A Minnesota manufacturer gives his views on why trade is a big topic this election cycle
There has been a lot of talk in this election cycle about restricting trade. There has also been a lot of talk about income inequality and the demise of the American middle class. I believe there is a strong causal relationship between these trends. Legislators are first and foremost representatives of their constituencies, and as such I expect them to share the underlying American values and principles that cross party lines and join us all together. I see this slipping in recent decades and am left wondering, “where have our principles gone?” In the U.S., we expect our companies to operate in a “principled” manner, that is: pay a fair wage, provide a safe work environment, don’t pollute, provide safe quality products, respect human rights and respect intellectual property.
We as Americans have been spending billions of dollars supporting Chinese companies and their unprincipled activities by purchasing products manufactured by them. The total U.S. trade deficit has averaged over $40 billion a month for the past 25 years (U.S. Census). That currently totals about $12 trillion dollars, with China being the largest contributor to this deficit. At this point it should also be noted that the current U.S. government debt level is $19 trillion and growing. Interesting that the two numbers are similar in magnitude and trust me, they are related. ABC News reported during the great recession that for every additional $46 billion Americans spend on “made in America” products, 500,000 U.S. jobs would be created. I think I figured out where our middle class jobs went — they moved to China.
Manufacturing jobs typically pay better than service jobs, and also have a multiplying effect by creating good-paying support jobs in the community. And what about the profits on these Chinese-made products? Do you think they’re paying U.S. taxes on those profits? Think of the upward wage pressure if just one million good-paying manufacturing jobs came back from China of the three million plus that have been lost since 2001 (USNEWS.com). I have owned two manufacturing companies and have experienced competition with the Chinese on a daily basis. We paid good wages, offered health and 401K retirement benefits to our employees, and paid U.S. taxes. But we still found our customer’s primary source for large quantity buys was China. A 2014 report published by the Federal Reserve Board linked permanent normal trade relations with China with reducing U.S. employment growth by 19.5% from 1997 to 2007.
Aside from the lower quality products, poor safety, human rights abuses, lack of respect for intellectual property (Star Tribune, March 2014) and environmental damage, the Chinese also manipulate their currency to artificially lower the price of their products to the U.S. (WSJ, March 2014 & AP, April 2016). A trade deficit means net wealth leaving our country which leads to fewer net jobs. The bulk of this wealth loss comes from the people spending it…the middle class. With respect to our problem of income inequality, we could confiscate the wealth of the top 0.5% of Americans and all summed it would not come up to the accumulated trade deficit we have (Federal Reserve data). It seems so clear that our middle class jobs and livelihood have simply moved to China where there is a thriving middle class. When I talk to purchasing managers here in the U.S. that are buying from China I want to ask, “What are your grandkids going to do for meaningful work?” But they don’t get it.
Fewer jobs also means fewer customers. How can any rational person look at our accumulated trade deficit and still wonder why our middle class is shrinking and struggling and why lopsided free trade agreements have not contributed to many of the problems we face as a nation today? I have yet to see a serious argument in favor of free trade that addresses our expansive trade deficit and the unprincipled practices used by China and other countries to destroy industries in the U.S. As a U.S. manufacturer, we can compete to a degree but the currency manipulation is just plain cheating. Why are we supporting companies and countries that operate this way? Would we support companies in the U.S. that operated like this?
The World Press Freedom Index for 2014 puts the communist country of China at 175th out of 180 for being the worst in the world for freedoms that we embrace. Pollution from China can now be detected entering California (nytimes.com, January 2014). Lead in kids’ toys, corrosive drywall, poisonous flooring, all sold to us with a manipulated currency? Did anyone get maimed making your TV or cell phone? And what are your grandkids going to do for meaningful work? What we need is FAIR PRINCIPLED trade, not “no” trade or lopsided “free” trade.
I recommend that we start by reviewing all our trade agreements, NAFTA, TPP and China’s most favored nation status. We need to look at persistent large deficits and determine if those deficits are generated by practices not consistent with our American principles of fair wages, safe work space, environmental responsibility, respect for human rights, respect for intellectual property and a fair currency exchange. Letting foreign nations wipe out industries here by cheating is not consistent with our American principles and I expect all our leaders to correct this as it is the right thing to do for our nation and our middle class.
Keith DauSchmidt BSME MBA is a drop-in CEO/business consultant who has bought and sold several manufacturing companies in the last 19 years. He is currently seeking another acquisition.