Decoding the Debate on Manufacturing and China

Posted by spaul on 10/17/2012

If you tuned into the presidential debate last night wondering why President Obama and Mitt Romney spent so much time hitting each other on manufacturing and China, then you don’t live in a swing state.

The good news is that America really has a future in manufacturing.  The brightest minds at Harvard, MIT, and in the consulting community see enormous possibilities for American manufacturing. We’re competitive in energy costs, labor productivity, and other factors.  Reshoring has already begun. Both the candidates recognize the possibilities, which is why the ad war on China and manufacturing has been underway since this summer.

Here’s a quick primer on what the candidates have been saying, and where American manufacturing can travel in the next few years:

1. Could a college graduate get a manufacturing job?

Audience member Jeremy Epstein said he’s wondering about a job after he graduates, and President Obama launched into his jobs plan, with a focus on manufacturing. Even the Huffington Post’s Howard Fineman, whom I admire, missed the point in a post-debate Tweet stating that Americans don’t want manufacturing jobs. In fact, the Bureau of Labor Statistics reports that there are roughly 250,000 job openings in manufacturing, and a fair number of those challenging positions require a college degree. Think engineers, managers, accountants, scientists, and the like. It’s a good job option for many college graduates, and consulting firms like BCG believe that the U.S. could produce 2-3 million more manufacturing jobs in the coming years.

2. Who’s created manufacturing jobs?

Mitt Romney said we’ve lost 500,000 manufacturing jobs since Obama took office. The larger picture is this: The United States lost 5.5 million manufacturing jobs 2000-2009—before and during the Great Recession, the largest decline on record. The vast majority of the bloodletting occurred during the Bush Administration. We’ve gained 500,000 manufacturing jobs since the beginning of 2010. That’s the largest gain in manufacturing jobs since the early 1990s. Granted, the gains are a drop in the bucket compared to what we need, but at least the needle is generally headed in the right direction. It’s true that China passed the United States to become the largest manufacturer in the world, but that was a trend well underway before Obama took office in 2009.

3. Who’s tougher on China?  Here, both candidates have points to make.

Mitt Romney rightly points out that President Obama has failed to designate China as a currency manipulator. There is no question that China manipulates its currency. There is also no question that China’s exchange rate policy harms American jobs. Unless you’ve been living in a cave, you know that Mitt Romney will “designate China as a currency manipulator on day one of his Administration.” But, why hasn’t Mitt Romney asked House Speaker John Boehner to bring a bipartisan currency bill to the floor for a vote? Why did Paul Ryan vote against a China currency bill in 1010, when more than half of House Republicans supported it? The China currency bill was the only major bill to beat a Senate filibuster by Mitch McConnell over the past two years. Also, after Romney calls out China, what’s the plan to change China’s behavior?

President Obama reminds us that he’s cracked down on China. He’s put tariffs on Chinese tires, a move that Romney opposed. He’s initiated an action against Chinese auto parts, and has supported relief for American solar, steel, and other producers against dumped and subsidized products from China. His enforcement initiatives are the best we’ve seen since the 1980s. President Obama further charges that Romney invested in Chinese firms…and still does.

4. Who’s got a plan to grow manufacturing?

President Obama has laid out a plan to create 1 million new manufacturing jobs in a second term. Investing in education, innovation, and infrastructure, trade enforcement/opening new markets, eliminating tax breaks for offshoring and deepening tax cuts for manufacturing in America are key elements of the plan, as well as investing in all domestic forms of energy. Mitt Romney doesn’t offer a specific job creation promise on manufacturing, and focuses on traditional energy investment, broad tax relief, and reducing regulation, as well as cracking down on China and entering into free trade agreements with Latin American nations.

5. Differences on the auto bailout.

There is no doubt that President Obama helped to save the American auto industry and transformed it for the future. American consumers have better choices, and Chrysler and GM are hiring again after decades of shedding production and jobs. The Administration used a managed bankruptcy, emergency loans, and other tools to achieve this. Most outside observers believe Mitt Romney’s plan would have liquidated the industry as we know it.

6. Is this focus on China counterproductive?

Not at all. Putting pressure on China works. That’s why the value of China’s currency is now at an all-time high, even though it is still undervalued. We have more leverage than most Americans believe. China does own some of our public debt, but its holdings are falling. Sadly, perhaps, there are plenty of buyers of public debt—we don’t need to depend on China. China buys dollars to help keep the value of its own currency artificially low. And, it buys dollars because it runs about a $28 billion per month trade surplus with the United States. That’s a terribly unhealthy dynamic. On the other hand, China depends on the American consumer and unfettered access to our market. If we conditioned access to our market on playing by the rules, China would have no other choice because it has no substitute. China is a growing market for U.S. exports, but it pales in comparison to Chinese imports to the United States. It’s worth standing up to China.

8. Are labor costs really the only reason why Apple manufactures in China?

Actually, it’s the least significant reason of all. Bigger factors are the exchange rate, China’s restrictive policies on rare earth mineral exports (which are essential to this type of production), subsidies, and lack of enforcement of labor, health, and environmental rules. Plus, for as good as Apple is at design, it is terrible at manufacturing. Instead of investing in a sophisticated, modern production facility that is operated by robots and highly-paid American engineers, it opts to exploit hundreds of thousands of Chinese workers. Public policy can help to create the proper ecosystem for Apple to shift its production to America. Not every manufacturing job is coming back, but these certainly can.

So, what’s next?

Expect a crescendo on China next week when the candidates spar on foreign policy at the Boca Raton debate. And, expect shrill editorials from all the editorial boards that got it wrong on China the first time as they fret about “China bashing.” When the elites are losing the argument, they start name-calling. The debate on manufacturing and China is long overdue. Let’s keep it going.


Anonymous wrote 1 year 45 weeks ago

trade with china

At least now its far more public that we have good options that can be implemented...we are not mushrooms
The average american worker needs complete information on this subject so we can back a solution.
So lets work on getting our american companies back on this soil again...there is just no need to supply china with our jobs ...especialy now as we are on the road to progress....MItt have way too much to prove must try ...i mean try prove you love america more than greed...i don't believe you can at all....and your record speaks for itself...... you have specialized in gutting companies and proffiting from bankrupting them .....and of course Bain capital just continues doing the same thing time and time another 174 jobs for china to grow with....while we loose 174 jobs at home...another 174 unemployed...thanks for you contribution.yeah lets ship more of our jobs to china because after all you will sell out your brother and country...are you really doing your best to improve america ? Boloney! All your talk of making america strong....all lies!!!!!!!

Anonymous wrote 1 year 45 weeks ago

China investment and outsourcing

I thnk you will also find that Obama has investments which are held in Chinese companies and industries. Also, the majority of the Bain outsourcing occurred while Romney was heading the US Olympic team and its operations. Romney can ask his friends to take action on China, but Obama can effect it, so much or this comparison is mute.

Anonymous wrote 1 year 45 weeks ago

I don't understand ...

Why was government intervention required to "save" the auto industry, rather than have them pursue the available Chapter 11 alternative? Aren't these dangerous precedents for the federal government taking control of any industry for any reason simply by declaring an "economic emergency"?

If I held Chrysler bonds or GM stock I'd be pretty upset today. GM was trading at $40+ in 2011 and closed around $25 today. Where's the success? Volt? You've got to be kidding me!

Anonymous wrote 1 year 45 weeks ago

Very Well Put

Slightly leaning left though; a bit more partisan that some would like.

Nevertheless, very good summary.

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