[Senate Hearing 115-838]
[From the U.S. Government Publishing Office]
S. Hrg. 115-838
IMPACT OF TARIFFS ON THE
U.S. AUTOMOTIVE INDUSTRY
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HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 26, 2018
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
40-897 PDF WASHINGTON : 2020
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming BILL NELSON, Florida
JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia SHERROD BROWN, Ohio
ROB PORTMAN, Ohio MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana SHELDON WHITEHOUSE, Rhode Island
Jeffrey Wrase, Staff Director and Chief Economist
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
WITNESSES
Haughey, Michael, president and CEO, North American Stamping
Group, Portland, TN............................................ 5
Schostek, Rick, executive vice president, Honda North America,
Incorporated, Marysville, OH................................... 6
Gates, Steve, dealer principal, Gates Auto Family, Richmond, KY.. 8
Nassar, Josh, legislative director, United Auto Workers, Detroit,
MI............................................................. 10
Britt, H. David, chairman, Spartanburg County Economic
Development Committee, Spartanburg, SC......................... 11
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Britt, H. David:
Testimony.................................................... 11
Prepared statement........................................... 39
Gates, Steve:
Testimony.................................................... 8
Prepared statement........................................... 40
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Prepared statement........................................... 44
Haughey, Michael:
Testimony.................................................... 5
Prepared statement........................................... 45
Nassar, Josh:
Testimony.................................................... 10
Prepared statement with attachments.......................... 54
Responses to questions from committee members................ 145
Schostek, Rick:
Testimony.................................................... 6
Prepared statement........................................... 155
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement........................................... 158
Communications
Association of Global Automakers, Inc. and Here for America...... 161
Multi Parts Supply (MPS)......................................... 164
National Association of Foreign-Trade Zones (NAFTZ).............. 166
National Pork Producers Council (NPPC)........................... 171
Sea Link International, Inc...................................... 172
(iii)
IMPACT OF TARIFFS ON THE
U.S. AUTOMOTIVE INDUSTRY
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WEDNESDAY, SEPTEMBER 26, 2018
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:30
a.m., in room SD-215, Dirksen Senate Office Building, Hon.
Orrin G. Hatch (chairman of the committee) presiding.
Present: Senators Grassley, Portman, Toomey, Scott,
Cassidy, Wyden, Stabenow, Cantwell, Menendez, Carper, Cardin,
Brown, Casey, Warner, and McCaskill.
Also present: Republican staff: Jeffrey Wrase, Staff
Director and Chief Economist; Nasim Fussell, Deputy Chief
International Trade Counsel; Rory Heslington, Professional
Staff Member; and Shane Warren, Chief Trade Counsel. Democratic
staff: Joshua Sheinkman, Staff Director; Elissa Alben, Senior
Trade and Competitiveness Counsel; Roberta Daghir, Detailee;
Greta Peisch, International Trade Counsel; and Jayme White,
Chief Advisor for International Competiveness and Innovation.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
UTAH, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order.
I want to say ``good morning'' and ``welcome'' to every one
of you here today to this hearing on the impact of tariffs on
the U.S. auto industry. In particular, I would like to welcome
our witnesses and thank them for joining us today.
I intend to focus this morning on the investigation that
was self-initiated by the Department of Commerce under section
232 of the Trade Expansion Act of 1962 to determine whether
imports of automobiles and automotive parts threaten to impair
our national security. Many of us on the committee have already
expressed our concerns about the administration's heavy
reliance on tariffs.
In June, Secretary Ross appeared before this committee to
explain the Department's finding that steel and aluminum
imports threatened to impair our national security. As a result
of that determination, the United States is currently imposing
tariffs of 25 percent on steel products and 10 percent on
aluminum products. Combined, these tariffs directly affect
almost $50 billion worth of goods, while also affecting many
billions of dollars more in downstream goods.
These tariffs cause American manufacturers and farmers to
pay more to conduct business and consumers to pay more to buy
these things. One industry that has been harmed by the steel
and aluminum tariffs is here before us today--the auto
industry.
The American Automotive Policy Council estimates steel and
aluminum tariffs will cause a $400 per-car increase. Auto
suppliers and consumers are already suffering from section 232
tariffs. That is one reason I was stunned that on May 23rd, the
Department of Commerce initiated another investigation under
section 232, this time into the national security threat from
automobile and auto parts imports. This investigation covers
more than $200 billion worth of trade, which is four times
larger than that under the steel and aluminum investigations
combined.
For most American families, a car is one of the most
expensive purchases they make, often second only to the
purchase of a residence or home. It is a significant financial
commitment for most families, often paid for with debt. And I
am shocked that anyone would consider making it more expensive.
If the Department of Commerce were to recommend a 25-percent
tariff on cars, it would effectively be recommending raising
the cost of an average imported car for an American family by
as much as $6,400.
According to the American Automotive Policy Council, if a
25-percent tariff is applied to auto parts, the cost to
manufacture a passenger vehicle domestically would also
increase by about $2,000. That is why I call tariffs a tax on
American families. The Tax Foundation estimates that auto
tariffs could result in a $73-billion tax increase on American
consumers and businesses, erasing some of the benefits of tax
reform passed earlier this Congress, something we are very
proud of and pleased with.
These taxes will hurt American families and put American
jobs at risk. The Peterson Institute calculates that auto
tariffs could cause 195,000 workers to lose their jobs. That is
nearly 200,000 people out of work. And that is before other
countries retaliate, which could put over 600,000 U.S. jobs at
risk.
These tariffs could cost the U.S. auto industry up to 2
million lost vehicle sales annually. And it cannot be
overlooked that international automakers and dealers
significantly contribute to our U.S. economy. Together they
accounted for 47 percent of all U.S. vehicle production in
2017, throughout 31 manufacturing facilities, generating 2.47
million jobs in the United States. And this is just the
automakers.
Motor vehicle parts suppliers are the largest sector of
manufacturing jobs in the United States. Suppliers directly
employ over 870,000 Americans, and nearly 8,000 in my home
State of Utah alone. Direct employment by parts suppliers has
increased 19 percent in the last 5 years, and tariffs threaten
the sector's continued job growth.
In short, the U.S. auto industry is a major driver of the
U.S. economy, supporting approximately 10 million American jobs
and accounting for 3 percent of our GDP. Without question, any
tariffs that are imposed will have a negative impact on the
U.S. auto industry and our economy.
Our focus should be on building on the benefits from our
historic tax reform achievement earlier this Congress. Our
trade policy should strengthen our relationships with our
allies while targeting China's most harmful trade practices.
Tariffs on autos and auto parts are not going to help us
achieve any of these things.
With that, I am going to turn to Senator Wyden for his
comments.
[The prepared statement of Chairman Hatch appears in the
appendix.]
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman, and I
appreciate your scheduling this hearing.
Mr. Chairman and colleagues, the President has made it a
practice to get up in front of the television cameras, tout new
trade deals, reap splashy headlines, but those announcements
have been consistently hollow and the results underwhelming.
This week's announcement about the U.S.-Korea Trade
Agreement says it all. The administration touts it as a massive
overhaul of a trade deal that they claim had previously cost
hundreds of thousands of American jobs. But if you search
carefully for significant changes in this agreement, concrete
wins that will deliver red, white, and blue jobs on the scale
the President has talked about, you are going to come to the
conclusion that there is no ``there'' there. A recent Bloomberg
News article summed up the U.S.-Korea Free Trade Agreement very
bluntly, and I am just going to quote here: ``Trade analysts
say changes to the South Korea agreement were largely
cosmetic.''
There is no evidence that the renegotiation will actually
result in an increase in the number of American-made cars sold
in South Korea. In at least one case, the changes are not even
cosmetic. They simply do not exist at all.
Earlier this year, the White House even went on record
announcing a deal with Korea on currency manipulation. That is
nowhere to be found in the final text or anywhere else. So,
when it comes to South Korea, the Trump administration over-
hyped and under-delivered. And my view is, that is their record
on trade in microcosm.
In recent months, the President has threatened to impose
sweeping tariffs on automobiles. Now, if the administration
comes up with a coherent strategy that is actually going to
produce more high-paying jobs here at home and greater access
for American-made cars and markets overseas, I sure want to
know about it. But where things stand now, it looks like this
may just be more haphazard bluster.
Furthermore, the President's threats to impose auto tariffs
are already doing harm at home, stifling investment, likely
costing jobs in the long run, and raising costs for American
consumers. In one case, Ford announced that it decided not to
sell a particular model of car in the United States because of
the looming threat of tariffs. So there is the start of
Americans having fewer choices when they go out and visit the
showrooms.
One last point--and one I feel very strongly about--the
President believes he has the authority to impose auto tariffs
because the Congress gave it to him. So I want to put the
administration on notice this morning. Under the Constitution,
it is the Congress that is in charge of trade and in charge of
tariffs. In the absence of a real strategy and tangible wins on
trade, perhaps it is time for the Congress to think about
reclaiming this authority.
I want to thank our witnesses for coming. This is an
important opportunity for the Finance Committee to draw a
distinction between two different approaches to trade and
autos. The approach I am in favor of is one that is based on
concrete well-planned strategies that are actually going to
create high-skill, high-wage auto manufacturing jobs and
deliver for our workers. But in my view, the administration is
delivering--and it's pretty much right out of their playbook--a
lot more chaos. It is trade policy dictated by early morning
tweets and bluster, and it may end up costing jobs and doing
more harm than good.
Mr. Chairman, this is an important hearing, and I thank you
for scheduling it.
The Chairman. Thank you, Senator Wyden.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. I would now like to introduce each of our
witnesses who have graciously agreed to be here today to talk
to us and answer our questions. I will begin with Mr. Michael
Haughey, who is currently the president and CEO of the North
American Stamping Group. Mr. Haughey joined the North American
Stamping Group in 1990 as a partner. He encouraged and led the
company's NAFTA expansion, increasing its manufacturing
footprint in the automotive market. Under Mr. Haughey's
guidance, the company continued to expand its operations in the
United States and North America.
So we welcome you to the committee, Mr. Haughey.
We will now welcome Mr. Rick Schostek. Mr. Schostek is
currently the executive vice president of Honda North America.
Mr. Schostek joined Honda in 1987 as an attorney and continued
to work within the company in various leadership roles until
his promotion in 2012 to senior vice president. He serves on a
number of boards, including for Fuel Cell System Manufacturing
LLC, Global Automakers, and the National Association of
Manufacturers.
I want to thank you for coming to speak with us today. And
we appreciate your time.
Now we turn to our third witness, Mr. Steve Gates.
Currently, Mr. Gates is the dealer principal at Gates Auto
Family in central Kentucky and Indiana. Mr. Gates began his
career as a lot attendant at his father's car dealership in
1965. Since then, Mr. Gates started his own company, worked for
BMW in financial services and as a used car manager, and now
has realized his ambition of becoming a new car dealer. Mr.
Gates serves on the American International Automobile Dealers
Association board and the Toyota National Dealer Council.
Mr. Gates, we are grateful to have you here and want to
thank you very much for being here today.
Our fourth witness today is Mr. Josh Nassar. Mr. Nassar is
currently the legislative director of the United Auto Workers.
Before this position, Mr. Nassar served as the assistant
director of legislation for the Service Employees International
Union or the SEIU, one of the most important unions in the
world, really. Prior to his work at the SEIU, Mr. Nassar had
been the vice president for federal affairs at the Center for
Responsible Lending, and also served as Legislative Assistant
for Congresswoman Jan Schakowsky from Illinois.
Mr. Nassar, we thank you for joining us here today as well.
Finally, we have H. David Britt. Mr. Britt is the vice
chairman of the Spartanburg County Council. In his 25 years on
the Spartanburg County Council, Mr. Britt has led numerous
economic development efforts, resulting in the county having
the highest international investment per capita in the Nation
in recent years.
So, Mr. Britt, we are grateful to have you here and look
forward to your testimony.
Let us begin over here with our friend on our left.
STATEMENT OF MICHAEL HAUGHEY, PRESIDENT AND CEO, NORTH AMERICAN
STAMPING GROUP, PORTLAND, TN
Mr. Haughey. Good morning, Chairman Hatch, Ranking Member
Wyden, and the other members of the committee. My name is
Michael Haughey, and I am the president and chief executive
officer of the North American Stamping Group.
The North American Stamping Group is a Tier 2 automotive
metal stamper and assembler founded back in 1978 that
manufactures for both the new original equipment market, as
well as the aftermarket. We produce components and assemblies
for passenger car, light truck, and commercial vehicles. Our
sales have grown annually at a compounded rate of 18 percent
for the last 8 years. We are one of the largest Tier 2
suppliers, with annual sales approaching $450 million.
We have 13 facilities in the NAFTA region. Over the last
decade, we have deployed nearly $200 million in capital
spending for new facilities, expanded facilities, new
equipment, technologies, processes, and acquisitions. This
investment has allowed us to open up significant capacity
throughout the entire NAFTA region to support future growth for
our strategic customers.
Our 13 facilities encompass 1.6 million square feet. Ten of
the facilities are production facilities, two are research
centers, and one is the sales office. Specific to the United
States, we have 10 facilities: one in Michigan, five in Ohio,
one in Indiana, and three in Tennessee, employing 1,500 team
members. NASG is part of a vibrant supply chain, but keep in
mind this supply chain depends on a global market to thrive in
the U.S.
We applaud the administration and the Republican Congress
for the tax cuts. We applaud the administration for the
decrease in business regulations that we have enjoyed. We
applaud the administration for attempting to level the playing
field on trade. However, we do not believe tariffs are the
right approach to promote American competitiveness. Our
industry is in turmoil. Last year, we were on a bridge from the
internal combustion engine to the electric car. However, in the
last 6 months, we have come off the rails. Our turmoil includes
the administration-proposed changes on CO2
regulations that are currently unresolved and the
administration-proposed changes on CAFE regulations that are
currently unresolved. Other factors include section 232 steel
and aluminum tariffs already implemented, the other 232 tariffs
proposed, section 301 tariffs proposed that since this time
have now come into effect, what looks like an inevitable trade
war, rising oil prices, rising interest rates, auto
manufacturers profits decreasing, electric automobile tax
credits expiring, the car discount that is reaching
unsustainable levels, and increased forecast of a recession
based on the preceding points.
We thank the committee for holding a hearing today on the
impacts of tariffs on the U.S. auto industry. The industry is
already feeling the effects of tariffs on steel and aluminum.
Since the start of the current administration, steel has risen
steadily with the ongoing talks of steel tariffs. The market
prices peaked up 50 percent from $600 per ton for hot-rolled
steel up to $900 per ton today with the implementation of
tariffs on March 23, 2018.
Potential outcomes of steel tariffs and the resulting steel
price increases include trade partner retaliation--which we
have experienced--and a forecast of vehicle prices increasing
by $2,000 for U.S.-made and $7,000 for imported vehicles. It is
estimated that suppliers like ourselves will have to absorb a
third of the steel increases, thereby reducing our earnings.
These reduced earnings will result in less technology spending,
less capital spending, and fewer wage increases. This will
crimp consumer confidence, leading 60 percent of economists to
forecast a recession in 2020, which will reduce automobile
sales--an estimated decline of 15 percent, resulting in 750,000
to 1.25 million American automobile workers potentially losing
their jobs.
From an NASG standpoint, we have experienced steel price
increases exceeding $10 million annually. So we can believe the
car price increases that I noted above. Our share of steel
increases, which we are unable to pass on to our Tier 1
customers and the original equipment manufacturers, has a
negative consequence to our business. Our actions have included
reducing overtime, putting on hold and dramatically paring down
all open team member hiring, putting on hold and dramatically
paring down capital spending, and reducing all discretionary
spending.
In summary, I have suspended growing our business until
uncertainty in the industry is resolved. Obviously, our actions
due to the tariffs have a negative effect on our team members,
our suppliers, and our surrounding communities. The sentiment
in the industry is similar to 2008 just before the Lehman
demise. Our business plans include bracing for a 2019-2020
recession.
I thank you for the opportunity to testify today, and I
look forward to your questions.
The Chairman. Thank you, sir.
[The prepared statement of Mr. Haughey appears in the
appendix.]
The Chairman. Mr. Schostek, we will turn to you now.
STATEMENT OF RICK SCHOSTEK, EXECUTIVE VICE PRESIDENT, HONDA
NORTH AMERICA, INCORPORATED, MARYSVILLE, OH
Mr. Schostek. Thank you, Chairman Hatch, Ranking Member
Wyden, and members of the committee. We appreciate the
opportunity to testify today. My name is Rick Schostek. I am
executive vice president of Honda North America. I am here on
behalf of Honda and our 31,000 associates in the United States.
But I share the concerns about the potential impact of auto
tariffs with all sectors of the auto industry, including
domestic and international automakers, suppliers, dealers, and
aftermarket companies. The auto industry is not seeking
protection and is certainly not asking for additional tariffs
which will harm manufacturing in the U.S., harm our workers,
and, most importantly, harm U.S. consumers.
Let me give you a brief history of Honda in the U.S. and
some statistics. Prior to 1982, when Honda began building the
Accord in Ohio, every vehicle we sold in the U.S. was built in
Japan--100-percent imported prior to 1982. Since then, a great
deal has changed. We have produced more than 25 million
vehicles in America. And last year, of the vehicles we sold in
the U.S., 66 percent were built in our U.S. factories, 20
percent came from Canada, 7 percent from Mexico, 4 percent from
England, and finally--yes, finally--3 percent from Japan. We
have gone from 100-percent import to 3 percent from Japan.
Our history in America highlights two factors that are
critical to attracting and retaining investment: stability and
maintaining a welcoming business environment. So let us start
with stability.
The process of developing a new vehicle takes several
years. Each vehicle represents hundreds of millions of dollars
of investment and advanced planning. This is where disruptions
like new taxes in the form of tariffs come in. These taxes
represent an addition to the cost of building a vehicle. These
costs must either be passed on to our customers or borne by
manufacturers. And this diverts money intended for other
critical purposes, including investment in future technologies
and capital improvements.
The second critical factor is the need for a business
environment that welcomes manufacturing. The U.S. has long
worked to ensure that manufacturers have an environment that
brings the best reasonably priced products to consumers.
However, America is now experiencing a fundamental change in
the philosophy of open markets, and it is a change that
threatens our competitiveness. Tariffs inevitably lead to
unanticipated harmful effects. For example, let us talk about
the steel tariffs that are now in effect.
More than 90 percent of the steel we use to produce our
vehicles here is sourced here in America. So we are paying
direct tariffs on the less than 10 percent that we import. But
even more significantly, domestic steel manufacturers have
raised their prices, and this has burdened us with hundreds of
millions of dollars in new costs. So, even though we
overwhelmingly source steel in the U.S., we are paying as if we
are importing. Does that make sense? And on top of that, we are
dealing with retaliatory tariffs on our exports.
In a similar vein, Honda's North American-built vehicles
have high U.S. content, but every manufacturer--no matter which
one--that builds vehicles does it with both domestic and
globally sourced parts. A new tax on imported parts would
increase the price of every vehicle built in U.S. factories.
And similarly, a 25-percent tariff on imported vehicles would
depress sales. The industry would end up purchasing less from
U.S.-based suppliers, resulting in U.S. job loss. It is
estimated that the tariffs will increase the price of a new
vehicle up to $7,000. Industry-wide, these tariffs will hurt
not only jobs in States with auto plants, but wherever there
are parts manufacturers, auto dealers, service outlets, and
other businesses that serve our industry. In other words,
tariffs impact every State in America.
As the price of a new car grows beyond the reach of more
Americans, the price of used vehicles will also rise, as will
the cost of service parts. These tariffs will ripple across all
aspects of the auto industry and the broader economy. They will
harm American consumers and American workers.
The auto industry is already dealing with the impact of the
steel and aluminum tariffs. Now we face the addition of new
auto and auto parts tariffs--and tack on the pending changes to
NAFTA, and the cumulative impact on the industry would be
unprecedented.
Mr. Chairman, we have seen positive improvements that are
helpful to manufacturing, including the historic tax bill which
came from this committee and efforts to streamline regulation.
We appreciate efforts to remove barriers to trade everywhere,
but imposing tariffs in the U.S. will put American workers,
American consumers, communities, and the American economy at
risk. And for this reason, Honda has joined every automaker
doing business in the U.S. in opposing new tariffs on
automobiles and auto parts.
I look forward to taking the committee's questions, Mr.
Chairman.
The Chairman. Thank you, sir.
[The prepared statement of Mr. Schostek appears in the
appendix.]
The Chairman. Mr. Gates, you are next.
STATEMENT OF STEVE GATES, DEALER PRINCIPAL,
GATES AUTO FAMILY, RICHMOND, KY
Mr. Gates. Good morning, Chairman Hatch, Ranking Member
Wyden, and members of the Finance Committee. Thank you for
having me here today. My name is Steve Gates, and I am a third-
generation car guy. My grandparents, beginning in 1915, would
drive from Loogootee, IN to buy one Dodge from the Dodge
Brothers and then return to Loogootee to sell it out of a
livery stable.
My dad was also a car dealer. He became a Chrysler dealer
in the early 1950s and a Chevrolet dealer in 1958. Then in
1970--against all odds and against all advice, including my
mom's--my dad bet everything on a new brand, Toyota. My
grandparents and dad took unbelievable risks, but they knew
with hard work, dedication, a plan, and a little luck, anything
was possible.
I never wanted to do anything other than become a car
dealer. From the seventh grade through college, I worked in the
parts department, the service department, the body shop, and I
washed a lot of cars. My life's dream became reality in 1989,
when a great man, Bob McCamy, helped me become a Toyota dealer
in Richmond, KY. Today, we sell Toyota, Honda, Lexus, Kia,
Hyundai, Nissan, and Audi. And we employ over 500 people in
Indiana, Kentucky, and Tennessee. Now a fourth generation, my
daughter MacKenzie, has entered the business with us.
I have given you my background just so you know that I
really understand the retail car business. It is what I love.
But why am I here? Because I was stunned to read that the U.S.
Department of Commerce opened an investigation into whether
imported cars and automotive parts pose a threat to our
national security. So I had to come to Washington to fight for
my industry, to fight for my family.
I used to think if I worked hard and I kept my expenses in
line and took care of my customers, that I could at least get
by. But if a 25-percent tax is levied on imported vehicles and
parts, it will not matter how good a car dealer I am--people
cannot or will not buy cars. They would just be too expensive.
Affordability concerns are not new to our industry. Over
the past 20 years, the average cost of a car has risen 35
percent while household income has grown only 3 percent. And
let me dispel a popular myth. All cars sold in the United
States contain imported parts. So the cost of all cars will go
up.
When a customer visits our dealership, among the first
questions are, how much is the car and what is the payment?
Well, rising interest rates have already raised monthly
payments. And I found that the Center for Automotive Research
estimated that under a 25-percent tariff, the price of a new
car could rise by as much as $7,000. According to Kelley Blue
Book, the average transaction price on a new light-duty vehicle
in 2017 was $36,000. Again, a 25-percent tax added to the
already rapidly rising price would put a new vehicle out of
reach of many, if not most American families.
Those not in the market for a new car will also be
affected. The tariff on parts would drive up the cost of
maintenance and repairs. According to the Auto Care
Association, each U.S. household will pay an extra $700 per
year in increased ownership costs. It gets even worse. As the
cost of your car goes up and the cost of parts goes up, the
cost of insuring your car goes up. The auto insurance industry
testified this summer that under a 25-percent tariff, personal
insurance premiums will rise by $3.4 billion.
From deregulation to tax reform, the administration and
Congress have built a healthy environment for businesses large
and small. To maintain full employment, an atmosphere for
business investment is crucial to creating a strong economy.
Dealers are benefiting from this economy and see new
opportunities, but we know that the possible 25-percent tariff
will negatively affect our ability to operate and provide work
for thousands of Americans.
There are 16,802 franchise car dealers in the United
States. We directly employ over 1.13 million American workers.
We also account for 1.27 million indirect jobs. The average
salary at a dealership is almost $58,000. These are great
American jobs that grew out of global trade. The car study that
I mentioned earlier predicts that new car dealerships would see
a loss of at least 117,000 jobs and a loss of as much as $66.5
billion in revenue if a 25-percent tariff is implemented.
Clearly, I am not an expert on politics or global security,
but I know cars, and I know the cars and trucks I sell, the
services I provide, and the taxes I pay are not a national
security threat. The men and women who show up to work every
day, they are not threats to national security either. These
proposed tariffs are the real threat and the real danger to our
country and our economy.
Thank you.
The Chairman. Thank you.
[The prepared statement of Mr. Gates appears in the
appendix.]
The Chairman. Mr. Nassar?
STATEMENT OF JOSH NASSAR, LEGISLATIVE DIRECTOR, UNITED AUTO
WORKERS, DETROIT, MI
Mr. Nassar. Thank you for the opportunity to testify today
on behalf of our president, UAW president Gary Jones, and our 1
million members and retirees. The vast majority of our members
rely directly on the success of the U.S. auto industry, not
just our active members, but our retirees as well. So this is a
topic of great importance to us. And we really welcome this
discussion and thank the committee for having it.
From our point of view--I just want to back up for a second
and talk about, well, what is the problem we are trying to fix?
In our view, the problem is that we have lost many
manufacturing jobs, millions over recent years, and that wages
and working conditions for autoworkers have dropped
considerably; in fact, for manufacturing workers across the
board.
You see a lot of manufacturers that do not even directly
hire workers anymore. They use temp agencies to hire their
workforce. We see companies that spend millions of dollars to
try to intimidate workers into not joining unions. There are
problems that have to be fixed as part of the solution here.
We also think we have to look at these policies in a
holistic way. We need to have tax policies, for example, that
complement trade policies, and we have concerns with provisions
in the tax code that actually give greater incentives and
benefits to companies that create jobs overseas rather than in
the United States. So there are a lot of problems that have to
get fixed, including also investing in the workforce. We are
falling behind in that as well.
Now, let us talk about trade. So, our fundamental view is
that our trade model needs to be changed. If you look at our
free trade agreements, we have never had a labor chapter that
has effectively improved the standard for workers in other
countries. In NAFTA, there is no enforceable labor chapter, but
workers in all three countries, auto workers, have seen their
wages drop since NAFTA. And what we have seen happen in the
case of Mexico is, auto manufacturers and suppliers, dozens and
dozens, close shop in the United States then build the exact
same product they used to build in the United States and ship
it back to the U.S., with the vast majority of auto products
from Mexico going to the United States.
This is not a good arrangement for workers in Mexico or the
U.S., because in Mexico, they do not have the right to
collectively bargain most of the time. They have company
unions, and workers rarely even get to see the contracts that
they are obliged to follow.
Trade is not a black-and-white issue for us. Of course, we
are for trade. Our members build products that are exported
around the world, and it is very important that we have
functioning, good trade markets. And that is why we think that
going back to an actual trade model and trade agreements is an
important thing to do. So, we think that is an important part
of this.
Now, when it comes to tariffs, we think that at times
tariffs can be an appropriate tool to address a problem, but
they do not constitute a comprehensive strategy in and of
themselves. Looking at the 232--and I want to remind everyone
that on the auto 232, we are just having a study at this point.
Nothing has actually been implemented. Nothing has happened.
We think the idea of having a study and examination about
the loss of a lot of domestic capacity makes sense, and not
just now but for the future. For example, we are losing the
battle to build electric cars, which are going to be the
vehicles of the future. We do not have enough capacity for
lithium ion batteries or semi-conductors--and this could
provide a situation where in the future, you see our share of
the market really drop greatly.
So, we do think the examination is worthwhile, but that
does not mean that we are naturally going to endorse whatever
the administration decides to do, because we think a targeted
approach is needed to address direct problems. Having something
that would kind of apply across the board without any real
strategic sense does not make sense and would not be a good
idea, so we are keeping an open mind on the auto 232s.
I want to emphasize that when we are looking at our
competitiveness in the auto industry, we are falling behind. We
do not have a comprehensive strategy. The reality is, countries
like Germany are spending a lot more resources and energy in
trying to ensure they make the vehicles of the future. And we
are not doing that. So, there are a lot of problems we need to
fix. We think that trade tariffs can be part of the solution,
but there is an awful lot to be done.
And again, we really thank the committee for the
opportunity to testify and share the views of the United Auto
Workers, and I look forward to answering your questions. Thank
you very much.
The Chairman. Well, thank you, sir.
[The prepared statement of Mr. Nassar appears in the
appendix.]
The Chairman. Mr. Britt, we will finish with you.
STATEMENT OF H. DAVID BRITT, CHAIRMAN, SPARTANBURG COUNTY
ECONOMIC DEVELOPMENT COMMITTEE, SPARTANBURG, SC
Mr. Britt. Thank you, Mr. Chairman, Senator Wyden, the rest
of the committee. It is my honor to present to you today.
In Spartanburg, SC, we build things. For over 100 years,
our mills were the heart of American textile manufacturing. In
the 1990s, our once-bustling mills begin to shutter and close.
More than 25,000 workers found themselves unemployed, and our
county was changed forever.
If you visit Spartanburg County today--and I encourage you
to do so--you will see a community that is the economic envy of
many States, and indeed, many other countries. The
transformation began in 1992 when BMW decided to build its U.S.
manufacturing facility in Spartanburg, SC. In the last 26
years, BMW has invested over $9.3 billion in Plant Spartanburg
and has produced over 4 million vehicles, and over 70 percent
of those are shipped all over the world. BMW employs over
10,000 associates at Plant Spartanburg, and they produce an
astonishing 1,450 vehicles every day.
This has helped South Carolina become the Nation's leader
in the export sales of completed passenger vehicles, accounting
for 16 percent of the total U.S. market. In fact, South
Carolina's automotive footprint is so robust that automotive
suppliers are in 37 of our 46 counties, employing over 66,000
South Carolinians in our 400 plants.
A 2017 study concluded that for every 10 jobs BMW directly
creates at its Plant Spartanburg, 90 more are created as a
direct result elsewhere in the U.S. Just last year, the
automaker announced plans to invest an additional $600 million
in Plant Spartanburg and create 1,000 more jobs. That decision
is a testament to the quality of the company and their
associates.
Through our success with BMW, Spartanburg County learned we
could complete and win on an international stage. Our culture
of craftsmanship, which once saw workers spinning and weaving,
translated to the economy of innovation. Today, more than 200
foreign-owned companies from 25 countries operate in
Spartanburg County, including Michelin, Alcoa Fujikura, Toray,
and Kobelco. And less than 30 percent of those companies are
automotive-
related.
Companies such as Volvo, Mercedes, and Boeing now call
South Carolina home, employing thousands and building products
used around the world. In 2017, South Carolina won 157 economic
development projects, representing $5.24 billion in capital
investments and creating nearly 18,500 jobs. And more than half
of that investment came from foreign countries. Time and time
again, I hear a common refrain from these companies: South
Carolina is a handshake state--a place where one's word still
means something, and where fairness and partnerships are
valued.
In a global economy, it is important to be fair. That is
why I initially supported President Trump's efforts for
equitable trade agreements with countries. However, such
arrangements should not create less incentive for American
companies to look for innovative ways to increase their
productivity and make products more efficiently. As evidence,
look no further than U.S. steel manufacturing. Since March of
this year, the price of U.S. steel has increased 23 percent on
the heels of President Trump's tariffs. Instead of innovating
or even raising prices slightly, U.S. steel manufacturers have
increased their prices to just shy of the imported steel price.
This marked price increase will cascade to our consumers,
whether they realize it or not. Large construction projects
built with precast concrete and steel beams may suddenly seem
too costly and be shelved. Infrastructure improvement projects,
the roads and bridges crucial to so many, may be delayed or
canceled.
This is a perfect example of why government should not use
tariffs to pick winners and losers. We have over 100 years of
history proving this does not work, from the sugar tariffs of
the 1880s to the chicken tariffs of 1963, where in January of
1964, the United States placed a 25-percent tariff on all
imported trucks, and it is still in place today, 54 years
later. Every truck owner in the United States is paying
substantially more for their truck because of this tariff,
including me.
The prices on everything from toothbrushes to groceries and
cars will rise in 2019, if not sooner. These economic policy
decisions do not exist in a vacuum. The impact will not only be
felt in boardrooms and capitals but will be passed on to
consumers across this country and the world.
I keep hearing, ``Be patient. The President has a plan.''
Well, our trading partners and our citizens are running out of
patience. They are asking themselves questions, because their
lives and their futures are at stake. Our neighbors are asking
themselves, ``Can we afford to buy a new home or a car with a
trade war looming?'' Companies are asking, ``Can we risk this
new investment in a new or existing facility in Spartanburg, or
do we put it elsewhere in the world?''
In Spartanburg and South Carolina, we experienced firsthand
the failures of a protectionist mentality. We must not repeat
the mistakes of the past. As a community that was given the
option to change or die, we have grown and thrived under a new
economy, one built with a strong emphasis on education,
collaboration, and innovation. In the years since the textile
industry collapsed, companies have invested more than $17
billion in Spartanburg County alone, creating over 55,000 new
jobs. We are poised for even brighter days to come, provided
these tariffs do not put their foot on the throat of growth.
A reporter recently asked me what I might say to President
Trump if given the opportunity. I would say, ``Mr. President,
come to Spartanburg and let me show you firsthand how we have
opened our minds, our hearts, and our ingenuity to the world
for the benefit of everyone.''
Politics is the art of getting things done through people,
and in my 32 years of elective office, it has never rung truer
than today. In Spartanburg, we have learned to accomplish our
objectives through trust and partnerships, not a hammer,
because in Spartanburg County, we build things, including
relationships.
Again, Mr. Chairman, Senator Wyden, and the rest of the
committee members, I thank you for giving me the opportunity
and the responsibility to present my testimony before this
committee. I will look forward to your questions.
The Chairman. Well, thank you.
[The prepared statement of Mr. Britt appears in the
appendix.]
The Chairman. We appreciate all of you testifying here
today.
Let me start with Mr. Schostek. You have been in this
business long enough to experience firsthand the benefits of a
business environment that supports manufacturing. You said in
your testimony that American policies welcomed Honda's
investment and made it possible to begin U.S. production in
1979. As your company is now approaching 40 years in the United
States, what is at stake with the prospect of tariffs on U.S.
imports of autos and auto parts?
Mr. Schostek. Thank you, Mr. Chairman.
You are absolutely correct. We came to the United States
because we wanted to build product where we were going to sell
product. And we found a welcoming environment and grew our
footprint step by step, including building engines,
transmissions, and full-line R&D right here in the United
States.
The problem with the tariffs is, tariffs are taxes. And
tariffs are going to increase the cost of manufacturing, which
is then going to increase prices to consumers. Demand will
fall, and this, as I and the other witnesses have said this
morning, will ripple through the entire economy. Tariffs
disrupt and distort the market and are going to divert
resources that we need to invest in new technologies going
forward and will undermine the stability of that welcoming
environment that we first found. So we see it, sir, as quite a
threat.
There are 14 auto companies producing cars in the U.S.
Together, we all have healthy competition. The auto industry is
not in need of protective tariffs, and they could destabilize
the industry, as you have heard this morning.
The Chairman. Thank you.
Mr. Gates, you witness daily the joy and often the stress
of the companies purchasing a vehicle. A car is one of the
largest investments that a consumer will make.
And as you said, one of the most important considerations
for your customers is price. What impact would auto tariffs
have on your consumers? You can talk about consumers across the
Nation.
Mr. Gates. Well, I am afraid that I think I cited some
research that perhaps 2 million cars--we would sell 2 million
cars less. I think it is greater than that. I know just from my
own experience, cars are very price-sensitive. It is all about
payment. If cars rose an average of $4,000 to $6,000, that
adds--$4,000 adds $80 a month to a payment. Everybody who buys
a car cares about the payment.
So to me--and again this probably goes against some of the
research--but to me I think it is devastating. I do not think I
can survive long-term if this occurs.
The Chairman. Well, thank you.
I am in agreement with you guys, I will tell you.
Mr. Haughey, let me go to you. You and your fellow
witnesses have reminded us today that the automotive supply
chain is both dynamic and fragile. One small change can set off
a domino effect, ultimately hurting consumers and the economy.
As you noted in your testimony, the supplier industry has
already felt the effects of steel and aluminum tariffs. Now,
these tariffs are costing your company alone $10 million a
year. What would the impact of additional tariffs be on your
business as well as the entire supply chain?
Mr. Haughey. Senator, it has had a big impact. It is
obviously--we have started delaying our growth. And that is a
big problem for us.
We do not import a lot ourselves. We manufacture everything
in the country where we use it, but the big effect is going to
be just--the overall volumes of the industry go down. We are
selling parts for cars that may be supported by imported
components.
We have had one layoff in the history of the company back
in 2009. If volumes go down, that is where we become very
susceptible to our team members.
The Chairman. Mr. Britt, several witnesses described today
the auto industry as highly integrated. Automakers create a
great deal of opportunity in the communities in which they
operate. How dependent is your community on the health of the
automotive industry?
Mr. Britt. Mr. Chairman, I mentioned the 25 years of growth
that we have had since BMW first announced in 1992. It is still
fresh on every citizen's mind in Spartanburg--and I think in
South Carolina--when the textile industry collapsed, all of
those jobs that were lost.
I think it is very important to realize in South Carolina,
we are still tied in very carefully to what is going on on the
automotive side, as the dealers have already spoken to that.
But with BMW being such an impact on Spartanburg and South
Carolina, it is not just the employees at BMW, the 10,000
employees there--as Mr. Gates mentioned, very few parts are
made by BMW that go into their vehicle, or a Honda, or a
Toyota, whatever. In fact, BMW only makes the engine for the
most part, so all of those other components are made by the
supplier network.
And a lot of them are in South Carolina, but still a lot of
those products come in from the international companies. If BMW
cannot sell the number of vehicles that they have done in the
previous year--and every BMW is sold before it is made. Those
1,450 vehicles being made today are already sold.
So if they cut back--for instance, we do not need 450,000
this year; we need 350,000. So they cut 100,000 cars out. That
means a 20-percent to 25-percent reduction in their potential
workforce, as well as all the 66,000 across South Carolina.
Take for instance, Magna Seating; they produce seats for
BMW. When they came to Spartanburg--they have had two
expansions since their first announcement 3 years ago. They
make four seats for every BMW that is made, because they make
the X cars in Spartanburg, the SUVs. So if they do not need
100,000 vehicles next year at BMW, that means there are 400,000
seats at Magna, then all of the other producers--ZF Lemforder,
Draxlmaier, all the others that support the BMW production--
they cut back. But it is not just even the auto suppliers. It
is the golf cart sales group in Spartanburg on Highway 221--
they stopped me recently and wanted to thank our team, our
council and our economic development team, for this growth that
we have experienced. That is $17 billion.
They have doubled the size of their shop, their workforce,
and have moved into a new facility, all because of this growth.
If that growth goes backwards, they have to cut back. They have
to lay off. Then they have to face paying their bills for this
new building.
This ripples all across Spartanburg and South Carolina. And
it is very, very serious and very dangerous.
The Chairman. Well, thank you.
Senator Wyden?
Senator Wyden. Thank you very much, Mr. Chairman. This has
been a very good panel, and we appreciate all of you being
here.
Let me start with you if I could, Mr. Nassar. The steel
tariffs seem to be increasing company profits, but not
increasing wages for the workers. And I would be interested in
having you start by giving us a sense of what mix of policies
you would favor that would be good for workers and companies.
Mr. Nassar. Thank you for that question.
I think, first of all, if you just look at what would be
good for workers and for companies, it is for workers to have a
voice on the job. And quite frankly, what we have seen in a
large percentage of auto parts, but also in auto manufacturing
is, fewer and fewer workers do have a voice on the job. And
workers who seek to have a voice collectively bargaining are
often intimidated, and in fact, the common threat is, if you
push too hard, we are going to Mexico.
So I think, (1) is that we really need to have a
reexamining of our tax laws and make sure we are not giving
incentives to offshore jobs, and (2) we have to reexamine----
Senator Wyden. That is especially important because, when
you look at this tax bill, it is still more profitable to do
business overseas than to do it in the United States. So you
can be assured that there are a lot of us here who are very
interested in that.
Mr. Nassar. Yes, it contradicts what we are trying to
accomplish in trade policy, for sure.
And then the other thing is, we need to reexamine our trade
agreements fundamentally. And I want to just make the point
that what we have seen is, sometimes an argument is made that,
hey, we have lost capacity. We cannot build certain parts here
anymore.
Well, those were deliberate decisions that were made by
companies to move overseas. And what we have seen is that the
truth is--take NAFTA. Auto production has increased rapidly
there. And nearly every car manufacturer has plans to expand in
Mexico.
What we are also seeing is, the supplier networks that are
being talked about here, they are moving to Mexico as well. Why
that is such a concern is because, obviously, that means lost
jobs here, lower wages here as well.
Also, we have to talk about worker training. We have to
talk about apprenticeships. If you look at it, we are not
really investing and making that a priority like we need to.
And frankly, we need to make sure that we have a stronger
middle class, and having a stronger middle class means having a
strong safety net, having strong collective bargaining rights,
and really a pathway to the future.
We at UAW are proud of that fact that we helped establish
manufacturing jobs as middle-class jobs. That is less and less
the case today, and it is devastating communities around the
country. So really a holistic approach----
Senator Wyden. I appreciate the answer. We will keep the
record open so you can give more to us in writing. But the
prism I am talking about is your ideas, and for all of you, so
that workers win, companies win, we widen the winner circle for
more middle-class, good-paying jobs in America. So I thank you
for that.
Mr. Schostek, let me talk to you about this whole question
of exclusions that has become a part of this trade bill. And as
you know--we talked about it in the office--I think the way
this was set up was arbitrary from the get-go. Secretary Ross
came here to talk about the so-called ``product exclusion
process.''
I want you all to know I think this comes directly from La
La Land. It is almost incomprehensible to figure out how it
actually works. We keep hearing from constituents, all of us,
that they cannot figure out what is going to happen. Are they
going to be approved? Are they not going to be approved?
Mr. Schostek, tell us if you would--and also we have not
been able to get answers from Secretary Ross. Members of this
committee, in effect, gave him scores of questions with respect
to exclusions. Three months later, we have not gotten any
answers from him. So my question to you, Mr. Schostek, is, what
has been your experience with the suppliers, and what have the
ramifications been for your business, because I gather you are
having some hassles and they cannot get answers? But walk us
through what it really means for you.
Mr. Schostek. Sure. Thank you, Senator Wyden. That is a
very important question, and I am glad you brought it up this
morning.
The auto industry supply base, with respect to the steel
and aluminum tariffs, is very interdependent. There are many
suppliers that have requested exclusions from the Department.
There are three, in particular, that we have been tracking
along with. There are more than that in our supply chain. But
there were three, and in fact, I just checked on them yesterday
after we had a chance to speak in your office.
All three of them applied soon after the window opened, so
to speak, for exclusion requests. I think they applied in maybe
the June timing. None of the three has an answer yet. So they
are still waiting to understand if their exclusion request will
be granted.
Senator Wyden. What does that mean for you?
Mr. Schostek. It means uncertainty, which is what the whole
theme of this activity is. We are uncertain if they are going
to be able to get an exclusion. Then of course if they do, the
tariff would not apply and things would be differently priced
in the commerce we have with them.
Now we have heard--to be clear, there has been some
improvement very recently in terms of reducing the backlog. But
again, as we sit here this morning, those three suppliers that
we have been tracking pretty closely are waiting for an answer.
Senator Wyden. I appreciate it.
My time is up. And we keep hearing that there have been
improvements in the backlog. It always reminds me of the
marquee at the old movie house where it says, ``coming soon.''
And then it never gets there because, when I talk to companies,
my experience is what you have said. They have two or three
suppliers, and they have been waiting, and they do not have any
sense of when they are finally going to get an answer, and then
they do not have the certainty and predictability to go out and
invest in jobs.
So I thank all of you, and I know my colleagues are
waiting.
Thank you, Mr. Chairman.
The Chairman. Thank you. Senator Stabenow?
Senator Stabenow. Thank you, Mr. Chairman, very much for
holding this hearing.
When we talk about trade in the auto industry, put Michigan
right at the top of the list. So this is, obviously, a very
important topic for our businesses and our workers and
communities in Michigan.
I have to say it, Mr. Gates: I grew up on a car lot. My dad
and grandfather had the Oldsmobile dealership when I was
growing up, Greer Auto Sales. My first job was washing the cars
on the car lot. So I appreciate all of your efforts. I am glad
that we were able to actually preserve an American automobile
industry with the rescue we did a number of years ago that
impacted not only the OEMs and the suppliers, but I think
120,000-plus auto dealers in every community--so very, very
important.
First, Mr. Nassar, I wanted to talk to you a little bit. My
mantra, always--in Michigan, we are the fifth largest exporting
State, both manufacturing and agriculture. We need to make
things and grow things. My mantra is that we want to export our
products, not our jobs.
So that requires a level playing field. And you have spoken
about what that means. It is one thing--we go back and forth
across the Ambassador Bridge or other bridges to Canada every
day; the supply chain is very comparable. The problem is in
Mexico. If they are paying $2 an hour, we suddenly see a race
to the bottom, which means that we are are losing middle-class
jobs.
If you could, talk about how the administration should be
pushing for better labor standards in Mexico. What does that
mean to you? And what do we stand to lose if we do not, in
fact, have meaningful labor standards and opportunities for
people in Mexico to negotiate in the workplace, like we do in
the United States and in Canada?
Mr. Nassar. Thank you for that question. I think, first of
all, I want to make sure I am making the point that we care
about workers everywhere, but our members really care about
what is going on in Mexico because the wages are so low there
that it creates a real incentive to bring more and more work
down there. So we want to bring the wages up there. It is not
just for the workers in Mexico. It is for the workers in the
United States.
We view it as, when companies set up in Mexico, create
these company unions that often, frankly, rely on repressive
State policies to keep workers down, that that is an unfair
trade advantage in our view. And the company that chooses to go
that way should not just be able to have no consequences.
What we are looking for in NAFTA renegotiations is
fundamentally ending these protection contracts and changing
Mexico's law so people have a real chance to join unions and to
have a voice, if they want to--or not to join the union.
The other thing is, you have to have serious enforcement in
order to make that stick, because what we have seen in other
trade agreements is, it looks good on paper, but if you have
this dispute settlement, really clunky, lengthy, inefficient
process, that does not lead to justice. So we think that is
another thing.
As far as unfair practices, I just want to say that when
you look at many countries around the world, they manipulate
their currency to make their products cheaper. There are a lot
of countries that highly subsidize their industries. The idea
that we should not do anything about that, that we should take
no corrective action, just means that we are going to, over
time, lose more and more manufacturing. That will be the result
if we stick with the status quo. So that is not an option.
The truth is that many of our competitors continue to use
unfair trade practices, and they make it really hard for us to
export there. We have to deal with all of that to have a level
playing field.
Senator Stabenow. I agree that we need trade enforcement.
That is something that I worked on for a number of years. I
helped create the trade enforcement office that we have now.
And the President had indicated that he would call China a
currency manipulator on day one. I was very supportive of him
doing that. I am sorry that that has not happened. Currency
manipulation is a serious issue. But at the same time----
Let me turn--Mr. Haughey, thank you for being in Michigan
with one of your plants. We know that we have a set of issues
that need to be addressed to level the playing field, very
important, because we want the jobs--I want the jobs in
America. I think we all want the jobs here in America, and we
want American businesses to thrive.
And we also know most of the jobs come in the supply chain,
not in the assembly. It is in the supply chain. So it does
matter, though, that we have stability. It worries me, and I
understand. But when you said you suspended growing your
company because of the instability--deep concern about that. We
need to have you doing well and to have stability. And what is
happening--unfortunately, we are sort of throwing everything at
the wall, which is what they are doing: section 232, section
301, NAFTA, I mean everything, so that there is total
instability right now.
So I would just ask you----
The Chairman. You are way over----
Senator Stabenow. If I could just ask one thing, if I
might, one thing----
The Chairman. You are way over time, but go ahead.
Senator Stabenow. Thirty-six, thirty-seven seconds--so
everybody went over 1 minute so far, so if I might.
The Chairman. It is okay.
Senator Stabenow. Could you walk through what it takes to
get new components into the supply chain? And I know you talked
about CAFE standards. Nobody in the auto industry I know of is
asking for changes there. You are making the new parts. You
have retooled already to make the new parts.
So when we look at all of this, what kind of certification
and testing is required? How long does it take? When we walk
through new components and what it takes to get in the supply
chain and how you are impacted by these actions, I wonder if
you might just speak a moment to that.
Mr. Haughey. Thank you, Senator.
We would work with our Tier 1 customers to develop new
products. Tools that we manufacture for metal forming can take
over 6 months, sometimes up to a year, depending on the
complexity and the number of different tools. The parts would
then go to the Tier 1s and eventually to the OEMs. There is so
much testing to be done now, crash testing, all kinds of
different validations. So it is a very long chain. It is
interdependent on everyone.
Now we have been kind of working on electric vehicles,
connected vehicles, shared vehicles, lightweight--there has
been a lot of progress made in the industry, but now everyone
is kind of sitting back going, ``Boy, we are not sure how all
the trade is going to work out. Are we going to be
disadvantaged in the U.S. by tariffs?''
There is big concern in our industry that if we block off
access to the market, a lot of those technologies will be
developed over in China or Europe. And we do not want to see
that. We obviously want to stay on the leading edge of
technologies.
Senator Stabenow. Well, we want you here too.
Thank you, Mr. Chairman, for your patience.
The Chairman. Well, I apologize for interrupting you.
Senator Stabenow. That is all right.
Mr. Britt. Mr. Chairman, can I jump in on Senator
Stabenow's question? I would like to add a little bit if I can.
The Chairman. Sure.
Mr. Britt. She is absolutely right. Both American and
international companies depend on predictability and certainty.
And in this regulatory climate that we are in right now in
2018, I think it is the worst it has ever been in the country's
history.
Companies, again both American and international, depend--
it is all about risk avoidance when you are talking about
putting money in to expand or to retool, putting new equipment
in, in the state that we are in right now. And it goes back to
what Senator Wyden was saying too. The complexity, the
difficulty of reading all of this change--at our company, the
Tindall Corporation in Spartanburg, our purchasing agent got a
125-page document sent to us by one of our suppliers and asked
us to read it to decide what was applicable and not applicable.
And we are trying to do business. So when they are asking
us--Senator Wyden, you said you had a tough time getting it.
You do not want to see it. It is too complex.
Just again, we need this predictability and this certainty.
One of our suppliers out of Ohio--I just got this email
yesterday from our chief project manager, Ashley Fortenberry.
It is an increase in our steel prices effective immediately
because of the tariff that was just put into place last week,
the 10-percent of 200 billion in China. We just got a 10-
percent increase on top of the 23 percent that we got back in
March. And we are warned right now that it is going to go up 15
percent more in January. And that is a steel producer supplying
steel to a company that uses steel primarily in our product.
Let me say this, just to make sure everyone understands
this. For every $1 that the steelmakers contribute to the GDP,
the steel users--just like all of the automotive manufacturing
companies, just like Tindall and all of those companies in
Spartanburg--we add $29 to the GDP compared to that $1. For
every 1 job that the U.S. steel manufacturers make and create,
we create 46, the steel users. And this is in every State in
this United States. And it is very, very important. And it is
going to cost the consumers.
Thank you, Mr. Chairman.
The Chairman. I am concerned about it too. I am on your
side, between you and me.
Senator Grassley?
Senator Grassley. In the four or five times I have been to
the White House to talk to the President about his trade
policies and the tariffs, et cetera--most of the time,
obviously, from my State I talk about agriculture, but also
within my State, we have thousands of jobs that are connected
with parts for cars, even though we do not make cars in my
State. So this concerned me very much.
Before I ask a couple of questions, I hope we all would
agree, even though we are raising concerns about what is going
on right now, that if the President accomplishes his goals of
getting intellectual property rights protected and companies
not having to give away trade secrets, and getting other
countries to lower tariffs, that if he can accomplish that,
obviously we are all going to be better off, whether it is
automobiles, or our farmers, or our services, or anything else.
So I hope we can agree on that, if he can accomplish it. I know
that is a big ``if.'' He has made some progress, maybe with
Mexico, as an example.
So I am going to go to Mr. Schostek and Mr. Gates. And, Mr.
Gates, you spoke to this question, but I want to bring it down
to the family level. Could you estimate--now this stems from
what I think you said, $6,000 to $7,000, if the proposed tariff
goes in, with an increase in the cost of a car.
Could you, Mr. Gates--and you do not need to repeat this,
Mr. Schostek, if you agree with what he said. Could you
estimate what that means for a person's monthly payments with
current interest rates, and how much extra per month does a
middle-class consumer have to come up with to finance a new car
with these costs?
Mr. Gates Well, $6,000, roughly, is $120 a month.
And believe me, people leave dealerships because of a $5
difference. One hundred twenty dollars is a huge number.
Senator Grassley. Do you have anything to add to that?
Mr. Schostek. Senator, I would not disagree with Mr. Gates
at all, except to add on the fact that as new car prices
increase and consumers are priced out of that segment of the
market, they are going to be looking for used cars. And used
car prices are also going to increase because of demand, and
then service parts prices.
So there is a ripple throughout the entire chain of
distribution here that is going to hurt American consumers.
Senator Grassley. Okay.
And for you, Mr. Schostek, this question: you mentioned the
lead time for designing and launching cars--I think roughly 5
to 6 years. Clearly you have to make decisions years out before
production starts.
I doubt that you all have made major plans yet to move
production as a result of the tariffs. However, at some point
you might. Could you estimate how long the current tariffs and
general trade uncertainty could last before your company would
start seriously considering making significant production
changes to lower costs?
Mr. Schostek. Senator, we came to the U.S. to build
products where we sell them. And we found here a welcoming
environment, and we have grown in America. We do full-line
manufacturing, full-line R&D here in the United States. We plan
to stay, but the current environment is unsettling. It is
certainly unsettling for us. And that is why I came here today.
I wanted to talk to the committee about this.
You mentioned being from an agriculture State, and
certainly retaliation. We can see it there. We can see it in
other aspects. The problem with the tariffs is, they are a kind
of unintended consequence. So we have an action, which is a
tariff. Then we have a reaction, which is retaliation. Workers
lose on both ends of that, and consumers lose on both ends of
that.
We are experiencing retaliation in our business right now.
For example, in Swepsonville, NC we are making lawnmowers.
Those lawnmowers are sold in the United States. We also export
them to Canada. Canada has put a 10-percent tariff on the
lawnmowers we are making in Swepsonville, NC, disadvantaging
our workers there in North Carolina. Further, we are sending
transmissions from Tallapoosa, GA to China.
So we have a new product, the Acura RDX. We make that
product for the U.S. market in Ohio in East Liberty, OH. And we
provide the transmission from Georgia to Ohio. But in addition,
for the China market--and China is a big market--we make the
RDX in China as well. We are sending transmissions from
Tallapoosa, GA to China. And those are now subject to the
retaliatory tariffs, again, affecting the work of Americans--
Americans in Georgia.
And there are other examples as well, just within our
company. And then we can talk about the supply chain as well.
This is happening all over the place, Senator.
Senator Grassley. Thanks to both of you.
The Chairman. Thank you, Senator.
Senator Brown?
Senator Brown. Thank you very much, Mr. Chairman.
Mr. Nassar, let me start with you. Earlier this year, GM
announced it was laying off the second shift at the Lordstown
Plant in northeast Ohio where they make the Chevy Cruze. Twelve
hundred workers at the plant got pink slips. That was in
addition to the more than 1,000 workers on the third shift that
had lost their jobs.
Senator Portman and I have done everything we could, and
still Mary Barra, GM's CEO, will not commit to keeping the
plant open, will not commit to retooling it to make a better-
selling, probably, SUV. To make bad matters worse, on the day
that the second shift left, GM announced, literally the same
day, they were going to build the Chevy Blazer in Mexico.
There is something wrong with this picture. A company
decides to lay off more than 2,000 experienced auto workers at
a historic auto plant in the United States, then announces they
are going to build cars for the American market in Mexico.
Do you agree GM's decision is proof that our policies do
not do enough to encourage U.S.-based production?
Mr. Nassar. It is absolutely proof. And it is proof that we
have seen time and time again. Unfortunately, we have a
situation where there are no negative economic consequences for
companies taking big tax breaks, breaking promises, and
creating jobs overseas. So, it absolutely is a failure of
policy that encourages this offshoring.
Senator Brown. Let me talk about a potential solution. In
response to that decision, I introduced the American Cars,
American Jobs Act. The bill has two parts. First, customers who
buy cars that are made in the U.S.--roughly 50 percent domestic
content--and assembled here get $3,500 off at the dealership.
The discount would apply to nearly 100 cars, trucks, and SUVs,
including all passenger vehicles assembled in Ohio.
Second, companies that cut the number of American jobs they
had on the day the much-vaunted GOP tax bill passed, and add
those jobs overseas, lose a tax break they get on some of their
overseas profits. Essentially, they lose their 50-percent-off
tax coupon that this committee and this Senate gave them a year
ago.
Would this bill help keep auto jobs in the U.S.?
Mr. Nassar. Absolutely it would help keep auto jobs in the
U.S., because it incentivizes more purchasing in the U.S.
markets, which is really important. And also because it,
frankly, addresses an abuse we see, where companies are saying
they cannot invest in the United States, but then they are
investing overseas, and they are taking no consequences for it.
Our laws absolutely should react to that abuse, and your
legislation would surely help.
Senator Brown. Thank you, Mr. Nassar.
Mr. Schostek, welcome to the committee. Welcome all five of
you to the committee.
Thank you for the work that Honda has done as a leading
auto producer in Ohio for decades. I remember the late 70s when
Honda broke ground in Marysville and built motorcycles.
Obviously, you have come a long way from motorcycles, to cars,
to lawnmowers--a new product that most people in this room
probably did not know was also a Honda product.
Your company made its first Accord in Marysville, northwest
of Columbus, 36 years ago. In the last 25 years, you have
assembled 11 million Accords at that plant. You now have 15,000
employees. They work in Ohio alone. They work at Marysville.
They work at the world-renowned research facility and logistics
center, engine plant, transmission plant, the East Liberty
assembly plant, which you mentioned.
My understanding from my visit to Honda and my discussions
with you and others, and Ed Cohen and others, is you have never
once laid off a shift of workers. If more auto companies
invested in the U.S. like Honda has invested in Ohio, this
conversation would have been very different today.
So give us a couple of minutes on the policies you think we
should consider in this body to encourage other companies to
invest in the U.S. as extensively as Honda has.
Mr. Schostek. Thank you, Senator Brown. Good to see you
again, and thank you for the support. I have talked about the
welcoming environment we have found in Ohio. You are a key part
of that. Your support on workforce development and many other
topics over the years has been invaluable for us. So we
appreciate it.
Your understanding about not laying off a shift is correct.
So I can confirm that for you. And we found a very welcoming
place in Ohio and elsewhere in this country.
There are 14 companies producing cars in the United States
right now. That is a lot of companies. So we have a healthy
competition that exists among the auto industry. This industry
is not in need of protective tariffs, and that is what brought
me here today. That is why we are concerned. So we are
concerned that the tariffs will increase the cost of
manufacturing, and, as we have discussed, the price to
consumers, both for new vehicles as well as for used vehicles.
But we are going to keep strong. Our operations in Ohio--
which by the way, as you mentioned, include our largest engine
plant in the world in Anna, OH. And we have a very, very strong
R&D operation in Ohio.
We have developed 30 different automobile and light truck
models in the U.S. exclusively by Americans working in Raymond,
OH, as well as their colleagues in the Los Angeles, CA area. So
we are a full-line, full-value chain manufacturer here in
America.
The Chairman. Thank you.
Senator Warner?
Senator Warner. Thank you, Mr. Chairman. I appreciate you
holding this hearing.
I am not even sure where to begin when it comes to talking
about this administration's approach on trade. When you have a
President of the United States who starts by stating that trade
wars are good--and we have absolutely no factual basis on
that--I think you end up in the circumstances where we are
right now.
Let me tell you, I would be the first to agree that China
does not play by the fair international rules. We have seen
that in terms--I have seen it, particularly in my old industry
in technology, where the price of admission for an American
company into the Chinese market is giving up their intellectual
property. We have seen it with Chinese efforts in intellectual
property theft. We have seen it on Chinese use of their
students who attend our universities, again to steal
intellectual property. And we have seen it where the Chinese
firms do not operate on market-based principles. They have
enormous direct state subsidies.
I would argue that the way to approach that would have been
to build an international coalition. I think there was a
growing recognition about the real threat that China poses over
the last couple of years, and there was an opportunity to build
a coalition, not only with our North American allies, but our
European allies, many Asian nations that have been direct
targets of this Chinese aggressive action. But instead, we have
seen this administration use a part of our law, the section
232, under national security provisions, to basically call out
allies like Canada. And the Canadians have a right to be upset
with our administration, this administration's portrayal of
Canada. They are our friend, not a national security threat--as
are our European allies and others.
And clearly in the realm of, whether you are talking about
Toyota, whether you are talking about the supply chain that has
been integrated across North America, these policies are going
to hurt American consumers. They are going to hurt American
jobs.
In a State like mine, in Virginia, where we actually have
enormous net surpluses with many of our trading partners, this
is going to hit us at the bottom line--so action against China
makes sense. This administration's approach, I do not believe
meets that criteria. So I want to make sure I do get in a
couple of questions rather than just my views here.
Mr. Gates, one of the things that I think you mentioned in
your testimony I would like you to expand on a little bit, and
that is the fact that if this trade war in autos is allowed to
continue, not only will American consumers feel that price
increase on the front end when they go out and purchase a new
car, but in many ways the real hit may come to the pocketbook
when they go back and service their cars, because many of the
auto parts will also be penalized. Could you expand on that a
little?
Mr. Gates. Of course; thank you for the question.
I will start by saying in Kentucky, the legislature
recently passed a law which now charges a 6-percent tax on
labor. So not 25 percent, just 6 percent. And that has caused
many people to put off maintaining their vehicles. So a 25-
percent tax on parts would clearly, I think, be devastating.
It is easy to put off maintenance. It is a little
frightening though, because part of that is certainly safety-
related. And I, sort of, hate to be driving around with people
who have unsafe cars on the road.
Senator Warner. Amen to that.
I think people have not felt the full burden of the Trump
trade war yet. I do not think Americans are going to come to
the consensus this is good. I do think China is a threat, but
you could have rallied the international coalition.
Mr. Schostek, can you speak to one of the areas I know your
company is investing in? Even though there are going to be some
bumps, I think the notion of autonomous vehicles holds a great
deal of possibility, and we are talking about direct price
penalties.
But can you speak to the question about R&D and R&D that
your company might otherwise have chosen to do here in America?
You have an international market, so how do you make the
decisions around tariffs that will affect your decisions about
where to do your R&D on autonomous vehicles and otherwise?
Mr. Schostek. Great. Absolutely, Senator. Thank you for the
question.
The concern about tariffs is, they are diverting resources.
Right now the auto industry is at quite an inflection point in
terms of many items: electrification, connected and autonomous
vehicles. These require major investments by us, the OEMs, by
the supply community, in order to make these changes that are
necessary for the future. The fact that we have tariffs and
retaliation going on is doing nothing but diverting resources
from very important R&D and technology activity that we need to
perform in order to stay viable into the future. So it is
certainly a key issue for us.
Senator Warner. Mr. Chairman, I know you have been a big
advocate, as the ranking member has been, about technology
development in this country. I hope, again, we can send this
message that this is not only hurting Americans in their
pocketbook, but it is curtailing the ability for auto companies
to do the needed R&D investment in this Nation.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator. I agree 100-percent with
you.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman.
I thank the witnesses. I have stayed for most of this
hearing because I think it is such an important topic.
I think the United States of America figuring out how it
keeps U.S. manufacturing jobs and jobs related to manufacturing
is a very key point to our economy. Why? Because manufacturing
jobs help people move from working-class to middle-class. So I
am not saying other sectors cannot do that, but certainly the
manufacturing sector can.
I think we are probably one of the few States that--we
definitely import a lot of cars through the State of
Washington. We export some as well, but I am struck by the
commonality of the views at the table as opposed to the
divergence of your ideas.
And I just want to make sure I am clear on this, because
one of the things that I think is, if you want to have
manufacturing in the United States of America, you make sure
you are making all of those investments in the supply chain.
Because if you own the supply chain and it can be lean
manufacturing, that is the best bet to what Mr. Nassar was
saying and to what everybody was saying. So is that right? To
the greatest degree possible, keeping a robust and lean supply
chain in the United States helps us to continue to produce jobs
here? Is that correct?
Mr. Schostek. Senator, as an OEM, absolutely. Absolutely
correct.
Senator Cantwell. Anybody else?
Mr. Haughey. From our standpoint, if you go back to 2009,
the different suppliers, when they start to fall, it affects
everyone. There is such an interdependency. A company like
Honda deals with all kinds of different suppliers. All you need
is just one weak link and you get into trouble.
Senator Cantwell. Mr. Nassar?
Mr. Nassar. Yes, I would say definitely maintaining supply
chains in the United States is absolutely critical. Most of the
work done on a car is in the supply chain.
But that is also why it is important that we look at where
automakers are investing in new plants. And I think there is
the distinction between where the workers and companies stand
when it comes to our bottom lines. For corporations, it is
shareholder value at the end of the day. If they could invest
overseas and make a lot of money doing it, that helps their
shareholders. That does not help American workers.
Our main thing is having the jobs in the United States and
having good-paying jobs. So----
Senator Cantwell. Do you believe in the supply chain? This
is my point.
Mr. Nassar. Absolutely.
Senator Cantwell. You are in agreement with these
gentlemen.
Mr. Britt, I am assuming you agree with the supply chain?
Mr. Britt. Absolutely, Senator.
And again, a great example is Spartanburg, SC and the State
of South Carolina. We have over 400 companies that are in the
supply chain for all of these automotive manufacturers. It is
not just BMW. It is Honda, Toyota, Kia--you name it. Those
suppliers supply for everybody in the United States. The key
thing is, when they move offshore, they do not come back.
Senator Cantwell. Yes. So in keeping the supply chain--my
guess is you all agree on this too--having a well-trained and
highly skilled workforce in the United States is key to keeping
that supply chain. Is that right?
Mr. Britt. Can I answer that question, Senator?
Senator Cantwell. Yes.
Mr. Britt. I am going back to my testimony earlier where I
talked about 100 years of textile manufacturing in Spartanburg
and in South Carolina. We were used to a protectionist State.
Our State was designed and our tax laws were designed to keep
industry out, to protect the home team, the textile
manufacturing in the upstate, the agricultural industry in the
lower part of the State.
I grew up on a small tobacco farm in Dillon County where
the floods are now hitting. And I am thinking and praying about
all those folks down in the Pee Dee. But that State's tax setup
for over 50/60 years now was designed to keep those other
companies out.
The first international company to come to Spartanburg
County was Michelin in 1978, outside of the textile
manufacturing equipment suppliers. Since that date, we have
changed our community. I mentioned earlier, our focus is on
education. It was not supportive of education for those 100
years that we operated in a closed environment. It was not
important for a family member to go get a college education or
even a high school education, because they had a job in the
textile plants, or in the tobacco fields, or in the cotton
fields of the lower part of the State.
Take a look at BMW. Again, I said they changed Spartanburg
and South Carolina forever. Look at their investments that they
do in the BMW scholar program. They have raised that bar on
education now because, of those 10,000 associates who work in
BMW, a small percentage actually works on the production floor.
They are in engineering----
Senator Cantwell. I only have a few minutes left, so I----
Mr. Britt. Excuse me.
Senator Cantwell. I am assuming, Mr. Nassar, you agree, and
the other witnesses?
Mr. Schostek. Senator, just very quickly if I might.
We talked about R&D and new innovations, new technologies
before. That is true in the product. That is also true on the
plant floor. The plant floor in 2018 is far, far different than
in the 1980s. And we as companies have responsibilities to keep
our workers trained and up to speed on this new technology.
Senator Cantwell. I guess my point here is, what you all
have articulated in this broad fashion here is the same. If we
want to keep these jobs in the United States of America, then
we should invest in the supply chain. We should invest in
skilling our workforce. We should invest in the R&D, and that
is what will keep us competitive.
And I think that the tariff idea--Mr. Britt, you said it
best. You guys build relationships. Okay, and building
relationships and figuring out how to get access to these
markets, but still keeping our eye on what makes America
competitive, is what we need to do. And right now, these
tariffs are not making us very competitive, I can tell you
that. And they are going to make it, as all the witnesses said,
more expensive for consumers.
So I just--look, we believe in this. You guys need to keep
doing this, because you represent what the consensus is here
about the direction for us to grow jobs here.
Thank you.
The Chairman. Thank you, Senator.
Senator McCaskill?
Senator McCaskill. Thank you, Mr. Chairman.
Four weeks ago I chaired a roundtable on trade with
representatives of Missouri's manufacturers and agricultural
communities. It was a stark several hours listening to the
reality that these businesses are facing and these farmers are
facing in light of the tariffs that have already been applied.
We are a major auto hub in Missouri. We have over 10,000
members of UAW employed at General Motors, and at Ford and
Toyota. We are the birthplace of the Ford F-150, which we are
very proud of, along with the Chevy Colorado and the GMC
Canyon.
We have--I think 167,000 is the estimate of workers we have
in Missouri associated with the manufacturing of automobiles.
So it is a big deal to my State how we handle this. So far,
these tariffs are impacting farmers in my State, workers in my
State, and consumers in my State all negatively--all
negatively.
It is a real head-scratcher that this administration is
doing this under 232, national security. It seems to me that
this is a stretch on national security. You can kind of dress
up aluminum and steel, that we need that production capability
if we need to go internally to produce weaponry or other
things. But the car thing seems to be a stretch for me.
I think what I would like to ask you all is if you agree or
want to make a comment on--the Center for Automotive Research
estimates a 25-percent tariff on automobiles would add an
average of $4,400 to the cost of a car. That seems very high.
Have any of you taken a look at this, because, obviously,
if it goes up that much, that ultimately impacts demand, which
ultimately impacts jobs negatively for the workers that I am
most concerned about in this scenario.
Mr. Nassar. Well, just as far as the research goes, I think
that some of the idea that every penny that gets raised in cost
by the company has to be passed on to the consumers is a little
bit overstated at times. We are talking about many companies
that have a very, very healthy profitability and pay their
executives quite handsomely. So the idea that absolutely every
penny is going to get passed on is a reach also.
I think the other thing is, when looking at these policies,
we also have to keep in mind some of the--I am not saying how
it will pan out--but the long-term impacts, because the idea
is, you are potentially trying to change behavior, change
investment patterns, so some of it does not play out right
away.
But I do think that we really need to have a more
comprehensive trade policy for sure.
Mr. Schostek. Senator, you mentioned there are various
studies out there. There is a lot of data out there to be had,
and we can certainly follow up with you on any of those items.
But you also mentioned the basis for the 232 tariffs. I can
tell you as a business person, I cannot begin to understand
that. But what I would say is that we are very heavily
invested, as we have described, in manufacturing, in R&D,
especially in R&D here in the United States and through the
entire value chain. So I think we, Honda, and this industry in
general, are contributing significantly to the U.S. industrial
base.
And then again, as a business person, I can only speak to
the impacts that these tariffs would have. And we can see
impending harm to U.S. manufacturing, to workers, and as you
mentioned, to consumers.
Senator McCaskill. Let me--Mr. Nassar, I understand that
there is support for the idea that we could bring these jobs
back to the United States, many of which have chased lower
labor costs, and I completely understand. I would point out to
UAW and your thousands of members across the country, that you
should look at your brothers in the steel industry and what is
going on right now.
We have 30,000 steel workers who have authorized a strike
on the heels of very generous tariffs. Clearly the price of
steel has gone up dramatically. That is also impacting
automobile manufacturing. Clearly it has bumped up to just
under the tariff amount. So for all of the people around this
country who are manufacturing, this is added cost that is just
getting passed on.
But it is not--in the negotiations with the steel workers,
they offered the minimal raise, but they cut the health care so
much that they ended up going in the hole at this moment in
time. It is just amazing to me that this was somehow pitched as
great for the workers. That the workers were really going to
enjoy this. And a few months later, you have 30,000 steel
workers ready to go on strike.
Mr. Nassar. And if I could respond, I think that that
points out the fact that we need to look at these policies in
an integrated way. And the fact is that our labor laws are very
weak. Enforcement is very weak, and the workers have less power
and less voice. So it creates these kinds of decisions where
workers can and do get taken advantage of all the time.
I think it speaks to a real power imbalance we have in this
country.
Senator McCaskill. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Scott?
Senator Scott. Thank you, Mr. Chairman. Thank you to the
panel for sharing your expertise here this morning and now this
afternoon. So I really appreciate that.
South Carolina has greatly benefited from the resurgence of
manufacturing exports and foreign direct investment. More than
700 international companies employ more than 130,000 South
Carolinians, with most of that in the manufacturing sector.
It might be debatable whether or not South Carolina is the
number one automotive State in the country. What is not
debatable is the fact that we are at least in the top two or
three in the Nation, and certainly always in the conversation.
We have 66,000 employees working at 400 companies, as Mr. Britt
just stated earlier, in the auto industry, along with vehicle
manufacturers like BMW, Daimler, and now Volvo. There has been
significant investment from automotive suppliers, both large--
Bosch, Continental, Mag-na--and small.
This industry is essential to continued progress in my
State. Good trade policy unlocks opportunities for American
families and obviously, it has unlocked real opportunities for
South Carolinians without question.
With those thoughts in mind, I would like to ask a few
questions. Mr. Britt, I will start with you. I know that you
have spent 25 years on the county council in Spartanburg. Thank
you for your public service. You have spent years as a part of
the economic development apparatus in Spartanburg. You guys
have brought in about $16 billion of investment, creating or at
least attracting 45,000 jobs.
I wonder, as we think about the 232 autos and parts
investigation, what the impact of that is on business? When I
talk to business leaders in the sector, what I find is real
concern and hesitation. The question for you is, are you
hearing similar things back at home, or am I just hearing from
a few people?
Mr. Britt. Senator, you are hearing exactly right. And I
appreciate the kind comments. Actually, I have served on the
council 28 years.
Senator Scott. Excuse me.
Mr. Britt. And the reason I point that out is, I was
elected May 7, 1991, when we were in the depths of the biggest
depressing time in the history of Spartanburg County and in the
upstate because all of those 25,000 jobs had left the textile
industry. So I was there to help recruit BMW. I was just one of
the players.
As you know, our great Governor, former House member----
Senator Scott. Carroll Campbell.
Mr. Britt. Carroll Campbell.
Senator Scott. Absolutely.
Mr. Britt. He was the quarterback. Foster Chapman, Carter
Smith, and David Britt were just players on that team, but we
worked hard to help Governor Campbell bring that company to
Spartanburg.
You, yourself, you started as a council member in
Charleston County. And you and I share a lot of our upbringing.
Senator Scott. Absolutely.
Mr. Britt. As I said, I grew up in Dillon County on a small
tobacco farm. You grew up in Charleston--single mom, at the age
of 7 supported three children. And now you are a United States
Senator.
But when you were a council member, you knew how it was.
When you go to the grocery store, you go to the YMCA, you go to
church, people talk to you.
Senator Scott. Yes, sir.
Mr. Britt. When you were in the State House, you actually
got to go to Columbia a little bit. My friends who are actually
in the House in Columbia say, ``I do not know how you deal with
it on council. You see these people every day.''
And that is right. That is why I have done it for so long,
because I feel like that is my calling. I listen to them in the
grocery store. Dick Mahon is stopping me and my wife is calling
me on the phone and saying, ``You have been there for an hour.
All you needed to do was go get milk. What are you doing?''
These people are talking about this concern. So I think Mr.
Schostek made a comment earlier, we are dealing with the most
educated workforce and consumer group in the history of the
United States. With smartphones and the associates who work in
these companies, it is no longer that you work on the
production floor, punch in, and go out 8 hours later. You are
on teams. You are on management teams. You are on leadership
teams.
Just like at Tindall, our associates are the company. They
know exactly what is going on. They know how much money we made
last month. And there was a comment made earlier that companies
make so much money, all of this profit. I would like to know
who these companies are, because every company that I deal
with--those 211 international companies in Spartanburg as well
as the Americans--all operate on very fine margin.
Senator Scott. Yes.
Mr. Britt. And when you increase it, it hurts. But you are
hearing it exactly right.
Senator Scott. Excellent.
Mr. Britt. Tremendous concern.
Senator Scott. Let me, in my 30 seconds or so that I have
left, ask you a question, Mr. Schostek, about the supply chain.
You have been pretty clear. I listened to you this morning on
the negative impacts on the supply chain, and frankly on
American jobs connected to those supply chains.
I think Mr. Britt said it earlier, and Senator Cantwell
agreed, that when these supply chains leave, getting them back
is very difficult. I think you said earlier, sir, that whether
it is $4,000 added cost, whether that goes to the consumer,
whether it comes out of the company, the fact is that it
matters; a loss of profit does jeopardize jobs. No matter who
pays the price, whether it is the consumer or the company,
ultimately the workers will feel a negative impact.
So my question to you is, it seems to me that all auto
companies are connected and linked to global supply chains. And
at the end of the day, is it not true that tariffs on auto and
parts imports will raise the cost of vehicles, whether that is
$4,000 or $6,000? And if we raise the prices of vehicles, we
can imagine that consumers will buy fewer of them. And if the
consumers buy fewer of them, then the employee whose work
produced those vehicles will be at least more vulnerable to
layoffs and challenges.
Mr. Schostek. Absolutely, Senator Scott, and thank you for
the question.
We are proud to make ATVs and side-by-sides in
Timmonsville, SC.
Senator Scott. Timmonsville, SC. No question.
I did ask to go on one of the side-by-sides, and they told
me that I was not an expert at driving, so stay out of vehicles
immediately.
Mr. Schostek. Safety first, Senator.
Senator Scott. Safety first.
Okay. I wanted to make sure that was accurate. [Laughter.]
Mr. Schostek. And we also have 41 suppliers in South
Carolina----
Senator Scott. Yes, sir.
Mr. Schostek [continuing]. That support not only our
motorcycle business and ATV business, but the auto business as
well--so critical.
But you hit the nail right on the head in terms of the
ripple effect of these tariffs. So it starts with the raw
material right now. It starts with aluminum and steel.
If we add it to the parts that are being imported, and you
are absolutely right, every single manufacturer--I do not care
if your headquarters is in Asia, if your headquarters is in
Europe, or if your headquarters is in Detroit--every single
manufacturer, and there are 14 of them operating here in the
United States, uses parts they source from the U.S., but also
globally.
The suppliers, companies like Mr. Haughey's--he has
organized his company to cover various regions. He is not just
in one place.
Senator Scott. Right.
Mr. Schostek. Right; so this is a very interdependent and
complex supply chain, and the value chain from the beginning of
concept and design, doing R&D here all the way to the end of
distribution, getting things into Mr. Gates's door--tariffs are
going to hurt the whole supply chain. I have seen it ripple
right across.
Senator Scott. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Menendez?
Senator Wyden. Mr. Chairman, I think it is Senator Portman
and then Senator Menendez.
The Chairman. I guess that is right.
Senator Portman, I have to leave. Will you wrap this up
then?
Senator Portman. Yes, that is fine.
The Chairman. Thank you.
Senator Portman. First of all, thanks to the ranking member
and chair for their patience with those of us who have other
responsibilities. I have two markups and two hearings going on
at the same time this morning.
I really appreciate you all being here. I was here earlier
to hear some of your back and forth, the questioning. And
although I heard my colleague from Michigan claim that Michigan
is the auto State, Ohio is really the auto State. [Laughter.]
In fact, we are the country's leading manufacturer of engines
and transmissions. So maybe fewer auto plants per se, but we
are a huge auto State.
The Chairman. Senator Portman, if I could interrupt you. I
have to leave, but I just--Senator Portman will take over, but
I just want to thank you all for being here. It has been a
stimulating hearing and one where I think we are all pretty
much in agreement in a lot of ways. And you are not wasting
your time. So we are glad you are here.
Senator Portman, if you will forgive me. Will you close
this?
Senator Portman. Of course. Thank you, Mr. Chairman.
The Chairman. I appreciate it.
Senator Portman [presiding]. I think the chairman makes a
good point. I think there is actually some consensus building
around what I consider the misuse of section 232. It is meant
for national security purposes.
And again, for my State it is particularly concerning that
we might shift to autos. I do think with regard to steel, you
can make an argument that, as to certain countries and certain
products, there is a national security issue. I would say
electrical steel is a good example of that, where we only have
one factory left and we have an enormous increase, almost a
100-percent increase, in terms of electrical steel imports
where we need it for the grid.
Autos are a different case. I did listen, again, to some of
the back and forth, and I read your testimony. And I think we
have to be very careful here, particularly with regard to our
allies, because national security is ultimately about us having
a concern about enemies, not allies.
Second, I am concerned that this course of action would
actually make it harder to make a car in America. And that is
my concern. If it is not done--Mr. Nassar, you seem to be the
most supportive of 232, but even you have said it needs to be
very targeted and specific as to country, as to product, for
that very reason.
So the framers of 232 knew this might happen, by the way.
And they were concerned that people would take 232, which is
for national security, and use it for a broader purpose, what
they viewed as protectionism. I think that is kind of where we
are today.
The Ways and Means chair at the time said, ``The national
security exception is to protect and preserve the national
security. That is its sole purpose. It is not intended to serve
as a device to afford protection to those industries that might
claim it.'' That was many years ago, back in the 1960s. And it
has only been used a couple of times since--in the 1970s for
oil. But I think this is an issue.
There is legislation that was introduced called the Trade
Security Act. Some of you have been involved with that. The
Trade Security Act is a bipartisan bill, and it is trying to
make good on those words of that chair of the Ways and Means
Committee: let us focus on national security.
So it says, instead of 232, you have the Commerce
Department making a determination on national security, vested
as phase 1 in the Department of Defense, where you have the
expertise. And then with regard to the remedy, of course you
then turn back to Commerce. Second, it gives the Congress the
chance, through a motion of disapproval, to actually weigh in.
And I think those two things would make a huge difference.
Mr. Schostek, you are familiar with the bill I know,
because Honda has endorsed it. I guess you have more
autoworkers than any other company in Ohio. Can you speak
briefly about the need for this kind of narrowing of the 232
provision so that it meets its original goals?
Mr. Schostek. Thank you, Senator Portman. It is good to see
you again, and thank you for the kind words about operations in
Ohio. A lot of those engines and transmissions are made by
Honda workers in Ohio, as you well know.
I was listening intently, because I know you have quite a
bit of experience in this area, in the trade area, and I was
trying for myself--the basis under 232 for how these tariffs
could be applied. And honestly, it is probably over my head or
above my pay grade. So I think any clarity we can get in terms
of that is very important and why we endorsed your bill.
Again, we are heavily invested in manufacturing. You know
our R&D strength in Ohio. And we are really contributing
significantly to the U.S. industrial base. I say that for Honda
as a company, but I can say that for the entire auto industry.
All 14 companies that are doing business or making product here
in the United States are contributing to the industrial base.
So we would appreciate some clarity on that as well. So,
thank you very much.
Senator Portman. Mr. Haughey, you make a lot of stuff in
Ohio too. It is more parts, and we appreciate your suppliers,
your companies in Ohio. Talk to us about what the cost to the
car is going to be. We have a $2,000 increase on average for a
domestically produced car. A car has over 30,000 parts, and
they come from all over the world, do they not?
Mr. Haughey. They do. Thank you, Senator.
The price of steel has just gone up. You have to think a
little bit too about the timing. So we have seen the tariffs
come in, the prices go up, and then as contracts expire--you
know, we have only really just started this.
I think it is going to cascade for a long period of time
until finally the auto companies have no choice but to take the
price of a car up. And then when they do that, volumes will
eventually come down because cars will not be affordable.
I think one of the ironic things we see--our operations in
Ohio are a good example. We are having a very difficult time
hiring people. One of the reasons we did a hiring freeze is
just the uncertainty, but the other thing is that, within the
U.S., we had probably about 100 open jobs at the time that the
tariffs hit and a very difficult time hiring workers.
In our headquarters in Tennessee, as an example, we have
had to set up our own school inside the plant. We have a full-
time teacher, trainers, and a tool-and-die apprenticeship
program.
Senator Portman. I am hearing it all over the State.
Mr. Menendez needs to ask his questions now.
But that is the topic of another hearing. Let us not make
it worse by adding to the cost of automobiles for consumers. At
a time when our economy is doing well, we need more workers.
Let us focus on worker retraining and on better CTE and other
skills training for younger people.
So thank you all for being here. And I will now turn to Mr.
Menendez.
Senator Menendez. Thank you very much.
Thank you all for your testimony. We were at another markup
of the Foreign Relations Committee, so we were not able to get
here earlier.
But I want to begin by saying that I am glad that we are
focusing today on how to deal with the impact of the global
economy on working families in New Jersey and across the
country. In my view, tariffs that are tactfully and carefully
targeted on the right products and countries could be part of a
comprehensive trade and economic strategy aimed at helping
working families and businesses succeed. Unfortunately, we do
not have such a strategy from this administration.
As our friends in the United Auto Workers have pointed out,
``Targeted enforcement approach is needed, and not all trade
deficits have the same impact. For example, Canada's 16.7
billion finished automobile deficit is nearly offset by our
14.7 billion surplus in automotive bodies and parts. It should
not be held in the light of more egregious actors.'' I agree.
As is often said, in the case of this administration, I am
afraid their scatter-shot, tweet-from-the-hip approach adds
more confusion than clarity to the lives of our workers and
businesses. A real strategy demands clear and achievable goals.
But what we need is a comprehensive game plan. I had hoped
that--there is no doubt that China has unfair trading practices
and barriers. But creating a global coalition of the European
Union, Canada, Japan, South Korea, Australia, and others at the
WTO against China, making China's assault the central point,
would be far more productive at the end of the day.
For years, my Democratic colleagues and I have urged this
body to include enforceable labor standards in our trade
agreements and to more forcibly use our tremendous market
leverage to push back on unfair trade barriers by our global
partners. It seems to me we have to use our trade agreements to
look more seriously at how we protect our jobs, our
environment, and our businesses from falling behind in our
fast-changing, increasingly interconnected global economy.
From stagnant wages at home, to unfair working conditions
abroad, to intellectual property thefts--something I focus a
lot on in this committee, because New Jersey is at the apex of
creating intellectual property--and government-subsidized
businesses, it is a tough world out there. So we are still
waiting for a strategy, because a one-size-fits-all approach
just is not going to cut it.
I would like to ask the panel this question: the President
has said that China is paying us billions in tariffs. Is that
true?
Mr. Schostek. Everybody is looking around, Senator.
Senator Menendez. Well, I appreciate your bravery in coming
up to answer the question.
Mr. Schostek. You know, China is--let me just give some
overall perspective on China. It is a huge market. It is a 28
million vehicle market. It is two-thirds larger than the United
States, and it is growing.
There are certainly issues with the trading relationship,
issues regarding IP, issues regarding foreign investment.
Senator Menendez. But are they paying us billions in
tariffs?
Mr. Schostek. So we have put--there are tariffs that have
been in effect. Retaliation from China is affecting our own
shipments over there, as I mentioned earlier in my testimony.
I do not know the exact amount of tariffs that China is
paying, but I do know that we need to resolve this trading
relationship. The right way to solve it would most likely be to
work with our trading allies in approaching this issue.
Senator Menendez. Mr. Britt?
Mr. Britt. Senator, I cannot answer the question whether
China is paying us billions. Countries do not pay the tariffs.
Consumers pay the tariffs, whether you are in the United
States, whether in China, in Japan, Germany, and that is the
bottom line.
This whole issue--we will not win a tariff argument. It is
not going to happen. We will win tariff agreements through
trust and diplomacy, and it is just as you said: with our
partners and allies beside us.
The way we impact China and the whole issue of trade is by
making our partners and their citizens more wealthy and freer.
That is what puts pressure on China to work with us, not
getting into this ill-conceived tariff war. I have a list of 27
countries that are in Spartanburg County. We have caused a
problem with every one of them, to the point that they are
contacting us. They are concerned about it.
We just need to be building bridges, not digging ditches.
Senator Menendez. All right.
I am for that. I am for building bridges, not building
walls. I am for making sure that we have the appropriate policy
and create an alliance of allies against an unfair trading
partner.
But I think you answered the question that I was looking
for, which is ``no.'' China does not pay us billions. No
government pays the tariff. Ultimately, it is the private
sector and consumers who get hit by the tariffs.
So I am concerned if the President does not even understand
how tariffs work, how the hell are we thinking that his policy
is ultimately going to be one that can work? You have to
understand how tariffs work. China is not paying us anything.
Thank you very much.
Mr. Britt. Senator, could I add one more thing to that?
The President, again--the question was asked by Senator
McCaskill, this whole thing about tariffs and tariff wars. We
have never won a tariff war in the United States. And when the
President says, ``tariff wars are good, they are easy to win,''
show me one in the history of the United States.
He also tweeted out that if you do not agree with him, you
are foolish. So I have to be the biggest fool in Washington, DC
today and in America, because I disagree totally with the
tariff war.
Senator Menendez. Yes. That is like ``debt is good'' too.
Thank you.
Senator Portman. Senator Wyden?
Senator Wyden. Thank you very much. Senator Menendez, thank
you for joining us. I know you are juggling a lot. I appreciate
your points.
So gentlemen, here is where we are 2 hours into this--and I
thank you all. It has been an excellent hearing.
What we have seen is a textbook case of how trade policy
has been enveloped in chaos. There is no other explanation, in
my view, for what we are dealing with.
In my State, trade is so important. One out of five jobs
revolves around trade. The trade jobs often pay better than do
the non-trade jobs. So this is about as important as it gets.
All of you have talked about the need for certainty and
predictability. Mr. Nassar, I very much appreciate your
response to my question of how do we come up with winning
policies for workers and for companies. We look forward to you
elaborating on that.
But I want to just close with where I think we are now. You
all have told us that what is needed is some certainty and
predictability.
What we are faced with now is the question of whether there
are going to be auto tariffs. We are going to have to deal with
the exclusions. You should know, during the course of the
hearing, I had the staff running down the numbers, and contrary
to what Secretary Ross says, this number as to how many have
actually been processed is really still quite low.
And then, of course, we want to know whether we are going
to have a good deal with Canada or are we just going to say,
hey, we will say we are not going to do that. And I have tried
to advise this administration that they do not have the
authority to do this, that Article 1 says Congress has that
kind of authority. But all of that goes into the mix.
There is chaos now, and if those issues are not resolved in
a way that brings people together and gives more certainty and
predictability, what we are hearing about today is going to
look like a small order compared to what is ahead.
And then finally, I very much appreciated what you all have
had to say as it relates to the supply chain, because the
supply chain literally runs from sea to shining sea. And
today--I remember when I came to Congress, people essentially
did business with folks who were an hour or two away. Today,
the supply chain is not just national, but it is global.
And when you have suppliers--Mr. Schostek said--that are
still waiting for answers, you again poor gasoline on the fire
of uncertainty for companies and workers. So we have some heavy
lifting to do.
I hope you are all walking out of here seeing that there is
a lot of common ground in this committee for modern trade
policy. Virtually every Senator whom I talk to says they do not
want NAFTA abolished, but they want it updated. They want it
modernized. They want, as you said, Mr. Nassar, to make it work
for workers and for companies.
So, thank you all. This has been an instructive snapshot in
modern American trade policy. You have given us a sense of the
heavy lifting ahead, and I thank you for it.
I am glad I had 2 hours to make sure that you could
enlighten me as to the extent of the problem, because not only
does it reaffirm the concerns I walked in here with, I think it
is a reason for us to double down and work even harder to
modernize trade policy in a manner that works for both our
companies and for our workers.
So, I thank you all.
Chairman Portman, thank you.
Senator Portman. Thank you, Senator Wyden.
And to our witnesses, thank you for being here. We have a
lot of balls in the air right now with regard to trade. Some
are related. The 232 issues we talked about today and a
potential for 232 to be used with regard to autos has been the
main topic. And it seems like there is quite a bit of consensus
around that. Maybe not absolute agreement, but a lot of
consensus.
I would argue that it also relates to what we are trying to
do with regard to the North American Free Trade Agreement,
because when I hear from the negotiators, I get the sense that
the potential for a 232, particularly on autos, and a
resolution on 232 as it relates to steel and aluminum, are very
much related to us coming to a solution with Canada.
I think the Mexican part of the agreement having been
resolved, at least on a preliminary basis, is very good news.
And I think we are very close with regard to Canada.
But my sense is, 232 is a shadow over those talks, and if
not the most important one, one of the more important issues to
be resolved. So you being here is very timely as to that issue.
And then of course, there is the broader issue of what we
do about China and the 301. I understand Mr. Britt's point of
view. I will say that we have kicked the can down the road for
a long time on some of these issues with China, particularly
the structure issues, even forgetting the enormous trade
deficit.
And we do need to face up to those issues, and the question
as to what the right approach is, is a legitimate one. And a
concern that I have raised, and others have raised, is to be
sure that we are being clear about our objectives. It is not
just about buying more soybeans, which I would love, from Ohio.
It is not just about buying more LNG, which would be good for
our economy, Ohio as well. It is about some of these structural
changes to ensure that intellectual property can be protected
and that we can have a true level playing field with the second
biggest economy in the world.
So that is a tougher one, but with regard to 232 and our
allies in Canada and in Mexico, one would hope that we could
resolve those issues now, soon, and then move on to resolving
some of the European issues--and then get in the business of
opening markets again by having some new trade agreements,
which I know the administration is interested in doing, not
just with the UK and Japan that have been in the news, but also
with some African countries and elsewhere. I think that is an
exciting part of the agenda we should pursue.
So with that, again, thank you for your attendance and
participation. All five of our witnesses gave us a lot of great
information today focusing, again, on the impact of the tariffs
on autos. We appreciate your help.
Any member wishing to submit questions for the record needs
to do so by the close of business on Wednesday, October 3,
2018.
With that, this hearing is adjourned.
[Whereupon, at 12:35 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of H. David Britt, Chairman,
Spartanburg County Economic Development Committee
In Spartanburg County, SC, we build things.
For over 100 years, our mills were the heart of American textile
manufacturing. In the 1990s, our once-bustling mills began to shutter
and close. More than 25,000 workers found themselves unemployed and our
county was changed forever.
If you visit Spartanburg County today--and I encourage you to do
so--you'll see a community that is the economic envy of many States,
and indeed, many other countries. The transformation began in 1992 when
BMW decided to build its U.S. manufacturing facility in Spartanburg,
SC.
In the last 26 years, BMW has invested over $9.3 billion in Plant
Spartanburg, and has produced over 4 million vehicles, over 70 percent
are shipped all over the world. BMW employs over 10,000 associates at
Plant Spartanburg, and they produce an astonishing 1,450 vehicles a
day.
This has helped South Carolina become the Nation's leader in the
export sales of completed passenger vehicles, accounting for 16 percent
of the total U.S. market share. In fact, the South Carolina automotive
footprint is so robust that automotive suppliers are in 37 of our 46
counties, employing more than 66,000 South Carolina citizens in over
400 plants.
A 2017 study concluded that for every 10 jobs BMW directly creates
at its Spartanburg plant, 90 more are created as a direct result
elsewhere in the U.S. Just last year, the automaker announced plans to
invest an additional $600 million in Plant Spartanburg and create 1,000
more jobs. That decision is a testament to the quality of the company
and their associates.
Through our success with BMW, Spartanburg County learned we could
compete and win on the international stage. Our culture of
craftsmanship, which once saw workers spinning and weaving, translated
to the economy of innovation. Today, more than 200 foreign-owned
companies from 25 countries operate in Spartanburg County, including
Michelin, Alcoa Fujikura, Toray Industries, and Kobelco. Less than 30
percent of those companies are automotive related.
Companies such as Volvo, Mercedes, and Boeing now call South
Carolina home, employing thousands and building products used around
the world. In 2017, South Carolina won 157 economic development
projects, representing $5.24 billion in capital investment and creating
nearly 18,500 jobs. More than half of that investment came from foreign
countries.
Time and again, I hear a common refrain from these companies: South
Carolina is a handshake State--a place where one's word still means
something, and where fairness and partnerships are valued.
In a global economy, it's important to be fair. That's why I
initially supported President Trump's efforts for equitable trade
agreements with countries. However, such arrangements should not create
less incentive for American companies to look for innovative ways to
increase their productivity and make products more efficiently.
As evidence, look no further than U.S. steel manufacturing. Since
March, the price of U.S. steel has increased around 23 percent on the
heels of President Trump's tariffs. Instead of innovating, or even
raising prices slightly, U.S. steel manufacturers simply have increased
their prices to just shy of imported steel.
This marked rise in steel prices will cascade to consumers, whether
they realize it or not. Large construction projects built with precast
concrete and steel beams may suddenly seem too costly and be shelved.
Infrastructure improvement projects, the roads and bridges crucial to
so many, may be delayed or canceled.
This is a perfect example of why governments should not use tariffs
to pick winners and losers. We have over 100 years of history proving
this does not work, from the sugar tariffs of the 1880s to the chicken
tariffs of 1963, where in January 1964 the United States placed a 25-
percent tariff on all imported passenger trucks and it is still in
place to this day, 54 years later. Every truck owner in the United
States is paying substantially more for their truck because of this
tariff, including me.
The prices on everything from toothbrushes, groceries, and cars
will rise in 2019 if not sooner. These economic policy decisions do not
exist in a vacuum. The impact will not only be felt in board rooms and
in capitals but will be passed on to consumers across the country and
this world.
I keep hearing: ``Be patient, the President has a plan.'' Well our
trading partners and citizens are running out of patients they have
their lives and futures at stake. Our neighbors are asking themselves,
can we afford to buy a new home or car with a trade war looming?
Companies are asking, can we risk this new investment in a new or
existing facility or do we put it elsewhere in the world?
In Spartanburg and South Carolina, we experienced firsthand the
failures of a protectionist mentality. We must not repeat the mistakes
of the past. As a community that was given the option to change or die,
we have grown and thrived under a new economy, one built with a strong
emphasis on education, innovation, and collaboration.
In the years since the textile industry collapsed, companies have
invested more than $17 billion in Spartanburg County alone, creating
over 55,000 jobs. We are poised for even brighter days to come provided
these tariffs do not put their foot on the throat of growth.
A reporter recently asked what I might say to President Trump if
given the opportunity. I would say, ``Mr. President, come to
Spartanburg and let me show you firsthand how we have opened our minds,
hearts, and ingenuity to the world for the benefit of everyone.''
Politics is the art of getting things done through people, and in
my 32 years of elected office it has never rung truer than now. In
Spartanburg, we have learned that you can accomplish our objectives
through trust and partnership--not a hammer.
Because in Spartanburg County, SC, we build things--including
relationships.
______
Prepared Statement of Steve Gates,
Dealer Principal, Gates Auto Family
This statement is submitted by Steve Gates, Dealer Principal of
Gates Auto Family. Today there are 16,802 auto dealers across the
county, with over 1.1 million employees. Tariffs would harm our
business, the communities we serve, and our customers across the U.S.
seeking affordable, safe transportation for their families.
four generations of car people
My name is Steve Gates, and I'm a third-generation auto dealer
operating multiple stores and providing work for 500 employees in
Kentucky, Indiana, and Tennessee. I am proud to say The Gates Auto
Family has recently expanded into the fourth generation as my daughter,
MacKenzie, has chosen to join me in the auto business. I currently have
franchise dealerships that sell Audi, Toyota, Nissan, Hyundai, Honda,
Lexus, and Kia. In the course of my career I have also owned and sold
Chevrolet and Ford dealerships.
The Gates Auto Family began in 1915, when my grandparents, Bernard
and Marian, took a chance selling Dodge Desotos out of an Indiana
livery stable, imported one at a time from Detroit, with Grandma Marian
behind the wheel. Their spirit of entrepreneurship still runs in our
blood. That's why in 1970 my dad, at the time one of the largest Chevy
dealers in the Midwest, risked buying a start-up brand called Toyota.
It's why I continue to bet on the future, investing in new stores, and
encouraging my daughter to continue in the family business with me.
I learned the car business from the ground up. In 1965 I started as
a lot attendant at my father's dealership, Bud Gates Chevrolet.
Throughout junior high school, high school, and college, I worked in
parts, service, and in the body shop at Bud Gates Chevrolet-Toyota. I
went on to explore the other side of the auto business after college by
starting a company that sold accessories and financial services to new
car dealers in Indianapolis. I sold that business in 1982 and went to
work for BMW Financial Services/Dealer Services establishing finance
and insurance departments for BMW dealerships. In 1986, I decided to
reenter the retail automobile business as the used car manager for
Dreyer and Reinbold BMW. Finally in July of 1989, I decided to go all
in and became a partner at Toyota South in Richmond, KY, and I have
never looked back.
costing the consumer
There's nothing easy about being a car dealer in the United States
today, but the work is always interesting, and rewarding in more ways
than I could ever explain. That's why it was so important to me to take
time away from my business and fly here to talk with you today.
It was alarming to learn that the U.S. Department of Commerce in
May opened an investigation into whether imported automobiles and
automobile parts are a threat to our national security, with a 25-
percent tariff on those imported cars and parts as a possible outcome.
In a market where costs are already rising and sales are flattening,
adding a 25-percent tax on autos and auto parts causes alarm bells to
go off for me.
Unfortunately, affordability concerns are not new to the auto
industry. According to Cox Automotive,\1\ over the past 20 years the
cost of a new car has increased by 35 percent, while household income
has only grown 3 percent. A 25-percent tariff would make this already
difficult situation truly impossible for many middle-class families.
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\1\ Cox Automotive is a leading provider of products and services
spanning the automotive ecosystem. No matter the stage of the auto
buying or selling process, we have a solution for clients of any size.
Not surprisingly, when a customer walks into one of my dealerships,
one of the most important considerations for them is price. Following
the purchase of a house, a car is often a consumer's largest
investment, and the vehicle they buy has to fit their needs and fit
their budget. A recent study by the Center for Automotive Research
(CAR) \2\ for the National Automobile Dealers Association estimated
that under a 25-percent auto tariff, the price of a new vehicle would
rise by as much as $6,875. The same study found that the used car
market would be impacted as well, as many would-be new car buyers are
driven into the used car market, increased demand and constricted
supply would drive up used car prices. The chart below tracks the
steadily increasing averages for new and used car prices over a 5-year
period. As you can see, according to Kelley Blue Book, the estimated
average transaction price for new light vehicles in 2017 was $36,113,
an increase of $583 from 1 year prior. At the same time, according to
Edmunds, the average price of a used car rose to $19,400 in 2017. In
the first quarter of 2018, the average price of a used car hit a new
13-year high \3\ of $19,657, up 17.6 percent from 5 years ago. Adding a
25-percent tax to these already rapidly rising prices would put a new
car or truck out of reach of many, if not most, American families.\4\
---------------------------------------------------------------------------
\2\ Center for Automotive Research (CAR): https://www.cargroup.org/
wp-content/uploads/2018/07/NADA-Consumer-Impact-of-Auto-and-Parts-
Tariffs-and-Quotas_July-2018.pdf.
\3\ Used-car prices hit a 13-year high as more late-model cars came
off lease: https://www.
usatoday.com/story/money/cars/2018/06/15/used-cars-price-hit-record-
high/700362002/.
\4\ RoadLoans.com, Average New and Used Car Prices, and The
Advantages of Flexible Financing: https://roadloans.com/blog/average-
car-price.
Those not in the market for a vehicle--new or used--will still feel
the pain of an auto tariff as higher automotive parts prices drive up
the cost of maintenance and repairs. According to the Auto Care
Association, each U.S. household will spend an extra $700 per year in
increased ownership costs. Current car owners unable to pay the higher
prices an auto tariff would bring to our service centers, will likely
put off needed repairs and safety improvements, making for a dangerous
situation for them and others on the roads. As the cost of your car
goes up and the cost of your parts go up, the cost of insuring your car
will also go up causing customers to pay higher premiums. In testimony
submitted to the Department of Commerce this summer, the auto insurance
industry estimated that under a new 25 percent auto tariff, personal
---------------------------------------------------------------------------
insurance premiums will rise by 2.7 percent or $3.4 billion.
When Americans are priced out of safe, affordable transportation,
those who least can afford it will be the first to suffer. According to
a recent study by the Tax Foundation,\5\ a new 25-percent tariff on
automobiles and auto parts would reduce after-tax incomes for all
taxpayers by 0.47 percent in 2018 while making the distribution of the
tax burden less progressive. These tariffs would fall harder on those
taxpayers in the bottom 80 percent, reducing their after-tax income by
0.49 percent, and by 0.45 percent for the top 20 percent. The relief
provided to families through tax reform would therefore be greatly
reduced and in fact these tariffs would amount to a $73 billion tax
increase on American consumers.
---------------------------------------------------------------------------
\5\ Tax Foundation, ``Automobile Tariffs Would Offset Half the TCJA
Gains for Low-income Households,'' https://taxfoundation.org/
automobile-tariffs-2018/.
If these tariffs are implemented, our customers will pay more to
buy their car, pay more to fix their car, and pay more to insure their
car.
hurting dealership sales and employment
From deregulation to tax reform legislation, the administration and
Congress have built a healthy environment for businesses, large and
small, to thrive. Maintaining high employment and an atmosphere for
business investment is crucial to creating a strong economy that is
vital to national security. Dealers welcome this economy and see new
opportunities to grow, but we worry that the possible 25-
percent tariff will negatively affect our ability to operate and
provide work for thousands of Americans. The reason tariffs present
such a possible catastrophe for the auto retail industry is twofold;
our business is incredibly price-sensitive, and our margins are already
razor thin. There isn't much wiggle room in today's flattening retail
market for cars and trucks. And it isn't just imported brands that will
be impacted. All vehicles sold in the United States today contain
imported parts.
Facing rising prices, along with increasing interest rates,
customers will delay or even avoid a purchase all together. Currently,
the average age of a vehicle on our roads is 11.7 years. That's the
highest it's ever been. Americans are already holding onto the cars
longer because they can't afford to replace them. Unfortunately, we all
know there is a direct correlation to the number of cars we sell and
the number of Americans we employ.
Across the United States and in communities large and small,
Americans are employed in the automobile retail industry, including the
over 1.13 million who are employed at 16,802 automobile franchises.
Dealerships like mine have a combined annual payroll of $65.3 billion,
and also account for an additional 1.27 million indirect jobs. The
average salary at a dealership is $57,800. These are good, American
jobs that grew out of free trade. These are jobs you can raise a family
on and we need more of them, not less.
The CAR study I mentioned earlier predicts new vehicle dealerships
would see a decline by as many as 117,500 jobs and a loss of as much as
$66.5 billion in revenue if a 25-percent tariff is implemented.
Another study by LMC Automotive \6\ on the effects of a 25-percent
tariff on automobile sales found similarly that sales of new cars and
trucks will also be negatively impacted. Assuming automakers and
dealers absorb at least half the cost of a possible 25-percent tariff,
these tariffs would still lead to a loss of 1 million annual unit
sales. If the full burden of the tariff is passed on to the consumer
that jumps to a loss of 2 million units per year, more than 10 percent
of annual U.S. sales.
---------------------------------------------------------------------------
\6\ Bloomberg, ``Trump Tariffs May Cost Carmakers at Least 1
Million Annual Sales,'' https://www.bloomberg.com/news/articles/2018-
06-12/trump-tariffs-may-cost-carmakers-at-least-1-million-annual-sales.
It's no wonder that, according to Cox Automotive,\7\ 56 percent of
franchised new car dealers believe an auto tariff will hurt their
business.
---------------------------------------------------------------------------
\7\ Cox Automotive Dealer Sentiment Index, Third Quarter 2018:
https://www.coxautoinc.com/news/CADSI-Q318/.
As you can see from the below chart, there is a direct correlation
between auto sales and auto dealership employment. A loss of sales
would certainly result in a corresponding loss of jobs at auto
dealerships across the country.\8\
---------------------------------------------------------------------------
\8\ NADA, National Automobile Dealers Association, https://
www.nada.org/nadadata/.
trade agreements, not tariffs
Global trade is an engine of economic growth and is a proven
strategy for building global prosperity. Open trade and investment
policies play a vital role in allowing international nameplate dealers,
many of whom, like me, operate multigeneration family businesses, to
compete on a level playing field in cities and towns across the U.S.
I believe we should always learn from history and look back to
avoid mistakes that should not be repeated. The United States has
experimented with auto tariffs in the past, and it is still affecting
us negatively today. In 1963, President Lyndon B. Johnson signed
Presidential Proclamation No. 3564 in response to Europe imposing a
tariff on chicken imports. Among the items included in the list of
retaliatory tariffs was a 25-percent tariff on imported trucks, and it
is the only one on the list still implemented today. That's why I can't
sell a Hyundai or an Audi pickup truck at my franchises. The 25-percent
``chicken tax'' on trucks limits choices for consumers and increases
costs. And now we're talking about doing it to every motor vehicle and
all their parts. That is what I consider a real threat.
American auto dealers strongly support a pro-growth economic
agenda, and believe it can be accomplished with a positive trade
message, not the threat of tariffs and taxes. We don't need more
tariffs. We need more trade agreements. Trade keeps our economy open,
dynamic, and competitive, and helps ensure that America continues to be
the best place in the world to do business.
conclusion
It is very difficult to understand how a tariff on imported
vehicles and parts would improve national security, but quite clear how
it would actually harm our economic security. Regardless of which study
you reference or which math you use, an auto tariff would significantly
increase the cost of buying, owning, and maintaining a car for American
families.
If these tariffs are applied to our vehicles and vehicle parts, my
partner and I will do all we can to keep the lights on in our stores.
We'll cut every expense possible. And then we'll do what no small
business owner wants to do--we'll start cutting jobs. At the Toyota
store in Richmond, KY, where I spend most of my time, we'll start to
let people go--put good people with families to support out of work.
Before long, there will come a point when there are no costs left
to cut. I won't be able to floorplan--that's what we call it when we
buy and finance our vehicles from the manufacturers to sell. Just like
in the downturn of 2008, it will be harder and harder to be financed
and no banks will lend me the money.
The ripples from these tariffs will continue to spread. Dealers
might directly employ 1.13 million Americans, but we're also
responsible for an additional 1.27 million indirect jobs. When I say
these tariffs will be a catastrophe, I don't only mean for my stores or
the auto industry--I mean a catastrophe for our entire country.
I've been in this business my whole life. I may not be an expert on
politics or global security, but I know cars. And I know the cars and
trucks I sell, the services I provide, and the taxes I pay, are not a
national security threat. The men and women who show up to work for me
every morning, rain or shine, they aren't threats to our national
security either. These proposed tariffs are the real threat, and the
real danger to our country and our economy.
______
Prepared Statement of Hon. Orrin G. Hatch,
a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah)
today delivered the following opening statement at a hearing entitled
``Impact of Tariffs on the U.S. Auto Industry.''
I intend to focus this morning on the investigation that was self-
initiated by the Department of Commerce under section 232 of the Trade
Expansion Act of 1962 to determine whether imports of automobiles and
automotive parts threaten to impair our national security.
Many of us on the committee have already expressed our concerns
about the administration's heavy reliance on tariffs. In June,
Secretary Ross appeared before this committee to explain the
Department's finding that steel and aluminum imports threaten to impair
our national security.
As a result of that determination, the United States is currently
imposing tariffs of 25 percent on steel products and 10 percent on
aluminum products. Combined, these tariffs directly affect almost $50
billion worth of goods, while also affecting many billions of dollars
more in downstream goods. These tariffs cause American manufacturers
and farmers to pay more to conduct business and consumers to pay more
to buy things.
One industry that has been harmed by the steel and aluminum tariffs
is here before us today--the auto industry. The American Automotive
Policy Council estimates steel and aluminum tariffs will cause a $400
per-car price increase. Auto suppliers and consumers are already
suffering from section 232 tariffs. That's one reason I was stunned
that on May 23rd the Department of Commerce initiated another
investigation under section 232, this time into the national security
threat from automobile and auto parts imports.
This investigation covers more than $200 billion worth of trade,
which is four times larger than that under the steel and aluminum
investigations combined.
For most American families, a car is one of the most expensive
purchases they make--often second only to the purchase of a home. It is
a significant financial commitment for most families, often paid for
with debt, and I'm shocked that anyone would consider making it more
expensive. If the Department of Commerce were to recommend a 25-percent
tariff on cars, it would effectively be recommending raising the cost
of an average imported car for an American family by as much as $6,400.
According to the American Automotive Policy Council, if a 25-percent
tariff is applied to auto parts, the cost to manufacture a passenger
vehicle domestically would also increase by about $2,000. That's why I
call tariffs a tax on American families.
The Tax Foundation estimates that auto tariffs could result in a
$73-billion tax increase on American consumers and businesses, erasing
some of the benefits of tax reform passed earlier this Congress. These
taxes will hurt American families and put American jobs at risk. The
Peterson Institute calculates that auto tariffs could cause 195,000
workers to lose their jobs. That's nearly 200,000 people out of work.
And that's before other countries retaliate, which could put over
600,000 U.S. jobs at risk. These tariffs could cost the U.S. auto
industry up to 2 million lost vehicle sales annually.
And it cannot be overlooked that international automakers and
dealers significantly contribute to the U.S. economy. Together, they
accounted for 47 percent of all U.S. vehicle production in 2017
throughout 31 manufacturing facilities, generating 2.47 million jobs in
the United States. And this is just the automakers. Motor vehicle parts
suppliers are the largest sector of manufacturing jobs in the United
States. Suppliers directly employ over 870,000 Americans and nearly
8,000 in my home State of Utah alone. Direct employment by parts
suppliers has increased 19 percent in the last 5 years, and tariffs
threaten the sector's continued job growth.
In short, the U.S. auto industry is a major driver of the U.S.
economy, supporting approximately 10 million American jobs and
accounting for 3 percent of our GDP. Without question, any tariffs that
are imposed will have a negative impact on the U.S. auto industry and
our economy.
Our focus should be on building on the benefits from our historic
tax reform achievement earlier this Congress. Our trade policy should
strengthen our relationships with our allies while targeting China's
most harmful trade practices. Tariffs on autos and auto parts are not
going to help us achieve any of these things.
______
Prepared Statement of Michael Haughey, President and CEO,
North American Stamping Group
about north american stamping group
North American Stamping Group (NASG) is a Tier 2 automotive metal
stamper and assembler, founded in 1978, that manufacturers for both the
new original equipment vehicle market, as well as the aftermarket. NASG
produces components and assemblies for passenger car, light truck, and
commercial vehicles. Sales have grown annually at a compounded rate of
18 percent for the last 8 years. NASG is one of the largest Tier 2
suppliers with annual sales approaching $450 million.
NASG has thirteen facilities in the North American Free Trade
Agreement (NAFTA) region. Over the last decade, the company has
deployed nearly $200 million in capital spending for new facilities,
expanded facilities, new equipment, technologies, processes and
acquisitions. This investment allowed the company to open significant
capacity throughout the entire NAFTA region to support future growth
requirements with strategic customers. NASG's thirteen facilities
encompass 1.6 million square feet. Ten of the facilities are production
facilities, two are technical centers and one is a sales office. In the
United States, NASG operates ten facilities: one in Michigan, five in
Ohio, one in Indiana and three in Tennessee. These facilities employ
over 1,500 team members.
NASG is a member of the Original Equipment Suppliers Association, a
division of the Motor and Equipment Manufacturers Association.
about the motor and equipment manufacturers association
The Motor and Equipment Manufacturers Association (MEMA) represents
more than 1,000 vehicle suppliers \1\ that manufacture and
remanufacture new original equipment (OE) and aftermarket components
and systems for use in passenger cars and heavy trucks. Our members
lead the way in developing advanced, transformative technologies that
enable safer, smarter, and more efficient vehicles, all within a
rapidly growing global marketplace with increased regulatory and
customer demands.
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\1\ MEMA represents vehicle suppliers through the following four
divisions: Automotive Aftermarket Suppliers Association (AASA), Heavy
Duty Manufacturers Association (HDMA), Motor and Equipment
Remanufacturers Association (MERA), and Original Equipment Suppliers
Association (OESA).
Vehicle suppliers are the largest sector of manufacturing jobs in
the United States, directly employing over 871,000 Americans in all 50
States. Together with indirect and employment-induced jobs, the total
U.S. employment impact of the supplier industry is 4.26 million
jobs.\2\ Nearly $435 billion in economic contribution to the U.S. GDP
is generated by the motor vehicle parts manufacturers and its supported
activity.
---------------------------------------------------------------------------
\2\ ``Driving the Future: The Employment and Economic Impact of the
Vehicle Supplier Industry in the U.S.,'' available here: https://
www.mema.org/sites/default/files/MEMA_ImpactBook.pdf, released by MEMA
in January 2017.
Suppliers provide about 77 percent of the vehicle value. To put
this into perspective, a typical vehicle contains more than 30,000
components. Vehicle suppliers manufacture materials, parts, and systems
for a wide range of customers including new vehicle manufacturers
(a.k.a. ``OEMs'') and other Tier 1-3 suppliers. They also manufacture
for the vehicle aftermarket by way of multiple channels to provide
vehicle service technicians, commercial fleets, and consumers the parts
and materials needed for vehicle maintenance and repair. The variety of
service applications ranges widely too: from passenger cars, SUVs and
pickups to heavy-duty vocational trucks, semi-tractor trailers and
military tactical vehicles--suppliers provide the components necessary
to support the production of millions of these vehicles annually. MEMA
members make a wide array of vehicle components for new vehicles as
original equipment and for the aftermarket as replacement parts. They
manufacture and produce essential vehicle components and materials--
such as axles, brakes, tires, wheels, batteries, wire harnesses, seats,
front/rear lights, bearings, oil filters, fluids, plastics, metals,
composites, and thousands more. Suppliers also innovate and create
complex and highly integrated vehicle systems--such as advanced
refrigerants and HVAC systems, emissions control technologies,
regenerative braking technologies, alternative propulsion systems,
advanced driver assistance systems, vehicle-to-vehicle communications,
and automated driving systems.
executive summary
NASG and MEMA support the administration's agenda to assure free,
fair, and reciprocal trade and a level playing field for all Americans.
However, we are very concerned about the adverse impact on
manufacturing jobs resulting from the section 232 steel and aluminum
tariffs and section 301 China tariffs already in place. The combined
impact of these tariffs has thrown many supplier companies close to a
financial crisis and has made some of them question their future
investments in the U.S. Tariffs are having a negative impact on these
manufacturers, the jobs they create, and ultimately the American
consumer. The threat of further tariffs from the section 232 automotive
and auto parts investigation will increase the cumulative negative
effect on suppliers.
NASG and MEMA strongly oppose any broad, unilateral, and import-
restrictive measures--such as tariffs, quotas, or other adjustments--on
imported automobiles or motor vehicle parts. We recognize the
Department of Commerce is currently investigating these matters and
that no specific recommendations have been made. However, recent
actions and statements from the administration signal that tariffs will
soon be imposed on our industry.
The imposition of section 232 tariffs on imported autos and motor
vehicle parts will place manufacturers at a competitive disadvantage to
their global counterparts, erode U.S. jobs and growth, and will not
protect the national security of the United States. Such actions would
weaken our Nation's economy by harming U.S. manufacturers of vehicles
and vehicle parts and would deter U.S. investments in new innovative
technologies. In fact:
Tariffs will jeopardize 871,000 parts manufacturing jobs in
the United States;
Tariffs will harm global competitiveness of the United
States;
Tariffs, quotas, or other adjustments will diminish
investment in the United States; and
The broad scope of the investigation has negative
consequences for the United States.
NASG and MEMA urge this committee to work with the administration
to reset our discussions with our trading partners to pursue our joint
goal of free and fair trade.
structure of the supplier industry
In the vehicle manufacturing industry, suppliers are categorized in
tiers. Tier 1 manufacturers provide new original equipment (OE)
finished parts, components, and systems directly to their vehicle
manufacturer customers. Tier 2 manufacturers are often niche or
specialty component manufacturers that provide subcomponents and other
content to Tier 1 manufacturers. Tier 3 companies are typically the
suppliers of raw or semi-finished materials, such as metals or
plastics, for both Tier 1 and 2 suppliers. Often, Tier 2 and 3
suppliers may also provide products and supply customers in other
industry sectors outside of the vehicle industry (such as, computer
chips, PCB boards, sensors, cameras, metals, glass, plastics,
chemicals).
In Figure 1 below, we estimate that approximately 40 percent of the
suppliers are Tier 1s and about 60 percent are Tier 2s and 3s. The
dashed line indicates the frequent crossover of suppliers that may be a
Tier 1 to several vehicle manufacturers, but also a Tier 2 supplier to
a Tier 1. The vehicle aftermarket provides finished components via a
variety of channels directly either to consumers or to vehicle service
technicians and repair facilities. These goods are used for the
maintenance and repair of over 260 million cars, trucks, and buses on
our Nation's roadways.
The supply chain, their customers, and the jobs they support are
highly interdependent. Like a stone in a pond, one small change to the
chain can cast off multiple ripple effects. The vehicle industry has
repeatedly witnessed the narrow threads that bind its successes and
prevent its weaknesses. This past May, a fire at a U.S. supplier
facility stopped production and pinched availability of specialized
parts that only a few suppliers make. Multiple vehicle manufacturers
were impacted and had to pause production of finished vehicles.\3\
Certainly, other examples of supply chain disruption and the short- and
long-term ripple effects include the worldwide economic crisis in 2008,
which drastically slowed overall vehicle production, and the ``Great
Sendai Earthquake'' in 2011, which impacted capacity for the materials
and subcomponents. The point is that these are just a few examples that
demonstrate how the U.S. vehicle industry relies on both its global
suppliers and its local domestic component manufacturers to be viable
with as little disruption and as much predictability as possible.
---------------------------------------------------------------------------
\3\ ``Supplier fire isn't just hurting Ford, supply issues are
rippling across auto industry,'' by Phil LeBeau, CNBC.com, published
May 10, 2018, updated May 11, 2018, https://www.cnbc.com/2018/05/10/
supplier-fire-isnt-just-hurting-ford-gm-and-others-may-feel-
impact.html.
[GRAPHIC] [TIFF OMITTED] T2618.003
The Figure 2 below, sourced with permission from IHS Markit,
illustrates the interconnectedness of the North American supply base
and their OEM customers. For example, looking at General Motors, this
chart shows that GM shares 76 percent of suppliers with Ford Motor
Company. OEM after OEM show significant percentages of shared supply
base for their vehicles. The interdependency is clear. This chart
underscores the interconnectedness of our industry and the North
---------------------------------------------------------------------------
American region.
Figure 2
North American Supply Base Independence
----------------------------------------------------------------------------------------------------------------
Also supply to
OEM Supply Base for ------------------------------------------------------------------------------------------
NA Vehicles Hyundai/
GM Ford FCA R-N-M Honda Toyota Kia VW Daimler BMW
----------------------------------------------------------------------------------------------------------------
GM 100% 58% 61% 47% 41% 29% 32% 47% 42% 44%
Ford 76% 100% 66% 50% 49% 30% 35% 50% 46% 49%
FCA 72% 60% 100% 51% 46% 32% 32% 46% 49% 47%
R-N-M 64% 52% 59% 100% 60% 40% 28% 50% 44% 39%
Honda 60% 55% 56% 65% 100% 45% 32% 49% 41% 41%
Toyota 56% 44% 51% 56% 59% 100% 25% 40% 32% 33%
Hyundai/Kia 54% 46% 46% 36% 37% 23% 100% 39% 31% 36%
VW 72% 59% 59% 56% 51% 32% 35% 100% 60% 64%
Daimler 66% 55% 64% 51% 45% 26% 29% 62% 100% 61%
BMW 80% 68% 71% 52% 52% 32% 38% 76% 70% 100%
----------------------------------------------------------------------------------------------------------------
Source: IHS Markit North American Component Forecast Analytics (CFA) as of 2017 calendar year. IHS Markit CFA
tracks the supply of 90+ major light vehicle components/systems sourced from over 280 Tier 1 suppliers.
Disruption to one implies disruption to all. As suppliers and OEMs
develop new technologies and vehicles, this interconnectedness is
critical to the long-term viability of the industry. Not only for new
car production, but also the aftermarket production of the components
needed to maintain vehicles.
Taken together, these figures paint a picture of this industry.
They illustrate that there are relatively few suppliers at both the top
and bottom of the supply chain and there are a substantial number of
jobs dependent on the success of many. Successful suppliers must have a
wide range of customers in the vehicle industry providing content to a
number of vehicle manufactures.
As the cost of manufacturing in the U.S. increases for a non-
traditional vehicle manufacturer, the entire supply base suffers. A
supplier with only one manufacturing facility in the U.S. will find its
market limited to the Tier 1s as the Tier 1 suppliers find their
markets limited to its customer base. Indeed, smaller, more locally
based Tier 2 and 3 suppliers may find it more difficult to reorganize
their business models since they do not have other global facilities to
move business to or absorb the economic impacts.
There should be no doubt that the implementation of additional
tariffs or quotas under a section 232 investigation on motor vehicle
parts will cost U.S. jobs. In fact, some members have shared with MEMA
that--if tariffs are implemented--the length of time it would take to
feel the ramifications and impact is within one quarter for larger
companies, and significantly less than that time for smaller to medium
companies. In order to make adjustments, the first resources to get cut
will be jobs. A majority of vehicle suppliers fall into that small/
medium size and would be hardest hit because they will be squeezed on
both ends to absorb the cost increases. These smaller companies have
less capacity to absorb cost increases, and little or no ability to
pass increases on to their customers. Suppliers are facing the
cumulative effect of increased costs from section 232 steel and
aluminum tariffs, section 301 tariffs and retaliatory tariffs from
China, and the very real prospect of section 232 tariffs on imported
vehicle parts.
impact of steel and aluminum tariffs on supplier industry
The supplier industry is already feeling the effects of tariffs on
steel and aluminum. Steel prices have risen steadily with the ongoing
talks and then implementation of steel tariffs. The market prices
increased by 50 percent with an increase from $600 per ton for hot
rolled steel up to $900 per ton today following the date the tariffs
took effect on March 23, 2018.
Steel and aluminum tariffs have led to retaliatory action by U.S.
trading partners. In addition, it is forecasted that these tariffs
could increase vehicle prices by $2,000 to $7,000 based on material
price increases. All of these actions will have a detrimental impact on
our economy. It is estimated that suppliers, like NASG, will have to
absorb a third of the steel increases, thereby reducing earnings, which
will result in less technology investment spending, less capital
spending and lower wage increases. These cuts will lower consumer
confidence, leading 60 percent of economists to forecast a recession in
2020. If this forecast comes to pass, the results will include reduced
automobile sales with an estimated 15 percent decline and between
750,000 to 1,250,000 American automobile workers losing their jobs.
NASG has experienced steel price increases exceeding $10 million
dollars. As a supplier, NASG is unable to pass steel price increases to
Tier 1 customers and vehicle manufacturers, regardless of whether the
higher price was due to tariffs or increased prices as the domestic
steel producers inflate prices. This has had negative consequences to
their business. To mitigate the increases, NASG has reduced overtime;
put on hold and dramatically pared down all open team member hiring
requisitions, put on hold and dramatically pared down capital spending
and reduced all discretionary spending. The decisions of NASG have been
repeated throughout the supply chain.
steel and aluminum exemption and exclusion processes are ineffective
At the same time, the Department of Commerce and the U.S. Trade
Representative (USTR) have implemented exclusion and exemption
processes that are problematic and uncertain. After months of reviewing
and posting over 31,000 exclusion requests, Commerce has begun to grant
and deny applications. As of today, fewer than 10 percent of requests
have been finalized. The process is opaque, inconsistent, and
inaccessible. Some companies have described the experience as arbitrary
and capricious, lacking substantial evidence for the denial
determinations.
On September 11, 2018, the Commerce Department's Bureau of Industry
and Security (BIS) published a second Interim Final Rule (IFR) in the
Federal Register. The IFR made a number of changes to the process that
are welcomed by the industry, including development of a rebuttal and
surrebuttal process and changing the date of refunds to the date of
receipt of the request by Commerce.
Suppliers have reported to MEMA that some objections have been
filed by steel and aluminum producers that have failed product testing
and validation. Other objections have been filed by producers that are
late on current deliveries. In cases where objections have been filed
and the request denied, the direction from BIS is that the company must
start from square one and file a brand-new application and include any
refuting information. This is inefficient and burdensome on both the
company and the government resources required to re-process refuting
applications.
The rebuttal process, while welcome, is short. Supplier companies
have shared frustration with MEMA that thousands of seven-day rebuttal
comment periods opened the day the IFR was published and closed seven
days later. This short turn around left many companies scrambling to
complete rebuttal forms on dozens or more requests to submit before the
comment periods closed. The quick turn around made this process
unnecessarily difficult.
NASG and MEMA encourage the committee to continue to monitor the
implementation of the exclusions process and country exemptions and
work with the administration to ensure that the process is fairly and
justly implemented.
Additionally, on August 29, 2018, the President signed a new
proclamation making several changes to the exclusion project. These
changes, such as extending retroactive relief back to the date of
filing, were welcome. However, some changes did not do enough to
improve the program. For example, the administration has lifted tariffs
on specified grandfathered steel from quota countries for construction
projects. This change should be expanded to allow all grandfathered
steel and aluminum for manufacturers assuming contracts were in place
before the tariffs took effect.
tariffs on imported autos and parts will harm
global competitiveness of the united states
The United States is one of three main areas in the world that has
a significant vehicle manufacturing industry, along with Europe and
Asia. As shown in Figure 3, the U.S. has dominated North American
vehicle and vehicle parts production totaling almost $150 billion in
2017. Notably, over 75 percent of U.S. manufactured automotive parts
were exported. As part of the North American region, the U.S. can
compete with Asia and Europe in almost every facet of motor vehicle
production. For the past 10 years, the vehicle industry has grown and
thrived, due in part to the improving economy and the strength of the
region's supply chain.
[GRAPHIC] [TIFF OMITTED] T2618.004
The U.S. is also strong on exports. Of the 83.3 million light
vehicles produced in the U.S. since 2010, 15.5 million light vehicles
have been exported despite a strong dollar (see Figure 4).
[GRAPHIC] [TIFF OMITTED] T2618.005
The U.S. automotive industry is running near full production
capacity. Current capacity utilization for suppliers is at the highest
it has been since 2000 (see Figure 5). Investment in duplicate capacity
could slow U.S. research and development (R&D) investments in new
technologies. Also, a common concern among various manufacturing
sectors is finding enough skilled U.S. workers due in part to the
currently strong economy and low U.S. employment rate. These factors
make adding more U.S. capacity difficult. Thus, to remain competitive,
U.S. vehicle suppliers leverage the global supply chain to source the
materials, subcomponents, and parts needed for further component
manufacturing and system integration.
Tariffs on motor vehicle parts will jeopardize the vehicle
industry's growth and success and--more importantly--the U.S. jobs and
American innovation that comes with trade. Tariffs or other broad
trade-restrictive measures would cause significant disruption and
upheaval to the vehicle industry. Given the strength of the North
American region's supply chain, certainly, if Canada and Mexico were to
be exempted from these types of measures, the impact would be
substantially reduced. Most OE and aftermarket suppliers have well
established footprints in North America to support regional
requirements. It is typical and normal for parts and subcomponents to
be shipped back and forth over borders, often multiple times, within
the region. If this accessibility is abruptly constrained or closed
off, the results with be chaotic and catastrophic to the U.S. vehicle
industry.
The U.S. cannot simply stand on its own and manufacture the most
fundamental components as well as the newest advanced technologies and
remain competitive in a tariff compulsory environment. The supplier
industry has long urged this administration to consider alternative
policies and actions instead of tariffs to encourage and retain the
development and deployment of the newest innovations in the United
States.
quotas or other adjustments will diminish investment in the united
states
Vehicle suppliers lead the way in developing advanced,
transformative technologies that enable safer, smarter, and more
efficient vehicles, all within a rapidly growing global marketplace
with increased regulatory and customer demands. As key innovators,
suppliers provide upwards of 77 percent of the content of vehicles
manufactured in the United States.
[GRAPHIC] [TIFF OMITTED] T2618.006
Figure 6 below shows the capital expenditures (``capex'')
investments for automakers and vehicle parts manufacturers. The capex
invested in the U.S. is in the billions of dollars. The right side of
the chart indicates that over the past 5 years $45 billion in capital
expenditure investments have been made by U.S. vehicle parts
manufacturers. About half of suppliers' capex spending is invested
heavily into facilities, machinery, and tooling. Those investments go
towards ensuring they can meet production demands for long product
cycles. More importantly, these investments result in high-value U.S.
jobs--whether it is skilled labor for manufacturing or engineers for
product development.
Moreover, suppliers invest a significant amount on R&D here in the
United States, to innovate and create the advanced technologies
necessary for the vehicles of today and tomorrow. Many suppliers have
established U.S. technical centers and R&D facilities. This enables
them to test and validate a whole host of systems and components for
their customers.
The vehicle industry finds itself at a critical inflection point
with the development of transformative innovations in advanced safety,
efficiency, and automated technologies. These technologies for advanced
vehicle safety and efficiency systems are the building block
technologies to automated driving systems, which require substantial
development costs. The U.S. investment and research over the next
several years in the vehicle industry--from Silicon Valley to Detroit
and across America--may well determine global leadership in
transportation and technology for generations to come. The United
States has long been a leader in innovation. However, the imposition of
trade-restrictive actions--like tariffs or quotas--on vehicle parts
manufacturers will put these U.S. investments in jeopardy.
Unfortunately, the uncertainty of the proposed actions and the
potentially broad scope has made planning for future investments very
difficult. In fact, many of our members have indicated that their
companies are delaying, deferring, or canceling plans for further U.S.
investments. These are the kinds of critical investments we need
domestically to support jobs as well as support our Nation's economic
growth and success.
[GRAPHIC] [TIFF OMITTED] T2618.007
The U.S. has a strong history of being a leader in innovation. Our
Nation is uniquely positioned to lead the world in automated technology
development and increasingly efficient propulsion systems. Unlike other
manufacturing sectors, however, this innovation will occur in places in
the world that provide the best economic and trading opportunities.
Therefore, if suppliers are unable to access and import into the U.S.
the needed materials, components, and technologies from other parts of
the world, they may simply establish their centers of innovation
elsewhere. Consequently, this current and future development depends on
the free flow of trade for new and state-of-the-art parts, systems, and
raw materials. Limiting access to these products in the U.S. will make
other regions of the world more attractive for future investments.
conclusion
The motor vehicle sector requires long-term investments in
facilities and employees, and thus depends on regulatory and market
stability. The implementation of tariffs on steel and aluminum, which
are important raw materials for the production of vehicle parts and
finished automobiles in the United States, has already caused
significant uncertainty and added costs to domestic manufacturers in
the vehicle sector. The looming threat of additional tariffs or quotas
on vehicle parts further jeopardizes U.S. innovation and investment in
research and development.
Given the immense complexity and ramifications of the broad scope
of ``automotive parts,'' MEMA has urged the Department of Commerce to
take following the actions in the pending section 232 investigation:
Remove entirely ``automotive parts'' from the scope of this
investigation.
Exclude key U.S. allies, particularly Canada and Mexico,
from the scope of this investigation.
Clarify exactly which parts are subject to the investigation
and how to delineate the parts. Parts used in commercial
vehicles over 10,000 lb. GVWR should not be included in the
scope of the investigation at all since those vehicles are not
subject to the investigation.
Finally, the administration must fully take into account the
benefits of the vehicle industry to our economic and national security.
Motor vehicle suppliers provide needed content for the Department of
Defense and our armed forces. The imposition of tariffs will jeopardize
this supply chain and, in turn, our national security.
MEMA urges this committee to support these actions. If there is any
additional information MEMA can provide for the committee, please
contact Ann Wilson, MEMA senior vice president of government affairs,
at [email protected] or at 202-312-9246, Thank you for your
consideration.
______
Prepared Statement of Josh Nassar, Legislative Director,
United Auto Workers
Chairman Hatch, Ranking Member Wyden, and members of the Senate
Finance Committee, thank you for the opportunity to share our views on
this important matter. It is my honor to testify on behalf of UAW
President Gary Jones and 1 million active and retired members of the
International Union, United Automobile, Aerospace, and Agricultural
Implement Workers of America (UAW).
The state of the domestic auto industry and the impact of policies
emanating from Washington, DC is of great importance to our economy and
working people throughout the country. Over 900,000 people work in the
auto and auto-parts manufacturing sectors alone.\1\ The economic impact
of the auto industry reaches far beyond the workers employed at the
plants. When jobs from other linked industries are included, the auto
industry is responsible for over 7.25 million jobs nationwide.\2\
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\1\ https://www.bls.gov/iag/tgs/iagauto.htm.
\2\ Kim Hill, Deb Menk, Joshua Cregger, and Michael Schultz,
``Contribution of the Automotive Industry to the Economies of All Fifty
States and the United States,'' January 2015.
As researchers, engineers, and skilled trades and production
workers in the automotive, aerospace, and agricultural and construction
equipment industries, we welcome this long overdue discussion. In fact,
the majority of UAW members and retirees work in, or are retired from,
the auto industry. All of these workers, their families, and their
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communities are impacted by trade policy.
When examining the question of the impact of tariffs in the auto
industry, it is important to define the goal. Our goal is to create
good paying U.S. jobs now and in the future. We proudly support
policies that strengthen the middle class, create good paying jobs
providing benefits and retirement security in the United States and
reduce income inequality both here and abroad. It has been demonstrated
time and time again that a vibrant middle class is needed in order to
have a strong economy and democracy.
We, as a country, need to take a holistic approach to succeed. It
is a mistake to look at trade in isolation. We need to consider how tax
law, worker training programs, labor rights, and other policies
interact. For example, provisions in our tax laws that reward
offshoring undermine trade policies that are intended to prevent jobs
from leaving the U.S. We need a comprehensive strategy if we are to
remain competitive.
1. auto trade with mexico
Since NAFTA, the U.S. automotive and auto parts trade deficit with
Mexico has grown significantly. In 1993, the U.S. had an automotive
(NAICS 3361) trade deficit with Mexico of $3.5 billion dollars. By
2016, that deficit had grown to $45.1 billion. For auto parts, the
situation is significantly worse. In 1993, the U.S. had a very small
auto parts (NAICS 3363/HS 8708) trade deficit with Mexico of $1
billion.\3\ By 2016, it was 20 times larger at $23.8 billion. As the
trade deficit increased, wages declined. Adjusted for inflation, auto
parts production workers' average hourly wages declined by 23 percent
in the past decade. Between 2000 and 2014 alone, employment in U.S.
parts suppliers declined 36 percent.\4\ Changes in technology and
attacks on workers' rights to collectively bargain have contributed to
the decline. NAFTA has also played a big role in creating the enormous
trade deficits we face in this sector today.
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\3\ Business data from the U.S. Census Bureau, Industry Statistic
Portal. NAICS codes more accurately capture the auto parts sector.
While a NAICS to HS crosswalk would include 8708, it would also include
several non-auto specific codes.
\4\ William A. Galston, ``How the Vise on U.S. Wages Tightened,''
The Wall Street Journal, March 31, 2015.
In 2016, the U.S. automotive (NAICS 33611/HS 8702) trade deficits
within NAFTA were:
------------------------------------------------------------------------
2016 Automotive (NAICS
Country 3361) Trade Deficit Change 1993-2016
------------------------------------------------------------------------
Canada $20.6 billion +11.4%
------------------------------------------------------------------------
Mexico $45.1 billion +1,288%
------------------------------------------------------------------------
Source: The North American Free Trade Agreement, CRS, May 24, 2017.
The United States has an auto surplus (NAICS 3363) with Canada but
a large deficit with Mexico.
------------------------------------------------------------------------
2016 Auto Part (NAICS
Country 3363) Trade Deficit Change 2006-2016
------------------------------------------------------------------------
Canada -$12.4 billion 57% (larger surplus)
(surplus)
------------------------------------------------------------------------
Mexico $23.8 billion 23,700%
------------------------------------------------------------------------
Source: The North American Free Trade Agreement, CRS, May 24, 2017.
[GRAPHIC] [TIFF OMITTED] T2618.008
The United States had a trade surplus with Mexico in 1993, the year
before the North American Free Trade Agreement (NAFTA) was implemented.
Since the passage of NAFTA, U.S. trade deficits with Mexico cost almost
700,000 U.S. jobs by 2010 per the Economic Policy Institute.\5\ Most of
the jobs displaced were in manufacturing.
---------------------------------------------------------------------------
\5\ See, e.g., Robert E. Scott, Jeff Faux, and Carlos Salas,
``Revisiting NAFTA: Still Not Working for North America's Workers,''
Economic Policy Institute, 2007.
Over the first 11 years of NAFTA (1994-2005), there were new
production facilities in both the U.S. and Mexico. This was primarily
due to foreign-based auto manufacturers adding production capacity in
the region. However, in the subsequent 11 years (2005-2016), a
different trend emerged. Production capacity was eliminated in the U.S.
and Canada and added in Mexico. In many cases work was moved from the
U.S. to Mexico. Between 1993 and 2014, Mexico's share of NAFTA
production increased from 8 percent to 19 percent.
Light Vehicle Final Assembly Plants in NAFTA 1994-2016
------------------------------------------------------------------------
1994 2005 2016 Change 1994-2016
------------------------------------------------------------------------
Canada 14 13 10 -4
------------------------------------------------------------------------
Mexico 9 11 17 +8
------------------------------------------------------------------------
United 59 62 49 -10
States
------------------------------------------------------------------------
NAFTA 82 86 76 -6
------------------------------------------------------------------------
Source: Ward's Automotive.
Share of NAFTA Production
------------------------------------------------------------------------
Country 1993 2016
------------------------------------------------------------------------
Canada 15% 13%
------------------------------------------------------------------------
Mexico 8% 19%
------------------------------------------------------------------------
U.S. 77% 67%
------------------------------------------------------------------------
We have every reason to believe Mexico's auto industry will
continue to grow. Auto production in Mexico is up from 2 million cars
and light trucks in 2008, to 3.2 million today. Production is expected
to hit five million units by 2018. Mexico is now the fourth largest
auto exporter, behind Japan, Germany, and South Korea. Nearly 80
percent of Mexico's exports come to the United States.
Almost every major automaker has increased or plans to increase
capacity in Mexico. Many major automakers have opened new plants or
announced plans to do so. Currently, there are almost as many auto part
workers in Mexico (400,000+) as there are in the U.S. (480,000).
Autoworker in Mexico often makes $3.00 an hour, with many making well
below that amount.\6\
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\6\ Alex Covarrubias V., ``A Status Quo of the Mexican Auto
Industry: Prospects and Tendencies'' (presentation, The College of
Sonora, July 2014).
The impact of trade agreements on the entire supply chain must be
considered when analyzing the economic impact of motor vehicle
manufacturing, not just final assembly. More assembly plants mean more
1st tier parts, then more 2nd tier parts, and on and on. It is a
vicious cycle for UAW members whose jobs have moved to Mexico. All of
the following UAW-represented parts suppliers are now also in Mexico:
Lear, Johnson Controls, IAC, Flex-n-Gate, Federal Mogul, Faurecia,
---------------------------------------------------------------------------
Bosch, Magna, TRW, American Axle, and Metalsa.
If it's not a first-tier assembly and it's stackable and shippable,
it can be imported. Unfortunately, this has happened a great deal since
NAFTA to the detriment of the U.S. economy and workers.
ii. auto trade with china
Since 2002, the U.S.'s trade imbalance with China has increased
$244 billion, or 237 percent. Between 2001 and 2015, it is estimated
3.4 million American workers lost their jobs to unfair trade with
China.\7\ While the U.S. has an automotive trade surplus with China, an
auto parts trade deficit has exploded. In 2002, the U.S.'s auto parts
trade deficit with China was $972 million, since then it has grown
elevenfold to $10.7 billion.\8\ For American workers, this trend is
untenable.
---------------------------------------------------------------------------
\7\ Robert E. Scott (January 31, 2017), ``Growth in U.S.-China
trade deficit between 2001 and 2015 cost 3.4 million jobs,'' Economic
Policy Institute. Retrieved from http://www.epi.org/publication/growth-
in-u-s-china-trade-deficit-between-2001-and-2015-cost-3-4-million-jobs-
heres-how-to-rebalance-trade-and-rebuild-american-manufacturing/.
\8\ https://usatrade.census.gov./.
China tilts the playing field by propping up domestic companies and
state-owned enterprises through direct subsidies and suppressing
workers' rights.\9\ It uses unfair market access processes and policies
to force technology transfers from foreign firms. Together these
actions have caused a dramatic loss of U.S. manufacturing jobs,
suppressed American wages, and potentially stifled innovation.
---------------------------------------------------------------------------
\9\ ``Annual Report 2016,'' Congressional-Executive Commission on
China (October 6, 2016), p. 18.
---------------------------------------------------------------------------
iii. u.s. auto industry today
The UAW is proud of the its role in creating middle-class jobs
which have enabled workers to provide for their families and see their
children pursue their dreams. Unfortunately, our standard of living is
under attack and auto jobs are not what they used to be.
Since 2000, the U.S. has lost of over 3 million manufacturing
production jobs--with trade playing a significant role.
Another disturbing trend is the change in the mix of parts the U.S.
is importing. The U.S. has growing deficits in high value auto parts
like engines, transmissions, seating, steering, and suspensions (see
graph below). These components employ tens of thousands of American
workers.
Over the past 15 years, U.S. automotive production workers' wages
have shrunk dramatically. When adjusting for inflation, final assembly
production workers' (BLS Occupational Code 51-0000) wages have dropped
29 percent, while parts production workers' wages have dropped 13
percent.
[GRAPHIC] [TIFF OMITTED] T2618.009
The U.S. is in a race with other advanced countries to develop the
automobiles and technologies of the future. We recognize that trade
enforcement actions alone will not get the job done. While Germany and
other industrial countries have developed policies that are investing
in its citizenry and infrastructure, the U.S. has instead taken a low-
road approach. American companies may develop new products, but they
have increasingly outsourced manufacturing to low-cost countries. As
noted above, with job losses and decreases in wages, this has hollowed
out much of middle America. Maintaining the status quo is not an
option.
Wages have fallen even though productivity has substantially
improved. The average factory worker makes less than the median wage
for all occupations. Real wages in manufacturing fell between 2003 and
2013 at a faster rate for workers overall.\10\ One fourth of
manufacturing jobs make less than $13.07 per hour.\11\ U.S. autoworkers
wages have been suppressed and bad trade agreements have contributed to
this troubling reality.
---------------------------------------------------------------------------
\10\ ``Catherine Ruckelshaus and Sarah Leberstein, ``Manufacturing
Low Pay: Declining Wages in the Jobs that Built America's Middle
Class,'' November 2014.
\11\ https://www.bls.gov/iag/tgs/iag31-33.htm.
The number of workers in temporary or contract positions are on the
rise in various industries including automotive. Perma-temps, the use
of temps for extended periods of time with no path to full-time
employment is becoming all too common in the auto industry--contract
work is shifting from administrative jobs to blue collar occupations.
Jobs in transportation and material moving and production now account
for 42 percent of the temp industry. Furthermore, perma-temps earn 22
percent less than private-sector workers and work with little to no
benefits.\12\ The median worker in the staffing industry earns $12.40
an hour, compared to an hourly wage of $15.84 by all private-sector
workers, regardless of industry.\13\ The growing use of temp work
drives down wages, benefits and job security in the auto industry and
undermines good, middle-class jobs. Congress must stop ignoring the
loss of good full-time jobs.
---------------------------------------------------------------------------
\12\ Rebecca Smith and Claire McKenna, ``Temped Out: How Domestic
Outsourcing of Blue Collar Jobs Harms America's Workers,'' National
Employment Law Project, September 2, 2014.
\13\ Ibid.
Workers often face both direct and implied threats if they attempt
to form a union. In many cases, employers will openly threaten to close
their plant and move to Mexico when workers fight for job security,
better wages, health and safety improvements and retirement security.
Veiled threats force workers to accept lower wages for fear that the
company will ship their jobs abroad.
iv. policies to strengthen domestic manufacturing and the middle class
As referenced earlier, our objective is to maintain and create
strong middle-class jobs in the United States. Trade can play a key
role towards achieving this objective.
Yet, any effort to reset Americas trade policy must also be
accompanied by a strong industrial policy focused on education,
workforce training, research and development, support for advanced
manufacturing and technologies, building a 21st-century infrastructure,
and creating penalties for companies that turn their back on American
workers. A properly crafted industrial policy will create new
industries, as well as re-shore old ones. We also need Congress to
advance equitable tax policies that uplift working families and not
reward billionaire CEO's with massive tax breaks while incentivizing
businesses to outsource jobs overseas. A comprehensive approach will
improve living standards, reduce poverty, mitigate our environmental
impact, and vastly improve American's quality of life.
The right to collectively bargain strengthens the economic security
of workers. On average, a worker covered by a union contract earns 13.2
percent more in wages than a peer with similar education, occupation,
and experience in a nonunionized workplace in the same sector.\14\
Unionized workers are more likely to have health-care benefits, access
to paid leave, employer provided pension plans, and safer working
conditions compared to their non-union counterparts. Strengthening our
labor laws and increasing penalties against employers who do not
recognize worker's legal right to have a voice on the job will
strengthen the middle class and reduce income inequality.
---------------------------------------------------------------------------
\14\ Economic Policy Institute, ``How Today's Union's Help Working
People,'' https://www.
epi.org/publication/how-todays-unions-help-working-people-giving-
workers-the-power-to-improve-their-jobs-and-unrig-the-economy/.
---------------------------------------------------------------------------
v. supporting domestic production of future vehicles
Most of the production footprint of tomorrow's advance automotive
technology is overseas. Today, the U.S. only produces 13 percent of the
world's semiconductors. By 2021, the U.S. will produce only 14 percent
of the world's lithium-ion batteries unless significant steps are
taken.
Lithium-ion batteries are the most valuable component in electric
vehicles (EVs). With the growth of demand from EVs, global lithium-ion
battery production capacity is expected to grow by 73 percent between
2017 and 2021 \15\ and lithium-ion batteries could become a $40 billion
market by 2025. This has sparked a race to develop the production
capacity to meet growing battery demand and it is this race that will
determine the geography of much of the EV value chain.
---------------------------------------------------------------------------
\15\ Bloomberg New Energy Finance, https://about.bnef.com/electric-
vehicle-outlook/#toc-download.
Based on developments so far, the U.S. is falling behind Asian and
European countries in lithium-ion battery capacity. It is projected
that by 2021, 56 percent of battery manufacturing capacity will be
located in China and another 19 percent will be in Europe. The U.S.
---------------------------------------------------------------------------
will only have 14 percent of global battery production capacity.
China and Germany have plans to push the electric vehicle market
forward. The United States does not have such a plan. Again, we need a
comprehensive strategy to ensure the vehicles and technologies of the
future are made in the United States and that good-paying jobs are
linked to vehicles of the future.
vi. trade reform
More needs to be done to address the disinvestment in America's
workers, deteriorating infrastructure, and stifled innovation. A new
trade model that is fair, balanced, and puts workers first will make
the U.S. economy more competitive and create real opportunities for
American workers.
Tariffs can be effective when appropriately targeted to specific
trade practices and are a part of a comprehensive strategic plan to
address unfair trade actions. However, tariffs alone are insufficient
to boost U.S. jobs and strengthen our industrial base. The UAW believes
that tariffs are a tool, not a comprehensive plan for ensuring
industries of the future are created and built in the U.S.
It would be shortsighted to categorically rule out using tariff and
other enforcement mechanisms to level the playing field. We shouldn't
compete with one arm tied behind our back. For this very reason, we
believe the administration should continue their auto 232
investigation. We hope the administration will ultimately take a
measured and targeted approach to bolster domestic manufacturing.
It is critical to guard against non-tariff barriers, like currency
manipulation, that has cost millions of U.S. jobs. Modern agreements
must take this pervasive non-
tariff barrier on directly.
We cannot repeat the mistakes of the past. NAFTA and broken trade
deals have had long lasting and deep impacts for workers, communities,
businesses and our trade partners. We need a new trade model that is
worker centric and values people over investor profits and discourages
companies from outsourcing good paying jobs abroad.
Thank you for the opportunity to share our views. I look forward to
answering questions you may have.
______
From Bloomberg, May 5, 2017
How Mexico's Unions Sell Out Autoworkers
Wage contracts are inked years before plants open and workers never get
a say.
By David Welch and Nacha Cattan
At a ceremony at Mexico's Los Pinos presidential residence in July
2014, BMW Chief Executive Officer Harald Kruger pledged to spend $1
billion to build a factory in the northern state of San Luis Potosi
that will employ 1,500 workers. To mark the occasion, he presented
President Enrique Pena Nieto with a model of a silver BMW race car.
The German automaker had unwrapped its own gift two days earlier, a
labor contract signed by a representative from the state chapter of the
Confederacion de Trabajadores de Mexico (CTM), the country's largest
union confederation, and notarized by a Labor Ministry official. The
document, which Bloomberg reviewed, sets a starting wage of about $1.10
per hour and a top wage of $2.53 for assembly-line workers. The
starting rate is only a bit more than half the $2.04 an hour that is
the average at Mexican auto plants, says Alex Covarrubias, a lecturer
at the University of Sonora in Hermosillo.
The paperwork was filed 2 years before BMW broke ground on the new
plant, which will turn out $45,000 3 Series sedans. When workers begin
to stream into the factory sometime next year, there's a good chance
most won't know they belong to a union.
So-called protection contracts--agreements negotiated between a company
and a union that doesn't legitimately represent workers--are illegal in
the U.S. and Germany. But Lance Compa, a senior lecturer at Cornell's
School of Industrial and Labor Relations, says they're standard
operating procedure in Mexico, where deals are cut factory by factory
rather than collectively across a company or industry. Experts say this
is a primary reason that wages in the auto sector have stagnated in
recent years, despite a fresh wave of investments by foreign carmakers,
most recently by German and Japanese manufacturers. Mexico's union
bosses and politicians are more interested in keeping corporations
happy than in raising the living standards of workers, Covarrubias
argues. ``Protection contracts are a way to keep wages artificially
low,'' he says.
Since 2010, automakers have announced $24 billion in investments
through 2019, while parts makers have committed another $3 billion,
according to the Center for Automotive Research in Ann Arbor, MI.
Companies often cite the trade agreements Mexico has signed with 45
countries as a key reason they want to locate their plants there. Auto
executives will rarely say they chose Mexico because its workers are
among the cheapest in the world.
Mexican assembly-line workers earn about one-tenth of what their U.S.
counterparts make. Adjusted for productivity, base wages for workers in
plants that make transportation equipment rose 20 percent in Mexico
between 2006 and 2016, according to calculations by Boston Consulting
Group Inc.; in China, they climbed 157 percent over the same period.
Alejandra makes about $1.45 an hour working at a factory in Guanajuato
state owned by Hirschmann Automotive GmbH, an Austrian parts maker. The
machine operator, who asked that her last name not be used for fear of
retaliation, says she has no idea if she and her co-workers are
represented by a union. A public records search revealed that a CTM
affiliate registered a contract in July 2015, almost 2 years before the
factory was formally inaugurated. Perhaps Alejandra is in the dark
because the union collects dues from Hirschmann, rather than
employees--a common practice in Mexico.
Alejandra's wage is about double the minimum in her state, but she says
it's not enough to support her and her young son. She can't afford to
buy shoes or fish and rarely eats out. ``As long as the authorities are
lining their own pockets, the rest of us can all drown,'' she says.
Hirschmann did not comment.
On the campaign trail, Donald Trump vowed to renegotiate the North
American Free Trade Agreement, to keep American carmakers and other
manufacturers from shifting production to Mexico. Yet tweaking tariffs
and rejiggering local-content rules may not do much to stop the sucking
sounds of auto jobs moving to Mexico. ``Protection contracts are at the
heart of the pressure on factory wages in the U.S. and beyond,'' says
Harley Shaiken, a labor professor at the University of California at
Berkeley.
The contracts trace their roots to the 1930s, when labor laws allowed
unions to initiate a strike at a factory whether it had employee
membership at the plant or not, says Hector Barba, a labor lawyer for
the National Workers Union, a CTM rival. This allowed unions to extort
money from companies looking to prevent crippling work stoppages, he
says. To protect investors, Mexico introduced laws in the 1980s
allowing employers to register with one union, thus barring other
syndicates from organizing strikes at their plants.
That established a pattern that continues in which a company signs a
contract with a union of its choosing as soon as it announces a new
project. Ford Motor Co. unveiled plans to build a $1.6 billion plant in
San Luis Potosi in April 2016; a collective contract was signed in
July. It scaled back the investment after Trump called out the company
for exporting jobs to Mexico.
Ludwig Willisch, president and CEO of BMW of North America, says his
company chose to build its newest plant in San Luis Potosi because auto
exports from Mexico have low-tariff or duty-free access to twice as
many countries as those from the U.S. When asked if BMW's German union
had expressed concerns about wages in Mexico, he answered, ``IG Metall
worries about what happens in Germany.''
That's not what Angelica Jimenez-Romo, an IG Metall board member, says.
Her organization ``has significant concerns,'' she says. ``Unions in
Mexico and the CTM, too, often have mafia-like structures and many are
directly linked to the Mexican ruling party. In those unions, workers
don't get a say in their wage deals and don't get asked to participate
either.''
Founded in 1936, with the support of then-President Lazaro Cardenas,
the CTM had a stranglehold on organized labor in Mexico during the more
than 70 years the country was ruled by the Partido Revolutionario
Institucional (PRI). Although its influence has waned somewhat with
Mexico's transition to multiparty rule, the confederation, along with
its affiliates, remains a force, with some 4 million members; the
National Workers Union claims just 600,000 members. The CTM's current
leader, Carlos Aceves del Olmo, is a member of the PRI who's served
terms in both houses of Congress. Critics who accuse the CTM of signing
protection contracts ``don't take into account the fact that workers in
Mexico are mature and highly skilled, and when they don't receive the
salaries they deserve, they quit,'' the CTM said in a statement.
BMW spokesman Jochen Frey says, ``We checked closely which unions that
are present in the San Luis Potosi area, and it was clear very quickly
that CTM was the most common one.'' Frey said the automaker ``strives
to pay wages that are in the top third level of what's typical for an
area,'' and that Mexico is no exception.
[GRAPHIC] [TIFF OMITTED] T2618.010
The International Labour Organization, a United Nations agency that
monitors labor rights worldwide, called on the Mexican government in
2012 to address the issue of protection contracts. A constitutional
reform signed into law in February requires unions to prove they
legitimately represent workers and shifts responsibility for
arbitrating labor disputes from the executive branch to the courts. In
an interview, Deputy Labor Minister Rafael Avante acknowledges that the
old system ``opened the door to vices,'' which is why the government
has for more than a year now been inspecting plants to ensure that
workers are aware of their contractual rights. Yet he says allowing
employees to vote on contracts isn't desirable, as it could embroil
companies in bitter negotiations. ``We have to bring order,'' Avante
says.
His boss, President Pena Nieto, has on several occasions boasted that
labor tensions have diminished under his watch. ``There hasn't been a
single strike in a year and a half under federal jurisdiction,'' Pena
Nieto said during a ceremony in 2015 to mark International Workers'
Day. He added: ``I express my highest regard to unions and worker
confederations in the country for this constructive spirit, that
without a doubt signals certainty and stability for investors, both
national and international.''
The bottom line: Wages in Mexico's auto sector have stagnated because
of contracts that give workers no input on pay.
______
Economic Policy Institute
How Today's Unions Help Working People
Giving workers the power to improve their jobs and unrig the economy
Report
By Josh Bivens, Lora Engdahl, Elise Gould, Teresa Kroeger, Celine
McNicholas, Lawrence Mishel, Zane Mokhiber, Heidi Shierholz, Marni von
Wilpert, Ben Zipperer, and Valerie Wilson
August 24, 2017
Americans have always joined together--whether in parent teacher
associations or local community organizations--to solve problems and
make changes that improve their lives and their communities. Through
unions, people join together to strive for improvements at the place
where they spend a large portion of their waking hours: work.
The freedom of workers to join together in unions and negotiate with
employers (in a process known as collective bargaining) is widely
recognized as a fundamental human right across the globe. In the United
States, this right is protected by the U.S. Constitution and U.S. law
and is supported by a majority of Americans.\1\
---------------------------------------------------------------------------
\1\ Article 23 of the Universal Declaration of Human Rights
declares that everyone has a right to form and/or join a trade union.
The right of labor unions to gather is given under the First Amendment
to the United States Constitution, which protects the right to exercise
freedom of speech in peaceful protest. The U.S. Congress enacted the
National Labor Relations Act (NLRA) in 1935 to protect the rights of
employers and employees, including the right to form, join, or assist
labor organizations and to bargain collectively. Americans of all ages
broadly support the ability of workers in various sectors to unionize,
with shares supporting unions ranging from 62 percent to 82 percent,
depending on the sector. See ``Mixed Views of Impact of Long-Term
Decline in Union Membership: Public Says Workers in Many Sectors Should
Be Able to Unionize,'' Pew Research Center, April 27, 2015.
Over 16 million working women and men in the United States are
exercising this right-these 16 million workers are represented by
unions. Overall, more than one in nine U.S. workers are represented by
unions. This representation makes organized labor one of the largest
institutions in America.\2\
---------------------------------------------------------------------------
\2\ In 2016 there were 16.3 million wage and salary workers age 16
and older who were represented by a union, either because they were
union members or (if they weren't union members) were in jobs covered
by a union or an employee association contract. The share of workers
who belonged to a union was 10.7 percent, and the share of workers
covered by collective bargaining was 11.9 percent. (Source: EPI
analysis of Current Population Survey Outgoing Rotation Group [CPS ORG]
data for all workers age 16 and older).
By providing data on union coverage, activities, and impacts, this
report helps explain how unions fit into the economy today; how they
affect workers, communities, occupations and industries, and the
country at large; and why collective bargaining is essential for a fair
and prosperous economy and a vibrant democracy. It also describes how
decades of anti-union campaigns and policies have made it much harder
for working people to use their collective voice to sustain their
standard of living.
``Collective Bargaining'' Is How Working People Gain a Voice at
Work and the Power to Shape Their Working Lives
Almost everyone has at one point felt unheard or powerless as an
employee. Joining a union simply means that you and your colleagues
have a say because you negotiate important elements of employment
conditions together. That could mean securing wage increases, better
access to health care, workplace safety enhancements, and more
reasonable and predictable hours. Through collective bargaining
negotiations, the union also works with management to develop a process
for settling disputes that employees and their managers are unable to
settle individually.
Once a collective bargaining agreement (CBA) is agreed to, union
representatives work with employees and with management to make sure
the rights and obligations spelled out in the agreement are honored.
And they represent workers in high-stakes situations, such as when a
safety violation has resulted in injury. By these means, collective
bargaining gives workers a say in the terms of their employment, the
security of knowing that there are specific processes for handling
work-related grievances, and a path to solving problems.
To cover expenses for negotiating contracts, defending workers' rights,
resolving disputes, and providing support to members of the bargaining
unit, unions collect dues.
The National Labor Relations Act (NLRA) of 1935 and amendments govern
private-sector unions and collective bargaining. While states generally
have no jurisdiction over private-sector unions, the NLRA as amended
does allow states to enact certain laws that govern fees paid by
workers in unionized private workplaces (discussed later in this
report).
Nearly half (48.1 percent) of workers covered by a union contract are
public-sector workers. Collective bargaining among federal workers is
covered by the Federal Labor Relations Act of 1978 (FLRA). State laws
(enacted from the late 1950s forward) govern state and local government
employee unions. Each state has its own set of laws that govern
collective bargaining for state and local public employees. Some states
allow the full set of collective bargaining rights, others
(approximately one-fifth) prohibit collective bargaining, and still
others limit some activities, such as the right to strike or the right
to collect dues automatically during payroll processing. About one in
10 states have no state law addressing collective bargaining rights in
the public sector.\3\
---------------------------------------------------------------------------
\3\ The source for public sector's share of workers covered by a
union contract is EPI analysis of Current Population Survey Outgoing
Rotation Group [CPS ORG] data for all workers age 16 and older; the
source for state laws covering collective bargaining is Jeffrey Keefe,
Laws Enabling Public-Sector Bargaining Have Not Led to Excessive
Public-Sector Pay, Economic Policy Institute, October 16, 2015.
---------------------------------------------------------------------------
Union Workers Are Diverse, Just Like America
The typical union member is often thought to be a worker on a
manufacturing line in the Midwest. Manufacturing does have a strong
union tradition but people join unions in many industries and
occupations. Union members include dental hygienists in Wisconsin,
graduate students in Massachusetts, firefighters in Illinois,
television writers and scientists in California, security guards in
Washington, DC, digital journalists in New York, and major league
baseball players in Georgia and other states.\4\
---------------------------------------------------------------------------
\4\ Cathy Hester Seckman, ``The Unions: How Organized Labor Is
Lending a Helping Hand to Dental Hygiene,'' RDH vol. 24, no. 4 (April
2004); Liat Shapiro, ``Grad Students Vote in Majority for Labor
Union,'' The Justice, May 23, 2017; Mark Konkol, ``Latino Firefighters
Bullied into Taking Race-Based Promotions, They Say,'' DNAinfo Chicago,
May 22, 2015; Jeffrey Fleishman, ``Working Hollywood: Writers Are the
`Labor' and `Leprechauns' Behind TV's Latest Golden Age,'' Los Angeles
Times, June 23, 2017; Tian Harter, notes from a talk by Paul K. Davis
(Ames Federal Employees Union--IFPTE Local 30, Santa Clara County,
California), titled ``Scientists and Engineers in Labor Unions?--Yes'';
website of the Law Enforcement Officers Security Unions--DC,
www.leosudc.org and ``Why Join AFEU?''; Ames Federal Employees Union,
website accessed August 22, 2017; Gary Weiss, ``An Unlikely Big Player
in Digital Media: Unions,'' Columbia Journalism Review, June 21, 2017;
Jeff Fannell, ``The MLBPA: What We Do,'' MLBPlayers.com, August 31,
2016.
It is also true that, in the past, union workers were predominantly
white men. But as of 2016, roughly 10.6 million of the 16.3 million
workers covered by a union contract are women and/or people of
color.\5\
---------------------------------------------------------------------------
\5\ Non-Hispanic white men make up 34.5 percent of total persons
represented by unions. These estimates are based on EPI analysis of
Current Population Survey Outgoing Rotation Group (CPS ORG) data for
all workers ages 16 and older. As of 2016, there are 15.5 million
workers age 18 to 64 who are covered by a union contract; 10.1 million
are women and/or people of color. The breakdowns by race and ethnicity,
gender, and occupations in this section focus on workers age 18 to 64
who are represented by a union, as do our estimates of union wage
premiums (advantages) discussed later in the paper. We rely on our own
tabulations in order to obtain race/ethnicity breakdowns that are
mutually exclusive.
About two-thirds (65.4 percent) of workers age 18 to 64 and
---------------------------------------------------------------------------
covered by a union contract are women and/or people of color.
Almost half (46.3 percent) are women.
More than a third (35.8 percent) are black, Hispanic, Asian, or
other nonwhite workers.
Black workers are the most likely to be represented by unions:
14.5 percent of black workers age 18 to 64 are covered by a collective
bargaining agreement, compared with 12.5 percent of white workers and
10.1 percent of Hispanic workers.
Unions Represent Workers of All Levels of Education
More than half (54.5 percent) of workers age 18 to 64 and
covered by a union contract have an associate degree or more education.
Two out of five (42.4 percent) have a bachelor's degree or more
education.
Union Workers Hail From a Variety of Sectors, but the
Biggest Share Work in Education or Health Services
Nearly two in five workers (39.8 percent) age 18 to 64 and
covered by a union contract work in educational and health services.
One in seven workers (13.9 percent) covered by a union contract
work in public administration.
One in eight workers (12.2 percent) covered by a union contract
work in transportation and utilities.
One in 11 workers (9.1 percent) covered by a union contract work
in manufacturing.
Unions Are Most Widespread in Public Administration
and Transportation Industries
Because industries vary in size, industries with the highest numbers of
union workers aren't always the industries with the highest union
coverage rate. The five industries with the highest shares of 18- to
64-year-old workers covered by a union contract (the ``union coverage
rate'') are:
Public administration (33.2 percent).
Transportation and utilities (27.3 percent).
Education and health services (20.0 percent).
Construction (15.7 percent).
Information (10.6 percent), which includes publishing, motion
pictures, broadcasting, telecommunications, data processing, and other
communications services.
Unions Are Thriving in Diverse Workplaces--Including
``New Economy'' Workplaces
Working people join unions to have some say over their jobs and their
workplaces. Given the self-determination unions afford, it is no
surprise that they are thriving in some of the companies, industries,
and occupations undergoing the most change.
Television writers in Hollywood. Streaming services, cable
offerings, and multiple viewing platforms are fueling what is referred
to as ``the New Golden Age of Television.'' In 2016 the six major media
companies that dominate film and television (CBS, Comcast, Disney, Fox,
Time Warner, and Viacom), reported almost $51 billion in operating
profits. Those profits have doubled in the last decade and continue to
grow. Much of the industry's success is attributable to the roughly
13,000 men and women who write television shows and films and who
belong to the Writers Guild of America. Despite this contribution to
the industry's record profitability, TV writers' incomes were in
decline. WGA and the Alliance of Motion Picture and Television
Producers (which represents the studios, networks, and independent
producers) recently agreed on a collective bargaining contract that
gave writers increases in compensation and digital residuals and
preserved broad health care benefits.\6\
---------------------------------------------------------------------------
\6\ Certain residual formulas in the pay TV and the subscription
video-on-demand (SVOD) industries needed to be increased because they
did not adequately reflect the value of the content created by WGA
members. The WGA health fund had been running a deficit due to the
rapid inflation in health care costs, and the WGA determined that the
period of record profitability for the studios and networks was a good
time to reverse the current trend to deficits with additional employer
contributions. (Sources: Email correspondence with Neal Sacharow,
Director of Communications, Writers Guild of America West, August 14,
2017; Jeffrey Fleishman, ``Working Hollywood: Writers Are the `Labor'
and `Leprechauns' Behind TV's Latest Golden Age,'' Los Angeles Times,
June 23, 2017.
Graduate students and adjunct faculty working at universities
across the country. More than 64,000 graduate student employees are
unionized at 28 institutions of higher education in the public sector,
including universities in California, Florida, Illinois, Iowa,
Massachusetts, Michigan, Oregon, Pennsylvania, Wisconsin, and
Washington.\7\ While graduate teaching assistants in some public
universities have practiced collective bargaining for nearly 50 years,
the law has recently opened up the possibility in private universities:
teaching and research assistants for universities such Yale, Brandeis
University, Columbia, and Tufts University are now organizing for
better compensation and working conditions.\8\
---------------------------------------------------------------------------
\7\ Columbia University, 364 NLRB No. 90 (Slip. Op. 2016).
\8\ The National Labor Relations Board in 2016 reversed an earlier
decision and ruled that graduate students could unionize in the private
sector. For more on recent graduate student organizing, see David
Ludwig, ``Why Graduate Students of America Are Uniting,'' The Atlantic,
April 15, 2015; Liat Shapiro, ``Grad Students Vote in Majority for
Labor Union,'' The Justice, May 23, 2017; Stephen Markley, ``Adjunct
Professors and Grad Students Are the Working Poor, and They Need
Unions,'' Paste, January 19, 2017.
Professional and technical employees in the Washington, DC,
region and throughout the United States and Canada. The International
Federation of Professional and Technical Engineers (IFPTE) includes
more than 80,000 women and men in professional, technical,
administrative, and associated occupations in the United States and
Canada. Members work for a wide range of federal, public, and private
agencies and companies. They include administrative law judges working
for the Social Security Administration, scientists working for NASA,
engineers and technicians working for General Electric and Boeing, and
engineers, architects, and project managers working for Santa Clara
County, California. The Economic Policy Institute is one of many
unionized Washington-based nonprofits (including the Center for
American Progress and DC Jobs With Justice) represented by IFPTE Local
70.\9\
---------------------------------------------------------------------------
\9\ See the ``About'' and ``About: Whom We Represent'' pages on the
IFPTE website (ifpte.org); the IFPTE Local 70 website
(ifptelocal70.org); and ``Center for American Progress Staff Sign First
Contract'' [press release], International Federation of Professional
and Technical Engineers, May 15, 2017.
United Parcel Service (UPS) drivers, hub workers, pilots, and
mechanics. UPS is the country's largest private-sector, unionized
employer. Of 440,000 workers worldwide, nearly 250,000 (mostly drivers
and hub workers) are represented by the Teamsters. UPS pilots are
represented by the Independent Pilots Association, and UPS mechanics
are represented by the International Association of Machinists.
According to research firm Brand Keys, UPS is number one in parcel
delivery loyalty, ahead of nonunionized FedEx.\10\
---------------------------------------------------------------------------
\10\ Joe Allen, ``A Big Win at UPS Would Help Build Union Support
at Amazon,'' In These Times, March 30, 2017; Sean Williams, ``UPS or
FedEx: Which Company Is Best at Keeping Its Customers Loyal?'', The
Motley Fool, May 9, 2014.
Maine lobster fishers. The Maine Lobstering Union formed in 2013
after a glut in the spring of 2012 that drove the ``boat price'' for
lobster down about 33 percent to a 20-year low. It was the first
fishing union in Maine in more than 75 years. While people who fish for
a living in Canada and off the Washington and Alaska coasts have been
organized for years, the 500-member Maine Lobstering Union seeks to
close the growing gap between what consumers pay to eat lobster and
what lobster fishers get. So the union is buying a wholesale lobster
business. Union lobster fishers who sell to the union co-op will get
market price for their lobster but also a share of cooperative
profits.\11\
---------------------------------------------------------------------------
\11\ Fellow locals in the International Association of Machinists
and Aerospace Workers (IAM) are lending some of the funds for the
purchase. See Penelope Overton, ``Maine Lobstermen's Union Votes to Buy
Hancock County Lobster Business,'' Portland Press Herald, February 25,
2017.
Cafeteria and other contract workers in Silicon Valley. In July
2017, more than 500 cafeteria workers who serve food at Facebook's
Menlo Park, California, campus joined Local 19 of UNITE HERE, a labor
union of more than 265,000 hotel, food service, laundry, warehouse, and
casino workers in the United States and Canada. The Facebook cafeteria
workers cannot afford housing in the extremely high-cost Bay Area and
are seeking higher wages and more affordable health benefits from their
employer, Flagship Facility Services. According to the San Jose Mercury
News, ``thousands of contract workers such as janitors, security
guards, and shuttle bus drivers at other major Silicon Valley tech
firms, including Apple, Intel, and Google,'' have already unionized.
The effort to unionize these workers is being led by Working
Partnerships USA and the South Bay AFL-CIO Labor Council but counts
other faith, community, and labor groups (including Communications
Workers of America, Teamsters, and Service Employees International
Union) as partners.\12\
---------------------------------------------------------------------------
\12\ Queenie Wong, ``Hundreds of Facebook Cafeteria Workers Join
Union,'' San Jose Mercury News, July 24, 2017; Angelo Young, ``A Labor
Movement Is Brewing Within the Tech Industry,'' Salon, June 10, 2017;
Silicon Valley Rising [fact sheet], accessed July 2017.
Digital journalists. The changing media landscape has been a
recent catalyst for newsrooms to organize. Since 2014, editorial
employees at many media outlets--including In These Times, Vice,
Gizmodo Media Group (formerly Gawker), Salon, The American Prospect,
Fusion, The Root, and ThinkProgress--have formed unions. The Huffington
Post, for example, ratified a contract in January 2017 that has
provisions addressing editorial independence, the need to enhance
newsroom diversity, comp time, discipline and dismissal policies, and
severance in the event of layoffs.\13\
---------------------------------------------------------------------------
\13\ Dave Jamieson, ``Staff of In These Times Magazine Joins
Communications Workers of America Union,'' Huffington Post, February
25, 2014; Hamilton Nolan, ``Vice Writers Get a Union Contract With a
Big Raise,'' Gawker, April 15, 2016; Corinne Grinapol, ``The American
Prospect Staff Unionize,'' Adweek, April 24, 2017; Dave McNary,
``Fusion Staff Unionizes with Writers Guild of America East,'' Variety,
November 11, 2016; Michael Calderone, ``The Huffington Post Ratifies
Union Contract,'' Huffington Post, January 30, 2017.
---------------------------------------------------------------------------
Unions Strengthen Democracy by Giving Workers a Voice in Policy Debates
Managers, business owners, and CEOs organize to advocate for their
economic interests. That's what chambers of commerce, business
associations, and national trade associations do. Unions provide
working people who are not executives or company owners with an
opportunity to get their voices heard in policy debates that shape
their lives.
Americans have a constitutionally protected right to associate and ask
for change. Americans join together to change speed limits, school
policy, laws governing gun ownership and drug possession and use, and
more. And when Americans have wanted to make the economy fairer and
more responsive to the needs of workers, they have traditionally joined
together in unions to do so.
Unions fought for--and work to strengthen--many of the humane standards
and norms that protect and uplift Americans today. These essential laws
and programs include Social Security, child labor laws,
antidiscrimination laws, health and safety laws, unemployment
insurance, compensation for workers who get hurt on the job, the 40-
hour work week, and the federal minimum wage.\14\ Unions were a major
force behind all the Great Society laws on discrimination, housing, and
voting rights.
---------------------------------------------------------------------------
\14\ ``11 Reasons to be Thankful for Labor Unions,'' Hiden Rott and
Oertle, LLP (accessed July 27, 2017).
As union coverage has declined and the voice of workers has
correspondingly diminished, many of the key workplace standards past
generations counted on have been eroded. For instance, there has been
an erosion of overtime pay protection, slashing of workers'
compensation programs, and a decline in the real value of the minimum
wage, which is lower now than it was in 1968.\15\
---------------------------------------------------------------------------
\15\ Economic Policy Institute, The Agenda to Raise America's Pay
(last updated December 6, 2016).
---------------------------------------------------------------------------
Unions Reduce Inequality and Are Essential for Low- and Middle-Wage
Workers' Ability to Obtain a Fair Share of Economic Growth
The spread of collective bargaining that followed the passage of the
National Labor Relations Act in 1935 led to decades of faster and
fairer economic growth that persisted until the late 1970s. But since
the 1970s, declining unionization has fueled rising inequality and
stalled economic progress for the broad American middle class. Figures
A and B show that when unions are weak, the highest incomes go up even
more, but when unions are strong, middle incomes go up.
Research by EPI and other institutions shows this correlation is no
accident. First, unions have strong positive effects on not only the
wages of union workers but also on wages of comparable nonunion
workers, as unions set standards for entire industries and occupations
(these union and nonunion wage boosts are explored in detail in the
next section of this report). Second, unions make wages among
occupations more equal because they give a larger wage boost to low-
and middle-wage occupations than to highwage occupations. Third, unions
make wages of workers with similar characteristics more equal because
of the standards unions set. Fourth, unions have historically been more
likely to organize middle-wage than high-wage workers, which lowers
inequality by closing gaps between, say, blue-collar and white-collar
workers. Finally, the union wage boost is largest for low-wage workers
and larger at the middle than at the highest wage levels, larger for
black and Hispanic workers than for white workers, and larger for those
with lower levels of education-wage increases for these groups help
narrow wage inequalities.\16\
---------------------------------------------------------------------------
\16\ The classic reference for the union impact on inequality, and
many other matters, is Richard B. Freeman and James L. Medoff, What Do
Unions Do? (New York: Basic Books, 1984). Also see Brantly Callaway and
William J. Collins, ``Unions, Workers, and Wages at the Peak of the
American Labor Movement,'' National Bureau of Economic Research,
Working Paper no. 23516, June 2017, for evidence from the early postwar
period. More recent estimates of union wage premiums by wage fifth,
occupation, and education can be found in Lawrence Mishel, Josh Bivens,
Elise Gould, and Heidi Shierholz, The State of Working America, 12th
Edition, an Economic Policy Institute book (Ithaca, N.Y.: Cornell
University Press, 2012), Table 4.37.
We know how big a force for equality unions are by looking at how much
their decline has contributed to inequality between middle- and high-
wage workers: union decline can explain one-third of the rise in wage
inequality among men and one-fifth of the rise in wage inequality among
women from 1973 to 2007. Among men, the erosion of collective
bargaining has been the largest single factor driving a wedge between
middle- and high-wage workers.\17\
---------------------------------------------------------------------------
\17\ Bruce Western and Jake Rosenfeld ``Unions, Norms, and the Rise
in U.S. Wage Inequality,'' American Sociological Review 76 (2011), 513-
37; Lawrence Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The
State of Working America, 12th Edition, an Economic Policy Institute
book (Ithaca, N.Y.: Cornell University Press, 2012), Table 4.37.
[GRAPHIC] [TIFF OMITTED] T2618.011
Unions Raise Wages for Both Union and Nonunion Workers
For typical workers, hourly pay growth has been sluggish for decades,
rising 0.3 percent per year or 9.9 percent in all from 1979 to 2015. If
pay had risen with productivity during that period, as it did in the
decades before 1979, pay would have gone up 63.8 percent.\18\ But pay
for typical workers is not rising at this clip because ever-larger
shares of economic growth are going to the highest wage earners. Income
growth for the highest 1 percent of wage earners rose by nearly 190
percent between 1979 and 2015, meaning that the highest-earning 1
percent have claimed a radically disproportionate share of income
growth.\19\
---------------------------------------------------------------------------
\18\ From 1979 to 2015, productivity rose 63.8 percent while hourly
compensation of the typical worker (production/nonsupervisory workers
in the private sector) increased only 9.9 percent. See underlying data
from Economic Policy Institute, The Productivity-Pay Gap (last updated
August 2016).
\19\ Thomas Piketty and Emmanuel Saez, downloadable Excel files
with 2015 data updates to Thomas Piketty and Emmanuel Saez, ``Income
Inequality in the United States, 1913-1998,'' Quarterly Journal of
Economics vol. 118, no. 1 (2003).
Working people in unions use their power in numbers to secure a fairer
share of the income they create. Employers who have to bargain with
workers collectively cannot pursue a strategy of ``divide and conquer''
among their workers. Workers who are empowered by forming a union raise
wages for union and nonunion workers alike. As an economic sector
becomes more unionized, nonunion employers pay more to retain qualified
workers and norms of higher pay and better conditions become standard.
For example, if a union hospital is across town from a nonunion
hospital and the two hospitals are competing for workers, then the
---------------------------------------------------------------------------
nonunion workers will benefit from the presence of the union hospital.
[GRAPHIC] [TIFF OMITTED] T2618.012
Union workers earn more. On average, a worker covered by a union
contract earns 13.2 percent more in wages than a peer with similar
education, occupation, and experience in a nonunionized workplace in
the same sector.\20\ This pay boost was even greater in earlier decades
when more American workers were unionized.\21\
---------------------------------------------------------------------------
\20\ The regression-based gap controls for gender, race and
ethnicity, education, experience, geographic division, major occupation
and industry, and citizenship. The log of the hourly wage is the
dependent variable. The gap uses a 5-year average of wages from 2012 to
2016. Source: ``Union Wage Premium by Demographic Group, 2011,'' Table
4.33 in The State of Working America, 12th Edition, an Economic Policy
Institute book (Ithaca, N.Y.: Cornell University Press, 2012), updated
with 2016 microdata from the Current Population Survey Outgoing
Rotation Group microdata.
\21\ There are three groups of workers whose wages have been
affected by the decline of unionization. First, there are the remaining
union members, who according to research have experienced a decline in
the earnings premium that comes from belonging to a union--a decline
especially large for female members. For instance, the union wage
premium fell over the 1973 to 2009 period by nearly a third for
private-sector women. Among private-sector men, after peaking in the
early 1980s, the earnings premium that comes from union membership had
fallen slightly by 2009 (Jake Rosenfeld, Patrick Denice, and Jennifer
Laird, Union Decline Lowers Wages of Nonunion Workers: The Overlooked
Reason Why Wages Are Stuck and Inequality Is Growing, Economic Policy
Institute, August 30, 2016). The estimates referenced are from Figure
3.1 of Jake Rosenfeld, What Unions No Longer Do, Cambridge, Mass.:
Harvard University Press, 2014).
Unions also raise pay for workers by helping to enforce labor
standards, like guarding against wage theft. Union workers are more
knowledgeable about their rights, and union staff members communicate
when needed with government enforcement agencies, which enhances
enforcement of wage violations. For example, workers covered by a union
are half as likely to be the victims of minimum wage violations (i.e.,
to be paid an effective hourly rate that is below the minimum wage).
This form of wage theft is costing workers over $15 billion a year,
causing many families to fall below the poverty line.\22\
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\22\ Workers not covered by unions--those who are neither in a
union themselves nor covered by a union contract--are almost twice as
likely (4.4 percent) to experience minimum wage violations as those in
a union or covered by a union contract (2.3 percent). See David Cooper
and Teresa Kroeger, Employers Steal Billions from Workers' Paychecks
Each Year: Survey Data Show Millions of Workers Are Paid Less Than the
Minimum Wage, at Significant Cost to Taxpayers and State Economies,
Economic Policy Institute, May 10, 2017.
When union density is high, nonunion workers benefit from higher
wages. When the share of workers who are union members is relatively
high, as it was in 1979, wages of nonunion workers are higher. For
example, had union density remained at its 1979 level, weekly wages of
nonunion men in the private sector would be 5 percent higher (that's an
additional $2,704 in earnings for year-round workers), while wages for
nonunion men in the private sector without a college education would be
8 percent, or $3,016 per year, higher. (These estimates look at what
wages would have been in 2013 had union density remained at its 1979
levels).\23\
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\23\ Union density is the share of workers in similar industries
and regions who are union members. For the typical nonunion man working
year-round in the private sector, the decline in private-sector union
density since 1979 has led to an annual wage loss of $2,704 (2013
dollars). For the 40.2 million nonunion men working in the private
sector, the total loss is equivalent to $109 billion annually. The
effects of union decline on the wages of nonunion women are not as
substantial because women were not as likely to be unionized as men
were in 1979. See Jake Rosenfeld, Patrick Denice, and Jennifer Laird,
Union Decline Lowers Wages of Nonunion Workers: The Overlooked Reason
Why Wages Are Stuck and Inequality is Growing, Economic Policy
Institute, August 30, 2016.
Where unions remain strong, unions have an ability to raise
wages
sector-wide. An example is the hospitality industry in Orlando.
Negotiations between six local affiliates of the Services Trade Council
Union (STCU) and Disney World in 2014 led to wage increases for union
members to at least $10 an hour starting in 2016. These local
affiliates represent housekeepers, lifeguards, cast members, and other
service workers. Disney then extended the raises to all its 70,000
Orlando employees, including nonunion employees. According to The
Orlando Sentinel, the wage increases prompted much of Orlando's
hospitality and retail sector, including Westgate Resorts, to raise
wages.\24\
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\24\ Paul Brinkmann, ``Disney World Union Seeks to Reopen Wage
Negotiations,'' Orlando Sentinel, July 26, 2017.
Where unions are strong, wages are higher for typical workers--
union and nonunion members alike. Compensation of typical (median)
workers grows far faster--four times faster--in states with the
smallest declines in unionization than it does in states with the
largest declines in unionization.\25\
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\25\ The 10 states that had the least erosion of collective
bargaining saw their inflation-adjusted median hourly compensation grow
by 23.1 percent from 1979 to 2012. The 10 states that had the most
erosion of collective bargaining saw their inflation-adjusted median
hourly compensation grow by 5.2 percent. Erosion is measured by the
percentage-point decline in the share of workers in the state covered
by a collective bargaining contract. See David Cooper and Lawrence
Mishel, The Erosion of Collective Bargaining Has Widened the Gap
between Productivity and Pay, Economic Policy Institute, 2015.
Unions bring living wages to low-wage jobs. Unions have
transformed once-low-wage jobs in hospitality, nursing, and janitorial
services into positions with living wages and opportunities for
advancement. For example, after unionizing, dishwashers in Las Vegas
hotels made $4 per hour more than the national average for that job,
and they were offered excellent benefits. And hospitality workers in
unionized Las Vegas enjoy a much higher living standard than those in
Reno, where unions are weaker. In Houston, a 2006 first-ever union
contract for 5,300 janitors resulted in a 47 percent pay increase and
an increase in guaranteed weekly hours of work.\26\
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\26\ See Matt Vidal and David Kusnet, Organizing Prosperity: Union
Effects on Job Quality, Community Betterment, and Industry Standards,
Economic Policy Institute and UCLA Institute for Research on Labor and
Employment, 2009; C. Jeffrey Waddoups, ``Wages in Las Vegas and Reno:
How Much Difference Do Unions Make in the Hotel, Gaming, and Recreation
Industry?'', UNLV Gaming Research and Review Journal vol. 6, no. 1
(2001).
By joining together, working people can transform not just their
workplaces but sectors and communities. Here are two examples of how
today's workers are using their ``power in numbers'' to raise wages in
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the workplace and for all working people:
Raising the minimum wage for food service and other low-wage
workers. Millions of Americans who work full time are not paid enough
to make ends meet; many rely on public assistance, including food
stamps, housing subsidies, or cash assistance to pay their bills. Food
preparers, for example, earn a median hourly wage of $9.09; home health
aides earn $10.87. A big reason that low-wage workers are struggling is
the erosion of the value of the federal minimum wage, which, at $7.25
per hour, is worth 25 percent less in inflation-adjusted terms than it
was 50 years ago. The Service Employees International Union (SEIU) was
an early and critical backer and remains a strong supporter of the
Fight for $15, a campaign to raise wages for low-wage workers by
enacting minimum wages increases in communities and states around the
nation. Begun in New York and Chicago in 2012, the campaign has led to
laws establishing $15 minimum wages in New York, California, the
District of Columbia, and 21 cities and counties. The Fight for $15
movement has also added momentum to successful campaigns for smaller
minimum wage increases in 18 other states since 2014. (Through the
campaign, some workers are also seeking paid sick time so that all
workers, regardless of their job or wage level, can take paid time off
when they are sick or need to care for a family member.) While many
business owners have endorsed minimum wage increases, business owners
who oppose raising the minimum wage have a voice too, through such
groups as the National Restaurant Association, which lobbies in
Washington, DC and in state capitals against minimum wage increases and
paid sick days.\27\
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\27\ David Cooper, ``How We Can Save $17 Billion in Public
Assistance--Annually,'' Talk Poverty, February 18, 2016; Economic
Policy Institute, Why America Needs at $15 Minimum Wage [fact sheet],
April 26, 2017; Economic Policy Institute, Minimum Wage Tracker [online
interactive], July 10, 2017.
Eliminating subminimum wages for farmworkers. In June 2017,
Familias Unidas por la Justicia (FUJ) and Sakuma Brothers Berry Farm,
one of the Pacific Northwest's largest berry growers, signed a
collective bargaining agreement that ensures good wages for the more
than 500 immigrant farmworkers who harvest berries at the farm. The
contract ensures that the berry pickers--many of whom had been earning
less than the state minimum wage of $9.47 an hour under the former
piece-rate system (based on how many pounds of berries they picked)--
now earn at least a minimum wage of $12; the revised piece-rate system
it establishes seeks to deliver an average wage of $15 an hour. The
contract is the culmination of four years of organizing, first as a
workers organization and then as a recognized independent union in
September 2016. Through strikes, informational pickets, and other
efforts, FUJ gained national support for its successful efforts to
change a host of practices at the farm, including 12-hour-plus
workdays. FUJ also countered Sakuma Brothers' attempt in 2014 to
replace its workforce with workers entering the United States under the
H-2A temporary visa program.\28\
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\28\ C. Cosner, ``Historic Union Contract Signed by FUJ and Sakuma
Bros. Berry Farm,'' Familias Unidas por La Justicia, June 17, 2017;
Steve Leigh, ``Sakuma Workers Win Their First Contract,''
Socialistworker.org, June 20, 2017; ``Combative Farm Workers in Only
Indigenous-Led U.S. Union Win Labor Rights Defenders Award,'' teleSUR,
May 24, 2017.
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Unions Help Raise Wages for Women and Lessen Racial Wage Gaps
Unions help raise the wages of women and black and Hispanic workers--
whose wages have historically lagged behind those of white men--by
establishing pay ``transparency'' (workers know what other workers are
making), correcting salary discrepancies, establishing clearer terms
for internal processes such as raises and promotions, and helping
workers who have been discriminated against achieve equity.
Unions also narrow the racial wage gaps. Black workers for example are
more likely than white workers to be in a union and are more likely to
be low- and middle-wage workers, who get a bigger pay boost for being
in a union than do higher-wage workers. This effect is an important
tool in closing the black-white wage gap, which has actually grown
somewhat since 1979, largely due to growth in the gap since 2000; while
wages since 2000 have stagnated for both black and white workers, the
decline in wage growth has been larger for black workers.\29\ Today,
black workers are, on average, paid 85 cents for every dollar paid to
white workers of the same gender and with similar education,
experience, and location of residence.\30\
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\29\ Valerie Wilson and William M. Rodgers III, Black-White Wage
Gaps Expand With Rising Wage Inequality, Economic Policy Institute,
September 20, 2016.
\30\ The wage gap is adjusted and is as of 2016; it comes from
Economic Policy Institute, State of Working America Data Library,
``Wage Gaps: Black-White Wage Gap,'' last updated February 13, 2017.
Unions help raise women's pay. Hourly wages for women
represented by unions are 9.2 percent higher on average than for
nonunionized women with comparable characteristics.\31\
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\31\ The regression analysis producing this estimate controlled for
education, experience, race, citizenship status, geographic division,
industry, and occupation. (Source: ``Union Wage Premium by Demographic
Group, 2011,'' Table 4.33 in The State of Working America, 12th
Edition, an Economic Policy Institute book [Ithaca, N.Y.: Cornell
University Press, 2012], updated with 2016 microdata from the Current
Population Survey Outgoing Rotation Group microdata.)
Unions raise wages in the female-dominated service occupations.
Union-represented workers in service occupations (which include food
service and janitorial services) make 87.0 percent more in total
compensation and 56.1 percent more in wages than their nonunion
counterparts.\32\
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\32\ Data are unadjusted for factors such as demographics and
employer size. Data are as of March 2017 and are drawn from EPI
analysis of Bureau of Labor Statistics, ``Employee Benefits in the
United States--March 2017'' [news release], U.S. Department of Labor.
In 2016, women made up 56.6 percent of those employed in service
occupations but only 46.8 percent of all workers employed in 2016
(Bureau of Labor Statistics, ``Household Data, Annual Averages'' [data
table], Current Population Survey, 1, 4). Service occupations include
protective service, food preparation and serving, healthcare support,
building and grounds cleaning and maintenance, and personal care and
service.
Unions help close wage gaps for black and Hispanic workers.
Black and Hispanic workers get a larger boost from unionization than
their white counterparts. Black workers, both male and female, are more
likely than white workers to be covered by collective bargaining and
the wage boost they get from being covered by collective bargaining is
above average. The result is that collective bargaining lifts wages of
black workers closer to those of their white counterparts. Hispanic
workers have slightly lower union coverage than white workers but have
much higher union wage advantages: thus wage gaps between Hispanic
workers and their white counterparts are also smaller because of
collective bargaining.\33\
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\33\ EPI analysis of 2016 microdata from the Current Population
Survey finds that hourly wages for black workers represented by unions
are 14.7 percent higher than wages paid to their nonunionized
counterparts. Hispanic workers represented by unions are paid 21.8
percent more than their nonunionized counterparts. In contrast, non-
Hispanic white union workers have a smaller--9.6 percent--wage
advantage over nonunionized white workers. The regression analysis
producing this estimate controlled for education, experience, gender,
race, citizenship status, geographic division, industry, and
occupation.
Unionized black workers earn even more in some sectors.
Unionized black construction workers in New York City earn 36.1 percent
more than nonunion black construction workers in New York City.\34\
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\34\ Lawrence Mishel, Diversity in the New York City Union and
Nonunion Construction Sectors, Economic Policy Institute, March 2,
2017.
These data showing that unions raise wages for all workers--and
especially for women and black and Hispanic workers--do not erase the
problematic historical episodes of sexism and racism practiced by
unions. Unions are an American institution, and like nearly every other
American institution their past includes clear instances of gender and
racial discrimination. But there has been significant progress in
increasing the shares of women represented and in leadership. There has
also been significant progress in the racial integration of unions and
in ensuring that nonwhite workers have equitable access to
apprenticeships, as illustrated by the progress in New York City
construction unions.\35\ AFL-CIO President Richard Trumka recently
claimed, with justification, that ``the labor movement is the most
integrated institution in America.''\36\ Labor leaders are calling for
broad and sustained attention to addressing racism and sexism where
they continue to violate labor's democratic ideals.\37\
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\35\ Lawrence Mishel, Diversity in the New York City Union and
Nonunion Construction Sectors, Economic Policy Institute, March 2,
2017.
\36\ Richard Trumka, speech given at the Steelworkers convention,
July 1, 2008.
\37\ Liz Shuler, Speech on Women and Work, posted October 28, 2015;
Leslie Tolf, ``5 Women Labor Leaders Speak Their Minds on the Future of
Labor,'' Huffpost [blog], September 7, 2015; ``AFL-CIO Chief Denounces
Trump's `Spirited Defense of Racism and Bigotry,' '' CBS News, August
16, 2017; ``Major `I Am 2018' Initiative Announced to Mark 50th
Anniversary of Memphis Sanitation Strike, MLK Assassination'' [press
release], June 28, 2017.
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Unions Improve the Health and Safety Practices of Workplaces
More than 4,800 workers are killed on the job every year. An estimated
50,000 to 60,000 more die of occupational diseases each year, and the
estimated number of work-related injuries and illnesses exceeds 7
million.\38\ Unions have always championed worker safety by investing
in programs to educate workers about on-the-job hazards and working
with employers to reduce worker injuries and the time lost due to
injury.\39\ In unionized workplaces, workers generally have a right to
involve a union representative in injury and fatality investigations,
which gives workers a voice in their own safety. And researchers have
suggested that unions create safer workplaces because union workers
protected by their union from repercussions are more likely to report
not only injuries but near misses that can lead to reducing work
hazards.\40\ The union contribution to safety is particularly important
because government health and safety regulations are being
weakened.\41\
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\38\ AFL-CIO, Death on the Job: The Toll of Neglect 2017, April 26,
2017.
\39\ Roberto Ceniceros, ``Workplace Safety Is a Major Push for
Unions,'' Business Insurance, February 12, 2012.
\40\ Benjamin Amick et al., ``Protecting Construction Worker Health
and Safety in Ontario, Canada: Identifying a Union Safety Effect,''
Journal of Occupational and Environment Medicine vol. 57, no. 2
(December 2015), 1337-42.
\41\ Heidi Shierholz and Celine McNicholas, ``Understanding the
Anti-regulation Agenda: The Basics'' [fact sheet], Economic Policy
Institute, April 11, 2017; Economic Policy Institute, ``The Perkins
Project on Worker Rights and Wages.''
Union construction sites are safer for workers. In 2014, OSHA
inspected New York state construction sites and found twice as many
health and safety violations at nonunion construction sites as at union
construction sites.\42\ Another study, of Missouri construction sites,
found higher levels of OSHA violations among nonunion St. Louis
residential construction job sites than at unionized St. Louis
residential job sites.\43\
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\42\ New York Committee for Occupational Safety and Health, Deadly
Skyline: An Annual Report on Construction Fatalities in New York State,
January 2017.
\43\ Harry Miller, Tara Hill, Kris Mason, and John S. Gaal, ``An
Analysis of Safety Culture and Safety Training: Comparing the Impact of
Union, Non-Union, and Right to Work Construction Venues,'' Online
Journal for Workforce Education and Development vol. 6, no. 2 (2013).
Mine workers in union mines are less likely to be severely
injured or die on the job. Unionization is associated with a
substantial and statistically significant drop in traumatic injuries
and in fatalities in underground bituminous coal mines from 1993 to
2010.\44\
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\44\ Overall, unionization is associated with a 14- to 32-percent
drop in traumatic injuries and a 29- to 83-percent drop in fatalities.
See Alison D. Morantz, ``Coal Mine Safety: Do Unions Make a
Difference?'', ILR Review vol. 66, no. 1 (January 2013), 88-116.
Unions ensure that employers are held accountable. Tragedies
arise when employers cannot be held accountable. Miners in the Upper
Big Branch Mine in West Virginia tried and failed to a join a union
three times, according to In These Times. Each time, at least 65
percent of the miners signed cards saying they wanted to be members of
a union And each time, these workers were repeatedly intimidated by
management at Massey Energy, which owns the mine: Massey CEO Don
Blankenship delayed the election process for months while he threatened
to close the mine if the workers voted for a union-and the workers
ended up voting against joining a union to save their jobs.\45\ On
April 5, 2010, an explosion collapsed the mine's roof, killing 29
miners and injuring two. In the aftermath, reports surfaced that the
nonunion mine had a record of safety violations and that coal miners
who worked in the mine knew about the dangerous working conditions.
Blankenship was found guilty on a charge of conspiracy to willfully
violate mine health and safety standards and was sentenced to a year in
prison.\46\
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\45\ Mike Elk, ``Overlooked DC Victory Shows Linking Safety, Labor
Rights Is Winning Formula,'' In These Times, July 12, 2010.
\46\ Mark Berman, ``Former Coal CEO Sentenced to a Year in Prison
After 2010 West Virginia Coal Mine Disaster,'' Washington Post, April
6, 2016.
Here are some specific ways unions have improved safety in the
workplace by representing workers' concerns in public and testifying
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before Congress and state legislatures:
Nurses win violence prevention standards. In the past decade or
so, the rate of reported violence against health care workers (who make
up 9 percent of the nation's workforce) has more than doubled. The
increase stems from cuts in state funds for mental health services and
hospital budget cutbacks thinning the ranks of nurses and security
guards. National Nurses United (NNU), which represents more than
160,000 nurses across the country, has fought for and won workplace
violence prevention standards in California, Minnesota, and
Massachusetts. NNU is now petitioning the federal Occupational Safety
and Health Administration (OSHA) for a formal workplace violence
prevention standard that would apply nationwide.\47\
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\47\ The federal standard would include an assessment of risk
factors (such as staffing levels), a postincidence response procedure,
employee participation in the creation of a plan, and prohibition on
retaliation against an employee who may seek legal assistance after an
incident. See Alexia Fernandez-Campbell, ``Why Violence Against Nurses
Has Spiked in the Last Decade,'' The Atlantic, December 1, 2016
(updated June 19, 2017); ``NNU Petitions Violence Prevention in
Workplace,'' National Nurses United, August 2, 2016. See also a
Government Accountability Office report that found that workplace
violence is a serious and growing concern for 15 million health-care
workers and can be prevented through violence prevention programs: U.S.
Government Accountability Office, ``Additional Efforts Needed to Help
Protect Health-Care Workers from Workplace Violence,'' March 2016.
Laborers, autoworkers, and others secure protections for workers
from deadly silica dust. Roughly 2.3 million workers are exposed to
silica dust, which causes silicosis (an incurable and often deadly lung
disease), lung cancer, other respiratory diseases, and kidney disease.
Silica dust is produced by grinding stone or masonry in mines or on
construction sites. Although the hazards of silica dust have been known
for at least a century, existing regulations limiting exposure were
outdated and were not keeping up with worker exposure to silica in new
industries such as stone countertop fabrication and hydraulic
fracturing. A broad section of the labor movement--including the United
Automobile Workers and the Laborers' International Union of North
America--helped persuade OSHA to issue a new rule that reduces workers'
exposure to silica.\48\
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\48\ Associated Press, ``OSHA Seeks New Limits on Silica Dust,''
Washington Post, August 23, 2013; ``Heeding the Science (Finally) to
Fight a Preventable Workplace Killer,'' Union of Concerned Scientists,
September 2013; Centers for Disease Control and Prevention, ``Notes
From the Field: Update: Silicosis Mortality--United States, 1999-
2013,'' Morbidity and Mortality Weekly Report, June 19, 2015;
Occupational Safety and Health Administration, ``OSHA's Final Rule to
Protect Workers From Exposure to Respirable Crystalline Silica,'' U.S.
Department of Labor (accessed July 26, 2017); United Auto Workers,
``New Crystalline Silica Rule Long Overdue,'' June 13, 2016; Stan
Parker, ``Industry, Unions Lock Horns in OSHA Silica Rule Dust-Up,''
Law360, November 21, 2016; James Melius, ``Testimony Before the U.S.
House of Representatives Education and Workforce Committee,
Subcommittee on Workforce Protections, Hearing on Reviewing Recent
Changes to OSHA's Silica Standards,'' April 19, 2016; Alexia Elejalde-
Ruiz, ``Workers Breathe Easier Over Silica Dust Rules as Construction
Industry Winces,'' Chicago Tribune, March 24, 2016.
Firefighters get relief from post-traumatic stress disorder
(PTSD). Firefighters who develop PTSD after witnessing repeated trauma
on the job don't always have recourse if the disorder means they cannot
work while they seek treatment. When independent studies showed that
post-traumatic stress rates are on the rise for Texas firefighters, the
Texas State Association of Fire Fighters (TSAFF) launched an education
campaign for state lawmakers leading to legislation to improve workers'
compensation coverage for Texas first responders diagnosed with line-
of-duty-related PTSD. The legislation (HB 1983) was signed into law by
Governor Greg Abbott on June 1, 2017.\49\
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\49\ ``TSAFF Wins Workers' Compensation for Members With PTSD,''
IAFF FireFighters (accessed July 27, 2017).
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Unions Support Strong Families With Better Benefits and Due Process
About 6 in 10 adults (63 percent) say the average working person in the
United States has less job security now than 20 or 30 years ago.\50\
And the lack of paid sick days is depriving many workers of funds
needed for basic necessities--an especially difficult problem for the
lowest-wage workers, about three-fourths of whom don't get any paid
sick days.\51\ Uncertain work hours, last-minute shift changes, and
other scheduling practices are also hurting families. And research
shows that jobs that are insecure, unpredictable, and risky also affect
communities and society as a whole.\52\
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\50\ Anna Brown, ``Key Findings About the American Workforce and
the Changing Job Market,'' Fact Tank (Pew Research Center), October 6,
2016.
\51\ Eighty-seven percent of private-sector workers in the highest
10 percent of wage earners have the ability to earn paid sick days,
compared with only 27 percent of private-sector workers in the lowest
10 percent. For the average worker who does not have access to paid
sick days, if the worker needs to take off 3 days, the lost wages are
equivalent to the household's entire grocery budget for the month. See
Elise Gould and Jessica Schieder, Work Sick or Lose Pay? The High Cost
of Being Sick When You Don't Get Paid Sick Days, Economic Policy
Institute, June 28, 2017.
\52\ Bertil Videt and Danielle de Winter, ``Job Insecurity as the
Norm: How Labour Market Trends Have Changed the Way We Work,'' The
Broker, March 10, 2014. Videt and de Winter cite A. Kalleberg,
``Precarious Work, Insecure Workers: Employment Relations in
Transition,'' American Sociological Review vol. 74., no. 1 (2009), 2.
But working people in unionized workplaces are more likely to have
benefits that strengthen families and improve job security and
predictability. (Some of the items in the list below provide union-
nonunion comparisons not adjusted for personal characteristics and
other factors, while some, where indicated, provide adjusted
comparisons.) \53\
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\53\ Unadjusted data (comparisons based just on union status, which
include the by-industry comparisons) are as of March 2017 and come from
Tables 2 and 6 in Bureau of Labor Statistics, ``Employee Benefits in
the United States--March 2017'' [news release], U.S. Department of
Labor, July 21, 2017. Adjusted data are based on analysis of fourth-
quarter 1994 Employment Cost Index microdata as presented in Table 4.35
in Lawrence Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The
State of Working America, 12th Edition, an Economic Policy Institute
book (Ithaca, N.Y.: Cornell University Press, 2012) and drawn from
Brooks Pierce, ``Compensation Inequality,'' U.S. Department of Labor
Statistics Working Paper no. 323, 1999.
Union workers are more likely to be covered by employer-provided
health insurance. More than nine in 10--94 percent--of workers covered
by a union contract have access to employer-sponsored health benefits,
compared with just 67 percent of nonunion workers. When adjustments are
made for other characteristics that may affect benefits coverage--such
as sector (public or private), industry, region, employee status (full-
or part-time) and establishment size--union workers are 18.3 percent
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more likely to be covered.
Union employers contribute more to their health-care benefits.
Unionized employers pay 77.4 percent more (per hour) toward their
employees' health coverage (providing better benefits for a greater
share of workers) than comparable nonunion employers. Occupations with
higher-than-average union impact on employer-provided health care
include transportation, services, construction, extraction, and
installation/maintenance/repair.
Union workers have greater access to paid sick days. Almost nine
in 10--87 percent--of workers covered by a union contract have access
to paid sick days, compared with 69 percent of nonunion workers. Almost
all--97 percent--of union workers in state and local government have
paid sick days, compared with 86 percent of their nonunion peers. In
the private sector, 79 percent of union workers have paid sick days
compared with 67 percent of their nonunion peers.
Union workers are more likely to have paid vacation and
holidays. In the private sector, 89 percent of workers covered by a
union contract get paid vacation and paid holidays, whereas 75 percent
of nonunion workers get paid vacation and 76 percent get paid holidays.
For workers overall (private and public) 80 percent of union workers
get paid holidays while 75 percent of nonunion workers do. Equal shares
of union and nonunion workers (74 percent) get paid vacation.\54\ When
adjustments are made for other characteristics that may affect benefits
coverage-such as sector (public or private), industry, region, employee
status (full- or part-time), and establishment size-union workers are
3.2 percent more likely to have paid leave.
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\54\ Union-nonunion gaps in access to paid vacation and holidays
are much narrower in state and local governments because teachers make
up a large portion of state and local government employment and they
are not usually offered paid vacation. See Tech Notes on page 3 of
Bureau of Labor Statistics, ``Employee Benefits in the United States--
March 2017'' [news release], U.S. Department of Labor, July 21, 2017.
Employers contribute more to paid vacation and holidays for
union workers than nonunion workers. Union employers contribute 11.4
percent more toward paid vacation and holidays for their workers than
do comparable nonunion employers. Industries and occupations with
higher-than-average employer contributions toward paid vacation and
holidays include production, transportation, office and administrative
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support, service occupations, and construction.
Unions provide due process. Private employment in every state
except for Montana is generally at will, with employers free to dismiss
workers for almost any reason, except for reasons specified by law
(e.g., on account of race, religion, disability, or other identities
that are protected classes). Union contracts have provisions that allow
workers to be fired, but only when the employer shows a proper,
documented performance-related reason for dismissing the worker.
Usually, contracts include a transparent process for disciplining
workers, and the employer--except in extreme cases--must follow that
process and give a worker a chance to improve performance before the
employer moves to dismiss the worker.
Union workers have more input into the number of hours they
work. Almost half (46 percent) of nonunion workers say they have little
or no input into the number of hours they work each week, compared with
less than a quarter (22 percent) of union workers.\55\
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\55\ EPI analysis of the 2016 General Social Survey Quality of
Worklife and Work Orientations supplements. ``Union worker'' here
refers to workers who said they belonged to a union.
Union workers get more advance notice of their work schedules.
More than one in three workers (34.4 percent) who belong to a union get
at least a week's advance notice of their work schedules, whereas less
than one in four nonunion workers (23.2 percent) do. (These
calculations exclude workers whose schedules never change).\56\
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\56\ EPI analysis of the 2016 General Social Survey Quality of
Worklife and Work Orientations supplements. Respondents were asked
whether they or their spouses belong to a union. The sample excludes
all workers who say their schedules never change.
Unions also bring better benefits to the broader labor force. Here is a
specific example of how unions have helped secure crucial benefits for
workers by taking their concerns to the lawmakers and to the public at
---------------------------------------------------------------------------
large:
Winning paid sick days for workers. There is no federal law that
ensures all workers are able to earn paid sick days in the United
States. For workers who fall ill or whose families depend on them to
provide care in the event of an illness, this means sick days can be
incredibly costly. This is a particular problem for low-wage workers,
73 percent of whom have no opportunity to earn paid sick days. Unions
have participated in coalitions to enact paid sick days laws. For
example, voter outreach by the United Food and Commercial Workers
(UFCW) helped win passage of a paid sick days law in Oregon, while SEIU
was a key player in enacting the nation's strongest paid sick days
policy, in Massachusetts.\57\
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\57\ Eighty-seven percent of private-sector workers in the top 10
percent of wages have the ability to earn paid sick days, compared with
only 27 percent of private-sector workers in the bottom 10 percent.
Sources: Elise Gould and Jessica Schieder, Work Sick or Lose Pay? The
High Cost of Being Sick When You Don't Get Paid Sick Days, Economic
Policy Institute, June 28, 2017; Justin Miller, ``With Oregon's Bill,
Paid Sick Leave Gains Momentum,'' The American Prospect, June 16, 2015;
``2014: A Banner Year for Workers and Families in Massachusetts,''
Massachusetts Communities Action Network, November 2014.
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Unions Are Good for Workers' Retirement Security
Few Americans have enough to live on in retirement. A key part of the
story of rising retirement income insecurity is a shift from
traditional defined-benefit (DB) pensions that provide a guaranteed
income to defined-contribution (DC) plans--401(k)s or similar plans--
that force workers to bear investment risk without providing any
guarantees.\58\ The shift from pensions to 401(k)s has also exacerbated
inequality, benefiting only the very rich and leaving the vast majority
unprepared for retirement. Nearly half of all families headed by a
working-age adult have zero retirement savings.\59\
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\58\ DB pensions (such as those historically negotiated by unions)
provide more secure, adequate, and egalitarian retirement incomes than
401(k)-style DC plans. Workers are automatically enrolled in
traditional pensions and, in the private sector, employer contributions
fund the plan, so that the existence of savings does not depend on a
worker's ability to set aside wages for retirement; in addition, the
amount of retirement income is guaranteed with pensions, not contingent
on the state of the stock market at the time when retirees need to
access their savings. In contrast, employers that offer 401(k)-style
plans typically require workers to contribute to the plans in order to
receive an employer match, and these workers shoulder all the
investment risk.
\59\ Monique Morrissey, The State of American Retirement: How
401(k)s Have Failed Most American Workers, Economic Policy Institute,
March 3, 2016.
Union members have an advantage in retirement security, both because
union members are more likely to have retirement benefits and because,
when they do, the benefits are better than what comparable nonunion
workers receive: union members are more likely to have pensions, and
employer contributions to the plans (whether pensions or DC plans) tend
---------------------------------------------------------------------------
to be higher.
Ninety percent of union workers participate in a retirement plan
(of any kind), compared with 75 percent of nonunion workers.
Seventy-four percent of union workers who have pensions
participate in a traditional defined benefit pension, compared with 15
percent of nonunion workers.\60\
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\60\ Data are from Bureau of Labor Statistics, National
Compensation Survey: Employee Benefits in the United States, March
2016, ``Table 2. Retirement Benefits: Access, Participation, and Take-
up Rates, Civilian Workers, March 2016.''
Traditional defined benefit pensions are especially important to
black workers, who derive more than a fifth of their household income
from these pensions in retirement.\61\
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\61\ Income estimate is for all seniors age 65 and older, whether
retired or not. Source: Monique Morrissey, The State of American
Retirement: How 401(k)s Have Failed Most American Workers, Economic
Policy Institute, March 3, 2016.
Union employers (when adjustments are made for various employer
characteristics) are 22.5 percent more likely to offer an employer-
provided retirement plan and, on average, to spend 56 percent more on
retirement for their employees than do comparable nonunion
employers.\62\
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\62\ Adjusted data are based on analysis of fourth-quarter 1994
Employment Cost Index microdata as presented in Table 4.35 in Lawrence
Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The State of
Working America, 12th Edition, an Economic Policy Institute book
(Ithaca, N.Y.: Cornell University Press, 2012) and drawn from Brooks
Pierce, Compensation Inequality, U.S. Department of Labor Statistics
Working Paper no. 323, 1999.
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Unions Create a Path to Sharing Knowledge and Solving Problems
Because they are on the front lines, working people often have some of
the best information on how to improve their workplaces and make their
workplaces safer and more productive. Unions provide the means for
workers to share their knowledge about what works and what doesn't--
without fear of retaliation. Unionized workplaces also provide their
workers with more transparency about company finances and processes
that can help shape responses to problems.
Here are a few examples of specific ways unions have sought to improve
their workplaces:
Shifting from teacher punishment to professional development.
The Peer Assistance and Review (PAR) system created by the Toledo
Federation of Teachers (TFT) in the early 1980s transformed teacher
evaluation and professional development in Toledo and subsequently
spread to other cities and counties in Ohio and throughout the country,
including Boston; Rochester, New York; St. Paul, Minnesota; and
Montgomery County, Maryland. Under the PAR program, new teachers--and
experienced teachers who have been struggling--work with ``consulting
teachers'' who provide mentoring and evaluation. Only after that
process do principals get involved in evaluation. Veteran teachers may
be referred to the program or seek it out on their own. Districts that
have adopted PAR say that itstrengthens instruction, increases teacher
leadership, and helps strengthen the relationship between the district
and the teachers union.\63\
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\63\ See ``A User's Guide to Peer Assistance and Review,'' Harvard
Graduate School of Education (accessed July 2017); Saul A. Rubinstein
and John E. McCarthy, Collaborating on School Reform: Creating Union-
Management Partnerships to Improve Public School Systems, Rutgers
School of Management and Labor Relations, October 2010; ``Peer
Assistance and Review (PAR) Program,'' Boston Teachers Union (accessed
July 2017).
Training manufacturing workers in new technology skills. Labor
unions and the AFL-CIO Working for America Institute have been key
partners in implementing a program that trains workers to operate more
technical and highly specialized manufacturing processes. The
Industrial Manufacturing Technicians (IMT) apprenticeship program began
in Milwaukee and is expanding across eight states. The program,
operated by the Wisconsin Regional Training Partnership (WRTP)/BIG
STEP, provides workers with 2,700 hours of on-the-job training and 260
hours with technical college instructors. Labor union partners include
the International Association of Machinists and Aerospace Workers
(IAMAW), the International Association of Sheet Metal, Air, Rail and
Transportation Workers (SMART), the International Brotherhood of
Electrical Workers (IBEW), the United Automobile Workers (UAW), and the
United Steelworkers (USW). ``Union support ensures that the firm-
specific design of the program is responsive to worker feedback as well
as to lessons learned from IMT programs at other employers that the
union covers.'' \64\
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\64\ ``For Good Jobs, Look Beyond the Rust,'' New York Times, July
23, 2017; Moving Apprenticeship Into Manufacturing's Future: Industrial
Manufacturing Technician, COWS (University of Wisconsin--Madison),
February 2017.
Ending quotas that force bank workers to sell exploitive loans.
More than 15,000 U.S. bank workers for Spain-based Santander Bank are
trying to create the first bank workers' union in the United States
(bank unions are widespread in other developed countries). Among
Santander workers' goals is to end quotas that force workers to hawk
subprime auto loans and other exploitative loans to customers--often
people of color and neighbors in their communities--without being able
to properly explain the terms of those loans.\65\ While there has been
no election petition filed for Santander Bank yet, Santander workers
have brought attention to what has been a problem for American
consumers. By forming unions and gaining a seat at the table, financial
services employees could help end predatory practices like those
engaged in by Wells Fargo Bank in recent years.\66\
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\65\ ``Bank Workers Will Protest to Form Their First U.S. Union--
and the Whole World is Watching,'' Mic.com, February 17, 2017.
\66\ Keith Ellison, ``John Stumpf's Wells Fargo Racket Shows Why
Bank Workers Need a Union,'' Daily Beast, September 28, 2016.
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Workers Still Want Unions But Are Being Thwarted by Aggressive
Campaigns and Lobbying That Have Eroded Private-Sector Union Membership
Almost half (48 percent) of workers polled said they'd vote to create a
union in their workplace tomorrow if they got the chance.\67\ But
workers are being deprived of that opportunity. Because unions and
collective bargaining are effective at giving workers power, they are
opposed by corporate interests and policymakers representing the
highest-earning 1 percent.\68\ For decades, fierce corporate opposition
has suppressed the freedom to form unions and bargain collectively in
the private sector by promoting antiunion campaigns in workplaces
seeking to unionize and by lobbying lawmakers to pass laws depriving
private-sector unions of funds needed to operate. This activity has
tracked the dramatic, rapid increase of corporate political activity
that began in the mid-1970s, with a specific ``call-to-arms'' for U.S.
corporations that quadrupled the number of corporate PACs from 1976 to
1980.\69\ More recently, anti-union lobbyists have passed legislation
weakening unions in states such as Indiana, Michigan, and Wisconsin
that were once union strongholds.\70\ Outdated labor laws have failed
to provide workers with protection from this employer onslaught against
collective bargaining. And corporate lobbyists have blocked reforms to
labor laws that would protect worker's collective bargaining rights
with meaningful penalties for violations and better processes for
organizing. Employers are exploiting loopholes, including by
misclassifying workers as independent contractors to get around labor
laws that protect employees.
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\67\ In 2012, 48 percent of all nonmanagerial workers surveyed by
the AFL-CIO Workers' Rights Survey (May 2012 Hart Research Associates
poll) said they would ``probably'' or ``definitely'' vote to form a
labor union if an election were held tomorrow.
\68\ In a roundtable discussion on PBS NewsHour, James Hoffa,
president of the International Brotherhood of Teamsters, suggested that
``the real reason'' political leaders in states such as Indiana, Ohio,
New Jersey, and Michigan have targeted unions is because they are ``the
backbone of the Democratic Party . . . the ones that have the boots on
the ground'' (``Union Leaders Discuss State of U.S. Labor as Attacks
Rise, Membership Goes Down,'' PBS NewsHour, September 3, 2012).
\69\ Jacob S. Hacker and Paul Pierson, Winner-Take-All Politics:
How Washington Made the Rich Richer--and Turned Its Back on the Middle
Class, Simon and Schuster, 2010.
\70\ Colin Gordon, ``Right to Work (For Less): By the Numbers,''
Dissent, May 10, 2016.
By going after union funding, employer interests and their allied
lawmakers can wipe out one of the crucial pillars of support for pro-
worker candidates and causes. If unions have fewer members, or if the
law hamstrings unions' ability to collect administrative fees from the
workers they represent, there will be less union money spent on
advocating for workers in general. As Gordon Lafer, associate professor
at the Labor Education and Research Center at the University of Oregon,
notes, ``The labor movement serves as the primary political
counterweight to the corporate agenda on a long list of issues that are
not per se labor-related. To the extent that unions can be removed as a
politically meaningful force, the rest of the agenda becomes much
easier to execute.'' \71\
---------------------------------------------------------------------------
\71\ Gordon Lafer, The One Percent Solution: How Corporations Are
Remaking America One State at a Time (Ithaca, N.Y.: Cornell University
Press, 2017), 93.
These strategies have been effective, as is evident in the differing
trends in unionization between private-sector and public-sector
workers. Until very recently, public-sector employers have been far
less engaged in trying to block unionization efforts than their
private-sector counterparts. Just 6.4 percent of private-sector workers
belong to a union, down from about 35 percent in the 1950s and about 25
percent in the early 1970s. In contrast, 34.4 percent of public-sector
workers belong to a union, up from at or slightly above 10 percent in
the 1950s. Overall, 10.7 percent of workers belong to a union, down
from about 35 percent in the mid-1950s.\72\ Figure C shows the dramatic
decline in private-sector unionization since the 1970s.
---------------------------------------------------------------------------
\72\ Current membership rates are for 2016 and come from Bureau of
Labor Statistics, ``Union Members Summary'' [economic news release],
U.S. Department of Labor, January 26, 2017; 1950s rates come from John
Schmitt, ``Union Membership Trends, 1948-2012,'' No Apparent Motive
(blog), January 25, 2013; and 1950s and 1970s rates come from the data
appendix for figures that accompanies Barry T. Hirsch, ``Sluggish
Institutions in a Dynamic World: Can Unions and Industrial Competition
Coexist?'', Journal of Economic Perspectives vol. 22, no. 1 (2008),
153-76.
[GRAPHIC] [TIFF OMITTED] T2618.013
Employers Often Fight Unionizing Efforts With Aggression and
Intimidation, Using Legal and Illegal Tactics
Not all employers oppose unions. Some unions featured in this report
were voluntarily recognized by employers, and some led campaigns in
which the employer provided union organizers with free access to
employees.\73\
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\73\ Employers, where law permits, may voluntarily recognize a
union based on a simple showing of majority support from the employees.
But often, when private-sector workers seek to organize and bargain
collectively, employers hire union avoidance consultants to orchestrate
and roll out anti-union campaigns. Intense and aggressive anti-union
campaigns--once confined to the most antiunion employers--have become
widespread, leading to a ``coercive and punitive climate for organizing
that goes unrestrained due to a fundamentally flawed regulatory regime
that neither protects [workers'] rights nor provides any disincentives
for employers to continue disregarding the law.'' \74\ While the
National Labor Relations Act, which governs private-sector collective
bargaining, makes it illegal for employers to intimidate, coerce, or
fire workers involved in union-organizing campaigns, the penalties are
insufficient to provide a serious economic disincentive for such
behavior.\75\ And many of the tactics that are illegal on paper can be
actively pursued because verbal, veiled threats without a paper trail
or explicit language connecting the threat to the union effort are
difficult to prove and thus prosecute. Finally, the Department of Labor
is working to repeal a rule that prohibits employers from keeping the
work of anti-union consultants a secret.\76\
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\74\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
Employer Opposition to Organizing, Economic Policy Institute and
American Rights at Work Education Fund, May 20, 2009.
\75\ Penalties may consist of posting a notice, reinstating fired
workers, giving back pay to a fired worker, or rerunning an election.
There are no punitive damages or criminal charges. The most serious
penalty, a bargaining order to work with the union on a first contract,
is often ineffectual as the anti-union campaign continues.
\76\ Marni von Wilpert, ``Comment to the U.S. Department of Labor
Opposing the Rescission of the Persuader Rule,'' Economic Policy
Institute, August 9, 2017.
Three-quarters or more of private employers facing unionization
hire union avoidance consultants to quash the union campaign, sometimes
spending hundreds of thousands of dollars.\77\ Employer tactics may
include one-on-one meetings with supervisors, mandatory employee
meetings (also known as ``captive audience'' meetings), videos, and
leaflets. Often consultants work behind the scenes to craft the message
that management delivers. The communication strategy typically warns
employees that the union will just charge dues and fines without
delivering raises or other benefits; will make employees strike; will
take years to deliver a contract; and will generally interfere in the
employment relationship. Because employers can bar pro-union workers
from speaking at mandatory meetings, management can make the case
against unions without being challenged.\78\ The campaign against a
union-organizing attempt at the lifestyle media site Thrillist is a
classic example of the types of misleading arguments used by employers:
that the union would come between management and employees, silence
employees by making them talk only through union representatives, make
promises it could not keep, and prevent employers from giving wage
increases.\79\
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\77\ A national study of NLRB elections from 1999 to 2003 found
that 75 percent of employers used consultants to design and coordinate
their anti-union campaigns; see Kate Bronfenbrenner, No Holds Barred:
The Intensification of Employer Opposition to Organizing, Economic
Policy Institute and American Rights at Work Education Fund, May 20,
2009. A 2002 Chicago study found that 82 percent of employers hired
anti-union management consultants. See Chirag Mehta and Nik Theodore,
Undermining the Right to Organize: Employer Behavior During Union
Representation Campaigns, a report by the Center for Urban Economic
Development at the University of Illinois at Chicago for American
Rights at Work, December 2005. A notice of proposed rulemaking from the
U.S. Department of Labor cited estimates ranging from 66 percent to 87
percent, see ``Labor-Management Reporting and Disclosure Act;
Interpretation of the `Advice' Exemption,'' Federal Register, vol. 76,
no. 119, June 21, 2011, p. 36178.
\78\ Marni von Wilpert, ``Union Busters Are More Prevalent Than
They Seem, and May Soon Even Be at the NLRB,'' Working Economics Blog,
Economic Policy Institute, May 1, 2017; Kate Bronfenbrenner, No Holds
Barred: The Intensification of Employer Opposition to Organizing,
Economic Policy Institute and American Rights at Work Education Fund,
May 20, 2009; Chirag Mehta and Nik Theodore, Undermining the Right to
Organize: Employer Behavior During Union Representation Campaigns, a
report by the Center for Urban Economic Development at the University
of Illinois at Chicago for American Rights at Work, December 2005.
\79\ Hamilton Nolan, ``The Dismal Thrillist Anti-Union Campaign,''
Concourse, March 10, 2017.
From the 1990s to the early 2000s, the likelihood that private
employers will use 10 or more tactics in their anti-union campaigns
doubled, and the focus on more coercive and punitive tactics designed
to intensely monitor and punish union activity increased.\80\
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\80\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
Employer Opposition to Organizing, Economic Policy Institute and
American Rights at Work Education Fund, May 20, 2009.
One in five to one in seven union organizers or activists can
expect to be fired as a result of their activities in a union election
campaign.\81\ Roughly a third of employers (34 percent) fire workers
during campaigns.\82\ By firing one or more union organizers, employers
can disrupt the organizing campaign while intimidating other potential
bargaining unit members into dropping the campaign or voting no in the
representation election.
---------------------------------------------------------------------------
\81\ John Schmitt and Ben Zipperer, Dropping the Ax: Illegal
Firings During Union Election Campaigns, 1951-2007, Center for Economic
and Policy Research, March 2009.
\82\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
Employer Opposition to Organizing, Economic Policy Institute and
American Rights at Work Education Fund, May 20, 2009.
Employers may also threaten to cut workers' hours or pay,
suspend workers, or report workers to immigration enforcement
authorities.\83\
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\83\ Annette Bernhardt et al., Broken Laws, Unprotected Workers:
Violations of Labor Laws in America's Cities, National Employment Law
Project (New York City), Center for Urban Economic Development
(Chicago), and UCLA Institute for Research on Labor and Employment (Los
Angeles), 2009.
Fifty-seven percent of private employers threaten to close the
worksite if employees unionize. Forty-seven percent threaten to cut
wages and benefits.\84\
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\84\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
Employer Opposition to Organizing, Economic Policy Institute and
American Rights at Work Education Fund, May 20, 2009. Another study of
62 union-representation campaigns launched in Chicago in 2002 found
that 49 percent of employers threatened to close or relocate all or
part of the business if workers elected to form a union. See Chirag
Mehta and Nik Theodore, Undermining the Right to Organize: Employer
Behavior During Union Representation Campaigns, a report by the Center
for Urban Economic Development at the University of Illinois at Chicago
for American Rights at Work, December 2005.
Sixty-three percent of private employers interrogate workers
about union support in mandatory one-on-one meetings between workers
and their supervisors, and 54 percent of employers threaten workers in
such meetings.\85\
---------------------------------------------------------------------------
\85\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
Employer Opposition to Organizing, Economic Policy Institute and
American Rights at Work Education Fund, May 20, 2009.
Union elections are not free and fair because the law does not
give union organizers equal access to voters. Employers may block union
organizers from accessing the workplace while compelling voters to
attend anti-union meetings. Unions may only access voters outside of
work. And while, by law, employers that possess contact information
such as email addresses for employees must provide that information to
union organizers, proposed legislation would severely limit organizers'
rights to access that information.\86\
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\86\ Testimony of Guerino J. Calemine III, General Counsel,
Communications Workers of America before the U.S. House of
Representatives Subcommittee on Health, Labor, Employment, and
Pensions, legislative hearing on H.R. 2776, 2775, and 2723, June 14,
2017.
The tactics are effective. A study of private-sector union
organizing in Chicago found that, while a majority of workers supported
unionization, when petitions were filed to begin the workplace
organizing effort (a majority vote is needed to elect to unionize),
unions were victorious in only 31 percent of these campaigns, after
workers had endured the full range of employer anti-union activity.\87\
---------------------------------------------------------------------------
\87\ In the Chicago study, for nearly all of 179 petitions filed
with the NLRB to represent previously unorganized workers at workplaces
in the Chicago, the majority of workers supported unionization when the
petitions were filed, but unions were victorious in only 31 percent of
these campaigns. Chirag Mehta and Nik Theodore, Undermining the Right
to Organize: Employer Behavior During Union Representation Campaigns, a
report by the Center for Urban Economic Development at the University
of Illinois at Chicago for American Rights at Work, December 2005.
Loopholes in labor laws allow employers to endlessly delay
contract negotiations. Two years after an election, 37 percent of newly
formed private-sector unions still had no labor agreement.\88\
---------------------------------------------------------------------------
\88\ Because the law gives employers the right to multiple levels
of review (by an administrative law judge, then by the full NLRB, and
then by appellate courts), delays between the union election and the
final results can last for years. Data come from Kate Bronfenbrenner,
No Holds Barred: The Intensification of Employer Opposition to
Organizing, Economic Policy Institute and American Rights at Work
Education Fund, May 20, 2009.
---------------------------------------------------------------------------
Workers Reclassified as Independent Contractors Cannot
Form Unions Because They Aren't Covered by the NLRA
Misclassification occurs when employers classify workers who are in
fact employees as independent contractors, which employers do to avoid
a host of employment-
related obligations, such as paying for unemployment insurance and
workers' compensation and even paying a minimum wage. Workers wrongly
classified as independent contractors are also deprived of the right to
unionize under U.S. laws. These workers are thus unable to join
together in a union to negotiate better terms and conditions with their
employer. Misclassification is rampant in many industries such as food
services and construction. The practice contributes to an economy where
wages are flat, profits are soaring, and companies that do not arrange
their businesses to avoid their employment responsibilities are
disadvantaged.\89\
---------------------------------------------------------------------------
\89\ David Weil, ``Lots of Employees Get Misclassified as
Contractors. Here's Why It Matters,'' Harvard Business Review, July 5,
2017.
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Corporate Lobbyists Push Laws--Misleadingly Called ``Right-To-Work''
Laws--That Seek to Defund Private-Sector Unions
Unions provide a range of tangible benefits to their members, from
contract and benefit administration and enforcement to legal services.
These services cost money. While states generally have no jurisdiction
over private-sector unions, the NLRA allows states to pass ``right-to-
work'' (RTW) laws.\90\ Contrary to their branding, these laws do
nothing to boost workers' chances of finding a job. Rather, right-to-
work laws simply prohibit contracts that require all workers who
benefit from union representation to help pay for these benefits.
Specifically, RTW laws say unions can't require nonunion members of a
collective bargaining unit who don't pay union dues to pay ``fair share
fees''--fees that cover the basic costs of representing employees in
the workplace (but are not used for costs associated with union
organizing or political activities).
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\90\ The 1947 Taft-Hartley amendments to the National Labor
Relations Act sanctioned a state's right to pass laws that prohibit
unions from requiring a worker to pay dues, even when the worker is
covered by a union-negotiated collective bargaining agreement.
Fair share fees are just that. Under federal law, no one can be forced
to join a union as a condition of employment. However, unions are
required to represent all members of a bargaining unit, whether or not
they are in the union. This means that if an employer mistreats a
worker who is not in the union, the union must pursue that worker's
grievance just as it would a member's, even if it costs tens of
thousands of dollars. Nonunion workers also receive the higher wages
and benefits their union coworkers enjoy.\91\ Eliminating fair share
fees encourages ``free-riding'': workers paying union dues see
coworkers who are paying nothing but getting the same benefits, and
they decide to leave the union and stop paying union dues.
---------------------------------------------------------------------------
\91\ Elise Gould and Will Kimball, ``Right-to-Work'' States Still
Have Lower Wages, Economic Policy Institute, April 22, 2015.
RTW laws weaken unions by eroding union funding and membership (Figure
D shows union density, as measured by shares of workers covered by
collective bargaining, in RTW and fair share states). Proponents of RTW
laws say they boost investment and job growth but there is no serious
evidence of that. While causal impacts of RTW laws are hard to estimate
with statistical precision, there is ample evidence that RTW laws hurt
all workers--not just union members.\92\
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\92\ It is hard to isolate the decision of a state to become RTW
from other legislative changes or to separate the RTW effect from the
many factors, including recessions, that influence state labor market
conditions.
Twenty-eight states have ``right-to-work'' laws that allow
workers in the private sector to access the benefits of union
---------------------------------------------------------------------------
negotiations without sharing the costs.
States that passed RTW a long time ago have successfully avoided
large-scale unionization. Historically states in the Deep South and
parts of Midwest and West passed RTW laws to weaken unions. Many
succeeded. Especially in the Deep South, states that passed RTW laws in
the 1940s and 1950s have low private-sector unionization rates that
persist to this day.
States with strong unions are now being targeted by RTW. Anti-
union lobbyists have succeeded in bringing RTW to heavily unionized
states such as Indiana, Michigan, and Wisconsin to weaken worker
power.\93\
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\93\ Gordon Lafer, The Legislative Attack on American Wages and
Labor Standards, 2011-2012, Economic Policy Institute, October 31,
2013.
``National Right to Work'' legislation has been introduced in
the House and Senate: H.R. 785 by Rep. King (R-IA) and S. 545 by Sen.
Paul (R-KY). These companion bills would allow employees who work in a
unionized workplace, but who decline to become union members, to refuse
---------------------------------------------------------------------------
to pay a fair share fee to the union that negotiates their benefits.
A well-funded, centralized campaign is behind RTW laws. In the
wake of the Great Recession, RTW laws passed and proposed were
presented as homegrown responses to state unemployment woes, but the
similarity of the text in the laws, and the fact that states with more
fiscal distress were not more likely to introduce such legislation,
shows ``a political agenda funded by a network of extremely wealthy
individuals and corporations.'' \94\
---------------------------------------------------------------------------
\94\ Gordon Lafer, The Legislative Attack on American Wages and
Labor Standards, 2011-2012, Economic Policy Institute, October 31,
2013. According to Lafer's report, one of the most important
organizations facilitating this work is the American Legislative
Exchange Council (ALEC), a corporate lobbying group whose model bills
(establishing RTW, abolishing minimum wage and prevailing wage
statutes, etc.) are the basis for over 100 laws adopted annually. See
also ``ALEC,'' Common Cause website (accessed August 2017).
RTW laws lower unionization rates even in less-unionized states.
The passage of RTW in Oklahoma decreased private-sector unionization
rates by roughly 20 percent.\95\
---------------------------------------------------------------------------
\95\ See page 10 of Ozkan Eren and Serkan Ozbeklik, ``What Do
Right-To-Work Laws Do? Evidence From a Synthetic Control Method
Analysis'' [author-posted version of article published in Journal of
Policy Analysis and Management, vol. 35, no. 1 (July 15, 2015), 173-
194].
Wages are 3.1 percent lower in RTW states than in fair share
states, after controlling for individual demographic and socioeconomic
factors and state macroeconomic indicators, including cost of living.
This translates into a $1,558 annual RTW wage penalty for a typical
full-time, full-year worker, union or nonunion, in the public or
private sector.\96\
---------------------------------------------------------------------------
\96\ Elise Gould and Will Kimball, ``Right-to-Work'' States Still
Have Lower Wages, Economic Policy Institute, April 22, 2015.
Proponents of RTW laws say they boost investment and job growth
but there is no real evidence of that. Reviewing claims of faster-than-
average employment growth in RTW states, an EPI report found dramatic
growth in some RTW states but steep declines in others, with the high-
growth states skewing the average. Studies that have found positive
employment effects of RTW laws have failed to control for a host of
factors that would affect employment, from the education level of the
workforce to the proximity of transportation hubs to a state's natural
resources to a state's level of manufacturing.\97\ A 2015 study
similarly found ``no pronounced effect of RTW laws on state
economies.'' \98\
---------------------------------------------------------------------------
\97\ The more scholars are able to hold ``all other things'' equal,
the more it becomes clear that these laws have little or no positive
impact on a state's job growth. The most recent and most
methodologically rigorous studies conclude that the policy has no
statistically significant impact whatsoever. See Gordon Lafer and
Sylvia Allegretto, Does `Right-to-Work' Create Jobs? Answers From
Oklahoma, Economic Policy Institute, March 16, 2011.
\98\ After a literature review the authors conclude, ``Some studies
find significant effects of RTW laws on various state outcomes, while
others find no effect (see for example, Hirsch 1980, Holmes 1998,
Farber 2005, Lafer and Allegretto 2011).'' The authors did their own
study of Oklahoma and found no effect, at least in the short run, on
state outcomes including employment and wages. See Ozkan Eren and
Serkan Ozbeklik, ``What Do Right-To-Work Laws Do? Evidence From a
Synthetic Control Method Analysis'' [author-posted version of article
published in Journal of Policy Analysisand Management, vol. 35, no. 1
(July 15, 2015), 1].
Rev. Martin Luther King Jr. targeted the misleading nature of
the ``right-to-work'' slogan in 1961 when he said the purpose of
``right to work'' is ``to destroy labor unions and the freedom of
collective bargaining by which unions have improved wages and working
conditions of everyone.'' \99\
---------------------------------------------------------------------------
\99\ Nathan Newman, ``MLK Jr. Died at a Union Picket Line,'' Labor
Blog, January 16, 2006.
---------------------------------------------------------------------------
Corporate Lobbies and Allied Lawmakers Are Dismantling the
Rights of Public-Sector Union Workers
When state budget deficits increased after the Great Recession,
business-backed governors in a number of states sought to curb the
powers of public-sector unions by arguing that government unions were
to blame. Though these anti-union laws were presented as homegrown
responses to specific fiscal distress in each state, the laws'
similarities, and the fact that states with more fiscal distress were
not more likely to introduce such legislation, suggest that lawmakers
were enacting an agenda driven and funded by national corporate
interests. In fact, the financial distress was caused by Wall Street's
excessive risk-taking, not by unions.\100\ And, many of the same states
that curbed state employee unions also enacted new tax cuts for the
wealthy.\101\
---------------------------------------------------------------------------
\100\ According to Gordon Lafer in The One Percent Solution, the
argument that budget deficits were the result of overspending
bureaucrats and overly generous union contracts did not fit the facts:
there was no statistical correlation between the size of budget
deficits and the presence or strength of labor unions. See Gordon
Lafer, The One Percent Solution: How Corporations Are Remaking America
One State at a Time (Ithaca, N.Y.: Cornell University Press, 2017).
\101\ In Wisconsin, for example, half of the tax cuts enacted from
2011 to 2014 went to the richest 20 percent of the state's population.
See chapter 1 in Gordon Lafer, The One Percent Solution: How
Corporations Are Remaking America One State at a Time (Ithaca, N.Y.:
Cornell University Press, 2017).
From 2011 to 2015, fifteen states enacted legislation severely
limiting or even dismantling collective bargaining rights for public-
sector unions.\102\
---------------------------------------------------------------------------
\102\ Unless otherwise noted, information in these bullets comes
from Gordon Lafer, The One Percent Solution: How Corporations Are
Remaking America One State at a Time (Ithaca, N.Y.: Cornell University
Press, 2017).
Wisconsin's ``Budget Repair Bill'' (Act 10) largely
eliminated collective bargaining rights for the state's 175,000 public
employees. While the law does not explicitly outlaw collective
bargaining, it prohibits public employees from negotiating about
anything other than wages (and then only to adjust wages for
inflation); it outlaws fair share fees; it eliminates the ability to
pay union dues through the state payroll; and it requires unions to
hold expensive recertification elections every year to remain in
existence.\103\
---------------------------------------------------------------------------
\103\ Ohio's law was overturned by citizen referendum and
Minnesota's bill was vetoed by the governor. The other 13 states are
Idaho, Illinois, Indiana, Maine, Michigan, Nebraska, New Hampshire, New
Jersey, Nevada, Oklahoma, Pennsylvania, Tennessee, and Wisconsin.
The share of workers in unions in Wisconsin dropped from
15.2 percent in 2009 to 8.3 percent in 2015.\104\
---------------------------------------------------------------------------
\104\ Alana Semuels, ``How to Kill the Middle Class,'' The
Atlantic, December 7, 2016.
[GRAPHIC] [TIFF OMITTED] T2618.014
_______________________________________________________________________
Union density is measured as share of workers covered by collective
bargaining. Six states have right-to-work laws that were enacted in the
last five years (in 2012 or later): Indiana, Kentucky, Michigan,
Missouri, Wisconsin, and West Virginia.
Sources: The Union Membership and Coverage Database
(www.unionstats.com), compiled by Barry Hirsch and David Macpherson,
and ``Right-to-Work Resources,'' National Conference of State
Legislatures, web page accessed August 22, 2017.
Other state laws eliminated collective bargaining rights for
certain groups of workers (school teachers in Tennessee, municipal
employees in Oklahoma, farmworkers and child care workers in Maine, and
home care workers in Michigan) or restricted what public employees can
bargain about (health care in New Jersey).
Beyond curbs to collective bargaining are a set of state
measures that target the power of public-sector unions by cutting
public-
sector wages and benefits and restricting unions' ability to collect
dues through the public payroll.
Anti-union laws are gateway laws to broader anti-worker
measures. Some states that succeed in degrading public collective
bargaining go on to pass other laws that diminish worker rights.\105\
Wisconsin, for example, eliminated the requirement to allow workers at
least one day off per 7-day week (that is, the requirement that workers
get at least one weekend day per week).\106\
---------------------------------------------------------------------------
\105\ In the wake of Act 10, Wisconsin enacted a broad rewrite of
its civil service law, lengthening the probationary period for new
employees (during which time they can be fired for any reason) and
centralizing hiring with the Department of Administration, a highly
politicized agency; union representatives fear the law will lead back
to a system where political appointees have disproportionate power to
reward friends and punish enemies. See Dan Kaufman, ``The Destruction
of Progressive Wisconsin,'' New York Times, January 16, 2016; Jason
Stein and Patrick Marley, ``Scott Walker Signs Civil Service
Overhaul,'' Milwaukee Journal-Sentinel, February 12, 2016.
\106\ The provision was passed as part of the state budget. See
Stephanie Bloomingdale, ``Walker and GOP Just Took Away the Weekend,''
Milwaukee Journal-Sentinel, July 13, 2015.
---------------------------------------------------------------------------
Attacks on Public-Sector Collective Bargaining
Are Playing Out in the Courts
In the public sector, there is a similar attack on collective
bargaining playing out in the courts. In Abood v. Detroit Board of
Education, 431 U.S. 209 (1977), the Supreme Court upheld the use of
fair share fees in public-sector unions against a challenge based on
the First Amendment. The Court held that public-sector employees who
elect not to join the union may be charged a fee to cover the cost of
collective bargaining and contract administration. Fair share fees may
not be used to support union political activities. These fair share
fees ensure that all workers represented by the union pay their fair
share of the cost of that representation.
In 2016, the Supreme Court heard oral argument in Friedrichs v.
California Teachers Association, which, among other things, addressed
whether Abood should be overruled and public-sector fair-share fee
arrangements invalidated under the First Amendment. On March 29, 2016,
the Supreme Court affirmed Abood by an equally divided 4-4 split.\107\
---------------------------------------------------------------------------
\107\ A split decision effectively upholds the ruling of the lower
court. 136 S.Ct. 1083 (2016).
Pro-RTW organizations have continued to litigate challenges to public-
sector unions' fair share fee requirements. One of those cases, Janus
v. AFSCME, will likely be heard in the Supreme Court's upcoming
term.\108\
---------------------------------------------------------------------------
\108\ Janus v. AFSCME (7th Cir.) (Docket No. 16-3638); see Marni
von Wilpert, Testimony for New York City Council Committee on Civil
Service and Labor, April 19, 2017, and ``Janus v. American Federation
of State, County, and Municipal Employees, Council 31,'' SCOTUSblog
(last accessed August 15, 2017).
---------------------------------------------------------------------------
Conclusion: Unions Are Essential to a Fair Economy
and a Vibrant Democracy
Unions are a dynamic and ever-evolving institution of the American
economy that exist to give working people a voice and leverage over
their working conditions and the economic policy decisions that shape
these conditions. Collective bargaining is indispensable if we want to
achieve shared prosperity.
But it is precisely because they are effective and necessary for shared
prosperity that unions are under attack by employers who want to
maintain excessive leverage over workers and by policymakers
representing the interests of the top 1 percent. These attacks have
succeeded in increasing the gap between the number of workers who would
like to be represented by a union and the number who are represented by
a union. And these threats to the freedom to join together in unions
haven't been met with a policy response sufficient to keep the playing
field level between organizing workers and the employers looking to
thwart them.
Giving workers a real voice and leverage is essential for democracy.
While unions historically have not been able to match corporate
political donations dollar for dollar, working people organizing
together in unions play an equalizing role because they can motivate
members to give their time and effort to political causes. For example,
one study found that unions are very effective at getting people to the
polls--especially increasing voting among those with only a high school
education.\109\
---------------------------------------------------------------------------
\109\ Jake Rosenfeld finds that unions increase voter turnout,
especially in the private sector. Voting rates are ``5 percentage
points higher than the rates of non-members'' (Jake Rosenfeld, What
Unions No Longer Do [Cambridge, Mass.: Harvard University Press, 2014],
170-171).
As this report has shown, unions--when strong--have the capacity to
tackle some of the biggest problems that plague our economy, from
growing economic inequality, wage stagnation, and racial and gender
---------------------------------------------------------------------------
inequities to eroding democracy and barriers to civic participation.
And, unions also help to address current workforce trends that are
increasing work insecurity, from the rise of part-time work and unpaid
internships to the exploitation of student athletes to increasing
numbers of Uber drivers and other ``gig economy'' workers.\110\ In a
recent New York Times op-ed, Kashana Cauley cited some of these trends
and called on her millennial peers to lead the next labor
movement.\111\ Indeed, there is evidence that young workers are primed
to do so: 55 percent of 18- to 29-year-old workers view unions
favorably, compared with 46 percent of workers age 30 and older.\112\
And young people of both political parties are more amenable to labor
unions than their older peers.\113\ Having entered the workforce during
the last recession, these young workers have experienced a labor market
with lower wages, diminishing benefits, ``noncompete'' clauses that
make it harder for even entry-level employees to move to better jobs,
and other facets of increasing insecurity, Cauley explains.\114\
---------------------------------------------------------------------------
\110\ EPI has researched unpaid internships and part-time work. See
for example, Ross Eisenbrey, ``Unpaid Interns Fare Worse in the Job
Market,'' Economic Policy Institute Snapshot, July 6, 2016 and Lonnie
Golden, Still Falling Short on Hours and Pay: Part-time Work Becoming
New Normal, Economic Policy Institute, December 5, 2016. Many news
articles have covered the plight of student athletes, who generate
substantial sums for their universities but earn no pay themselves. See
for example, Taylor Branch, ``The Shame of College Sports,'' The
Atlantic, October 2011. Uber drivers have been trying to organize in
Seattle but the company is fighting it, requiring its customer service
representatives to call drivers with a script arguing that it would be
bad for them. See Alison Griswold, ``Uber Is Using Its U.S. Customer
Service Reps to Deliver Its Anti-union Message,'' Quartz, February 20,
2016.
\111\ Kashana Cauley, ``Why Millennials Should Lead the Next Labor
Movement,'' New York Times, July 13, 2017.
\112\ ``Mixed Views of Impact of Long-Term Decline in Union
Membership: Public Says Workers in Many Sectors Should Be Able to
Unionize,'' Pew Research Center, April 27, 2015.
\113\ Elizabeth Bruenig, ``Even Conservative Millennials Support
Unions,'' New Republic, May 1, 2015.
\114\ Kashana Cauley, ``Why Millennials Should Lead the Next Labor
Movement,'' New York Times, July 13, 2017.
Certainly, Americans of all ages, occupations, races, and genders have
a vested interest in making sure our economy works for everyone. To
promote an inclusive economy and a robust democracy, we must work
together to rebuild our collective bargaining system.
Acknowledgments
The authors would like to thank our coworkers who provided valuable
feedback on drafts of this report and contributed data and examples,
including Daniel Essrow, Kayla Blado, Elizabeth Rose, Monique
Morrissey, David Cooper, Julia Wolfe, Jessica Schieder, and Samantha
Sanders. We are also thankful to Krista Faries for her excellent copy
editing and Margaret Poydock for laying out the report.
______
MANUFACTURING PROSPERITY
A Bold Strategy for National Wealth and Security
Sridhar Kota
Thomas C. Mahoney
June 2018
Report number: MF-TR-2018-0302
MForesight: Alliance for Manufacturing Foresight
www.MForesight.org
Offshore production in advanced manufacturing has reached a critical
point in which the strategy of ``invent here, manufacture there'' has
become ``invent there, manufacture there.'' The United States must take
bold steps to arrest this development and take advantage of
transformational technologies to rebuild domestic manufacturing prowess
for national wealth and security. These bold steps require a central
national focal point with a comprehensive strategy, and significant and
sustained public and private investments:
1. Invest in translational research and manufacturing innovation.
2. Encourage domestic pilot production and scale-up.
3. Empower small and medium-sized manufacturers to deploy advanced
technologies.
4. Grow domestic engineering and technical talent.
Positive national impacts will justify the needed investments. The
United States will:
1. Regain fundamental manufacturing capabilities;
2. Ensure a return on federal investments in R&D;
3. Capitalize on technology changes broadly affecting manufacturing;
4. Establish leadership in new industries of the future; and
5. Restore the broad-based supplier networks that are essential to
economic and national security.
Because of a confluence of economic and technological forces, the
United States now has an opportunity to rebuild its manufacturing base
and restore its global competitiveness. But another report will not
help. Bold steps commensurate with the scale and importance of the
objectives are absolutely necessary. Implementing these bold steps
requires a national focal point of responsibility with a comprehensive
strategy and significant and sustained public and private investments.
Other countries are not standing still. The onus is on us.
FOREWORD
American manufacturing faces both daunting challenges and
transformative opportunities. Ensuring national security, preserving
the nation's innovation edge, sustaining jobs, and maintaining global
manufacturing leadership will require foresight, skillful cross-sector
thinking, and serious investments.
In early 2018, MForesight: Alliance for Manufacturing Foresight
conducted a series of roundtables with manufacturing experts, business
leaders, and policymakers in cities across the United States. The
objective was to gather perspective from multiple regions with industry
clusters ranging from advanced technology sectors, such as electronics,
biotechnology, and advanced materials, to large traditional, albeit
still advanced sectors such as automotive, construction equipment, and
food processing. Roundtables were held in Austin, Boston, Detroit,
Indianapolis, Raleigh, San Jose, and Washington, DC. To focus the
discussion, participants were provided with information on trends in
trade, value added, employment, foreign direct investment, research,
start-ups, investment, and other key indicators on the state of U.S.
manufacturing.
Roundtable discussions focused on several key questions:
1. Regaining America's Industrial Commons: What foundational
capabilities are essential for the United States to regain a global
leadership position and to ensure the strength of the defense supply
chain? How can the United States strengthen its ecosystem of
manufacturing expertise and production capacities in key sectors?
2. Capitalizing on national investments in research and development
(R&D): What steps are needed to ensure that America captures the wealth
generated from new products and processes emerging from its large
national R&D spending? How can the United States achieve first-mover
advantage in research-intensive advanced technology products?
3. Ensuring financing for hardware start-ups and scale-ups: What
policies and programs would increase opportunities for manufacturing
start-ups to thrive, scale their operations, and root production in
this country?
These questions are at the heart of the grand challenges facing U.S.
manufacturing. Roundtable participants were asked to identify
actionable recommendations for both public and private stakeholders
that would meet these challenges. Their assessment of the urgency of
the challenges and recommendations are presented in this report.
Because so much information was gathered about multiple industries,
research programs, and competing national strategies, this report is
the first of several on grand challenges forthcoming from MForesight.
Advances in production technology are changing manufacturing,
presenting an opportunity for dramatic change that can restore national
production for both defense and economic security. But, as more than
100 roundtable participants agreed, another report will not restore
U.S. manufacturing competitiveness. Bold initiatives, with full
understanding of the multi-faceted nature of the challenges, are
necessary. The recommendations in this report include such bold steps.
EXECUTIVE SUMMARY
American manufacturing faces both daunting challenges and
transformative opportunities. As production has moved offshore over
recent decades, manufacturers have steadily moved research and
development (R&D) activities offshore as well to be close to the
factories where product and process engineering skills reside. These
shifts have come with serious consequences. America has seen a decline
in its ability to manufacture new advanced technology products.
Rebuilding capacity in advanced industries is essential to achieving
long-term prosperity, ensuring national security, and preserving the
nation's innovation edge. Doing so will require foresight, skillful
cross-sector thinking, and serious investments.
New opportunities are also emerging: extensive, pervasive technological
change in manufacturing should create a positive future for domestic
production. The new parameters play to American strengths:
Flexibility and adaptability;
A large capital market;
Superior higher education; and
World-leading R&D.
But recapturing industrial leadership will require recognition of the
importance of manufacturing and a focus on launching the industries of
the future.
In early 2018, MForesight: Alliance for Manufacturing Foresight
conducted a series of roundtables with manufacturing experts, business
leaders, academic researchers, entrepreneurs, investors, and
policymakers in cities across the United States. The objective was to
gather perspective on the current state of U.S. manufacturing, the
grand challenges facing U.S. manufacturing, and actions that the public
and private sectors should take to meet those challenges. Their
assessment of the urgency of the challenges and steps to meet them
informed the critical next steps identified in this report.
Grand Challenges in U.S. Manufacturing
A simple articulation of the grand challenges that must be addressed to
capture this prosperous future include:
1. Rebuild the Industrial Commons
The United States has lost fundamental production skills and
capabilities--the Industrial Commons--in many industries.\1\
This has meant the loss of entire industrial sectors over time,
with noticeable impacts on the national innovation system.
Production can provide competitive advantages that are
difficult to replicate. Maintaining domestic manufacturing
capabilities is essential to retaining the know-how needed to
produce next generation technologies and to meet critical
defense production.
---------------------------------------------------------------------------
\1\ Pisano, G.P., and Shih, W.C. (2009). ``Restoring American
competitiveness.'' Harvard Business Review (July-August). Retrieved
from https://hbr.org/2009/07/restoring-american-competitiveness;
Pisano, G.P., and Shih, W.C. (2012). Producing prosperity: Why America
needs a manufacturing renaissance. Boston, Mass.: Harvard Business
Review Press.
---------------------------------------------------------------------------
2. Convert national R&D to national wealth and security
Leading the world in R&D spending is not sufficient to ensure
prosperity. Technologies invented here are being licensed,
sold, or given away to manufacture overseas, which, in effect,
is subsidizing R&D for other countries. Results of R&D should
be strategically nurtured to create new products, including
defense-critical technology products, that are made in America
at commercial scale to generate wealth, jobs, and exports.
3. Lead emerging industries
To ensure future economic strength and defense superiority, the
United States must have a leadership position in emerging
industries such as autonomous vehicles, robotics, multi-
material additive manufacturing, bio-manufacturing, energy
storage, advanced materials, and quantum computing, to name a
few. Dependence on foreign suppliers is creating defense
vulnerabilities and significant long-term costs.
Bold steps are needed to ensure that these challenges are met quickly
and aggressively. Market forces alone are unlikely to achieve the
needed change. They have not so far. With sustained, strategic
investments, the United States can:
Regain fundamental manufacturing capabilities;
Ensure a return on federal investments in R&D;
Capitalize on technology changes broadly affecting
manufacturing;
Establish leadership in new industries; and
Restore the broad-based supplier networks that are essential to
economic and national security.
Restoring U.S. manufacturing leadership and, perhaps more importantly,
restoring the nation's ability to capture wealth from the national
innovation system with a robust manufacturing base, is a challenge to
both the private and public sectors. Manufacturers, driven by short-
term financial incentives, primarily focus on applied research and
incremental product development rather than the translational research
needed to commercialize basic research results to capture the ``next
big thing.'' Only government can overcome this market failure to ensure
that the United States remains globally competitive.
Critical Nest Steps
Addressing these grand challenges in manufacturing will require
concerted effort from the nation's public and private sectors. Critical
next steps include:
1. Invest in translational research and manufacturing
innovation
The innovation cycle that converts R&D results--new inventions
and discoveries--into successful commercial products may be
working well in software, but it is subject to significant
failures with regard to manufactured hardware. Funding for the
translational research needed to develop operational
prototypes, demonstrate manufacturability, and identify viable
markets is frequently unavailable. Promising technologies
languish in laboratories. Funding and expertise is needed to
fill this gap. Effective investment can result in more
prototyped and demonstrated products, reducing technical and
market risks and boosting commercialization and production.
2. Encourage pilot production and scale-up
To restore domestic production and overall leadership in
emerging industries, America needs to invest in advancing
manufacturing technologies, increasing pilot production, and
scaling up to viable commercial volume. In some cases--
semiconductor packaging and pharmaceuticals are examples--new
production technologies are creating opportunities for U.S.
industry to regain leadership. In others, commercial scale
production can be achieved by ensuring patient capital is
available and demand is sufficient. Leveraging government
procurement is an effective tool.
3. Empower small and medium-sized manufacturers
While these manufacturers form the backbone of industrial
supply chains, they tend to implement new technologies slowly.
There is a pressing need for mechanisms to accelerate the use
of smart manufacturing technologies, increase their access to
necessary expertise, and build better links between market
demands for production capability and their ability to provide
it. Mechanisms are also needed to increase small firms'
capacity to commercialize research results, such as simple
licensing agreements that will encourage technology transfer
from universities.
4. Grow domestic engineering and technical talent
To rebuild the Industrial Commons, a combination of incentives
could increase the number of manufacturing apprenticeship
programs, train engineering technicians with applied
engineering skills, and entice capable domestic graduates to
pursue advanced degrees to overcome America's dependence on
foreign graduate students in key scientific and engineering
fields.
The United States needs a broad national conversation to identify the
necessary steps to achieve these objectives. At MForesight's
roundtables, diverse stakeholders presented a number of promising
ideas, including establishing a ``focal point'' office in the federal
government for leveraging the strengths and outcomes of different
agencies to mature Technology Readiness Levels (TRLs) and manufacturing
research to mature Manufacturing Readiness Levels (MRLs) so that
emerging technologies can be manufactured domestically at commercial
scale. Other ideas included establishing university-affiliated
Translational Research Centers, launching special competitions focused
on manufacturing challenges, creating industry fellowships to harness
the expertise of retired manufacturing experts, and building the
financial resources to increase investment in hardware start-ups and
scale-ups, among other ideas.
Implementation Options
These ideas should be part of a comprehensive national strategy,
ideally implemented in a coordinated way with a single point of focus
to orchestrate the required funding streams and to maintain strategic
program management. The roundtable participants proposed a few
implementation options, including creating a national innovation
initiative, establishing a national manufacturing innovation
foundation, and establishing a manufacturing program within each of the
federal science and technology agencies. They fully expect the
policymakers to convene and make decisions on how best to implement the
critical steps identified in the previous section. A piecemeal
approach, addressing one or two critical steps but not all, will not
help.
Conclusions
1. Manufacturing really matters for economic and national security.
2. Being the best in the world in scientific discoveries and
engineering inventions is critical but not sufficient to ensure
national prosperity.
3. Manufacturing and innovation are intricately linked. Reaping the
full rewards of rapid technological advances, the nation must
manufacture today's advanced technology products so it can innovate
next generation products.
Because of a confluence of economic and technological forces, the
United States now has an opportunity to rebuild its manufacturing base
and restore its global competitiveness. But another report will not
help. Bold steps commensurate with the scale and importance of the
objectives are absolutely necessary. Other countries are not standing
still. The onus is on us.
INTRODUCTION
_______________________________________________________________________
``If any particular manufacture was necessary, indeed, for the defense
of the society, it might not always be prudent to depend upon our
neighbors for the supply.''
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of
Nations, 1776
Advanced technology manufacturing industries in the United States are
in a precarious position. After decades of shifting production offshore
to reduce labor costs, fundamental production skills and capabilities
have been lost; domestic suppliers of essential parts and components
are unavailable; and the ability to manufacture new advanced technology
products is severely constrained. As production has moved offshore,
manufacturers are moving more research and development (R&D) to be
close to the factories where the product and process engineering skills
reside. The implications for future technology leadership, economic
growth, and national security are dire. Maintaining the trajectory of
recent decades--a shrinking manufacturing base and large trade deficits
in advanced technologies--will result in a second tier industrial
economy, unable to maintain superiority in defense or global economic
leadership. Signs of this ominous future are already apparent.
Fortunately, the possibility of a competitive, prosperous future is
also apparent. Extensive and pervasive technological change in
manufacturing is creating an opportunity to ensure a positive future
for domestic production. The coming decades promise a much more
responsive, flexible, and intelligent manufacturing sector. Small
batch, customized, local production will be both feasible and necessary
to meet evolving consumer demand. These advanced manufacturing
technologies are shifting the basis for competitive production in many
industries, away from low-cost labor inputs toward effective use of
smart, digital, flexible production. This manufacturing revolution is
shifting priorities for skill development, capital investment,
production location, product features, and multiple other parameters
that were once common wisdom. The new parameters play to American
strengths: flexibility and adaptability, a large capital market,
superior higher education, and the world's best R&D. In fact, Deloitte
projects that the United States will top its Global Manufacturing
Competitiveness Index in 2020, ahead of China, largely based on
implementation of advanced manufacturing technologies and a shift to
higher value, more sophisticated products.\2\ But taking advantage of
these strengths to recapture industrial leadership will require
national recognition of the importance of manufacturing and a focus on
building the industries of the future.
---------------------------------------------------------------------------
\2\ Deloitte and U.S. Council on Competitiveness. (2016). 2016
global manufacturing competitiveness index. Deloitte Touche Tohmatsu
Limited. Retrieved from https://www2.deloitte.com/global/en/pages/
manufacturing/articles/global-manufacturing-competitiveness-index.html.
---------------------------------------------------------------------------
Grand Challenges in U.S. Manufacturing
Despite the federal government investing over $140 billion in R&D year
after year, annual U.S. trade deficits in advanced technology products
continue to hover around $100 billion. Federal science and technology
(S&T) agencies and American universities and national laboratories
funded by them continue to be successful in developing promising
scientific discoveries and inventions. However, in too many cases,
foreign governments and investors have been taking advantage of
promising results, building large production capacity, and exporting
the products back here. Consumer electronics, personal computers and
laptops, lithium-ion batteries, flat panel displays, photovoltaics,
nanotechnology, and biomanufacturing are all examples. American
taxpayers have funded the basic research, only to create wealth and
jobs elsewhere. Fixing this gaping hole in the nation's innovation
ecosystem requires that the United States make the investments being
made by competing countries--investment in engineering and
manufacturing processes and equipment. Science is not engineering.
Distinct from science, engineering means not just analysis and
discovery but synthesis and innovation aimed at turning promising,
albeit abstract, ideas into tangible new products and processes.
Committing additional investment funds to translate promising
discoveries and inventions into commercial products will be an
essential step in restoring U.S. leadership (and the trade balance) in
advanced technologies.
The longer the status quo continues, the more difficult and expensive
solutions will become. Understanding the extent of the problem should
motivate action now. A simple articulation of the grand challenges that
must be addressed to capture a prosperous future include:
Rebuilding the Industrial Commons: The United States has lost
fundamental production skill and capabilities--the Industrial Commons--
in many industries and has lost entire industrial sectors, with
noticeable impacts on the national innovation system. Gary Pisano and
Willy Shih, professors at Harvard, identified the importance of the
Industrial Commons and raised an alarm about its loss in 2009(!).\3\
Many of the industries they identified as ``at risk'' then, such as
electronic displays and mobile handsets, have already been lost.
---------------------------------------------------------------------------
\3\ Pisano, G.P., and Shih, W.C. (2009). ``Restoring American
competitiveness.'' Harvard Business Review (July-August). Retrieved
from https://hbr.org/2009/07/restoring-american-competitiveness;
Pisano, G.P., and Shih, W.C. (2012). Producing prosperity: Why America
needs a manufacturing renaissance. Boston, Mass.: Harvard Business
Review Press.
Gaining competitive advantage from manufacturing: Production can
provide competitive advantages that are difficult to copy and have
long-term sustainability. There is a difference between parts and
assemblies that become commodities as technology advances and
manufacturing capabilities that become devalued as a source of
competitive advantage because Asian manufacturers, backed by
mercantilist government policies, offer to produce for little or no
margins. Maintaining domestic manufacturing capabilities is essential
to retaining the know-how needed to produce next-generation
---------------------------------------------------------------------------
technologies, and to retaining critical defense production.
Converting U.S. R&D to national wealth and security: Leading the world
in R&D spending does not ensure prosperity or national security. The
nature of research is such that a relatively small percentage results
in the potential for new products, processes, even entire industries.
These promising results mustbe nurtured to commercialize them in this
country to generate wealth, jobs, and exports. Too often, once a
discovery is proven in the laboratory, funding dries up. New inventions
either languish for lack of funding to develop proof-of-concept
prototypes; cannot be manufactured domestically for lack of capital,
skills, or production capabilities; or are made in China. Technologies
invented here are being licensed, sold, or given away to manufacture
overseas, which, in effect, is doing R&D for other countries. The
United States needs both a national strategy and effective mechanisms
to build wealth through manufacturing promising research results rather
than allow foreign entities to cherry-pick winners.
Capturing the gains from new manufacturing technologies: Advances in
technologies ranging from high-performance materials to ubiquitous
sensors, from self-correcting robots/machines to autonomous factories,
will transform both products and processes. Maximizing the benefits
will require rapid, broad implementation, which in turn will require
that the necessary equipment and tools, talent and skills are available
especially to small and medium-sized manufacturers (SMMs). Adoption of
``smart manufacturing'' technologies has been too slow to date.
Resources, incentives, and support must be mobilized to move quickly,
learn from mistakes, and sustain successes across all tiers and
industries.
Leading emerging industries: To ensure future economic strength and
defense superiority, the United States must have a leadership position
in emerging industries such as autonomous vehicles, robotics, metal-
additive manufacturing, biomanufacturing, energy storage, advanced
materials, and quantum computing, to name a few. Dependence on foreign
suppliers, regardless of how much cheaper they may be, is creating
defense vulnerabilities and long-term competitive disadvantages. Labor
cost differentials across countries are shrinking and direct labor is
rarely a significant share of total production costs in advanced
industries. There is little excuse not to lead in emerging industries
and to maintain a strong competitive position.
Bold steps are needed to ensure that these challenges are met quickly
and aggressively. Market forces alone will not achieve the needed
change. In fact, market failures have made the problems worse over
time. With sustained, strategic investments, the United States can
regain fundamental manufacturing capabilities, ensure a return on
federal investments in R&D, capitalize on technology changes broadly
affecting manufacturing, establish leadership in new industries, and
restore the broad-based supplier networks that are essential to
economic and national security.
LOSING THE INDUSTRIAL COMMONS
_______________________________________________________________________
The Industrial Commons is the set of knowledge and practical skills,
supply chains and production capacity, materials and equipment, and
overall industrial ecosystems that enable manufacturing across multiple
industries. The term was coined by Pisano and Shih in 2009 and further
elaborated in 2012.\4\ Even before then, many studies, some dating back
to the 1980s, have lamented the loss of U.S. manufacturing
competitiveness. Despite remarkable advances in technology and a few
government programs intended to strengthen domestic manufacturing, the
situation has grown progressively worse over decades. Restoring the
Industrial Commons is essential to restoring U.S. manufacturing
competitiveness, but the more time passes, the more complex and
expensive solutions have become.
---------------------------------------------------------------------------
\4\ Ibid.
---------------------------------------------------------------------------
Current State of U.S. Manufacturing
A few indicators of the current state of U.S. manufacturing are
instructive. First consider the U.S. trade balance in advanced
industries. As Figure 1 illustrates, in 2016 the United States had a
positive trade balance in only two advanced industries: aerospace and
(barely) engines and turbines.\5\ Even in industries such as medical
devices and pharmaceuticals, in which the federal government invests
significant R&D and is the single largest customer, the nation does not
maintain a positive trade balance. Furthermore, most domestic
manufacturing industries use substantially more imported content than
they did 20 years ago, as illustrated in Figure 2.\6\ Imported content
in technology-driven innovative products has grown from 45 to 58
percent in the past 15 years with no sign that the trend will change.
One direct result from the growth of imports is that real value added
in U.S. manufacturing is hardly higher now than in the mid-1990s
(Figure 3); excluding computers and pharmaceuticals, it is barely 40
percent higher than in 1980, over 35 years in which U.S. gross domestic
product (GDP) grew more than 2.5 times.\7\ The United States has
already fallen behind Japan, South Korea, Germany, and other European
nations in manufacturing value added as a percentage of GDP and in the
value added contributed by high-technology industries to total
manufacturing value added.\8\
---------------------------------------------------------------------------
\5\ IBISWorld. (2017). [Relevant industry reports]. Retrieved from
IBISWorld database.
\6\ McKinsey Global Institute. (2017). Making it in America:
Revitalizing U.S. manufacturing. McKinsey and Company. Retrieved from
https://www.mckinsey.com/featured-insights/americas/making-it-in-
america-revitalizing-us-manufacturing.
\7\ Ibid.
\8\ ``Biting the bullet: China sets its sights on dominating
sunrise industries.'' (2017). The Economist. Retrieved from https://
www-economist-com.proxy.lib.umich.edu/news/finance-and-economics/
21729442-its-record-industrial-policy-successespatchy-china-sets-its-
sights.
[GRAPHIC] [TIFF OMITTED] T2618.015
[GRAPHIC] [TIFF OMITTED] T2618.016
These statistics lend credence to what has become accepted wisdom--the
United States is a post-industrial economy, fully globalized and
integrated into the international production system. For many,
manufacturing has simply followed the same path as agriculture,
becoming a smaller proportion of GDP and providing fewer jobs, while
national specialization moves to higher value activities. But
manufacturing, especially but not exclusively, high-technology product
manufacturing, is essential to national security. Manufacturing at
scale is intricately linked to the ability to innovate next-generation
products, yet domestic manufacturing is not the national priority it
---------------------------------------------------------------------------
should be.
On one hand, it has become common wisdom that ``manufacturing is done
in China.'' Kai-Fu Lee, a former senior Google executive, who now runs
a venture capital fund and accelerator in Beijing, put it this way:
``Innovation moves faster here.'' \9\ On the other, it is increasingly
clear that globalization, mostly driven by U.S. manufacturers moving
production to low-wage countries in Asia, has had significant
detrimental effects on the U.S. economy. The loss of Industrial Commons
means that not only are an increasing number of advanced technologies
manufactured abroad but also that the United States cannot manufacture
many of them. Skills have been lost, supply chains nearly eliminated.
---------------------------------------------------------------------------
\9\ ``The next wave: China's audacious and inventive new generation
of entrepreneurs.'' (2017). The Economist. Retrieved from https://www-
economist-com.proxy.lib.umich.edu/briefing/2017/09/23/chinas-audacious-
and-inventive-new-generation-of-entrepreneurs.
[GRAPHIC] [TIFF OMITTED] T2618.017
Moving Production Offshore
Much of the initial offshoring stampede was led by consumer electronics
in the 1960s after the invention of transistors, widespread use of
standard shipping containers, and low-cost assembly workers in Asia
lowered the cost and expanded the market for consumer radios and
televisions. Offshoring accelerated significantly after China joined
the World Trade Organization in 2001 and as the capabilities of Asian
producers increased, leading to U.S. firms contracting design and,
ultimately, product development. By abdicating production, U.S. firms
lost the ability to innovate and, in many cases became nothing more
than brand names--think Sylvania, Magnavox. By the new millennia,
virtually all consumer electronics were designed and made in Asia,
along with personal computers and laptops. As would be expected,
production of almost all the components shifted to Asia, too, despite
serious concern by both industry and government in the late 1980s and
early 1990s over the urgency of maintaining domestic production in
areas such as dynamic random access memory (DRAM).
By the time new consumer electronic devices emerged, such as the iPod
and later smart phones, domestic manufacturing was impossible because
all the components were manufactured in Asia, despite the research to
create these components in the first place all done here (see Figure
4). Research funded by the Department of Defense (DoD), the National
Science Foundation (NSF), the National Institutes of Health (NIH), the
Department of Energy (DoE), and the National Institute of Standards and
Technology (NIST) contributed to the breakthrough technologies of
magnetic storage drives, lithium-ion batteries, and the liquid crystal
display, which came together in the development of MP3 devices and
later in iPods and iPhones. The device itself is innovative, but it
built upon a broad platform of component technologies, each derived
from fundamental studies in physical science, mathematics, and
engineering.\10\
---------------------------------------------------------------------------
\10\ Domestic Policy Council. (2006). American competitiveness
initiative: Leading the world in innovation. Office of Science and
Technology Policy. Retrieved from https://files.eric.ed.gov/fulltext/
ED503266.pdf.
The ramifications of this lost production base have become profound.
For instance, the leading disruptive force in the global economy has
been mobile communications. The United States invented cellular
communication technology and in the early years, companies like
Motorola manufactured phones in this country. Although Apple led the
shift to smart phones beginning in 2007, no iPhones were ever
manufactured here. By then, all the inputs to the iPhone--display,
memory, communication chips, etc.--were manufactured in Asia. Even
sophisticated application-specific integrated circuits (ASICs) were
made in Asian, primarily Taiwanese, semiconductor foundries. Successive
generations of iPhones have followed the same pattern, in many cases
with Apple providing assistance to their Asian suppliers to ensure
access to sufficient production equipment and continue to raise their
manufacturing capabilities. The results have been stellar for Apple
profits, share price, and iPhone consumers, but the United States has
no foothold in actually making the single most important product
segment of the current era.\11\ Even Android smartphones, some designed
by Google and other American firms, are not, and cannot, be made in the
United States.
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\11\ Half of all iPhones are assembled by Foxconn in Zhengzhou,
China at a factory that employs 350,000 during peak production.
Barboza, D. (2016, December 29). ``How China built `iPhone city' with
billions in perks for Apple's partner.'' The New York Times. Retrieved
from https://www.nytimes.com/2016/12/29/technology/apple-iphone-china-
foxconn.html.
Flat panel displays are another broad category of electronics that
cannot be manufactured in this country despite their ubiquity. Again,
the technologies that enable most flat panel displays were invented by
U.S. companies and universities. Few, if any, factories for LCD and LED
large diameter flat panel displays were ever opened in the United
States.\12\ Without that production experience, U.S. companies have
been unable to commercialize the next generation of flexible displays,
despite significant R&D investments by the U.S. military.\13\
---------------------------------------------------------------------------
\12\ There are currently two U.S.-based producers of OLED micro
displays, Kopin in Westborough, Massachusetts and eMagin in Bellevue,
Washington.
\13\ The Flexible Electronics and Display Center established by the
U.S. Army at Arizona State University in 2004 includes multiple foreign
partners such as Sharp, Auo, and LG.
[GRAPHIC] [TIFF OMITTED] T2618.018
At least part of the explanation for the shift of semiconductor and
electronic production to Asia is found in the early days of the
semiconductor industry. At the outset, American companies such as
Intel, AMD, Texas Instruments, and Motorola controlled the entire value
chain, from design through manufacturing and packaging of
semiconductors. Initially, packaging was a labor-intensive process.
Microchips are packaged in plastic or ceramics with pins that fit into
circuit boards. Wiring from the chip to the pins was a manual process,
with workers using microscopes to attach the wire leads. Low-cost labor
in Asia, initially Taiwan, Singapore, and Malaysia, was essential to
limit overall production costs. Once packaging moved to Asia, the
expertise in packaging technology moved near the factories, and the
growth of Asian foundries made sense to be near the packaging experts.
And once the total semiconductor value chain was mostly in Asia--Intel,
GLOBALFOUNDRIES, Samsung, Micron Technologies, and NXP are among the
exceptions with semiconductor fabrication facilities (fabs) in the
United States--it made sense for major users of semiconductors such as
---------------------------------------------------------------------------
consumer electronics and computers to locate factories in Asia, too.
The United States is no longer where companies build new fabs. In 2011,
of 27 high-volume fabs built worldwide, only one was in this country;
18 were in China and 4 in Taiwan. In 2018, 20 new fab projects had been
announced in China, with total investment exceeding $10 billion.\14\
Meanwhile, the total numberof fabs in the United States was projected
to decline from 123 in 2007 to 95 by 2017. Predictably, as the industry
has moved, the supply chain has gone with it. U.S. companies continue
to have a majority of global market sales of semiconductors according
to the Semiconductor Industry Association, but that share includes
fabless companies, such as Nvidia and Qualcomm, that have designs
manufactured in Asia by semiconductor foundries such as TSMC in Taiwan,
the market leader.
---------------------------------------------------------------------------
\14\ Tseng, C., and Tracy, D. (2017). ``Fab investment surge in
China.'' SEMI. Retrieved from http://www.semi.org/en/fabinvestment-
surge-china-0.
The American justification for relying on Asian electronics
manufacturers is that these are high-cost, low-margin links in the
value chain; U.S. firms capture the bulk of profits. While true at the
moment, at least for some companies, this same logic began the
offshoring of consumer electronics that led to the loss of the entire
industry. If U.S. companies are dependent on foreign producers,
ultimately their ability to innovate and meet rapid product cycles is
likely to be infringed. In fact, in 2018, shortages of electronic
components--multilayered ceramic chip capacitors, resistors,
semiconductors, graphics cards--are growing as new markets and
applications create surges in demand that mostly Asian manufacturers
are unable to meet.\15\ As data capture and processing becomes
pervasive in both products and processes, the United States will face
ever-increasing dependence on foreign manufacturers across even more
economic sectors. Figure 5 illustrates how this process of shifting
production of new technologies offshore not only continues but has
accelerated. By not manufacturing high-technology products, the nation
loses the ability to innovate next-generation products, loses the
opportunity to create manufacturing jobs and national wealth, and
increases dependence on foreign sources for national security.
---------------------------------------------------------------------------
\15\ McKeefry, H.L. (April 20, 2018). ``Component shortages define
first half of 2018 . . . and beyond.'' EBN. Retrieved from https://
www.ebnonline.com/author.asp?section_id=3219&doc_id
=283376.
[GRAPHIC] [TIFF OMITTED] T2618.019
Potential Impacts on Emerging Industries
An obvious source of concern is automobiles. Electronics are projected
to comprise half the value of automobiles in 2030, as the sensors and
processors needed for autonomous vehicles (AVs) multiply (Figure
6).\16\ Software development and R&D for AVs has clearly been a
priority for automakers. Toyota, for example, has recently opened a
research center in Silicon Valley and started software companies in
Japan and the United States.\17\ Ford has a Smart Mobility unit that
has acquired start-ups in software and cloud computing, and has started
a new ``Ford X'' incubator. Ford is also An obvious source of concern
is automobiles. increasing spending on electric vehicles, with
Electronics are projected to comprise half the plans to launch 40 new
battery and hybrid value of automobiles in 2030, as the sensors models
by 2022. Several automakers have and processors needed for autonomous
contracted with Nvidia (fabless), historically a leader in graphics
processing units, for the processors needed for vehicle autonomy. Based
on existing production capacity, the bulk of these electronic devices
may be designed and engineered in this country, but most will be made
in Asia. An exception is lidar supplier Velodyne, which opened a new
factory in California in 2017 to manufacture its flagship lidar
sensors.\18\ Velodyne entered the lidar business in 2005 after
participating in an autonomous vehicle competition by the Defense
Advanced Research Projects Agency (DARPA). Its sensors are used in U.S.
military vehicles.\19\
---------------------------------------------------------------------------
\16\ ``Automotive electronics cost as a percentage of total car
cost worldwide from 1950 to 2030.'' Statista (2013). Retrieved from
https://www.statista.com/statistics/277931/automotive-electronics-cost-
as-a-share-of-total-car-cost-worldwide/.
\17\ Buckland, K., and Sano, N. (2018, February 5). ``Toyota's way
changed the world's factories. now the retool.'' Automotive News
Canada. Retrieved from http://canada.autonews.com/article/20180205/
CANADA01/302059902/toyotas-way-changed-the-worlds-factories.-now-the-
retool.
\18\ Krok, A. (January 2, 2018). ``Velodyne just made self-driving
cars a bit less expensive.'' Roadshow. Retrieved from https://
www.cnet.com/roadshow/news/velodyne-just-made-self-driving-cars-a-bit-
less-expensive-hopefully/.
\19\ Mozur, P., and Perlez, J. (April 7, 2017). ``China tech
investment flying under the radar, Pentagon warns.'' The New York
Times. Retrieved from https://www.nytimes.com/2017/04/07/business/
china-defense-start-ups-pentagon-technology.html.
[GRAPHIC] [TIFF OMITTED] T2618.020
The emergence of AVs and the shift to electric drivetrains will have
additional impacts on U.S. manufacturing where the transportation
sector comprises 15-20 percent of manufacturing employment. For
instance, under the current North American Free Trade Agreement (NAFTA)
62.5 percent of the net cost of a vehicle must originate in North
America. Current U.S. proposals call for 75 percent of electric or AV
nine years. Experts are skeptical that nine years will be sufficient to
build sufficient electronics production capacity to meet that
mandate.\20\
---------------------------------------------------------------------------
\20\ Carey, N. (May 14, 2018). ``NAFTA math may not add up to more
U.S. auto jobs.'' Reuters. Retrieved from https://www.reuters.com/
article/us-trade-nafta-autos/nafta-math-may-not-add-up-to-more-u-s-
auto-jobs-idUSKCN1IF0CP.
A shift to electric vehicles may further complicate domestic content
objectives. According to some estimates, electric drivetrains,
including batteries, require 40 percent less manufacturing labor than
mechanical drivetrains that require internal combustion engines,
transmissions, exhausts, and cooling systems.\21\ Different skills will
be needed, while at the same time, production is likely to be
consolidated into fewer factories. Without growth in domestic
production of batteries, motors, magnets, electrical harnesses, and
other electric vehicle components, imports will magnify the adverse
impact on the domestic industry.
---------------------------------------------------------------------------
\21\ Frost, L., and Taylor, E. (September 11, 2017). ``Carmakers
face electric reality as combustion engine outlook dims.'' Reuters.
Retrieved from https://www.reuters.com/article/us-autoshow-frankfurt-
electrics/carmakers-face-electric-reality-as-combustion-engine-outlook-
dims-idUSKCN1BN00X.
Production of all of these components and systems has grown rapidly in
China because of the demand created by the government mandate to have
20 percent of vehicles sold by 2025 to use alternative fuel.
Historically, the United States has used defense procurement to
accelerate industrial development. Examples include aircraft,
computers, semiconductors, robotics, and information networks.
Leveraging defense procurement in emerging industries would promote
early adoption, support pilot production, and help to re-establish the
Industrial Commons needed for subsequent commercial-scale
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manufacturing.
None of these issues in semiconductors and electronics are new, having
reached the highest levels of government in the past. For instance, in
2005 the Defense Science Board (DSB) Task Force on High Performance
Microchip Supply \22\ outlined the potential consequences of ``a
profound restructuring'' of the electronics industry caused by offshore
outsourcing, the rise of increasingly competitive government-subsidized
foreign producers, and substantial declines in federal support for
basic R&D. The Department of Defense (DoD) did not adopt DSB's
recommendations. In 2012, the Senate Armed Services Committee released
the results of its investigation into electronic parts intended for
weapons systems. It found 1,800 cases of suspected counterfeit parts
involving more than 1 million parts for use in the most important
military systems; 84,000 suspect counterfeit electronic parts were
supplied by one Chinese company.\23\ Additional concern was addressed
by the Government Accountability Office (GAO) in 2015 in their review
of trusted defense microelectronics. GAO found that access to leading-
edge microelectronics faced challenges due to supply chain
globalization, production costs, and market trends, and that future
access and capabilities are uncertain.\24\ Finally, a January 2017
report by the President's Council of Advisers on Science and Technology
\25\ emphasized the importance of a robust domestic semiconductor
industry for both national security and overall national innovation. It
also identified the threat posed by aggressive Chinese industrial
policies in this industry and the need, therefore, for the U.S.
industry to maintain its lead through R&D and continued innovation.
Oddly, although the report noted that the share of global fabrication
capacity in the United States fell to about 13 percent in 2015,
compared to 30 percent in 1990, it did not recommend any steps to
encourage locating new fabs here. Even the best design and engineering
of microchips is at risk without assured access to manufacturing. A few
more reports are not going to turn the tide.
---------------------------------------------------------------------------
\22\ Defense Science Board. (2005). High performance microchip
supply. Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics. Retrieved from https://www.acq.
osd.mil/dsb/reports/2000s/ADA435563.pdf.
\23\ Senate Armed Services Committee. (2012). Senate Armed Services
Committee Releases Report on Counterfeit Electronic Parts. Retrieved
from https://www.armed-services.senate.gov/press-releases/senate-armed-
services-committee-releases-report-on-counterfeit-electronic-parts.
\24\ U.S. Government Accountability Office. (2015). ``Trusted
Defense Microelectronics: Future Access and Capabilities Are
Uncertain.'' Retrieved from https://www.gao.gov/products/GAO-16-185T.
\25\ President's Council of Advisors on Science and Technology.
(2017). Ensuring Long-Term U.S. Leadership in Semiconductors. Executive
Office of the President. Retrieved from https://
obamawhitehouse.archives.gov/sites/default/files/microsites/ostp/PCAST/
pcast_ensuring_long-term_us_leadership_in_semiconductors.pdf.
U.S. manufacturing issues created by the loss of Industrial Commons are
not limited to electronics. Foundational manufacturing capabilities
have been significantly reduced or lost entirely as production in
multiple industries has moved abroad. Another prime example is machine
tools and other production equipment. The United States once had a
large, diverse machine tool industry with thriving clusters in
Cincinnati and elsewhere. Foreign competition intensified in the 1980s
as producers from Germany, Japan, and S. Korea built U.S. market share.
In 1982 imports were only 26 percent of domestic consumption, but
reached 64 percent in 2002 and 63 percent in 2012 (Figure 7).
Currently, only one U.S.-owned machine tool company, Haas, is among the
top 15 in revenue. A combination of foreign companies building U.S.
factories and changes in technology have reduced the import share to
roughly 50 percent in recent years, but themanufacturing knowledge base
embodied in the industry has yet to recover.\26\
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\26\ Unpublished data from The Association for Manufacturing
Technology, based on census data.
[GRAPHIC] [TIFF OMITTED] T2618.021
Another foundational manufacturing capability is tool and die making.
In 2012, the Congressional Research Service stated that the U.S. tool
and die industry is in a precarious state, largely due to offshoring.
As major manufacturing industries have shifted production offshore, the
tool and die industry endured a disproportionate loss of jobs and
companies. Between 1998 and 2012 over a third of U.S. tool, die, and
mold makers closed and employment halved. Even then, the average age of
a skilled toolmaker was 52, presaging a skill shortage being felt
today.\27\ Metal additive manufacturing could have a significant impact
in reversing the negative trends in the tool and die industry, a
critical foundational capability that calls for a national strategy and
significant investment.
---------------------------------------------------------------------------
\27\ Canis, B. (2012). ``The tool and die industry: Contribution to
U.S. manufacturing and federal policy considerations.'' Congressional
Research Service. Retrieved from http://www.ntma.org/uploads/general/
Tool-and-Die-Industry.pdf.
Even industries in which the United States has had a global leadership
position, such as medical devices and pharmaceuticals, are now
dependent on Asian producers for many of their products. In
pharmaceuticals, more than 80 percent of the active ingredients are
imported, mostly from China and India. Generic drugs comprise more than
85 percent of the U.S. market, but only 10 percent are manufactured
domestically.\28\ Other medical supplies, including basics such as
intravenous solutions, syringes, surgical masks, and respirators are
imported and frequently in short supply.\29\ In medical devices, China
provides about 12 percent of total U.S. imports, including orthopedics,
defibrillators, pacemakers, and magnetic resonance imaging
scanners.\30\
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\28\ Koons, C. (April 11, 2018). ``Why we may lose generic drugs.''
Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2018-
04-11/are-drug-prices-too-low.
\29\ According to federal data, only 5 percent of the more than 230
million surgical masks and 30 percent of the more than 20 million
respirators bought by American health care each year are made in the
United States. McKenna, M. (2018). ``Medicine's long, thin supply
chain.'' Wired. Retrieved from https://www.wired.com/story/medicines-
long-thin-supply-chain/.
\30\ Kaplan, S., and Thomas, K. (April 6, 2018). ``Why Trump's
tariffs could raise the cost of a hip replacement.'' The New York
Times. Retrieved from https://www.nytimes.com/2018/04/06/health/trump-
tariffs-china-devices-drugs.html.
Despite multiple reports raising alarms for years, there is little
evidence of improvement. The simple reason is profit maximization by
the private sector and a lack of a comprehensive, long-term national
strategy by the public sector. To a great extent, this lost Industrial
Commons is a consequence of U.S. corporate strategy to maximize profits
by inventing here and making there. Economic conditions and financial
incentives made this an effective strategy, and the positive financial
results have outweighed any doubts or concerns for long-term national
security or economic health. U.S. government policy, reliant on the
free market principles of comparative advantage, has largely been
supportive of offshoring production, turning a blind eye to the
negative impacts on defense production and the long-term detrimental
effects on the nation's Industrial Commons. Now, the consequences of
moving production capacity and know-how offshore has forced a new
strategy among many U.S. manufacturers and an accepted norm among
public officials: invent there, manufacture there. The negative and
dangerous ramifications of this trend cannot be overstated.
_______________________________________________________________________
Short Time Horizons and Shareholder Value *
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* More detail can be found in The Vanishing Corporation by Gerald
Davis (2016) and The Shareholder Value Myth: How Putting Shareholders
First Harms Investors, Corporations, and the Public, by Lynn Stout
(2012).
---------------------------------------------------------------------------
Despite warnings about loss of manufacturing competitiveness going back
to the 1980s, U.S. manufacturing has continued to shrink as a share of
GDP, has had worsening trade balance in advanced technologies, and has
become more dependent on foreign sources for critical inputs. The
overwhelming conclusion is that market forces, specifically financial
market forces, drive the managers of U.S. manufacturers to make
decisions that have proven to be harmful to national interests. These
same forces are not evident in other advanced nations, such as Germany
and Japan, that have maintained strong manufacturing sectors.
Public corporations in the United States are frequently criticized for
focusing on quarterly profits and changes to their stock price. This
focus is partially driven by rapid turnover in stock ownership: the
average time investors hold a stock fell from eight years in the 1960s
to only four months by 2012. Further, senior management compensation
typically combines salary and stock options, helping to drive decisions
that will benefit shareholders. Ostensibly intended to maximize the
value of the business for the owners of the business, using stock price
as a proxy for business value drives short-term decisions. For
manufacturers, over-emphasis on minimizing production costs results in
offshoring of production and constant pressure on suppliers to lower
costs; treating research as an expense to be avoided rather than a
long-term investment reduces R&D spending; and using retained earnings
(and tax windfalls) for stock buybacks rather than productive
investments compromises long-term competitiveness.
This focus on shareholder value, now considered a cornerstone of
American capitalism, is a relatively recent phenomenon, driven by
policy changes in the 1980s. First, prior to 1982 antitrust standards
restricted mergers, but antitrust guidelines were relaxed so that a
large market share of a combined entity would not guarantee that a
merger would be blocked. Second, the U.S. Supreme Court ruled in 1982
that state laws against hostile takeovers were unconstitutional because
they limited interstate commerce. This change led to a rapid increase
in hostile takeovers, from one in 1980 to more than 100 between 1984
and 1988. Third, tax reform in 1981 encouraged defined contribution
retirement plans--termed 401(k) plans after the section in the
legislation--which greatly increased the number of people owning stock,
mostly through mutual funds. In 1982, mutual funds had $135 billion in
assets; by 2017, assets totaled nearly $19 trillion. Mutual funds are
now the largest owners of corporate stock, sometimes holding more than
10 percent of individual companies.
These changes caused and, over time, reinforced shareholder value as
the primary touchstone for managers of public corporations. Yet,
according to Gallup, only 52 percent of Americans own stock. Foreign
firms and U.S. private firms do not face the same pressure to maximize
stock prices, and by many accounts, are more willing to make long-term
investments and to consider the interests of all stakeholders when
making management decisions. The prevalence of so-called stakeholder
capitalism in Germany, for example, is a significant reason that the
German manufacturing sector remains more than 20 percent of its GDP.
INVENT THERE, MANUFACTURE THERE
_______________________________________________________________________
``Large-scale innovation has become an engine for China's economic
development.'' Matt Tsie, GM Executive Vice President and GM China
President, May 2017 \31\
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\31\ ``GM China science lab key to future global developments.''
(May 23, 2017). The Newswheel. Retrieved from http://thenewswheel.com/
gm-china-science-lab-key-to-future-global-developments/.
The weak state of the U.S. Industrial Commons has had detrimental
impacts on the entire national innovation ecosystem. As more production
of advanced technologies has moved abroad, more research and product
development has moved with it due to the close ties between product and
process technologies. Studies have shown that manufacturers are twice
as productive at R&D when that work is collocated with a factory. Yet,
U.S. manufacturers continue to outsource. Since2000, more than 70,000
manufacturing plants have closed or moved offshore, threatening the
nation's innovation ecosystem. The ramifications can be seen not only
in shifts in R&D spending by manufacturers, but also in the ability of
U.S. innovators to make new products. Because the nation is dependent
on its ability to innovate, cracks in the system bode ill for long-term
national prosperity as high-technology manufacturing is increasingly
offshored.
R&D Spending by Manufacturers
Recent years have witnessed a noticeable shift in R&D spending by U.S.
manufacturers. Historically, manufacturing companies have been the
largest corporate R&D spenders, driven by the need for new products,
incorporating new technologies into existing products, and devising
new, more efficient processes to make products. The share of R&D
spending by manufacturers has been falling in the United States. In
1990 manufacturers spent more than 83 percent of total private sector
R&D spending in the country; this fell to less than 60 percent in 2002
before recovering to 66 percent in 2015.\32\ Most of the growth in
recent years is attributable to the pharmaceutical industry, with other
advanced manufacturing industries either declining or stagnating
(Figure 8). Perhaps more worrying, the focus of R&D spending, at least
among publicly traded manufacturers, has steadily shifted toward
development, especially incremental product development. A 2007 study
found that just 6 percent of companies published research in scientific
journals, down nearly two-thirds since 1980. Largely due to pressure
from investors, corporations spend less on basic science and have
closed broad-based corporate research labs.\33\
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\32\ ``ANBERD: business enterprise R&D broken down by industry.''
(2017). OECD.Stat. Retrieved from http://stats.oecd.org/
Index.aspx?DataSetCode=ANBERD_REV4.
\33\ Matthews, C. (December 21, 2015). ``The death of American
research and development.'' Fortune. Retrieved from http://fortune.com/
2015/12/21/death-american-research-and-development/.
[GRAPHIC] [TIFF OMITTED] T2618.022
A number of factors have changed this dynamic in the United States.
First, as more production moves offshore, the locus of both product and
process development moves with it. There are a few exceptions, such as
Apple, that maintain control of product design and the processes used
by suppliers to make those designs, but in many cases, the expertise
gained by producing builds the expertise needed for new product design
and development. A 2009 survey of U.S. semiconductor producers
concluded that process R&D requires proximity to manufacturing
operations.\34\ In the aerospace industry, the trend toward increased
outsourcing of parts and systems is seen as diminishing the long-term
prospects for U.S. business jet manufacturers. Industry representatives
recognize that many of the best ideas for manufacturing innovation come
from the factory floor.\35\ Experience demonstrates in multiple
industries that proximity to manufacturing fuels innovations in both
products and processes.
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\34\ Dewey and LeBoeuf. (2009). Maintaining America's competitive
edge: Government policies affecting semiconductor industry R&D and
manufacturing activity. Semiconductor Industry Association. Retrieved
from https://www.semiconductors.org/document_library_and_resources
/tax/
maintaining_america_s_competitive_edge_government_policies_affecting_sem
iconductor_in
dustry_r_d_and_manufacturing_activities/.
\35\ U.S. International Trade Commission. (2012). Business jet
aircraft industry: Structure and factors affecting competitiveness.
Retrieved from https://www.usitc.gov/publications/332/pub4314.pdf.
A recent survey of 369 manufacturers reveals the main benefits of
moving R&D to China (Figure 9).\36\ Most of the top reasons are
directly related to the strength of China's Industrial Commons.\35\
U.S. companies have been most aggressive in moving R&D to China in the
last decade. Figure 10 illustrates both the growth in foreign
companies' R&D spending in China and the predominance of U.S. companies
compared to other major countries.\35\ Over 40 percent of all foreign
R&D investments in China are by U.S. corporations.
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\36\ ``R&D and innovation spend increasingly moving to China.''
Consultancy.UK. (November 17, 2015). Retrieved from https://
www.consultancy.uk/news/2944/rd-and-innovation-spend-increasingly-
moving-to-china.
[GRAPHIC] [TIFF OMITTED] T2618.023
[GRAPHIC] [TIFF OMITTED] T2618.024
It is important to note that China has an explicit policy to attract
foreign R&D centers with economic incentives and to recruit both
expatriate Chinese and foreign scientists. The Thousand Talents program
was launched in China in 2008 to attract academics to return to China.
Using appeals to patriotism, financial incentives, and better career
prospects, China has successfully attracted expatriate scientists with
experience in defense research. So many scientists have been recruited
back to China from Los Alamos National Laboratory that they have a
moniker, ``the Los Alamos club.'' \37\
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\37\ Chen, S. (March 29, 2017). ``America's hidden role in Chinese
weapons research.'' South China Morning Post. Retrieved from http://
www.scmp.com/news/china/diplomacy-defence/article/2082738/americas-
hidden-role-chinese-weapons-research.
A second factor reducing R&D investment by U.S. manufacturers is the
growth of Chinese imports in advanced technology industries (Figure
11). Research in 2015 found that increases in import competition from
China tend to reduce R&D and other forward-looking investments.\38\
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\38\ Arora, A., Belenzon, S., and Patacconi, A. (2015). Killing the
Golden Goose? The Decline of Science in Corporate R&D. NBER Working
Paper 20902. Retrieved from http://www.nber.org/papers/w20902.
[GRAPHIC] [TIFF OMITTED] T2618.025
Third, management decisions to decentralize R&D, moving it to
individual business units for the perceived advantage of being closer
to the customer, often have the perverse effect of losing long-term
strategic perspective. Instead of providing long-term competitive
advantage, R&D becomes just another cost center to be minimized.\39\
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\39\ Knott, A.M. (2017). ``The real reasons companies are so
focused on the short term.'' Harvard Business Review. Retrieved from
https://hbr.org/2017/12/the-real-reasons-companies-are-so-focused-on-
the-short-term.
Finally, the availability of foreign research and engineering talent
has grown substantially in recent years. For some companies, moving R&D
offshore is the high-skilled equivalent of moving production offshore
for low-cost factory labor. Controlling R&D costs is especially
critical at a time when R&D productivity has fallen sharply. Between
the 1960s and 2000s, research productivity fell by a factor of
eight.\40\ As more researchers are required for a given objective, and
the number and quality of foreign researchers increases, cost-conscious
American firms are likely to continue to raise research spending
abroad.
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\40\ The trend crosses multiple industries. For example, the number
of researchers needed to double chip density in accordance with Moore's
law is 18 times the number needed in the 1970s. Bloom, N.A., Jones,
C.I., Van Reenen, J., and Webb, M. (2017). Are Ideas Getting Harder to
Find? Stanford Business School Working Paper No. 3592. Retrieved from
https://www.gsb.stanford.edu/faculty-research/working-papers/are-ideas-
getting-harder-find.
Recent data, as well as corporate announcements, illustrate changes in
manufacturing R&D. The largest R&D spenders among manufacturers in 2017
were in the computer/electronics, pharmaceutical, and automotive
sectors. Intel, which spent nearly $13 billion on R&D, was the only
computer/electronics firms on the list that actually manufactures in
the United States. Others, such as Apple and Cisco, spending $10
billion and $6.3 billion respectively on R&D, use Asian contract
manufacturers and have no domestic production.\41\ All have significant
research centers abroad.
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\41\ Bloomberg; ``Capital IQ.'' (2017). ``Ranking of the 20
companies with the highest spending on research and development in 2017
(in billion U.S. dollars).'' Statista. Retrieved from https://
www.statista.com/statistics/265645/ranking-of-the-20-companies-with-
the-highest-spending-on-research-and-development/.
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A few examples of major U.S. firms conducting R&D offshore include:
Applied Materials, the world's largest supplier of semiconductor
manufacturing equipment, built its largest research laboratory in
Xi'an, China because researchers need to be close to the factories
using the equipment. Government incentives to choose this location
included a 75-year, discounted lease and 25 percent of operating costs
paid for five years.\42\
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\42\ Bradsher, K. (March 17, 2010). ``China drawing high-tech
research from U.S.'' The New York Times. Retrieved from https://
www.nytimes.com/2010/03/18/business/global/18research.html.
General Motors opened a large research center in Shanghai which
serves as its center of global electric vehicle research because China
is the world's largest market for electric vehicles. In 2017, China
manufactured nearly 800,000 electric vehicles.\43\
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\43\ Stanway, D. (March 20, 2018). ``China electric car execs call
for policy support, end to protectionism.'' Reuters. Retrieved from
https://www.reuters.com/article/us-china-autos-electric/china-electric-
car-execs-call-for-policy-support-end-to-protectionism-idUSKBN1GW0O0.
Intel has a large research center in Beijing for semiconductors
and server networks because China is the biggest market for desktop
computers and has the most Internet users.\44\
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\44\ Swanson, A., and Bradsher, K. (April 30, 2010). ``China
drawing H-T research from U.S.'' The New York Times. Retrieved from
https://www.nytimes.com/2018/04/30/us/politics/trump-china-researchers-
espionage.html.
Apple announced two new R&D centers, in Shanghai and Suzhou, in
2017, joining centers in Beijing and Shenzhen. Apple committed to spend
over $500 million on research in China focused on working with local
partners to develop new technologies. China is Apple's largest overseas
market and home to almost all of its product manufacturing.\45\
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\45\ Gartenberg, C. (March 17, 2017). ``Apple is opening two more
R&D centers in China.'' The Verge. Retrieved from https://
www.theverge.com/2017/3/17/14960534/apple-research-centers-china-
shanghai-suzhou.
Relative decline in R&D by U.S. manufacturers, along with a greater
emphasis on development, means that incremental innovation is the
primary focus to make current products better, lighter, faster, and
cheaper--all of which are essential to remain globally competitive. The
federal government, on the other hand, invests mostly in long-term
basic research. American corporations rarely leverage the results of
federal research to transition nascent but promising technologies into
successful commercial products. In some cases, federal R&D funding
supports technologies in which there is little if any domestic
industrial production; advanced batteries are an example. Correcting
this disconnect in the national innovation system is essential to long-
term competitiveness. For both defense and commercial innovations,
federal funding of university-performed R&D is becoming more critical
to the national innovation system. Yet weaknesses in this part of the
national innovation system negatively impact the national wealth that
should be captured from this large investment in R&D.
BREAKDOWNS IN THE U.S.
INNOVATION SYSTEM
_______________________________________________________________________
The emerging shift in strategy by U.S. multinational manufacturers from
``innovate here, manufacture there'' to ``innovate there, manufacture
there'' is creating challenges for the national innovation system that
may not be fully recognized. Relative decline in domestic R&D spending
by manufacturers puts more emphasis on government R&D to maintain the
pace of innovation needed for future national competitiveness.
Unfortunately, an innovation system that relies on government funding
of university research is not well suited to maximizing
commercialization of products. As central as university R&D is to the
national innovation system, relatively little government funded
university-performed R&D is converted to national wealth through the
production and sale of new products and application of new processes
and methods. Technology transfer from national research laboratories is
also weak. The system is not even structured to ensure that R&D results
create national competitive advantage. A national strategy to nurture
and leverage promising ideas has never been implemented, relying
instead on market forces. From a global perspective, most R&D results
from American universities are readily available to be commercialized
elsewhere, but when viewed from a national perspective, the fruits of
R&D have not sufficiently driven improvements to national wealth and
security. Invention without production has been a consistent pattern
for multiple mass market technologies in recent decades. For the sake
of long-term growth and security, these shortcomings must be corrected
at once.
Figure 12 illustrates the ``cycle of innovation'' typical for
manufactured products. Basic research in science and engineering is one
source of a myriad of discoveries and inventions, some of which are
suitable for new product introductions, some for incremental
improvements to existing products, and, of course, some that contribute
to basic scientific understanding. Another equally important source of
new inventions is the necessity to meet the challenges that arise from
manufacturing at scale. New process technologies, quality and
inspection methods, control technologies, and new products emerge from
the manufacturing experience, depicted by the arrow from Manufacturing
to Discoveries and Inventions. For those discoveries and inventions
that could become new products and technologies, additional research--
translational research--is necessary to demonstrate proof-of-concept.
Typically, a prototype is built that operates under constrained
laboratory conditions with sufficient functionality to file for patent
protection. If the proof-of-concept is promising, a more functional
prototype is developed and the design is refined for factors such as
manufacturability, safety, reliability, cost-effective recyclability,
and user interface. Then the production process is engineered, tested
and refined in pilot production, and if successful, scaled to full
manufacture of a new product or technology. Within a manufacturing
company, new product sales produce the profits to fund the basic
research that maintains the cycle. Within a research entity based in an
academic institution or a federal laboratory, other steps are involved
to move the invention into an existing company or a start-up firm
created to commercialize it. How this cycle of innovation applies to
university R&D is where the leakages become obvious, illustrating the
shortcomings in the system, as well as opportunities to fix it.
[GRAPHIC] [TIFF OMITTED] T2618.026
Figure 13 illustrates the same cycle of innovation, but highlights
serious leakages in the U.S. innovation pipeline as it becomes more
reliant on university R&D. The basic cycle is the same; however, at
multiple steps along the way, either knowledge is lost, stagnates in
the laboratory, or is commercialized abroad.
[GRAPHIC] [TIFF OMITTED] T2618.027
First, opportunity for foreign competitors to take advantage of
research outcomes is, at the moment, a fundamental part of the system.
Academic research, especially in science and engineering (S&E), is
dependent on foreign graduate students, predominantly from Asia.
In 1966, foreign students received 23 percent of S&E doctorates; in
2015, foreign students received 56 percent of engineering doctorates,
53 percent in mathematics and computer science, and 44 percent in
physics.\46\ These graduate students are the hands-on researchers in
university laboratories and therefore are most intimately familiar with
the work, have the knowledge needed to recreate the work, and are best
prepared to help commercialize the results.
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\46\ National Science Foundation. (2018). Science and Engineering
Indicators 2018. Retrieved from https://www.nsf.gov/statistics/2018/
nsb20181/.
Nationality would not matter if these graduates remained in this
country. International students are eligible to work in the United
States for a year after graduating, a period called Optional Practical
Training. Graduates in science, engineering, technology, and
mathematics (STEM) can work for an additional two years. After that,
they are subject to the same visa lottery system as other immigrants.
Historically, work visas have allowed many to stay.\47\ Many have
argued that foreign S&E graduates should receive permanent resident
status (green cards) along with their diplomas,\48\ a reasonable
argument considering that immigrants have accounted for roughly 25
percent of the recent innovation activity in the U.S. economy.\49\
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\47\ The 2010 U.S. census found that 25 percent of the Bachelor's
degree holders in STEM occupations are foreign-born, as were just under
half of all Ph.D. holders.
\48\ The Border Security, Economic Opportunity, and Immigration
Modernization Act, S.744--113th Congress, proposed eliminating
numerical limits on immigrants who had earned a doctorate degree or a
graduate degree in science, technology, engineering, or mathematics
with an employment offer.
\49\ Kerr, W. (2007). `The ethnic composition of U.S. inventors.''
Harvard Business School Working Paper 08-006. Retrieved from https://
www.hbs.edu/faculty/Pages/item.aspx?num=20233.
The predominance of foreign students in S&E graduate programs, and the
growing tendency to return to their home countries, is also tied to the
loss of the Industrial Commons in the United States and the shift of
manufacturing R&D abroad. According to the NSF, in 2015 the job market
for S&E doctorate recipients was the lowest since 2000, 4-13 points
below its most recent peak in 2006.\50\ With poor job prospects, U.S.
students avoid graduate studies and foreign students return home even
if they would prefer to stay.
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\50\ National Science Foundation. (2015). ``What are the
postgraduation trends? Science and Engineering Doctorates.'' Retrieved
from https://www.nsf.gov/statistics/2017/nsf17306/report/what-are-the-
postgraduation-trends/job-marketscience-and-engineering.cfm.
However, foreign students are not the only source of leakage. In some
cases, foreign institutions partner with American universities that are
often encouraged to include foreign institutions in their research
proposals. Engineering Research Centers (ERCs), funded by the NSF, have
been an example, at least until recently. In other cases, foreign
companies are members or participants in academic research centers.
These firms may have significant presence, including manufacturing
facilities, in the United States, and in some cases, may be essential
participants for a center to access state of the art product and
process technology. But they may also manufacture exclusively in their
home countries, capturing the wealth generation and economic multiplier
benefits at home. Nanotechnology, a national priority reflected in the
creation of the National Nanotechnology Initiative in 2003, is a case
in point.\51\ The Japanese firm, Canon, established a U.S. affiliate,
Canon Nanotechnologies, to partner with the NSF ERC for
Nanomanufacturing Systems for Mobile Computing and Mobile Energy
Technologies Display at the University of Texas. But Canon
Nanotechnologies only conducts R&D; the nanotechnologies Canon licensed
from the ERC are manufactured in Japan. Similar examples occur in other
technologies such as displays, batteries, tissue engineering, and solar
panels.
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\51\ U.S. Government Publishing Office. (2003). 21st Century
Nanotechnology Research and Development Act. Retrieved from https://
www.gpo.gov/fdsys/pkg/PLAW-108publ153/content-detail.html.
The process of funding academic research presents further opportunity
for results to be captured by foreign companies. A typical faculty
member receives funding from NSF and/or other federal agencies for an
extended period of time to conduct basic research, often totaling
several million dollars. Once a technology is proven to work even in a
lab environment, the researcher will have difficulty maturing the
technology further, for instance by testing prototypes in an operating
environment, maturing manufacturing readiness or manufacturing at
scale. After a few futile attempts to attract funding from the
government or private sources, the researcher turns to (or is
approached by) a foreign institute with money and facilities to
establish a laboratory overseas. This happens quite regularly, with the
loss of multiple promising technologies, all because the United States
lacks strategy or a mechanism to fund nurturing and maturing of
valuable results from the R&D that government funded in the first
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place.
Within the innovation cycle of university R&D, commercialization is
dependent on licensing. However, interest in licensing depends on the
research results demonstrating commercial feasibility through a proof-
of-concept prototype, which requires translational research. In many
cases, funding for translational research is not readily available so
many promising discoveries and inventions remain on the shelf or, at
best, become side projects while the research team moves on to the next
grant. This lack of translational research funding is another weakness
in this innovation cycle.
Assuming the invention is sufficiently proven to attract licensing
interest, negotiating a license is often overly complex, time-
consuming, and expensive. Although some universities have relatively
simple licenses with simple fees and royalties designed for start-ups,
established companies perceive the licensing process to be difficult
and therefore avoid it. Consequently, to a great extent, university
inventions are licensed to start-ups specifically created to
commercialize the technology. The start-up culture continues to grow,
encouraged by hugely successful examples of companies emerging from
universities.\52\ Between 1980 and 2014, nearly 5,000 companies were
launched from university research.\53\ By one estimate, 30 percent of
the value of companies listed on the NASDAQ stems from university-
based, federally funded research, primarily due to the value of the
intellectual property generated by the research.\54\ Yet, for
manufacturing start-ups striving to commercialize hardware products,
the challenges are significant, especially with a goal of building a
manufacturing business in this country (see Investment Capital for
Hardware Start-ups).
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\52\ Google's initial public offering in 2003 returned over $330
million to Stanford University.
\53\ Belz, A. (2016). ``Trends in industry-university research
relationships.'' A Vision for the Future of Center-Based,
Multidisciplinary Engineering Research. Washington, DC: The National
Academies Press. Retrieved from https://www.nap.edu/catalog/23645/a-
vision-for-the-future-of-center-based-multidisciplinary-engineering-
research.
\54\ Ibid.
Even when hardware start-ups receive venture funding, it typically does
not include the funds needed to scale production, the next step in the
innovation cycle and another source of weakness. MIT's study,
Production in the Innovation Economy, examined 150 production related
hardware start-ups emerging from MIT research. The study found that
these start-ups had access to sufficient skills and financing for R&D
and initial product demonstration, but when the time came to scale
production to commercial levels, the need for additional capital,
production capabilities, and lead customers pushed many of these firms
to move production abroad, usually to China.\55\ Other studies have
documented a slowdown in the formation of new manufacturing start-ups
and continuing stagnation in their ability to scale production.\56\
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\55\ Reynolds, E.B., Samel, H.M., and Lawrence, J. (2014).
``Learning by building: Complementary assets and the migration of
capabilities in U.S. innovative firms.'' In R.M. Locke and R.L.
Wellhausen (eds.), Production in the Innovation Economy. Cambridge, MA:
MIT Press.
\56\ Bonvillian, W.B., and Singer, P.L. (2018). Advanced
Manufacturing: The New American Innovation Policies. Cambridge, MA: MIT
Press.
China's network of suppliers, skills, and customers is strong,
responsive, and easy to work with. Numerous American consultancies
facilitate this process at every stage; Dragon Innovation in Boston and
PCH International in San Francisco are examples. In many cases, Chinese
investors provide the needed capital to make the move offshore, or to
buy the U.S. startup outright. Often, these purchases provide access to
advanced technologies that provide competitive advantage to the buyers
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that is then lost in this country.
Part of what makes Chinese production attractive is the willingness of
Chinese investors to accept the risk and producers to access whatever
manufacturing processes are necessary to produce the new technology,
even developing new processes if needed. Except in specialized cases,
for instance when a technology is defense related, neither universities
nor hardware start-ups have sufficient funding to increase the
manufacturability of new technologies, the Manufacturing Readiness
Level (MRL). Fabricating a few prototypes is not the same as
manufacturing at scale. Basic fabrication can often be demonstrated in
the laboratory, but determining the detailed design attributes and the
engineering architecture needed to scale to volume manufacturing
requires additional research. Raising the MRL from capability to
produce in the laboratory (MRL 4) to capability to produce in a
production representative environment with most of the specifications
clearly defined (MRL 7) would be a boon to start-ups and other
licensees and increase domestic alternatives to Chinese production. It
requires significant investment in creating pilot production
facilities, which is typically too risky and expensive for venture
capital investors; large multinational manufacturers tend to show
interest only after higher TRLs and MRLs are achieved; and currently
there is no federal S&T agency that funds the necessary translational
research or invests in maturing MRLs.
Finally, the importance of the linkages between manufacturing and the
research that leads to new discoveries and inventions must not be
overlooked. The knowledge gained by manufacturing includes both
knowledge about the production process and about the products being
produced, both of which help to define questions to be tackled by
research. This is the basis for the growing trend to locate research
activities near the offshore factories reside, to be near the knowledge
and the questions. By not manufacturing, the United States is losing
ground in a range of industries-displays, energy storage, drones, solar
cells, for example-that are important to national security and future
commercial industries.
Investment Capital for Hardware Start-ups
The venture capital industry in the United States is the world's
largest and most robust, well recognized for its critical role in the
national innovation system. As important as it is, venture capital is
rarely invested in manufacturing and, in fact, is ill-suited for
hardware start-ups that need long-term, patient capital to ensure
success.
Since 2002, both the number of deals and the amount invested by venture
capital funds in manufacturing have averaged just 0.4 percent. The
dollars invested exceeded 1 percent of the total (barely) only twice,
in 2008 and 2009.\57\ Figure 14 illustrates the distribution of venture
capital investment by market sector in 2017.
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\57\ Explore data at PWC, https://www.pwc.com/us/en/industries/
technology/moneytree/explorer.html#/
%20type=history&category=¤tQ=Q1%202018&qRangeStart=Q1%202013&q
RangeEnd=Q1%202018&chartType=bar
[GRAPHIC] [TIFF OMITTED] T2618.028
The reasons so little venture capital is invested in manufacturing
start-ups are simple: cascading risks and time. Compared to the most
common alternatives in software and biotechnology, manufacturing new,
unproven products confronts risks at multiple points. Will the product
work as intended? Can it be manufactured profitably? Are needed
suppliers available at the right cost and delivery time? Will customers
buy it in sufficient quantities to justify the needed capital
investment? Obviously, many of these challenges face software and
biotechnology start-ups, but the investments required to rapidly scale
software are much lower than hardware.\58\ The operational costs to
launch a software company declined by an estimated factor of 100
between 2000 and 2010. As a result, private capital markets skewed
strongly toward software: software attracts capital at a rate of
roughly 7:1 compared to industrial opportunities, compared with roughly
2:1 twenty years ago.\59\
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\58\ Bonvillian and Singer describe why VCs are drawn to software
and biotechnology in ``Innovation Orchards:'' Helping Tech Start-Ups
Scale, from ITIF (2017), available at https://itif.org/publications/
2017/03/27/innovation-orchards-helping-tech-start-ups-scale.
\59\ Belz, A. (2016). ``Trends in industry-university research
relationships.'' A Vision for the Future of Center-Based,
Multidisciplinary Engineering Research. Washington, DC: The National
Academies Press. Retrieved from https://www.nap.edu/catalog/23645/a-
vision-for-the-future-of-center-based-multidisciplinary-engineering-
research.
Although venture capital has a history of funding favored industries in
waves--the current wave favors artificial intelligence start-ups--a
review of a few recent hardware start-ups helps to explain the relative
lack of interest. According to CB Insights, the seven largest consumer
hardware start-ups in recent years were Jawbone, NJoy, Juicero, Fuhu,
Pebble, Zeebo, and hello. Between them, they raised nearly $1.5
billion. Four went bankrupt and three were purchased: Pebble sold to
Fitbit; Fuhu, a tablet maker, sold to Mattel; and NJoy, an e-cigarette
maker, was purchased by Homewood Capital.\60\ At least in this consumer
hardware industry segment, success has been far from assured.
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\60\ CB Insights. (2017). ``The Top 9 Reasons Hardware Startups
Fail.'' Retrieved from https://www.cbinsights.com/research/report/
hardware-startups-failure-success/.
[GRAPHIC] [TIFF OMITTED] T2618.029
[GRAPHIC] [TIFF OMITTED] T2618.030
The U.S. venture capital market is also becoming more international,
with foreign-based funds capturing a growing share of the market,
reaching nearly 25 percent of the market. Figure 15 illustrates this
foreign participation in 2017. Foreign investment in and purchases of
U.S. start-ups has raised concerns in some sectors.\61\ For example,
Chinese investment in Neurala, a Boston-based artificial intelligence
start-up with technology to make robots more perceptive, raised alarms
in government circles, but Neurala had been unsuccessful raising
government or private U.S. capital. Investments in other firms
developing technologies with potential military applications, such as
rocket engines, sensors for autonomous vehicles, and flexible
electronics have also raised concerns among U.S. military
officials.\62\ The aerospace industry has been particularly attractive
to Chinese investors with multiple deals made in recent years (Figure
16).\63\ At least partially to counter this weakness in the private
venture capital market, state governments, universities, and non-profit
organizations have established small angel and venture funds. Usually
established as part of a state's economic development efforts, these
funds have a mixed record of success, usually due to investment
decisions based on political expediency rather than rigorous
technological and market assessment. However, many have navigated
sometimes conflicting objectives to achieve long-term success. Some of
the larger public venture funds include Connecticut Innovations,
Elevate Ventures (Indianapolis), Innovation Works (Pittsburgh), TMCx
Innovations (Houston), TEDCO (Maryland), and Rev1 Ventures (Columbus,
Ohio). These funds typically restrict funding to start-ups established
in the local state or region, often as university spin-offs. Among the
larger funds, they are more likely than private venture capitalists to
invest in hardware, production-oriented start-ups, averaging roughly 20
percent of their portfolios.\64\ Some examples include:
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\61\ Sprinkle, T. (2017) ``Strings Attached.'' Mechanical
Engineering, 139(05), 32-37. http://doi.org/10.1115/1.2017-May-1.
\62\ Mozur, P. and Perlez, J. (2017, March 22). ``China bets on
sensitive U.S. start-ups, worrying the Pentagon.'' The New York Times.
Retrieved from https://www.nytimes.com/2017/03/22/technology/china-
defense-start-ups.html.
\63\ Ohlandt, C., Morris, L., et. al. (2017). Chinese Investment in
U.S. Aviation. Santa Monica, CA: RAND Corporation.
\64\ Internal analysis conducted on data gathered from PitchBook,
https://pitchbook.com/.
The Oregon Nanoscience and Microtechnologies Institute leveraged
Portland's historical strength in the semiconductor industry to create
a new state-wide cluster, including gap funding (via two programs
offering $75,000, then $250,000) to support nascent materials science
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ventures.
The Georgia Research Alliance (GRA) has made more than $600
million in investments, providing funding to university spin-offs in
phases, which can include equity investments by the GRA Venture Fund of
more than $1 million.
The Engine, started at MIT in 2016, provides affordable
workspaces, access to specialized equipment, efficient business
services, and patient capital to start-ups in biotechnology, robotics,
manufacturing, medical devices, and energy.\65\
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\65\ Matheson, R. (October 26, 2016). ``MIT launches new venture
for world-changing entrepreneurs.'' MIT News. Retrieved from https://
news.mit.edu/mit-announces-the-engine-for-entrepreneurs-1026.
SC Launch, a non-profit division of the South Carolina Research
Authority, provides grants, loans, and direct investments to start-ups,
along with mentoring and networking. Funding is provided through a
combination of private donations and sales of state tax credits up to
$6 million annually. Its portfolio includes 164 companies, roughly 40
percent of which are manufacturers.\66\
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\66\ Interview with Jill Sorensen, Director of Entrepreneurial
Programs for SCRA.
Incubators and accelerators, often with public funding support, are
also an important part of the start-up landscape. Some, such as
Greentown Labs in Boston, have targeted programs for hardware start-
ups, working closely with the local MEP to find local manufacturers
with production capabilities to partner with start-ups. Others have
ties to local universities, especially engineering schools. Some
include maker spaces, typically 3D printers but sometimes other CNC
machine tools, that start-ups can use to perfect prototypes and address
manufacturing issues. The support and infrastructure provided by
incubators can help hardware start-ups make progress faster, but they
still face issues in scaling production, which is often most easily
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done in China.
Corporate venture capital (CVC) funds are also becoming more common
among large manufacturing companies. More than 1,000 CVCs were active
in 2017 with the 10 most active being Google Ventures, Intel Capital,
Salesforce Ventures, Qualcomm Ventures, GE Ventures, and Microsoft
Ventures. Two Chinese funds, Legend Capital and Fosun RZ Capital, and
two South Korean funds, K Cube Ventures and Samsung Ventures, round out
the top 10.\67\ Within specific sectors, such as autonomous vehicles,
the CVC funds of large suppliers, including Bosch, Delphi, and Magna,
have made investments and acquisitions in the full range of relevant
technologies: radar, lidar, and optical sensors; artificial
intelligence and data analysis software for autonomy; and connected
vehicle cybersecurity.\68\
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\67\ CB Insights. (February 28, 2018). The most active corporate VC
firms globally. Retrieved from https://www.cbinsights.com/research/
corporate-venture-capital-active-2014/.
\68\ Ibid.
Even including the investments by public and corporate funds, hardware
start-ups receive much less attention and less funding than firms in
other sectors, especially relevant to the capital needed to scale
production to commercial volumes. It is evident that, at least for
hardware start-ups, the U.S. system of starting companies based on
publicly funded research results, simply does not work. Despite
fundraising innovations such as Kickstarter and other crowdfunding
mechanisms, expecting hardware start-ups to raise seed, angel, and
venture funding to perfect their product, and then raise more funds to
fully commercialize the product with production in the United States is
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a tall order that few achieve.
Insufficient capital is available for hardware companies; in too many
cases, needed production expertise and capacity are not obtainable
because of the lost Industrial Commons; and inputs such as components,
subassemblies, and test equipment are not available domestically. To
build production capacity in the United States, the best option often
is to sell to larger American manufacturers, but this option is only
available if the start-up's product or technology meets a need of a
larger firm. Many do not. Too frequently, the easiest option is to move
production offshore, usually to China.
All of these breaks in the national innovation cycle mean that the
United States is failing to capture all of the national wealth that
should be created from what remains the world's largest national
investment in R&D. In fact, U.S. R&D is benefiting the manufacturing
sectors of competing nations. With a clear recognition of these
leakages in the innovation cycle, targeted investments are necessary to
fix the cycle, commensurate with the importance to future national
security and economic prosperity.
TRANSFORMATIONAL MANUFACTURING TECHNOLOGIES
_______________________________________________________________________
The emergence of new technologies is creating opportunities, perhaps
even an imperative, to rebuild U.S. manufacturing competitiveness in
advanced technologies. Cross-cutting technologies and advanced
materials are impacting multiple industries in ways that advantage
domestic production. At the same time, product and process technology
shifts in specific advanced industries, including pharmaceuticals and
semiconductors, are creating opportunities to leapfrog existing
standard practice. Successful firms will be capable of rapidly adapting
their physical and intellectual infrastructures to exploit changes in
technology as manufacturing becomes faster and more responsive to
changing global markets. With supportive government policies and
appropriate investments, U.S. manufacturing can regain leadership,
rebuild the Industrial Commons, capture all the benefits from the
nation's R&D spending, and comprehensively meet national security
requirements.
Smart Manufacturing
The broadest and most impactful transformative change affecting
manufacturing is the application of powerful computing, networking,
sensing, data analytics, machine learning, and artificial intelligence.
Collectively known under various monikers--Smart Manufacturing,
Industry 4.0, Industrial Internet of Things (IIOT)--the digitalization
of manufacturing is creating profound shifts in where and how
production is done and participation in global value chains. Combined
with advanced materials, nanotechnology, sustainability, rapid product
cycles, and other market forces, future manufacturing will be vastly
different from the mass production, cost minimization strategies that
have driven decisions for the past three decades. Smart manufacturing
creates the opportunity to re-establish domestic production in advanced
industries, providing competitive advantages from increased efficiency,
security, rapid response to customer demand, and new product features
incorporating sustainability and resource optimization. Value will be
derived from time to market, response to demand changes, inventory
optimization, asset utilization, resources optimization, and quality
improvement, rather than the simple cost minimization strategies that
have driven offshore production. The challenge for U.S. industry will
be to deploy the relevant technologies quickly and effectively and to
adapt business models to take advantage of these new capabilities.
Smart manufacturing encompasses a range of technologies implemented on
the factory floor, in the communication networks between producers and
consumers to integrate supply chains, and in all the logistics,
financial, and management systems that pervade all levels of industrial
production. A few of the critical technologies include:
Product development: Sophisticated computer-aided engineering tools,
including optimization, design for manufacturing, material selection
and certification, statistical design of experiments, data analytics
and virtual reality tools are increasingly used to design and develop
new products to reduce product introduction failures, reduce product
development costs and to meet custom market niches. Accelerating
product development is the top priority, so far, for firms using 3D
printing.\69\ Incorporating smart technology features into products
will also be important as connectivity, self awareness, and
interactivity become expected by consumers.
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\69\ Sculpteo. (2018). The State of 3D Printing 2017. Retrieved
from https://www.sculpteo.com/media/ebook/State_of_3DP_2018.pdf.
Distributed manufacturing: Contract manufacturing using Asian
contractors has become standard operating procedure in electronics and
other industries, and machine shops used to make parts have always been
a major part of supply chains. However, advances in production
technologies, such as rapid injection molding, additive manufacturing
and CNC milling (subtractive manufacturing) are expanding opportunities
for local production of custom parts and final products. Companies such
as Xometry, based in Maryland, ProtoLabs, based in Minnesota, and
Fictiv in San Francisco offer on-demand manufacturing services based on
digital part designs uploaded by customers.\70\ Software Defined
Manufacturing is an emerging cloud-based distributed manufacturing
concept, supported by IBM and others, in which a part design is shared
with a community of manufacturers who identify an optimal producer that
can meet time and volume requirements.\71\
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\70\ https://www.xometry.com/; https://www.protolabs.com/; https://
www.fictiv.com/.
\71\ Breitgand, D. (2014). ``Collaborative manufacturing as a
service in the cloud.'' IBM Research. Retrieved from https://
www.ibm.com/blogs/research/2014/12/collaborative-manufacturing-as-a-
service-in-the-cloud/.
Integration of Operational Technology (OT) and Information Technology
(IT): OT/IT integration is central to smart manufacturing. Multiple
benefits include dramatic increases in capacity utilization, from a
current average of roughly 60 to 85 percent and more. Sensors on
production equipment (often retrofittable) tracking parameters such as
temperature, vibration, and current load, combined with effective
analysis of the resulting data, are enhancing predictive maintenance
resulting in much higher machine uptime. For example, a Michigan
manufacturer increased uptime 20 percent by applying sensors to monitor
tool wear on the shop floor.\72\ New business models are also emerging
in which equipment providers use performance-based contracting to
guarantee uptime, enabled because of the data generated by the sensor-
laden equipment.
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\72\ Hitch, J. (March 22, 2018). ``Adopt or Die: AI Leaves
Manufacturing No Choice.'' Industry Week. Retrieved from http://
www.industryweek.com/technology-and-iiot/adopt-or-die-ai-leaves-
manufacturing-no-choice.
Edge Computing: To take advantage of the computational power of cloud
computing while avoiding its inherent latency, edge computing is
emerging as a an effective means to process sensor data locally for
real-time production control, then, when necessary, passing batch data
to the cloud for in-depth analysis. Companies such as Saguna Networks
specialize in edge computing. Other firms, such as Mocana \73\ and
Rubicon Labs \74\ (both in San Francisco), specialize in secure
communications from sensors and industrial control systems to the cloud
to address cybersecurity issues.
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\73\ https://www.mocana.com.
\74\ https://www.rubiconlabs.io.
Automation and robotics: Industrial robots are experiencing rapid
advances in capabilities due to improved sensors, manipulators, control
systems, connectivity, and processing power. Currently, three-quarters
of industrial robots are used in just four industries: transportation
equipment, machinery, computers and electronics, and electrical
equipment, appliances, and components. Roughly 80 percent are used in
five countries: China, Germany, Japan, South Korea, and the United
States, with China significantly ahead. Use of industrial robots has
grown nearly 20 percent in recent years, with most of that growth in
Asia.\75\ However, U.S. shipments of industrial robots reached a record
high in 2017 and continued strong performance through early 2018.\76\
One recent innovation is collaborative robots (``cobots''), easily
reprogrammable robots that work alongside production staff without
being enclosed in a safety cage. Rethink Robotics, headquartered in
Boston, is a leading cobot manufacturer with easy-to-train, quickly
deployable robots used in a wide range of applications and industries
including packaging, machining, and inspection. Relatively inexpensive,
one manufacturer estimates that its robots pay for themselves in less
than 200 days.\77\
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\75\ International Federation of Robotics. (2017). World Robotics
2017 Industrial Robots. Retrieved from https://ifr.org/free-downloads/.
\76\ Robotic Industries Association. (February 26, 2018).
``Robotics, vision and motion control industries set new growth records
in 2017.'' Robotics Online. Retrieved from https://www.
robotics.org/content-detail.cfm/Industrial-Robotics-News/Robotics-
Vision-and-Motion-Control-Industries-Set-New-Growth-Records-in-2017/
content_id/7019.
\77\ Universal Robots A/S. (July 20, 2017). ``Universal robots
saves 9 hours of production time at Glidewell Laboratories.'' Robotics
Online. Retrieved from https://www.robotics.org/content-detail.cfm/
Industrial-Robotics-Case-Studies/Universal-Robots-Saves-9-Hours-of-
Production-Time-at-Glidewell-Laboratories/content_id/6638.
Additive manufacturing: Also known as 3D printing, additive
manufacturing is beginning to move from models and basic prototypes to
production of parts with complex geometries. The additive manufacturing
industry is making strides toward mass production applications, which
will have broad impacts on tooling costs, materials, supply chains, and
logistics. GE Aircraft Engines, for example, has used metal additive
manufacturing to reduce part counts and build an engine that is 15
percent more fuel efficient. UTC Aerospace Systems is using metal
additive manufacturing across a range of materials to reduce weight,
part counts and lead times up to 80 percent.\78\ Adidas has partnered
with Carbon to mass produce 3D-printed custom shoes. General Motors is
working with Autodesk to increase the number of production ready parts
made with additive technology. For example, a 3D-printed stainless
steel seat bracket is 40 percent lighter and 20 percent stronger than
its predecessor, replacing eight components and multiple suppliers with
just one.\79\ A number of start-ups promise to increase the catalog of
materials that can be used in additive manufacturing including a
broader range of metals and carbon fiber composites.\80\
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\78\ Canaday, H. (May 14, 2018). ``UTC aerospace working vigorously
on additive metal parts.'' MRO Network. Retrieved from http://www.mro-
network.com/manufacturing-distribution/utc-aerospace-working-
vigorously-additive-metal-parts.
\79\ Carey, N. (May 3, 2018). ``GM bets on 3D printers for cheaper
and lighter car parts.'' Reuters. Retrieved from https://
www.reuters.com/article/us-general-motors-parts/gm-bets-on-3d-printers-
for-cheaper-and-lighter-car-partsidUSKBN1I408K.
\80\ CB Insights. (December 28, 2017). ``Corporate investments
drive a new wave of industrial 3D printing.'' Retrieved from https://
www.cbinsights.com/research/corporate-investment-industrial-3d-
printing/.
New business models are emerging, based on many of these technologies,
that allow SMMs to access powerful tools such as modeling and
simulation on a pay-per-use basis, lowering cost, simplifying access,
and increasing flexibility. The computational power of the cloud
eliminates the need for specialized and expensive hardware and
software, thereby lowering barriers to entry for SMMs. Intelligent
design tools are one emerging technology available through the cloud,
in which the software detects design aspects that are not
manufacturable and suggests alternate solutions or, in some cases, only
creates designs that are easily manufacturable. Autodesk's Simulation
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360 is one such example.
Other business models are also emerging that provide an opportunity to
regain domestic production in the context of a changing manufacturing
environment. For example, Manufacturing as a Service (MaaS) takes
contract manufacturing steps further, relying on shared use of a
networked manufacturing infrastructure. As more manufacturing
infrastructure--everything from design software, production planning,
and equipment--becomes networked, demand for more products of more
variety can be met without owning any producing equipment. The results
should be lower costs, greater machine utilization, more capacity, and
more options for materials use, product features, and cost-effective
low-volume custom production.
Disruptive technologies in individual industries are also creating
opportunities for the United States to establish, or re-establish,
strong positions. In some cases, these technologies are in industries
with important national security implications, such as semiconductors
and pharmaceuticals.
System-in-Package
Semiconductor packaging moved offshore in the 1980s because it was
labor intensive. Now fully automated, emerging packaging technologies,
System-in-Package (SiP), are creating an opportunity to restore
domestic packaging operations, a big step in recapturing control of the
advanced semiconductor value chain.
Currently Intel and GLOBALFOUNDRIES operate the most advanced
semiconductor fabs in the United States; both ship completed silicon
wafers to Asia for packaging. Continuing progress in reducing feature
sizes, with the frontier now at 7 nanometers and below, integration of
multiple functions as System-on-Chip (SoC), and three-dimensional
integrated circuits are all defining the state of the art.\81\ SiP is a
complementary technology to SoC in which multiple silicon chips are
placed in a single package and connected using wire bonds or solder
bumps to reduce the overall system size. Firms such as Apple are using
SiPs to mix multiple components--central processors, logic, analog, and
memory--into a single package.\82\
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\81\ Wessner, C., and Howell, T. (2018). Partnering to Grow the New
York Regional Nano-
Cluster, Washington, DC: Georgetown University.
\82\ Shih, W. (2018). Can an integrated semiconductor manufacturing
capability be restored in the United States? Unpublished manuscript.
Harvard Business School, Cambridge, MA.
Packaging started as a manual process, but is now largely automated. It
continues to be located in Asia because of the experience base--the
Industrial Commons for this activity--resides in the leading packaging
firms that have refined processes since the 1980s. The emergence of SiP
and continued advances in the technology creates an opportunity to re-
establish packaging capability in the United States as existing
packaging facilities become obsolete. With appropriate incentives, SiP
operations could be built near U.S. existing fabs, which could then
create advantages to establishing circuit board assembly plants nearby,
too. By taking advantage of a discontinuous technology, SiP, much more
of the semiconductor value chain could be rebuilt in this country with
positive impacts on defense electronics and most other hardware sectors
as digitalization becomes pervasive.
Continuous Manufacturing of Pharmaceuticals
Solid format pharmaceuticals are typically a batch production process.
Combinations of active and inert ingredients are combined in carefully
measured proportions, then fed into pill-forming or capsule-filling
machines to prepare batches of final product. Many steps in this batch
production process take time and create the possibility of mistakes.
Multiple production lines increase the volume and variety of
production, but also multiply the risk of quality defects. Plus,
mixers, feeders, and other equipment must be cleaned between batches to
avoid cross-product contamination. Batch production is relatively
labor-intensive, which helps to explain why so much manufacturing,
especially of generic drugs, is done in China and India.
Continuous manufacturing (CM) methods for powder-based pharmaceuticals
eliminates batch processing for much faster, more reliable production
through an uninterrupted process. CM can shorten production times,
allows for more precise production control, and reduces the likelihood
of errors and production breakdowns. The technology can be used for an
entire production process or for specific operations within a larger
process. The Center for Structured Organic Particulate Systems (C-SOPS)
at Rutgers University, in partnership with other universities and
industry, has been a leader in the development of CM technology.\83\
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\83\ http://www.csops.org/.
Congress recognized the potential offered by CM for drug production,
enacting the ``21st Century Cures Act'' in 2016, which authorized
grants to support continued development of CM. The Food and Drug
Administration (FDA) encourages firms to adopt CM, provides technical
assistance, and has issued guidance to industry wanting to implement CM
and other technologies.\84\ A growing number of manufacturers,
including Lilly, Vertex, and Janssen Pharmaceutical Companies, are
using CM. As precision medicine and rapid response to patient needs
become more important, CM can create competitive advantages for
domestic production of pharmaceuticals and, in the future, other high-
value chemicals.
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\84\ FDA. (2017). Advancement of emerging technology applications
for pharmaceutical innovation and modernization, guidance for industry.
Retrieved from https://www.fda.gov/downloads/Drugs/
GuidanceComplianceRegulatoryInformation/Guidances/UCM478821.pdf.
These are just a sample of the technologies already in use or emerging
that will have profound effects on where, how, and how much
manufacturing takes place. The United States has an opportunity to take
a leadership role, especially since many of these technologies rely on
U.S. strengths in design, software, and networking. But capturing the
competitive advantages requires broad-based dissemination and
implementation of the enabling technologies. Although there is strong
evidence that implementation of smart technologies exceeds expectations
for efficiency gains and return on investment, relatively few
manufacturers have made serious inroads to implementation. Lack of
knowledge, fear, skill availability, and focus on the daily pressures
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to meet production targets prevent SMEs from moving more rapidly.
Leadership in smart manufacturing should be considered a national
priority and should be addressed with targeted programs and policies
that will accelerate implementation. These would include mobilizing
expertise; providing financial resources to buy technology;
accelerating development of needed standards; and identifying a clear
glide path for technology implementation appropriate for different
firms in different industries of different sizes. Federal, state, and
local governments have a role, along with trade associations and other
industry groups. Some are already making strong contributions.
Automation Alley in the Detroit region is one example.\85\
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\85\ https://www.automationalley.com/.
Because smart manufacturing will eventually be pervasive and essential
to both national economic strength and national defense, it is
important that the enabling technologies be produced domestically,
including not only design but also manufacturing. Sensors, controllers,
networking, and the other hardware requirements for data analysis and
machine intelligence are too important to rely on foreign sources. From
a security perspective the same principles currently being applied to
drones and telecommunications equipment from Chinese providers ZTE and
Huawei should be applied to smart manufacturing. From a competitiveness
perspective, these smart manufacturing technologies will evolve and the
most effective way to ensure both continuous improvement and first
mover advantages in technology implementation will be to manufacture
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the enabling electronics domestically.
U.S. manufacturing needs to get in front of the wave of change created
by disruptive technologies. Markets are changing as consumers want
instant gratification. Intelligent technology is pervading whole
sectors: autonomous vehicles, drones, distributed energy and
intelligent grids, and all areas of defense production, to name a few.
The United States has been ahead in performing the research that
creates the technologies that enables all of these changes, but has not
maintained production capabilities to capture global markets, value
added, and wealth creation. This failure has impacted the long-term
health of the economy and national security. By increasing the pipeline
of new products, investing in the necessary manufacturing capabilities
to make those new products, and incentivizing broad-based
implementation of smart manufacturing technologies, the United States
can recapture its manufacturing leadership.
BOLD STRATEGY AND
CRITICAL NEXT STEPS
_______________________________________________________________________
U.S. manufacturing is on the cusp of a new era. In contrast to recent
decades in which the focus has been on globalization, cost reduction,
and lean production, the coming decades promise a much more responsive,
flexible, and intelligent manufacturing sector. Advances in a myriad of
technologies ranging from high-performance materials to ubiquitous
sensors, from self-correcting robots to autonomous factories, will
transform both products and processes. The United States is well-placed
to take advantage of the opportunities created by these technological
advances, building on strengths in research at world-class
universities, software development, systems integration, creativity,
and innovation. But taking advantage and recapturing industrial
leadership will require national recognition of the importance of
manufacturing and a focus on building the industries of the future.
Unlike many competing nations, the United States does not have a
national manufacturing strategy. Countries such as Germany, South
Korea, Japan, and China have manufacturing strategies with long-term
R&D programs, investments in infrastructure, and national goals for
specific industries. The details vary, but common themes include
maintaining a strong industrial research infrastructure and vocational
education system, and building sustained competitive advantage in
important export industries. Public-private partnerships are usually
important mechanisms. Although the United States has many government
programs, at both the state and federal levels, they are neither
coordinated nor funded to translate basic research into U.S.-based
manufacturing, do not include meaningful metrics, and tend to devolve
to short-term problem solving rather than long-term strategy. Most
federal S&T agencies do not invest in manufacturing research to advance
process technologies and innovations in manufacturing machines and
equipment.
Instead, the U.S. approach relies on market-based decisions, which for
most large manufacturers, have been based on cost reduction and
quarterly earnings. Over time, the result of myriad decisions has
resulted in a ``hollowing out'' of U.S. industry as production was
moved offshore. U.S. manufacturers first moved to reduce labor costs,
then to build production in growing foreign markets, and then to take
advantage of skills and supplier capabilities that are often in short
supply here. The long-term negative ramifications of this shift of
production abroad are now apparent, creating a number of ``grand
challenges'' that must be addressed to restore U.S. manufacturing,
especially in advanced technologies critical to national security and
prosperity. These manufacturing grand challenges include:
1. Rebuild the Industrial Commons
The United States has lost fundamental production skill and
capabilities--the Industrial Commons--in many industries and has lost
entire industrial sectors, with noticeable impacts on the national
innovation system and growing adverse effects on the defense industrial
base.\86\ Production can provide competitiveadvantages that are
difficult to copy and have long-term sustainability. Maintaining
domestic manufacturing capabilities is essential to retaining the know-
how needed to produce next generation technologies, and to retaining
critical defense production.
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\86\ For recent examples, see Mehta, A. (May 22, 2018). ``America's
industrial base is at risk, and the military may feel the
consequences.'' Defense News. Retrieved from https://www.
defensenews.com/pentagon/2018/05/22/americas-industrial-base-is-at-
risk-and-the-military-may-feel-the-consequences/.
2. Convert national R&D to national wealth and security
Leading the world in R&D spending is not sufficient to ensure
prosperity. Technologies invented here are being licensed, sold, or
given away to manufacture overseas, which, in effect, is subsidizing
R&D for other countries. The results of R&D must create new products,
including defense critical technology products, that can be made in
America at commercial scale to generate wealth, jobs, and exports.
3. Lead emerging industries
To ensure future economic strength and defense superiority, the United
States must have a leadership position in emerging industries such as
autonomous vehicles, robotics, metal-additive manufacturing,
biomanufacturing, energy storage, advanced materials, and quantum
computing, to name a few. Dependence on foreign suppliers, regardless
of how much cheaper they may be, is creating defense vulnerabilities
and long-term competitive disadvantages.
Bold steps are needed to ensure that these challenges are met quickly
and vigorously. Market forces alone are unlikely to achieve the needed
change. They have not so far. With sustained, strategic investments,
the United States can regain fundamental manufacturing capabilities,
ensure a return on federal investments in R&D, capitalize on technology
changes broadly affecting manufacturing, establish leadership in new
industries, and restore the broad-based supplier networks that are
essential to economic and national security.
Restoring U.S. manufacturing leadership and, perhaps more importantly,
restoring the nation's ability to capture wealth from the national
innovation system with a robust manufacturing base, is a challenge to
both the private and public sectors. Manufacturers, driven by short-
term financial incentives, primarily focus on the current product
development through incremental innovation while abandoning the long-
term translational R&D needed to mature basic research results into a
``next big thing.''
Only government can overcome this market failure and enable the United
States to remain globally competitive.
The nation must be aggressive in meeting the grand challenges and
pursuing the opportunities created by rapid technological change, for
the sake of wealth creation and national security. Rebuilding the
Industrial Commons, performing the translational research necessary to
fully commercialize basic research results, and incentivizing the
widespread adoption of smart manufacturing and other advanced
technologies are all areas in which the role of government is
paramount. A few new programs will not suffice; they haven't in the
past. Bold new initiatives with long-term commitment will make the
difference.
Paramount for government is to make investments in manufacturing
research, process technologies and innovation, and systems engineering.
The impact will be:
Wealth is created from public R&D;\87\
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\87\ The goal is to advance both Technology Readiness Levels (TRLs)
and Manufacturing Readiness Levels (MRLs).
Domestic industry, especially SMMs, implements advanced
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technologies faster than foreign competitors;
Defense production capabilities are maintained and foreign
dependence minimized; and
The skills and knowledge needed at all levels of industry and
the national research enterprise are readily available.
Critical Next Steps
The United States needs a broad national conversation to identify the
necessary steps to achieve these objectives. MForesight hosted a series
of roundtables in early 2018 to begin this conversation, attended by
diverse stakeholders from business, government, and academia. These
discussions generated a number of promising ideas to address the grand
challenges that were identified at the roundtables. A summary of
actionable next steps that the nation needs to take to overcome the
grand challenges follows.
Invest in Translational R&D and Manufacturing Innovation
Restoring the ability to generate wealth from the billions invested in
R&D should be a national priority. The innovation cycle that converts
R&D results--new inventions and discoveries--into successful commercial
products is working well in software, but has multiple breakdowns for
manufactured hardware. Funding for the translational research needed to
develop operational prototypes, demonstrate manufacturability, and
identify viable markets is frequently unavailable, so promising
technologies languish in laboratories. Funding and expertise is needed
to address the needs and ensure domestic production. This gap is so
significant and the potential results so important that roundtable
participants suggested creating Translational Research Centers (TRCs).
TRCs would typically be independent non-profit corporations affiliated
with a single or group of universities with strong industrial
involvement. They would combine funding with expertise in product
development, engineering, production, marketing, and other business
functions needed to identify and nurture promising research results
into commercial products and processes manufactured in this country.
TRCs would provide skills that academic researchers usually do not
have, help to lower the risk of commercialization and thereby attract
private investment, and create a stronger pipeline from academic R&D to
new products with positive impacts on national security and economic
prosperity. Appendix A provides additional details on the TRC concept.
Mechanisms are also needed to ensure that needed advances in
manufacturing technologies are developed and implemented domestically.
Advancing the Manufacturing Readiness Level of a technology is often an
essential step in reducing technical risk and attracting the private
investment needed for full-scale manufacturing. In some cases, new
manufacturing processes are necessary; in others, known processes can
be used to demonstrate manufacturability, quality, and cost
effectiveness. Several Manufacturing USA institutes are developing
technologies for production of power electronics, functional fabrics,
flexible electronics, and other critical technologies. Similar
opportunities will continue to emerge from NSF-funded Engineering
Research Centers, national laboratories, and even private companies
working in areas such as autonomous vehicle sensors and control
systems, advanced energy storage, and 5G equipment. In all cases,
investments in applied engineering and manufacturing process research,
coordinated with the translational research done at the TRCs would
increase the likelihood of creating long-term competitive advantages
that are difficult to copy.
One approach to advancing MRLs proposed by the roundtable participants
would be to establish additional Manufacturing USA institutes. Existing
Manufacturing USA institutes are mostly focused on specific
technologies, such as flexible electronics, robotics, and bio-
pharmaceuticals. Additional institutes would be useful to rebuild
foundational manufacturing know-how while, at the same time, advancing
capabilities in platform manufacturing technologies for multi-industry
applications. Areas to be addressed would include metal forming,
joining methods and technologies, laser processing, and process
technologies for cost-effective low-volume manufacturing, to name a
few. These institutes would focus on continuous improvement of widely
used manufacturing processes, and work closely with domestic equipment
makers to speed technology dissemination to commercial industry.
Another approach would be to launch special competitions. Competitions
have proven to be an effective method for generating creative solutions
to technical challenges. Competitions have been used by government
agencies such as DARPA, non-profits such as XPRIZE, and private
manufacturers such as General Motors to generate creative ideas from a
broad audience. The goal would be to engage researchers to focus on
manufacturing challenges in order to create and establish unique
manufacturing capabilities that will provide U.S. producers with
competitive advantages in multiple industries. One approach would be to
assemble a group of experts who would identify a number of
``moonshots''--important, long-term national objectives requiring
advances in manufacturing technology and product innovation.
Encourage Pilot Production and Scale-up
To restore domestic production and overall leadership in emerging
industries, America needs to invest in advancing manufacturing
technologies, increasing pilot production, and scaling up to viable
commercial volume. The necessary investment is largely the
responsibility of the private sector, which means that national
policies at all levels of government must remain conducive to
profitable domestic production. Without addressing specific economic
policies, which was beyond the scope of the roundtable discussions,
participants did identify opportunities to take advantage of emerging
technology developments to regain domestic production capacity. For
example:
Semiconductor packaging has long been done offshore, a legacy of
the labor requirements of packaging processes. Packaging is now
automated with little labor content. Furthermore, new technologies in
which multiple chips are packaged together as System-in-Package (SiP)
have created an opportunity to re-
establish packaging in the United States. Government procurement from
domestic sources would speed that development.
Pharmaceutical production is on the verge of dramatic change
with the emergence of continuous manufacturing methods for powder-based
pharmaceuticals. The technology provides a mechanism to ensure cost-
competitive domestic production of pharmaceuticals.\88\
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\88\ Koons, C. (April 11, 2018). ``Why we may lose generic drugs.''
Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2018-
04-11/are-drug-prices-too-low.
In these and similar cases, government, especially defense, procurement
contracts have proven to be an effective tool. Because it is important
to create demand, not just supply, for advanced technologies
manufactured in this country, the United States should leverage
government procurement to create lead markets for new products and
technologies. The federal government has a history of building strong
national industries through a combination of R&D and procurement
contracts. Aviation and the Internet are obvious examples. Government
purchase orders are an effective tool for companies to raise needed
capital, both investments and loans, to initiate pilot or scale
production domestically. Assured markets of sufficient scale are
essential to successful product launches and will incentivize private
investment necessary to create needed manufacturing technologies and
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production facilities.
Although procurement contracts are an effective tool, they are not a
universal solution. New mechanisms are needed to ensure that domestic
resources are available to scale production here, rather than
contracting manufacturing to Asian producers, especially for high-
value, high-technology products. An opportunity exists to form
geographically dispersed manufacturing investment funds. These funds
could be organized as public-private partnerships, or build on existing
state government funds, to ensure that hardware start-ups have a
reliable source of investment capital and can scale production in this
country. The lessons learned from existing state-level programs should
be applied to ensure effective use of the resources.
Empower Small and Medium-Sized Manufacturers
Small and medium-sized manufacturers are the backbone of U.S.
manufacturing.\89\ SMMs are important anchors in their communities and
critical to systems integrators. Most do not entertain offshoring
strategies, yet increasingly compete with Asian producers. If U.S.
manufacturing is to regain international competitiveness and take
advantage of the opportunities presented by smart manufacturing
technologies, SMMs will need to implement those technologies broadly
and effectively. Roundtable participants recognized that multiple
federal and state programs provide support of various types to SMMs,
but they also suggested that more could be done to accelerate their
adoption of smart manufacturing technologies, and to ensure that SMMs
have access to technical skills and expertise they will need to be
effective in the future. Suggestions to do that include:
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\89\ SMMs have 500 employees or less and comprise over 98% of U.S.
manufacturing firms and over 89% of establishments. United States
Census Bureau. (2018). 2015 SUSB Annual Data Tables by Establishment
Industry. Retrieved from https://www.census.gov/data/tables/2015/econ/
susb/2015-susb-annual.html.
A. Provide loan guarantees and technical assistance to accelerate the
pace of modernization of SMMs including capital equipment and
implementation of smart manufacturing technologies. In partnership with
states and existing federal programs, such as those at the Small
Business Administration, this program would incentivize the purchase of
domestically manufactured equipment and technologies to help rebuild
the domestic machine tool industry, and to ensure that critical
advanced manufacturing equipment and components are made and deployed
domestically.\90\
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\90\ Such a program could incentivize foreign manufacturing
equipment companies to create or increase U.S. production capacity.
B. Fund nation-wide educational and informational programs to ensure
that SMMs are aware of government procurement opportunities, emerging
domestic and export market opportunities, new technologies, and the
capabilities of foreign competitors to facilitate better matching of
domestic demand with domestic production. Working in collaboration with
the Manufacturing Extension Partnership, such programs could accelerate
the re-emergence of diverse, geographically distributed industrial
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ecosystems.
C. Create a program of industry fellowships to pay recent engineering
and management retirees to work with the next generation of
manufacturing start-ups, as well as business incubators and technology
accelerators. Recent retirees are an underused resource, and in some
cases, they are moving abroad to coach foreign competitors. A viable
domestic alternative to capture such expertise before it is lost is
essential to rebuilding the manufacturing knowledge base.
D. Develop simple technology licensing agreements to facilitate and
encourage technology transfer and joint technology development between
universities and industry, especially SMMs. Licensing technologies from
universities can be overly complex and expensive, limiting the number
of potential licensees. Useful models have been developed by some
universities, which should be propagated nation-wide.
Grow Domestic Engineering and Technical Talent
Especially, though not exclusively, in academic R&D, the nation is
dependent on foreign nationals in many scientific and engineering
fields. In 2015, foreign students received 56 percent of engineering
doctorates, 53 percent in mathematics and computer science, and 44
percent in physics.\91\ Many factors affect domestic and foreign
students' decisions to pursue graduate degrees, including available
financial support, strength of the job market, and calculations of
future earning power. The United States is fortunate to attract foreign
students in large numbers, but would be remiss in continuing to depend
on them, especially because foreign students are increasingly returning
to their home countries upon graduation.
---------------------------------------------------------------------------
\91\ National Science Foundation. (2018). Science and Engineering
Indicators 2018. Retrieved from https://www.nsf.gov/statistics/2018/
nsb20181/.
Other skills essential to restoring the nation's Industrial Commons and
to effective implementation of smart manufacturing technologies require
technical training, both broad-based and specialized. Accessing needed
skills is frequently listed as the top challenge facing manufacturers
in most industries today. Many community colleges have developed
training programs targeting specific manufacturing skill requirements,
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often in concert with local manufacturers, but more needs to be done.
Because human resource issues are so complex, the roundtable
participants did not attempt to suggest comprehensive solutions, but
they did identify a few initiatives that could improve the current
situation in engineering and technical talent. For instance,
recognizing the current dependence on foreign students in many graduate
programs in STEM fields, roundtable participants suggested steps to
increase the supply of domestic graduate students. One way would be to
significantly increase the availability of graduate fellowships for
qualified domestic students. This simple, cost-effective step would
help to limit inadvertent transfer of R&D results offshore, rebuild the
supply of researchers available to domestic industry, and, importantly,
increase the number of highly trained scientists and engineers who can
work in defense industries.
Roundtable discussions also addressed the need for a strong pipeline of
technical talent available to SMMs. To cope with a growing wave of
retirees and a shortage of young people with appropriate skills, an
increasing number of manufacturing companies are creating apprentice
programs and working with local technical schools to create custom
training programs, often with employment guaranteed to successful
graduates. Yet potential students usually are not aware of them. A
useful step would be to create a national registry of apprenticeship
and other industrial training programs with the ability to match
available programs with high school and college students and veterans
seeking opportunities with SMMs, along with funding support for
trainees. A national registry of such programs would better match
student interest with employment opportunities and contribute to
restoring the Industrial Commons.
To complement apprenticeship programs, roundtable participants also
identified the need for a renewed national focus on educating
engineering technicians with emphasis on applied engineering skills. A
frequent complaint among manufacturers is that engineering graduates
have insufficient practical skills to make an immediate contribution to
factory operations, while still having significant salary expectations.
Mobilizing the broad higher education community to educate more
engineering technicians would meet a growing need and likely attract
more students and veterans to applied engineering. This program could
be a three-year polytechnic degree, could provide scholarships to
pursue cooperative education programs at SMMs, could be a collaboration
between trade schools and engineering colleges, or could be other
creative paths that supplement a traditional undergraduate engineering
curriculum.
IMPLEMENTATION STRATEGIES
_______________________________________________________________________
All of these suggestions emerging from MForesight's roundtables address
clearly defined components of the grand challenges facing U.S.
manufacturing. Ideally, the United States will, at some point in the
future, create a national manufacturing strategy as international
competitor nations have done. These ideas should be part of such a
strategy, ideally implemented in a coordinated way with a single point
of focus to orchestrate the required funding streams and to maintain
strategic program management.
Currently, multiple offices and agencies at both the federal and state
levels of government, as well as a few private non-profit organizations
and public-private partnerships, support technology development, but
there is no single point of focus to provide national strategic
direction, or to provide the cross-cutting focus on manufacturing and
systems engineering needed to bridge the hardware innovation gap.
Manufacturing cuts across multiple disciplines and technologies so it
is therefore all the more compelling to have a single focal point for
engineering and manufacturing research and innovation. The needed point
of focus could take one of several possible forms--a publicly funded
non-profit organization, a federal-state-industry partnership, or a
federal office or agency. Its mission would be to fill the existing
gaps in the national innovation cycle by providing funding for
translational research to advance TRLs and MRLs, to help rebuild the
Industrial Commons through strategic investments in workforce
development, and to support hardware start-ups with investments, loans,
expertise, and networking to encourage production scale-up this
country.
Manufacturing really matters. Research and invention alone are not
enough to ensure national prosperity. To reap the full rewards of rapid
technological advances, the nation must be able to manufacture
products. Because of a confluence of economic and technological forces,
the United States now has an opportunity to rebuild its manufacturing
base and restore its global competitiveness. But another report won't
help. Bold steps commensurate with the scale and importance of the
objectives are absolutely necessary. The roundtable participants
proposed a few implementation options, including creating a national
innovation initiative, establishing a national manufacturing innovation
foundation, and establishing a manufacturing program within each of the
federal S&T agencies. They fully expect policymakers to convene and
make decisions on how best to implement the critical steps identified
in the previous section. A piecemeal approach, addressing one or two
critical steps but not all, will not help. Other nations are not
standing still. The onus is on us.
Appendix A: Translational Research Centers
One of the ideas discussed in depth at MForesight's manufacturing
roundtables is to create a number of Translational Research Centers
(TRCs). These would be designed to address market failures, fill gaps
in the innovation ecosystem, ensure superior defense technology and
capacity, and regain a vibrant, competitive industrial base.
Mission
Translational Research Centers will provide funding for product
development to fill the gap between academic researchers with a
potential hardware product or manufacturing process technology and
domestic production. Employing professional engineers and managers
experienced in new product introductions, the TRC will guide and fund
research needed to translate laboratory results to testable beta
prototypes and facilitate connections with domestic manufacturers to
scale domestic production. Filling this gap will reduce the technical
and market risk, attract private sector investment, retain and scale
commercial production in the United States, and thereby multiply and
accelerate the economic benefits from federal investments in academic
research. TRCs serve as a means to translate promising technologies
resulting from basic research conducted at affiliated universities into
(hardware) products or processes for scaled production in the United
States.
Background
Federal R&D obligations in 2016 were $140 billion. Federal R&D
spending at universities was nearly $40 billion. Of that, approximately
$18 billion was spent on life sciences by NIH, and roughly $12 billion
was spent on engineering research across all agencies. In 2016 alone,
universities spent nearly $550 million on equipment for engineering
research.\92\
---------------------------------------------------------------------------
\92\ National Science Foundation. (2018). Science and Engineering
Indicators 2018. Retrieved from https://www.nsf.gov/statistics/2018/
nsb20181/.
Almost no government funding is currently available for the
translational research needed to create viable hardware prototypes or
to scale production, leaving many discoveries and inventions
languishing in the laboratory or, increasingly, commercialized outside
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the United States.
Venture capitalists invest very little in hardware
commercialization.
A small federal investment in translational research would
ensure greater domestic economic impact from R&D funding, dramatically
increasing the return to federal R&D spending.
Existing Commercialization Process
Commercializing results of university research is dependent on
licensing, but results are rarely developed sufficiently to demonstrate
the value to a potential licensee.
University spin-off companies, start-ups established to
commercialize university research, frequently lack rigorous product
development skills and have difficulty raising sufficient capital to
mature hardware technologies as well as to develop (or contract) needed
manufacturing processes.
Venture capitalists (VCs) limit investments in hardware start-
ups because the risk profile is multifaceted and hardware overall is
more risky, time-consuming, and expensive than software. VCs invest
less than 5 percent in hardware start-ups. Some states and universities
have created small VC funds for university start-ups, but even these
favor information technology and healthcare startups.
The result is that potentially promising research results do not
receive additional effort to create commercial hardware products
because funds are not available. The national wealth that could be
created from research by introducing new products and technologies is
foregone or captured by foreign competitors. Simply creating knowledge
without a means to create national wealth from that knowledge is not
sustainable.
Translational Research Centers
TRCs would fill a gap in the current innovation ecosystem by
funding translational research and facilitating scale-up needed to spur
commercialization of the most promising results from academic R&D. TRCs
would fund experienced product development teams working with start-ups
to develop commercially viable hardware prototypes, perform validation
testing to demonstrate the value proposition, and work with U.S.
manufacturers, typically small and medium-sized manufacturers, to
identify a path to full-scale production in the United States.
TRCs would work with a single university or multiple regional
universities to identify promising hardware technologies emerging from
research results.
TRCs could take multiple possible legal forms. Although TRCs are
affiliated with universities, they should be independent from
universities, although they could be part of university research
corporations. Most likely, they would be independent non-profit
corporations. Each TRC would establish relationships with affiliated
universities to allow sharing of license fees and royalties from
successful products and/or processes.
Regardless of legal form, the overhead rate on federal funds
would be limited to a maximum of 15 percent.
The TRC would employ professional engineering and management
staff to serve as systems engineers, project managers, market
researchers, and private sector liaisons. Experienced product
development teams would apply rigorous processes to specify, design,
build and test hardware products/processes in the context of
anticipated use cases to ensure timely results and high levels of
domestic commercialization.
Any technologies funded through TRCs would be subject to
simplified licensing agreements to encourage licensing by SMMs.
Licensing of resulting products must be restricted to U.S. production
facilities only.
Commercial production or use of resulting process technologies
would be strictly limited to the United States to increase domestic
manufacturing output and exports.
Funding
An initial pilot program would fund 10 TRCs around the country,
selected based on competitive proposals.
Each TRC would be funded at up to $10 million annually, for an
initial 3-year award. The amount of funding provided would be
commensurate with the associated universities' federal research
funding, up to 3 percent of basic research funds.
Continued or increased funding would depend on performance as
determined by an assessment scorecard.
Assessment Scorecard
The intent of this initiative is to mature promising results from the
basic research conducted at affiliated universities. TRCs, in
collaboration with their affiliated universities, are at liberty to
choose the technology projects to be pursued. The results reported in
the scorecard will be used to assess the effectiveness of the
affiliated university in transitioning promising research into
domestically scalable products/processes in the marketplace. Each TRC
will be scored based on a series of leading and lagging metrics
indicative of positive impact on the U.S. economy. Metrics would
include:
Number of private-sector jobs created (maximum score = 20)
Amount of private-sector investment (does not include state or
federal funds or university funds; does not include ``commitments'')
(maximum score = 20)
Number of start-ups successfully scaling profitable production
(maximum score = 10)
Number of U.S.-based SMMs engaged in the production, technology
transfer, and/or development process (maximum score = 10)
Number of technologies exceeding Technology Readiness Levels
(TRL) 6 and Manufacturing Readiness Level (MRL) 5, according to
standard TRL and MRL assessments used by the Department of Defense
(maximum score = 10)
Continued funding would be based on the annual score achieved:
Award amount may be increased with a score above 55.
Continued funding for 2 years after the initial 3 year award
requires a score above 40.
Funding would terminate at the end of the fifth year if the
score is below 45.
Funding would be extended at the end of the fifth year for an
additional 3 years if the score is at least 55.
The TRC scorecard will be used in the evaluation of all future
proposals submitted by the participating universities.
Proposal Evaluation Criteria
The initial ten TRCs should be selected based on a Request for
Proposals. Multiple legal structures, formal relationships with
universities, industry and technology foci, non-federal funding sources
and partnerships, and other characteristics should be encouraged to
maximize the lessons from the pilot program, though the same assessment
scorecard must be used for all TRCs. The initial ten TRCs should focus
on universities, though subsequent centers could work with other
recipients of federal R&D funding such as non-profit research
institutions and national laboratories. Achieving the desired impact--
real, measurable economic benefit to the United States--will be the
ultimate determinant of success. Proposal evaluation criteria should be
based on the likelihood that proposers can achieve that goal.
Appendix B: Roundtable Participants
Boston, MA (January 18, 2018)
1. Dean Bartles, Director of the John Olson Advanced Manufacturing
Center--University of New Hampshire
2. Bill Bonvillian, Lecturer--MIT
3. Sam Feller, Founder--Awkward Engineer
4. John Hart, Associate Professor--MIT
5. Christian Hoepfner, Executive Director--Fraunhofer USA Center for
Sustainable Energy Systems CSE
6. Micaelah Morrill, Director of the Manufacturing Initiative and
Acting Executive Director--Greentown Labs
7. Ira Moskowitz, Director of Advanced Manufacturing Programs--
Massachusetts Technology Collaborative
8. Venky Narayanamurti, Benjamin Peirce Professor of Technology and
Public Policy at the Harvard School of Engineering and Applied
Sciences--Harvard University
9. Dave Rapaport, Head of Research and Collaboration Management US--
Siemens Corporate Technology
10. Liz Reynolds, Executive Director MIT Industrial Performance Center
11. Peter Russo, Director of Growth and Innovation--MassMEP
12. Matt Sweitzer, Manufacturing Fellow--Greentown Labs
13. Jim Watkins, Professor of Polymer Science and Engineering--
University of Massachusetts, Amherst and Director--Center for
Hierarchical Manufacturing
14. Johanna Wolfson, Principal--PRIME Impact Fund
Washington, DC (January 22, 2018)
1. Rob Atkinson, President--Information Technology and Innovation
Foundation
2. Norman Augustine, CEO (Ret.)--Lockheed Martin & Former Under
Secretary of the Army
3. Kurt Bettenhausen, Senior Vice President--Siemens Corporate
Technology USA
4. Robyn Boerstling, Vice President, Infrastructure, Innovation and
Human Resources Policy--National Association of Manufacturers
5. Walter Copan, Under Secretary of Commerce for Standards and
Technology and NIST Director--NIST
6. Ron Hira, Professor of Public Policy--Howard University & Research
Associate--Economic Policy Institute
7. Paul Kern, Senior Counselor--Cohen Group
8. Mark Mills, Senior Fellow--Manhattan Institute
9. Shirish Pareek, CEO--Hydraulex Global
10. Willy Shih, Robert and Jane Cizik Professor of Management Practice
in Business Administration--Harvard Business School
11. Jeff Wilcox, Vice President for Engineering and Program
Operations--Lockheed Martin
12. Chad Moutray, Chief Economist--National Association of
Manufacturers
13. Andrew Bicos, ASME Legislative Fellow--Office of U.S. Congressman
Reed
14. Pramod Khargonekar, Vice Chancellor for Research and Distinguished
Professor of Electrical Engineering and Computer Science--University of
California, Irvine
15. Mike Russo, Director and Corporate Lead of U.S. Government
Affairs--GLOBALFOUNDRIES
Austin, TX (February 23, 2018)
1. Joe Beaman, Professor and Earnest F. Gloyna Regents Chair in
Engineering--University of Texas at Austin
2. Roger Bonnecaze, William and Bettye Nowlin Chair in Chemical
Engineering and Co-Director of NASCENT--University of Texas at Austin
3. Larry Dunn, Assistant Director of Industry and Innovation Programs
at NASCENT--University of Texas at Austin
4. Brian Korgel, Professor, Edward S. Hyman Endowed Chair in
Engineering--University of Texas at Austin and Director of Industry/
University Cooperative Research Center on Next Generation Photovoltaics
5. Dwayne LaBrake, President and Chief Executive Officer--Canon
Nanotechnologies
6. Ed Latson, Executive Director--ARMA--Austin Regional Manufacturers
Association
7. Ken Pfeiffer, Vice President of Engineering--Superconductor
Technologies Inc.
8. Bill Rafferty, Manager of Process Improvement Engineering--
Southwest Research Institute and South Central Regional Director--Texas
Manufacturing Assistance Center (TMAC)
9. John Randall, President--Zyvex Labs, Dallas
10. S.V. Sreenivasan, Professor and Co-Director of the NASCENT
Center--University of Texas at Austin
11. Krishna Srinivasan, Founding General Partner--LiveOak Ventures
12. Bill Stueve, President--Atonometrics
13. Sarah Holloway, District Field Director--Office of Congressman
Michael T. McCaul (TX-10)
San Jose, CA (March 8, 2018)
1. Bob Brakeman, Independent Consultant
2. Megan Brewster, Vice President of Advanced Manufacturing--Launch
Forth
3. Glenn Daehn, Fontana Professor of Materials Science Engineering
and Director for Manufacturing, Institute for Materials Research--The
Ohio State University
4. Cyril Ebersweiler, General Partner, SOSV and Managing Director,
HAX
5. Mauricio Futran, Vice President, Process Science and Advanced
Analytics--Johnson & Johnson
6. Jim Myrick, Entrepreneur in Residence--Flextronics
7. Shirish Pareek, CEO--Hydraulex Global
8. David Parrillo, Global Research and Development Director for
DowDuPont Packaging and Specialty Plastics--The Dow Chemical Company
9. Sean Randolph, Senior Director--Bay Area Council Economic
Institute
10. Greg Reichow, Partner--Eclipse Ventures
11. Mike Russo, Director and Corporate Lead of U.S. Government
Affairs--GLOBALFOUNDRIES
12. Randy Schiestl, Vice President, R&D, Global Technology and
Services--Boston Scientific Corporation
13. Diego Tamburini, Principal Industry Lead for Azure Manufacturing--
Microsoft
14. Malcolm Thompson, Executive Director--NextFlex
15. David Vasko, Director of Advanced Technology--Rockwell Automation
16. David Wahl, Senior Vice President and General Manager--Jabil
Raleigh, NC (March 14, 2018)
1. Paul Cohen, Woolard Distinguished Professor, Fitts Department of
Industrial and Systems Engineering--North Carolina State University
2. Steve Ellis, CEO--Automated Solutions
3. John Hardin, Executive Director--North Carolina Board of Science,
Technology and Innovation
4. Nick Justice, Executive Director--PowerAmerica Institute
5. Russell King, Foscue Distinguished Professor and Co-Director of
the Center for Additive Manufacturing and Logistics--North Carolina
State University
6. John Loyack, Vice President of Global Business Services--Economic
Development Partnership of North Carolina
7. Mike Mazzola, Director of the Energy Production and Infrastructure
Center--University of North Carolina at Charlotte
8. Steve McManus, Innovation Manager--RTI
9. Phil Mintz, Executive Director--NC State Industry Expansion
Solutions and Director--North Carolina MEP
10. Zack Oliver, Economist--RTI
11. Scott Smith, Professor and Department Chair, Mechanical
Engineering and Engineering Science--University of North Carolina at
Charlotte
12. Binil Starly, Associate Professor, Industrial and Systems
Engineering--North Carolina State University
13. Bob Wilhelm, Vice Chancellor for Research and Economic
Development--University of North Carolina at Charlotte
14. Fiona Baxter, Associate Executive Director--NC State Industry
Expansion Solutions
Indianapolis, IN (March 21, 2018)
1. Keith Belton, Director of the Manufacturing Policy Initiative--
Indiana University Bloomington
2. Andrew Berger, Senior Vice President of Governmental Affairs--
Indiana Manufacturers Association
3. Matt Conrad, Executive Director, Indiana Automotive Council--
Conexus Indiana
4. Claudia Cummings, Vice President, Strategic Development--Conexus
Indiana
5. Jennifer Hagan-Dier, Manufacturing Extension Partnership Director,
Center for Industrial Services--University of Tennessee
6. Ned Hill, Professor of Public Administration and City and Regional
Planning--The Ohio State University
7. Steve Jones, Professor of Finance, Kelly School of Business--IUPUI
8. Razi Nalim, Associate Dean for Research, School of Engineering and
Technology--IUPUI
9. Clayton Nicholas, Industry Research Development Specialist, School
of Engineering and Technology--IUPUI
10. Ray Niehaus, Managing Director of Innovation and Technology--Mid-
America Science Park
11. Dave Roberts, Chief Innovation Officer--Indiana Economic
Development Corporation
12. Dave Snow, Director--Indiana MEP
13. Stan Woszczynski, Vice President, Chief Manufacturing Officer--
Cummins, Inc.
14. James Ruble, Advanced Composites Outreach Consultant, Center for
Industrial Services--University of Tennessee
15. Tim Frazier, Executive Director of Advanced Engineering--Cummins,
Inc., Dearborn, MI (March 29, 2018)
Dearborn, MI (March 29, 2018)
1. Carla Bailo, President and CEO--Center for Automotive Research
2. Timothy Bartik, Senior Economist--Upjohn Institute
3. Mike Coast, President--Michigan Manufacturing Technology Center
4. Chris Conrardy, Executive Director--LIFT and Chief Technology
Officer and Vice President for Strategic Initiatives--EWI
5. Chuck Hadden, President and CEO, Michigan Manufacturers
Association
6. Fred Keller, Founder and Chair, Cascade Engineering
7. Tom Kelly, Executive Director and CEO, Automation Alley
8. Jeff Krause, Executive Director and CEO, SME
9. Andrew McColm, Managing Director, Venture Creation--Spartan
Innovations
10. Mark Montone, Director of Sales and Marketing North America--Lacks
Trim Systems LLC
11. David Ollila, President and Chief Innovation Officer--Skypoint
Ventures
12. Kirk Roys, Director of Global Technical Services--Steelcase
13. Ryan Sekol, Senior Researcher, Manufacturing Systems Research--
General Motors Global Research and Development
14. Kelly Sexton, Associate Vice President for Research--Technology
Transfer and Innovation Partnerships--University of Michigan
15. Dan Slane, Owner--The Slane Company
16. Alan Taub, Chief Technical Officer--LIFT
Other Contributors
1. Christie Wong-Barrett, CEO, MacArthur Corp.
2. Glenn Daehn, Mars G. Fontana Prof. of Metallurgical Engineering,
The Ohio State University
3. Khershed Cooper, Program Director, Nanomanufacturing, National
Science Foundation
4. Charles L. Cooney, Robert T. Haslam (1911) Professor of Chemical
Engineering, Emeritus, and Faculty Director, Emeritus, Deshpande Center
for Technological Innovation, MIT
5. Lawrence D. Burns, Vice President (retired), R&D, General Motors
6. Pat McGibbon, Vice President, Association for Manufacturing
Technology
7. Kirsten Rieth, Senior Innovation Advisor, RTI
8. Madhav Acharya, Technology-to-Market Advisor, ARPA-E
9. Charles Zukoski. Provost, University at Buffalo
10. Sue Babinec, Senior Commercialization Advisor, ARPA-E, Dept. of
Energy
______
National Employment Law Project (NELP)
Manufacturing Low Pay: Declining Wages in the Jobs That Built America's
Middle Class
Catherine Ruckelshaus and Sarah Leberstein
November 2014
_______________________________________________________________________
Executive Summary
_______________________________________________________________________
Americans perceive manufacturing jobs as ``good jobs.''
> Nine out of ten Americans believe that a strong manufacturing base is
very important to our country's standard of living, according to a poll
conducted by the consulting firm Deloitte for the Manufacturing
Institute. When asked what type of facility they would support to bring
jobs to their community, a manufacturing plant was at the top of the
list.
Manufacturing wages now rank in the bottom half of all jobs in the
United States.
> While in the past, manufacturing workers earned a wage significantly
higher than the U.S. average, by 2013 the average factory worker made
7.7 percent below the median wage for all occupations.
The perception that manufacturing jobs are highly paid disguises how
many workers are stuck at the bottom.
> Today, more than 600,000 manufacturing workers make just $9.60 per
hour or less. More than 1.5 million manufacturing workers--one out of
every four--make $11.91 or less.
Manufacturing wages are not even keeping up with inflation.
> Real wages for manufacturing workers declined by 4.4 percent from
2003 to 2013--almost three times faster than for workers as a whole.
In the largest segment of the manufacturing base--automotive--wages
have declined even faster.
> Real wages for auto parts workers, who now account for three of every
four autoworker jobs, fell by nearly 14 percent from 2003 to 2013--
three times faster than for manufacturing as a whole, and nine times
faster than the decline for all occupations.
> The growth in the number of auto parts jobs is cause for concern,
because the typical parts worker makes one-third less than the typical
auto assembly worker, and puts downward pressure on the higher assembly
wages.
There has been a resurgence in the number of auto industry jobs since
the economic crisis peaked in 2009.
> The auto industry has added nearly 350,000 jobs and invested $38
billion in U.S. facilities since 2009, which indicates a long-term
commitment to building vehicles here. As long as vehicles are assembled
in the United States, the economic benefits of a just-in-time
manufacturing base ensures that jobs at many parts suppliers are also
likely to remain in the country, even if wages rise.
New jobs created in the auto sector are worse than the ones we lost.
> In 5 of the 10 ``Auto Alley'' states--Michigan, Indiana, Ohio, South
Carolina, and Tennessee--new hires at auto parts plants are paid
roughly one-quarter less than the other auto parts workers in the
state.
> In 6 of the 10 Auto Alley states--Alabama, Mississippi, Indiana,
Ohio, Michigan, and Illinois--auto parts workers saw real monthly
earnings decline between 2001 and 2013. Alabama saw the steepest
decline--24 percent--over that period.
Heavy reliance on temporary workers hides even bigger declines in
manufacturing wages.
> About 14 percent of auto parts workers are employed by staffing
agencies today. Wages for these workers are lower than for direct-hire
parts workers and are not included in the official industry-specific
wage data cited above.
> Estimates based on U.S. Census Bureau data, however, indicate that
auto parts workers placed by staffing agencies make, on average, 29
percent less than those employed directly by auto parts manufacturers.
Introduction
_______________________________________________________________________
Politicians, economists, and other promoters tout increased investment
by manufacturers, the benefits of direct and ``value added'' industry
cluster jobs flowing from manufacturing plants, and the overall
economic boost that manufacturing jobs bring to local economies. This
narrative creates a sometimes-intense competition among states for
manufacturers in the form of subsidies and tax breaks for the perceived
benefits. And while the manufacturing sector has been resurging in the
last few years, growing by 4.3 percent between 2010 and 2012, the jobs
that are returning are not the ones that were lost: wages are lower,
the jobs are increasingly temporary, and the promised benefits have yet
to be realized.
This report will trace some of the drivers of this anemic rebound in
manufacturing and its largest sector, auto manufacturing. ``Onshoring''
of jobs by manufacturers is on the rise in the United States; jobs are
rebounding here due to a combination of a wage convergence between
domestic and international jobs and aggressive supports from U.S.
states. At the same time, the decline in relative wages in the
manufacturing sector is striking: in the last decades, wages in the
sector have fallen behind private-sector pay, so that wages for
production workers in manufacturing are now more than 4.0 percent less
than the private-sector average, and they continue to decline.
While the manufacturing sector has grown in recent years, wages are
lower, the jobs are increasingly temporary, and promised benefits have
yet to be realized.
Auto manufacturing trends track those of manufacturing overall; the
sector is enjoying a rebound in jobs since the auto crisis, but the
replacement jobs pay substantially lower wages. While part of the
reason for lower average auto wages is due to the relative increase in
workers in parts plants that pay less than the assembly plants, the
replacement jobs are also increasingly placed via staffing and
temporary agencies that pay lower wages. The report uses state data
from the ``Auto Alley'' states--Alabama, Georgia, Illinois, Indiana,
Kentucky, Michigan, Mississippi, Ohio, South Carolina, and Tennessee--
to provide more refined information regarding lower earnings and wages
in auto jobs.
Workers profoundly feel these shifts. Phillip Hicks explained to The
Washington Post that his only option for a job at a Toyota plant in
Georgetown, Kentucky was through the staffing agency Manpower, Inc.
Manpower assured Hicks that he would be able to switch to Toyota
payroll after a year or two, promising a doubling of his salary from
$12.60 to $24.20 an hour and gaining benefits.\1\ But after four years,
Hicks was still waiting for a permanent employee position, unable to
afford health benefits for his family or take more than three days off
per year without risking his job, because of a punitive leave policy
that only applied to ``temps.'' \2\
---------------------------------------------------------------------------
\1\ Jonathan Weisman, ``Permanent Job Proves an Elusive Dream,''
Washington Post, October 11, 2004, 1-2, http://www.washingtonpost.com/
wp-dyn/articles/A22773-2004Oct10.html.
\2\ Id.
If these wage trends continue, manufacturing and auto jobs will not
deliver on the promise of creating livable jobs with positive economic
revivals in communities and for families.
1. Communities are racing to create
``good jobs in manufacturing''
_______________________________________________________________________
Government policymakers and state and local economic development
agencies see manufacturing jobs as important to economic growth because
they create a ripple effect, generating additional jobs in other
manufacturers that supply a plant, as well as in restaurants and
retail, transportation and logistics, and white-collar professional
services that support the plant. Manufacturing jobs are thus highly
sought after by our federal and state policymakers, lauded as
``advanced industries'' that generate investments, create a high number
of direct and indirect jobs, enhance worker skills, and generate
additional economic activity in related industries.\3\
---------------------------------------------------------------------------
\3\ See Economic Development Partnership of Alabama, Alabama
Industry Profile: Automotive Industry, 2007, https://
aama.memberclicks.net/assets/docs/auto_profile.pdf; Georgia Power
Community and Economic Development, Automotive Manufacturing in
Georgia, 2014; Ohio Department of Development, The Ohio Motor Vehicle
Industry, February 2011; Darla Moore School of Business, The Economic
Impact of South Carolina's Automotive Cluster (Columbia, South
Carolina: University of South Carolina, January 2011); Brookings
Advanced Industries Series, Drive! Moving Tennessee's Automotive Sector
Up the Value Chain (Washington, DC: Brookings Institution Metropolitan
Policy Program, 2013).
In addition, the general public perceives that manufacturing jobs can
uplift the economy by delivering good jobs and generating additional
employment in related support industries. Recent poll results show that
respondents think that manufacturing is the most important job sector,
in terms of strengthening the economy.\4\ During election seasons in
particular, many public-office-seekers resolve to create and promote
manufacturing jobs, scheduling photo-ops in front of manufacturing
plants with workers and business owners. And our public policymakers
promote manufacturers as saviors for still-struggling local economies,
luring them with subsidies and state welcome mats.\5\
---------------------------------------------------------------------------
\4\ See Deloitte Manufacturing Institute, Leadership Wanted: U.S.
Public Opinions on Manufacturing (2012 Annual Index), 9; George Heaton
et al., Manufacturing Issues in the 2012 United States Presidential
Campaign (Technology Policy International, June 30, 2012); Toplines
polling data commissioned by the Alliance for American Manufacturing
(Steelworkers), http://americanmanufacturing.org/.
\5\ See id., note 1.
Recent poll results show that respondents think that manufacturing is
---------------------------------------------------------------------------
the most important job sector, in terms of strengthening the economy.
Thanks to global market forces and aggressive courting and subsidies by
the federal government and states, some manufacturing jobs are
rebounding, but the quality of too many of the returning jobs is low
and fails to live up to workers' and the overall public's expectations.
The perceived importance of manufacturing jobs leads to state
competition and generous subsidies. States and towns compete fiercely
to lure manufacturing plants with generous subsidies that strain public
budgets. These large public subsidies are premised, and largely
supported locally, on the expectation that companies will create good
manufacturing jobs that boost the local economy, both through jobs at
the plant itself as well as those that arise in the network of
suppliers that serve it and beyond. Yet, subsidies that taxpayers were
asked to support have not always delivered the good jobs that employers
promised and the states expected.
Subsidies that taxpayers were asked to support have not always
delivered the good jobs that employers promised and states expected.
Subsidy programs have included a broad array of supports, including
corporate income tax credits (for job creation, capital investment,
research and development), cash grants, low-cost or forgivable loans,
enterprise zones, reimbursement for workers' training expenses, and
other types of company-specific state assistance.\6\ Companies may also
receive property tax abatements, whose cost is borne by local taxpayers
and comes at the potential expense of other goods and services.\7\ But
many subsidy programs come with few meaningful conditions: many require
little if any job creation; fewer than half provide any kind of wage
standard for the workers in subsidized companies; and fewer than a
quarter require any level of health coverage.\8\ Moreover, subsidy
programs aimed at creating new jobs tend to attach wage and benefits
standards only to full-time, permanent positions, and have not
consistently applied those standards to part-time and temporary workers
or contractors within the subsidized company.\9\
---------------------------------------------------------------------------
\6\ Philip Mattera, et al., Money for Something: Job Creation and
Job Quality Standards in State Economic Development Subsidy Programs
(Washington, DC: Good Jobs First, December 2011), http://
www.goodjobsfirst.org/sites/default/files/docs/pdf/
moneyforsomething.pdf.
\7\ Id.
\8\ Id.
\9\ Id. at 19.
Dozens of large manufacturing companies have come to expect states to
undertake worker-training responsibilities in exchange for creating
jobs, even when the companies have the financial capabilities to train
workers themselves.\10\ If the training is too narrowly focused on a
low-wage temporary job, the state's investment may have no lasting
benefit to workers, who are not any more prepared to get a better-
paying and higher-skilled job.\11\
---------------------------------------------------------------------------
\10\ Motoko Rich, ``Private Sector Gets Job Skills; Public Gets
Bill,'' New York Times, January 7, 2012, at http://www.nytimes.com/
2012/01/08/business/states-pay-to-train-workers-to-companies-
benefit.html?pagewanted=all.
\11\ Id.
The costs to local and state budgets are staggering. Notable deals have
---------------------------------------------------------------------------
included the following:
A nearly $1.3-billion package to Nissan to build a Canton,
Mississippi plant in 2001, including a controversial 25-year state tax
rebate for jobs that, in many cases, start at just $12 per hour;
A $1-billion subsidy package for ThyssenKrupp to build a steel
plant in Mobile, Alabama;\12\
---------------------------------------------------------------------------
\12\ ``Alabama's Largest Incentives Packages in Last 20 Years,''
Business Alabama, http://www.businessalabama.com/Incentives.pdf (based
on data from Good Jobs First).
---------------------------------------------------------------------------
A 2007 package deal for Alcoa worth $5.6 billion, giving a 30-
year discounted electricity deal for an aluminum plant;
A $3.2-billion deal in tax breaks and other subsidies for
Boeing's aircraft manufacturing facilities in 2003;\13\ and
---------------------------------------------------------------------------
\13\ Philip Mattera, Kasia Tarczynska, and Greg LeRoy, Megadeals:
The Largest Economic Development Subsidy Packages Ever Awarded by State
and Local Governments in the United States (Washington, DC: Good Jobs
First, June 2013), http://www.goodjobsfirst.org/sites/default/files/
docs/pdf/megadeals_report.pdf.
---------------------------------------------------------------------------
A 2006 deal with Kia Motors brokered by Georgia Governor Sonny
Perdue, worth $410 million and estimated to cost about $160,000 for
each of the projected direct jobs at the plant.\14\
---------------------------------------------------------------------------
\14\ ``Case Study of Foreign Auto Assembly Plants,'' Good Jobs
First, accessed October 20, 2014, http://www.goodjobsfirst.org/
corporate-subsidy-watch/foreign-auto-plants.
Taxpayers may find that they have been essentially asked to subsidize a
---------------------------------------------------------------------------
large company whose promise of good jobs never materializes.
These generous packages may not ultimately make a difference, however,
in a manufacturer's decision about whether and where to locate new
plants. States have provided generous subsidies to foreign auto
companies that, research suggests, would have begun operations in the
United States regardless of the supports, in order to strengthen their
market share and counteract the effects of import controls.\15\ By the
1990s, foreign auto-makers were expanding their operations in the
United States, especially in southern ``right to work'' states, to take
advantage of what had now become relatively cheap U.S. labor and to
avoid rising shipping costs.\16\ Companies also may accept subsidies
even as they choose sites for their proximity to markets, as Toyota did
in 2003 when it chose to locate a new assembly plant in San Antonio,
passing up more generous subsidies to build in other locations because
of the new site's access to the large Texas market for pick-up trucks
to be built at the plant.\17\ Taxpayers may find that they have
essentially been asked to subsidize a large company whose promise of
good jobs never materializes.
---------------------------------------------------------------------------
\15\ Id.
\16\ Id.
\17\ Id.
---------------------------------------------------------------------------
2. ``Onshoring'' has sparked a resurgence
of U.S. manufacturing
_______________________________________________________________________
Manufacturing in the U.S. is on the rebound. Between 2010 and 2012, the
sector grew by 4.3 percent.\18\ While the share of employment in
manufacturing has shrunk rapidly in the decades since the Second World
War, falling from over 40 percent of private non-farm employment in
1945 to just over 10 percent in 2013, there is a core of manufacturing
work (including auto and computers) that is bouncing back and is likely
to remain in the United States. Foreign and domestic manufacturers are
making major investments in the U.S. market, including BMW's
Spartanburg, South Carolina plant, which is in the midst of a $900
million expansion.\19\ From a trough of 11.5 million jobs in 2010,
manufacturing jobs grew to just over 12 million in 2013.\20\ Five
million workers work in the United States for foreign firms, and one-
third of them work in manufacturing jobs.\21\
---------------------------------------------------------------------------
\18\ David Wessel and James Hagerty, ``Remade in the USA: Flat
Wages Help Fuel Rebound in Manufacturing,'' The Wall Street Journal,
May 29, 2012.
\19\ ``BMW Manufacturing News Center.'' BMW US Factory BMW Expands
Export Operation From South Carolina Comments. N.p., n.d., Web.
November 10, 2014.
\20\ Calculations by the authors (Bureau of Labor Statistics).
\21\ James Fallows, ``Made in America, Again,'' The Atlantic,
October 2014, 22-23.
Chinese, Japanese, and U.S. manufacturers are establishing plants in
---------------------------------------------------------------------------
the South in particular, where labor standards are weaker.
Onshoring by manufacturers is one cause of the domestic resurgence of
manufacturing jobs; they are rebounding here because wages are lower
than they used to be.\22\ Chinese, Japanese, and U.S. manufacturers are
establishing plants in the South in particular, where labor standards
are weaker.\23\ The Boston Consulting Group's 2012 survey found that 37
percent of the nation's largest manufacturers are considering bringing
some production back to the United States from China.\24\ The wage
differential between Chinese and U.S. workers is projected to shrink to
$7 an hour by 2015, down from $17 an hour in 2006.\25\ Many
manufacturers have returned to the United States due to their just-in-
time production cycles, the increasing costs of shipping and moving
heavier and bulkier component parts like auto interiors, proximity to
demand and to energy sources or natural resources, and the existence of
innovation and R&D capacities.
---------------------------------------------------------------------------
\22\ According to the Boston Consulting Group, companies find the
United States attractive because of its low labor costs relative to
Europe and Japan. Brad Plumer, ``Is U.S. Manufacturing Making a
Comeback--or Is It Just Hype?,'' Washington Post Wonkblog, May 1, 2013.
\23\ Id.
\24\ Id.; Id.; ``BMW Manufacturing News Center.'' BMW US Factory
BMW Expands Export Operation From South Carolina Comments. N.p., n.d.,
Web. November 10, 2014.
\25\ Plumer, ``Is U.S. Manufacturing Making a Comeback?''
---------------------------------------------------------------------------
A few examples:
General Electric moved its electric water heater production from
Mexico to Louisville, Kentucky, and hired workers at $13 an hour.\26\
---------------------------------------------------------------------------
\26\ Wessel and Hagerty, ``Remade in the USA.''
---------------------------------------------------------------------------
Lenovo, the Beijing computer maker, opened a manufacturing plant
in Whitsett, North Carolina in 2013,\27\ due to rising wages in China
and the ability to offset rising logistics and transportation costs by
relocating to the United States near a large customer base.
---------------------------------------------------------------------------
\27\ Plumer, ``Is U.S. Manufacturing Making a Comeback?''
---------------------------------------------------------------------------
Ford, GM, and Caterpillar also moved some operations back to the
United States for similar reasons.\28\
---------------------------------------------------------------------------
\28\ Id. GM is moving the Cadillac SRX, the brand's best seller, to
Spring Hill, TN. ``Cadillac SRX Production Moving to TN, Next-Gen
Equinox Going to Mexico,'' AutoBlog, accessed November 5, 2014, http://
www.autoblog.com/2014/08/29/cadillac-srx-spring-hill-chevy-equinox-
mexico/.
---------------------------------------------------------------------------
Ikea opened a furniture factory in Danville, Virginia in 2008.
Airbus is building a new factory in Mobile, Alabama.\29\
---------------------------------------------------------------------------
\29\ Id.
Production and labor costs are no longer that different between
international and U.S.-based facilities. There has been a ``wage
convergence'' across U.S. locations,\30\ and international wages have
risen while transportation and supply-chain costs have gone up.\31\ The
gap in wages across states is narrowing: the median wage in Georgia,
now the lowest among the ``Auto Alley'' states, is just 19.8 percent
lower than the median in Michigan, the highest wage on the list. While
this gap is not trivial and could be due to differences in composition
of jobs, it may not be enough to compel a firm to move a facility for
savings of this magnitude.
---------------------------------------------------------------------------
\30\ Calculations by the authors (Occupational Employment
Statistics mean and median wages by state).
\31\ Brookings Institute, Drive!, at v, 24.
While the number of returning jobs is not yet making a dent in the six
million manufacturing jobs lost between 2000 and 2009, according to the
Bureau of Labor Statistics, the returning jobs bring hope to local
economies.\32\
---------------------------------------------------------------------------
\32\ Id.
---------------------------------------------------------------------------
3. Manufacturing wages are in decline
_______________________________________________________________________
The decline in relative wages in the manufacturing sector is striking.
In most of the post-war period, manufacturing paid somewhat higher
wages than other industries. But this is no longer the case.
As will be shown below, these reported average wages are artificially
high due to a failure of government data to account for the lower wages
in staffing and temporary agency--placed jobs in manufacturing. Most of
the jobs gained since 2009 have been non-union, a key wage impact for
these jobs.\33\ Note that the decline in average wages in the sector
corresponds with the resumption of its growth--the United States lost
manufacturing jobs for decades, accelerating between 2000 and 2009.
When manufacturers began growing again, the jobs they added have tended
to pay less.
---------------------------------------------------------------------------
\33\ Plumer, ``Is U.S. Manufacturing Making a Comeback?''
If recent trends continue for the next decade, hourly wages for
production workers in manufacturing will be almost 9.0 percent less
---------------------------------------------------------------------------
than for the private sector as a whole.
The existence of some high-wage manufacturing workers disguises
just how many manufacturing workers there are at the bottom of the
economy. Table 1, below, shows hourly wage cutoff points for each
percentile (10, 25, median, 75, 90).
Table 1. Manufacturing Production Wages by Percentile, 2013
----------------------------------------------------------------------------------------------------------------
Wage at Wage at Wage at Wage at
Total Employment in Occupation Mean Wage 10th 25th Median 75th 90th
Percentile Percentile Wage Percentile Percentile
----------------------------------------------------------------------------------------------------------------
6,163,470 $17.11 $9.60 $11.91 $15.66 $20.76 $27.17
----------------------------------------------------------------------------------------------------------------
Source: Bureau of Labor Statistics, Occupational Employment Statistics, data for NAICS Sector 31-33, All
Production Occupations (51-0000), May 2013, available at http://www.bls.gov/oes/.
Returning jobs are simply not paying as much as those that were lost in
the recession. Some examples:
General Electric is producing electric water heaters in
Louisville, Kentucky, where workers are making $13 an hour.
Remington Outdoor Co.--the gun manufacturer--is hiring
production workers for its new Alabama manufacturing facility at $11.50
an hour. The project is eventually expected to employ 2,000 people.\34\
---------------------------------------------------------------------------
\34\ ``How to Apply for a Production Job at New $110M Remington Gun
Plant in Huntsville,'' Al.com, http://www.al.com/business/index.ssf/
2014/06/remington_huntsville_jobs_guns.html.
---------------------------------------------------------------------------
Texas Power Systems, which supplies engines to the Caterpillar
plant in Seguin, Texas, hires workers through a staffing agency for
$10.50 an hour. Workers get a raise to $10.75 if they are hired on as
direct employees.\35\
---------------------------------------------------------------------------
\35\ Sanford Nowlin, ``Caterpillar Supplier Eyes More Hiring, Ading
Third Production Line,'' San Antonio Business Journal, October 28,
2011, http://www.bizjournals.com/sanantonio/print-edition/2011/10/28/
caterpillar-supplier-eyes-more-hiring.html?page=all.
---------------------------------------------------------------------------
A Vaughan-Basset Furniture plant in Galax, Virginia pays its
recent hires $9 an hour.\36\
---------------------------------------------------------------------------
\36\ Id.
Manufacturing wages have fallen behind the rest of the private sector.
The longest view we have on wages is the Census Bureau's Current
Population Survey (CPS), which relies on household surveys to track
wage data over many years. As shown in Figures 1 and 2, from 1976 to
2006, the median wage for manufacturing workers was higher than for
private-sector workers as a whole. That changed in 2007, and has
continued to decline since.\37\
---------------------------------------------------------------------------
\37\ U.S. Census Bureau, Current Population Survey.
[GRAPHIC] [TIFF OMITTED] T2618.031
Other data sources, such as the Bureau of Labor Statistics'
Occupational Employment Statistics (OES), allow us to look more closely
at both industry (``manufacturing'' or ``motor vehicle assembly'') and
occupation (``all production workers''). The OES data, which collects
data from businesses rather than individual workers, shows the median
wage for manufacturing workers is 7.7 percent lower than for all
workers (public and private sector).\38\ When manufacturing workers are
compared to all goods-producing workers (which includes other blue-
collar production occupations such as construction, logging, and
mining), we can see the median wage for manufacturing is 3.6 percent
below the average for the goods-producing sector as a whole.\39\
---------------------------------------------------------------------------
\38\ U.S. Bureau of Labor Statistics, Occupational Employment
Statistics, NAICS Sectors 31-33, All Production Occupations (SOC Code
51-000) compared to All Private and Public Sector Workers (SOC Code 00-
0000).
\39\ U.S. Bureau of Labor Statistics, Economic News Release,
``Table B-3: Average Hourly and Weekly Earnings of All Employees on
Private Nonfarm Payrolls by Industry Sector, Seasonally Adjusted,''
available at http://www.bls.gov/news.release/empsit.t19.htm. Based on
OES Establishment data. Note that these medians include all occupation
codes, not just production occupations, so that median wages are
significantly higher.
In 2007, the wage gap reported in the CPS data was fairly modest--
$19.57 per hour for all private-sector workers, compared with $19.40 an
hour for manufacturing workers. (Note that the CPS data include a
somewhat broader group of occupations than the BLS data, so median
wages tend to be higher than they would be for production workers
alone.) But by 2013, the gap had widened considerably, to 85 cents an
hour. If these recent trends continue for the next decade, hourly wages
for manufacturing workers will be almost 9.0 percent less than for the
---------------------------------------------------------------------------
private sector as a whole. See Figure 1, above.
In previous decades, the path of wages in manufacturing generally
followed the pattern of employment. As Figure 2 above shows, in the
late 1940s and early 1950s, the average hourly wage for production
workers in the manufacturing sector was close to 10 percent higher than
the average for the private sector as a whole. The gap peaked in 1985,
with wages for manufacturing workers 7.6 percent higher than the
average for the private sector as a whole. Manufacturing wages then
began to fall relative to the private sector as a whole, dropping below
the private-sector average in 2007 and continuing to edge downward in
subsequent years. (Note: The sharp drop shown in 1964 is associated
with a break in the series; it does not reflect anything that happened
in the economy in that year. )
This downward trajectory of manufacturing wages relative to all
private-sector employment cannot be overlooked. If the wage trends
continue, manufacturing jobs will not deliver on the promise of
creating livable jobs with positive economic revivals in communities
and families.
Table 2. Changes in Real Wages, All Manufacturing Workers, 2003-2013
----------------------------------------------------------------------------------------------------------------
Total
Employment Wage at Wage at Wage at Wage at
Year in Mean Wage 10th 25th Median Wage 75th 90th
Occupation Percentile Percentile Percentile Percentile
----------------------------------------------------------------------------------------------------------------
2003 7,456,360 $18.04 $10.15 $12.57 $16.38 $22.11 $29.38
----------------------------------------------------------------------------------------------------------------
2013 6,163,470 $17.11 $9.60 $11.91 $15.66 $20.76 $27.17
----------------------------------------------------------------------------------------------------------------
Change -5.2% -5.4% -5.3% -4.4% -4.7% -6.1%
----------------------------------------------------------------------------------------------------------------
Source: Calculations by the authors. (Bureau of Labor Statistics, Occupational Employment Statistics, data for
NAICS Sector 31-33, All Production Occupations (51-0000), May 2003 and May 2013, available at http://
www.bls.gov/oes/.)
Manufacturing wages are not even keeping up with inflation. Wages in
manufacturing are not keeping up with inflation.\40\ As shown in Table
2, the median wage for all manufacturing workers in the United States
is $15.66 per hour. In real terms, however, since 2003, the inflation-
adjusted median hourly wage for manufacturing workers has declined by
nearly $1.00 an hour, from $16.38 to $15.66 (in 2013 dollars). That
amounts to a drop of over 4 percent. For a manufacturing worker who
works 40 hours a week, 52 weeks per year, that translates to a drop in
income of about $2,000 a year.
---------------------------------------------------------------------------
\40\ Wessel and Hagerty, ``Remade in the USA.''
The public assumes that manufacturing jobs are highly paid, but the
reality is that millions of manufacturing workers are at the bottom of
---------------------------------------------------------------------------
the wage scale.
Looking closer, the data reveal that there have been similar declines
in real wages across all income categories.
The hidden reality of low-wage manufacturing workers. When people say
they support bringing manufacturing jobs to their community, they are
probably thinking of those positions at the higher end of the wage
scale. Fortunately, there are still some of those high-wage
manufacturing jobs left. They disguise the fact that millions of
manufacturing workers are at the bottom of the wage spectrum, however.
The Bureau of Labor Statistics' Occupational Employment Statistics
(OES) data report wages by percentiles, which provides more detail
about what is happening to workers than what is apparent through the
reported averages. The 10th percentile, for example, means that 10
percent of workers make at or below that wage rate. The 25th percentile
means one-quarter of workers make at or below that wage rate, and so
on. The OES data reports that in 2013, there were approximately 6.2
million production workers in manufacturing. More than 600,000 of those
workers make just $9.60 or less, and more than 1.5 million of those
workers make $11.91 or less.\41\ See Figure 3, below.
---------------------------------------------------------------------------
\41\ Bureau of Labor Statistics, Occupational Employment
Statistics, NAICS Code 31-33 (Manufacturing), Production Occupations
(Occupation Code 51-0000), available at http://www.bls.gov/oes/,
accessed October 2014.
[GRAPHIC] [TIFF OMITTED] T2618.032
4. Case Study: The changing nature of automotive work
_______________________________________________________________________
Motor vehicle manufacturing and supply is a significant sector in our
economy, and is the largest manufacturing sector.\42\ Employment in the
auto sector has followed the same general downward path as
manufacturing as a whole, although the sector's jobs have rebounded
since 2009. At the start of the 1950s, autoworkers accounted for more
than 2.0 percent of private-sector employment. This share has dropped
to just 0.7 percent in the last decade. But, auto has added over
340,000 jobs since the 2009 fallout, according to the U.S. Treasury,
making it one of the few sectors in this recovery that is relatively
healthy.\43\ By taking a closer look at this group of manufacturing
workers--especially workers in the parts sector, who tend to be paid
less--we can gain some insight into some of the factors that are
driving down wages across the manufacturing sector.
---------------------------------------------------------------------------
\42\ Thomas Klier and James Rubenstein, Who Really Made Your Car?
Restructuring and Geographic Change in the Auto Industry (Kalamazoo,
MI: W.E. Upjohn Institute for Employment Research, 2008).
\43\ U.S. Department of the Treasury, ``TARP Programs: Auto
Industry,'' last modified October 14, 2014, http://www.treasury.gov/
initiatives/financial-stability/TARP-Programs/automotive-programs/
Pages/default.aspx.
Thus, the definition of what an auto job is has changed over the years,
with significant consequences for the wages of workers in this sector.
In addition to the drop in its share of total employment, there has
also been a substantial change in the employment mix in the sector,
changing the way the industry operates and altering the quality of the
average job. Throughout the 1960s, when wages were at their peak, the
share of autoworkers employed in auto assembly plants had been close to
50 percent, when wages were at their peak in the industry. It began to
decline slightly in the early 1970s, but was still almost 46 percent in
---------------------------------------------------------------------------
the mid-1980s.
Today, 72% of autoworkers are employed in the auto parts sector, where
wages are much lower. Parts suppliers increasingly rely on staffing
firms for labor.
Between 1980 and 1990, the mix shifted dramatically. In 1980, 49
percent of autoworkers were in the supplier sector, and by 1990, it had
climbed to 69 percent. Growth in the supplier or parts sector since
1990 has been comparatively marginal. In 2013, according to Current
Employment Survey data, there were 147,400 auto assembly production
workers and 384,500 production workers employed by auto parts
suppliers. In other words, today 72 percent of autoworkers--nearly
three out of every four--are in the parts sector. That number is
significant because, according to data from the Bureau of Labor
Statistics, the median wage for workers in the auto parts sector is
one-third less (36 percent) than for a worker in a final vehicle
assembly plant.\44\ Further, auto suppliers--like many other
manufacturers--are increasingly turning to staffing and temp firms to
supply their labor. The industry has been a multi-tiered one for
decades, and the sometimes-elaborate supply chain matrix has grown more
complex in recent years. Auto suppliers have begun to outsource their
labor supply to staffing and temporary firms, as described below,
creating yet another level of contracted work in the industry and
lowering wages even further. As shown below, the reported median wage
in auto parts manufacturing is around $15 an hour, but this is inflated
because of some still relatively higher-
paying jobs in union shops or higher-skilled positions in the industry,
and because jobs placed by staffing or temporary firms that pay less
are measured separately.
---------------------------------------------------------------------------
\44\ Bureau of Labor Statistics, Occupational Employment
Statistics.
The U.S. auto industry is seeing an impressive rebound. As the economy
collapsed and auto production in the United States bottomed out in
2009, every automaker--foreign and domestic--scaled back production and
laid off workers.\45\ Since then, U.S. auto production has rebounded,
from a low of 5.7 million vehicles in 2009 to 11.1 million vehicles in
2013.\46\ This rebound is reflected both in the number of jobs in the
U.S. auto industry and the amount of investment that automakers have
made in their U.S. production plants. Foreign and domestic companies
have added 350,000 new jobs at their U.S. auto assembly and parts
plants since the auto crisis in 2009. They have made $38 billion in
capital investment since 2009.\47\ This suggests a commitment by U.S.
and foreign producers to keep jobs in the United States.
---------------------------------------------------------------------------
\45\ Drew Speier, ``Toyota Layoffs Shock Workers,'' WFIE News-14
(Evansville, IN), available at http://www.14news.com/story/6435509/
toyota-layoffs-shock-workers, accessed November 10, 2014; Jeffrey
Collins, ``Layoffs Ahead for S.C. Temp Workers at BMW,'' Charlotte
Observer, October 18, 2008, available at http://
www.charlotteobserver.com/2008/10/18/261224_layoffs-ahead-for-sc-temp-
workers.html#.VGEgfTTF9yw, accessed November 10, 2014; Ralph Kisiel,
``Honda Axes Factory Temps as Output Falls,'' Automotive News, March 9,
2009, available at http://www.autonews.com/article/20090309/OEM01/
303099843/honda-axes-factory-temps-as-output-falls, November 10, 2014;
``Mercedes Layoffs Not Sign of Healing Economy,'' Tuscaloosa News,
September 17, 2009, available at http://www.tuscaloosanews.com/article/
20090917/NEWS/909169969, accessed November 10, 2014; Ian Rowley,
``After Huge Loss, Nissan Plans More Layoffs,'' Bloomberg Business
Week, February 9, 2009, available at http://www.businessweek.com/
globalbiz/content/feb2009/gb2009029_103868.htm, accessed November 10,
2014; Michael Harley, ``Hyundai to Slow Production of Santa Fe,
Sonata,'' Autoblog.com, October 19, 2008, available at http://
www.autoblog.com/2008/10/19/hyundai-to-slow-production-of-santa-fe-
sonata/, accessed November 10, 2014.
\46\ Calculations by the authors (``United States Vehicle
Production by Manufacturer,'' WardsAuto, available at
www.WardsAuto.com, accessed October 26, 2014).
\47\ State of the U.S. Automotive Industry: Investment, Innovation,
Jobs, and America's Economic Competitiveness (Washington, DC: American
Automotive Policy Council, June 2014), http://
www.americanautocouncil.org/sites/default/files/
State_Of_The_US_Automotive_Industry
_2014.pdf.
New jobs and more investment are good news. Major investments in U.S.
factories makes it more likely that these jobs will stay in the United
States, and as long as automakers are assembling cars here, there are
economic incentives for them to maintain a significant network of parts
plants here as well, given the demands of just-in-time production, high
shipping costs for certain types of parts, and the desire to reduce or
eliminate the costs of warehousing and inventory of parts. While the
manufacturing of certain automotive components--such as airbags, wiring
harnesses, seatbelts, and audio systems--have largely moved outside of
the United States, there are economic incentives for many other parts
to be produced domestically, near the assembly plants they supply.
These include parts of the car that are too heavy or bulky to ship, as
well as parts built essentially to order in just-in-time plants where
---------------------------------------------------------------------------
inventory is measured in hours, not days or weeks.
But the quality of automotive jobs is declining. Historically, average
pay in the auto industry far outpaced other private-sector jobs. In the
1950s and 1960s, the
industry-wide average wage was roughly 30 percent higher than the
average for the private sector as a whole. It then rose relative to the
private-sector average in the 1970s, peaking in the mid-1980s at more
than 150 percent of the average private-sector wage.
But by many measures--because of the declines in the relative pay in
the parts sector and also the decline in the share of workers employed
in auto assembly plants--average pay for autoworkers is now comparable
to pay in the rest of the private sector.
As Table 3 below shows, between 2003 and 2013, the real (inflation-
adjusted) wage for auto parts workers fell by 13.7 percent. Auto parts
workers toward the top of the pay scale--the ``good manufacturing
jobs'' that communities work so hard to retract and retain--saw the
most dramatic decline. The wage at the 75th percentile--presumably, the
most skilled and experienced employees--plummeted by 29 percent. In
auto assembly, real wages fell by 21 percent during that same period.
Table 3. Changes in Real Wages, Motor Vehicle Parts Manufacturing Workers, 2003-2013
----------------------------------------------------------------------------------------------------------------
Wage at 10th Wage at 25th Wage at 75th Wage at 90th
Year Percentile Percentile Median Wage Percentile Percentile
----------------------------------------------------------------------------------------------------------------
2003 $11.61 $14.26 $18.35 $28.41 $36.54
----------------------------------------------------------------------------------------------------------------
2013 $10.38 $12.63 $15.83 $20.17 $27.13
----------------------------------------------------------------------------------------------------------------
Change -10.6% -11.4% -13.7% -29.0% -25.8%
----------------------------------------------------------------------------------------------------------------
Source: Calculations by the authors. (Bureau of Labor Statistics, Occupational Employment Statistics, data for
NAICS Code 3363, All Production Occupations (51-0000), May 2003 and May 2013, available at http://www.bls.gov/
oes/.)
The median wage for auto parts workers is $15.83 an hour, still 17
cents an hour above the median for all manufacturing workers. One out
of ten auto parts workers makes less than $10.38 an hour, and
approximately one out of every four makes less than $12.63--just
slightly above the average for all manufacturing workers.
As Table 4 shows, median wages for autoworkers are falling
significantly faster than for manufacturing workers as a whole. Median
wages for auto parts workers, for example, fell three times faster than
wages for manufacturing workers as a whole, and nine times faster than
the average for all occupations. Motor vehicle manufacturing fell
nearly five times faster than the average for all manufacturing
workers.\48\ Because auto companies factor in labor costs when they
decide whether to do work in-house or contract with a supplier, lower
wages in the supplier sector can drag down wages at the final assembly
plants as well.
---------------------------------------------------------------------------
\48\ Bureau of Labor Statistics, Occupational Employment
Statistics, including data for All Occupations (SOC Code 00-000) and
production workers (SOC Code 51-000) for all manufacturing workers
(NAICS 31-33), Motor Vehicle Manufacturing (NAICS 3361), and Motor
Vehicle Parts Manufacturing (NAICS 3363), http://www.bls.gov/oes/,
accessed October 2014.
Table 4. Comparison of Real Wages, 2003-2013, Manufacturing POccupations vs. All Occupations
----------------------------------------------------------------------------------------------------------------
All Motor Vehicle Parts
Year All Occupations Manufacturing Manufacturing Manufacturing
----------------------------------------------------------------------------------------------------------------
2003 $17.13 $16.38 $31.45 $18.35
----------------------------------------------------------------------------------------------------------------
2004 $17.06 $16.16 $31.09 $18.26
----------------------------------------------------------------------------------------------------------------
2005 $16.88 $15.90 $28.38 $17.74
----------------------------------------------------------------------------------------------------------------
2006 $16.88 $15.76 $28.37 $17.43
----------------------------------------------------------------------------------------------------------------
2007 $16.97 $15.73 $29.09 $16.99
----------------------------------------------------------------------------------------------------------------
2008 $16.85 $15.65 $29.37 $16.49
----------------------------------------------------------------------------------------------------------------
2009 $17.32 $16.10 $29.62 $16.74
----------------------------------------------------------------------------------------------------------------
2010 $17.38 $16.10 $27.93 $16.69
----------------------------------------------------------------------------------------------------------------
2011 $17.16 $15.88 $26.11 $16.53
----------------------------------------------------------------------------------------------------------------
2012 $16.95 $15.74 $25.21 $16.14
----------------------------------------------------------------------------------------------------------------
2013 $16.87 $15.66 $24.83 $15.83
----------------------------------------------------------------------------------------------------------------
% Change -1.52% -4.40% -21.05% -13.73%
----------------------------------------------------------------------------------------------------------------
Source: Calculations by the authors. (Bureau of Labor Statistics, Occupational Employment Statistics, All
Production Occupations (51-0000) for NAICS Sector 31-33 and NAICS Codes 3361 and 3363, and All Occupations (00-
0000), May 2003 and May 2013, available at http://www.bls.gov/oes/.)
The auto jobs being created are worse than the ones lost. The wage
trends in the automotive sector track the trends in overall
manufacturing: the replacement jobs following the auto crisis and
recession are not on a par with those that were lost.
Alabama: Auto Jobs on the Rise, But Paychecks Decline
Alabama refers to itself as the ``center of the Southeast's auto
industry,'' \49\ and with good reason. Before 1997, when Mercedes
opened the first auto assembly plant in the state, the Alabama
automotive industry was nearly non-existent. Then, Honda opened a plant
in Alabama in 2001, followed by Hyundai in 2005.\50\ Kia built its
plant in West Point, Georgia, on the Alabama border, in 2010.\51\
Toyota has also made engines in Huntsville, Alabama, since 2003.\52\
Today, there are 12,800 workers employed at auto assembly plants in the
state, and another 20,700 at parts suppliers.
---------------------------------------------------------------------------
\49\ Economic Development Partnership of Alabama, Alabama
Department of Commerce, ``Alabama Automotive Industry Profile,'' 2,
accessed October 11, 2014, http://www.
madeinalabama.com/assets/2013/01/automotive-industry-profile.pdf.
\50\ ``Automotive Hub of the South,'' Amazing Alabama, Alabama
Power Corp., accessed October 11, 2014, http://www.amazingalabama.com/
key-industry-targets-automotive.html.
\51\ Kia Motor Manufacturing Georgia, ``Our History,'' accessed
October 11, 2014, http://www.kmmgusa.com/about-kmmg/our-history.
\52\ ``Toyota Marks Milestone 3-Millionth Alabama-Made Engine,''
(Alabama Department of Commerce, February 18, 2014) http://
www.madeinalabama.com/2014/02/milestone-3-millionth-alabama-made-
engine/.
Since 2001, the number of auto parts workers in Alabama has grown by 64
percent. But while the number of auto jobs in Alabama has been on the
rise, paychecks have been on the decline. From 2001 to 2013, real
(inflation-adjusted) monthly earnings for Alabama auto parts workers
have declined by 42 percent-more than any other major auto-producing
state. The average Alabama auto parts worker took home $1,593 less in
2013 than he or she did in 2001.\53\
---------------------------------------------------------------------------
\53\ U.S. Census Bureau, Quarterly Workforce Indicators, NAICS Code
3363 (Motor Vehicle Parts Manufacturing), available at http://
ledextract.ces.census.gov/. Calculations by the authors.
What may be contributing to these falling wages, even as the Alabama
auto industry thrives? There are several likely factors:\54\
---------------------------------------------------------------------------
\54\ U.S. Census Bureau, Quarterly Workforce Indicators, NAICS Code
3363 (Motor Vehicle Parts Manufacturing), available at http://
ledextract.ces.census.gov/. Calculations by the authors.
New hires are taking home about $600 less per month than the
typical auto parts worker in the state--17 percent below the statewide
average. The significant number of new hires in Alabama--both in terms
of new auto parts jobs coming to the state, and the significant
turnover in existing jobs-contribute to pulling down the average wage
---------------------------------------------------------------------------
for autoworkers overall.
In the period from 2001 to 2013, the number of young auto parts
workers (aged 19 to 34) nearly tripled--a growth rate twice as fast as
the Alabama auto parts industry as a whole.
Young workers tend to make less than older workers. In Alabama,
the monthly incomes of auto parts workers under 22 are two-thirds of
the state average wage for that sector. Workers aged 22 to 24 make
three-quarters of the average.
Meanwhile, older workers have seen their wages go backwards.
Alabama auto parts workers 45 and older saw real wages decline by 50
percent or more from 2001 and 2013. Workers aged 35 to 44 saw real
wages shrink by one-third over that same period.
In addition to the evidence cited above, state-level data on the auto
industry taken from the Census Bureau's Quarterly Workforce
Indicators--which measures quarterly earnings, not hourly wages--can
shed some additional light on trends affecting workers. Auto
manufacturing is concentrated in a relatively small number of states,
known as the ``Auto Alley''--mainly Michigan, Ohio, Indiana, Illinois,
Kentucky, Tennessee, Mississippi, South Carolina, Alabama, and Georgia.
Median wages for autoworkers are falling significantly faster than for
manufacturing workers as a whole.
For auto parts workers, just one state--Mississippi--has new hires
collecting monthly earnings similar to the statewide average for parts
workers. In every other state, new-hire wages are dramatically lower.
See Table 5. In 5 of the 10 states, monthly incomes for new hires are
around one-quarter less than the state average.
Table 5. Monthly Earnings, Motor Vehicle Parts Manufacturing Workers,
New Hires vs. All Workers
------------------------------------------------------------------------
% Difference
State for New Hires
------------------------------------------------------------------------
Michigan -28%
------------------------------------------------------------------------
Indiana -27%
------------------------------------------------------------------------
Ohio -25%
------------------------------------------------------------------------
South Carolina -24%
------------------------------------------------------------------------
Tennessee -23%
------------------------------------------------------------------------
Kentucky -18%
------------------------------------------------------------------------
Alabama -17%
------------------------------------------------------------------------
Illinois -16%
------------------------------------------------------------------------
Georgia -7%
------------------------------------------------------------------------
Mississippi 1%
------------------------------------------------------------------------
Source: Calculations by the authors (U.S. Census Bureau, Longitudinal
Employer-Household Dynamics, Quarterly Workforce Indicators, 2013,
NAICS Code 3363, available at http://lehd.ces.census.gov/.)
Real monthly earnings are declining for all autoworkers, not just new
hires. In a majority of Auto Alley states, parts workers have seen real
(inflation-adjusted) monthly earnings decline from 2001 to 2013. See
Table 6, bottom right. Kentucky and Georgia--the two states with the
lowest monthly earnings in 2001--saw increases, along with South
Carolina. In Alabama, which saw the largest decline in monthly earnings
at 24 percent, a worker's monthly paycheck was $1,200 less in 2013 than
in 2001.
Table 6. Change In Monthly Earnings, 2001-2013, Motor Vehicle Parts
Manufacturing Workers
------------------------------------------------------------------------
% Difference in
Monthly
State Earnings, 2003-
2013
------------------------------------------------------------------------
Alabama -24.0%
------------------------------------------------------------------------
Mississippi -13.6%
------------------------------------------------------------------------
Indiana -12.1%
------------------------------------------------------------------------
Ohio -9.4%
------------------------------------------------------------------------
Michigan -3.3%
------------------------------------------------------------------------
Illinois -1.6%
------------------------------------------------------------------------
Georgia 3.8%
------------------------------------------------------------------------
Kentucky 7.9%
------------------------------------------------------------------------
Tennessee 8.0%
------------------------------------------------------------------------
South Carolina 13.3%
------------------------------------------------------------------------
Source: Calculations by the authors. (U.S. Census Bureau, Longitudinal
Employer-Household Dynamics, Quarterly Workforce Indicators, 2001 and
2013, NAICS Code 3363, available at http://lehd.ces.census.gov/.)
5. Heavy reliance on staffing agencies obscures much deeper problems in
manufacturing
_______________________________________________________________________
Often lost in the official numbers on employment fluctuations and wage
trends is a closely related but not well-tracked trend that has
reshaped manufacturing jobs over the past two decades: domestic
outsourcing. Workers looking for a manufacturing job, and especially
one in an auto plant today, increasingly find that the only open
positions are placed by staffing agencies that pay lower wages and
provide fewer benefits as compared with direct hires, and that offer
limited opportunities to secure a permanent-employee position.
Government data fail to include staffing agency workers in the official
counts for manufacturing workers and fail to factor their wages into
industry averages, however, making it difficult to track this trend
with precision. Yet existing data sources offer ample evidence of this
dramatic trend in manufacturing and the extent to which it has degraded
jobs; these sources are substantiated by anecdotal evidence from
workers and from the many towns where manufacturing plants have
blossomed with the support of generous subsidies but have failed to
provide family-supporting jobs.
Manufacturing firms are increasingly turning to staffing and temporary
agencies to hire their workers. In the two decades from 1989 to 2009,
two emergent labor market trends reshaped the nature of manufacturing
jobs.\55\ First, manufacturers looked to the staffing services industry
to source their production workers, creating a shift in the types of
jobs that staffing companies placed: that is, increasingly ``blue
collar'' and other manual labor, rather than the office-based clerical
jobs that defined the staffing industry in earlier years. The number of
staffing agency workers assigned to manufacturing grew by about one
million from 1989 to 2000, from about 419,000 workers to almost 1.4
million, and data suggests that this trend continues.\56\ In 1990, 42
percent of staffing agency jobs were office and administrative support
work, while only 28 percent were blue-collar positions.\57\ This
balance had reversed by 2006, with blue-collar workers accounting for
44 percent of staffing agency jobs.\58\ Industrial and factory staffing
now form the single largest source of revenue for the staffing
industry.\59\
---------------------------------------------------------------------------
\55\ Matthew Dey, Susan N. Houseman, and Anne E. Polivka,
Manufacturers' Outsourcing to Staffing Services, 65 Indus. and Lab.
Rel. Rev. 533 (Ithaca, NY: Cornell University ILR School, June 2012),
http://digitalcommons.ilr.cornell.edu/cgi/
viewcontent.cgi?article=2126&context=ilr
review.
\56\ Id. at 548-49.
\57\ Id. at 543.
\58\ Id.
\59\ Rebecca Smith and Claire McKenna, Temped Out: How the Domestic
Outsourcing of Blue-Collar Jobs Hurts America's Workers (New York, NY:
National Employment Law Project and National Staffing Workers Alliance,
2014), 4, http://www.nelp.org/page/-/Reports/Temped-Out.pdf?nocdn=1,
citing Jeremy Edwards, IBISWorld Industry Report 56132, Office Staffing
and Temp Agencies in the U.S. (2014).
Second, manufacturing employers began to rely more heavily on staffing
services to fill core production and low-skilled manual occupations as
opposed to only for peripheral functions, such as janitorial.\60\ In
1989, less than 1 percent of all production workers were employed by
staffing agencies, but by 2000, that fraction had risen to 6.1
percent.\61\ This upward trend was mirrored in other manual
occupations: 6.4 percent of all helpers, laborers, and hand material
movers in 1989 were employed by staffing agencies, rising to 15.6
percent by 2000.\62\ In 1989, there were approximately 43 direct-hire
workers for every one staffing agency worker in manufacturing, but by
2000, researchers estimate that this ratio had dropped to 12 to 1.\63\
And data suggest that the trend has continued, with the staffing agency
sector adding 9.2 percent, or 1.3 million workers, to direct-hire
manufacturing in 2006, the last year this data is available, as
compared with 2.3 percent in 1989 and 8.2 percent in 2000. Staffing
agencies made an even more dramatic addition to low-skilled manual
occupations in 2006, where for every 100 low-skilled manual laborers
directly hired by manufacturing employers, there were another 35 low-
skilled manual laborers hired by staffing agencies.\64\
---------------------------------------------------------------------------
\60\ Dey, Manufacturers' Outsourcing at 534.
\61\ Id. at 547.
\62\ Id. at 547-48.
\63\ Id. at 549.
\64\ Id. at 557.
Outsourcing dramatically affects job-growth and wage-level numbers.
Taking into account the rise of outsourcing dramatically alters
measures of manufacturing employment and of labor productivity.\65\
While measured manufacturing employment declined by 4.1 percent from
1989 to 2000, if staffing agency workers (who usually work alongside
and under the same supervision as direct-hire employees) were counted,
manufacturing employment would have actually risen by 1.3 percent.\66\
Factoring in manufacturers' use of staffing agency workers does not
erase the long declines in manufacturing employment since 2000, but it
does show that an increasing share of manufacturing work is being done
by staffing agency workers.\67\
---------------------------------------------------------------------------
\65\ Id. at 534.
\66\ Id. at 557.
\67\ Id.
For instance, the growth of outsourcing and the related decline in
wages is apparent in the NAICS data on the occupation of Team
Assemblers--essentially, assembly line workers--which represents the
largest category of production workers in manufacturing. Since 2002,
the number of temporary Team Assemblers across all industries has grown
from 57,520 (5.0 percent of all team assemblers) in 2002, to 176,590
(16.7 percent) in 2013.\68\ Over the same time period, the total number
of Team Assemblers, across all industries, shrunk 7.1 percent.\69\ See
Figure 4. This means temporary workers are playing an increasing part
of a continuously shrinking manufacturing pie.\70\
---------------------------------------------------------------------------
\68\ Unpublished Census Bureau data, on file with authors.
\69\ Id.
\70\ Bureau of Labor Statistics, Occupational Employment Statistics
data sets. Retrieved on June 23, 2014 from http://www.bls.gov/oes/
tables.htm.
[GRAPHIC] [TIFF OMITTED] T2618.033
Unpublished Census Bureau data suggests this economy-wide distribution
of temporary Team Assemblers is mimicked within the auto parts sector.
The Quarterly Survey of Plant Capacity records, but does not publish,
the number of staffing agency workers assigned to manufacturing. For
the first two quarters of 2014, this data show that auto parts
manufacturers used staffing agencies to supply 13.5 to 14.5 percent of
their workforce.\71\ Assuming that the currently reported 318,020 \72\
auto parts production workers only represent 85.5 percent of workers on
the shop floor, an additional 53,933 staffing agency workers (and
17,623 agency-employed Team Assemblers) are unaccounted for in official
industry figures. This is significant, because the median wage of Team
Assemblers working through staffing agencies is 29 percent lower than
Team Assemblers directly hired in the auto parts industry.\73\
---------------------------------------------------------------------------
\71\ U.S. Census Bureau (2014), Quarterly Survey of Plant Capacity,
unpublished data.
\72\ Bureau of Labor Statistics (May, 2013), Occupational
Employment Statistics, retrieved October 22, 2014 from http://
www.bls.gov/oes/tables.htm.
\73\ Id.
The growth of agency-employed production workers and their below-
industry-standard wages may help explain in part the fall in auto parts
production wages over the past decade. Between 2003 and 2013, real
(inflation-adjusted) wages for Team Assemblers in the auto parts
industry fell $1.47 an hour (9.2 percent), while real wages for all
auto part production workers fell $2.77 an hour (15 percent). The
degradation we see in the industry therefore looks closely connected to
the increased outsourcing of jobs to temporary staffing agencies. See
---------------------------------------------------------------------------
Table 7, below.
Table 7. Team Assembler Wages by Industry
----------------------------------------------------------------------------------------------------------------
Wage at Wage at Wage at Wage at
Industry Mean Wage 10th 25th Median 75th 90th
Percentile Percentile Wage Percentile Percentile
----------------------------------------------------------------------------------------------------------------
Auto Parts $15.56 $10.21 $12.17 $14.54 $17.72 $23.14
----------------------------------------------------------------------------------------------------------------
Temp Agencies $11.36 $8.12 $8.87 $10.33 $12.67 $16.79
----------------------------------------------------------------------------------------------------------------
Source: Bureau of Labor Statistics, Occupational Employment Statistics, data for NAICS Codes 3363 and 5631, Team
Assemblers (51-2092), May 2013, available at http://www.bls.gov/oes/.
Anecdotal reports show that more auto plants are hiring via staffing
and temporary agencies, with poorer working conditions. Numerous press
stories profile workers with few options as the factories in their
towns replaced the employees laid off during the recession with
staffing agency workers, and as foreign auto manufacturers that
established plants in the South starting in the 1990s are relying
heavily on staffing agencies to provide labor. Some companies abruptly
converted their existing employees to ``temporary'' employment.
Employees at A&E Services, a small auto parts manufacturer in Chicago,
for example, learned that their firm would ``no longer hold general
labor employees on its payroll'' and that they would have to agree to
work through a temporary staffing agency if they wanted to keep their
jobs.\74\
---------------------------------------------------------------------------
\74\ Weisman, ``Permanent Job Proves an Elusive Dream,'' 1-2.
Workers feel these shifts deeply. In addition to the Philip Hicks story
mentioned above in the introduction, Betty McCray found herself in a
similar situation when she took a job at a Nissan Auto plant in Smyrna,
Tennessee, preparing parts for the assembly line.\75\ Although she
works alongside permanent Nissan employees, as a staffing agency
worker, she is paid less, gets no personal days, and has to bring in a
doctor's note in order to get a sick day.\76\
---------------------------------------------------------------------------
\75\ Sarah Jaffe, ``Forever Temp?'', In These Times, January 6,
2014, http://inthesetimes.com/article/15972/
permatemps_in_manufacturing.
\76\ Id.
The growth of the fiercely competitive auto parts supply sector and its
heavy use of outsourcing can also have serious implications for
workers' health and safety. Under intense pressure by auto companies to
maximize output while constraining labor costs, suppliers and their
contractors may choose to ignore safety precautions in an attempt to
cut the bottom line.\77\ Workers hired for temporary agency positions
are unlikely to speak up and are much less likely to be able to seek
support in a union, which have historically monitored safety conditions
at the major auto company plants that are their base.\78\ This dynamic,
combined with lax occupational safety and health standards and
enforcement, and the prevalence of dangerous chemicals in auto seating
and other parts supply, has proven hazardous for workers, who have
developed sinus infections, chronic coughs, bronchitis, shortness of
breath and asthma.\79\
---------------------------------------------------------------------------
\77\ Seth Freed Wessler, ``What's Making These Selma, Alabama Auto
Parts Workers So Sick'', NBC News, In Plain Sight, July 14, 2014,
http://www.nbcnews.com/feature/in-plain-sight/whats-making-these-selma-
alabama-auto-parts-workers-so-sick-n150136.
\78\ Id. at 4.
\79\ Id.
Conclusion
_______________________________________________________________________
Jobs in manufacturing and auto, important growth-generating industries,
are not as good as they once were. New hires in auto earn less than $10
an hour. What will these jobs look like in 10 years if these trends
continue? The ramifications for the workers, the communities that are
hosting these jobs, and the U.S. economy are far-reaching, and include
increasing inequality as middle-class jobs do not return, drains on
taxpayers as local and federal subsidies fail to alter manufacturers'
behavior and fail to deliver quality jobs, and a lack of accountability
for businesses that seek only to enhance profits at the expense of
working families and local communities.
The promise of manufacturing and auto, its largest component industry,
is not lost, however. The government can resurrect the collection of
credible data on temporary and staffing jobs again to better understand
the impact those structures have on jobs and communities, and public
entities providing subsidies should track results and hold recipients
of hard-earned taxpayer dollars to account for the quality of the jobs
created. This information will allow policymakers, manufacturers and
the public to invest in good jobs that will sustain our communities for
the decades to come.
______
Questions Submitted for the Record to Josh Nassar
Questions Submitted by Hon. Ron Wyden
Question. During the hearing, you noted the range of policies that
affect companies' decisions to manufacture in the United States, as
well as U.S. competitiveness with respect to key technologies such as
electric vehicles. Sales of electric vehicles are expected to continue
to grow at a rapid pace, with one Bloomberg report projecting that by
2040, 55 percent of new car sales globally will be electric and 33
percent of cars on the road will be powered by batteries.
With respect to tariffs, how might a targeted tariff affect U.S.
competitiveness in producing electric vehicles?
Answer. Today, most of the production footprint for tomorrow's
advance automotive technology is being developed overseas. If this
trend continues, as the United States migrates from internal combustion
engines to electric vehicles (EVs), the roughly 95,000 U.S. jobs in
engine and transmission manufacturing will not be backfilled with EV
component manufacturing jobs.
Lithium-ion batteries are the most valuable component in EVs. With
the growth of demand from EVs, global lithium-ion battery production
capacity is expected to grow by 73 percent between 2017 and 2021 \1\
and lithium-ion batteries could become a $40 billion market by 2025.
This has sparked a race to develop the production capacity to meet
growing battery demand and it is this race that will determine the
geography of much of the EV value chain. The United States is currently
falling behind its Asian and European counterparts.
---------------------------------------------------------------------------
\1\ https://about.bnef.com/electric-vehicle-outlook/#toc-download.
Chinese and EU governments are directly supporting this fledgling
industry, with the EU recently announcing billions of euros in co-
funding for lithium-ion battery factories.\2\ It is projected that by
2021, 56 percent of battery manufacturing capacity will be located in
China and another 19 percent will be in Europe. The United States will
only have 14 percent of global battery production capacity and this
production will be highly dependent on the success of one plant, the
Tesla-Panasonic Gigafactory in Nevada.\3\ Three of the five top battery
companies will be based in China, along with LG Chem in South Korea and
Tesla-Panasonic in the United States.\4\
---------------------------------------------------------------------------
\2\ https://www.ft.com/content/097ff758-cec3-11e8-a9f2-
7574db66bcd5.
\3\ https://www.ft.com/video/0bdc9c56-021a-4f02-b508-e26a0170b903.
\4\ https://www.ft.com/video/0bdc9c56-021a-4f02-b508-e26a0170b903,
0:40.
The EV value chain is not just battery mega-factories--it is an
entire supply chain of associated battery and EV components that will
determine which countries will benefit from the shift to EVs. To take
just one example, battery separators are a component that prevents
short-circuits by creating a barrier between the anode and cathode
materials in a lithium-ion battery. The battery separator market is
projected to be worth $2.7 billion by 2025, its growth driven by EV
battery demand.\5\ Nearly all the global manufacturing capacity for
battery separators is in China, Japan, and South Korea.\6\
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\5\ https://ec.europa.eu/jrc/sites/jrcsh/files/jrc105010_161214_li-
ion_battery_value_chain_jrc
105010.pdf, p. 21.
\6\ https://data.bloomberglp.com/bnef/sites/14/2017/07/BNEF-
Lithium-ion-battery-costs-and-market.pdf, page 6
Additionally, EVs and autonomous vehicles (AVs) of the future will
be heavily reliant on semiconductors. It is estimated that an EV/AV
will have over a thousand dollars' worth of semiconductors. This
increase in semiconductor usage comes at a time when U.S. semiconductor
manufacturing has been in decline. The total number of U.S. fabs has
decreased from 123 in 2007 to 95 today,\7\ while the industry employs
100,000 less production workers than it did at the turn of the
century.\8\ Currently, U.S. manufacturers account for only 13 percent
of the global semiconductor supply. This is because the United States
is no longer attracting new fabs. In 2011, of 27 high-volume fabs built
worldwide, only one was in the United States; 18 were in China and 4 in
Taiwan. In 2018, 20 new fab projects had been announced in China, with
total investment exceeding $10 billion.\9\
---------------------------------------------------------------------------
\7\ http://mforesight.org/download/7817/.
\8\ BLS, Quarterly Census of Employment and Wages (QCEW) for NAICS
334413, http://www.bls.gov/cew/.
\9\ http://mforesight.org/download/7817/.
Foreign governments have shown that properly crafted tariffs and
industrial policies can encourage domestic electric vehicle and
---------------------------------------------------------------------------
component R&D and manufacturing.
In particular, taking into consideration overall value, associated
R&D, and national security interests, the United States should consider
targeted tariffs on the following:
Lithium-ion batteries;
Electric motors;
E-axles;
Battery safety and thermal control systems;
Semiconductors;
Lidar; and
Automotive CPUs.
Anchoring this manufacturing footprint and know-how in the U.S.
will pay dividends into the future, offering export opportunities and
maintaining the United States' technological competitive edge. However,
we recognize tariffs alone may not create the needed investment. Any
tariff should be coupled with an industrial policy that supports R&D
and encourages the fledgling EV/AV market, through direct investment,
government procurement, regulation and incentives. If the EV
manufacturing footprint takes root outside the United States, it will
be extremely difficult for the United States to recapture that work in
the future. To date, no major manufacturing sector that has been
offshored has ever been reshored to the United States. The capital
intensity and long manufacturing lead times in auto, makes the
possibility of reshoring the EV market once it has left, all the less
likely.
Question. How do other administration policies, including tax
policies and policies with respect to fuel economy standards, affect
the U.S. industry and U.S. manufacturing of automotive goods such as
electric vehicles?
Answer. Under the Tax Cuts and Jobs Act (TCJA) (Pub. L. 115-97),
the new, official corporate tax rate is 21 percent.\10\ But U.S.
multinational corporations pay at most only half that rate on their
offshore profits as they do on their earnings here at home, since they
can deduct half of their offshore profits from taxation. The new law
also gives U.S. corporations an annual deduction on their offshore
profits worth 10 percent of their offshore tangible assets, such as
factories. For example, a company with $100 million worth of tangible
offshore assets pays no U.S. taxes on the first $10 million of foreign
profits they report. Many companies will likely end up paying no U.S.
taxes on foreign earned profits. This law created new incentives for
U.S. corporations to move real investments offshore, along with the
manufacturing jobs that go with them. These incentives will become
greater over time.
---------------------------------------------------------------------------
\10\ https://www.cbpp.org/research/federal-tax/new-tax-law-is-
fundamentally-flawed-and-will-require-basic-restructuring.
TCJA also repealed the Domestic Production Activities Deduction.
This deduction was a tax incentive for keeping manufacturing jobs in
the United States. Its repeal further encourages offshoring. The more
investments they offshore, the less they pay in taxes. Companies also
received a massive tax break in the form of a repatriation holiday. In
2004, companies primarily used increased revenue for stock buybacks
after Congress allowed a one-time tax holiday for repatriated foreign
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earnings.
History is repeating itself. Once again, companies are taking
billions in windfall profits and putting them toward dividends or
buying back their own stocks, which benefits shareholders. America's
biggest companies are not generally using their tax cuts on creating
new jobs, but instead are using them for stock buybacks. Some of the
biggest stock buyback announcements so far in 2018 include: Apple--$100
billion; Cisco--$25 billion; Wells Fargo--$22.6 billion; Pepsi--$15
billion; AbbVie--$10 billion; Amgen--$10 billion; Google parent
Alphabet--$8.6 billion; Visa--$7.5 billion; and eBay--$6 billion.\11\
According for Americans for Tax Fairness, the total amount of stock
buybacks authorized by companies since TCJA was enacted is over $786
billion.
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\11\ http://time.com/money/5267940/companies-spending-trump-tax-
cuts-stock-buybacks/.
Companies who benefit from tax breaks to build and maintain
factories face practically no consequences for pocketing savings and
closing shop in the United States. We need claw back provisions in the
---------------------------------------------------------------------------
law to stop this long-standing abuse of tax payer funds.
The tax code is full of perverse incentives for outsourcing. For
example, the cost of moving personnel and components of a company to a
new location qualifies for a tax deduction. Congress should address the
misguided policies enacted under TCJA and prior laws to encourage U.S.
companies to maintain and create auto manufacturing jobs in the United
States. The Bring Jobs Home Act sponsored by Senator Stabenow would
only keep this deduction in place for U.S. companies that bring jobs
and business activity back home, while this tax benefit would be
eliminated for companies that ship jobs overseas. Companies should not
be able to deduct costs for closing factories. That is totally
unacceptable. The Bring Jobs Home Act should be passed into law.
Manufacturing workers and domestic manufacturing face serious
headwinds. The causes are many from bad trade deals that lower wages
and destroy good paying U.S. jobs, perverse tax provisions that
incentivize businesses to move jobs overseas, and employers who do not
recognize workers' right to collectively bargain. Extensive damage has
already been done and workers are paying the price for policy failures
and neglect by our elected leaders over many decades.
To be clear, Corporate Average Fuel Economy standards (CAFE) and
Greenhouse Gas (GHG) standards are not the problem. Nevertheless, the
National Highway Traffic Safety Administration (NHTSA) and the
Environmental Protection Agency (EPA) are proposing to amend existing
CAFE and GHG emissions standards for passenger cars and light trucks
and establish new standards, covering model years 2021 through 2026.
The UAW does not support the preferred alternative in the SAFE Vehicles
Proposed Rule, which would freeze emissions standards at Model Year
2020 because freezing emissions standards is bad for the U.S. economy,
the domestic auto industry, our members, and the communities that rely
on union manufacturing jobs. It would set back efforts to address air
pollution and climate change crisis. We cannot afford to ignore this
global crisis that threatens our shared future.
We are also concerned that proposed rule threatens to disrupt the
``One National Program,'' creating uncertainty for the industry and
discouraging investment. It also risks allowing the U.S. auto industry
to fall behind on advanced vehicle technology and sustainable
innovation, just as other nations are promoting increased efficiency
and lower emissions.
As we know, fuel efficiency is the auto industry's future. From
electric vehicles to full-sized pickups, fuel efficiency is improving
across the industry, including in vehicles made by UAW members. We
support the development of Electric Vehicles and are concerned that a
significant portion will not be built in the United States. As
referenced earlier, most of the production footprint of tomorrow's
advance automotive technology is overseas and the sales of electric
vehicles are expected to continue to grow at a rapid pace.
Countries around the globe continue to promote greater efficiency
and lower emissions. The greener vehicles of the future are going to be
made somewhere and other countries are preparing for these new
technologies. If we ignore these realities, we could see the U.S. auto
industry fall behind on advanced technology, hurting the American
economy and American workers. The final regulations must incentivize
continuing investment in and production of advanced technology
components and vehicles in the United States.
Question. In your testimony you noted that wages in the U.S.
automotive industry have fallen even though productivity has
substantially improved.
In your view, why have wages in the U.S. auto industry not kept
pace with greater productivity?
Answer. A variety of factors have contributed to wage stagnation in
the U.S. auto industry even though worker productivity has increased
substantially throughout the decades. Bad trade deals, inadequate
investment in worker training and education, and weak labor laws have
all contributed to wage stagnation in the U.S. auto industry.
The United States lost 5 million manufacturing jobs between 2000
and 2014. Per the Economic Policy Institute's (EPI) Manufacturing Job
Loss: Trade, Not Productivity, Is the Culprit,\12\ trade and recession
were primarily responsible for the decline in employment, with
technological advances and other factors also playing a part. Between
2000 and 2007, 3.6 million jobs were lost to trade deficits, mostly in
manufacturing. The Bureau of Labor Statistics data supports EPI's
argument. Wages have fallen even though productivity has substantially
improved. Labor unit costs fell between 2000 and 2014 from 121.8 to
94.9 for auto assembly and parts from roughly 121 to 86. Productivity
increased dramatically over the same period.
---------------------------------------------------------------------------
\12\ https://www.epi.org/publication/manufacturing-job-loss-trade-
not-productivity-is-the-culprit/.
Wages have fallen even though productivity has substantially
improved. The average factory worker makes less than the median wage
for all occupations. Real wages in manufacturing fell between 2003 and
2013 at a faster rate than for workers overall.\13\ According to the
Bureau of Labor Statistics, one fourth of manufacturing jobs make less
than $13.07 per hour.\14\ U.S. autoworkers wages have been suppressed
and bad trade agreements have contributed to this troubling reality.
---------------------------------------------------------------------------
\13\ ``Ruckelshaus, Catherine, and Leberstein, Sarah,
``Manufacturing Low Pay: Declining Wages in the Jobs that Built
America's Middle Class,'' November 2014.
\14\ https://www.bls.gov/iag/tgs/iag31-33.htm.
The United States imported $187 billion in car parts in 2014
(Mexico's imports constitute the largest share). Imported parts
amounted to $12,135 of foreign content for every light vehicle built in
America. As the flood intensified, wages declined and jobs moved to
Mexico. Adjusted for inflation, car part production workers' average
hourly wages declined by 23 percent in the past decade. Between 2000
---------------------------------------------------------------------------
and 2014, employment in U.S. parts suppliers declined 36 percent.
Of course, workers are also consumers so the economic impact of
lower wages and lost jobs impacts businesses and lowers tax revenue for
schools and other public services. NAFTA, like other flawed trade
deals, has had a lasting negative impact.
Poor labor standards in foreign nations have a real economic impact
on the United States as companies relocate to take advantage of workers
who lack basic rights and are underpaid. Workers in Mexico are often
put in harm's way for exercising their most basic rights. Most make
less than $3 an hour (not including benefits) despite booming profits
and record growth for the industry. Manufacturers in the United States
routinely threaten to move operations overseas.
Question. What is the impact of temporary or contract positions in
the auto industry on wages?
Answer. The growing use of temp work drives down wages, benefits
and job security in the auto industry and undermines good, middle class
jobs.
The number of workers in temporary or contract positions are on the
rise in various industries including automotive. As auto-industry
contract work is shifting from administrative to blue-collar jobs,
employing perma-temps, defined as the use of temps for extended periods
of time with no path to full-time employment, is becoming all too
common. Jobs in transportation and material moving and production now
account for 42 percent of the temp industry. Furthermore, perma-temps
earn 22 percent less than private-sector workers and work with little
to no benefits.\15\ The median worker in the staffing industry earns
$12.40 an hour, compared to an hourly wage of $15.84 by all private
sector workers, regardless of industry.\16\
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\15\ Smith, Rebecca, and McKenna, Claire, ``Temped Out: How
Domestic Outsourcing of Blue Collar Jobs Harms America's Workers,''
National Employment Law Project, September 2, 2014.
\16\ Ibid.
For example, Nissan North America has a history of relying on long
term temps and has engaged in anti-union campaign to prevent workers'
right to collectively bargain in many U.S. plants. Of Nissan's 45
production facilities in the Americas, Europe, Asia, Australia, and
Africa, only three are non-union, and all three are located in the
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United States (Smyrna, TN; Decherd, TN; Canton, MS).
Nissan's Canton, Mississippi assembly plant opened in May 2003,
aided by $1.3 billion in subsidies from Mississippi's State and local
taxpayers over the term of the subsidy program. By 2016 the Canton
plant was producing over 360,000 vehicles with an estimated production
and maintenance workforce, of 5,300--approximately 80 percent of whom
were African-American. Of these, 3,700 were direct Nissan employees and
an estimated 1,600 workers were supplied by the Kelly and Minact
temporary employment agencies. These temporary employees received lower
pay and benefits compared to regular employees. A year after production
began, workers contacted the United Auto Workers for help in
establishing collective bargaining representation. Nissan fiercely
engaged in anti-union activities including one on one meetings with
workers, threatening termination for union activities, and threatening
plant closures if employees chose the union as their representative.
Nissan is hardly the only company utilizing long term temps.
It is important to emphasize that it is very difficult for
temporary workers to join a union. Since they are not full-time
employees and are hired through staffing agencies, it is unclear who
they are bargaining with. At the same time, full time workers feel
vulnerable to the notion that they could be replaced by temporary
workers. The National Labor Relations Board (``NLRB'') expanded its
definition of ``joint employer'' in 2015 to include companies that
share some direct or indirect control over other companies' employees.
Anti-worker forces are working to weaken this standard and eliminate
employer liability for businesses in staffing, franchise, and other
contractual relationships.
Question. What policies would you propose to increase wages and
improve working conditions for U.S. autoworkers?
Answer. Congress must strengthen U.S. labor law and insist on
stronger enforcement of current law.
The right to collectively bargain strengthens the economic security
of workers. On average, a worker covered by a union contract earns 13.2
percent more in wages than a peer with similar education, occupation,
and experience in a nonunionized workplace in the same sector.\17\
Unionized workers are more likely to have health-care benefits, access
to paid leave, employer provided pension plans and safer working
conditions compared to their non-union counterparts. Over the last
several decades, wages have stagnated, and union membership has
declined, largely as a result of employers using unfair labor
practices, refusing to negotiate contracts, pushing mandatory
arbitration and imposing non-compete clauses that restrict the ability
of nearly 1 in 5 workers to change jobs. Strengthening our labor laws
and increasing penalties against employers who do not recognize
worker's legal right to have a voice on the job will strengthen the
middle class and reduce income inequality. There are several labor
bills pending in Congress that would improve our labor laws and protect
the rights of working families, including the Workers' Freedom to
Negotiate Act, the WAGE Act, Workplace Democracy Act, Public Service
Freedom to Negotiate Act, and the Public Safety Employer-Employee
Cooperation Act. Congress should pass these and other pro worker bills.
We need to increase remedies against employers who violate workers'
rights and create a mandatory mediation and arbitration process to
ensure corporations and newly formed unions reach a first contract.
---------------------------------------------------------------------------
\17\ Economic Policy Institute. ``How Today's Union's Help Working
People.'' https://www.
epi.org/publication/how-todays-unions-help-working-people-giving-
workers-the-power-to-improve-their-jobs-and-unrig-the-economy/.
As noted above, Nissan is hardly the only bad actor on worker's
rights. Volkswagen (VW) has refused to recognize workers right to
collectively bargain even though workers voted in support of union
representation. On December 4, 2015, skilled-trades employees at
Volkswagen's plant in Chattanooga, Tennessee vote overwhelmingly--71
percent--to designate UAW Local 42 as their bargaining representative.
The NLRB certified the results of the election. However, to this day,
VW refuses to come to the bargaining table with workers. VW is not
alone. In far too many circumstances, employees' rights to bargain
collectively are violated even after the union wins the NLRB election.
The NLRA's intent is to facilitate the creation of a first contract
which determines wages, hours, and employment conditions. Employers,
however, often impede the creation of a contract through delay tactics
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and unwillingness to bargain in good faith.
Delay tactics and surface bargaining are illegal under the NLRA,
but the law lacks meaningful deterrents to force employers to bargain
in good faith with their employees. As a result, in 52 percent of
organizing campaigns, workers lack a collective bargaining agreement a
full year after demonstrating majority support for union
representation.\18\ Even 2 years after an election, 37 percent of newly
formed unions still had no labor agreement.\19\ According to a study by
MIT, under the current law 44 percent of workers who form a new union
never reach a first contract.\20\
---------------------------------------------------------------------------
\18\ Bronfenbrenner, Kate, ``Fact Sheet: NO HOLDS BARRED The
Intensification of Employer Opposition to Organizing,'' Economic Policy
Institute, May 20, 2009, available at: http://www.epi.org/page/-/pdf/
bp235-fact-sheet.pdf.
\19\ Ibid.
\20\ Ferguson, John-Paul, ``The Eyes of the Needles: A Sequential
Model of Union Organizing Drives, 1999-2004,'' Industrial and Labor
Relations Review, Vol. 62, No. 1, Cornell University, October 2008,
available at: http://republicans.edlabor.house.gov/UploadedFiles/
4.30.10_
ferguson.pdf.
Furthermore, we do not have clear and transparent data on the
number of temporary workers in the auto industry. At least thirty
percent of workers in auto industry are temporary workers and it could
be as high as fifty percent. It is important that we get accurate data
on the number of temp workers employed in the auto industry and take
steps to hold employers accountable and strengthen labor protections
and wages for workers. Congress should mandate better reporting of the
use of temps and require that government contracts disclose such
information. Furthermore, efforts to undo the Obama-era NLRB decision
expanding joint employer liability for businesses in staffing,
---------------------------------------------------------------------------
franchise, and other contractual relationships should be opposed.
As we renegotiate NAFTA, we need to make sure Mexico fixes its
labor laws and ends protection contracts prior to entering into any new
agreement. Mexico has made false promises in the past; it is important
that they make and implement the changes so workers can join real
unions. We also need stronger enforcement mechanisms that impose
economic penalties on companies for worker rights abuses. Dispute
settlement has failed workers for decades and we fear it will continue
to do so.
In March 2017, Congress blocked an Obama-era regulation that
required employers to maintain accurate records of workplace injuries
and illnesses for 5 years or face financial penalties. Now the
requirement to avoid penalties is only 6 months. This policy hampers
the U.S. Occupational Safety and Health Administration's (OSHA) efforts
to properly gauge health and safety conditions at worksites across the
country. Due to this rollback, OSHA will only be able to issue
citations during the 6-month period following a record-keeping
violation. The revised lookback period does not give investigators
enough time to identify willful or recurring problems and it also gives
employers license to employers to keep fraudulent records and to
violate the law with impunity. To improve the working conditions and
protect the health and safety of auto workers, Congress should
reinstate the 5-year lookback period and increase penalties for
companies that violate the law.
Questions Submitted by Hon. Rob Portman
Question. At the hearing, it appears there was a general consensus
about the value of making autos in the United States.
Please describe what you believe is the best approach to improve
vehicle and part production in America? What policies should be
instituted, reformed, or discontinued in order to achieve this goal?
Answer. Advancing policies that strengthen the middle class, create
good-paying jobs providing benefits and retirement security in the
United States, and reduce income inequality will improve vehicle and
part production in America. A holistic approach would go a long way
towards meeting these objectives. Equitable tax policies, robust worker
training programs, and enhanced labor rights are needed to strengthen
our domestic auto industry.
For instance, there is an ongoing skills labor shortage in the
automotive industry. Over the next decade nearly 3\1/2\ million
manufacturing jobs will likely need to be filled. The skills gap is
expected to result in 2 million of those jobs going unfilled. According
to research carried out by the Automotive Industry Action Group in
collaboration with Deloitte,\21\ more than half of OEMs and suppliers
believe they will face a high level of difficulty in hiring workers who
possess the skills and talent to fill these jobs.
---------------------------------------------------------------------------
\21\ http://www.themanufacturinginstitute.org//media/
827DBC76533942679A15EF7067A704
CD.ashx.
One way to improve vehicle and part production in America is to
invest in apprenticeship programs and employment and training
opportunities to that ensure that workers have the necessary skills to
be hired for high wage, high skill occupations in the auto
manufacturing industry and that employers have a readily available pool
---------------------------------------------------------------------------
of workers to hire from.
Some of the policies that should be instituted include:
Incentivizing companies to invest apprenticeship programs.
Community colleges should reinstitute technical courses that
are needed by students enrolled in apprenticeship programs to
fulfill related technical instruction (RTI) requirements. An
infusion of resources should be devoted to community colleges
to redevelop course materials and establish the curriculum
necessary to educate newer generations of apprenticeships.
Increase affordability and access to community colleges.
Provide middle school and high school students with
information on vocational training and increase access to
career and technical education. Better-informed school guidance
counselors who can help steer students toward careers in
machinery, robotics, information technology and other emerging
fields are also key.
More effective public outreach by employers to target
unemployed or underemployed workers who might have been
displaced by automation or who have given up looking for work.
A program that should be continued but has come under attack is the
Advanced Technology Vehicles Manufacturing (ATVM) for domestic
manufacturing and the U.S. auto industry.
The ATVM program provides direct interest-bearing loans to
automakers and parts suppliers to construct new U.S. factories or
retrofit existing factories to produce vehicles and parts that increase
fuel efficiency. Ford Motor Company received a $5.9 billion loan during
the height of the auto crisis.
The Department of Energy (DOE) administers the program and they
have not issued a new loan in many years. This is a missed opportunity.
ATVM should be strengthened to support auto manufacturing and increase
our competitiveness for the 21st-century global economy.
Congress should reverse the misguided policies under the Tax Cuts
and Jobs Act (TCJA). Unfair and unequitable tax policies have the dual
effect of incentivizing companies to ship jobs overseas and eroding
domestic auto manufacturing jobs. Simultaneously, billionaires and
multinational companies receive enormous tax breaks while working
families fall further behind. Increasing deficits and decreasing
revenues puts pressure on critical safety net programs such as housing,
health care, nutrition and education--all programs that working
families, seniors, and children depend on.
Question. Last week witnesses offered a variety of viewpoints about
the way the United States should conduct its trade policy. They used
terms like ``free trade'' and ``integrated approach'' to describe the
preferred approach for U.S. trade policy.
What does your preferred approach to U.S. trade policy look like?
Do you believe there are ever situations in which tariffs should be
levied? If so, what are those situations? Are there other public
policies that should interface with trade policy, and what are they?
Answer. The UAW believes U.S. trade policy should work in tandem
with a broader domestic industrial policy. We advocate for an
industrial policy which invests in American workers and communities,
and positions the United States to be a leader in manufacturing and
innovation. Trade agreements must support this cause by leveling the
playing field and requiring fair trade. Trade agreements must result in
stronger wages for workers, worker and environmental protections for
all countries involved, and strong and effective enforcement
mechanisms.
This may require targeted and nuanced tariffs or quotas, because
not all trade imbalances are created equal. Countries that suppress
workers and wages will need different policy prescriptions than
countries that practice currency manipulation or forced technology
transfers. Further, we recognize not all trade imbalances have the same
impact. For example, Canada's $16.7 billion finished automobile deficit
is nearly offset by our $14.7 billion surplus in automotive bodies and
parts.
Even if the United States does find the right balance, decades of
disinvestment and offshoring of U.S. jobs by multinational corporations
has weakened our economic security as a Nation and has inflicted great
harm on American workers and communities. Massive job losses have had
ripple effects through our communities--idling able-bodied workers,
tearing apart families and communities, and diminishing tax revenues.
This production shift has begun to unravel America's global
technological advantage. For decades, Federal and State governments,
universities and research institutions, and private companies in the
U.S. supported cutting edge research and development, with the shared
understanding that technologies developed in American labs would drive
the economy and provide good jobs to American workers. This successful
partnership is under attack and our public and private sectors must
work together in a proactive fashion if we are going to remain a global
technological leader.
Any effort to reset America's trade policy must be accompanied by a
strong industrial policy focused on education, workforce development,
research and development, support for advanced manufacturing and
technologies, building a 21st-century infrastructure, and creating
penalties for companies that turn their back on American workers. A
properly crafted industrial policy will create new industries, as well
as re-shore old ones. This will improve living standards, reduce
poverty, mitigate our environmental impact, and vastly improve
Americans' quality of life.
To ensure American workers and companies are ready to compete will
require:
Workers' voice on the job--Advanced manufacturing will
require a highly skilled workforce. To optimize their utility,
these workers need a voice on the job. This will ensure the
United States will have a well-trained, well-paid, stable
workforce ready to face tomorrow's challenges. To this end, the
United States must reform its labor laws to make it easier for
workers to join unions. Recent decisions by anti-worker judges
and NLRB stand to further weaken our middle class and harm auto
workers.
Quality education--An educated citizenry is not only
paramount to a functioning democracy, but is an engine of
growth in the economy. Education is a public good that pays
back dividends in quality of life, civic engagement and
productivity. The United States needs to reinvest in the
American worker:
Investing in K-12 education--Decades of
disinvestment in public education has hobbled these
institutions. Buildings are outdated, teachers are underpaid,
classrooms are packed, and curriculum has been cut. This
systematic attack on public education, has left us ill-prepared
for the work of tomorrow, which will require additional skills
and creative thinking. Public schools need reinvestment, to
again make sure that all students have access to rigorous
academics, the arts and vocational training.
Worker training--Advanced manufacturing is
going to require a skilled workforce. The skilled trades and
German manufacturing sector have shown that investing in
workers through course work and on the job training leads to
highly skilled workers, who can produce high-valued products at
high wages. The Federal Government should do much more to
incentivize joint union/employer apprenticeships to retrain
todays manufacturing workers for the jobs of tomorrow.
Student loan debt relief--The looming costs
of a college education present huge challenges. Over the past
10 years, the average price for tuition and fees at 4-year
private colleges and universities has jumped to $35,830 a year,
up more than $7,000, according to statistics from the College
Board.\22\ Student loan debt is now the second highest consumer
debt category, behind only mortgage debt, and higher than both
credit cards and auto loans. The Federal Government should pass
student loan debt relief programs that focus on keeping student
loan interest rates low, refinancing of Federal student loans
and getting rid of taxes on student loan forgiveness.
---------------------------------------------------------------------------
\22\ https://trends.collegeboard.org/college-pricing/figures-
tables/tuition-fees-room-board-over-time.
---------------------------------------------------------------------------
Stimulate demand for next generation products.
Leveraging government procurements to create
lead markets for new products and technologies. Government
purchase orders are an effective tool for companies to raise
needed capital, both investments and loans, to initiate pilot
or scale production domestically.
Using regulation and incentives to create
domestic market.
Provide loan guarantees and technical assistance to help
manufacturers retain and onshore work. This can modernize our
plants with either new capital equipment and/or implementing
smart manufacturing technologies. In partnership with states
and existing Federal programs, this program would incentivize
the purchase of domestically manufactured equipment and
technologies to help rebuild the domestic machine tool
industry, and to ensure that critical advanced manufacturing
equipment and components are made and deployed domestically.
Funding research and development to spread wealth throughout
the economy--From the Internet to autonomous vehicles,
government-supported research has spurred major technological
leaps in our society. The government should continue to invest
in the development of new cutting-edge products. The fruits of
this research should be spread throughout the economy--from new
exciting products, to well-paying jobs. To this end the
government should recoup more of its research costs through
royalties on products that become a commercial success. These
monies would be used to reinvest in America's universities and
publicly supported labs, allowing researchers in these
institutions to earn wages and benefits. Finally, new products
born from this research should be manufactured in the United
States.
Infrastructure investment to create an economy that works
for everyone--The United States is in desperate need of
infrastructure investment. This does not just mean repairing
old roads, but updating our water systems, electrical grid,
mass transit, high-speed Internet, roads, bridges, and high-
speed rail. These improvements will put millions of Americans
to work in good-paying jobs, reduce our environmental impact,
improve Americans' health and quality of life, as well as make
the United States an attractive place to invest. When used
strategically, infrastructure projects can not only improve
society, but also eliminate the social and economic costs of
unemployment.
Taxes--Fair and equitable tax policies play an important
role in strengthening auto manufacturing jobs and incentives
companies to keep jobs in the United States instead of moving
them abroad. The UAW believes that we need to stop enacting
budgetary and tax policies that favor the wealthy over working
families and create dangerous incentives for companies to lower
wages and move jobs overseas. For example, the Tax Cuts and
Jobs Act (TCJA) (Pub. L. 115-97) gave massive tax breaks to
corporations and billionaires, encouraged companies to
outsource U.S. jobs, and weakened the Affordable Care Act by
eliminating the individual mandate tax penalty. Only 4.4
percent of workers have been promised wage increases or one-
time bonuses related to TCJA, and a mere 116 of 5.9 million
employers have announced new investments related to the tax
cuts.\23\ The money has instead gone to shareholders and CEOs
via stock buybacks. According to Americans for Tax Fairness,
Since the tax cuts were passed, more than 400 corporations have
announced stock buybacks of $750 billion--106 times more than
what corporations have promised workers in pay hikes. Buybacks
mostly benefit the wealthy, who own most corporate stock.
---------------------------------------------------------------------------
\23\ https://americansfortaxfairness.org/trump-gop-tax-cuts-not-
improving-economy/.
Harley-Davidson is a prime textbook case of how the tax law is
being used in the real world to disadvantage U.S. workers. Following
the big tax-rate cut, Harley-
Davidson closed a Kansas City plant costing 800 local jobs, rewarded
shareholders with $700 billion in stock buybacks, and opened a new
facility in Thailand. This pattern will repeat itself time and time
again unless these harmful anti-worker incentives are changed by
---------------------------------------------------------------------------
Congress and the President.
The corporate tax code reforms are permanent and will lead to well
over $1.5 trillion in lost revenue over 10 years. In contrast, tax cuts
for working families will expire within a decade, leading to tens of
millions of lower and middle-income families paying more in taxes. In
fact, millions of middle-class and working-poor Americans will pay more
in taxes long before the expiration of those tax cuts because of the
elimination of deductions working families have relied upon to keep
more of their money.
TCJA also dismantles an essential component of the Affordable Care
Act by eliminating penalties in 2019 for people that decide to not buy
health insurance despite having the means to afford it. With fewer
healthy people in the exchanges, rates will rise and be less
sustainable. The Blue Cross Blue Shield Association forecasts premiums
increasing by an average of roughly 13 percent annually. According to
Blue Cross/Blue Shield, this provision will result in 13 million more
people being uninsured. Other analysis predicts even higher premium
increases. Per the Tax Policy Center, the average tax cut for the top 1
percent of taxpayers is $51,000, whereas the bottom 20 percent averages
$60. That 10-percent premium increase alone will wipe-out a $60 tax
cut. To make matters worse, America's 10 biggest prescription-drug
corporations are among the biggest winners from the TCJA, yet they are
not offering pricing relief to millions who cannot afford essential
prescription drugs.
TCJA is also projected to add $1.9 trillion to the deficit over the
next decade, endangering critical safety net programs and essential
investments for our future. The law jeopardizes funding for Medicare,
Medicaid, Social Security, education, infrastructure, and food and
rental assistance that working people and retirees depend on. In fact,
the tax cuts for the top 1 percent alone cost more than providing food
stamps to vulnerable populations. According to estimates from the
Institute on Taxation and Economic Policy, the richest 1 percent of
households, those with incomes higher than $607,090, stand to receive a
total tax cut of more than $84 billion in 2019 alone. To put this
number in perspective, in 2019, the total cost of nutrition assistance
benefits paid through the Supplemental Nutrition Assistance Program
(SNAP) is expected to be $58 billion which will help 39 million
individuals access food benefits.
A range of fair and equitable tax policies could be implemented to
strengthen the economic security of workers and encourage companies to
maintain and create good, manufacturing auto jobs in the United States.
We need to eliminate tax breaks and subsidies that allow some
corporations to pay very limited amounts of taxes, or avoid paying
taxes altogether, while encouraging multinational corporations to shift
profits and jobs offshore. Corporations' share of Federal taxes has
declined dramatically over the years; therefore, any corporate tax
reform should require the corporate sector to contribute more in
Federal income-tax revenue than it does now, not less. We also need to
reform our tax code, so it raises adequate revenues to meet critical
needs in a fiscally responsible manner. This requires that wealthy
Americans--the richest 2 percent--and corporations pay their fair share
of taxes.
ATVM--referenced in question 1.
Question. At its root, any section 232 investigation requires a
national security basis. I am cognizant that you may not consider
yourself a national security expert, but you are an auto expert.
Do you believe there is any national security basis--whether
limited or broad in scope--for import restrictions on autos and auto
parts? If so, describe that national security basis.
Answer. We need a more comprehensive trade policy to ensure that we
have the industry capacity to not only produce enough for projected
national defense requirements, but to also ensure that the U.S. is
maintaining the skills and technological advancements as well as its
ability to bolster the economy by maintaining competition with foreign
markets on specific domestic industries.
As the 232 statute recognizes, economic stability is needed to have
strong national security.
Section 232 investigations consider:
Domestic production needed for projected national defense
requirements;
Domestic industry's capacity to meet those requirements;
Related human and material resources;
The importation of goods in terms of their quantities and
use;
The close relation of national economic welfare to U.S.
national security;
Loss of skills or investment, substantial unemployment, and
decrease in government revenue; and
The impact of foreign competition on specific domestic
industries and the impact of displacement of any domestic
products by excessive imports.
Based on the results of the investigation, targeted measures to
boost domestic manufacturing and strengthen our economic and national
security for this and future generations may be needed.
______
Prepared Statement of Rick Schostek, Executive Vice President,
Honda North America, Incorporated
Chairman Hatch, Ranking Member Wyden, and members of the committee,
thank you for the opportunity to testify today before the Senate
Finance Committee. My name is Rick Schostek, an executive vice
president of Honda North America. Based on the more than 3 decades in
which I have worked directly with all five of Honda's U.S. auto plants,
located in Ohio, Alabama, and Indiana, I am here today with a very
personal perspective on the impact of tariffs on automobile
manufacturing in the United States.
While I am here on behalf of Honda, I share the concerns about the
potential impact of 232 auto tariffs with all sectors of the auto
industry, including domestic and international automakers, suppliers,
dealers and the aftermarket service and repair industry. The automotive
industry is thriving as evidenced by our record-years of production,
sales, and exports of U.S.-produced vehicles. The industry is not
seeking protection, and certainly not seeking additional tariffs, which
will harm manufacturing in the U.S., our workers and, most importantly,
U.S. consumers.
Mr. Chairman, next year will mark two key milestones in our history
in the United States--the 60th anniversary of Honda's business in
America and the 40th anniversary of the first product we built in
America. What's important is not these anniversaries, but what they
represent, which is our pioneering vision to establish production
operations in America and the U.S. policy environment that encouraged
such investment.
Until 1982, when we began building the Honda Accord in Ohio, every
vehicle we sold in the U.S. was built in Japan. Since then, we've
produced more than 25 million vehicles in America, including 1.2
million vehicles last year alone--that is 1.5 times more vehicles than
we produced in Japan. Last year, of the 1.65 million vehicles we sold
in the U.S., 66 percent were made in our U.S. plants, 20 percent came
from Canada, 7 percent from Mexico, 4 percent from England, and 3
percent from Japan.
This remarkable transformation is guided by a simple and long-held
Honda commitment to build our products close to the customer. This
approach led Honda to begin production in Ohio in 1979--the first
Japanese automaker to build products in America. That said, what made
it possible to manufacture those products here were national policies
that welcomed our investment, and State and local governments that have
supported it as Honda has continued to expand our investment in
America--now totaling over $20 billion.
In 1987, the year I joined Honda, we began a far-reaching plan that
led to a second auto plant, a new R&D center to develop products here,
a focused effort to increase parts purchases in America and to export
vehicles from America to overseas markets. Step by step, we have
continued to expand our operations based on this strategy, to the point
where we now have a workforce of 31,000 Americans--72 percent working
in manufacturing roles. Last year, we purchased more than $41 billion
in parts, supplies, and services from more than 12,000 U.S. companies
in 32 States. And our U.S.-made products were exported to 89 countries.
The beneficiaries of this investment are American workers, American
consumers, American communities, and the American economy.
Honda also produces engines, transmissions, and other high-value
components in the U.S. that go into our automobiles. In our plants in
Ohio and Alabama, we build engines starting with the aluminum ingot
used to make the engine block. At other Honda plants in Georgia and
Ohio, we build high-tech transmissions using very precise and advanced
technologies. We also have begun to assemble the hybrid battery and
electric motor in two of our Ohio plants as we invest to make
electrified vehicles right here in America. Moreover, we have entered
into a joint venture with General Motors to manufacture advanced fuel
cell stacks in Michigan.
Beyond manufacturing, our U.S. associates are engaged in research
and development, actually creating all-new vehicles from scratch here
in America. The latest example is our all-new 2019 Acura RDX,
introduced this summer, that was designed in our Acura Design Studio in
Los Angeles, CA and engineered by our U.S. R&D team in Raymond, OH,
adjacent to our East Liberty Plant where the RDX is built. This is just
the latest example of our robust U.S. R&D presence, which has developed
over 30 car and light truck models.
Our 40-year history of building products in America means Honda is
well beyond so-called assembly operations. From concept to design,
development to production and everything in between, we are creating
and building our products here in the United States.
Although this hearing is focused on the impact of tariffs on the
auto industry, it is relevant to mention that in addition to
automobiles, we manufacture and develop power equipment as well as jet
engines and the HondaJet in North Carolina; ATVs and Side-by-Side
vehicles in South Carolina. Some of these products are also being
affected by U.S. trade actions and the corresponding retaliation.
But even with this deep commitment to produce products close to our
customers, local production has to make business sense. There must be
available land, infrastructure and suppliers to support the operation
of a factory on a daily basis. And the U.S. has been a great place to
develop and build our vehicles and many other products.
Needless to say, the most important requirement is a qualified,
competent and energetic workforce. And we certainly have that, and
Honda has invested in local schools, 2-year colleges, and universities
to address our growing need for a 21st-
century manufacturing workforce.
However, there are two other critical factors I would like to
highlight today. These are (1) stability and (2) maintaining a
welcoming business environment that supports manufacturing.
Let me take these one at a time, starting with stability. Today's
cars and trucks contain literally thousands of individual parts. The
process of developing a new vehicle takes up to 6 years, and just to
put that in perspective, that's the same length of time as the term of
office for a United States Senator.
Why does this matter? Components for these vehicles are carefully
designed to meet the needs of our customers and government regulations
for things like safety and fuel economy, a process that takes several
years, working in close collaboration with our suppliers. The labor and
material content of each component is also carefully managed to
maximize performance while minimizing cost to ensure that the ultimate
price of the vehicle will meet the needs of our customers.
This is where unanticipated disruptions like new taxes in the form
of tariffs come in. These taxes represent an unplanned addition to the
cost and process of building a vehicle that wasn't factored into the
business plans of manufacturers and suppliers that began years earlier.
Thus, these added costs will either be passed on to our customers or
borne by manufacturers, which then diverts money intended for other
critical purposes, including investment in future technologies, or
capital improvements to our operations that secure jobs, provide
compensation for our workforce, and fulfill our social responsibility
to the community.
Moreover, once a vehicle has been introduced, manufacturers cannot
readily change suppliers to mitigate the added cost of tariffs, since
business agreements with suppliers generally cover several years of
production. Further, it takes time for a manufacturer to qualify a part
from an alternative supplier as well as ascertain their ability to
supply that part in the quantity and schedule required.
The key point is that tariffs, no matter how short-lived, are
enormously disruptive to the stability of a business and reduce the
value business can provide to customers and contribute to society.
The second factor is the importance of a business environment that
welcomes manufacturing through various measures. Most States and
localities welcome new business because they value the investment,
employment and growth opportunities that manufacturing brings to their
communities. Moreover, we have had confidence to build products in the
United States. The U.S. also has long worked to ensure access to a
global marketplace that provides the ability to procure components and
materials of the highest quality and at competitive prices. This
environment is critical to the continued success of our operations.
Our country has long been an advocate for open markets and reduced
barriers to trade because it makes globally competitive production
feasible on these shores, ensures the introduction of the world's most
advanced technologies and brings the best, reasonably priced products
to our Nation's consumers.
Nearly 60 years ago, it was this environment that motivated our
founder, Soichiro Honda, to choose the U.S. as the first market for his
company to establish an overseas subsidiary. As of today, 10
international auto companies have joined the traditional Detroit
companies and are producing vehicles in the U.S., thus creating a
robust U.S. auto manufacturing industry that produced nearly 11 million
vehicles last year; international automakers' production is almost half
of that.
Equally important, are the exports of cars and trucks made in the
U.S. Honda started exporting vehicles from America in 1987. In fact, 30
years ago, we began exporting Accords made in Ohio back to Japan.
Senator Wyden, you may remember this. On March 7, 1988, as a young
Representative, you were at the Port of Portland in Oregon, where the
first shipment of Accord Coupes was loaded onto a ship bound for
customers in Japan. Our business touches so many aspects of American
commerce.
In the ensuing years, Honda has exported more than 1 million
vehicles overseas from 13 U.S. ports, ranging from Seattle out west to
Miami and Baltimore on the east coast. With more than 95 percent of the
world's consumers outside the U.S., export markets are a critical
component to the growth of manufacturing and to the U.S. economy. And
automakers producing in the U.S., including Honda, exported nearly 2
million vehicles last year.
However, America is now experiencing a fundamental change in the
philosophy of open markets. Already, the tax on materials and
components coming into our country is bringing an array of
unanticipated harmful effects that would only be magnified by tariffs
on automobiles and auto parts. For example, more than 90 percent of the
steel used to produce our vehicles here is sourced in America. So,
while we're paying relatively little in the way of tariffs on steel,
the price of domestic steel has increased as a result of the tariff,
saddling us with hundreds of millions of dollars in new, unplanned
cost.
The Commerce Department is currently investigating whether imports
of autos and auto parts are a threat to national security, potentially
subjecting the products to additional tariffs. Few things would be more
disruptive to American manufacturing than the additional tariffs of as
high as 25 percent that have been proposed.
Our vehicles built in America tend to have relatively high U.S.
content. In fact, we had four vehicles in the top ten of the ``2018
American Made Index'' \1\ created by Cars.com. Nevertheless, the
reality is that every vehicle built in this country--regardless of
manufacturer--is produced using both domestic and globally sourced
parts. So, even for a vehicle built in a U.S. factory, the cost to
manufacture will increase as a direct result of these tariffs, and the
increases could be substantial. As already mentioned, of the vehicles
we sell in the U.S., 20 percent are built in Canada and 7 percent in
Mexico. These vehicles have significant U.S. content. Treating them as
foreign products with a 25-percent tariff will have an enormous impact
on vehicle prices and sales, and thereby have a direct impact on the
operations of U.S. suppliers and their employees.
---------------------------------------------------------------------------
\1\ https://www.cars.com/articles/carscom-2018-american-made-index-
whats-the-most-american-car-1420700348632/.
These affected jobs are not just in States with auto plants but
wherever there are parts makers, auto dealers and service outlets, and
other businesses that serve the industry. In other words, tariffs
impact every State in America. Moreover, the tariff has been estimated
to increase the price of a new vehicle in the range of $1,400 to $7,000
per vehicle.\2\ As the price of a new vehicle grows beyond the reach of
more Americans, the price of used vehicles will rise, as will the cost
of service parts. These tariffs will ripple across all aspects of the
auto industry and the broader economy.
---------------------------------------------------------------------------
\2\ https://piie.com/system/files/documents/pb18-16.pdf.
Mr. Chairman, over the past 19 months, the auto industry has been
confronted with significant challenges associated with the new
direction in trade policy. Already, the steel and aluminum tariffs have
increased the cost of manufacturing across all sectors of the American
economy. And NAFTA, which has been the foundation of making North
America a manufacturing titan, is being renegotiated. While the
agreement needs modernizing, it has been successful in spurring
investment and manufacturing in the U.S.; production by international
automakers increased by 3 million vehicles since the agreement took
---------------------------------------------------------------------------
effect.
Now we face the addition of new auto and auto parts tariffs.
Coupled with pending changes to NAFTA, the cumulative impact would be
unprecedented, especially at a time when automobile sales in the U.S.
have begun to plateau and the auto industry is facing fundamental
changes that require investment in a number of new technologies.
Adding a further economic challenge in the form of a new tax on
automobiles and auto parts will only threaten the great jobs that
currently exist for tens of thousands of Americans and increase the
cost of vehicles for millions of U.S. consumers. To be certain,
barriers to trade should be removed everywhere, but imposing tariffs
here will put American workers, American consumers, American
communities, and the American economy at risk. For this reason, Honda
has joined every automaker doing business in the U.S. in opposing new
tariffs on automobiles and auto parts.
Mr. Chairman, thank you for the opportunity to testify, and I am
happy to take your questions.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
The President has made it a practice to get up in front of cameras,
tout new trade deals, and reap splashy headlines, but those
announcements are consistently hollow and the results underwhelming.
I'll start with this week's announcement about the U.S.-Korea Trade
Agreement. The administration touts it as a massive overhaul of a trade
deal that they claim had previously cost hundreds of thousands of
American jobs. But if you search for the significant changes--concrete
wins that will deliver red, white, and blue jobs on the scale the
President talks about--you're going to come to the conclusion that
there's no ``there'' there.
A recent Bloomberg News article summed it up clearly: ``Trade
analysts say changes to the South Korea agreement were largely
cosmetic. . . .'' There's no evidence that the renegotiation will
actually result in an increase in the number of American-made cars sold
in South Korea. In at least one case, the changes aren't even
cosmetic--they're nonexistent. Earlier this year, the White House even
went on record announcing a deal with Korea on currency manipulation,
but it's nowhere to be found in the final text or anywhere else.
So when it comes to South Korea, the Trump administration over-
hyped and under-delivered. That's the administration's entire record on
trade in microcosm.
In recent months, the President has threatened to impose sweeping
tariffs on automobiles. Now, if the administration comes up with a
coherent strategy that would result in more high-paying jobs here at
home and greater access for
American-made cars in markets overseas, I sure want to know about. But
where things currently stand, it looks like this could just be more
haphazard bluster.
Furthermore, the President's threats to impose auto tariffs are
already doing harm here at home--stifling investment, likely costing
jobs in the long run, and raising costs for American consumers. In one
case, Ford announced that it decided not to sell a particular model of
car in the U.S. because of the looming threat of tariffs. So that's the
start of Americans having fewer choices when they're visiting
showrooms.
The President believes he has the authority to impose auto tariffs
because the Congress gave it to him. So I want to put the
administration on notice. Under the Constitution, it's the Congress
that's in charge of trade and tariffs. In the absence of real strategy
and tangible wins on trade, perhaps it's time for the Congress to think
about reclaiming that authority.
I want to thank our witnesses for being here today. This is an
important opportunity for the Finance Committee to draw a distinction
between two different approaches to trade and autos. The approach I'd
prefer is one based on concrete, well-planned strategies that will
create auto manufacturing jobs and deliver for American workers. But in
my view, what the administration is delivering now is more chaos. Its
trade policy dictated by early-morning tweets and bluster, and it may
end up costing jobs and doing more harm than good.
______
Communications
----------
Association of Global Automakers, Inc.
1050 K Street, NW, Suite 650
Washington, DC 20001
TEL 202.650.5555
globalautomakers.org
and
Here for America
These comments are submitted in connection with the above-captioned
hearing on behalf of the Association of Global Automakers\1\ (Global
Automakers) and the Here for America companies.\2\
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\1\ The Association of Global Automakers represents the U.S.
operations of international motor vehicle manufacturers, original
equipment suppliers, and other automotive-related trade associations.
For more information, visit www.globalautomakers.org.
\2\ Here for America is an initiative of the Association of Global
Automakers to increase public awareness about the importance of
international automakers to American job creation, economic growth,
technological innovation and strong communities. Visit
www.hereforamerica.com.
To begin, we greatly appreciate the Committee's focus on tariffs and
their impact on the U.S. automotive industry. The U.S. auto industry
supports the jobs of 10 million Americans, is a critical part of the
United States economy, and is directly impacted by tariffs already in
place as well as those contemplated by the Department of Commerce's
---------------------------------------------------------------------------
ongoing 232 investigation of auto and auto parts trade.
While the Committee has already heard directly from Rick Schostek,
Executive Vice President of Honda North America, Inc., one of our
member companies, and other witnesses, this statement seeks to amplify
and expand on remarks made by these witnesses during the September 26
hearing.
As many members of this Committee are aware, the U.S. automotive
industry has changed dramatically during the past 50 years. Today, the
U.S. auto industry comprises fourteen companies that build cars and
trucks in the United States. A fifteenth is scheduled to begin
production in 2021. Thirteen of these fifteen automobile manufacturers
are headquartered outside of the U.S., and all support a value chain of
U.S. businesses across the country conducting research and development,
manufacture of vehicle components such as engines and transmissions,
vehicle assembly, sales, service, logistics and aftermarket products
and services.
In our view trade has strengthened, not weakened, the U.S. automotive
sector. Foreign competition and investment have in fact resulted in
more U.S. producers and greater competition, benefiting U.S. consumers
and strengthening the U.S. industry overall. Imports of vehicles and
parts have been an important element contributing to this success.
These imports bolster the economic health of the U.S. industry, not
threaten it.
Impact of Tariffs on U.S. Auto Industry Today
The U.S. automobile industry today faces tremendous uncertainly due to
the risk of high import tariffs. Steep tariffs recently placed on steel
and aluminum, imposed pursuant to an investigation into whether imports
of these metals are a threat to U.S. national security under section
232 of the Trade Expansion Act of 1962 are already rippling through the
automotive supply chain. The costs of these goods, including steel and
aluminum produced in the U.S., increased across the
board.\3\, \4\ The price of steel has gone up almost 50
percent since tariffs were announced and the 50-percent price increase
is more than twice the amount of the tariffs that were imposed.
---------------------------------------------------------------------------
\3\ https://www.reuters.com/article/us-usa-trade-steel/u-s-
commerce-dept-probing-steel-profiteering-after-tariffs-idUSKBN1JG22W.
\4\ https://www.wsj.com/articles/steel-aluminum-prices-rise-on-u-s-
tariffs-1527792759.
Rising input costs directly impact the cos,, of production for U.S.
automakers. Toyota, which sources 90% of the steel for its U.S.-based
---------------------------------------------------------------------------
facilities from American mills, stated,
The (U.S.) Administration's decision to impose substantial
steel and aluminum tariffs will adversely impact automakers,
the automotive supplier community and consumers.\5\
---------------------------------------------------------------------------
\5\ https://www.reuters.com/article/usa-trade-toyota/toyota-says-u-
s-tariffs-on-steel-aluminum-will-substantially-raise-production-costs-
idUST9N1N004M.
Ironically, the steel tariffs have created an opening for foreign
producers. Bloomberg reported on July 5th that: ``So successful have
tariffs been in pushing up American steel that foreign metal is
---------------------------------------------------------------------------
becoming more appealing.''
Additionally, the U.S. Department of Commerce is conducting a similar
investigation into whether imports of autos and auto parts are a threat
to our nation's security. This broad authority to impose tariffs in the
name of national security was granted to the President of the United
States by Congress. Unlike other authorities to impose tariffs to
respond to unfair trading practices or to provide temporary protection
to a struggling industry facing import competition, this ``232''
authority is so broad, and the impacts of tariffs imposed under it are
so widespread and of such indeterminate length, that we believe
Congress must ask whether this authority is being used for the purposes
intended.
In our view, there is no support for the proposition that imports of
cars, trucks, SUVs and auto parts threaten the national security of the
United States. No automaker or auto parts supplier has requested
protection under our trade laws. Auto sales, production and exports are
in fact at or near all-time highs.
The Department of Commerce so far has been unable to outline any theory
explaining how the commercial production of cars and trucks is
connected to U.S. national security. Simply running a sectoral trade
imbalance, which the Secretary suggested as a rationale during a recent
appearance before Congress, seems insufficient because it does not
distinguish the U.S. automobile industry from other industries where
this is also the case. In response to the Department's call for public
comments on the 232 tariffs, only three substantive statements, out of
more than 2,300 comments of all types, were filed supporting tariffs or
other restrictions on auto or auto parts imports, and that support was
often tepid at best.
Several studies indicate that passenger vehicle prices would rise very
significantly, with an estimated increase of over $6,000 on a $30,000
vehicle as a representative example.\6\ Because tariffs are effectively
taxes on American consumers, this action would have a devastating
impact on American households. As noted by Chairman Hatch on June 20th,
automobiles are the second biggest purchase most American families
make, many require a car to get to their jobs, and roughly 10 percent
of the median U.S. household income of $59,000 would be erased by
additional $6,000 price increase.\7\
---------------------------------------------------------------------------
\6\ See ``Policy Brief: An Accident Waiting to Happen? The
Estimated Impacts of Tariffs on Motor Vehicles and Parts,'' Trade
Partnership Worldwide, LLC/The Trade Partnership,'' May 29, 2018,
http://tradepartnership.com/reports/an-accident-waiting-to-happen-the-
estimated-impacts-of-tariffs-on-motor-vehicles-and-parts/ (concluding
that the price of an imported $30,000 car would rise by $6,400);
``Trump's Car Tax Would Boost Average New Car and Truck Prices by
$1,262 to $5,809,'' National Taxpayers Union Foundation, May 30, 2018,
https://www.ntu.org/foundation/detail/trumps-car-tax-would-boost-
average-new-car-and-truck-prices-by-1262-to-5809 (concluding that the
average price of imported cars would increase by $4,205 per vehicle and
the average price of U.S.-assembled vehicles by an average of at least
$1,262 per vehicle, and that duties on imported pickup trucks would
increase by $5,089 per vehicle). We recognize that the recently
concluded United States-Mexico-Canada Agreement (replacing the NAFTA)
includes side-letters that exclude a certain number of vehicles
produced in the North American region from 232 tariffs. This agreement
has not yet been implemented however, and it seems prudent to use data
that reflect the broad impact of 232 tariffs until such time as
circumstances change.
\7\ Opening statement of Chairman Orrin Hatch, hearing on ``Current
and Proposed Tariff Actions Administered by the Department of
Commerce,'' United States Senate Committee on Finance, June 20, 2018,
https://www.finance.senate.gov/imo/media/doc/6.20.18%20Hatch%20
Opening%20Statement%20at%20Hearing%20on%20232%20Trade%20Actions.pdf.
And Americans would lose their jobs. The cost to U.S. employment from
the import duties alone would be 195,000 jobs, with U.S. auto and auto
parts industries shedding 1.9 percent of their labor force, according
to the Peterson Institute for International Economics.\8\ Both imports
and exports would be reduced, according to the study, with U.S.
production falling 1.5 percent. These job losses would increase
significantly in the very likely event that our trading partners were
to impose the same tariffs on U.S. exports of these goods. In that
scenario, U.S. production would fall 4 percent, and 624,000 Americans
would lose their jobs. The impact on exports would exceed that on
imports.
---------------------------------------------------------------------------
\8\ ``Trump's Proposed Auto Tariffs Would Throw U.S. Automakers and
Workers Under the Bus,'' Peterson Institute for International
Economics, May 31, 2018, https://piie.com/blogs/trade-investment-
policy-watch/trumps-proposed-auto-tariffs-would-throw-us-automakers-
and#_
ftn1.
These losses would be a severe blow to the automotive sector, including
automakers, parts suppliers, and dealerships throughout the country. To
the extent this Section 232 investigation is premised on the
proposition that the economic health of the sector can be equated with
U.S. national security, any duties imposed as a result of this
investigation would achieve the directly opposite effect of its stated
purpose. And by damaging the sector and driving up the prices of one of
the most significant purchases most U.S. consumers make, the duties
would have much broader effects on the U.S. economy, wiping out many if
not all of the economic benefits of last year's tax cuts.\9\
---------------------------------------------------------------------------
\9\ The Tax Foundation has concluded that the duties would be
equivalent to a $73 billion tax increase, offsetting half the benefits
of the tax cuts for lower-income Americans. See ``Automobile Tariffs
Would Offset Half the TCJA Gains for Low-income Households,'' The Tax
Foundation, June 4, 2018, https://taxfoundation.org/automobile-tariffs-
2018/?utm_source=Corporate&utm
_campaign=599962eac5-
EMAIL_CAMPAIGN_2018_06_04_07_52_COPY_Ol&utm_medium=email
&utm_term=0_94e6588ff2-599962eac5-
429121933&mc_cid=599962eac5&mc_eid=6afd4735f6.
Investments by International Automakers Have Strengthened the U.S.
---------------------------------------------------------------------------
Automobile Industry
International automakers have together invested $75 billion in the
United States and directly employ 130,000 Americans at nearly 500
facilities. Together, these companies create jobs for 1.29 million
Americans including people employed in design, research and
development, manufacturing, sales, finance, and dealership operations
as well as other businesses. International automakers produced nearly
half of all cars, SUVs, vans and light trucks made in America last year
and accounted for nearly half of vehicle exports in 2016, exporting 17
percent of that production to 140 countries and territories.
The investment of international automakers in America has been
substantial and translates into real benefits for communities. In Ohio,
Honda operates five manufacturing facilities and accounts for 54% of
the vehicles made in the state.\10\ In Missouri, international
automakers last year invested $742 million and generated over 28,000
jobs.\11\ We estimate that without their contributions, Missouri's
unemployment rate would be 4.4% rather than 3.5%, which is where the
rate stands today.\12\
---------------------------------------------------------------------------
\10\ https://www.globalautomakers.org/State_Datasheets/
2018GA_HFA_OH.pdf.
\11\ https://www.globalautomakers.org/State_Datasheets/
2018GA_HFA_MO.pdf.
\12\ https://www.globalautomakers.org/State_Datasheets/
2018GA_HFA_MO.pdf.
In Georgia, Kia has invested $1.6 billion in their first U.S.
manufacturing facility located in West Point. They directly employ
2,700 people at the facility and indirectly support another 14,000 jobs
through their regional suppliers.\13\ A similar story can be told in
South Carolina, where BMW opened its Greer facility in 1994. Since
then, BMW has invested $9.3 billion in the Upstate region and directly
employs 10,000 people. In addition, Volvo Cars recently began
production of their S60 model in their $1.1 billion North American
facility located in Ridgeville, South Carolina. These are just a few
examples. In 2017 alone, international automakers announced plans to
invest of $10.2 billion in their U.S. facilities. And in the longer
view, between 2009-2017, automakers invested over $87 billion in the
United States accounting for 73% of all investments made in North
America during that time.\14\
---------------------------------------------------------------------------
\13\ https://www.kmmgusa.com/about-kmmg/our-company/.
\14\ https://www.cargroup.org/car-book-of-deals-2017-annual-
review/.
These investments underscore the health and vitality of the automobile
industry in America. They were made because these companies are
committed to the U.S. market and because the United States is a highly
competitive place to build cars. The decades-long U.S. commitment to
open trade and investment policies is a bedrock that allowed
competition to flourish. That commitment also allowed the U.S.
automobile industry and its workers to grow their U.S. production for
both American consumers and to customers abroad. Last year alone,
international automakers exported 950,000 vehicles from the U.S. to 130
countries and territories across the globe.\15\ Exports of U.S.-built
cars and trucks worldwide have more than doubled since 1993, when NAFTA
became effective, increasing from 978,155 vehicles to 1.981 million
vehicles. The value of these same exports has nearly quadrupled, rising
from $14.3 billion in 1993 to more than $57 billion in 2017.
---------------------------------------------------------------------------
\15\ https://www.globalautomakers.org/economic-impact/national-
impact.
---------------------------------------------------------------------------
Conclusion
When America does trade the right way, by tearing down those barriers
and expanding access to more markets around the world, we create jobs,
promote innovation, and build the foundation for sustainable
prosperity. When America does trade the wrong way, with unnecessary and
unwanted restrictions and intervention, we see increased costs and
prices, depressed demand, and limited consumer choice. Beyond that,
tariffs discourage new investment in the United States, and threatens
opportunity. We hope that Congress will continue to be vigilant in its
oversight role to ensure that the U.S. automobile industry continues to
thrive in the years ahead.
______
Multi Parts Supply (MPS)
1649 Park Lane South
Jupiter, FL 33458
P: +1-561-748-1515
F: +1-561-748-1514
https://multiparts.net/
Statement Submitted by Brian Cohn, President
Chairman Hatch and Members of the Committee, Multi Parts Supply USA
(Multi Parts) is a family-owned company that sells into the automotive
aftermarket. Multi Parts supplies both to manufacturers and national
packagers, which in turn sell to major aftermarket retailers and
regional warehouse distributors.
You will find a full list of Multi Parts imports impacted by the List 1
and List 3 tariffs at the end of this document. These products include
such items as brake parts, fuel pumps and regulators, timing
components, and water pumps. Multi Parts' products are not glamorous,
but they are essential to American consumers. Multi Parts' products are
used by everyday people that need an affordable option to keep their
cars on the road, running safely and reliably--whether they choose to
fix their own vehicles or have them serviced at independent repair
shops. Not only do we help U.S. consumers extend the life of one of
their most valuable assets, we help make that vehicle an economically
viable option for second, third, and even fourth owners.
To serve the U.S. market, Multi Parts maintains two purpose-built
facilities in China and the United States. The two facilities work hand
in hand: the facility in Florida performs research and development and
product qualification, while the wholly-owned facility in China
assembles, tests custom packages, and ships the products to the United
States for distribution. These two facilities are both essential to
allow Multi Parts to service the aftermarket needs of its customers.
Each of the factors the USTR has stated it is considering supports
excluding the types of products imported by Multi Parts:
First, Multi Parts has never seen any Chinese pressure to share
its intellectual property or been forced to enter into any joint
ventures. The replacement automotive parts sold by Multi Parts are
simply not the high-tech goods China has identified in its ``Made in
China 2025'' plan. However, it has taken Multi Parts many years and,
what is for us, a tremendous amount of investment to develop and
qualify the thousands upon thousands of unique products we must supply
to cover the myriad combinations of vehicle makes, models, years and
options in each product category we supply. For example, we do not sell
``a'' brake hose assembly; we have developed thousands of different
assemblies, each with a different combination of end fittings and
brackets to fit everything from a 1962 Ford Falcon to a 2016 Toyota
Corolla. Attempting to duplicate this meticulously built supply chain
to produce this kind of broad-range, low-volume production at the level
of quality required for safety critical applications would be
exceedingly difficult if not impossible.
Second, the tariffs on Multi Parts imports would cause
disproportionate economic harm to U.S. interests. Multi Parts partners
with numerous manufacturers and distributors, which will also suffer
from the onerous 25 percent tariffs proposed on Multi Parts imports
from China.
Third, the tariffs would most certainly harm small and medium-
sized businesses--Multi Parts being a prime example. Multi Parts is a
family company that considers every individual team member as part of
that family. Multi Parts is very proud of the business it has created
and most especially of the good-paying jobs with full benefits which it
provides in areas such as engineering, marketing, sales, and
management. These tariffs put all those jobs at risk.
Finally, the burden of the Section 301 tariffs on Multi Parts'
products will be passed on to the ultimate vehicle owners. For low- and
middle-income consumers, stretching out the value of their automobiles
is vital and high-priced dealership parts and services are simply not
an option. The replacement and aftermarket parts sold by Multi Parts
are a safety-net for these consumers, helping them prolong the life of
the car that allows them to get to work, run their errands, drop off
their children and live the treasured American life of mobility. The
Section 301 tariffs on our aftermarket products threaten every single
American's ability to keep his or her car running safely and reliably.
The impact of these tariffs on Multi Parts, and on our customers, would
be catastrophic. We at Multi Parts ARE sympathetic to the goals of the
USTR in seeking to remedy any Chinese intellectual property abuses. But
Multi Parts and its customers--as well as the ordinary Americans who
rely on these products--are just innocent bystanders in this
international trade war with China. So, we had asked the USTR to seek
to minimize the collateral damage on a family-owned company like Multi
Parts and the low- and middle-income customers who rely on us to
provide reliable, safe, and economical aftermarket parts for their
automobiles. Unfortunately, none of the tariff lines listed below were
removed from the announced tariffs and, barring approval of exemption
requests or action by congress, we will face the full and onerous
impact of these tariffs.
As promised above, here is the list of Multi Parts imports impacted by
the Lists 1 and 3 tariffs:
------------------------------------------------------------------------
Section 301 Lists 1 & 3 Products of Concern HTSUS Code 8 Digit
------------------------------------------------------------------------
Gas Cap Tether 4007.00.00
------------------------------------------------------------------------
Charge Air Cooler/Intercooler Boots/PCV Hoses/ 4009.31.00
Turbo Hose Kits
------------------------------------------------------------------------
Brake Hose Assembly 4009.32.00
------------------------------------------------------------------------
Fuel Pump Lock Ring 4016.93.10
------------------------------------------------------------------------
Diesel Particulate Filter 6909.12.00
------------------------------------------------------------------------
Diesel Particulate Filter 6909.19.50
------------------------------------------------------------------------
Cam Phaser Gears 8409.91.50
------------------------------------------------------------------------
Brake Wheel Cylinder/Clutch Slave Cylinder 8412.21.00
------------------------------------------------------------------------
Fuel Pump Module; Water Pumps 8413.30.90
------------------------------------------------------------------------
Brake Master Cylinder, Clutch Master Cylinder, 8413.50.00
Hydraulic Clutch Cylinder Assembly
------------------------------------------------------------------------
Fuel Pump Strainer/Filter 8421.23.00
------------------------------------------------------------------------
Diesel Emission Fluid Heater 8421.99.00
------------------------------------------------------------------------
Variable Valve Timing Solenoid 8481.20.00
------------------------------------------------------------------------
Fuel Limit Vent Valves/Diesel After Treatment 8481.80.90
Injectors; Diesel Fuel Regulators/Gasoline
Fuel Pressure Regulators/EGR Valves
------------------------------------------------------------------------
HID Ballasts 8504.10.00
------------------------------------------------------------------------
HID Ballasts 8512.20.20
------------------------------------------------------------------------
Interior Bulbs 8512.20.20
------------------------------------------------------------------------
Brake Hose Assembly 8708.30.50
------------------------------------------------------------------------
Knuckle Assemblies 8708.80.65
------------------------------------------------------------------------
Clutch Actuating Components 8708.93.75
------------------------------------------------------------------------
Hydraulic Timing Tensioner 8708.99.81
------------------------------------------------------------------------
______
National Association of Foreign-Trade Zones (NAFTZ)
National Press Building
529 14th Street, NW, Suite 1071
Washington, DC 20045
202-331-1950
October 10, 2018
U.S. Senate
Committee on Finance
Dirksen Senate Office Building
Washington, DC 20510-6200
Re: Senate Finance Committee hearing on ``Impact of Tariffs on the
U.S. Automotive Industry'' (September 26, 2018)
The National Association of Foreign-Trade Zones (NAFTZ) submits the
following comments to the U.S. Senate Committee on Finance for
inclusion in the record for the committee's hearing on September 26,
2018 to consider the impact of tariffs on the U.S. automotive sector.
1. Background
NAFTZ is the voice of the U.S. Foreign-Trade Zones (FTZ) Program and
its stakeholders--communities, companies, and service providers in the
United States that use and rely on the FTZ program. The program was
established by Congress in 1934 to help ``level the playing field'' for
U.S.-based companies facing competition from firms in foreign countries
exporting to the United States. Manufacturing, distribution, intermodal
activities and re-exports may be conducted in FTZs that could otherwise
take place abroad and reduce U.S. participation in global commerce.
Since manufacturing was first allowed in FTZs by an amendment to the
Foreign-Trade Zones Act in 1950, the program has been a critical tool
for promoting tariff policy that benefits manufacturing in the United
States, which constantly competes with overseas production. FTZ
participation helps U.S.-based firms improve their global
competitiveness, maintain U.S.-based activity and jobs, encourage
production closer to end-user markets, and boost exports through lower
effective-duty rates and special customs-entry procedures that improve
cash flow and production efficiency.
As a result, the FTZ program provides valuable incentives that help
U.S. communities recruit and/or retain companies to manufacture/operate
in their locations, and ultimately, remain in the United States, rather
than moving to a foreign country.
As intended by the FTZ Act, American communities receive the principal
benefits of the FTZ program, which include three pillars of economic
development:
Business Retention: The FTZ program grants communities the
opportunity to help their local companies to lower operational costs,
remain competitive in their particular industry, and continue
operations in the United States.
Business Recruitment: The FTZ program is an effective foreign-
direct investment tool that communities use to recruit foreign
companies interested in establishing a physical presence in the United
States and thereby contributing to the U.S. economy.
Increased Regional Employment: Operating in an FTZ environment
affords companies the opportunity to remain competitive, expand
operations, and, most importantly, hire highly-skilled American
workers.
The FTZ Act achieves its economic development objectives through the
cost reduction mechanisms offered through the FTZ program, which
include:
Duty Deferral--Companies using FTZs may delay payment of customs
duties until goods move out of the zone and enter U.S. commerce.
Duty Elimination--Companies using FTZs may export goods from a
zone to a foreign country without paying U.S. duties, thereby
simplifying the company's cash flow management.\1\
---------------------------------------------------------------------------
\1\ The sole exception to this benefit is exports of manufactured
goods from a U.S. FTZ to NAFTA partner countries (Canada and Mexico),
which, as NAFTZ has pointed out, is an unfair restriction and should be
removed.
---------------------------------------------------------------------------
Duty Reduction--Companies approved for production in an FTZ may
pay duty at either the rate applied to the foreign inputs used in
production or the rate for the finished product (``inverted tariff''),
thereby reducing U.S. duty to the level automatically enjoyed by
foreign manufacturers. U.S. customs policy should not discourage U.S.-
based manufacturing, which the U.S. FTZ program helps avoid by ensuring
production is not lost to overseas competitors due to U.S. duties.
These manufacturing benefits have resulted in numerous investments in
U.S. facilities and creation of American jobs in automobile and parts
production for more than four decades.
Congress provided all these FTZ benefits to bolster the global
competitiveness of U.S.-based operations. FTZs account for a
significant portion of total U.S. trade. In 2016, the last year for
which complete data are available, exports from facilities operating
under FTZ procedures totaled $76 billion, or 5.2 percent of all U.S.
goods exported. Imports into FTZs totaled $225.3 billion, or 10.2
percent of total goods imported into the United States. Over 420,000
American workers are employed at FTZ operations in all fifty states and
Puerto Rico, accounting for nearly 4 percent of manufacturing
employment in the United States.\2\
---------------------------------------------------------------------------
\2\ BLS statistics for total U.S. manufacturing employment, https:/
/data.bls.gov/timeseries/CES3000000001.
---------------------------------------------------------------------------
2. General Comments
While many industries (including electronics, pharmaceuticals,
petroleum, chemicals, machinery, ships/boats, and food/beverages) use
the U.S. FTZ program, the automobile and auto parts industries are
among the largest and most important users and are a major FTZ
manufacturing and export success story. FTZs have been instrumental in
creating and preserving many thousands of American manufacturing jobs
in these industries and reviving state and local economies throughout
the United States.
A good example is BMW, which manufactures automobiles in a foreign-
trade zone in Spartanburg, South Carolina (FTZ 38). Before the arrival
of BMW, the Greenville/Spartanburg economy was largely dependent on the
textile industry--hard hit by years of plant closures and job losses.
Spartanburg was able to leverage the FTZ program to persuade BMW to
invest $3.7 billion to construct the largest final-
assembly auto plant in the world employing 9,000 South Carolinians.
Based on the overwhelming success of this operation, the company
announced in June 2017 a plan to invest an additional $600 million in
this plant, which will add another 1,000 jobs, and boost production up
to 450,000 vehicles a year. BMW is also one of this country's largest
exporters of U.S.-made automobiles. BMW and the auto-parts suppliers it
has drawn into FTZ 38 have been instrumental in turning Upcountry South
Carolina from another decaying textile community into a modem
manufacturing and exporting powerhouse and a region that understands
through direct experience the importance of global supply and value
chains, foreign direct investment, and open markets to the U.S. economy
and jobs.
We have seen similar manufacturing success stories in the automotive
sector play out in U.S. FTZs across the country--with Honda in
Cincinnati, Ohio (FTZ 46); Hyundai in Montgomery Alabama (FTZ 222);
Mercedes-Benz in Birmingham, Alabama (FTZ 98); Nissan in Smyrna,
Tennessee (FTZ 78) and Canton, Mississippi (FTZ 158); Subaru in
Indianapolis, Indiana (FTZ 72); Tesla in San Jose, California (FTZ 18);
Toyota in Georgetown, Kentucky (FTZ 29), Huntsville, Alabama (FTZ 83),
and Charlestown, West Virginia (FTZ 229); and Volkswagen in
Chattanooga, Tennessee (FTZ 134). In these examples, we repeatedly see
a direct correlation between a manufacturer's announced expansion of
its zone operations, the subsequent grant of expanded production
authority in the zone, and increased production and employment. This
has ancillary benefits as finished production is shipped for export out
of ports like Jacksonville, New York/New Jersey, Charleston, and
Baltimore. Without the FTZ program, much of this production and
economic activity would have stayed in or relocated to other countries.
3. Tariffs and the U.S. Automotive Sector
U.S. tariff policy has been a key reason why the FTZ program is of such
importance to the U.S. automotive sector. Automobile manufacturers in
the United States face a classic inverted tariff situation where the
2.5 percent duty on the final product (automobiles) is lower than the
average 5 percent duty on the inputs (auto parts). The FTZ program is
specifically designed to address this situation through the duty-
reduction benefit described above. Without this benefit, imports,
subject to the lower duty on the finished automobile, would have a
distinct tariff advantage over U.S. auto production, which is assessed
the higher duty on imported parts.
However, the tariff picture is very different with respect to the
application to products manufactured in a U.S. FTZ, including autos and
auto parts, for additional tariffs imposed under a trade remedy,
including antidumping/countervailing duties, Sections 201 and 301 of
the Trade Act of 1974, and Section 232 of the Trade Expansion Act of
1962. To safeguard the FTZ Program's consistency with U.S. trade law
and policy, Congress developed a built-in legal and regulatory
mechanism to ensure that FTZ manufacturers are subject to the same
obligations and treatment as U.S. manufacturers outside a zone with
respect to additional duties or quotas imposed under a trade remedy.
One of the most important of these safeguards is the requirement that
certain imported inputs subject to a trade-remedy action be admitted
into a zone in what is called ``Privileged Foreign (PF) status.'' PF
status is the legal mechanism to ensure trade remedies duties are
assessed and collected on subject imported inputs at the time a final
product manufactured from those components in an FTZ in the United
States is withdrawn from a zone and entered into U.S. commerce.
Thus, FTZ automotive manufacturers, like the U.S. automotive sector as
a whole, have been impacted by the various trade-remedies actions
imposed this year by the Administration--Section 232 on steel and
aluminum duties under Section 232 of the Trade Expansion Act of 1962;
Section 301 of the Trade Act of 1974 on imports from China; and the
potential imposition of Section 232 duties on vehicles and parts.
However, FTZ automotive manufacturers are also being impacted in some
unique ways solely by virtue of having their manufacturing operations
inside, rather than outside a zone.
a. Section 232 Duties on Steel and Aluminum
Like the U.S. automobile industry as a whole, the Section 232 tariffs
on steel and aluminum have substantially raised the price of a key
input in automobile production and thus the overall production costs
for FTZ automobile manufacturers. These costs are not borne by
competing producers in foreign countries. The result is to diminish the
global competitiveness of U.S. made vehicles vis-a-vis imported
automobiles, a situation the U.S. FTZ program was specifically designed
to mitigate.
b. Section 301 Duties on Imports From China
The expanding number of products from China subject to duties under
Section 301 has created a unique problem for FTZ manufacturers,
including those in the automotive sector, regarding how those duties
are being applied to FTZ-manufactured products.
Final products manufactured and substantially transformed in a U.S. FTZ
are legally products of the United States, just as if they had been
produced in a U.S. factory outside a zone. As such, they should not be
considered or treated as foreign products imported into the United
States for purposes of applying trade remedies. While U.S.
manufacturers outside a zone typically make entry and pay applicable
duties on their imported inputs upon arrival at a U.S. port, the FTZ
program allows U.S. manufacturers inside a zone to delay making entry
and paying duty on those imported inputs until the final product is
withdrawn from a zone for U.S. consumption and to not pay Customs
duties on exports.
However, to obtain statistical data on imported inputs used in zone
manufacturing, the U.S. Census Bureau guidance directs FTZ
manufacturers to report on Customs-entry documentation the country of
origin of the foreign-status inputs with the greatest aggregate value
in a zone-manufactured product. This guidance inadvertently results in
a U.S.-origin, zone-manufactured product potentially being erroneously
treated as foreign origin on entry documentation for purposes of
application of trade remedies.
Specifically, if a product made in a U.S. FTZ falls under the HTS
classification of a product subject to the trade remedy and the inputs
with the greatest aggregate value are from a country subject to the
trade remedy, the trade-remedy duties will be applied to the FTZ-
manufactured, U.S.-origin product against the value of all the
incorporated foreign-status inputs at the time of Customs entry,
including inputs from countries other than China.
Therefore, while a U.S. manufacturer outside a zone pays trade-remedy
duties only on imported inputs that are subject products from a subject
country, a U.S. FTZ manufacturer is penalized by having the trade
remedy-duties also assessed on the entire value of all foreign-status
inputs in the zone-manufactured product, resulting in the effective
assessment of the trade-remedy duties on imported inputs that are not
themselves specifically subject to the trade remedy.
To prevent this erroneous treatment in the Section 232 actions on steel
and aluminum, CBP, as the enforcement agency acting under policy
direction from the Administration, and the Commerce Department asked
the White House to include Proclamation language exempting from Section
232 tariffs any product manufactured and substantially transformed in a
U.S. FTZ (comprising NPF status input value only), while also
clarifying that all imported inputs specifically subject to the Section
232 action be safeguarded by requiring admission to the zone in PF
status and retaining that status even if used to manufacture a
different, substantially-transformed product in an FTZ. President Trump
agreed to the requested language and signed the proclamation. As a
result, the Section 232 duties are being correctly and appropriately
applied to U.S. FTZ manufacturers in accordance with trade policy.
We have been informed that CBP's reported request to USTR for similar
language in the Section 301 actions was rejected for unknown reasons.
As a result, CBP finds itself with conflicting directives on the
application of trade remedy duties to FTZ-manufactured products in the
Section 232 actions as compared to the Section 301 actions. CBP has
indicated to the NAFTZ that it cannot act on its own to resolve this
discrepancy absent clarification from the Administration through USTR.
Unfortunately, inaction by USTR to resolve this problem has resulted in
a significant disincentive to use the FTZ program as Section 301 duties
are effectively being assessed on foreign-status inputs that are
neither Chinese origin nor on the Section 301 list of subject products.
These duties are not being assessed on products manufactured in the
U.S. outside a zone.\3\
---------------------------------------------------------------------------
\3\ Although not impacting the automotive sector, a similar problem
exists with respect to duties imposed earlier this year on washing
machines/parts and solar cells/panels under Section 201 of the Trade
Act of 1974.
As a result, zone manufactures are faced with the following dilemma:
(1) incur millions of dollars in erroneously and inappropriately
applied additional duties under Section 201 and 301 on products that
are not subject to those trade actions; (2) incur millions of dollars
in additional duties and costs by abandoning the FTZ Program and the
Commerce Department's grant of inverted tariff benefits that help
manufacturers keep production in the United States and eliminate
incentives to import the finished product from foreign countries, or
(3) move production to a foreign country, import the finished product
into the U.S., and forego the value-added activities, inputs, and
economic benefits associated with U.S.-based manufacturing in an FTZ.
c. Section 232 Duties on Motor Vehicles and Parts
At its core, the focus of Section 232 as a trade restrictive measure is
on national security, meaning production for defense and defense
readiness. Restricting imports of motor vehicles, auto parts or any
other product is an extremely serious step that requires an imminent
``threat'' to national security. The plain wording of Section 232
demonstrated that Congress did not intend or authorize the President to
use this provision to impose trade restrictions based on economic
considerations not related to national security.
Therefore, it would seem that an affirmative national-security
determination in this investigation on imports of automobiles or auto
parts can only rest on a finding that (1) the autos and parts
industries each face an imminent crisis so profound as to imperil their
continued existence and ability to supply vehicles or parts to the U.S.
military; and (2) the United States faces an imminent national-security
threat, including the risk of a trade embargo, that would necessitate
ensuring domestic demand could be satisfied solely by the U.S. auto and
auto-parts industries without any imports. We believe there is no
credible evidence to support either conclusion.
Just looking at General Motors, the company remains the largest
producer of automobiles manufactured in the United States, with a
market share in 2017 of 17.6 percent and revenue of $146 billion. GM
recently experienced one of the largest stock surges in its history
based on its pioneering work in electric cars and artificial
intelligence for autonomous vehicles. Over the past six years, its
stock price has more than doubled from $19 a share to nearly $44 a
share. These are hardly the signs of a company in dire peril. Like all
industries, the automobile sector has faced a variety of challenges
over the past 50 years, including from imports. But evidence shows it
has emerged more globally-competitive with record sales and profits as
the U.S. economy has recovered from the 2008 financial crisis.
There are several other troubling aspects to possible imposition of
Section 232 duties on imported vehicles and parts. Imposing stringent
market access restrictions in the name of national security against
foreign exports and investment in the automotive sector would mean
significant government market intervention in and control of the
industry, with the government artificially inflating prices for
vehicles and parts through hidden taxes on consumers. The result leaves
the government, rather than the market, in the position of dictating to
American consumers what they will be allowed to buy, in what quantity,
and at what price. As we know from basic
supply-and-demand economics, we can expect significantly higher costs
to U.S. consumers for finished automobiles as a result.\4\ Higher auto
prices could erase any tax savings American families gained from last
year's tax bill and depress the U.S. auto market.
---------------------------------------------------------------------------
\4\ A recent study by the Trade Partnership estimated the cost of
foreign vehicles would rise from an average of $30,000 to $36,400 per
vehicle--a 21-percent increase. Dr. Joseph Francois, Laura Baughman, et
al., ``An Accident Waiting to Happen? The Estimated Impacts of Tariffs
on Motor Vehicles and Parts,'' The Trade Partnership (May 29, 2018), p.
2.
This situation also allows the government, rather than market forces,
to pick winners and losers among U.S. companies and industries. With
the automotive sector part of a global supply and value chain, trade
measures hitting inputs (i.e., auto parts) in addition to finished
vehicles will significantly increase the cost of manufacturing
automobiles in the United States. This could cripple the ability of the
U.S.-based auto industry, including the many companies using FTZs, to
remain globally competitive vis-a-vis foreign manufacturers unburdened
by these additional expenses, create strong disincentives to
manufacture in the United States, and significantly reduce sales of
U.S.-made automobiles in important export markets. The number of jobs
lost in other industries as a direct consequence of these tariffs has
been calculated at 250,000 resulting in a net loss of 158,000 American
jobs when accounting for estimated employment gains in the auto and
parts sectors. These figures do not include those jobs adversely
impacted by expected retaliation by other countries against American
products.\5\
---------------------------------------------------------------------------
\5\ Id.
The Administration's unprecedented and expansive interpretation of its
national-
security authority under Section 232 for purposes other than those
Congress and WTO member countries intended, will have two other very
negative consequences. First, it sets an alarming precedent by
effectively ceding to the President unfettered authority to impose
tariffs and other trade restrictions on any product, against any
country, in any amount, at any time, and for an indefinite period, free
from Congressional authority and oversight or scrutiny by the U.S.
courts and the World Trade Organization, merely by citing the words
``national security.'' This was not Congress' intention when it passed
Section 232 as part of the Trade Expansion Act of 1962, turns Section
232 into the exception that swallowed the rule, and exposes the U.S.
government to legal challenge in the courts and the WTO that it runs a
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considerable risk of losing.
The prospect of these disturbing consequences raises a more profound
concern--that unconstrained use of Section 232 would inflict serious
and potentially lethal damage to the rules-based global trading system
the United States created and built over the past 75 years and which
has been instrumental in fostering economic cooperation and prosperity
around the world.
Specifically, such action undermines the principles of non-
discrimination, national treatment, and bound tariffs, which are
pillars of the global-trading system; invites retaliation against U.S.
exports; provides a precedent and road-map for other countries to
impose unwarranted market-access restrictions against U.S. goods and
services in the name of ``national security''; and risks a return to
the law of the jungle in trade relations that existed during passage of
the infamous Smoot-Hawley tariffs before World War II and the needless
damage they inflicted on the U.S. and global economies.
To be successful and globally competitive in the 21st-century economy,
our companies need and rely on a coherent and predictable set of
international rules. Therefore, we have urged the Department of
Commerce and the White House to consider these points carefully before
taking any further action under Section 232. We cannot endorse, nor can
our country afford, wanton, reckless, or arbitrary use of Section 232
for reasons unrelated to genuine national security concerns and
threats.
In conclusion, we do not believe there is a justifiable national-
security basis to impose any trade measures under Section 232 on
imported motor vehicles and parts.
Respectfully submitted,
Erik Autor
President
National Association of Foreign-Trade Zones
______
National Pork Producers Council (NPPC)
122 C Street, NW
Washington, DC 20001
The National Pork Producers Council (NPPC) is a national association
representing a federation of 42 state producer organizations and the
federal and global interests of the U.S. pork industry. The U.S. pork
sector is a major value-added enterprise in the agricultural economy
and a significant contributor to the overall U.S. economy.
Recognizing that the purpose of this hearing is to examine the impact
of tariffs on the automotive industry, NPPC wishes to draw attention to
the fact that Section 232 national security tariffs on autos and auto
parts, if implemented, likely would result in retaliation by affected
trading partners. The estimates of the trade affected by Section 232
tariffs are mind boggling. Retaliation of such magnitude would be
extremely harmful to many sectors of the U.S. economy and, in
particular, would be financially catastrophic for America's 60,000 pork
producers, who have the dubious distinction of already being on three
retaliation lists.
For the reasons cited below, we wish to express our continued
opposition to the tariffs that have been imposed to date and to any new
tariffs that may be under consideration, whether by the United States
or by our trading partners.
The United States over the past 10 years, on average, has been the No.
1 exporter of pork in the world, and it is the world's lowest cost
producer. In any given year, the U.S. pork industry ships pork and pork
products to more than 100 nations. Those exports contribute
significantly to the bottom line of all U.S. pork producers, adding
more than $53 to the value of each hog marketed in 2017, when $6.5
billion of U.S. pork was exported.
That export value is 11.3 times greater than it was in 1993, the year
before the NAFTA went into force and when the United States began
aggressively opening foreign markets through bilateral and regional
trade agreements. The export growth in the U.S. pork industry can be
attributed almost entirely to the market access benefits achieved in
those trade agreements. We now export more pork to the 20 countries
with which the United States has free trade agreements than to all
other nations combined.
The USDA's Economic Research Service calculates that every $1 billion
in additional U.S. agricultural exports generates 8,010 new jobs across
our economy. However, for livestock exports the job multiplier is
calculated at 11,812 jobs per billion dollars. Measured in these terms,
U.S. pork exports since the United States began negotiating free trade
agreements are estimated to have generated at least 76,000 additional
U.S. jobs.
In short, our industry has benefited enormously from reduced foreign
tariffs. And, not surprisingly, we lose badly when tariffs are imposed
or hiked on our exports.
In the past 10 months, our industry has been subjected to the following
new barriers.
U.S. Section 232 (National Security) Tariffs on Steel and Aluminum
China retaliated against U.S. pork on April 2 with a 25-percent tariff
on top of existing tariffs. Prior to this retaliation, China had been
the third largest export market for U.S. pork. We exported $1.1 billion
of pork and pork products to China in 2017. The 25-percent duty is
having a devastating impact on U.S. pork exports and gives competing
countries an enormous price advantage over our products. To compound
the harm, the tariff was subsequently increased to 50 percent, as
described below.
Mexico retaliated against U.S. pork on June 5 with a 10-percent tariff
and increased that retaliation to 20 percent on July 5. Mexico is our
largest volume export market. Our industry has worked very hard over
the years to expand this market. These tariffs are causing severe
financial pain to our industry, hurting sales in Mexico, and have
placed a critical market we have worked diligently to develop at
serious risk.
Japan, our top value export market, also has been hit by U.S. Section
232 tariffs. To date, Japan has refrained from retaliation. A new U.S.
tariff on Japanese automobiles would likely deal a devastating blow to
pork and other U.S. farm exports.
U.S. Section 301 (Unfair Trade Practices on Intellectual Property)
Tariffs on Goods From China
In response to U.S. tariffs on $34 billion in Chinese products, on July
6, China retaliated against an equivalent value of U.S. exports. U.S.
pork was hit with an additional 25-percent tariff, on top of the 25-
percent tariff imposed on April 2 under Section 232. This, combined
with China's normal MFN tariff, has resulted in an overall tax of 70
percent for some pork categories. The cumulative effect of these
actions has moved the United States from being the most price
competitive supplier of pork to China to the least price-competitive
among all countries. Our exports to China are plummeting.
U.S. Section 232 (National Security) Tariffs on Automobiles
The Trump administration has proposed applying tariffs on imported
automobiles for the purpose of protecting national security, and the
Department of Commerce has already sought public comment on that
suggestion. Tariffs on autos would potentially affect imports from
Japan, Canada, Mexico, South Korea and at least four current members of
the European Union--Germany, Italy, Sweden and the United Kingdom--not
to mention other EU members that supply parts to those countries. All
of these are customers for U.S. pork. Japan, Mexico, Canada and South
Korea are four of our top five markets. (China is No. 3.) As in the
case of Japan, mentioned previously, the imposition of a tariff on
automobiles on the basis of national security concerns would no doubt
provoke retaliation against U.S. pork and farm exports by most, if not
all, of those countries.
Finally, it is important to stress that the impact of tariffs has an
adverse effect on farmers and ranchers, as well as on all American
consumers, by raising prices and costs of production. For farmers, this
means prices will go up directly or indirectly (for example by the
increased cost of steel to domestic manufacturers) on inputs such as
tractors, machinery, animal health drugs and other inputs. For many
farmers and ranchers, this will prove too much to cope with on top of
the impact from lost export sales.
______
Sea Link International, Inc.
13151 66th Street N
Largo, FL 33773
Ph: 727-523-8660 Ext. 133
Fax: 727-523-8661
Cell: 727-424-2318
October 8, 2018
U.S. Senate
Committee on Finance
Dirksen Senate Office Building
Washington, DC 20510-6200
Chairman Hatch and Members of the Committee, Sea Link International is
headquartered in Largo, Florida. Sea Link specializes in Automotive
Lighting research, development and component part manufacturing. Core
competency includes, Plastic Injection Molding, AL/Mg Die Casting,
Thixo-molding, Stamping, painting, metallization and assembly. Sea Link
currently employs 42 direct employees in Florida, Michigan and
California. These U.S. jobs are upper-level engineering, project
management, logistics, warehousing, accounting and sales positions with
an average annual income of $100,000/year or more.
Sea Link imports various products from its two, wholly-owned
manufacturing facilities located in the Shanghai area. Sea Link employs
multiple expatriates in its two Chinese facilities. The facilities from
which Sea Link imports its products are not run or owned by the Chinese
Government or related interests. The products imported by Sea Link are
not implicated in the ``Made in China 2025'' initiative.
While the products Sea Link manufactures in and imports from China are
possibly available from U.S. or third-countries, to abandon its Chinese
operations would create an economic hardship that might ultimately lead
to operational failure and closure of Sea Link's U.S. operations. Sea
Link has invested large sums of money in its Chinese facilities, with
financial assistance from U.S. financial institutions.
To locate sources of the products Sea Link imports from China today, or
to move its current manufacturing operations out of China, would be
very cumbersome and expensive, if not impossible given the OEM
Automotive Industries regulatory and quality requirements. The level of
capital investment and increased costs necessary to make those changes
would cause Sea Link to be unable to compete in the current
marketplace. With the national unemployment rate in the U.S. at roughly
3.9%, the volume of the labor force that would be necessary to handle
this manufacturing is virtually unavailable, and those available are
not willing to enter this level of employment. Factories in the U.S.
are running at about 80% of the labor force needed to operate
efficiently. Another area of concern is that the capability to
manufacture and maintain the tooling necessary to produce the products
Sea Links imports is not available in the U.S. to the same degree and
capacity as in China. These factors would strain the ability of Sea
Link to meet the Quality, Cost and Delivery demands of its customers,
to the point of jeopardizing its U.S. operations altogether.
Sea Link imports products impacted by both the List 1 and List 3
tariffs. These products include such items as Industrial Valves, Bulb
Shields, Heat Shields, Heat Sinks, Brackets, Reflectors, Fog Lamps and
other types of Signal Lighting. Each of the factors the USTR has stated
it is considering supports excluding the types of products imported by
Sea Link:
Sea Link has not received any pressure from the Chinese
Government or other related entities to share its intellectual property
or been forced to enter into any joint ventures. The OEM and other
parts imported by Sea Link are not the type of products that China has
identified in its ``Made in China 2025'' initiative. Sea Link has
invested many years and a large amount of capital to produce the myriad
of products necessary for the many categories of Industrial and
automobile platforms in which its products are used. As mentioned
above, attempting to duplicate this intricate supply chain to produce
these products at the level of quality its customers require would be
very cumbersome and expensive, if not impossible.
The tariffs on the products that Sea Link imports would cause
disproportionate economic harm to U.S. interests. Sea Link and its
customers, including many suppliers of parts to various OEMs, will all
suffer economic harm from the tariffs proposed on the products in List
1 and List 3 that Sea Link imports from China.
The tariffs will harm many small and medium-sized businesses
like Sea Link. Again, as mentioned above, most of the jobs provided by
Sea Link are mid- to upper-level positions with full benefits which we
provide in areas such as engineering, project management, logistical,
and warehousing services. These tariffs put all those jobs at risk.
These Section 301 tariffs place a burden on the products Sea
Link imports that will need to be absorbed or passed on to the ultimate
consumer. If company's like Sea Link are unable to absorb the increased
costs, and our customers--including the end-user consumers--are
unwilling to pay the higher prices, the economic impact will be
disastrous to the individuals we employ (both in the US and the
expatriates in China), the communities in which they live and work, all
the way up through the US economy as a whole.
Sea Link is sympathetic to the goals of the USTR in seeking a remedy
for Chinese abuses regarding U.S. intellectual property. However, the
collateral damage inflicted by these tariffs is just too high of a
price to pay in this international trade war with China. We hope that a
more measured approach in remedies imposed is within our reach going
forward.
Seth Weisberg
Vice President--N.A. Operations
Sea Link International, Inc.
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