workforce, lower corporate taxes, and regulations, border adjustment tax, lower health-care costs, lower U.S. dollar, etc.
The Reshoring Initiative is currently developing a Competitiveness Toolkit. Our objective is to offer President Trump and Congress their choice of a mix of paths that will achieve the desired reduction in the trade deficit while minimizing domestic and international resistance and unintended consequences such as inflation.
We have a long, difficult journey ahead; we need to pick the best paths.
Harry Moser is the founder and president of the Reshoring Initiative and worked for several decades in manufacturing. Sandy Montalbano is a consultant to the Reshoring Initiative.
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What: Walmart Open Call for US Products
Where: Bentonville, AR
When: June 28, 2017
Who: Companies that want to sell U.S. products to Walmart Read more
Following public comment periods in two separate cases, the FTC (Federal Trade Commission) has approved final consent orders settling charges that iSpring Water Systems, LLC, a Georgia-based distributor of water filtration systems, and Block Division, Inc., a Texas-based distributor of pulley block systems, made misleading Made-in-the-USA claims. Read more
Ford Motor Co. will announce investments in three of its Michigan manufacturing plants Tuesday morning, according to three sources familiar with the automaker’s plans. Read more
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Play-Doh will soon be squeezed out of a factory in the U.S. again, as Hasbro Inc. brings manufacturing of the popular moldable clay back to America for the first time in years. Read more
Good news for U.S. manufacturers: stateside production and employment opportunities are on the rise.
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