To an American manufacturer that does business globally, the
concept of a “level playing field” upon which to compete is not
a foreign one. What is becoming increasingly foreign to
manufacturers, however, is the country of origin of their major
competitors. U.S. manufacturers of products ranging from
textiles to electronic components to machine tools are feeling
the pinch of emerging foreign competitors. Many of these
competitors, who once were considered emerging Third World
economies and of little threat, now are rivaling the U.S. in
manufacturing expertise and competitiveness.
The reasons for this trend are many, varied, and complex. No
simple answers present themselves on how to fix the problem,
which, incidentally, is haunting the service sector as well.
Since our entry into the 21st Century, America has lost about 3
million manufacturing jobs. Although many foreign enterprises
have developed expertise and efficiencies in their own right as
they have matured as global competitors, there are still many
foreign competitors who rely on artificially erected trade
barriers to gain a significant advantage into a foreign market
or to protect a domestic one.
Common Trade Barriers
The U.S. Government, though cognizant that obstacles to free
trade take many forms, has identified the most frequently
encountered barriers or unfair practices, as listed below:
Intellectual property infringement.
Customs procedures that are not uniformly applied.
Lack of competitive bidding procedures for contracts.
Application of direct or indirect subsidies by a foreign
government in support of domestic suppliers.
Burdensome certification and testing requirements not
required of all manufacturers.
Influence peddling in which another company or country
interferes with fair trade at your expense.
Bribery, corruption or requests for payoffs that diminish
a company’s competitive position.
Each of these practices is a serious matter, but let’s look
at the most damaging one – intellectual property infringement.
In some emergent Asian economies, the culture is such that
copying and pirating intellectual property is a form of
flattery. As a result, many dollars have been illegally siphoned
from legitimate copyright or patent holders, who are feeling
anything but flattered.
It has been estimated by one industry group that 92 percent of
all software on Chinese computers is either unlicensed or
pirated, representing a loss to U.S. exporters of nearly $4
billion annually. The number gets much higher if you add losses
related to books, CDs, DVDs, and video games.
The preceding list outlines common practices in restraint of
free trade, but some countries implement other, more systemic
trade barriers as part of their economic policy. The rapidly
expanding Chinese economy is a case in point.
The Chinese Problem
In 2003, China surpassed the United States as the world’s
largest recipient of foreign direct investment. Concurrently,
Chinese export growth has been booming. The confluence of these
events means demand for Chinese currency (the yuan) has
increased enormously. The principles of free market economics
state that as demand for a commodity (the yuan, in this case)
increases, its price goes up. If the price of Chinese currency
increased, however, Chinese products would become more costly
and not be as price-competitive in global markets. Demand for
those products would fall, as would demand for the yuan, and
prices would also follow suit. The cycle would then begin anew
and the dictates of supply and demand economics would prevail.
But in this cycle is a wrinkle that makes doing business with
China a less-than-fair proposition. The wrinkle is that the
Chinese government pegs the value of its currency to the
American dollar and doesn’t let it fluctuate. The Chinese
strictly regulate imports and the allocation of foreign
currencies to, in effect, falsely valuate its currency to its
economic advantage. Even if we set aside the obvious Chinese
advantages of their bounteous labor supply and its low cost,
their playing field has been skewed for years. Their currency
policy alone has cost American manufacturing six-figure job
losses and billions in lost revenue.
The success of China’s economy is not all based on unfair trade
practices. In fact, some trade barriers fell as part of the
agreement to allow China into the World Trade Organization (WTO).
But, discussion of trade barriers aside, the business culture of
that country is based on a strong work ethic, a virtually
endless supply of labor, and a strong dedication to success and
innovation. As a result, the Chinese manufacturing sector has
evolved from one skilled at producing simple, low end products,
to a juggernaut that is taking on world class manufacturers at
their own game, no matter how complex the product or the
technology behind it.
Environmental and Occupational Trade Barriers
U.S. manufacturers have also been hurt by trade barriers that
were inflicted on them by their own government. About 40 years
ago, the U.S. Government created the Environmental Protection
Agency (EPA) and the Occupational Health and Safety
Administration (OSHA). These agencies, in their zeal to save the
environment and make workplaces and occupations safe, saddled
American manufacturers with a host of costly environmental and
occupational laws and regulations, for which was yielded not a
single additional unit of product to ship.
The extremely contentious relationship between these agencies
and business that characterized the early days has moderated
considerably in recent years. American manufacturers accept that
there is nothing wrong with socially and environmentally
responsible manufacturing. But, in many instances domestic
manufacturers were burdened with costs unilaterally, while
foreign competition could produce product without heed to
similar reciprocal regulations.
A U.S. producer of cast metal manhole covers, for example, had
to worry about (and pay for) minimizing noxious emissions from
the process of melting metal and processing sand molds,
disposing of process waste products, the safety and health of
its workers, just to name a few basic items. That manufacturer’s
Asian competitor, in contrast, had little in the way of
environmental or safety measures with which they had to comply.
The cost advantage in such an imbalance is enormous, and that’s
even before considering the vast differential in the cost of
labor.
What Can We Do?
It should be obvious to the most casual observer that the
playing field upon which American manufacturers compete against
foreign counterparts has become less and less level.
Nonetheless, the U.S. still has the largest economy and the most
productive labor force in the world. These are two significant
advantages that can serve as the foundation upon which to
reverse the economic trends of the past two decades and to
nucleate a newly emergent economy based on ingenuity,
efficiency, and economic growth.
There are no quick fixes or easy answers to reverse what has
occurred during decades of economic evolution (some may argue
for the word devolution). What follow are some ideas about what
can be done to change the pendulum’s swing. They range from
individual actions to changes in public policy:
Americans need to exercise more fiscal responsibility.
Individuals and businesses need to save more of their incomes
and the federal government needs to get serious about
curtailing deficit spending. America is already selling its
way of life to foreign debtors to the tune of about $1.7
billion per day. This is not something that can continue
indefinitely. We can bite the bullet now, or swallow a cannon
ball at some future time.
Educate a workforce to lead into the 21st Century.
America has lost its edge in attracting and educating students
in engineering and technical disciplines. Future breakthrough
products come from research and development efforts carried
out by technical graduates, but foreign countries are grooming
technical graduates in higher numbers at much higher rates per
capita. This needs to change for American business to remain
competitive in the long run.
Increase political pressure on China or other countries
whose currency values are artificially established.
China’s refusal to let the yuan float is costing America jobs
and diminishing the competitiveness of its global businesses.
The WTO’s rules prohibit nations from manipulating their
currencies for trade advantage. China has offered the
fragility of its banking system as an excuse to keep this
practice going, but this is no longer an appropriate response
from the world’s fastest growing economy.
Keep investing in productivity growth. Among the
things that have kept American enterprises competitive
globally are their improvements in productivity. Investments
that improve the productivity of capital and labor are keys to
future success in global markets—both in the near- and
long-terms.
Enforce trade laws more strictly and promptly.
Currently, if a company feels it is victimized by the dumping
of foreign products, its only remedy is the filing of an
expensive and lengthy anti-dumping suit. By the time the suit
is decided and paid for, smaller companies receive little
benefit, even if they win the decision. The U.S. Department of
Commerce can act on behalf of an entire strategic industry
when it sees a threat. This program should be expanded and DOC
should act as advocate for more industries victimized by
unfair trade.
Vigorously defend intellectual property rights.
Legitimate owners of patents, copyrights, trademarks, and
other legal protections do not seek the flattery of emerging
Asian (or any other) economies. They seek free and equitable
access to their markets. Governments that look the other way
while their citizens openly pirate and re-sell stolen property
need to be held to account.
American industry became great by seeking and seizing market
opportunities when and where they occurred. But even the most
productive economy in the world can’t compete with unfair trade
practices. If your company has encountered or been victimized by
any unfair practices, consider visiting
http://www.export.gov/tradebarriers.html for help in
reporting the experience and responding to it.
