Yesterday I attended a conference on the Renaissance of American Manufacturing in Washington DC. It included a variety of organizations with interests in trade, from the US Business and Industry Council to the International Association of Machinists and the U.S.-China Economic and Security Review Commission. It was another step in our turn towards renewing the American economy, and everyone agreed on two main points: (1) President Obama’s goal of doubling exports is important, but (2) it can’t be achieved without a robust industrial policy.
Start with the problem. The United States has lost half of its manufacturing jobs since 1980, and manufacturing as a share of GDP fell by 43 percent. Roughly $600 billion leaves our country every year to buy things made somewhere else, a deficit in goods that dwarfs our $100 billion surplus in services. America needs to borrow money or sell off assets to cover the difference. The result is unsustainable.
As Majority Leader Steny Hoyer (D-Md.) put it at the conference, “If we can’t make it in America, we can’t make it in America.”
How did this happen? How did we dig a hole this deep? The answer has many layers but several themes emerged.
First, America is losing a global trade war. It’s not just that China cheats (though it does) or that it manipulates its currency (it does that too). It’s that America’s stance in trade is all wrong. America champions open markets and free trade, even as other countries seek their own advantage and play to win. We act as if more trade is always better, even as we lose on every deal (Thea Lee of the AFL-CIO: “NAFTA then CAFTA, and we get the shaft-a”). We act as if consumer spending will drive our recovery, even as more consumer spending simply means more goods imported from afar and more American money leaving the American economy. We can’t do that forever.
Second, the interests of American multi-national corporations have diverged from the interests of America. Once upon a time, what was good for General Motors was good for America. Not anymore. Nowadays, American companies that relocate to China can (a) accept Chinese subsidies for the move, (b) avoid paying US taxes on overseas operations, (c) take advantage of lower Chinese costs for labor, environmental protection and worker safety, and (d) sell the products back to Americans at American prices for American dollars. It’s a win for the corporation, the shareholders and CEO. But it’s a loss for America, the American people and the American worker. Until we recognize this divergence and the power of these large corporations over US policy, we will continue on a fatal trajectory. (Ralph Gomory, formerly of IBM, now the Sloan Foundation: “There are none so blind as those who do not want to see”).
Third, manufacturing is key to our revival. We can’t design things here and manufacture them someplace else. Innovation follows manufacturing. That’s why other countries lure away American factories for batteries (in the 1980s), semiconductors (in the 1990s) and solar cells (in the 2000s). Soon enough the next generation is invented overseas and Americans have to give their money to someone else. (Clyde Prestowitz, principal trade negotiator to Asia under Ronald Reagan: “We gave Japan computer chip technology, then they took it to the next level and sold it back to us.”).
But still something was missing. Everyone agreed with Obama that increasing exports is a good idea. “But doubling gross exports is silly,” exclaimed Leo Hindery, managing partner of Intermedia Partners and project director at the New America Foundation. “Net exports matter more.” After all, America doubled our exports in the 1990s — but we nearly tripled our imports at the same time. Making more money is good, of course — but we also need to stop the bleeding.
That led to the most important conclusion. “We need an industrial policy,” said Rep. Paterson (D-NJ). “Our problems are large but our solutions are small,” said former Senator Don Riegle (D-MI). People craved leadership and vision. Doubling exports is a worthy goal, but it will require coordination among many parts.
The individual elements were itemized, of course. Some were modest and straightforward. Change the incentives in the tax code. Enforce trade rules when other countries violate the terms. Rebuild our infrastructure, increase our investments in R&D, and race to lead the revolution in clean energy production. Other recommendations were more profound. Declare a national emergency and take emergency trade measures allowed under section 12 of GATT. Add a value added tax or across-the-board tariffs to increase the price of imports. Negotiate different trade agreements in the future, or exit the WTO altogether since mercantilist countries use the rules against us but violate them themselves. Several speakers proposed a Secretary of Manufacturing or US Development Board, with Vice President as Chair and myriad agencies represented, tasked with looking globally at our needs and coordinating our response.
We can pick which of those to do first, or do several together. And we should certainly work to double our exports. But if we don’t craft an industrial policy or link the pieces with a strategic vision, it’s likely to fall apart all over again. As Governor Jennifer Granholm of Michigan closed her presentation, we can “come to the table and feast … or be an item on the menu as our economic competitors forge ahead.”
I vote for the feast.