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
Why Software Should be Made in USA
Our modern world runs on computers and the software that controls them. Software makes our computers usable for such activities as word processing, accounting, engineering design, production planning, Enterprise Resource Planning (ERP), communication, CGI, 3D printing, teleconferencing, and videoconferencing, not to mention the thousands of Apps for iPhones and Android phones. Software controls many functions of automobiles, trains, boats, ships, and airplanes. If software fails, it can mean the loss of life. This is why is just as important for software to be Made in USA as it is for manufactured goods.
It is also important for software to be developed in the USA so we can make sure that there is no embedded malware, spyware, or backdoors.Read more
In April 2017, the Manufacturing Leadership Council published its “Vision 2030: The Factory of the Future, which was a Frost & Sullivan White Paper sponsored by General Electric and Intel. In their vision, the factory of the future “will look like an integrated hardware and software system and “is highly automated and information-intensive… fueled by vast quantities of information from every corner of the enterprise and beyond, moderated by analytical systems that can identify and extract insights and opportunities from that information, and comprised of intelligent machines that learn, act, and work alongside highly skilled human beings in safe and collaborative environments.”Read more
One 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 more
Manufacturing is Critical to Our National Defense
The final reason that manufacturing is important is that manufacturing ensures that the U.S. has a strong industrial base to support its national security objectives. We need to preserve our national and homeland security to be able to produce the goods that allow us to defend our national sovereignty.Read more