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A senior White House official has confirmed that Vice President Joe Biden will take the lead on the administration’s next phase China policy.

While the Departments of State and Treasury have held important functional roles in conducting the China-US Strategic and Economic Dialogue meetings, raising the bilateral status of US-China relations with ongoing meetings between two senior US Executive Branch officials with two of China’s most senior leaders, Vice Premier Li Keqiang and State Councillor Dai Bingguo, there has been a general sense that neither Timothy Geithner nor Hillary Clinton and her team were comprehensively driving US-China policy.

The White House official made clear that the coming shift in the locus of US-China policy management was not a critique of either Clinton or Geithner’s management of the China portfolio — but rather, the rise of Hu Jintao heir apparent and current Vice Premier Xi Jinping as the likely next President of China created certain practical challenges in dealing with him on a same-status level throughout much of 2012 until Xi’s accession to the presidency is formalized.

The view of some of the administration’s China-handlers is that management of US-China policy has become so central to a vast array of other policy challenges that the administration’s approach needs to be both broad and managed with “a deep and senior bench.”  The evolution of many functional offices at the Department of State and Treasury tasked with various line items in the China-US Strategic and Economic Dialogue has helped stabilize many aspects of the relationship and has helped to benchmark meeting to meeting progress on core concerns. (more…)

“America’s trade policies often force domestic industries to compete on an unfair playing field with foreign competitors, and it’s costing us jobs. To help address this problem, we have introduced H.R. 1749, The Reciprocal Market Access Act.”

Congresswoman Louise M. Slaughter (D-NY)
Congressman Walter B. Jones (R-NC)

Right now, three fundamental premises underpin America’s overall global economic and trade policy. Each is deeply flawed, especially as it relates to our single most important trade relationship, which is that with China.

1) The first premise is that advancing the interests of America’s multinational corporations always benefits American workers and in turn the American economy.

The reality, however, is that the disconnect between the interests of America’s multinational corporations and the best interests of employees and the country has never been greater. Significant consequences have been the consequences-be-damned offshoring of millions of American manufacturing jobs and a failure to tie the fruits of domestic R&D and innovation into corresponding production in the U.S.

2) The second premise is that the rules-based, free trading system favored by U.S. multinationals, combined with the overall rule of “Country Comparative Advantage”, will result in balanced globalization for all trading partners, to the advantage of American workers and the American economy.

This premise works well when all nations play by the same rules. However, we know that China especially continues to pursue mercantilist policies that are at best anti-competitive and often illegal.

Many of us have written often about how China has gained unfair trade advantages through its abysmally low direct labor costs, its lack of meaningful environmental and labor standards, and its currency manipulation. Less appreciated, however, are the other measures China uses to game the system, the two most extreme of which are China’s “Indigenous Innovation Production Accreditation Program” and its related unceasing demands that U.S. companies seeking to do business in China make massive transfers to it of their intellectual property that took decades to develop with internal investment and often with support from U.S. government-funded research laboratories. Because of their perpetual ripple effects throughout our economy, these IP transfers will ultimately be an even bigger drain on our economy than the direct offshoring of millions of American jobs over the last 15 years.

3) The third premise is that the U.S. can make up for the millions of manufacturing jobs being lost overseas with exports of “software, movies, medicine, university degrees, management consulting and legal work” plus new employment by the high technology companies of Silicon Valley.

This first conclusion is simply absurd on its face. And as for the high-tech companies and their plans and capabilities, Silicon Valley is mostly a jobs-exporting juggernaut and not a jobs-creating one. Our own Bureau of Labor Statistics has concluded that U.S. employment in “information technology” will actually be lower in 2018 than it was as far back as 1998.

In the face of these three very flawed premises and actions by certain of our major trading partners which are particularly counterproductive to American interests, we can pursue one of two strategies:

I. We can continue to try to resolve our problems through lengthy bilateral and international discussions over the next several years, which our recent history in this arena ought to discourage; or

II. We can adopt a realistic, hard-headed approach to leveling the playing field, in order to straighten out our trade deficit and help U.S. companies be more competitive.
Both strategies, of course, would be intended to create American jobs, especially manufacturing jobs. The first strategy, however, smacks of timidity and belies the urgency of the problems and the lack of past success in patiently trying to resolve these problems through lengthy bilateral and international discussions. By contrast, the second strategy is all about quickly restoring U.S. self-determination and adopting a more urgent, hard-headed approach.

We need to do three things to successfully put into place the second strategy.

First, we need to enact the Reciprocal Market Access Act, the bipartisan legislation sponsored by Representatives Slaughter and Jones. This Act was first introduced in 2007, and reintroduced in this Congress. Its companion bill, S. 1766, has been introduced by Senators Sherrod Brown (D-OH) and Kay R. Hagan (D-NC). Here is why this legislation is critical.

Right now, U.S. industry faces significant non-tariff barriers (“NTBs”) in key markets, preventing fair market access. These NTBs deny U.S. manufacturers current and future export opportunities. As the Members of Congress have noted, “eliminating the U.S. tariffs without securing elimination of NTBs is equivalent to unilateral disarmament – giving full advantage to our competitors, while allowing them to protect their home markets.”

The Reciprocal Market Access Act would immediately break down the ‘barrier’ (i.e., the Chinese Wall) which, under the current Doha negotiation process, exists between tariff and non-tariff barriers. Currently, so-called “tradeoffs” are almost strictly tariff-for-tariff and non-tariff-for-non-tariff.

This Act, according to its legislative write-up, would, in addition:

• Tie the authority to reduce or eliminate tariffs in trade agreements to achieving meaningful market access for U.S. domestic producers that have identified and worked with the U.S. government to address those barriers.

• Require that the President provide a certification to the Congress, in advance of agreeing to a modification of any existing duty on any product, that sectoral reciprocal market access has been obtained. This will also greatly enhance the vital trade ‘partnership’ with Congress.

• Give our government – triggered by either a private sector or a Congressional request – the automatic negotiated right (or “snap back authority”) to revoke concessions to cut tariffs if our trading partners don’t implement the commitments they made in order to open up their markets.
Second, for economic, employment, competitiveness and national security reasons, the administration and Congress should continuously test their views of our international trading environment against the following realities:

1. The now-desperate need for a Manufacturing & Industrial Policy for the U.S. that balances the mercantilist policies of our major trading partners, especially China’s, whose overall trade surplus in manufactured goods matches almost dollar for dollar America’s trade deficit in such goods. Nineteen members of the G-20 have defined Manufacturing Policies. America alone does not, even though there is not a responsible economist who believes that an economy as large and complex as ours can prosper with less than 20-25% of its workers being in manufacturing and without the sector contributing a like percentage of GDP. As it is, however, only 8 to 9% of Americans now work in manufacturing, and as a percent of our GDP, the sector provides just 11.2% of the total.

2. The obvious challenge to America’s interests from China’s non-WTO-compliant “Indigenous Innovation Production Accreditation Program” and from China’s illegal subsidies and currency manipulation. Many of China’s practices provide its companies with a clear-cut “counter-available subsidy” and they need to be treated as such, including China’s abysmal environmental practices.

3. The outright theft every day of America’s hard-gained, valuable intellectual property, especially by China, which enervates our economy as much as any other trade tactic employed by China or any other country. The U.S. International Trade Commission estimated in May that “up to 2.1 million new direct private-sector jobs would be created in the U.S. in total if China [alone] raised its IP protection to U.S. levels.”
Third, we need to stop international intellectual property theft.

When it comes to finding solutions to the daily theft of America’s invaluable IP, a single anecdote brings this imperative home. Microsoft, one of the real gems of American ingenuity and also one of the most patriotic major companies headquartered in the U.S., recently sold to a large commercial customer in China one (1) unit of its advanced business software, for several hundred dollars. However, when it sent out an upgrade to the software, the upgrade was downloaded thirty million (30,000,000!!) times. This egregious theft of Microsoft’s IP – and the millions of other thefts in China of the company’s intellectual property – is why Microsoft’s profits from sales in China, with its 1.3 billion population, are no greater than its profits from sales in The Netherlands, with its population of only 16.7 million.

The best immediate solution to the theft of American intellectual property would be to adopt former U.S. Senator Slade Gorton’s (R-WA) recent recommendation to the U.S. China Economic and Security Review Commission that the U.S. impose tariffs which would generate revenues equivalent to 150% of the estimated annual IP losses suffered by American companies.

The best solution into the long-term would be for the administration and Congress to make IP theft a trade agreement priority, which is a priority sadly lacking today in an urgent, encompassing way.

Following the US-China Strategic and Economic Dialogue meetings held in mid-May 2011, Commerce Deputy Assistant Secretary Craig Allen declared: “In all of these cases – indigenous innovation, intellectual property enforcement, transparency – we would have preferred much more explicit detail in terms of timeline, in terms of coverage, and in terms of implementation. But we are pleased at the same time that the Chinese did commit those previously verbal assurances in writing. That is progress.”

This may be deemed “progress” by some, but I, for one, am not satisfied that this is the kind of progress that we should ever accept. We need to take a much more pro-active stance in trade in order to better balance the nationalistic economic policies and mercantilist practices of our trading partners with our own trading rights as a nation.

Within the last week, the recently confirmed new Secretary of Commerce, John Bryson, declared in a speech that we must reshape our trade policies toward China. One important way to meaningfully do that would be for him to get the administration to support the important trade legislation being sponsored by Senators Brown and Hagan in the Senate and Representatives Slaughter and Jones in the House. As they have implored us: “We must ensure that our trade negotiators do not give away our domestic markets in future trade agreements without gaining meaningful market access for American manufacturers in exchange. Unless other governments play by the rules and remove barriers to our exports, the U.S. should not acquiesce to their demands by further opening our market – already the most open market in the global economy.”

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Leo Hindery Jr. is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media, and is currently an investor in media companies.

Follow Leo Hindery, Jr. on Twitter: www.twitter.com/leohindery

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This is republished from The Huffington Post.

Another reason to buy American-made gifts.

Last week, President Obama forcefully declared that the United States would not withdraw from the Asia-Pacific, telling the Australian Parliament that he was dispatching 2,500 Marines as well as ships and aircraft to serve at a base in the Australian port of Darwin. The message, in case anybody missed it, was unmistakably directed at China.

But while Obama was making symbolic military gestures, his administration was doing nothing serious to contest China’s growing threat to America’s economic base. That threat is spelled out in an official government document that should be mandatory reading for all of us — the annual report of the U.S.-China Economic and Security Review Commission, released last Thursday.

What’s noteworthy is that this is a bipartisan commission created by Congress, and that all of its 12 commissioners, six Republicans and six Democrats, signed off on the report.

The basic findings: China is a mercantilist and authoritarian state that is determined to appropriate not only U.S. jobs but also U.S. advanced technology through illegal subsidies, suppression of worker rights, and deals with U.S. industry that are one part lucrative carrot (cheap wages, state capital) and one part illegal stick (if you want to do business in China, take a Chinese partner and share your trade secrets). Even then, you must produce mainly for export back to the U.S., not for sale in China.

Worse still, U.S. industry has been happy to take these deals, which makes them a domestic ally of the China lobby. While our government periodically makes half-hearted complaints that the Chinese currency, the Renminbi, is seriously undervalued, American corporations like that just fine — because it makes their exports to the U.S. from Chinese factories even cheaper. The U.S. Chamber of Commerce, which fights industrial policy at home, lobbies fiercely against any pressure from Washington against Beijing’s mercantilism. (more…)

Go to any gathering, and you’ll find nearly every person carrying an iPhone or an iPad, despite the Apple Computer’s dismal record on labor practices. Apple executives  must be laughing all the way to the bank — their Swiss bank, that is.

In its fourth quarter earnings report released last week, Apple Computer revealed that 2/3 of its on-hand cash – some $54 billion — is squirreled away outside the boundaries of the United States, presumably to avoid paying its fair share of taxes. In the meantime, reports Students and Scholars Against Corporate Misbehavior (SACOM), a Hong Kong-based group, Apple’s major manufacturing contractors routinely subject employees to forced overtime, wage theft and no breaks — and even unprotected exposure to toxins.

Apple, together with rival tech firm Google, have been lobbying for a “tax holiday” that would allow them to bring some of those billions into the U.S. at a lower tax rate, promising that to do so would create jobs. But, as we reported, a similar measure tried in 2004 created few jobs, and instead rewarded companies that had kept their money overseas. Where Apple has created jobs is in China, where the workers who make its slick products are made to work in deplorable conditions.

A new SACOM report, “The iSlave Behind the iPhone: Foxconn Workers in Central China,” examines conditions at the Apple Computer contractor’s plant since the suicides of nine workers last year made big news. One thing that has changed: workers were given a raise — to all of $1.18 an hour. But workers are often shorted overtime pay, SACOM reports, and Foxconn even illegally withheld, during the Chinese New Year, payment for overtime already worked in order to prevent workers from taking the traditional holiday to visit their families. (more…)

Excellent debate on CNBC featuring the Alliance for American Manufacturing’s Scott Paul about the currency manipulation bill.

It’s hard to believe that nearly four years into the worst Recession since the Second World War, while mired in a jobless recovery of unprecedented length and magnitude, we continue to hear that manufacturing jobs don’t matter.

Take, for example, the recent uninformed (and insensitive) remark of Steven Rattner, the President’s former co-auto advisor, that “restoring lost manufacturing jobs” is nothing more than “pervasive, politically attractive happy talk” (see “Let’s Admit It: Globalization Has Losers” by Steven Rattner, New York Times, 10-15-11). He went on to say — ironically given his prior administration position — that America’s “greatest strength… lies in service industries with high intellectual content, like education, entertainment, digital media, and financial services.”

The reality is that anyone rightly concerned about the current almost unprecedented real unemployment rate of more than 18 percent must first focus on resuscitating our depleted manufacturing sector.

It’s a recipe for economic disaster for an economy as large, complex and geographically far-flung as ours to have less than 20-25 percent of its workers in manufacturing and for the sector to not be contributing a similar percentage of GDP.

Yet as it is, only around 9 percent of Americans now work in manufacturing, and as a percent of GDP, the sector now provides just 11 percent of our total.

In 1955, the largest U.S. employer was the auto manufacturer General Motors, which had a unionized workforce with good pay and quality retirement and health benefits. Today, the top U.S. employer is Wal-Mart, which pays its employees a pittance and just last week announced a major cutback in its employee health benefits. How can anyone favor an economic system that assumes American workers will either have the education and ability to work at Goldman Sachs or Google, or be left to work forever with entry-level wages at Wal-Mart or McDonald’s — with no robust manufacturing sector in the middle? (more…)

A bill to hold China accountable for its job-killing practice of currency manipulation passed its final procedural hurdle in the Senate this morning 62-38 and is expected to pass in final vote later today.

The Republican-controlled House is holding up its version of the legislation, even though it passed the House with overwhelming bipartisan support in 2010, with 99 Republicans supporting it.

For more on the bill, click here.

(more…)

The news that our trade with China has been bad for the American middle class has finally reached the U.S. Senate. On Monday, the Senate will take up legislation that would impose tariffs on Chinese goods so long as China depresses the value of its currency. Despite the partisan polarization that grinds lawmaking to a halt these days, the bill’s support is thoroughly bipartisan, with sponsors ranging from such conservative Republicans as South Carolina’s Lindsey Graham to liberal Ohio Democrat Sherrod Brown. The legislation is expected to clear the Senate’s 60-vote hurdle for a floor vote and move on to the House.

But the consequences can no longer be denied. Between 2001 and 2010, the U.S. trade deficit with China cost Americans 2.8 million jobs, according to a report by economist Robert Scott, issued last week by the liberal Economic Policy Institute. Most of those jobs — 1.9 million — were in manufacturing, and of those, almost half were in computers and electronics.

This wasn’t simply the consequence of China’s cheaper labor or more generous corporate subsidies. As China’s productivity soared during the past decade, the value of its currency should have risen correspondingly. Instead, China purchased dollars, which had the effect of depressing the yuan and making Chinese exports about 28 percent cheaper than they would be if the yuan had been allowed to appreciate, William Cline and John Williamson found in a study for the centrist Peterson Institute for International Economics.

Data like these have been floating around for years, of course. Until now, however, the Senate has remained largely impervious to the evidence of Chinese cheating and American decay. But elite opinion, which the Senate does heed, is finally catching up with mass opinion on whether losing our manufacturing base is a bad thing. An influential July 2009 article in the Harvard Business Review by economists Gary Pisano and Willy Shih argued that losing manufacturing meant losing our edge in innovation, that the relationship between research and production was reciprocal. This would not have come as news to Thomas Edison, but few on Wall Street or in corporate boardrooms the past two decades believed that America’s prosperity and dynamism required the retention and renewal of manufacturing.

(more…)