Industrial Insight

Trade and Justice

December 31, 2009
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If there is justice in the world then there must be a final judgment because we will not get it in this life from our government.

To get justice (the simple application of US law), an industry needs to file a suit with the US govt. These suits are filed with the International Trade Commision (USITC) and the Department of Commerce International Trade Administration-Import Administration (DOC-ITA) to request the application of anti-dumping (AD) or countervailing duties (CVD). China is subject to a special remedy called a 421 but this case is not of that type. These actions are called Trade Remedies (TR). While the US govt has the authority to self initiate, they don’t. Petitons can be filed by a company, a group of companies, or a union but the petition for relief must represent 25% of the total US manufacturers of the item covered. The DOC-ITA then sends a questionaire to all producers and more than 50% of the respondents must support the filing for trade relief. This creates a big catch. The largest producers often serve the largest users who get the biggest benefit from unfair trade practices. Initiating a petition is a risky investment and exposes the petitioning companies to the displeasure of their largest customers. There are other fundamental problems. DOC-ITA is very helpful and will work with the petitioners to organize the filing but unless the issues are straightforward and the facts clear and documented, then legal counsel will be required. So either a large investment of time, money or both are required. The bare bones small filing for an industry and not an isolated sole producer will run $250,000 min. So it would make sense to file for the largest product group with the most offending companies but then it is difficult to get adequate support for the petition or questionaire and proving injury and unfair practices becomes more difficult and expensive. If you target a smaller range of products it is easier to be successful but then the payoff may not support the cost of filing.

There is no small claims window in this process.

Even if the ITA investigation supports the petition and the ITC finds injury, then the Administration (the President) decides what remedy to impose. Even when successful, unless there are good political reasons for relief, the adminstration may not apply any measures for relief. Their decision is final and not subject to congressional or judicial review.

This is way more than you wanted to know, but if you suffer from mild insomnia, there is a handbook (http://www.usitc.gov/trade_remedy/documents/handbook.pdf) for filing a petition. My members have on occasion asked SFSA to pursue a petition but I could never even get 25% of the producers to agree to the action. The steel companies are the most involved, sophisticated, and frequent users of trade relief.

Both political parties are not supportive of manufacturing and are not troubled by the migration of manufacturing overseas, lessing pollution, reducing accidents, creating more service jobs, etc. There is an international consensus that the US should remove all trade restrictions including these trade remedies and allow all countries complete access to our markets. The WTO routinely finds the US application of trade remedies to be inconsistent with our WTO obligations and requires that they be eliminated.


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China and Trade

December 31, 2009
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U.S. Imposing New Duties on Chinese Steel Imports

AP

The U.S. government is imposing new duties on imports of steel pipes from China, the latest sign of trade tensions between the two countries. WASHINGTON — The U.S. government is imposing new duties on imports of steel pipes from China, the latest sign of trade tensions between the two countries. The case is the largest steel trade dispute in U.S. history and will impact about $2.7 billion worth of Chinese imports. The U.S. International Trade Commission voted Wednesday to impose duties between 10.36 percent and 15.78 percent on the pipes, which are mostly used in the oil and gas industries. The duties are intended to offset government subsidies that the U.S. government says China is providing its steelmakers. The move is in response to a complaint filed in April by U.S. Steel and six other steel manufacturers, as well as the United Steelworkers’ union. The U.S. industry alleged that Chinese exporters are selling the subsidized pipes at unfairly low prices in the U.S., a practice known as “dumping.” The steelworkers union said earlier this month that the dumping has harmed the U.S. steel industry and caused more than 2,400 job losses since the beginning of this year. Wednesday’s move by the ITC only addresses the U.S. industry’s concern that Chinese imports benefit from government subsidies. The ITC will also vote in the spring on whether to impose additional tariffs of up to 99 percent to penalize the Chinese steelmakers for dumping. The Commerce Department said last month that imports of the Chinese steel pipes rose by nearly 360 percent from 2006 to 2008. China and the U.S. are engaged in several trade disputes over market access for goods ranging from poultry and tires to Hollywood movies. In another steel dispute, the Commerce Department said Tuesday that it may impose antidumping tariffs of 14 percent to 145 percent on $91 million of steel grating imported from China. It defines steel grating as two or more pieces of steel joined by any assembly process. The department will make a final decision in that case in April.


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China bigger than Japan

December 31, 2009
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This article shows that China will pass Japan as the second only to US economy this year. They are already the largest source of greenhouse gases.

http://247wallst.com/2009/12/27/china-is-almost-certainly-worlds-second-largest-economy/

China became the world’s second largest economy in 2009, passing Japan, which has held this distinction for decades. The People’s Republic raised its growth forecast for 2008 to 9.6% from 9% which took the total to over $4.6 trillion. The Chinese government says it will have economic growth of 8%. The financial ministry has suggest that the 2009 number will almost certainly be revised up early next year.

Japan’s GDP did not grow at all this year and could actually drop by 6% or more depending on the direction of its economic revisions.

The CIA Factbook, a source of data that many experts use to compare national economies, reported that China’s 2008 GDP was $4.6 trillion and Japan’s was $4.9 trillion. The 2009 numbers are likely to be $4.75 trillion for China and $4.6 trillion for Japan.

China has had a natural advantage over Japan for years. Japan no longer has the world’s largest pool of inexpensive labor. Its cost to build exports has risen from the 1970s when it had a huge advantage over the US and Europe for the cost of building cars and consumer electronics. Japan inadvertently created a well-paid middle class that expected high wages. China, however, is still bringing people from its impoverished rural regions into large cities to work in factories. These people are paid very modestly, but the cost of living in China is low compared with Japan and the West.

China also has an abundance of natural resources, particularly energy and raw materials like metal. Japan is too small geographically and consequently never had those resources. It has always had to import most of the components of the products that it made and has been periodically plagued because it has been captive to the price increases of oil and natural gas.

It will be several decades before China’s GDP can match that of the US. America’s gross domestic product will be over $14 trillion this year. China will gain on that number quickly if US economic output stays below 2% or 3% and China continues to expand at 10% or better.

China may never have to build a military to pass the US as the world’s leading power. The possession of the world’s most powerful armies was important in the 20th Century, but national influence in the 21st Century is built more on currency value, export strength, and access to natural resources. China’s government is willing to spend hundreds of billions of dollars to expand its manufacturing capacity and to buy natural resources, particularly oil, from every continent in the world.

There is, of course, always the chance that China’s economy will encounter economic crises of it own. Economists believed in the 1980s that Japan might pass the US in GDP eventually because of its labor and public policy advantages. Japan then hit a period when equity and property values dropped by over half and its chance to challenge the US disappeared. Inflation could still undermine China’s growth along with the rising cost of its own labor.

China is considered likely to pass the US in GDP, but three decades ago, so was Japan.

Douglas A. McIntyre


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Manufacturing

December 29, 2009
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http://nationalaffairs.com/publications/detail/keeping-americas-edge

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THE COST OF PROSPERITY*

An economy built upon constant and relatively free innovation is inherently difficult to sustain in a democracy. This is not so much a matter of anti-market ideology as of the painful realities of economic change. Innovation forces change, and the pain involved tends to be felt immediately while the benefits are usually diffuse and harder to perceive in the short term.

It is therefore natural for people to organize to prevent the spread of significant innovation. The original Luddites were cotton weavers who, in the throes of Britain’s Industrial Revolution, responded to their displacement by automated weaving technology directly: They smashed looms. In America, people in similar situations rarely assault property en masse, but they do form political coalitions to pass laws that restrict innovation. It is understandable that the enormous waves of innovation always sweeping over a dynamic free-market economy will arouse great unease and opposition. But for that economy to prosper, the unease and opposition must be overcome.

This dynamic is often easiest to see at a distance. Consider, for instance, our country’s transition from an agricultural to an industrial economy. In 1800, America was a nation of farmers: About three-quarters of the labor force worked in agriculture. Since then, this share has been in almost continuous decline. By the eve of the Civil War, it was a little over half; by 1900 it was about one-third. Today, agriculture employs less than 3% of the work force. This has been great for ­consumers: Farming is now incredibly efficient, and food is cheaper and more plentiful in real terms than ever before in human history. American agriculture today is also a successful industry; in 2007, the U.S. exported more than $75 billion in agricultural products, and it has maintained a positive trade surplus in food for decades. But agriculture is no longer an industry that can provide employment for very many people.

The transformation described by these statistics was not easy. It produced enormous flux in social, political, and family relationships, and the instability lasted for generations. One of the most painful things about markets is that they often make fools of our fathers: Sharp operators with an eye for trends often outperform those who carefully learn a trade and continue a tradition. And the Industrial Revolution combined material deprivation for people who had known only farming with ­radical uncertainty about the future for much of the country. The appeal of political resistance to such change — like that embodied by the populists and William Jennings Bryan at the turn of the 20^th ­century — is easy to see. But their approach would have meant propping up emotionally resonant family farms while retarding the development of the industrial economy.

The industrial economy itself has witnessed a similar drama over the past 60 years. America has a very productive manufacturing sector, but that sector doesn’t employ much of the population anymore. At the end of World War II, manufacturing accounted for about one-third of the American work force. Today it accounts for about one-tenth. In terms of ­employment, we are no longer transitioning to a service economy; we are there. Over the same period, however, manufacturing has consistently represented about 15% of rapidly growing U.S. economic output. The chart below presents the classic image of massive economic transformation.

Manzi-small

Ever-increasing productivity involves the use of human capital in new and constantly evolving ways. This is great for growth, but can be very hard on the people displaced. It is impossible to know, ­moreover, what new sectors will actually be productive and how they will develop. That is why the free play of markets with limited intrusion by the government is so essential. Almost all industrial policy ends up protecting existing institutions; this is a function of human nature and is not fixable by clever program design. As a result, industrial policy normally preserves jobs that a ruthless market would eliminate, and subsidizes the kinds of new technological developments that can be exploited by ­existing large firms. But these favored developments are rarely the sources of new high-wage jobs — and so such policy is more often a recipe for controlled stagnation than for continued growth. The attempt to protect ourselves from the pain of change ends up creating a sclerotic economy that, in the long run, puts everyone at greater risk.

One obvious response is to use the political process to both slow down the rate of innovation to an acceptable pace and redistribute the country’s economic output in a manner designed to maintain social ­harmony. That way, the pain of innovation is avoided and the pain of stagnation is mitigated — especially for the middle and lower classes, who are most vulnerable to the effects of both. This is the logic of the welfare state, and the direction pursued by much of Western Europe since the Second World War.

The problem, however, is that the United States does not exist in a vacuum, and making our internal economic changes less stressful is far from our only concern. We also face external challenges, especially rising competition from abroad. And our position in the global order means we cannot afford to go easy on ourselves and constrict ­innovation. Quite the opposite: We need rapid growth just to keep up.


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A polarized Senate

December 29, 2009
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http://www.realclearpolitics.com/horseraceblog/2009/12/why_the_filibuster_is_more_ess_1.html

The following chart demonstrates that the two political parties have become substantially more polarized over the last 45 years. It uses the DW-Nominate methodology to track the ideological distribution of Democrats and Republicans in the Senate from the 89th Congress (1965-1967) to the 110th (2007-2009):

Three important trends are evident from this picture. First, the party extremes have grown farther apart. Second, there are now fewer genuine moderates in the United States Senate than at any point in the last half century. Third, there used to be a sizeable ideological overlap between the two parties in the Senate. It no longer exists. Put simply, the Senate parties have become ideologically polarized.


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R&D and the Future

December 29, 2009
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http://www.slate.com/id/2239986/

Patents granted of foreign origin chart.Over this 45-year period, the domestic share of U.S. patent filings has dropped from 82 percent to 50 percent, with the share of foreign-originated patents rising commensurately.

Another critical area of correlation—and perhaps causation—is the relationship between research and development spending in various nations and patent filings generated in those nations.

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Patent Filings
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It should surprise no one that increased spending on R & D generates the patent flow that we have been discussing.

A few caveats are necessary—not about the data but about drawing quick policy conclusions from it. A patent application filed and granted in the United States by a U.S. company might not generate many jobs or much economic activity in the United States if the production and marketing of any resulting product or service took place overseas. So a critical question that remains is whether innovation in the United States will continue to have as significant and broad-based an economic impact as it has in the past. On balance, is it preferable to have Apple doing its R & D here, even if it manufactures the iPod in China? Of course it is, because the R & D here creates great value and wealth. But the loss of manufacturing jobs to the rest of the world has enormous economic consequences for the middle class.

Historically, our economic growth has depended in large part on our ability to generate new ideas and innovations. In addition, while there can be substantial discussion about which policies will best keep our innovation engine churning, increased investments in education—especially in technical fields—and basic R & D seem critical to any agenda. If we want robust economic growth to return, then we had better figure out how to reverse some of the trends suggested by this quick examination of patent data.


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Heroes of Business?

December 29, 2009
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http://www.american.com/archive/2009/december-2009/the-miser-versus-the-entrepreneur

“So why do so many defenders of capitalism turn, not to the insights of thinkers like George Gilder and Michael Novak, but to apostles of greed like Ayn Rand? My guess is that Rand continues to be popular because of a key literary insight: However much she officially praised selfishness, her protagonists are not misers. On the contrary, the heroes of her novels are entrepreneurs. How many other authors or playwrights have done that? Survey novels, plays, and movies with business people as characters. Ordinarily, those characters are the villains, not the heroes. In fact, I can think of only two well-known movies in which a business man qua business man is the hero: It’s a Wonderful Life and Charlie and the Chocolate Factory. And even here there are dissonant notes. In It’s a Wonderful Life, George Bailey is balanced by the easy-to hate, greedy banker, Mr. Potter. And Willy Wonka, though an entrepreneur, is a bit antisocial and eccentric.

So Rand stands out from the pack. Whatever her philosophical failings, she recognized the heroic aspects of entrepreneurship. Without entrepreneurs, little of what we take for granted in our economy and our everyday lives would exist. Here in my office, the concrete forms of entrepreneurial imagination are everywhere: paper, scissors, pens, highlighters, ink, CDs, an empty Tupperware container that held the pork loin I ate for lunch, a flat-screen monitor, fonts, lamps, lightbulbs, windows, sheet rock, speakers, a laptop computer, and an optical mouse. Behind all these visible objects lie real but less visible innovations in finance, manufacturing, and transport that I scarcely comprehend. All of these things are gifts from entrepreneurs.”


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Telling a Story

December 27, 2009
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I am reading a book by N.T. Wright on NT theology. His framework suggests that as human persons, we operate always in the context of a story. Our religion, myth, personal or family identity is based on a story we repeat and embellish. If this captures some truth, then as technical instructors we must learn to embed our material in a story. As sales efforts, we need to create a story about our product/service and a heroic outcome. I read an article some time ago about how Steve Jobs is the most successful sale person of our time. That article pointed out that He always tells a story about a hero, Apple, a villain, IBM/Microsoft, and an epic struggle with the smaller David conquering the giant Goliath. As a manufacturing industry the current societal story is that manufacturing is run by evil men who are corrupt and ruining our planet. What is our story and how do we tell it?


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Employee costs

December 26, 2009
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Wow we should all have government jobs I guess.
http://www.realclearmarkets.com/facts_and_fallacies/by_the_numbers/2009/12/government_vs_private_salaries.html


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Q

December 25, 2009
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Why does English require a u after q? I typed eqipment and it would work without the u. Renee grabbed the dictionary and found q words without a u but only two were not letter references. One was a wool name fron Inuit and the other from Albanian. Seems somehow inefficient.


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