Trade Deal Would Undercut Obama’s Manufacturing Strategy

Dave Johnson

President Obama cited a plan to promote “manufacturing hubs” in Tuesday’s State of the Union address as one of the ways he would use his executive power to get around the Republican strategy of obstruction and sabotaging the economy.

On manufacturing, the president said:

“We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. My administration has launched two hubs for high-tech manufacturing in Raleigh and Youngstown, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies. Tonight, I’m announcing we’ll launch six more this year. Bipartisan bills in both houses could double the number of these hubs and the jobs they create. So get those bills to my desk and put more Americans back to work.”

A “manufacturing hub” is a small-scale, regional manufacturing strategy that involves getting all of the elements of a manufacturing “ecosystem” in place for a particular industry in a particular place. This is an “innovation infrastructure” where you put together in one place all of the necessary components for — I hate this word but it fits — “synergy” to occur. You get schools, labs, suppliers, factories, investment and so on ready to go and the rest starts to happen. It actually works in other countries that are doing this, and it is what some countries do on a national scale to get things going.

Last February, in the post “Sen. Sherrod Brown Proposes National Network of Manufacturing Innovation,” I described the idea of manufacturing hubs:

The idea is to develop regional “hubs” that are “centers of excellence” across all sectors of manufacturing. These hubs bring together industry, universities and community colleges, federal agencies – such as the Departments of Commerce, Defense, Energy, and the National Science Foundation – and U.S. state and local governments to accelerate manufacturing innovation.

According to a press release from Sen. Brown, these hubs will “bridge the gap between basic research and product development, provide shared assets to help companies—particularly small and medium-size manufacturing enterprises—access cutting-edge capabilities and equipment, and create an environment to educate and train students and workers in advanced manufacturing skills.”

For example, in August, 2012 the President announced that the government is supporting a new National Additive Manufacturing Innovation Institute in Youngstown, Ohio. I wrote about this in the post, “Ohio 3D-Printing Manufacturing Hub Initiative.”

As the president said, he has started two “hubs” by executive order, there will be six more this year, and Congress can double that if Republicans stop obstructing and sabotaging.

Also in reaction to the State of the Union, Scott Paul of the Alliance for American Manufacturing (AAM) said this:

“This is the third consecutive State of the Union in which there has been a strong rhetorical focus on manufacturing, and that’s welcome. But the progress, despite the rosy picture painted by the President, has been painfully slow. And in some cases, such as the trade deficit with China, we’ve seen backsliding.

“The President in many ways absolved past public policies as a reason why there is more economic insecurity and a decline in good, middle-class jobs. He shouldn’t have.

“From a flawed trade agreement with China in 2000 to ceding more power that enabled Wall Street to dictate terms to Main Street manufacturing in 1999, the U.S. has committed a number of unforced errors along the way. Germany, subject to precisely the same sort of technological change and globalization effects as the United States, has (1) 23% of its economy still in manufacturing, (2) a trade surplus, and (3) a steady share of global exports despite the rise of China. We’ve fallen in all three of those data points dramatically over the past 15 years. So policies do matter, past and present.

“While the President indicated there were a number of things he planned to do on his own, without Congress, in 2014 to boost the economy, he left some important things off that list:

  • designating China a currency manipulator
  • tightening Buy America compliance among federal agencies to prevent tax dollars from leaking overseas
  • ensuring the U.S. isn’t exporting energy products to non-market economies in a way that harms the emerging energy advantage for our domestic firms
  • launching an executive effort to cut our trade deficit with China in half. (Doubling exports means very little if imports rise even faster.)

“These actions could have a profoundly positive impact for American workers and manufacturing, and reverse some of the policy failures we’ve seen over the past few decades.

Trade

On trade, the president said:

“[W]hen ninety-eight percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA.” China and Europe aren’t standing on the sidelines. Neither should we.”

The president is trying to drive exports, which means we get orders from other countries and factories open, people are hired, and the economy grows. This is a great strategy, when combined with a strategy to keep those exports in balance with imports. But that is not what our past trade agreements have done, especially with China.

The problem is that the process we have been using to negotiate these trade deals leads to the kind of agreements, like the North American Free-Trade Agreement (NAFTA) and China’s entry into the World Trade Organization, that have increased imports more than exports, thereby dramatically increasing our trade deficits, meaning factories close, people are laid off and money drains out of our economy. These agreements have also increased inequality by enabling companies to use “labor arbitrage” to weaken the power of unions and working people and drive down wages and tax receipts, letting a few billionaires pocket that differential.

Our trade negotiating process, like the process that led to NAFTA and the current process for the new Trans-Pacific Partnership (TPP), has been “captured” by the giant, multinational corporations. Representatives of consumer, health, environmental, human rights, labor and other “stakeholders” are not part of the negotiations, while the interests of the giant corporations are represented. Contributing to this problem is that negotiators are able to later take lucrative positions with the very corporations that can benefit from the results of the negotiations.

The TPP negotiations use that flawed process. Part of the rigged process is that the negotiations and results are kept secret, with the public presented with the results but not involved in the process. The next part of the rigging is that “fast track” trade promotion authority means Congress agrees to not try to amend any agreement, it limits the amount of debate, and gives it an “up-or-down vote” within 90 days of seeing the agreement. That is even though there have been more than 440 filibusters in the last few years in the Senate and hundreds of refusals by the Republican House leadership to allow votes on legislation it opposes. This allows corporations to run a huge PR campaign to pressure Congress before the public can rally a sufficient opposing response.

There has been a great deal of public opposition already to TPP and fast track, including inside the Congress. (See our posts on TPP here.) Lori Wallach of Public Citizen’s Global Trade Watch said that as a result of all of this opposition President Obama only gave “fleeting mention” to trade and fast track in the State of the Union address:

“Corporate interests were fiercely lobbying for President Obama to dedicate serious time in this speech to pushing Fast Track and the Trans-Pacific Partnership in order to try to overcome broad congressional and public opposition to both, but instead he made only a passing reference that largely repeated his past statements.

With almost no House Democratic support for Fast Track, a bloc of GOP “no” votes and public opposition making congressional phones ring off the hook, high-profile treatment of the issue was considered necessary to revive any prospect that Fast Track could be passed in this Congress.

The President’s manufacturing and export initiatives will be undermined if trade agreements like the TPP follow the pattern of our recent trade agreements, from NAFTA to Korea, which are increasing imports more than exports and undermining efforts to increase American wages.

Use this link to tell your member of Congress to vote against fast-track for the TPP.

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