Rebuilding American Manufacturing Wayne State University June 5, 2012 Keynote Address by M. Brian O’Shaughnessy

Coalition for a Prosperous America CPA is a coalition of domestic manufacturing companies, organized labor and farmers and ranchers Its membership represents 1.8 million households in the USA Its objective is balanced trade through a National Economic Strategy M. Brian O’Shaughnessy serves CPA as Chief Co-Chair

Tradereform.org

My remarks today particularly on a New Economic Strategy reflect my own views and have not been considered by CPA

Revere Copper Products, Inc. Revere was founded by Paul Revere in 1801 and is the oldest basic manufacturing company in the USA Revere produces copper and brass sheet, strip and coil; copper busbar; and, copper alloy extruded shapes Most Revere customers are manufacturing companies in the USA Since 2000, more than 30% have shut down & moved offshore mostly to China

Oneida Ltd For years, Revere shipped copper coils about 20 miles to another manufacturing company named Oneida Ltd. Oneida cut and formed the copper Then plated silver on the form to produce...

…a silver bowl designed by Paul Revere

That’s as American as apple pie? Right?

WRONG… …ON TWO COUNTS!

The Paul Revere silver bowl Now made in China Today, Oneida buys the silver bowl, silver flatware and other products from China How can China produce that silver bowl over there and ship it over here and compete?

The American Apple Pie America now imports apples from China So you really can’t say “…as American as apple pie…” How can apples from over there be refrigerated, shipped and still compete with apples grown just down the road?

It’s the cheap labor, right?

First, let’s first look at the benefits of producing that silver bowl WRONG First, let’s first look at the benefits of producing that silver bowl in China vs. USA …as China manipulates its currency…

The Paul Revere Silver Bowl Assume production cost of 元 100 if made in China @ manipulated exchange rate of 元 6.3 to $1, the production cost in China is $15.87 @ free market exchange rate of 元 3.8 to $1, the production cost in China would be $26.31 16

Currency manipulation for apples grown in China… works the same way for apples grown in China…

In other words, the government of China manipulates its currency to subsidize the cost of manufacturing and farming in China 18

The manipulation of its currency reduces the competitiveness of every other product, good and service in the world when compared to its production in China.

It’s not only currency Tax structure Health care Environmental Stewardship Government loans not repaid Piracy of intellectual property/ reverse engineering Other Subsidies

Currency manipulation on top of these subsidies can reduce costs as much as 80% when producing in China This happens without even considering the cost of labor

That’s how China competes…

…AND THAT’S AS CHINESE AS APPLE PIE !

What is economic growth? An expansion of GDP A recession is a contraction of GDP

What is economic growth? GDP = C + I + G + NE

What is economic growth? GDP = C + I + G + NE Biggest Most Volatile Investment Net Exports Consumption Government Procurement

What is economic growth? Consumption runs about 70%, Investment about 10% and Government Procurement about 20% Net Exports adds to GDP or economic growth But we are experiencing Net Imports which subtract from GDP These numbers are cumulative Net Imports in recent years adds up to a decline in economic activity in the United States equal to the economy of Canada

(this is a real world example Let’s take a look at how the rest of the world uses taxes and legal tariffs to fair trade the USA out of jobs… (this is a real world example given to Revere by a customer)

CENTRIFUGAL CHILLER COST COMPARISON Material Labor

CURRENCY MANIPULATION WITHOUT 40% CURRENCY MANIPULATION Material Labor

Currency Reform for Fair Trade Act (HR 639) Companion bill passed Senate Similar bill passed previous House HR 639 being held up by Republicans President Obama clearly against Romney wants China labeled “Manipulator”

WITH VAT REBATE OF 17% Material Labor

Traded Products & Services VAT Impact at $100 Value USA VAT = 0 $85 $81 $115 $119 $85 $81 Mexico VAT = 15% Germany VAT = 19%

Some Countries Using VAT Tax to Support Factory, Farm & Service Jobs Australia Austria Belgium Brazil Canada China Czech Republic Denmark Finland France Germany Greece Hungary Iceland India Ireland Italy Japan Korea Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Russia Singapore Slovak Republic Spain Sweden Switzerland Thailand Turkey United Kingdom Notes: 150+ countries have a Value Added Tax (VAT) or border adjustable tax which discriminates in favor of domestic production of goods & services. One province in India boasts of a VAT tax over 50% in promoting itself as a prime location for jobs.

Countries Not USA

TRADE AGREEMENTS The next chart shows what happens when the USA negotiates trade agreements that allow our trading partners to adjust VAT tariffs. During the negotiations, the USA agrees to lower tariffs and our trading partners does likewise (in the best cases) Then our trading partners raise VAT tariffs which are not included in the Free Trade Agreements Sometimes they manipulate their exchange rate with the USA to offset any reductions in their trade barriers

VAT Hikes Keep Aggregate European Trade Barrier Constant Total EU Trade Barrier Avg. EU VAT Avg. EU Tariff AMTAC

TWENTY FIRST CENTURY TRADE PRINCIPLES CPA formed a coalition of domestic manufacturing, organized labor, farmers and ranchers to develop a set of trade principles that would not allow trade agreements that are so easily circumvented. Numerous other principles were added after discussions lasting months to establish a set of principles to guide the negotiation of future trade agreements.

TWENTY FIRST CENTURY TRADE PRINCIPLES 1. Balanced Trade 2. National Trade, Economic andSecurity Strategy 3. Reciprocity 4. State Owned Commercial Enterprises 5. Currency 6. Rules of origin

TWENTY FIRST CENTURY TRADE PRINCIPLES 8. Border Adjustable 9. Perishable and Cyclical Products 10. Food and Product Safety and Quality 11. Domestic Procurement 12. Temporary vs. Permanent Agreements 13. Labor

TWENTY FIRST CENTURY TRADE PRINCIPLES Please go to: tradereform.org to learn more and sign up your organization or association in support of these principles

So you can appreciate that this is more than a currency problem.

This results in a price war that American factories and farmers cannot win.

How can a US producer compete if it must carry the burden of the health care costs of its workers and its foreign competitor does not?

Revere’s fabricating costs About 10% of Revere’s fabricating costs are for the health care of its people and their families If you buy a product made from Revere copper or brass, you are paying for the health care costs of our people If you are buying a foreign product, you are not paying for any US producer’s health care

What about Revere’s exports? Of course, the cost includes the health care costs of Revere people The foreign country’s VAT imposed on Revere’s exports helps pay for the national health care cost of that nation So, in order to compete, Revere people have to cover their own health care cost and those of the foreign workers they compete against!!! That’s just as true for farm products whether you are considering taxes or health care…

Creation of a national health care system funded by a VAT is critical to the health of farming and manufacturing in the USA.

Financing the federal government Today the US government is financed <1% by taxes and duties on imports Today the government of China is financed >21% by taxes and duties on imports.

But this is more than an economic battle.

The importance of a strong domestic manufacturing base to national security and national defense cannot be overstated.

Revere was founded with $10,000 loan from the US Navy to supply copper sheets to sheave the USS Constitution

Personally I admire the culture of China

…and it’s people

But make no mistake about it, China is waging a mercantile war on the world and the world is sleeping.

M U L T I N A O S W A L S T R E

They have to choose between their company and their country.

So, the looming question is, “What should be done to counter this offensive and protective behavior by China and other nations?”

LESSONS FROM HISTORY Our nation was not founded on free trade between nations Free speech, freedom of religion, freedom of the press, yes Democracy does not equal free trade between nations Capitalism does not equal free trade between nations In the beginning, the US Federal Government was financed mostly by duties & tariffs on imports

LESSONS FROM HISTORY From 1850 to 1940’s duties & tariffs in the USA on some goods ran 30 to 40% In 1850, Great Britain’s economy was much bigger than ours Then GB adopted Free Trade The US continued mercantilist policies That’s when our economy roared past GB

ECONOMIC POLICIES Today the US has adopted Free Trade as an economic policy China has adopted a mercantilist economic policy

Mercantilism eats Free Trade ECONOMIC POLICIES Mercantilism eats Free Trade

Free Trade doesn’t equal democracy Teddy Roosevelt, “Thank God, I’m not a Free Trader!”

FREE TRADE If we continue on this path, we will lose our precious freedoms First we lose manufacturing jobs and service jobs Then we lose our middle class Rich vs. poor for the crumbs No ability to sustain national defense The result is the loss of our liberty

Conclusion

Sounds like our nation needs advice from the real world…

A New Economic Strategy Free Trade within our borders Mercantilism not Free Trade must guide our international trading strategy National Security is a priority Control import quality Some form of national health care that lifts the cost off of job providers Some form of Social Security that lifts the cost off of job providers Smart taxes not dumb taxes

Tradereform.org

reverecopper.com and learn more Wake up, America! Visit: reverecopper.com and learn more 68