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America’s Endangered Defense Industrial Base, Part 3

The New York Analysis of Policy and Government concludes its review of America’s endangered defense industrial base, and a major Department of Defense Report reviewing the crisis.

It’s not just manufacturing interests and the Department of Defense that worries about these trends.  In 2010, a Cornell University study reported:  If the civilian manufacturing base that is critical to maintaining the national innovation system deteriorates, and America’s innovative capacity moves overseas to be closer to production and the necessary support base, the underlying technological capability for the nation’s defense industrial base also will deteriorate. And as the United States loses its technological edge through movements of R&D offshore, underinvestment in R&D by U.S. private industry, and lack of attention to this critical loss by the U.S. government—with the shedding of millions of skilled workers as a result—the know-how needed for maintaining and advancing U.S. technology leadership vital for national security, and embodied in those displaced workers, is being lost as well.

The DoD report outlines a number of steps currently underway to address this crisis:

  • Increased near-term DoD budget stability with the passage of the Bipartisan Budget Act of 2018, providing stable funding through Fiscal Year (FY) 2019
  • Modernization of the Committee on Foreign Investment in the U.S. and investigations under Section 301 of the Trade Act of 1974 into Chinese intellectual property theft, to better combat Chinese industrial policies targeting American intellectual property
  • Updates to the Conventional Arms Transfer policy and unmanned aerial systems export policy to increase U.S. industrial base competitiveness and strengthen international alliances · Reorganization of the former Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, the work of the “Section 809 panel,” and development of the adaptive acquisition framework all aim to streamline and improve defense acquisition processes
  • Restructuring the Defense Acquisition University to create a workforce education and training resource to foster increased agility in acquisition personnel
  • Response to Section 1071(a) of the National Defense Authorization Act for FY2018 which requires establishing a process for enhancing the ability to analyze, assess, and monitor vulnerabilities of the industrial base
  • Creation of a National Advanced Manufacturing Strategy by the White House Office of Science and Technology Policy, focused on opportunities in advanced manufacturing
  • Department of Labor’s chairing of a Task Force on Apprenticeship Expansion to identify strategies and proposals to promote apprenticeships, particularly in industries where they are insufficient
  • DoD’s program for Microelectronics Innovation for National Security and Economic Competitiveness to increase domestic capabilities and enhance technology adoption
  • DoD cross-functional team for maintaining technology advantage
  • Implementation of a risk-based methodology for oversight of contractors in the National Industrial Security Program, founded on risk management framework principles to assess and counter threats to critical technologies and priority assets.

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The study makes a number of Recommendations for the future:

  • Create an industrial policy in support of national security efforts, as outlined in the National Defense Strategy, to inform current and future acquisition practices Expanding direct investment in the lower tier of the industrial base through DoD’s Defense Production Act Title III, Manufacturing Technology, and Industrial Base Analysis and Sustainment programs to address critical bottlenecks, support fragile suppliers, and mitigate single points-of-failure
  • Diversifying away from complete dependency on sources of supply in politically unstable countries who may cut off U.S. access; diversification strategies may include reengineering, expanded use of the National Defense Stockpile program, or qualification of new suppliers
  • Working with allies and partners on joint industrial base challenges through the National Technology Industrial Base and similar structures
  • Modernizing the organic industrial base to ensure its readiness to sustain fleets and meet contingency surge requirements · Accelerating workforce development efforts to grow domestic science, technology, engineering, mathematics (STEM), and critical trade skills
  • Reducing the personnel security clearance backlog through more efficient processes
  • Further enhancing efforts to explore next generation technology for future threats A challenge this large demands a multifaceted approach. Therefore, the classified Action Plan also includes direction for DoD to conduct a comprehensive study on the industrial base requirements needed to support force modernization efforts, specifically focused on the technologies necessary to win the future fight.

Photo: Main entrance to Joint Systems Manufacturing Center. An M1A1 Abrams sits on a display platform to the left of the entrance gates. (Wikipedia photo)

 

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America’s Endangered Defense Industrial Base, Part 2

The New York Analysis of Policy and Government continues its review of America’s endangered defense industrial base, and a major Department of Defense Report reviewing the crisis.

Looming larger than any other factor in the decline of the U.S. industrial base is China.

While multiple countries pursue policies to bolster their economies at the expense of America’s manufacturing sector, none has targeted the U.S. industrial base as successfully as China. China is engaged in economic competition with the U.S. over key sectors of the global economy, and China’s strategies of economic aggression and its complementary military modernization efforts are codified in its doctrine of civil-military fusion. By actively promoting the fusion of its military and civilian industrial and science and technology sectors, Beijing strives to reinforce the People’s Republic of China’s capabilities to build the country into an economic, technological, and military power while ensuring that overall control of these elements of national power remain firmly in the hands of the Communist Party of China. Since joining the World Trade Organization in 2001, China’s real gross domestic product has grown more than 300%, from $2.4 trillion in 2001 to $10.2 trillion 2017.72 During that period, U.S. real gross domestic product grew less than 40%, from $12.8 trillion in 2001 to $17.3 trillion in 2017 ).

China’s economic growth has, in turn, helped finance its rapid military modernization. In 2001, China’s annual military budget was less than $20 billion.73 By 2017, it exceeded $150 billion,74 second only to the U.S.

The Report emphasizes that “China’s non-market distortions to the economic playing field must end or the U.S. will risk losing the technology overmatch and industrial capabilities that have enabled and empowered our military dominance – even as China seeks to raise its military capabilities to U.S. levels.”

One of the Chinese Communist Party’s primary industrial initiatives, Made in China 2025, targets artificial intelligence, quantum computing, robotics, autonomous and new energy vehicles, high performance medical devices, high-tech ship components, and other emerging industries critical to national defense.  In order to obtain the capabilities needed to support these advanced technologies, China relies on both legal and illicit means, including foreign direct and venture investments, open source collection, human collectors, espionage, cyber operations, and the evasion of U.S. export control restrictions to acquire intellectual property and critical technologies.

For example, China imposes conditional access to its domestic market to lure intellectual property, investment, and onshoring of manufacturing, using high tariffs and a complex web of non-tariff barriers, including restrictive customs barriers, burdensome licensing requirements, discriminatory regulatory standards, and local content requirements in government procurement to boost domestic manufacturing and production. China also uses forced technology transfer78 as a condition of access to the Chinese market.

In an attempt to dominate critical global markets and manufacturing industries, China leverages policy tools such as low interest loans; subsidized utility rates; lax environmental, health, and safety standards; and dumping to boost its industry. China also uses counterfeiting and piracy, illegal export subsidies, and overcapacity to depress world prices and push rivals out of the global market. It has implemented these tactics to capture much of the world’s solar and steel industries and intends to extend its dominance to other industries such as automobiles and robotics.

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A key finding of the report is that China represents a significant and growing risk to the supply of materials and technologies deemed strategic and critical to U.S. national security; a challenge shared by key allies such as Germany and Australia. In addition to China dominating many material sectors at the upstream source of supply (e.g., mining), it is increasingly dominating downstream value-added materials processing and associated manufacturing supply chains, both in China and increasingly in other countries. Areas of concern to America’s manufacturing and defense industrial base include a growing number of widely used and specialized metals, alloys and other materials, including rare earths and permanent magnets.

China is also the sole source or a primary supplier for a number of critical energetic materials used in munitions and missiles. In many cases, there is no other source or drop-in replacement material and even in cases where that option exists, the time and cost to test and qualify the new material can be prohibitive – especially for larger systems (hundreds of millions of dollars each). From commodity materials to rare earths, Chinese investment in developing countries in exchange for an encumbrance on their natural resources and access to their markets, particularly in Africa and Latin America, adds an additional level of consideration for the scope of this threat to American economic and national security.

China’s capture of foreign technologies and intellectual property,109 particularly the systematic theft of U.S. weapons systems and the illicit and forced transfer of dual-use technology, has eroded the military balance between the U.S. and China. Such transfers aid China’s efforts to gain a qualitative technological advantage over the U.S. across key domains, including naval, air, space, and cyber.

China’s aggressive industrial policies have already eliminated some capabilities with critical defense functions, including solar cells for military use, flat-panel aircraft displays, and the processing of rare earth elements. China’s actions seriously threaten other capabilities, including machine tools; the production and processing of advanced materials like biomaterials, ceramics, and composites; and the production of printed circuit boards and semiconductors

As part of China’s One Belt, One Road doctrine to project Chinese soft and hard power, China has sought the acquisition of critical U.S. infrastructure, including railroads, ports, and telecommunications.

China’s economic strategies, combined with the adverse impacts of other nations’ industrial policies, pose significant threats to the U.S. industrial base and thereby pose a growing risk to U.S. national security.

The Report concludes Monday

Illustration: China Map (U.S. State Department) 

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America’s Endangered Defense Industrial Base

In the 20th Century, America’s mighty industrial base became  as much a part of the nation’s identity as free speech and baseball.  Historically, it was essential to the development of the middle class, and allowed the military to quickly recover from Pearl Harbor and serve as the “Arsenal of Democracy.” But over the past several decades, that vital asset has eroded, endangering both the economy and the military safety of the U.S.

This month, a key report  on America’s Defense Industrial Base was submitted to the White House. It paints a devastating picture of the clear and immediate dangers presented by the extreme weakening of what was once the world’s greatest manufacturing environment.

America’s manufacturing sector is vital to both the economic and defense health of the nation. The report notes that “Not only is the manufacturing sector the backbone of U.S. military technical advantage, but also a major contributor to the U.S economy, accounting for 9% of employment, 12% of GDP, 60% of exports, 55% of patents, and 70% of U.S. R&D.”

However, between 2000, when President Clinton signed into law a measure granting China permanent normal trade relations, and 2010, over two-thirds of U.S. manufacturing saw production declines in terms of inflation-adjusted output. Between 2000 and 2010 alone, the U.S. lost over 66,000 manufacturing facilities.

Think tanks have long recognized the crisis.  In 2011, James Carafano, writing for the Heritage Foundation,  noted:

“The U.S. defense base is on the verge of a crisis—losing the design engineering and industrial capacity to affordably produce the cutting-edge military systems that once gave the American military an unassailable advantage. The reason for this is simple: The free market works. When there is no competitive market for goods and services, the industries that produce them dry up and blow away. The Pentagon has been under-funding procurement by about $50 billion a year. That, however, is only part of the problem.”

The DoD study notes that the loss in employment has been devastating. 36% of the industry’s workforce, with more than 5 million manufacturing job have been lost since 2000 alone. Job losses have been most pronounced in vital sectors subject to import competition, including primary metals, electronics, chemicals, and machinery. Manufacturing and defense industrial base companies’ inability to hire or retain U.S. workers with the necessary skill sets has led to significant gaps in skilled labor. A lack of skilled manufacturing workers and a decreasing number of jobs is destabilizing workforce readiness and leading to skill atrophy.

From 2000-2018, many defense-relevant sectors have seen increased import penetration with rates more than doubling for the industrial controls and machine tools subsectors. The negative effects of sequestration and the budget caps shocked the market and accelerated the downward trend in vendor counts, resulting in an estimated 20% decline in the number of prime vendors.

The decline in the U.S. manufacturing industry creates a variety of risks for America’s manufacturing and defense industrial base and, by extension, for the Department of Defense’s ’s ability to support national defense. Risks range from greater reliance on single sources, sole sources, and foreign providers to workforce gaps, product insecurity, and loss of innovation.
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On July 21, 2017, President Trump signed Executive Order (EO) 13806 “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.”

According to the DoD study issued as a result of that executive order, “All facets of the manufacturing and defense industrial base are currently under threat, at a time when strategic competitors and revisionist powers appear to be growing in strength and capability.”

The report identifies Five major forces that are primarily responsible for the current situation:

  1. From FY2012 through FY2017, sequestration led to lower defense spending relative to levels projected before sequestration was put in place.
  2. Antiquated and counter-productive procurement practices induced contracting delays, deterred market entry, discouraged innovation, and increased costs to suppliers.
  3. Decreases in key production capabilities and declines in manufacturing employment, relative to the last time the U.S. faced a great power competition, left key weaknesses that threaten the nation’s manufacturing capabilities.
  4. The industrial policies of foreign competitors have diminished American manufacturing’s global competitiveness – sometimes as collateral damage of globalization, but also due to specific targeting by great powers like China.
  5. Finally, emerging gaps in our skilled workforce, both in terms of STEM as well as core trade skills (e.g., welding, computer numeric control operation, etc.) pose increasing risk to industrial base capabilities.

Related to those five overall challenges are ten problems. These include the rise of single and sole source suppliers which create individual points of failure within the industrial base, as well as fragile suppliers near bankruptcy and entire industries near domestic extinction. Due to erosion that has already occurred, some manufacturing capabilities can only be procured from foreign suppliers, many of which are not domiciled in allied and partner nations. The concomitant gaps in U.S.-based human capital and erosion of domestic infrastructure further exacerbates the challenge. Ultimately, these negative impacts have the potential to result in limited capabilities, insecurity of supply, lack of R&D, program delays, and an inability to surge in times of crisis.

The Report Continues Tomorrow

F-35 assembly plant (Lockheed Martin) 

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Attacking Red Tape

The U.S. Department of Commerce  is moving to undue the extraordinary burden placed on the American economy during President Obama’s tenure.

The prior Administration introduced record-breaking over-regulation, as noted in numerous studies, most notably that performed by the Competitive Enterprise Institute (CEI). That addiction to regulation was more than just a nuisance. The CATO institute asserts that “It is widely recognized that excessive regulation is unnecessarily killing jobs.”

The Daily Signal found that “job-creating entrepreneurs in the United States have been dispirited by the scope and cost of escalating red tape…Since 2009, the expansion of Uncle Sam’s regulatory control has been one of the prime culprits in America’s startling decline in economic freedom and overall competitiveness. Each new edict has meant a new government bureaucracy that entrepreneurs and producers must navigate. Worse, the trend of overregulating our economy has also bred cronyism and tarnished our free-market system. As reported in the 2015 Index of Economic Freedom, an annual study that benchmarks the quality and attractiveness of the entrepreneurial framework across countries, the United States remains stuck in the second tier economic freedom rank of the “mostly free,” with its business freedom score plunging to the lowest level since 2006. This increased regulatory burden, aggravated by favoritism toward entrenched interests, has notably undercut America’s historically dynamic entrepreneurial growth. A 2014 Brookings Institution analysis shows that with business exits now exceeding new business formations, entrepreneurial dynamism in the United States has been steadily dwindling. In light of the excessive and costly regulatory environment, it is not surprising that America’s ongoing economic recovery has been far from dynamic. Fewer Americans can prosper in this overregulated economy.”

The cost of compliance with the tidal wave of regulatory mandates was overwhelming. CEI estimated that in 2015, regulatory-related expenses were approximately $1.88 trillion, 10% of the entire American GDP and over 5 times the cost of federal corporate income taxes that year.

It’s not only private sector projects that are daunted by over-regulation.  Improtant infrastructure projects suffer greatly, as well.

According to the Department of Commerce, “the cost of permitting delays can more than double direct project construction costs when all delay factors are considered….the types of costs associated with delays are subtle and insidious – and we too often accept them as  status quo without realizing the massive drag they have created on our economy. For example, many proposed new projects offer environmental benefits compared to the status quo, so by delaying the new ‘greener’ solution, we may often prolong higher emissions and congestion associated with the status quo. Furthermore, delays may mask a greater threat – important infrastructure projects may not even be considered or initiated because of investment uncertainty and risk created by permitting delays. The risk of delay and associated lower returns can be a powerful disincentive for any private capital participation.”

In response, the Commerce Department issued, earlier this year, a Request for Information (RFI) on how to cut the burden, particularly for the hard-hit manufacturing sector, and has now published a study based on the results in a report entitled “Streamlining Permitting, and Reducing Regulatory Bburdens for Domestic Manufacturing.”   

The Report notes that:

“Federal regulations impose enormous costs on America’s businesses and working families. These costs burden virtually every sector of our economy, although the manufacturing sector is disproportionately hard hit. The direct costs on manufacturing companies were estimated by the National Association of Manufacturers (NAM) to be $138.6 billion as of 2014,1 though this estimate does not include indirect negative effects on the U.S. economy such as reduced innovation and global competitiveness, lost investment, and significant job losses.  Small businesses are also disproportionately burdened by excessive federal regulation.

“on January 24, 2017, President Trump signed a Presidential Memorandum on Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing. The Memorandum, which is one part of an Administration-wide regulatory reform agenda, required the Secretary of Commerce, in coordination with other executive departments and agencies, to conduct outreach to stakeholders on the impact of federal regulations and permitting requirements on domestic manufacturing and to submit a report to the President setting forth a plan to streamline federal permitting processes and to reduce the regulatory burdens affecting domestic manufacturing industry expressed clear support for the need to protect the environment, human health, and worker safety, but shared concrete, detailed concerns about how the federal government tries to achieve those objectives. Respondents identified numerous regulatory and permitting problems, including:

  • onerous and lengthy permitting processes that increase cost, add uncertainty, and inhibit investment in new and existing manufacturing facilities;
  • inadequately designed rules that are impractical, unrealistic, inflexible, ambiguous, or that show a lack of understanding of how industry operates;
  • unnecessary aspects of rules, or unnecessary stringency, that are not required to achieve environmental or other regulatory objectives;
  • overlap and duplication between permitting processes and agencies; and
  • overly strict or punitive interpretations of guidance, policies or regulations that are often counter to a pro-growth interpretation.

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“Despite numerous regulatory reform initiatives over the years, businesses continue to express concerns about increasing regulatory burdens. The fact that manufacturers continue to raise the same concerns, even after decades of regulatory reform efforts by the federal government, indicates a failure on the federal government’s part to fully engage with regulated industries and fully understand the real-world impact of its regulations. There is a vital need for better dialogue and understanding between regulators and industry. In the meantime, the urgency for reform continues to grow. A 2017 NAM study states that most manufacturers perceive their regulatory burden to have increased significantly, such that reducing their current burden is at least as important as reducing the cost of new regulations.

SUMMARY OF RECOMMENDATIONS

“The Department makes three major recommendations.

  • Each agency’s Regulatory Reform Taskforce (RRTF) should deliver to the President an ‘Action Plan’ in response to all permitting and regulatory issues highlighted by industry.
  • Annual Regulatory Reduction Forum. There is no regular process for consultations with industry to identify specific actions the federal government can take to eliminate unduly burdensome regulations and accelerate permitting decisions. Thus, the Department recommends creating an annual, open forum for regulators and industry stakeholders to evaluate progress in reducing regulatory burdens.
  • Expanding the Model Process in FAST-41. [Title 41 of the FAST Act (FAST-41) (42 U.S.C. § 4370m) was designed to improve the timeliness, predictability, and transparency of the Federal environmental review and authorization process for covered infrastructure projects.] The FAST Act  contains various provisions aimed at streamlining the environmental review process, with improved agency coordination through the creation of a Coordinated Project Plan and a Permitting Dashboard. Covered projects will typically enjoy better coordination, transparency of approvals, and expedited permitting. The Department recommends that the Administration use existing authority to extend the use of streamlined permitting procedures in the FAST Act to any project that will result in a significant, immediate economic benefit to the United States. For example, consideration could be extended to funded, qualifying projects in a new “economically significant” category. Consideration should be extended to complex, funded manufacturing projects that are in late stages of development and that can demonstrate significant net direct and indirect benefits to the domestic economy. To be eligible for the current streamlining process, projects in this sector or category would still need to meet the definition of a “covered project” under FAST-41. FAST-41 provides a model process that could be incorporated into other Federal legislation that governs Federal programs and requirements that apply to manufacturing facilities. To expand further the universe of manufacturing projects that benefit from streamlined regulatory approval processes, the Administration could work with members of Congress to both expand the definition of “covered project” under FAST-41 and to incorporate procedures similar to those found in FAST-41 in other legislation applicable to manufacturing projects. The Department believes that these three recommendations, if executed promptly and with constant, aggressive leadership, will yield significant results. Set forth below is (i) a summary of issues raised in response to the RFI; (ii) an analysis relating to potential reforms; and (iii) specific recommendations and priority areas for reform.”

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Washington’s heavy hand hinders U.S. economy

As the New York Analysis of Policy & Government recently reported, American manufacturing remains in a state of crisis, with less employment in that crucial sector of the economy now than at the start of the Obama presidency. The impact of that issue on the U.S. trade balance is severe.

The most recent releases of the U.S. Census Bureau and the U.S. Bureau of Economic Analysis indicate a worsening of the trade deficit, with the deficit increasing by a very significant $15.5 billion in the latest survey. Year-to-date, the goods and services deficit increased $6.4 billion, or 5.2 percent, from the same period in 2014. Exports decreased $11.7 billion or 2.0 percent. Imports decreased $5.3 billion or 0.8 percent.

The impact of adverse government actions concerning manufacturing is substantially responsible, although almost all sectors of the economy have been affected.  The Heritage Foundation’s latest “Index of Economic Freedom” noted that “substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and health care, has contributed significantly to the erosion of U.S. economic freedom.  The growth of government has been accompanied by increasing cronyism that has undermined the rule of law…”

Tax rates play a key role. The National Association of Manufacturers has released a study, “The United States needs a more competitive corporate tax system,” which clearly outlines the problem.

A summary of the report:

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“It is abundantly clear that, when compared to the rest of the developed world, the U.S. rate is out of step at best and uncompetitive at worst. The current global tax system in the United States puts manufacturing firms at a disadvantage inside and outside foreign countries. The current global tax system in the United States puts manufacturing firms at a disadvantage inside and outside foreign countries. If the United States converted to a territorial system as part of comprehensive tax reform, it would remove the current barrier to corporate repatriations (transfers in foreign subsidiaries’ profits to U.S. parent companies), promoting a marked rise in domestic investment. The profits of C corporations (entities taxed separately from their shareholders) are taxed once at the corporate level at the corporate income tax rate and again when the after-tax profit is distributed back to shareholders at personal income tax rates. The already high corporate tax rate, coupled with double taxation of dividends and capital gains, reduces economic efficiency by discouraging capital formation and broader economic growth.

“Currently, the United States is the only country in the G-7 that taxes the active foreign earnings of its companies worldwide. Only four other OECD countries have a worldwide system—Chile, Ireland, South Korea and Mexico. The other 29 have a territorial tax system in which business income earned abroad by foreign subsidiaries is wholly or partially exempt from home country tax. Again, the United States fails to respond to global trends. Fourteen of 34 OECD member countries had a territorial tax system in 2000, increasing to 23 in 2005 and 29 in 2014…

“The Tax Foundation maintains an international tax competitiveness index for the 34 OECD countries. Key principles of tax policy examined in the rating system are the competitiveness of the tax code, its neutrality between consumption and savings and whether it favors one industry over another. On all counts, the United States scores poorly, placing 32 out of 34 in the 2014 index. As outlined above, U.S. corporate tax rates, both statutory and marginal effective, are higher than tax rates in our major trading partners, making it harder for U.S. companies to compete in the global marketplace. Similarly, the U.S. worldwide tax system, an outlier when compared to tax systems in most other developed countries, puts U.S. global companies at a competitive disadvantage vis-à-vis their competitors outside the United States. Converting from a global to a territorial tax system would make U.S. rules more internationally competitive and unlock an estimated $2.1 trillion in stranded profits held abroad by U.S. multinationals. Our tax code is also biased, favoring consumption over saving (through high capital gains and dividends taxes, high estate taxes and high progressive income taxes). Furthermore, double taxation of corporate profits discourages firms from electing the C corporation structure that has wider access to capital markets.”

The continuing problems of slow-to-no growth, and high unemployment particularly in middle-class jobs could be resolved by a lessening of the heavy hand of government in areas such as business regulation and taxation. It is a step urgently required by the American economy.

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U.S. Manufacturing still depressed

The declining fortunes of American manufacturing are being belatedly understood. In February, the New York Analysis of Policy & Government  reported that:

U.S. manufacturing is in a state of crisis…The January 2015 report from the Federal Reserve notes that there are fewer jobs in that industry than at the start of the Obama presidency, when there was 12,561,000 manufacturing jobs in the nation.  By January of 2015, that number had been reduced to 12,330,000. The crisis has its antecedents long before President Obama took office, during the tenure of President Clinton. In October 0f 2000, Clinton signed legislation granting permanent normal trade relations to China. The measure had been bitterly opposed by conservatives, human rights groups, and unions.

In several reports, the Information, Technology & Information Technology Foundation (ITIF) organization has revealed how deep the U.S. manufacturing crisis is, and how little notice the problem has received. A prior study reported:

“In the 2000s, U.S. manufacturing suffered its worst performance in American history in terms of jobs. Not only did America lose 5.7 million manufacturing jobs, but the decline as a share of total manufacturing jobs (33 percent) exceeded the rate of loss in the Great Depression. Despite this unprecedented negative performance, most economists, pundits and elected officials remain remarkably blasé about what has transpired. Manufacturing, they argue, has simply become incredibly productive. While tough on workers who are laid off, outsized job losses actually indicate superior performance. All that might be needed are better programs to help laid-off production workers. And there is certainly no need for a determined national manufacturing competitiveness strategy.

“The alarm bells are largely silent for two reasons. First, most economists and pundits do not extend their analysis beyond one macro-level number—change in real manufacturing value-added relative to real GDP—which at first glance appears stable. But this number masks real decline in many industries. In 2010, 13 of the 19 U.S. manufacturing sectors (employing 55 percent of manufacturing workers) were producing less than in 2000.
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“Second, and more fundamentally, U.S. government statistics significantly overstate the change in U.S. manufacturing output, and by definition productivity, in part because of massive overestimation of output growth in the computer and electronics sector and because of problems with how manufacturing imports are measured. When measured properly, U.S. manufacturing output actually fell 11 percent over the last decade while GDP increased 17 percent, something that has not happened before, at least since WWII.”

“In a report released this year, ITIF notes that “American manufacturing has still not recovered to 2007 output or employment levels.  Moreover, the lion’s share of growth that has occurred appears to have been driven by a cyclical, rather than structural, recovery, and as such may represent only a temporary trend…for years, many think tanks,scholars, and pundits turned a blind eye towards the severity of U.S. manufacturing decline, preferring to believe that manufacturing loss is either natural or inconsequential.”

The effect on employment has been harsh.  Real Clear Markets reports:

“Focusing on the last decade, the BLS employment data offer a sobering perspective on the manufacturing sector’s growth in employment in recent years. Between 2010-2014, 762,000 new U.S. manufacturing jobs were created over that five-year period, at an annual average rate of 152,400 new jobs. In contrast, during the preceding five-year period (2005 to 2009), 2.8 million manufacturing jobs were lost in the U.S. economy, or an average decline of 562,200 jobs per year. Placed in perspective, this means that only 762,000 and about 27 percent of the 2.8 million manufacturing jobs lost during the five years between 2005 and 2009 were actually recovered in the last five years (2010-2014) of economic recovery. And compared to the start of the Great Recession, American manufacturers employ 1.4 million fewer factory workers today than in December 2007…In September 2012, President Obama announced a national goal to create 1 million new manufacturing positions by the end of 2016. Since that announcement, the US manufacturing sector has created payroll jobs at a rate of only 11,000 per month and fewer than 300,000 jobs in total over the last 27 months. That rate of factory job creation would generate only about 560,000 new jobs by the time Obama leaves office — a 440,000 job shortfall compared to the president’s unrealistic goal of 1 million new factory jobs by the end of next year.”

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Is U.S. safety and national security being outsourced?

Americans should be distinctly uncomfortable knowing that many critical components for both our civilian and military infrastructure are increasingly imported, and in some cases, imported from nations that are our adversaries.

In the aftermath of the devastating attack on Pearl Harbor, it was the resilience of the U.S. manufacturing sector that made the rebuilding of the fleet possible and insured eventual victory. But currently, a disaster, whether from an enemy assault or from a natural catastrophe, might not have a similar positive outcome.

A report prepared for the Alliance for American Manufacturing  by former Governor Tom Ridge, who served as the first Secretary for Homeland Security, and USAF Col. Robet B. Stephan (ret.)  who served as the first Senior Director for Critical Infrastructure Protection for the White House outlines the issue.

Otherwise, it might offer a different reaction in the entire viagra 50mg price body. The balances on each account in the viagra prescription free debt settlement can usually be negotiated down by 40% to 60% The schedule for paying off the negotiated debt in full is flexible and based on the borrower’s budget. It has been observed that children who attend regular schools from a very young age, show great see this site buy cheap levitra improvement. Insomnia affects social and professional life as robertrobb.com tadalafil sample well. “The deterioration and offshoring of America’s industrial base is becoming more apparent with each passing day, leaving new national security and preparedness concerns in its path. In short, we are becoming too reliant on global suppliers (many of whom may not have our best interests at heart in a time of crisis), along with a highly complex and vulnerable global supply chain needed to bolster our weak points or come to our rescue in the midst of an emergency…

“Unfortunately, at its own peril, the U.S. has become dangerously reliant on foreign suppliers of products, materials and technologies that are critical to our ability to prepare for, respond to and recover from manmade and naturally occurring disasters. This situation could present serious problems in the context of a catastrophic event, particularly one brought about by a creative adversary with a working knowledge of nodal analysis and our supply chain interdependencies, or a natural disaster with acute, far-reaching international supply chain implications. As succinctly put in a WorldSteel Association report examining the nexus between the U.S steel industry and national defense, ‘Consider the potential difficulties the U.S. would face in defending, maintaining and rebuilding infrastructure in an environment where our nation is largely dependent upon foreign steel…’

“This negative trend signifying the decline of the U.S. industrial base has accelerated greatly in recent years, with a corresponding increase in our reliance on critical products and technologies manufactured abroad. For example, China is now the leading supplier of foreign steel to the U.S. market.”

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U.S. manufacturing hurt by political miscalculations

U.S. manufacturing is in a state of crisis, and it may be a self-imposed dilemma for America. The January 2015 report from the Federal Reserve notes that there are fewer jobs in that industry than at the start of the Obama presidency, when there was 12,561,000 manufacturing jobs in the nation.  By January of 2015, that number had been reduced to 12,330,000.

The crisis has its antecedents long before President Obama took office, during the tenure of President Clinton.

In October 0f 2000, Clinton signed legislation granting permanent normal trade relations to China. The measure had been bitterly opposed by conservatives, human rights groups, and unions. The move was consistent with his controversial policy of enhancing relations with Beijing, which included selling them  supercomputers and nuclear technology,  The moves are now seen as playing a significant role in building China’s sophisticated and aggressive military.

The change in U.S. trade policy eliminated potential tariff increases on Chinese imports. In addressing the issue, the Federal Reserve notes: “Our estimates reveal a negative and statistically significant relationship between the change in U.S. policy and subsequent growth in manufacturing…We find that U.S. imports of the goods most affected by the policy change increase substantially after 2001, and that this growth is driven by imports from China.”

Richard mcCormick, writing in the American Prospect back in 2009  noted that For American manufacturers, “the bad years didn’t begin with the banking crisis of 2008… Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972). An additional 90,000 manufacturing companies are now at risk of going out of business. Long before the banking collapse of 2008, such important U.S. industries as machine tools, consumer electronics, auto parts, appliances, furniture, telecommunications equipment, and many others that had once dominated the global marketplace suffered their own economic collapse. Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent of all manufacturing jobs since October 2000. The last time fewer than 12 million people worked in the manufacturing sector was in 1941. In October 2009, more people were officially unemployed (15.7 million) than were working in manufacturing.”
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Manufacturing has a singularly vital role in the U.S. economy. Senator Christopher Coons (D-Delaware)  notes that “Workers in manufacturing jobs earn 22 percent more in annual pay and benefits than the average worker in other industries, according to the National Association of Manufacturers. Every new manufacturing job we create adds another 1.6 jobs to the local service economy, and for every dollar in manufacturing sales, another $1.34 is added to the economy. Investments in manufacturing have a stronger impact than investments in any other economic sector.”

The Economic Policy Institute recently reported that “Manufacturing industries generated $2.1 trillion in GDP (12.5 percent of total U.S. gross domestic product) in 2013. But even these figures do not fully capture manufacturing’s role in the economy. Manufacturing provides a significant source of demand for goods and services in other sectors of the economy, and these sales to other industries are not captured in measures of manufacturing sector GDP but are counted in the broader measure of its gross output. U.S. manufacturing had gross output of $5.9 trillion in 2013, more than one-third (35.4 percent) of U.S. GDP in 2013. Manufacturing is by far the most important sector of the U.S. economy in terms of total output and employment. The manufacturing sector supported approximately 17.1 million indirect jobs in the United States, in addition to the 12.0 million persons directly employed in manufacturing, for a total of 29.1 million jobs directly and indirectly supported, more than one-fifth (21.3 percent) of total U.S. employment in 2013.

“The manufacturing sector is also a particularly important provider of jobs with good wages for workers without a college degree. This can be seen in the manufacturing wage premium—the dollar amount by which the average manufacturing worker wage exceeds the wage of an otherwise comparable worker outside the manufacturing sector. The average wage premium for all U.S. manufacturing workers without a college degree was $1.78 per hour (or 10.9 percent) in 2012–2013.”

The ongoing weakness in the U.S. economy and job market, combined with Beijing’s continuing and dramatic military buildup, should encourage a timely and thorough re-examination of American trade relations with that nation.