Much Is at Stake for American Manufacturing in 2021

America’s trade problems have become polarized and our economy is now based on two contrasting ideologies.

1. The supporters of domestic production, reshoring and exports, who are advocates of reindustrialization  

2. Big importers (like Amazon and Walmart) and Wall Street, who participate in  deindustrialization.

Since U.S. business interests have settled into opposing camps and cannot seem to find compromise, legislators will have to decide strategic issues. Their decisions will dictate the direction of the American economy and the future of manufacturing.

The following are the major issues:

The U.S. Innovation and Competition Act of 2021. This act is designed to boost U.S. semiconductor production and scientific research, in the face of growing economic, technological and military competition from China. The bill has just passed the Senate and now goes to the house. But Republicans were able to insert a provision that provides exceptions to billions in Chinese goods that are currently tariffed under Section 301. All of these exceptions will dilute the Section 301 tariffs and boost China and other countries’ exports to the U.S. If the amended bill passes, the U.S. will have to pay back U.S. and Chinese companies on the tariffs they have paid since January 2021.

In the Innovation and Competition Act, President Joe Biden has designated microprocessors, some pharmaceuticals and rare earth as critical to national security. In their Made in China 2025 plan, China’s leaders state they want their country to dominate in railroad equipment, alternative energy, new materials, electric vehicles, aviation, telecommunications, machine tools, and robotics. China already dominates the computer, cell phone, rare earth elements, auto parts, pharmaceuticals and a wide variety of electronic industries.

President Biden, and Congress, are going to have to protect more than three industries for the U.S. to compete in any of these Chinese-targeted industries.

Country-of-origin labeling. Democratic Sen. Tammy Baldwin’s bill in the Senate called Country of-Origin-Labeling (COOL) requires all imported products (including online products) to have country-of-origin- labeling. This bill has strong opposition from importers—particularly Amazon, where it’s estimated that 75 percent of all new goods being sold come from China. To make matters worse, recent changes in U.S. Customs policy, known as de minimis express entry, allow Chinese goods priced below $800 to enter the U.S. duty-free.

The bill is also aimed at hundreds of millions of dollars of copycat goods and goods from stolen IP coming from China. COOL is part of Biden’s U.S. Innovation and Competition Act, which has been sent to the house

U.S. PPE production. In March 2020, the Trump administration helped the textile industry increase its fiber production for increased manufacturing of masks and other PPE products, so that U.S. hospitals, clinics, and families would not be dependent on foreign imports. But by January 2021, hospitals and clinics found they could go online and buy direct from China because purchases less than $800 are duty-free.

According to the Coalition for a Prosperous America, U.S. companies making PPE products have laid-off 2,100 workers in Florida, Virginia and Rhode Island. Republican Sen. Mike Crapo was able to insert an amendment to the U.S. Innovation Act to allow duty-free PPE into the U.S. during an emergency, which makes it nearly impossible for the president to favor U.S. production of PPE. The amendment and the act were passed by the Senate, and the legislation is now in the House.

Biden’s American Jobs Plan asks for $30 billion over four years to create U.S. jobs and prevent job losses caused by the pandemic. This funding isn’t going to do much good if we continue to allow non-tariff importing of medical equipment and medicines.

Buy American Act.The new administration’s effort to promote a buy-American program is part of Executive Order 14005, “Ensuring the Future is Made in All of America by Americans.” However, the order only covers federal purchases and needs to be expanded to private and state purchases. There is another problem with the Buy American Act. The World Trade Organization agreement that includes a provision called the Government Procurement Act requires that the 60 WTO member countries be allowed to bid on all U.S. government contracts. It means if we get an infrastructure bill through Congress, our competitors will get to bid on all federal and state contracts. It makes one wonder why America continues to stay in the WTO.

Section 232 tariff for steel and aluminum products. This tariff, according to the Alliance for American Manufacturing, saved the steel and aluminum industries and created 3,200 new jobs and $15.7 billion investment in U.S. steel facilities. Thirty-three trade associations—along with 300 American manufacturers, China, and the EU—are pressuring Biden to eliminate these tariffs. If they are dropped, China will have the opportunity to dump steel and aluminum into the U.S. again below U.S. producer prices. The debate around this exemplifies the classic argument of importers vs. domestic suppliers.

General System of Preferences (GSP).This 1974 act was originally designed to remove tariffs from poor countries’ exports to help them economically. It hasn’t done much to help workers in those countries, and along with the Miscellaneous Tariffs Bill (MTB), the GSP is now contributing to offshoring jobs and production. According to the Coalition for a Prosperous America, the “advocates for maintaining the GSP are foreign countries, importers and U.S. multi-national corporations who want to continue to buy the lowest-priced products from the lowest-wage countries.” The Senate needs to declare ineligible countries like India and Turkey who have trade surpluses with the U.S. and are strong competitors, and provide automatic ineligibility triggers for countries like China who violate human rights. The revised act was passed by the Senate and has gone to the house.

Restriction on Investment. On June 4, China vehemently opposed the Biden Administration’s expansion of the list of Chinese companies whose shares are off limits to U.S. investors because of their links to Chinese military, surveillance and human rights abuses. Biden said, “the order is to ensure that U.S. investments are not supporting Chinese companies that undermine the security or values of the United States.” This is a good first step, but our government must continue to add companies in violating to this list because stopping their products from entering the U.S. is probably the only way we can stop them from cheating.

Reshoring. The Reshoring Initiative says that 1,057,054 jobs have been re-shored since 2010, but at this rate it will take 30 years to reach President Biden’s goal of 5 million jobs. The U.S. is on its way to a $1 trillion-dollar trade deficit, and importers have made gains into every American manufacturing sector. China continues to increase its exports to the U.S. every year.

The real issue is cost. The multi-national corporations (MNCs) are not going to reshore jobs as long as it is cheaper to make products in other countries. The answer is dollar devaluation. The Treasury Department has said it does not want to devalue the dollar, but if Biden really wants to re-shore manufacturing jobs, he is going to have to do something about the dollar.

Taxes. To pay for all of the projects and bills in his plans, President Biden has released a “Made in America Tax Plan” to make sure corporations pay their fair share in taxes. The administration has proposed a Global Minimum Corporate Tax of 15%. This bill would give government the ability to tax American corporations’ overseas profits at 15%, and deter them from using tax shelter countries to avoid taxes. Biden also wants to increase the corporate tax rate from 21% to 28%. According to Biden’s fact sheet, in 2019, the S&P 500 companies paid on average 8% in federal taxes—and 91 corporations paid $0. Republicans are totally against raising any corporate taxes to fund Biden’s programs.

Infrastructure- According to the American Society of Civil Engineers, America has underinvested $2 trillion in infrastructure in the U.S. The Biden infrastructure bill wants to invest around $1 trillion on infrastructure, but there is an additional $1 trillion for broadband, the electrical grid, schools, colleges, housing and other non-infrastructure projects. Everybody knows that funding an infrastructure bill would help both the manufacturing and construction industries and create millions of jobs, but the big question is how to pay for it. The other question is if some kind of infrastructure bill is passed, should we allow China and other foreign countries to bid on the projects?

The big importers and Wall Street are committed to a post-industrial service economy based on the assumption that importing cheap goods can maintain living standards and everybody will come out ahead. The Wall Street/Walmart economy hasn’t worked out, and we have offshored millions of factory jobs and continue to lose jobs and establishments in 38 manufacturing industries. President Biden believes “we should produce here at home, the technologies and goods that meet today’s challenges and seize tomorrow’s opportunities”.

Whether he succeeds with his plans is now dependent on who wins in Congress: those who are committed to importing or those who want domestic manufacturing production and reshoring. We are at a watershed moment in the economy.