[Senate Hearing 111-281]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 111-281
 
                THE UNITED STATES AS GLOBAL COMPETITOR: 
      WHAT ARE THE ELEMENTS OF A NATIONAL MANUFACTURING STRATEGY? 

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

  EXAMINING WHAT POLICIES CONGRESS SHOULD CONSIDER TO HELP REVITALIZE 
                           U.S. MANUFACTURING

                               __________

                             JULY 17, 2009

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          MEL MARTINEZ, Florida
DANIEL K. AKAKA, Hawaii              BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  JIM DeMINT, South Carolina
JON TESTER, Montana                  DAVID VITTER, Louisiana
HERB KOHL, Wisconsin                 MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             KAY BAILEY HUTCHISON, Texas
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

              William D. Duhnke, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                      Devin Hartley, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     SHERROD BROWN, Ohio, Chairman

         JIM DeMINT, South Carolina, Ranking Republican Member

JON TESTER, Montana
JEFF MERKLEY, Oregon
CHRISTOPHER J. DODD, Connecticut

                      Chris Slevin, Staff Director

                                  (ii)














                            C O N T E N T S

                              ----------                              

                         FRIDAY, JULY 17, 2009

                                                                   Page

Opening statement of Chairman Brown..............................     1

                               WITNESSES

    Mark Zandi, Chief Economist and Cofounder, Moody's 
      Economy.Com................................................     4
        Prepared statement.......................................    26
    Leo Hindery, Jr., Managing Partner, Intermedia Partners......     7
        Prepared statement.......................................    27
    Scott N. Paul, Executive Director, Alliance for American 
      Manufacturing..............................................     9
        Prepared statement.......................................    31

                                 (iii)


  THE UNITED STATES AS GLOBAL COMPETITOR: WHAT ARE THE ELEMENTS OF A 
                    NATIONAL MANUFACTURING STRATEGY?

                              ----------                              


                         FRIDAY, JULY 17, 2009

                                       U.S. Senate,
                           Subcommittee on Economic Policy,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 10:08 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Sherrod Brown (Chairman of the 
Subcommittee) presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Senator Brown. The Subcommittee on Economic Policy will 
come to order. Thank you for joining us, all of you, those of 
you in the crowd, and especially our three witnesses, whom I 
will introduce in just a moment.
    Not too long ago, middle-class families worked hard, played 
by the rules, and had something to show for it: A good wage, a 
secure job and home, and the belief that their children would 
have a future full of opportunity. Our Nation and our economy 
relied on workers throughout the country to build the cars and 
the appliances and lay down the rail lines and the highways in 
our country. We relied on workers to build aircraft and 
computers and semiconductors and more high-tech manufactured 
goods. Their work put them squarely--which they earned. Their 
work put them squarely in the middle class. Too often, that is 
no longer the case.
    Until recently, if you look at actions by Congress, until 
the economy got so much worse, if you look at what makes the 
news, you would hardly know that our Nation's largest economic 
sector has been in serious decline. Perhaps years of relative 
prosperity and economic bubbles hid the fact that our country's 
industrial base has been struggling to survive.
    Since 1987, manufacturing's share of GDP has declined by 
some 30 percent. That is almost exactly the percentage increase 
in the financial services industry over that same period. For 
far too long, the prevailing belief guiding our economic and 
trade policy in Washington was that an advanced economy like 
ours no longer needs a strong manufacturing sector. In fact, we 
have heard CEOs and policymakers say that the offshoring of 
manufacturing industries is part of a natural economic process 
that fosters new technologies and resources.
    Perhaps now, finally, Washington has caught on to the fact 
that manufacturing builds a strong middle class and a strong 
Nation. The risks associated with allowing U.S. manufacturing 
to wither on the vine, the risks to our economic securities, 
the risks to our energy future, the risks, in fact, even to our 
national defense are too great to sit on our hands and let it 
happen. For decades, manufacturing has led the economy out of 
recession because it tends to respond quickly to changing 
economic conditions.
    A few weeks ago, a New York Times headline read, ``Once a 
key to recovery, Detroit adds to the pain.'' The auto industry 
contributed significantly to past recoveries, including the 
1981-82 recovery. But this time, we cannot expect autos to lead 
the way.
    In Ohio, a rich auto supply State, our challenge is to help 
those and other suppliers to retool for the industries that are 
attracting significant investment like wind and batteries and 
medical IT. We will be squandering an opportunity to bolster 
our economy and secure our energy independence if most of the 
clean technology, though, is made outside of America.
    That brings us to today's hearing. What we are considering 
today are the elements of a national manufacturing strategy. 
What policies should Congress consider to help revitalize U.S. 
manufacturing? Manufacturing towns across the country deserved 
an answer to this question years ago. Now that it is being 
asked in corporate board rooms and in the highest levels of 
Government, maybe the answers will finally come.
    Last month, the gathering of top CEOs in Detroit said that 
America cannot count on consumer spending and Wall Street to 
maintain our high standard of living. General Electric CEO 
Jeffrey Immelt said his company has outsourced too much and 
that the U.S. needs to double the percentage of American 
workers engaged in manufacturing from 10 to 20 percent. Yet 
while promoting manufacturing may make sense from a public 
relations perspective during this economic crisis, it is what 
major American companies must do--it is what they do, not what 
they say, that counts.
    Today we are fortunate to have witnesses with us who can 
talk about how we got to this point and how we can restore our 
global competitiveness. To restore competitiveness to keep our 
middle class thriving, we need a new national manufacturing 
strategy that fosters an environment in which our manufacturing 
sector can grow, can diversify, and can compete on a level 
playing field in the global marketplace.
    To help give shape to a national manufacturing strategy, I 
would like to propose five areas of focus for today's 
discussion and beyond. This is not an exhaustive list, to be 
sure. Just a starting point.
    One, innovation. We must create a predictable climate for 
investment in research and development and establish an 
Innovation Research Fund for work in clean energy, information 
technology, defense, and aerospace. There is a building on 
Oberlin College's campus--about 10 miles from where I live--
that was built perhaps 5 years ago. It was at that point the 
largest totally solar-powered building on any college campus in 
America, yet all the solar panels were built in Germany and 
Japan because we did not make enough of them in our country and 
because investors were looking for a more predictable tax 
system than they had in the United States to invest money in a 
largely capital-intensive business. That needs to change.
    Number two, supply chains. Give supply manufacturers the 
tools to transition from contracting industries such as autos 
to growing industries like clean energy. Invest in the 
Manufacturing Extension Partnership as outlined in the 
Investments for Manufacturing Progress and Clean Technology 
Act. The National Innovation Marketplace, as announced by Vice 
President Biden, is also a positive step in that direction.
    Number three, job skills. We need sector-based systems that 
link highly skills workers with emerging industries to promote 
long-term competitiveness. That means job training in areas of 
work and job skills developed by local businesses and unions 
and community colleges and workforce investment boards--people 
by region who know best about their region.
    Number four, coordination. When there is a natural 
disaster, the Federal Government has a strategy and has 
resources to rapidly assist communities in need. When there is 
a massive disruption in the economy due to layoffs, there is no 
similar national strategy to assist businesses and workers and 
communities. I propose an Office of Community Economic 
Adjustment modeled after the Defense Department's Office of 
Economic Adjustment in response to base closings, which 
coordinates support for communities faced with a base closure.
    And, last, fair trade. Without strong enforcement of our 
trade laws, our trade deficit continues to grow. We need to 
defend against unfair trade, initiate more cases at the WTO, 
and through existing trade agreement tools, we need to ensure 
that our trade negotiators and trade negotiations yield 
meaningful access for our producers. We must not allow our 
Nation to become dependent on other countries for manufactured 
goods. Our role in the global economy and the security of our 
country depend on our ability to produce our own energy, equip 
our own military, and sustain our own infrastructure. The 
stakes are that high.
    I will introduce the members of the panel now, and we will 
start with Mark Zandi, and then we will work our way across.
    Mark Zandi is the Chief Economist and Cofounder of Moody's 
Economy.com. It is a division of Moody's Analytics and provides 
economic research and consulting services to business, 
governments, and other institutions. Dr. Zandi directs the 
company's research and consulting activities. He focuses on 
macrofinancial and regional economics. Dr. Zandi was an 
economic adviser to the John McCain campaign for President. He 
has provided advice to the Obama administration and regularly 
testifies in front of this Committee and other committees in 
the Congress, or this full Committee and other committees. His 
most recent testimony has been on the economic impact of the 
fiscal stimulus and the merits of providing Government aid to 
the vehicle industry. Dr. Zandi received his Ph.D. at the 
University of Pennsylvania and received his B.S. from the 
Wharton School at the same university.
    Leo Hindery, Jr., is Managing Director of InterMedia 
Partners and chairman of the Smart Globalization Initiative at 
the New America Foundation. Mr. Hindery has been recognized as 
International Cable Executive of the Year, Cable Television 
Operator of the Year, one of Business Week's Top 25 Executives 
of the Year, and one of the cable industry's 25 Most 
Influential Executives over the past 25 years. He is the 
Managing Partner of InterMedia Partners, a media industry 
private equity fund manager which he first founded some 20 
years ago. Through most of the 1990s, he was President and CEO 
of AT&T Broadband. From 2001 to 2004, Mr. Hindery was Chairman 
and Chief Executive Officer of the YES Network, the Nation's 
largest regional sports network, which he founded in the summer 
of 2001 as the television home of the New York Yankees. Mr. 
Hindery is Chairman of the Smart Globalization Initiative at 
the New America Foundation.
    Mr. Hindery. For which he still apologizes for.
    Senator Brown. For which he should still apologize, 
correct.
    Mr. Scott Paul is Executive Director of the Alliance for 
American Manufacturing. Welcome, Scott. He is the founding 
executive director of the alliance, which was launched in April 
2007. AAM is a unique partnership between the United States 
Steelworkers and leading U.S. manufacturers. It has published 
reports on the effectiveness of domestic trade laws and 
manufacturing. The alliance has sponsored several successful 
``Keep It Made in America'' tours and events, including an 11-
State bus tour focused on the auto sector, town hall meetings 
on manufacturing issues, and a nationally televised 
Presidential candidates forum on manufacturing. Prior to 
forming the alliance, Mr. Paul was the principal lobbyist for 
the Industrial Union Council, was a trade lobbyist at the AFL-
CIO where he led the labor movement's legislative initiatives 
on trade, manufacturing, and foreign policy issues. He worked 
on Capitol Hill for 15 years, beginning with an internship for 
Senator Richard Lugar, Indiana Republican, to 2001, to serving 
as the chief foreign policy and trade adviser to House 
Democratic Whip David Bonior from Michigan.
    So if you would like to begin, Mr. Zandi. Thank you for 
joining us, and thank you all for joining us. Dr. Zandi.

          STATEMENT OF MARK ZANDI, CHIEF ECONOMIST AND
                 COFOUNDER, MOODY'S ECONOMY.COM

    Mr. Zandi. Thank you, Senator. Thanks for the opportunity 
to be here today. I am an employee of the Moody's organization, 
but the views I express today are my own.
    I will make eight quick points in my remarks this morning.
    First, the recession continues on. It is 18 months in 
length. But aside from the housing market, manufacturing has 
suffered more in this recession than any other sector of the 
economy. The statistics are grim. Industrial production is down 
17 percent from the peak in December of 2007. That is the 
largest decline in industrial production in any recession since 
World War II. Capacity utilization in manufacturing hit a 
record low. We got a data point for June, I believe yesterday, 
and it is at an all-time low.
    Manufacturing capacity is actually declining, which is very 
rare. The only other time that has happened was a brief period 
in the immediate wake of the tech bust earlier this decade.
    And, of course, employment continues to slide. We have lost 
5 million jobs since the beginning of this decade, and 
employment in manufacturing is now back to where it was just 
prior to World War II.
    Another very amazing statistic to me, industrial 
production, real value-added manufacturing, has actually 
declined in this decade. There is only one other decade that 
comes close, and that is the 1930s' Great Depression, and in 
that decade we actually eked out a small gain in manufacturing. 
Just to highlight the severity of the situation.
    Point number two, the unprecedented decline in 
manufacturing in this downturn is the result of a number of 
things: the collapse of the housing and vehicle markets, a deep 
recession throughout the global economy--of course, many 
manufacturers sell their goods overseas--and draconian cuts by 
U.S. businesses in their investment in technology and other 
equipment. The longer-running decline in manufacturing is also 
related to the loss of market share to global competitors in 
this decade. Of course, that has been almost entirely due to 
losses vis-a-vis trade with the Chinese.
    Point number three, manufacturing has played an outsized 
role in our business cycle, both in recessions and early 
recoveries. The average decline in GDP, peak to trough, in 
recessions since World War II is 2 percent. Manufacturing is 
responsible for over half that decline.
    In the first year of economic recovery, manufacturing was 
responsible on average for one-fifth of the growth. In the 
first year of the last economic recovery coming out of 9/11, it 
contributed more than half of the economic growth. A very 
significant contributor to our business cycle.
    Point number four, manufacturing will not be able to 
contribute to growth in the early stages of this economic 
recovery. The problems are very severe in the vehicle and 
housing markets. The vehicle industry will improve, will see 
better sales off these incredibly low levels, but not enough to 
provide any significant lift to manufacturing and to the 
broader economy.
    Housing, similarly, it will improve off its current very 
low levels. Construction is at a World War II low. But the 
improvement will be very modest because there is a tremendous 
amount of excess housing inventory, a lot of vacant housing out 
there in the country. And as a result of that, we are not going 
to see a measurable pick-up in activity, and that is going to 
constrain manufacturers that provide supplies to the housing 
industry.
    So the problems in the vehicle and housing industries will 
limit the ability of manufacturing to play its traditional role 
of helping drive the economy out of a recession and into 
recovery.
    Point number five, manufacturing's importance to the 
broader economy goes well beyond its share to GDP and 
employment. It is clearly vital to national defense. It is 
instrumental to the living standards of lower- and middle-
income households, and many smaller metropolitan area and rural 
communities across the country depend on their manufacturing 
base. Manufacturing is also vital to research and development, 
innovation, and ultimately the ability of the economy to grow. 
It is key to underlying productivity growth. If the 
manufacturing sector is not healthy, then that will impair 
productivity growth and, therefore, the long-term growth in our 
living standards.
    Point number six, there are number of things policymakers 
should not do and should do in response to the manufacturing 
downturn. The most obvious thing policymakers should not do is 
to erect trade barriers. I think that would be very 
counterproductive, particularly in the current economic 
environment. I think policymakers globally have done a very 
admirable job ensuring that protectionist sentiment does not 
boil over despite rising unemployment throughout the world 
economy. But the risks are quite high and will remain very 
high. Erecting trade barriers would undermine any recovery and 
be very counterproductive.
    Now, having said that, I think it is very important for 
policymakers to continue to guide the chase to allow their 
currency to appreciate. They began revaluation 4 years ago. 
They have allowed the yuan to appreciate about 17 percent. That 
has been very helpful. That has contributed to a slowing in our 
trade--the deterioration in our trade deficit with China. But, 
nonetheless, they have more work to do. The yuan is still 
undervalued, by my calculation, somewhere between 20 and 25 
percent. I think it would be appropriate if the Chinese allowed 
the yuan to appreciate 3 to 5 percent per annum over the next 5 
years. That would be significant. It would allow their 
manufacturers to transition in an orderly way and also give 
some much needed and well-deserved relief to U.S. 
manufacturers.
    Point number seven, policymakers should implement policies 
that reduce the costs of doing business for manufacturers. To 
lower labor cost, I think policymakers could invest in 
technical and community schools. We underinvest in that form of 
education, which is very key to many smaller communities and to 
developing skill sets that are necessary for manufacturers. I 
think also facilitating the use of work share programs would be 
very helpful. Unemployment insurance is very, very costly, and, 
of course, layoffs are even more costly, and work share would 
be productive. And, of course, health-care reform is vital if 
it lowers the growth in health-care costs going forward.
    To lower the cost of capital, policymakers could establish 
direct lending from the SBA--I think that would be very 
helpful; CIT's situation highlights the necessity of that 
during the current crisis--and establish other lending 
facilities to finance investment in clean energy and other 
technologies.
    To lower the cost of transportation, telecommunications, 
and energy, I think it is important for policymakers to support 
consistent public investment in infrastructure. The Build 
America bonds that were issued as part of the fiscal stimulus 
plan I think have been very successful.
    Finally, point number eight, I think targeted industrial 
policies to specific manufacturing industries have not been 
successful in stemming the long-term decline of these 
industries. To be sure, we do not have a lot of historical 
experience with targeted IP, but looking at our record and at 
the record of other developed economies, I do not view it as 
very helpful. A much more efficacious policy effort is to 
facilitate lowering the costs of production and opening up 
global markets to all businesses, with special attention to and 
consideration of these costs and markets that are important to 
manufacturers.
    So, in conclusion, the severe slide in the Nation's 
manufacturing base will constrain the ability of the overall 
economy to rebound from this Great Recession. And it certainly 
jeopardizes the financial well-being of many lower- and middle-
income households in many communities across the country. 
Policymakers should carefully consider this when designing and 
implementing future economic policy.
    Thank you.
    Senator Brown. Thank you very much, Dr. Zandi.
    Mr. Hindery.

  STATEMENT OF LEO HINDERY, JR., MANAGING PARTNER, INTERMEDIA 
                            PARTNERS

    Mr. Hindery. Mr. Chairman, thank you for this honor, and in 
the short time I have, I hope to discuss with you and your 
colleagues the largely jobless economic recovery that we have 
underway and what I believe, as I think you do, is the 
desperate need for a national manufacturing and industrial 
policy. I have lengthier comments, and I would ask with your 
indulgence that they be placed into the record.
    The concern that I have is that these two issues are 
greatly tied together. President Obama has recently affirmed 
his Administration's belief that the economic stimulus plan 
will actually save or create only 3.5 million jobs over 2 
years. Yet this number represents only a quarter of the 13.3 
million jobs that have effectively been lost since the 
recession began in December of 2007 and just 12 percent of the 
more than 30 million workers already effectively unemployed, 
when you include those workers who are either part-time of 
necessity, marginally attached, or in the labor force reserve 
because they have quit the labor force out of frustration.
    The reason this hearing is so very important is because our 
economy, as you have noted, is mostly hemorrhaging jobs in the 
very sector--manufacturing--that must grow in order for us to 
move permanently away from debt-financed consumption as the 
principal engine of economic growth.
    Despite these facts and despite the overhang that they 
represent, aside from the emergency restructuring of Chrysler 
and GM, with respect, the Administration has not yet developed 
a national manufacturing and industrial policy, a genuine 
policy designed to simultaneously ensure the competitiveness of 
U.S.-based businesses and to grow high-value jobs in America. 
Congress and the Administration working together need, in my 
opinion, to immediately enact such a policy, a formal one that 
puts American workers first, and, Senator, as comparable to the 
policies of our major trading partners. And as you have noted, 
we need to integrate this policy with efforts to be the world's 
dominant manufacturer of green technologies and components, and 
I applaud you, Senator, and your former colleagues in the 
House, Congressmen John Boccieri and Space, for sponsoring the 
Investments for Manufacturing Progress and Clean Technology, or 
IMPACT, Act.
    I believe--and this is perhaps the most important part of 
my comments--that two things are holding the U.S. back from 
having our own manufacturing and industrial policy and that we 
need to quickly disabuse both of them.
    First, again, with respect, some in the Obama 
Administration wrongheadedly believe that one job is as good as 
another, whether it is in manufacturing or service. However, 
even simplest comparison of the two sectors shows that: 
compensation in manufacturing jobs is 20 percent greater than 
in nonmanufacturing jobs; service jobs do very little, as that 
chart behind you will show, to help our balance of trade, and 
mostly they just move incomes around the country; and 
manufacturing overall has by far the largest multiplier effect 
of any job sector in the country, creating $1.40 of additional 
economic activity for each $1.00 of direct spending but, most 
importantly, creating two-and-a-half jobs in other sectors for 
each job in it.
    Second is the deep concern on my part that these same 
individuals assume, with no supporting evidence whatsoever, 
that new jobs associated with exported services will make up 
for past and future manufacturing job losses. In fact, large-
scale, high-quality service jobs are heavily dependent on a 
strong manufacturing sector, and they do not readily substitute 
for good manufacturing jobs.
    In addition to throwing its full weight behind a new 
national industrial policy, the Administration must also be 
willing to pick winners in the economy and then support them, 
despite a pretty apparent aversion to doing so, because frankly 
all other developed nations and China do so every day, to great 
effect. They need to fund, Senator, a 10-year not a 2-year 
program of significant public investment in order to upgrade 
and rebuild our Nation's infrastructure. They need to adopt, 
consistent with the Without rules, Buy America requirements 
related to all Federal procurement. America, we now sadly know, 
is the only Nation--the only Nation among the major developed 
nations and China without a significant ``buy domestic'' 
program, and we need to enact major corporate tax reform, 
including the reduction of corporate income taxes and payroll 
taxes and the movement to a value-added tax, or a VAT, to 
replace that lost revenue.
    I believe, contrary a bit to Mr. Zandi's comments, than a 
national industrial policy cannot succeed without complementary 
trade policies that prevent other economies from gaining unfair 
competitive advantages.
    I believe, Senator, that we need to immediately move away 
from these decades of misguided trade policies. We need to 
demand agreements that have meaningful labor and environmental 
standards, but especially those that forbid illegal subsidies 
and currency manipulation. And, with respect, I think we need 
to dispense once and for all with ``one size fits all'' 
agreements that ignore significant differences in levels of 
development, forms of government, and reciprocity.
    But, most important, we need a fundamental reexamination of 
our relationship with China. Challenging China over its unfair 
trade practices is not just necessary for the future of U.S. 
manufacturing jobs, it is also critical world economy. The 
global economy, Senator, simply cannot function if the third 
largest individual economy runs current account surpluses on 
the order of 8 to 10 percent of GDP, as China has done year 
after year.
    I look forward to the questions and answers, and, again, it 
has been an honor to appear before you. Thank you very much.
    Senator Brown. Thank you, Mr. Hindery.
    Mr. Paul, thank you for joining us.

 STATEMENT OF SCOTT N. PAUL, EXECUTIVE DIRECTOR, ALLIANCE FOR 
                     AMERICAN MANUFACTURING

    Mr. Paul. Mr. Chairman, thank you for inviting me to 
testify today on behalf of the Alliance for American 
Manufacturing.
    As you mentioned, we go on the road a lot, and I can tell 
you from our experience that manufacturing has seen elements of 
a recession and a downturn for most of the last 10 years, and 
it has been precipitous. It has really been turbo-charged over 
the last 19 months when the rest of the economy has experienced 
recession. It is clear that bold solutions are required to 
revitalize manufacturing.
    Out latest contribution to the debate is a book called 
``Manufacturing a Better Future for America.'' We delivered it 
to every Senate office, and we commend it to you for reading. 
We think it takes a good comprehensive and fresh look at many 
of the issues that we are talking about today.
    We all know something is terribly wrong with this economy. 
But if the solution of Congress is simply to regulate or re-
regulate the financial services sector industry, we are missing 
the bigger picture, and the response will ultimately be 
unsatisfying.
    There are much more deep, structural issues that we have to 
address. Otherwise, this horrible positive feedback loop that 
we have between consumer debt, subsidized Chinese imports, lost 
American jobs, the U.S. current account deficit going up, 
growing Chinese currency reserves which number over $2 
trillion, inflating more American debt and new bubbles, that 
cycle will only be reinforced, and we will be back where we 
started from 5 years from now.
    We knew that this type of economic strategy was doomed to 
fail. The warnings came not only from labor leaders, from 
domestic manufacturers, and an insightful group of elected 
officials; they came also from very conservative economic 
quarters. But they were ignored. Well before this new, great 
recession began, Warren Buffet said, ``Our trade deficit has 
greatly worsened, to the point that our country's `net worth,' 
so to speak, is now being transferred abroad at an alarming 
rate. A perpetuation of this transfer will lead to major 
trouble.''
    Martin Feldstein, Chairman of President Reagan's Council of 
Economic Advisers, said, ``The present level of the current 
account deficit is enormous, it is unprecedented, and I believe 
it is unsustainable.'' And they were right.
    The result of growing current account deficits has been 
more manufacturing job loss and a healthy share of the blame 
for the economic collapse this Nation experienced last year. 
Some say the total number of manufacturing jobs has been 
falling anyway, and that this isn't such a bad thing as we 
transition to a new economy. Mr. Chairman, I believe that is a 
dangerous and misguided view.
    Manufacturing employment has dropped precipitously since 
China entered the World Trade Organization in 2001, and our 
bilateral trade deficit has exploded with that nation. We have 
concluded that--outside of recessions--the single most 
detrimental factor to manufacturing employment in the United 
States has been the expansion of our one-sided trade 
relationship with China. China is certainly not our only 
competitor engaged in unfair, predatory, and protectionist 
policies, but the scale of their activities swamps that of many 
of our other trading partners and is in need of immediate 
attention.
    Other explanations for this decline in manufacturing, while 
conforming to orthodox economic views, are not satisfying. The 
decline of manufacturing employment and manufacturing's share 
of GDP are not inevitable, they are not desirable, nor can they 
be explained solely through theories of churning capitalism, 
advances in productivity and technology, high compensation 
costs, or other sorts of inefficiencies. I think we can 
discredit all of those explanations.
    Consider this: More than 40,000 factories have shut down 
over the last decade. They weren't making buggy whips. In fact, 
in many cases they were making very high-tech products. They 
were manned by some of the most efficient workers in the world. 
Even the supposed growth sectors of our future--advanced 
technology products and clean energy--we are already running 
trade deficits that are dramatically increasing.
    The failure of our domestic and international trade 
policies to support manufacturing must be quickly reversed. We 
urgently need a national manufacturing strategy.
    This is hardly a radical concept. Alexander Hamilton 
constructed America's first industrial policy in 1791. We had 
one until the end of World War II. Globalization and economic 
approaches such as a strong dollar policy favoring domestic 
consumption have helped to steadily erode manufacturing as a 
percentage of gross domestic product, private sector 
employment, and other key measures. If today's leaders spent 
more time studying Hamilton and less time studying Smith and 
Ricardo, I do not think we would be facing the prospects of a 
jobless recovery.
    The idea of a manufacturing strategy is also not a partisan 
one. President Reagan--spurred on by a Democratic Congress--
adopted a flurry of measures to counter a grossly imbalanced 
trade relationship with Europe and Japan in the 1980s. The 
Plaza Accords, which raised the value of currencies relative to 
the dollar, had a positive effect in lowering our trade 
deficit. Key Government investments in the semiconductor 
industry and other technologies spurred their development and 
commercialization. President Reagan signed into law enhanced 
Buy America requirements for certain infrastructure projects to 
boost domestic employment. His Administration implemented the 
Market Oriented Sector Specific--or MOSS--talks with Japan that 
focused on market access with measurable results.
    Yesterday, U.S. Trade Representative Ron Kirk delivered a 
message outlining the beginning of a new enforcement approach 
as part of our overall trade agenda, and I believe there is a 
strong difference between trade enforcement, strong trade 
rules, and protectionism. And I view this news as being very 
welcome.
    If we take a dash of Reagan and a dash of this trade 
enforcement and add some other ingredients, we have the 
foundations of a manufacturing strategy. We need to raise the 
value of China's yuan relative to the dollar up to market-based 
levels, we need to invest in value-added manufacturing such as 
clean energy, and I can tell you we strongly support your bill, 
and we join Leo Hindery in joining in supporting the IMPACT 
Act; We need to make sure that are our trade partners, 
especially China, live up to their obligations to gain access 
to this market.
    Finally, we need to keep Buy America requirements in place 
so that tax dollars are reinvested in our economy and that 
infrastructure spending benefits accrue not only to the 
construction industry in the United States but also to our 
manufacturers.
    I am going to summarize a couple of other key planks of 
manufacturing before I conclude my remarks.
    It is not inevitable that we will develop the new 
industries without public assistance. The semiconductor, the 
Internet, the railroad network that we see in the United States 
today, all had a healthy dose of public assistance, and there 
was a strong public investment that was made in them. If we 
invest in those types of prosperous industries, the new 
energies as well as traditional manufacturing, if we also 
continue a public investment in infrastructure where we have a 
$2.2 trillion deficit of infrastructure needs over the next 5 
years, and we have a strong Buy America requirement attached to 
it, that will produce growth.
    We also need to view certain issues before the Congress 
through a manufacturing frame, and I am going to conclude with 
this. The climate change legislation that the Senate will 
consider, there will be an issue dealing with global 
competitiveness. We need to strongly consider the interests of 
energy-intensive, import-sensitive manufacturers in this 
through border adjustment and allowances and get the right 
solution. Otherwise, we will not accomplish either of our 
objectives, which are lowering global levels of greenhouse 
gases and boosting the domestic economy.
    President Obama, when he was speaking to the G20 Summit in 
London in April, talked about balance and how the United States 
could not be the world's consumer; and that if everyone 
realized there needs to be balance in policies, we would be 
much better off. A manufacturing strategy is a key part of 
achieving that balance, and we welcome the opportunity to work 
with you to help achieve that.
    Thank you very much.
    Senator Brown. Thank you, Mr. Paul.
    Dr. Zandi, Mr. Hindery referred to the effective 
unemployment rate is much higher than the official statistics. 
The Government today said the unemployment rate in my State is 
now over 11 percent. We are not nearly the highest in the 
country. We are above the average, but not nearly the highest. 
He counts the effective rate prior to this recent announcement 
of unemployment rates at 18.7 percent.
    What do you make of the Bureau of Labor Statistics' 
determination of official unemployment? And what do you make of 
Mr. Hindery's effective unemployment rate discussion and 
assertions?
    Mr. Zandi. Well, the official unemployment rate is 9.5 
percent, and then the Bureau of Labor Statistics also publishes 
alternative measures of unemployment and underemployment. If 
you consider official unemployment at 9.5 percent and then add 
in workers that are working part-time for economic reasons, 
workers that are discouraged and, therefore, not looking for 
work and, therefore, not counted as unemployed, then you get a 
measure of underemployment that is very similar to Mr. 
Hindery's estimate of excess capacity in the labor market, 
underemployment in the labor market. So I think it is very 
consistent with that data and with those measures.
    Senator Brown. Should we be talking more in those terms? 
Should the Government adjust the way that it talks about 
unemployment? I think following from Mr. Hindery's comments, 
not just today from op-eds he has written and from his comments 
in the past that I have watched, it follows that if the 
unemployment rate released by the Government is under 10 and 
the effective unemployment rate is twice that, Government would 
probably step in more and do more, and there would be more of a 
concerted effort by Government and the private sector to deal 
with the much more troubling unemployment rate than the already 
9-plus percent.
    Does that follow in your mind?
    Mr. Zandi. Yes, well, I think it would be useful for us to 
focus on these broader measures of underemployment, yes, not 
only unemployment and underemployment, but lost hours. That is 
the other way people are losing compensation. Hours worked per 
week are at record lows.
    Senator Brown. And there is little discussion of that in 
the official statistics, right?
    Mr. Zandi. They are part of the official statistics, but 
that is not what many of us focus on when we talk about what is 
going on in the labor market.
    But I think one of the reasons why we are focused on the 
official unemployment rate, which is bad and terrible just as 
it is, is that we have a long time series and we can compare it 
historically all the way back to World War II, the Great 
Depression; whereas, these alternative measures of 
underemployment we only have back to the early 1990s. And, 
therefore, we do not have as much historical context, so we do 
not know how--it is harder to conclude definitively it is as 
bad as we think it is.
    But I think no matter how you cut the data, no matter how 
you look at it, it is about as bad as it has ever been--as bad 
as it has been since the Great Depression.
    Senator Brown. Talk to me, although you can make the 
argument that if we do not--now that we are starting to collect 
those--not starting, but that we have had some years of 
collecting the underemployed numbers, that there is no better 
time than the present to begin to start talking about those. So 
the historic record, the historic context is built, so we can 
make those determinations.
    Dr. Zandi, you had said that manufacturing, as I suggested 
in my opening statement, it is sort oversized or over--you did 
not use the term ``oversized.''
    Mr. Zandi. Outsized.
    Senator Brown. Outsized, I am sorry. Outsized, going in and 
out of recession, and that this year, coming out of this 
recession, manufacturing, because of housing and autos 
especially, will not play as big a role.
    How can we drive the economy--when we drive the economy 
into recovery, how can we use manufacturing better? How we can 
help assist that shortfall that you project?
    Mr. Zandi. Well, I think the principal reason for this 
shortfall is what is happening in the vehicle and housing 
industries, and those are very significant, long-running, 
almost near intractable problems. So we are not going to be 
able to lift those two sectors out of the current downturn 
easily or quickly. So it would be difficult to get those 
sectors contributing in the way that they have historically.
    Now, it is possible that we may be able to provide a little 
bit more lift in other parts of manufacturing that have less 
serious, more fundamental problems. Technology would be a good 
example of that. I think the prospects for tech, broadly 
defined, are quite good--tech manufacturing. So that would be 
computer technology, semiconductors, satellites, sophisticated 
instrumentation, sophisticated materials. These are things that 
I think will be in significant demand, and not only here in the 
United States but globally.
    So, you know, I think if we could focus policy on trying to 
help those industries move out of the recession, that might 
provide a little bit more lift and allow manufacturing to 
contribute more to the overall economic recovery.
    But it is going to be very difficult to do anything quickly 
to make a big difference in the next year or two because of the 
problems in the vehicle and in the housing industries.
    Senator Brown. Are there ways that we can help stimulate 
demand, especially in the housing and auto side? The Congress, 
as you know, passed the Cash for Clunkers, which I was actually 
speaking today with the CEO of General Motors before I came 
over here about this hearing, but about a couple other things. 
And one of the things we need to do is move quickly, you know, 
once we put something out there that this is going to be 
available to consumers, make sure that it is in place so people 
are not waiting to buy cars in this case. Those are my words, 
not his.
    Is there anything--or give me an assessment or any ideas 
about what we do to stimulate that part of the economy 
especially so that people--because, obviously, if there is more 
demand for auto production and appliances and all that comes 
from housing that this economy--that manufacturing can play a 
bigger role in driving us into the recovery, if you will.
    Mr. Zandi. Yes, very good points. In the case of housing, 
one policy effort that is in place now as part of the stimulus 
is the housing tax credit up to $8,000 for the purchase of a 
home if you close on that home by December 1st. It might be 
worth it, after we see how this works over the next couple 
months, to expand and to extend that credit. Right now the 
credit is for first-time homebuyers only. It could be, if it is 
effective, expanded to all homebuyers, and that may be helpful 
in working off some of that excess inventory that I alluded to 
or mentioned earlier that is limiting the ability of housing 
construction to increase and, therefore, increase the demand 
for manufactured product.
    Senator Brown. Is there a danger if all of a sudden, if we 
start--if we start talking about extending that tax credit to 
people other than just first-time homebuyers, that that in some 
sense stops home purchases or slows home purchases until we 
actually enact it?
    Mr. Zandi. Yes, that would be a possibility.
    Senator Brown. The danger of talking about this in some 
sense without actually doing it quickly.
    Mr. Zandi. Yes, that would be a clear risk, yes. So it may 
be that--and I think it would be also useful to see how this 
works. I would not short-circuit this process now, because the 
benefit of that tax credit should be hitting in the next 
couple, 3 months.
    Senator Brown. So there is not evidence yet that it is 
working or not working?
    Mr. Zandi. No. We do have some experience with incentives 
that have been provided in various States. California, for 
example, had a tax credit for purchases of new homes, and that 
seemed to have worked quite well in jump-starting new home 
sales in the State of California. So I would counsel to wait 
until we get toward the end of the year to see how this tax 
credit worked, and then at that point, if things do not seem to 
be engaging and improving, then think about expanding that 
credit and extending it.
    Similarly with the Cash for Clunkers. I believe the way the 
program works, you can take advantage of that beginning at the 
end of this month through November 1st. I believe that is the 
case. So there is a lot of debate how effective that program is 
going to be. I think it would be worthwhile to see, in fact, if 
we do see a pick-up in sales as a result of the Cash for 
Clunkers over the next couple, 3 months. And if it does work, 
if it seems to be jump-starting vehicle sales and providing all 
the other benefits that the program is intended to provide, 
then it might make sense to expand and/or extend that as well 
into 2010 to try to generate more sales, which would help with 
respect to production and manufacturing activity.
    Senator Brown. You had said--and then I want your answer 
and then go to the other two panelists on this question also. 
You had said some things we should not do from Congress and the 
Administration and, that is, erect trade barriers.
    Then you went on to say that we need to correct the 
undervalued Chinese currency. How do we ratchet up efforts--I 
mean, you had said, I believe, 5 percent a year would be, if 
not ideal, maybe attainable. I am not sure what you meant 
exactly by that. But how do we ratchet up efforts if it is, in 
fact, desirable, as Mr. Paul suggested--and I know Mr. Hindery 
has said it in the past--to get China to correct its 
undervalued currency? Do we need a more aggressive SED? So we 
need legislation in Congress? Should we move faster than the 
hoped-for 5 percent? Should we be satisfied with 5 percent 
currency?
    Clyde Prestowitz, before some of this currency has slowly 
moved up in valuation, said it was as much as, I believe, 70 
percent undervalued. That number was challenged by some 
economists, but others didn't.
    What is your thought on that?
    Mr. Zandi. I think the Chinese have made good progress in 
the 4 years since they began the revaluation of the currency. 
As I mentioned, the currency is revalued by 17 percent. They 
have slowed that process over the past year given the global 
financial and economic situation, and I think that is 
understandable given the uncertainty and the volatility in 
global financial markets and----
    Senator Brown. Understandable from their viewpoint, the 
Chinese.
    Mr. Zandi. Yes, I think so.
    I think as the crisis fades--and it is already seeming to 
face--the Chinese economy is gaining traction, in part because 
of their very large stimulus and monetary policy efforts. If we 
get into next year and they begin revaluing, allowing the 
currency to appreciate in an orderly way--I mentioned 3 to 5 
percent per annum--then I think that would be the most 
desirable response from their perspective. And, you know, I 
think it would provide relief to our manufacturers as well. It 
would be a reasonable way of going about doing it.
    If they follow along that path, then I think there is no 
need to try to put more added pressure on them because it 
might, in fact, be counterproductive.
    Senator Brown. You would be satisfied, you would consider 
it a victory for U.S. manufacturing, the U.S. economy, the U.S. 
Government, all of us, if China did 5 percent a year for the 
next 3 or 4 years? You would consider that satisfactory?
    Mr. Zandi. Yes, I would.
    Senator Brown. OK.
    Mr. Zandi. And let me say just one other thing. The 
deterioration in trade with Chinese has, indeed, contributed 
significantly to the erosion in our Nation's manufacturing base 
since the beginning of the decade, but it has not played a 
significant role in the erosion of manufacturing in this 
economic downturn over the last 18 months. It has not been the 
key factor.
    Senator Brown. Nor has the current account deficit?
    Mr. Zandi. No. In fact, the current account deficit has 
narrowed quite substantially.
    Senator Brown. I understand it has narrowed, but that--I am 
sorry. I did not make my question clear. You do not believe--
from your statement, you are suggesting the current account 
deficit as existing and as has grown, particularly up until a 
year ago, that that has played little role or no role in the 
economic situation now, the economic downturn?
    Mr. Zandi. What matters in terms of manufacturing is the 
change in the current account deficit. When you see the current 
account deficit growing, that is a real problem for 
manufacturing. It is a very significant constraint on the 
broader economy.
    The narrowing in the current account trade deficit over the 
past year, year and a half, suggested that the pressure from 
trade and manufacturers is alleviated.
    Senator Brown. Well, I guess I will ask it another way. Let 
us go back to October. The fact that we have had a $2-billion-
a-day overall trade deficit which China--it is about a third 
that, I believe. Are you saying that has little to do with our 
severe economic problems today?
    Mr. Zandi. The way I would put it is that I think the 
current account deficit and the growing of the current account 
deficit in the first half of the decade--it peaked in 2006, 
2007--was a major contributing factor to our economic problems 
today, yes, on many different levels, most directly through its 
impact on the manufacturing base because of the erosion in the 
trade deficit, indirectly because of the fact that those 
dollars we sent overseas in the form of trade came back in the 
form of investment in securities that drove the housing boom 
and bubble, so forth and so on. So I agree entirely with that 
view.
    I think, though, that in the current downturn of the last 
18 months, the trade and current account deficits have actually 
narrowed and actually have helped to cushion the blow on our 
economy and on the manufacturing base. And so the problem in 
the last 18 months in this recession has not been trade in 
China.
    Senator Brown. And I think that has little to do with any 
trade policy as much as it does less demand from American 
consumers, correct?
    Mr. Zandi. And also, I think, the revaluation of the 
currency by the Chinese, that that has played some role. And if 
they allow it to appreciate another 15, 20 percent over the 
next 3 to 5 years, we will see the benefit of that in the form 
of further improvement in our trade situation with the Chinese.
    Senator Brown. You seem, Dr. Zandi, a good bit more polite 
toward the Chinese than they are toward us, but that is 
certainly your right.
    Mr. Hindery and Mr. Paul, I would like your comments on Dr. 
Zandi's comments, especially on China and on the issue of--and 
be a bit prescriptive, if you would, both of you, on the 
currency issue, what you suggest, and take his comments and the 
questions where you want, and then I will come back with 
another series of questions.
    Mr. Hindery. Senator, thank you. Let me, if I might, I am 
just going to go back in reverse order from your questions to 
Mr. Zandi and his answers.
    Just very clinically, the Chinese currency manipulation has 
on the surface been abated. I can suggest to you that it has 
been offset, more than offset by increases and by China 
policies and by the furtherance of illegal subsidies. And the 
Chinese are not without insight to our political environment, 
and as we have called them to question on their currency, they 
have begun to take baby steps to the wall and made up for every 
baby step with more Buy China, as Mr. Paul can testify, 
particularly in the area that is covered by your IMPACT Act. We 
are seeing very conscious efforts to Buy China. That is one of 
the reasons, I think, Mr. Paul and I argue for Buy America. But 
we have also seen a furtherance of the illegal subsidy 
behavior.
    What we need is a USTR that looks at trade barriers across 
the board, not just in the traditional Reagan era tariff 
environment, or the Nixon era, and include subsidies and 
currency manipulation as a pronounced trade barrier.
    On the state of the economy, which was the middle question, 
30 years ago we partitioned this country and put about half of 
its wealth in the hands of a very few million taxpayers and 
particularly weighted toward roughly 300,000 taxpayers. We took 
the other half of the wealth, and we left it with the other 140 
million taxpayers. We fueled that with auto and housing through 
credit bubbles. And the old saw is: Every time the economy 
sputtered, we juiced up auto and we juiced up housing.
    The reason I spend so much time on effective unemployment 
is with 30 million Americans effectively unemployed today, 
immediate resuscitation of housing, Senator, and of autos is a 
pipe dream. It is not going to work. Nor is it going to work 
that we are going to comfortably pay for health-care reform or 
comfortably pay for climate change. When 30 million, 20 
percent, of your workforce is unemployed, as Mr. Zandi 
comments, when the full-time workforce is working 33.1 hours a 
month, we have lost all overtime----
    Senator Brown. A week.
    Mr. Hindery. A week. I am sorry. We have lost all overtime. 
We dropped to 40. We plummeted through 40 and we have stopped 
at 33.1 hours.
    Senator Brown. What was that number in good economic times 
in the late----
    Mr. Hindery. It was 46 because of overtime components that 
actually drove the----
    Senator Brown. The average full-time worker in the U.S. in 
the late 1990s was working 46 hours a week?
    Mr. Hindery. It was, because----
    Senator Brown. Do you agree with that number, Dr. Zandi?
    Mr. Zandi. You are adding in the overtime hours.
    Senator Brown. Of course, yes.
    Mr. Zandi. Yes, but even that--well, it is a matter of--
that sounds high.
    Senator Brown. It was certainly over 40.
    Mr. Hindery. It was over 40, Senator.
    Senator Brown. OK.
    Mr. Hindery. The reason that, again, I raise that is I do 
think there are immediate responses that we can take. One of 
them is the IMPACT Act that you have pushed through both this 
body and the House. Infrastructure, as both Mr. Paul and I have 
testified, a 10-year fulsome program as opposed to a 2-year 
meager program, and one that is of particular moment, has a 
great deal of advantage to this country would be building 
retrofits. It is domestic content, it is immediate, and it 
would go a long way to solving both the energy issue but also 
the employment issue.
    Let me finish by the imperative--and I would make one 
change from what Mr. Paul said. I would not call it a 
``strategy.'' I would call it a ``policy.'' The absence of a 
policy of manufacturing and industrial policy allowed us 
yesterday to let CIT fail as a financial institution it would 
appear today. This is an institution that funds roughly 60 
percent of the small and medium-sized businesses in this 
country. But it did not garner the attention that Goldman Sachs 
and the Bank of America and Citibank did because it does--we do 
not have a national industrial and manufacturing policy.
    The reality, Senator, that 90,000 out of the remaining 
282,000 manufacturers in this country are by every measure 
gravely at risk of failure over the next 24 months is ignored 
because we do not have a national policy.
    And so absent that gaping issue, with all respect, none of 
these questions, none of these concerns rise to the moment of 
this hearing, which, again, is why I think this is one of the 
seminal hearings that could happen up here on the Hill. Without 
a national industrial and manufacturing policy, we cannot fix 
this economy. We cannot fix that chart.
    Thank you.
    Senator Brown. Mr. Paul, your thoughts.
    Mr. Paul. I will speak to the currency issue first. I think 
that it takes a multipronged approach to be effective with 
China, and I agree with Mr. Hindery's assessment that what 
China has given in terms of slight revaluations in the 
currency, it has taken away in other export rebates and 
subsidies and other sorts of incentives that are provided to 
domestic producers to make up the difference. And so I think 
the comparative level of subsidy that Chinese producers are 
receiving has remained essentially the same.
    Most economists whom we work with on this issue I think 
estimate there is still about a 30-percent difference in the 
currency rate from what it should be based on market levels.
    I think that a congressional response is helpful. I think 
that currency manipulation should be considered to be 
countervailable. I do think that an aggressive trade case 
should be brought, and it should be initiated either by 
Congress, or it could come from the Administration as well.
    I also think that a global multilateral effort is required 
along these lines similar to the Plaza Accords in the 1980s. 
And I do think that we need the involvement of the European 
Union and some other major industrialized nations to pressure 
China, because, otherwise, China has done a particularly adept 
job of playing trade partners off of each other.
    I think that we need to assemble a coalition to do this, 
but I think that it takes a number of these efforts together to 
effect the change that we need.
    The last component of a successful strategy would be--as 
Ambassador Kirk outlined yesterday, and that I think that we 
need to expand on--is aggressive trade enforcement. Again, this 
is not protectionism. This is countering protectionism and 
mercantilism, and the failure to honor a contract which China 
agreed to when it gained greater access to our market in 2001.
    This relief has been long overdue for U.S. manufacturers, 
and I think that the urgency of this is a--it makes it 
imperative to take action in the Congress within the 
Administration in a multilateral effort as well.
    I wanted to say one word about the auto issue, which I 
think is very important. The number of paychecks connected to 
the auto industry, even though there are only about 200,000 
assembly jobs, is staggering. Probably 7 million direct, 
indirect, and induced jobs are dependent on a healthy auto 
economy in the United States. And I do worry about the approach 
that has been taken because I think it may be shrinking the 
auto production base in the United States to a point where 
large sectors of the related and allied manufacturing economy 
are going to suffer. Twenty percent of the steel market is in 
autos right now, and as you know, everything from rubber to 
paper to semiconductors, healthy demand for that depends on a 
thriving auto industry.
    It certainly needs to retool, but it needs to be part of a 
strategy moving forward to build the next generation of clean 
energy vehicles. And I will say this will not happen through 
market forces alone.
    In every country where an industry like this has been 
incubated, it has been done with public assistance and with 
public investment and with a strategy in mind. And it is going 
to take an American strategy as well; otherwise, we are going 
to lose out on the opportunity.
    Senator Brown. Thanks, Mr. Paul. Each of you has mentioned 
trade protectionism, Buy America in your answers in some way. I 
would like each of you for 2 minutes--and I will start with Mr. 
Paul and work this way--to make your best case for or against a 
strong Buy America provision in the next stimulus, if there is 
another stimulus, or just in U.S. law generally. Make your best 
case either for or against a strong Buy America provision. Let 
us start with you, Mr. Paul.
    Mr. Paul. It is a great question, Mr. Chairman. There are a 
couple of very strong reasons to include domestic sourcing 
requirements.
    First, they work. Economists as the University of 
Massachusetts at Amherst have shown that if you have a strong 
domestic sourcing requirement, you create 33 percent more 
manufacturing jobs than you would otherwise.
    Infrastructure investment in general is a very good form of 
stimulus because just by definition most of that money is going 
to stay in the United States for construction. What may not 
stay in the United States is materials. To the extent that you 
can guide it to the U.S., you are going to create more 
manufacturing jobs that way.
    Second, it has been longstanding U.S. policy. We have had 
domestic sourcing requirements since 1933. They were used to 
build the Interstate Highway System. President Reagan expanded 
them in the early 1980s in the midst of a recession. They have 
been part of virtually every major infrastructure spending bill 
that the Congress has done, and there is no reason to change 
that right now, especially since there is strong evidence that 
they work and they do not raise costs of projects.
    Third, everyone else does it. I mean, there is a--the U.S. 
is a leader in opening global procurement markets, including 
its own. However, very few countries are actually part of these 
agreements, and most countries have carved out major exceptions 
in their domestic procurement markets. China is not even a 
party to the Government Procurement Agreement.
    We were well within our trade legal rights to enact strong 
Buy America requirements, and it is a--it does not have a 
dramatic effect on trade flows globally. If you consider the 
amount of two-way trade that takes place across our borders 
every year, the domestic procurement market is a small portion 
of that, but the value-added for manufacturing is something 
that is worth doing.
    Senator Brown. Thank you.
    Two minutes, Mr. Hindery, on that question.
    Mr. Hindery. Senator, I love Mr. Paul's number three, which 
is everybody else is doing it. I think that is the fundamental 
issue, and that chart behind you shows the consequence of our 
not doing it.
    Let me just take a slightly different tack. There are two 
principles overriding, I think, our jobs policies in this 
country today, and I think both of them need to be disabused. 
One is that a job is a job, and the second is that we can make 
up for, as I said in my testimony, the loss of manufacturing 
jobs with exported services.
    Both of those are just explicitly and implicitly in error. 
They are held by senior members of this Administration, and 
they are simply wrong. And we can argue and show why they are 
wrong.
    Where Mr. Paul is taking you is that if you believe they 
are wrong, then you believe that we cannot as an economy 
survive with 8.7 percent of our employees working in 
manufacturing and only 11.7 percent of our GDP being 
manufacturing. A meaningful way to increase both of those 
percentages would be with Buy American, which, again, everybody 
else is doing.
    I am very conscious of our obligations, as I know, Senator, 
you and your colleagues are, under WTO. But Mr. Paul has 
described, and correctly, that we can have Buy American 
policies, abide by our trade agreements and principles, and 
everybody else, Senator, as he said, is doing it.
    Senator Brown. Thank you.
    Dr. Zandi, for or against strong Buy America policy?
    Mr. Zandi. I would be opposed to a strong Buy America 
policy in, let us say, another stimulus package. I think it 
would be counterproductive. I think one of the reasons why we 
did not suffer a more severe economic downturn, something more 
akin to the Great Depression, was because policymakers were 
able to forestall rising protectionist sentiment in legislation 
here in the United States in the stimulus package that we are 
currently working through and overseas; that if protectionist 
sentiment had boiled over and we saw barriers erected in 
various forms--quotas, tariffs, Buy America provisions--that 
would lead to a much more serious collapse in global trade and 
would, in fact, have resulted in a much more serious economic 
downturn.
    In fact, I think there are many reasons for the 1930s' 
Great Depression, one of which was the increase in trade 
barriers across the globe during that period. So I think that 
would be very counterproductive.
    Moreover, I do not know that it is necessary. I think we 
are doing measurably better in our trade with the rest of the 
world. I think the U.S. dollar was significantly overvalued 
back earlier in the decade. China's entry into the global 
economy in 2002 with the WTO was a very significant dislocation 
of manufacturers all across the globe, and it was very 
wrenching. But I think with the now more appropriately valued 
dollar and the Chinese now recognizing that they now need to 
play a more responsible role in the global financial system and 
in the economy, we are seeing improvement in our trade balance, 
and I think we will continue to do so going forward, that we 
are much better positioned in that regard.
    Then, finally, I think Buy America is incredibly difficult 
to implement. I am not even sure what it means. You know, I can 
understand it in the context of infrastructure spending and 
steel. I think that is easier to see and to understand. But 
once you move beyond that, it gets very difficult to know what 
does it really mean. Most of the products and services that we 
produce are the result of coordination and cooperation among 
businesses and people that work all across the globe.
    Just take my business. I have got people working in--my 
very narrow business within the Moody's organization, I have 
got people working in London, in Sydney, in China, and, you 
know, every day we are coordinating working together.
    So what I produce here, is that American or--I mean, what 
does it mean?
    So, you know, I think it just incredibly difficult to 
implement, so I would--you know, I think what you did in the 
stimulus package was fine, it was OK. I mean, I understand it, 
and I think it makes some sense. It was reasonable. But I think 
if you strengthen that somehow in some way or broaden it, I 
think that would be counterproductive.
    Mr. Hindery. Senator, I had 21 seconds left in my 2 
minutes. Can I just offer one quick comment?
    Three weeks ago, the U.S. Chamber of Commerce gave a major 
speech decrying Buy America provisions of any sort. In that 
very week, China announced formally, publicly, with no 
embarrassment, its own Buy China policy related to all of the 
energy issues covered by the IMPACT Act, 80 percent and 90 
percent domestic requirements on wind and solar.
    Senator Brown. So that begs the question. Dr. Zandi, do you 
think that other countries are doing strong buy domestic, 
stronger than we are? Or do you not accept that as something 
they actually are doing?
    Mr. Zandi. You know what, I think probably they do. They 
probably do, although I think what is really important is are 
they strengthening their own ``buy my country'' provisions. And 
I do not think they are. In fact, I think that goes to one of 
the most admirable things about the policy response to the 
current crisis, and that is that we seem to have a G20, G8 
meeting every other month, and I think largely because we want 
to make sure that nobody does that, strengthens those 
protectionist rules and laws and regs that they have, because 
if they did, this would become tit for tat, and it would hurt 
global trade in our global----
    Senator Brown. So how do you account, then, when you make 
that statement, that China exports--you know, China's is the 
world's largest solar panel manufacturing country. They export 
over 95 percent of their output to the U.S. and Europe. Then 
they implement a 90-percent ``China-made equipment'' to do 
that. How do you reconcile that with what you say the 
discipline of the G20 seems to be exerting?
    Mr. Zandi. Well, I would submit that they have been doing 
that all along. I mean, this is no worse or better than what 
they have been doing from time immemorial.
    What I am arguing is that it is not becoming worse, and 
that is what really matters. You could get into a situation 
where we provided a much stronger Buy America provision. It 
will reverberate across the globe. The Chinese, the Europeans, 
the South Americans would respond, and I think it would under--
potentially could under----
    Senator Brown. If you are already doing it, and we are not 
to the same degree, that is OK in terms of not erecting 
barriers to dampen economic output or cause us more economic 
problems in this recession.
    Mr. Zandi. No, it is not OK, but I do not want to do more 
damage.
    Senator Brown. The answer is worse, the response is worse.
    Mr. Zandi. Yes. And I think that if they can continue to 
show progress that they are moving away from these policies, 
then I think the best policy response is to allow them to do 
that.
    Senator Brown. When I hear ``if they show progress,'' that 
suggests patience, and there is--and it always suggests to me 
when I think about China and patience, I think of when Chou En-
Lai was asked when he was--I think you will know this story. 
When he was a Chinese leader 25 years ago, he was asked what he 
thought of the French Revolution, and he said, ``It is too 
early to tell.''
    [Laughter.]
    Senator Brown. And I think that they are perhaps a more 
patient people than we are.
    Do these numbers, Dr. Zandi, concern you very much?
    Mr. Zandi. Yes, they do. And I do think they represent why 
we are in this mess on lots of different levels, that that 
represents a loss--a lot of those lost manufacturing jobs and 
production. That represents all those dollars going overseas 
that came back in the form of investments in our Treasury 
bonds, our mortgage securities, our CDOs, and contributed to 
the surge in consumer borrowing and the mortgage crisis and led 
to the financial crisis.
    I think this imbalance is symbolic and highlights the 
imbalance that led to the situation we are in. I entirely agree 
with that.
    Senator Brown. Do you think that, understanding these three 
entities--EU, Japan, and China--were not covered by these trade 
agreements, if not trade model, that trade agreements with 
NAFTA, CAFTA, and what we did with PNTR with China was--did 
that feed into that, the models of trade we do, not NAFTA per 
se in those three, but the NAFTA trade model? And, generally, 
did those contribute or did not make the situation slightly or 
markedly better?
    Mr. Zandi. I think the most fundamental thing that happened 
was China's entry into the WTO. That was the key that----
    Senator Brown. Did we make a mistake in the way we 
facilitated--not try a value-laden word there--the way we 
facilitated their entry, did we make a mistake in setting the 
rules and building the road in the way that we did for their 
entry?
    Mr. Zandi. Certainly, in hindsight, yes, we made a mistake. 
We did not--I do not think anyone recognized in 2002 when they 
entered into the WTO what would happen over the course of the 
subsequent almost decade. I do not think we----
    Senator Brown. Well, there were 190 House Members who voted 
against it. There may not have--maybe not predicting per se. 
OK.
    Mr. Zandi. Right. But, you know, I think that could have 
been handled differently, yes.
    Senator Brown. OK. On a more softball question for all of 
you--not that I am that hard, but you have all talked about 
manufacturing. Elizabeth Warren came to see me the other day--I 
think you all know her--and she is a brilliant woman who has 
pretty much--I heard her sort of predict what housing was going 
to do to us 2 years ago. She predicted 2 years ago what housing 
would do to us today and what housing led to and Wall Street 
greed and all of those things together. But she told me a 
statistic that even as recently as 2 years ago, almost half the 
students at Harvard--undergraduate, not MBA students, Harvard 
Business School, but close to half the students graduating from 
Harvard undergraduate were going to into finance one way or 
another. Almost nobody I know thinks that is a good thing for 
our society, our country, or, frankly, perhaps even for those 
students.
    But how do we make manufacturing more attractive to young 
people? You have thought about this, I know, as much as 
anybody, Mr. Paul. I would like the answer from all three of 
you. And I will preface it again with this.
    I was speaking with a gentleman who--it was a confidential 
conversation, so I will not tell you his name, but somebody 
that was--yesterday, who was brilliant in starting businesses, 
manufacturing and otherwise. And he was talking about how when 
he was a kid he went into an auto manufacturing plant and was 
taken--he is an engineer now, although he does not practice 
engineering per se, but how he was taken by how the human mind 
can put together the complexities of auto manufacturing so that 
the windshield comes in at the right time, with the suction 
cups putting it on the car, how the paint shop works, all of 
that. And anybody who has never been in an auto plant, it is an 
incredible thing to watch.
    How do we get people, how do we get a 15-year-old high 
school kid, a middle-school kid, whatever, how do we get that 
person wanting to be an engineer, wanting to be a 
mathematician, wanting to go into the sciences, then wanting 
ultimately to go into manufacturing, you know, as a community 
college graduate to operate at a--you know, it is an $18-an-
hour job or as an engineer designing part of it. How do we get 
people to want to do that?
    Mr. Paul. It is the right question to ask, Senator, and we 
have thought a lot about it. There are a couple of things that 
need to be done.
    First, it is clearly changing the image, the outdated image 
that many Americans have of manufacturing. If you get a young 
person into a plant today, there is a ``Wow'' factor that you 
cannot replace any other way if they see it firsthand. And if 
you have been in a steel plant, you know, in the last 5 or 6 
years, it is dramatically different than your father's or your 
grandfather's steel mill. It is high-tech. It is highly 
efficient. The same with the auto industry, or nearly any other 
kind of manufacturing that you will find in America today.
    Unfortunately, the images that you see when you go to a 
Hollywood movie, if a worker is portrayed, he is portrayed as 
somewhat of an uneducated, overweight guy who lacks ambition. 
If you see a factory in a Hollywood image today, it is most 
likely abandoned, and there is a sequence in an action move 
that is moving through an abandoned factory.
    And so the image is something that we need to alter, and 
that is partly on the industry and the workers and we need to 
do that.
    We also need to have the right sort of educational skills 
and training policies to move people into these high-value sort 
of industries. Too often our training policies move people into 
the first job and not the right job. Too often our schools look 
to achieve their standardized test objectives and do not 
prepare young people for careers, especially those who are not 
necessarily going to go on to a 4-year college degree. And so I 
think that is an important component of it as well.
    I think also there needs to be--and this is the issue that 
we are talking about today. There needs to be a job market for 
them. We need to develop the right set of policies, an 
industrial policy, a manufacturing policy, that says this is 
going to be a bigger part of our GDP, it needs to be, because 
part of this happens due to market forces, part of it certainly 
happens due to the types of Government policies, the types of 
tax, trade, and other sorts of policies that we have in place 
that effectively discriminate against one sector of the economy 
or the other.
    And what we need to understand as policymakers as well is 
that we are not saying that we need to have a manufacturing 
economy alone. We need to be saying that we need to have a 
diverse economy, and if there is anything that shows us that, 
it is the last 18 months that we have experienced. We need a 
diverse economy. But we need to understand, as Dr. Zandi says, 
that manufacturing plays an outsized role, and we need to 
recognize that and promote that.
    Senator Brown. Thank you.
    Mr. Hindery.
    Mr. Hindery. Senator, I love this question. I grew up as a 
sheet metal journeyman and a merchant seaman, and the problem, 
with all respect to Mr. Paul, is not image. It is certainty. We 
have a national finance policy, a national finance industry 
policy. We saw it in the hands of Secretary Paulson, and now we 
see it in the hands of Secretary Geithner. We have a policy for 
that industry. We do not have a policy for this industry. And 
young people are not ill-advised or uninformed. They look at an 
industry path that says certainty or uncertainty.
    And when I left college as a journeyman sheet metal worker, 
having spent a couple of years in the Merchant Marine, neither 
of those careers presented uncertainty. I just took my skill 
set and went toward business. Today, I would not have that same 
opportunity, that same perspective.
    I think, in closing on that, I think we have compounded the 
issue dramatically through compensation. I have written much 
about the problem of compensation in this country. When the 
average CEO for a century made roughly 20 to 25 times what his 
or her average employee made, career choices were done 
psychically and skill-wise. They were not done financially. We 
have now seen that number jump to 400 on the corporate side, 
and we have seen counterparts on the finance industry side. 
Those young women and men at Harvard, the decision they made 
was, on the one hand, compensation; it was obscene, and they 
could capture it. And the other is they could capture it in an 
industry that is clearly loved, clearly has the attention of 
this Administration and this Congress, or they could go, as I 
had a chance when I left Stanford Business School, to Procter & 
Gamble or Colgate or GM or Ford, and they said, ``Are you 
crazy?'' That is the decision process in all of 40 years.
    Senator Brown. Dr. Zandi, how do we get more young people 
interested in manufacturing?
    Mr. Zandi. I think if you lowered their cost of education, 
I think that would help. That would be very helpful. I think 
part of the problem is that it is increasingly difficult to pay 
for the education and training you need to be a skilled worker. 
And if Government can lower that cost, that would be something 
to attract young people into the industry. And I mentioned 
technical schools, community college; you know, I think those 
are very cost-effective ways of providing those skill sets in 
that form of education.
    The other key thing, I think, is to broaden the definition 
of ``manufacturing.'' I think we are thinking about this pretty 
narrowly. It is not just the person on the factory floor. It is 
the engineer, it is the designer, it is the quality control, it 
is the credit risk management. It is the people who hedge the 
currency risk and the trading that the manufacturer has to do 
to bring in supplies and export.
    So, you know, it is not--in fact, the folks that work on 
the factory floor are increasingly going to be a small 
proportion of the people who work in actual manufacturing. So I 
think if we lower the cost of education and training and 
provide the education for these kinds of other jobs that are 
involved in the manufacturing process, I think manufacturing 
will be just fine.
    Let me just broadly say one other thing. You know, to me it 
is a little confusing as to where manufacturing ends and 
services begin. Take the iPod. What really makes the iPod the 
iPod? Is it the physical thing that we have produced here, or 
is it the music that goes into the iPod? The Web site that we 
created to pull down the music into the iPod? The people who 
financed the production of the factory that produces--I mean, 
to the commercials that go on TV, and you listen to the music 
and go, ``I want that thing.''
    So, you know, the thing that really makes it a product that 
is valuable is all of those things, and you cannot separate 
them. So I think part of the problem is we have gotten into 
this box where we think manufacturing is one thing and services 
are the other. They are increasingly the same thing. I do not 
know how you separate them.
    Senator Brown. That is a very good point, and thank you for 
that. I was actually thinking about that as you were talking, 
because we in some sense do separate them. We too often do the 
design--you know, if you take an iPod, its packaging says 
``Designed in California,'' but it is actually manufactured in 
China. And I do not want to get into that as the hearing will 
conclude, but where we as a Nation go and we so often provide 
the intellectual fire power and the skills and the creativity 
to design these products, so many of them, and then we do not 
commercialize them well. We certainly do not often manufacture 
them here. And that is perhaps a whole other hearing and whole 
other set of questions. But I think the integration of that 
would certainly serve us well all across the board there.
    I thank you all for being here. Thank you for your candor 
and your good answers, and thank you for your service to this 
country in what you are doing to contribute to all that we are 
doing. Thank you all.
    The Subcommittee is adjourned.
    [Whereupon, at 11:30 a.m., the hearing was adjourned.]
    [Prepared statements supplied for the record follow:]
                    PREPARED STATEMENT OF MARK ZANDI
           Chief Economist and Cofounder, Moody's Economy.com
                             July 17, 2009
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to testify on such an important matter in a time of 
economic and financial crisis. I am an employee of the Moody's 
Corporation, but my remarks today reflect my personal views.
    I will make eight quick points in my remarks this morning:

1. The economic crisis continues, and aside from housing, manufacturing 
has suffered more during this period than any other sector of the 
economy. The statistics are grim. Industrial production has fallen over 
17 percent since peaking a year-and-a-half ago, capacity utilization is 
at a record low, manufacturing capacity is falling, and close to 80 
percent of manufacturing industries are suffering consistent declines 
in manufacturing production and employment. Manufacturing's problems 
began long before the current recession. Industrial production has 
actually declined during this decade. This is the worst performance on 
record. Even during the decade of the 1930s' Great Depression, 
production eked out a small gain. Manufacturing employment has been 
declining even more sharply, losing more than 5 million jobs this 
decade. The less than 12 million currently employed in manufacturing--
accounting for less than 10 percent of total payroll employment--is the 
lowest level since just prior to World War II.

2. The unprecedented decline in manufacturing during this downturn is 
the result of the collapse of the vehicle and housing industries, a 
deep recession throughout the global economy, and draconian cuts by 
U.S. businesses in their investment in technology and other equipment. 
The longer-running decline in U.S. manufacturing is largely due to the 
loss of market share to global competitors; since the turn of this 
decade, most of the decline in market share has been to Chinese 
manufacturers.

3. Manufacturing has played an outsized role in economy-wide recessions 
and supporting growth early during economic recoveries. Real GDP has 
fallen by an average of 2 percent peak to trough during recessions 
since World War II, with manufacturing contributing well over one-half 
of the decline. In the first year of recovery, manufacturing has been 
responsible for over one-fifth of the growth in GDP. In the first year 
after the recession in 2001, manufacturing accounted for almost one-
half of total GDP growth. Manufacturing's large role in the ups and 
downs in the business cycle results from the impact of large inventory 
swings and the high interest-rate sensitivity of many manufacturing 
industries.

4. Manufacturing will not be able to contribute as much to the 
economy's growth in the recovery from the current downturn. The 
problems in the vehicle and housing industries will not abate quickly. 
Vehicle sales and production and housing construction will rise from 
their currently extraordinarily depressed levels in the next 12 to 24 
months, but only very modestly. Weighing on vehicle sales and 
production will be the lingering effects of the GM and Chrysler 
bankruptcies and the spent-up demand created by sales levels above 
those that could be supported by underlying demographic, wealth and 
income trends during the strong sales years earlier in the decade. 
Housing construction and thus the demand for manufactured construction 
supplies will also be constrained by the large amount of excess housing 
inventory built up during the housing boom and bubble.

5. Manufacturing's importance to the broader economy goes beyond its 
share of GDP and employment. It is vital to national defense, lower- 
and middle-income households that rely on manufacturing's relatively 
high-paying jobs, and many smaller metro area and rural communities 
across the Nation in which the factory is one of the largest employers. 
Manufacturing is also important to research and development, 
innovation, and ultimately the economy's productivity growth and the 
growth in the Nation's living standards. It is also important to note 
that manufacturing will need to play a more important role in the 
Nation's longer-term economic growth, as the most significant growth 
opportunity for U.S. businesses lies in selling to customers overseas. 
U.S. manufactured goods must be a large part of what we sell to them.

6. There are a number of things policymakers should and should not do 
to address the manufacturing downturn. The most obvious thing 
policymakers should not do is to erect trade barriers to limit trade in 
manufactured goods. This would be very counterproductive, particularly 
at this time, when the global economy is in recession and protectionist 
sentiment is building nearly everywhere. A trade war could very well 
ensue, derailing prospects for recovery here and elsewhere. However, 
policymakers should work to guide the Chinese to continue revaluing the 
yuan once global financial and economic conditions stabilize. The yuan 
has appreciated by 17 percent since the revaluation process began 4 
years ago, but the currency remains 20 percent to 25 percent overvalued 
against the dollar. This gives Chinese manufacturers an unfair 
competitive advantage in global markets.

7. Policymakers should implement policies that reduce the costs of 
doing business for manufacturers. To lower the cost of labor, 
policymakers could invest in technical schools and community colleges, 
facilitate work share programs to reduce the cost of unemployment 
insurance and worker layoffs, and more aggressively establish and fund 
worker retraining efforts. Health-care reform that results in slower 
growth in health-care costs is also very important. To lower the cost 
of capital, policymakers could establish a direct lending program at 
the SBA and perhaps even establish lending facilities to help finance 
investment in clean energy and other technologies. To lower the cost of 
transportation, telecommunications, and energy, policymakers could 
provide consistent support to public investment in transportation 
networks, the Internet backbone, and the electric grid. As a potential 
example of this support, Build America bonds issued as part of the 
current fiscal stimulus have been very successful.

8. Industrial policies directed to specific manufacturing industries 
have not been successful in stemming the long-running decline of these 
industries. To be sure, there has not been extensive historical 
experience with such policies here in the U.S., but what experience we 
do have and what we have learned from the experience of other developed 
economies suggest that such targeted industrial policies are not 
productive. A much more efficacious policy effort is to facilitate 
lowering the costs of production and opening global markets for all 
businesses, with special attention to and consideration of those costs 
and markets generally most important to manufacturers.

    In conclusion, the severe slide in the Nation's manufacturing base 
will constrain the ability of the overall economy to rebound from the 
current Great Recession. It also jeopardizes the financial prospects of 
many lower- and middle-income households, the economic well-being of 
many communities across the country, and even the innovation and 
technological progress necessary to power the broader economy's long-
term growth. Policymakers should carefully consider this when designing 
and implementing economic policy.
                                 ______
                                 
                 PREPARED STATEMENT OF LEO HINDERY, JR.
                 Managing Partner, InterMedia Partners
                             July 17, 2009
    Mr. Chairman, other Subcommittee Members, I am Leo Hindery and I am 
Chairman of the Smart Globalization Initiative at the New America 
Foundation, where I spend my time on jobs and trade issues. 
Occupationally, I am an investor in media companies, and I was formerly 
CEO of AT&T Broadband and its predecessors, Tele-Communications and 
Liberty Media. It is an honor for me to appear before you.
    I want to discuss our largely jobless economic recovery and 
desperate need for an all-of-government national manufacturing and 
industrial policy.
    President Obama has recently reaffirmed the Administration's belief 
that the economic stimulus plan passed by Congress in February will 
``save or create'' 3.5 million jobs over 2 years. There's obviously a 
huge difference between a job that's saved and one that's created--the 
Labor Department does not even collect data on ``jobs saved,'' nor does 
anyone else--but much more important, 3.5 million jobs represent only a 
quarter of the 13.3 million jobs effectively lost since the recession 
began in December 2007 and just 12 percent of the more than 30 million 
workers already effectively unemployed.
    I would offer that it is important that Congress always consider in 
its deliberations the millions of unemployed workers not included each 
month in the BLS's determination of the officially unemployed, 
specifically those workers who are either part-time of necessity, 
marginally attached, or in the ``labor force reserve'' because they 
have quit the labor force out of frustration. In the past, the number 
of ``uncounted'' unemployed almost never exceeded a third or so of 
those who were officially counted, albeit still a very large number. 
However, right now, there are actually 800,000 more uncounted 
unemployed workers than counted ones, making the total number of 
effectively unemployed workers an unprecedented 30.2 million instead of 
the official 14.7 million and the effective unemployment rate 18.7 
percent instead of 9.5 percent. And yet as numbing as these numbers 
are, I believe we are going to see additional significant net job 
losses for at least another 18 months.
    We are already deep into a jobless recovery, and in the process we 
are headed toward an economic base so weakened that it will be 
incapable of sustaining a vibrant middle class. There is also the 
reality that this jobless recovery will be particularly susceptible to 
a new downturn because of the way it is already feeding back on itself, 
actually worsening in some cases the circumstances that originally 
triggered it. Finally, a jobless recovery means there will be little or 
no relief for State and local governments whose budgets have been hard 
hit by falling tax revenues.
    When nearly 19 percent of workers are already effectively 
unemployed and while even the Nation's current full-time workers are 
working only 33.1 hours a week--the fewest hours on record since the 
BLS began counting in 1964--and seeing their wages reduced at an 
average 6.2 percent annual rate, significant and timely job retention 
and creation must be an urgent priority, on a par with health-care 
reform. Right now, neither initiative can take a back seat to the 
other, as both are integral to true economic recovery.
    And the reason this particular hearing is so important is because 
the massive job-creation deficit we face really tells only the macro 
side of our sad employment story. We need to be just as worried about 
the fact that our economy is mostly hemorrhaging jobs in the very 
sector--manufacturing--that must grow in order for us to move 
permanently away from debt-financed consumption as the principal engine 
of economic growth.
    Since the recession began, manufacturing has lost 13 percent of its 
workforce; manufacturing industries now represent just 11.7 percent of 
GDP, after being 15.5 percent as recently as 1996 and much higher 
earlier; people working in manufacturing now account for only 8.7 
percent of the jobs in the country; a quarter of the Nation's 282,000 
remaining manufacturing companies--90,000 in all--are now deemed 
severely ``at risk''; and we have run an average trade deficit in 
manufactured goods of more than $500 billion over the past 5 years.
    Yet despite 30 years or so of extreme neglect, our now depleted 
manufacturing sector still accounts for a critical 60 percent of all 
exports from the U.S. and for 70 percent of the Nation's entire R&D.
    However, aside from its emergency restructuring of Chrysler and GM, 
the Administration has not developed an all-of-government national 
manufacturing and industrial policy designed to simultaneously ensure 
the competitiveness of U.S.-based businesses and grow high-value jobs 
in America.
    Congress and the Administration, working together, need to 
immediately enact such a policy, one that puts American workers first 
and is comparable to the policies of our major trading partners. We 
also need to integrate this policy with efforts to be the world's 
dominant manufacturer of green technologies and components, and I 
applaud you, Senator Brown, and your former colleagues in the House, 
Congressmen John Boccieri and Zack Space, for sponsoring the 
``Investments for Manufacturing Progress and Clean Technology'' or 
IMPACT Act.
    The need for an elaborate American industrial policy was first 
widely observed as far back as the early 1980s, and by 1993 some in the 
Clinton administration and especially some enlightened members of 
Congress tried to enact such a policy. Regrettably they failed, and now 
16 years later, we sit here in 2009 still without one.
    Even if some in leadership today don't understand and accept this 
basic imperative, America's main trade competitors certainly do. All of 
the other members of the G20 have such policies, and they are using 
them today to great effect to resuscitate their broken economies and 
further weaken ours. Germany, Japan, and South Korea especially are 
doing everything possible to preserve their manufacturing bases, while 
China, which consistently accounts for 60 percent of the U.S. trade 
deficit in manufactured goods, is aggressively accelerating its efforts 
to grow its manufacturing sector.
    To this latter point, while the U.S. was losing 1.4 million 
manufacturing jobs from 2002 to 2006, manufacturing employment in China 
during these 5 years was increasing by 10 percent to 112 million, which 
is about 100 million more than the total number of manufacturing 
workers left in America--and this trend is now only worsening.
    I believe that two things are holding the U.S. back from having its 
own manufacturing and industrial policy--and we need to quickly 
disabuse both of them.
    First, some in the Obama administration, as well as others of 
influence outside the Administration, wrong-headedly believe that one 
job is as good as another, whether it is in manufacturing or service. 
This is simply not true, and even the simplest comparison of the two 
sectors shows that:

    Compensation in manufacturing jobs is 20 percent greater 
        than in nonmanufacturing jobs;

    Service jobs do very little to help America's balance of 
        trade, and mostly just move incomes around the country; and

    Manufacturing overall has by far the largest multiplier 
        effect of any job sector in the country, creating: $1.40 of 
        additional economic activity for each $1.00 of direct spending; 
        on average, 2.5 jobs in other sectors for each job in it; and, 
        at the upper bounds, 16 jobs for each high-tech manufacturing 
        job.

    Second, these individuals assume, with no supporting evidence 
whatsoever, that new jobs associated with exported services will make 
up for past and future manufacturing job losses. One Administration 
official even said recently that America's export future resides, and I 
quote, in exporting ``consulting and legal services, software, movies, 
and medicine.'' It is naive to speak so optimistically of these 
nonmaterial activities, and it is simply wrong to view exported 
services as ready substitutes for good manufacturing jobs, since large-
scale high-quality service jobs are heavily dependent on and correlated 
to a strong manufacturing sector. The reality is that in the future, 
high-quality service jobs are at least as much at risk of being 
offshored as are manufacturing jobs, with India and China especially 
keen on seeing such jobs domiciled on their own shores.
    To offer just one big example of what the failure to have our own 
manufacturing and industrial policy has wrought, the State of 
California, which is now confronting the largest annual budget deficit 
in the history of the Union, would in fact have a dramatically smaller 
deficit, or maybe even none at all, if in the State manufacturing 
workers today represented simply the same share of total workers as 
they did in the year 2000, which was 12.8 percent. Instead, however, 
California lost, over this period, more than 400,000 manufacturing jobs 
which, after considering multiplier effects, would have benefited the 
State on the order of $300 billion of cumulative income taxable wages.
    In addition to throwing its full weight behind an all-of-government 
manufacturing and industrial policy, the Administration must also be 
willing to:

    ``Pick winners'' in the economy and then support them, 
        despite its apparent aversion to doing so, because frankly all 
        other developed nations and China do so every day, to great 
        effect. The Administration moved modestly in this direction 
        with its proposals to encourage private investment in wind and 
        solar energy and by making targeted Federal investments in 
        building retrofits, smart grids and meters, and clean 
        transportation systems. However, it needs to do much, much more 
        if we are to create new comparative advantages in these and 
        other industries, and particular attention needs to be paid to 
        associated training, access to low-cost energy, and financing 
        provisions for small and medium size manufacturers.

    Fund a 10-year (not the current 2-year) program of 
        significant public investment to upgrade and rebuild our 
        Nation's infrastructure, which would provide the much-needed 
        foundation for higher-value added production and advanced 
        business services.

    Adopt, consistent with WTO rules, ``Buy American'' 
        requirements related to all Federal procurement, especially 
        procurement associated with new investments in infrastructure 
        and green energy initiatives. Federal purchases make up about 
        20 percent of the economy, yet America appears to be the only 
        nation among the major developed nations and China without a 
        significant ``buy domestic'' procurement program.

    Enact major corporate tax reform to make incentives for 
        corporations to create jobs here and eliminate the incentives 
        for them to relocate manufacturing jobs, as well as service 
        jobs, abroad. This should include reducing the corporate income 
        tax and payroll tax and moving to a value-added-tax or VAT to 
        replace that lost revenue.

    A national industrial policy cannot succeed, however, without 
complementary trade policies that prevent other economies from gaining 
unfair competitive advantages. The trade deficits accumulated just 
during the Bush administration--a whopping $4.7 trillion--were a major 
cause of the loss overseas of 5.3 million manufacturing jobs and more 
than 2 million service jobs, and they made the U.S. economy about $1.5 
trillion smaller today than it would have been otherwise.
    We couldn't afford these economy-zapping job losses then, and we 
certainly can't afford them now. Notably, even today's recession-
shrunken trade deficit of 2.5 percent of GDP will subtract more from 
the demand for U.S. goods and services than the economic stimulus plan 
will add, and in normal times our trade deficits consistently aggregate 
an even more economy-draining 5 percent or so of GDP.
    The Administration and Congress should, I believe, immediately move 
away from our decades of misguided trade policies and demand trade 
agreements that have meaningful labor and environmental standards and 
forbid illegal subsidies and currency manipulation. We also need to 
dispense with ``one size fits all'' trade agreements that ignore 
significant differences in levels of development, forms of government, 
and reciprocity.
    At the same time, we need meaningful trade policy coordination 
among especially the G8, and we need it to counter the confusing 
statement out of the Administration recently that ``floating exchange 
rates mean that economic policies don't have to be harmonized among 
nations.'' Of course, they do!
    And on an overall basis, right now the major ``surplus nations''--
specifically, China with its enormous $2 trillion of foreign currency 
reserves, Germany and the oil-exporting nations--also need to 
immediately deploy a significant portion of their accumulated foreign 
reserves where doing so will most stimulate the world economy, whether 
it be within their own economies, overseas, or, in order to assist the 
poorer countries, in a combination of long-term development loans and 
Official Development Assistance or ODA.
    Most important when it comes to trade and globalization, however, 
we need a fundamental reexamination of our relationship with China.
    China's massive trade surplus with the United States--a staggering 
$277 billion of manufactured goods just in 2008--is the result of its 
severely undervalued currency, massive subsidies to its own 
manufacturers, and elaborate policies to induce foreign corporations to 
shift their production facilities and technology to it. These policies 
have already cost us millions of jobs, and they will keep costing us 
jobs until they are fixed.
    Challenging China over its unfair trade practices is not just 
necessary for the future of U.S. manufacturing jobs, however--it is 
also critical for the world economy. The global economy simply can't 
function if the third-largest individual economy runs current account 
surpluses on the order of 8 to 10 percent of GDP, as China has done 
consistently for the past few years.
    In closing, these are truly unprecedented times, and thus looking 
at past business cycles and responses is likely to be of only very 
limited relevance and utility. To address the current desperate 
situation, we need, as soon as possible, an Emergency National Summit 
on Manufacturing, to be attended by relevant Cabinet officers, the 
bipartisan leadership of both Houses of Congress, and a small number of 
the top corporate and labor leaders on this issue. And we especially 
need an activist executive branch and Congress willing to turn around 
the excessive laissez faire and deregulatory approaches of the last 
eight and, in some cases, the last 30 years, and to enact a national 
manufacturing and industrial policy that matches and competes fairly 
with the industrial policies of our major trading partners, especially 
China.
    Thank you, and I am happy to answer any questions you may have.
Sources:
1. ``Building the Next American Century: The Past and Future of 
American Economic Competitiveness'', by Kent H. Hughes (Woodrow Wilson 
Center Press, 2005).

2. ``U.S. Needs a VAT'', March 7, 2009, by Economyincrisis.org--
America's Economic Report--Daily.htm.

3. ``Manufacturing 2.0: A More Prosperous California'', June 2009, by 
the Milken Institute.

4. ``Manufacturing and the U.S. Economy'', June 4, 2009, by Samuel 
Sherraden and Sherle Schwenninger, New America Foundation.

5. ``Not Out of the Woods: A Report on the Jobless Recovery Underway'', 
June 9, 2009, by New America Foundation.

6. ``Senator Brown's `IMPACT Act' Included in House Climate Change 
Bill'', press release, June 26, 2009.

7. re June 2009 U.S. effective unemployment figures, Bureau of Labor 
Statistics ``Current Population Survey'' of employment (released July 
2, 2009).

8. American Small Manufacturers Coalition.

9. Alan S. Blinder, Gordon S. Rentschler Memorial Professor of 
Economics and Public Affairs at Princeton University, Codirector of 
Princeton's Center for Economic Policy Studies, and Vice Chairman of 
the Promontory Interfinancial Network.

10. Nouriel Roubini, Chairman of RGE Monitor and Professor of Economics 
at New York University's Stern School of Business.
                                 ______
                                 
                  PREPARED STATEMENT OF SCOTT N. PAUL
                          Executive Director,
                  Alliance for American Manufacturing
                             July 17, 2009
    Mr. Chairman and Members of the Subcommittee, I want to thank you 
for taking the time to study manufacturing and global competitiveness, 
and for inviting me to testify on behalf of the Alliance for American 
Manufacturing.
    First, I would like to introduce the Alliance for American 
Manufacturing. We are a partnership formed in 2007 by some of America's 
leading manufacturers and their workers to explore challenging public 
policy topics such as international trade, health and retirement 
security, and global competitiveness. AAM works in a cooperative, 
nonpartisan way, bringing together labor and management, Democrats, 
Republicans, and Independents, to work for one goal: Strengthening 
American manufacturing and therefore our Nation's economic and national 
security. Our mission is to provide policymakers like you with useful 
analysis of the issues, as well as innovative policy ideas to move us 
toward effective solutions.
    Over the past 2 years, we've visited with tens of thousands of 
workers and hundreds of manufacturers to see what's happening on the 
ground firsthand. As you can imagine, the news is grim. That's because, 
for manufacturing, this recession began about a decade ago. Over the 
past 19 months, this decline has been turbocharged. It's clear that 
bold solutions are required to revitalize manufacturing, which is why 
we have sought to collect the wisdom of innovative thinkers around the 
Nation.
    To that end, we published a book this week titled ``Manufacturing a 
Better Future for America,'' copies of which have been provided to each 
Senator. With contributions from 10 leading academics and experts, the 
book takes a comprehensive look at some of the major issues facing 
manufacturing today: international trade, an array of subsidies offered 
by our global economic competitors, the consequences of the offshoring 
of research and development, the shocking lack of support for 
investment in advanced manufacturing, the appalling state of skills and 
training programs, the challenges for domestic manufacturers in 
globalized supply chains, and the consequences of deindustrialization 
on society, communities, and our defense industrial base.
    Even without reading this book, we all know that something has gone 
terribly wrong with the U.S. economy. But chalking up the blame to a 
few bad apples on Wall Street and their risky financial instruments, 
and responding by simply providing appropriate regulation in the 
financial services sector, will ultimately be unsatisfying. There are 
much deeper, structural issues which must be urgently addressed. 
Otherwise, the positive feedback loop between consumer debt, subsidized 
Chinese imports, American job loss, the U.S. current account deficit, 
and growing Chinese currency reserves reinvested in American debt, thus 
inflating new bubbles, will only be reinforced.
    Some of us warned that this day would come. We knew that an 
economic strategy predicated on replacing wage growth with debt and 
credit to maintain a certain standard of living was doomed to fail. We 
knew that this Nation could not replace manufacturing jobs and their 
multiplier effect, as well as their positive impact on the trade 
balance and wealth generation, with lower-wage service and retail jobs. 
We knew that our national security would begin to suffer if we did not 
have a vibrant enough manufacturing base to resupply our troops and 
provide the armaments for the future. We knew that if our leaders 
viewed international trade as a foreign policy tool and a path to cheap 
imports, rather than as an essential element for economic growth and 
domestic production, the consequences would be disastrous.
    The warnings came not only from labor leaders, domestic 
manufacturers, and an insightful group of elected officials--they came 
also from very conservative economic quarters. Well before this new, 
great recession began, Warren Buffet said ``Our trade deficit has 
greatly worsened, to the point that our country's `net worth,' so to 
speak, is now being transferred abroad at an alarming rate. A 
perpetuation of this transfer will lead to major trouble.'' Martin 
Feldstein--former Chairman of President Reagan's Council of Economic 
Advisors--said, ``The present level of the current account deficit is 
enormous, it is unprecedented and I believe it is unsustainable.''
    The result of growing current account deficits has been more 
manufacturing job loss and a healthy share of the blame for the 
economic collapse this Nation experienced last year. Some say that the 
total number of manufacturing jobs has been falling anyway, and that 
this isn't such a bad thing as we transition to a new economy. Mr. 
Chairman, I believe that particular view is dangerous and misguided.
    Contrary to a widely held analysis, manufacturing employment held 
steady from 1982 to 1999, hovering around 17.2 million jobs, with ebbs 
and flows in downturns and recoveries. There were a number of reasons 
for this stability, including more aggressive trade enforcement and 
currency policies in the 1980s and more domestic investment in the 
1990s. But manufacturing employment has dropped precipitously since 
China entered the World Trade Organization in 2001 and our bilateral 
trade deficit has exploded. We have concluded that--outside of 
recessions--the single most detrimental factor to manufacturing 
employment in the United States has been the expansion of our one-sided 
trade relationship with China. China is certainly not our only 
competitor engaged in unfair, predatory, and protectionist policies, 
but the scale of their activities swamps that of many of our other 
trading partners and is in need of immediate attention.
    Other explanations, while conforming to orthodox economic views, 
are not satisfying. The decline of manufacturing employment and 
manufacturing's share of GDP are not inevitable, desirable, nor can 
they be explained solely through theories of churning capitalism, 
advances in productivity and technology, compensation costs or 
inefficiency.
    Consider this: more than 40,000 factories have shut their doors 
over the last decade. They weren't making buggy whips; they were manned 
by some of the most efficient workers in the world. To wit, we already 
have large and growing trade deficits in advanced technology and clean 
energy, even though these supposedly represent ``new economy'' sectors 
and the jobs of the future in the eyes of many.
    The failure of our domestic and international trade policies to 
support manufacturing must be quickly reversed. We urgently need a 
national manufacturing strategy.
    The idea of a manufacturing strategy or industrial policy is hardly 
a radical concept. Alexander Hamilton constructed America's first 
industrial policy in 1791. Setbacks during the War of 1812 due to a 
lack of domestic capacity to build naval vessels and military equipment 
cemented the determination of the Federal Government to grow 
manufacturing, a policy that continued until the end of World War II. 
Globalization and economic approaches such as a strong dollar policy 
favoring domestic consumption have helped to steadily erode 
manufacturing as a percentage of Gross Domestic Product, private sector 
employment, and other key measures. If today's leaders spent more time 
focusing on Hamilton and less time on Smith and Ricardo, I don't think 
we'd be facing the prospects of a jobless recovery.
    The idea of a manufacturing strategy is also not a partisan one. 
President Reagan--spurred on by a Democratic Congress--adopted a flurry 
of measures to counter a grossly imbalanced trade relationship with 
Europe and Japan in the 1980s. The Plaza Accords, which raised the 
value of currencies in Japan and Europe relative to the dollar in a 
managed way, had a positive effect in lowering our trade deficit. Key 
government investments in the semiconductor industry and other 
technologies spurred their development and commercialization. President 
Reagan signed into law enhanced Buy America requirements for certain 
infrastructure projects to boost domestic employment. His 
Administration implemented the Market Oriented Sector Specific--or MOSS 
talks--with Japan that focused on market access with measurable 
results.
    Yesterday, United States Trade Representative Ron Kirk delivered an 
address outlining the beginning of a new enforcement approach as part 
of our overall trade agenda. That comes as welcome news to those 
manufacturers and their employees who have seen a flood of imports flow 
into our market often benefiting from subsidies and other unfair 
practices by their governments. His speech comes as welcome news, but 
the success of his efforts are going to be measured on a daily basis.
    Apply those principles to the economic challenges of today, and you 
have the foundation of a manufacturing strategy: raise the value of 
China's yuan to market-based levels, invest in value-added 
manufacturing such as clean energy and industries with strategic 
significance, and engage in serious bilateral talks with China to 
ensure that it honors the commitments it made upon entry into the WTO 
in 2001 to eliminate its myriad mercantilist and protectionist 
policies. Finally, keep Buy America requirements in place so that tax 
dollars are reinvested in our economy and the employment benefits of 
infrastructure spending accrue not only to the construction industry, 
but also to our manufacturers.
    But a successful manufacturing strategy must go deeper than that. I 
join Leo Hindery, Mr. Chairman, in expressing support for your IMPACT 
legislation, which would provide access to much-needed capital for 
small- and mid-sized manufacturers to help capture new clean energy 
markets, both here and abroad. At a time when access to capital is 
still very tight, a public commitment like this is essential. Moreover, 
those who say the market alone should dictate winners and losers forget 
three important lessons. First, some of the greatest innovations since 
World War II--the semiconductor and the Internet--were developed with 
public assistance. Second, our policies already pick winners and 
losers, but we tend to pick the wrong winners--those who profit through 
selling cheap, subsidized imports, or those companies heavily invested 
in fossil fuels. Let's pick winners in more productive, wealth-
generating activities like domestic manufacturing for a change. Third, 
other nations are aggressively supporting emerging industries like 
clean energy. Unless we want green manufacturing jobs created in 
Shanghai instead of Cincinnati, or Dusseldorf instead of Denver, we 
must support domestic development of these industries.
    A key component of any manufacturing strategy must be public 
investment, especially in infrastructure. The American Recovery and 
Reinvestment Act made a down payment on infrastructure investment, but 
our Nation will still be hampered by what the American Society of Civil 
Engineers estimates is a $2.2 trillion deficit in infrastructure 
investment over the next 5 years. Improving our infrastructure provides 
a greater return on investment for taxpayers than tax cuts and 
virtually every other form of spending. In the process, it boosts 
construction jobs, stimulates demand for manufactured goods, and 
improves productivity and economic growth by making transportation more 
efficient. According to a recent study by economists at the University 
of Massachusetts at Amherst, ensuring that the materials purchased with 
tax dollars for infrastructure projects are sourced domestically 
creates 33 percent more manufacturing jobs, which is why we urge the 
Senate to continue its strong support for Buy America provisions.
    The cost, supply and composition of energy resources consumed by 
our manufacturers must also be considered, especially in the context of 
Federal and international efforts to reduce greenhouse gas emissions. 
As the Senate begins its deliberations over a legislative solution to 
combating global climate change, it is essential that provisions be 
included to prevent the shifting of manufacturing jobs to countries 
with less regulation. A poorly designed approach to this issue will 
result in a net increase in global emissions and will put millions of 
energy-intensive manufacturing jobs here in the United States at risk.
    Specifically, it is essential for any climate change bill to 
include a fair and equitable allocation of allowances to rebate the 
full cost of complying with new legislation. Sufficient allowances from 
the total pool should be devoted to energy and trade intensive 
industries; the allowances should be available for as long as 
practicable to bring other nations into compliance with a global regime 
and to develop new technologies to improve energy efficiency and reduce 
carbon use. Second, the legislation must include a mechanism to impose 
a ``border adjustment'' on goods imported from countries that do not 
have comparable limits on carbon emissions. Such a mechanism would 
impose a fee on the carbon content of goods imported from these 
countries and should be bypassed only with Congressional approval. And, 
the border adjustment must be rebatable to our exporters so that 
action--or inaction--on climate change is not used as a competitive 
tool by our trading partners to limit trade flows.
    It is important to note that such a provision would be permissible 
under our international obligations. A June 26, 2009, report released 
by the WTO and the United Nations Environment Programme said: ``Rules 
permit, under certain conditions, the use of border tax adjustments on 
imported and exported products . . . The objective of a border tax 
adjustment is to level the playing field between taxed domestic 
industries and untaxed foreign competition by ensuring that internal 
taxes on products are trade neutral.''
    These provisions are essential to preventing a shift of our 
domestic manufacturing base in energy-intensive industries to 
industrialized nations such as China, the world's largest emitter of 
carbon dioxide, and India, which has publicly rejected efforts to 
control emissions. 
    To illustrate this point, in March, we released a study outlining 
the competitive advantage already enjoyed by Chinese steelmakers, who 
operate under less stringent environmental standards than most 
developed countries. Levels of pollution are 3 to 20 times higher per 
ton of steel produced in China than in the U.S., depending on the 
specific pollutant and industrial process analyzed. China is the 
world's leading industrial carbon dioxide emitter. Meanwhile, our 
domestic steel producers are the most efficient in the world, with the 
lowest energy consumption and lowest emissions per ton of production.
    It would be a grave mistake to put our energy intensive industries 
(including chemicals, paper, iron and steel, aluminum, rubber, cement, 
and glass) at a competitive disadvantage as an unintended consequence 
of seeking to control greenhouse gas emissions. We look forward to 
working with you to ensure the Senate legislation includes these 
important measures.
    Mr. Chairman, I want to close by framing the broad goal of an 
American manufacturing strategy, as outlined by President Obama in 
April. The President, appearing at a Group of 20 Summit in London, 
said:

         . . . in some ways the world has become accustomed to the 
        United States being a voracious consumer market and the engine 
        that drives a lot of economic growth worldwide . . . We're 
        going to have to take into account a whole host of factors that 
        can increase our savings rate and start dealing with our long-
        term fiscal position, as well as our current account deficits. 
        Those are all issues that we have to deal with internally, 
        which means that if there's going to be renewed growth, it 
        can't just be the United States as the engine. Everybody is 
        going to have to pick up the pace . . . I should add, by the 
        way, that to the extent that all countries are participating in 
        promoting growth, that also strengthens the arguments that we 
        can make in our respective countries about the importance of 
        world trade--the sense that this isn't a situation where each 
        country is only exporting and never importing, but rather that 
        there's a balance in how we approach these issues.

    Balance is the key. And if balance is the goal, the surest path 
forward is to invest more in domestic manufacturing and reform our 
trade policies. Such actions will create more exports, more jobs, more 
innovation, and more growth. Mr. Chairman, we look forward to working 
with you and Members of the Subcommittee on strategies to revitalize 
this important sector of our economy.
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