- MANUFACTURING IN THE USA: HOW U.S. TRADE POLICY OFFSHORES JOBS

[Joint House and Senate Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

S. Hrg. 112-192

MANUFACTURING IN THE USA: HOW U.S. TRADE POLICY OFFSHORES JOBS

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

HEARING

before the

JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

SEPTEMBER 21, 2011

__________

Printed for the use of the Joint Economic Committee

U.S. GOVERNMENT PRINTING OFFICE
71-032 WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].

JOINT ECONOMIC COMMITTEE

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE HOUSE OF REPRESENTATIVES
Robert P. Casey, Jr., Pennsylvania, Kevin Brady, Texas, Vice Chairman
Chairman Michael C. Burgess, M.D., Texas
Jeff Bingaman, New Mexico John Campbell, California
Amy Klobuchar, Minnesota Sean P. Duffy, Wisconsin
Jim Webb, Virginia Justin Amash, Michigan
Mark R. Warner, Virginia Mick Mulvaney, South Carolina
Bernard Sanders, Vermont Maurice D. Hinchey, New York
Jim DeMint, South Carolina Carolyn B. Maloney, New York
Daniel Coats, Indiana Loretta Sanchez, California
Mike Lee, Utah Elijah E. Cummings, Maryland
Pat Toomey, Pennsylvania

William E. Hansen, Executive Director
Robert P. O'Quinn, Republican Staff Director

C O N T E N T S

----------

Opening Statements of Members

Hon. Robert P. Casey, Jr., Chairman, a U.S. Senator from
Pennsylvania................................................... 1
Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas 3

Witnesses

Dr. Arvind Subramanian, Senior Fellow, Personal Institute for
International Economics and the Center for Global Development,
Washington, DC................................................. 6
Dr. Philip Levy, Resident Scholar, American Enterprise Institute,
Washington, DC................................................. 8
Mr. Greg Slater, Director, Global Trade and Competition Policy,
Intel Corporation, Washington, DC.............................. 10
Mr. Rick Bloomingdale, President, Pennsylvania AFL-CIO,
Harrisburg, PA................................................. 12

Submissions for the Record

Prepared statement of Representative Kevin Brady................. 28
Prepared statement of Dr. Arvind Subramanian..................... 30
Prepared statement of Dr. Philip Levy............................ 43
Prepared statement of Mr. Greg Slater............................ 50
Prepared statement of Mr. Rick Bloomingdale...................... 62
Prepared statement of the American Apparel and Footwear
Association submitted by Representative Kevin Brady............ 70
Prepared statement of Mr. Daniel J. Ikenson...................... 73

MANUFACTURING IN THE USA: HOW U.S. TRADE POLICY OFFSHORES JOBS

----------

WEDNESDAY, SEPTEMBER 21, 2011

Congress of the United States,
Joint Economic Committee,
Washington, DC.
The committee met, pursuant to call, at 2:03 p.m. in Room
216 of the Hart Senate Office Building, the Honorable Robert P.
Casey, Jr., Chairman, presiding.
Senators present: Casey and Klobuchar.
Representatives present: Brady.
Staff present: Gail Cohen, Will Hansen, Colleen Healy,
Jesse Hervitz, Dan Neumann, Christina Forsberg, and Robert
O'Quinn.

OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., CHAIRMAN, A
U.S. SENATOR FROM PENNSYLVANIA

Chairman Casey. The hearing will come to order.
We want to thank our witnesses for being here, and I want
to thank Vice Chairman Brady for being with us again today. We
appreciate the time that folks spent arranging the hearing, as
well as the time the witnesses spent traveling here.
I will start with an opening statement, and then we will--
and after Vice Chairman Brady's statement I will introduce our
witnesses, and then we will get into the testimony.
Today's hearing is the third in a series that the Joint
Economic Committee is holding to determine the best strategies
for revitalizing manufacturing in the United States.
Previously we have focused on the need for a comprehensive
national manufacturing strategy and examined policies,
including making the Research and Development Tax Credit
permanent. And by the way, that has bipartisan support.
We have also looked at skill building and how to prepare
our workers to compete and win in a global economy. And with
today's hearing we will examine the impact our trade policies
have on manufacturing and how we can reform those policies to
support our manufacturing sector.
Manufacturing is a vital part and an essential part of our
Nation's economic health. Though the share of the workforce
employed in manufacturing has been cut in half since the 1970s,
manufacturing provides high-paying jobs, accounts for more than
two-thirds of research and development carried out by United
States industries, and makes up more than 10 percent of the
Gross Domestic Product.
Growth in the manufacturing sector has played a key role in
the recent economic recovery. In the first eight months of this
year, the manufacturing sector has added 192,000 jobs, about 17
percent of the private sector job gains during that period.
And manufacturing's employment impact extends beyond those
workers employed directly in manufacturing itself. Research has
shown that employment multipliers are higher in manufacturing
than in other sectors of our economy.
Trade policies can have a major impact on the health and
vitality of the manufacturing sector. Unfortunately, for far
too long our trade policies have failed our workers and our
businesses, stacking the deck against U.S. manufacturers.
There are three key areas where U.S. trade policy needs to
be changed, in my judgment:
Number one, we cannot continue to enter into so-called
``free trade agreements'' which leave our companies and our
workers exposed to unfair trading practices.
Number two, it is long past time to crack down on currency
manipulation by our trading partners, including, but
especially, China.
Three, we must do a better job supporting individuals and
communities adversely impacted by international trade. NAFTA
and other NAFTA-style Free Trade Agreements have cost the
United States jobs, and certain communities have borne a larger
share of those job losses.
I have seen it in Pennsylvania. When NAFTA took effect in
January 1994, more than 875,000 Pennsylvanians were employed in
manufacturing. Today, the same manufacturing sector in
Pennsylvania employs some 575,000 workers--a loss of more than,
more than 300,000 jobs.
On top of NAFTA-style Trade Agreements, unfair trade
practices by other countries have also led to job loss in the
United States. The U.S.'s unwillingness to crack down on
currency manipulation by China, South Korea, and others has
made it more difficult for U.S. companies to export their
products, costing our country lots and lots of jobs.
A new report by the Economic Policy Institute, so called
EPI, finds that the U.S. trade deficit with China has cost our
country 2.8 million jobs over the past decade, including 1.9
million manufacturing jobs. The Pennsylvania numbers translate
into almost 107,000 jobs lost from 2001 to 2010 as a result of
the trade deficit with China.
This same report, the EPI report, cites China's
undervaluation of the yuan as a major cause of the U.S. trade
deficit with China, which grew from $83 billion in 2001 to $273
billion in 2010. Currency manipulation must be dealt with, and
it should be dealt with this year.
We know that, when a job is lost because of global trade,
that job is usually gone forever. That is why support
specifically tailored to trade-impacted workers is so
important. Workers who lose their jobs as a result of trade
often have to find new work in a new industry or occupation.
Making matters worse, the skills of trade-affected workers
often do not easily transfer to new positions.
A report released this week by this Committee showed that
trade-impacted workers are out of work longer and experience
larger wage loss than other workers. To find new employment,
education, and job training programs are critical for these
workers.
In 2009, Congress made improvements to the Trade Adjustment
Assistance Program. These changes expanded access to workers in
the service sector and to workers whose jobs were offshored to
other countries such as China and India, which do not have
trade agreements with the United States.
In a little over two years--May of 2009 to June of 2011--
the expansions to TAA enabled an additional 185,000 displaced
workers to benefit from the program. The expansions to Trade
Adjustment Assistance expired in February of 2011. The
amendment we're considering now in the Senate, the so-called
Casey-Brown-Baucus Amendment, which we introduced yesterday,
retroactively extends the Trade Adjustment Assistance Program
through 2013, continuing most of the improvements that were
made in 2009. I am confident that we will be able to pass a TAA
extension if not this week, very soon.
To regain our balance on trade, we also need a new
approach. Part of that requires looking at trade agreements
through a different lens, a lens that is focused on job
creation, economic fairness, and manufacturing strength.
Three questions should guide us:
Will the Agreement create a substantial number of jobs?
Second, will the Agreement create a level playing field for
American businesses and workers?
Third, does the Agreement provide new opportunities for
American manufacturers to export?
We are not going to rebalance our trade policies overnight,
but we need to be crafting smarter policies. We also need to be
vigilant in enforcing these same policies. We are fortunate
today to have a great panel of experts who have both deep
knowledge of trade policy and a commitment to helping us better
understand it.
I want to thank them for their presence here and their
testimony, and I would turn the microphone over to our Vice
Chairman, Congressman Brady.

OPENING STATEMENT OF HON. KEVIN BRADY, VICE CHAIRMAN, A U.S.
REPRESENTATIVE FROM TEXAS

Vice Chairman Brady. Chairman Casey, thank you for
convening this important hearing.
It is long past time to debunk the myth that the economic
freedom to trade leads to offshoring of U.S. jobs. The facts
are just the opposite.
It is the absence of an aggressive, proactive trade agenda
that leaves America falling behind its global competitors and
places our manufacturers at a severe disadvantage when
competing for the 95 percent of the world's consumers that live
outside our borders.
For American manufacturing, trade means jobs. America is
the third largest exporting nation in the world, and our share
of global manufacturing has essentially held steady through the
past 30 years. The concern is that our share of the world's
market in manufacturing has declined significantly while the
Chinese share has exploded upward.
If you examine what America sells and ships overseas, it is
manufacturing that accounts for the bulk of U.S. sales abroad.
Much of these sales are in advanced technology and capital
goods such as computers, electronics, scientific instruments,
and aerospace equipment--along with chemicals, oil, and coal,
machinery and equipment critical to the production of finished
products. These are high-value items, creating high-paying
jobs, and requiring high-value research and development.
Trade is important to American workers. Not only is one of
every five American manufacturing jobs tied to sales overseas,
workers in the most trade competitive industries earn an
average compensation package of $86,000 a year--which is nearly
50 percent higher than they would earn in the least trade-
competitive industries according to a report by the National
Association of Manufacturing.
Thanks to technology, communications and the internet, more
and more small- and midsized manufacturing firms in America are
competing successfully in the global market.
Make no mistake, the world has changed. It is no longer
enough to simply ``Buy American.'' To grow jobs and remain the
world's largest economy we must ``Sell American'' as well. Yet,
when American manufacturers compete around the world, they
often find themselves at a disadvantage: victims of an
isolationist trade agenda in Congress and saddled with
significantly higher product costs due to excessive regulation
and an increasingly outdated tax code.
The bottom line is that America is falling behind. While
for the past four years Congress has removed America from the
global trading field, our competitors in Europe, China, and the
Western Hemisphere have not. They have taken smart advantage of
America's benching itself to the sidelines and they established
trade agreements that lock in growing overseas markets and lock
out American manufacturers.
Today there are 238 bilateral or regional free trade
agreements in force around the world. The United States is a
part to a mere 11.
Today our competitors are negotiating more than 100 market-
opening trade agreements. The United States is currently
participating in only one: the Trans-Pacific Partnership.
If we want our manufacturers to secure new customers and
create new jobs here at home, we must get America back on the
trade field, fighting for a level playing field so our
manufacturers can compete and win.
This cannot happen as long as the White House continues to
delay submitting the three pending agreements with South Korea,
Colombia, and Panama. These countries already sell many of
their products into America with low or no border taxes. It is
time to turn this one-way trade into two-way trade and secure
an estimated $13 billion of new sales for American
manufacturers, for American agriculture, and American service
companies.
Every day we delay hurts our manufacturers. Europe, China,
and Canada have moved aggressively to enter into their trade
agreements with these three countries in order to land
customers and contracts in these growing economies. They take
market share away from American companies as we speak.
There is bipartisan support for these sales agreements
today. We can pass these agreements today. As the President is
fond of saying these days, send Congress these agreements so we
can, quote, ``pass these bills now.''
As in the title of the hearing today, trade is not the
cause of offshoring jobs; it is the antidote. Landing new
customers overseas, making our tax code more competitive,
reducing the price of disadvantage from excessive regulation
and mandates will strengthen the hand of America's local
manufacturers and create good-paying jobs here at home.
Final point: It is time to stop blaming trade agreements
for the loss of manufacturing jobs in America. Technological
breakthroughs over the past two decades have made American
companies more productive. Like many countries, we are
manufacturing more with fewer workers. The needed time to
locate manufacturing facilities overseas is not a function of
trade agreements but the need to be closer to their customers
to successfully compete against Europe, against China, and the
rest of the world for these sales.
An estimated 95 percent of the products produced in U.S.
manufacturing facilities overseas are for customers overseas.
Absent a trade agreement with the host country, this at times
may be the only competitive choice remaining for our companies.
So why aren't we making a concerted bipartisan effort to
restore America's business climate so that American companies
are no longer economically punished for locating their
manufacturing facilities where the innovation is already
occurring--here.
And while it does not fit on a bumper sticker, the fact is
that America is running a manufacturing trade surplus with our
trade agreement partners. Yes, a surplus. Yes, in
manufacturing. Even with our NAFTA partners. That is because,
when you level the playing field and you play by the same
rules, American manufacturing and its workers win.
The fact is, our manufacturing trade deficit is wholly with
countries with which we do not have a trade agreement. This is
because our competitors have signed trade agreements in these
markets and we have left our companies to face tariffs five
times higher than these countries face when selling into the
United States.
It is time to stop blaming everyone else. It is time to
start leading again on trade.
With that, Mr. Chairman, I look forward to the testimony
today.
[The prepared statement of Representative Kevin Brady
appears in the Submissions for the Record on page 28.]
Chairman Casey. Thank you, Vice Chairman Brady.
What I will do now is provide very brief biographical
sketches of each of the witnesses, and then we will go to our
first witness.
I would first like to introduce Dr. Arvind Subramanian, who
is here as a Senior Fellow jointly at the Peterson Institute
for International Economics and the Center for Global
Development. His expertise is in growth, trade, development,
the World Trade Organization, and intellectual property issues.
His forthcoming book--I shouldn't say ``forthcoming''--I
have just seen it--his book, which is apparently just off the
presses today, is entitled ``Eclipse: Living In The Shadow Of
China's Economic Dominance.''
Previously he was Assistant Director in the Research
Department of the International Monetary Fund.
Doctor, welcome.
Next we have Dr. Philip Levy, who is currently a Resident
Scholar at the American Enterprise Institute for Public Policy.
His work in AEI's Program in International Economics ranges
from free trade agreements and trade with China to antidumping
policy.
Prior to joining AEI, he worked on International Economics
issues as a member of the Secretary of State's Policy Planning
staff. He also serves as an economist for trade on the
President's Council of Economic Advisers, and taught economics
at Yale University.
Doctor, thank you as well for being here.
Third, Mr. Greg Slater is the Director of Global Trade and
Competition Policy for the Intel Corporation. In this capacity
he is responsible for trade and competitiveness issues
affecting the company's business interests worldwide. In his
role as a senior counsel at Intel, he also provides legal and
policy advice on emerging laws and regulations that
significantly affect the company's products and manufacturing
sites.
In addition, he is responsible for all government
agreements related to Intel's factory investments worldwide.
Prior to joining Intel in 1997, he was in private practice here
in Washington, DC.
And finally, Rick Bloomingdale--I call him ``Rick'' because
I have known him a long time. I should say ``Richard''--became
the fourth President of the Pennsylvania AFL-CIO on June 1st,
2010. Prior to that he served as Secretary/Treasurer of the
Pennsylvania AFL-CIO. He has held multiple positions prior to
working with the Pennsylvania AFL-CIO, such as Project Staff
Representative of Local 449 at AFSME International, and State
Political Legislative Director for AFSME Council 13. He is a
member of the Board of Directors of Drug-Free Pennsylvania
Incorporated and Treasurer of the Keystone Research Center. He
also sits on the Labor Advisory Board of the Union Standard
Trust Mutual Fund.
Rick, great to be with you. I should say, as a matter of
full disclosure, I have known him a long time and he is a
friend of mine. So I just want everyone to know that.
So we will start with our first witness, Dr. Subramanian.
Thank you. And as I mentioned in the anteroom, we are trying to
keep everyone as close to five minutes as we can. For the
record, each of your statements in full will be made part of
the record.
Doctor.

STATEMENT OF DR. ARVIND SUBRAMANIAN, SENIOR FELLOW, PETERSON
INSTITUTE FOR INTERNATIONAL ECONOMICS AND THE CENTER FOR GLOBAL
DEVELOPMENT, WASHINGTON, DC

Dr. Subramanian. Thank you very much, Chairman Casey, Vice
Chairman Brady, for inviting me to this important panel, which
I think comes at a critical moment for the United States and
the World.
I want to make a few key points, focusing on how the U.S.
should engage with the international trading system, and China
in particular.
The first point: Creating and maintaining an open trading
system has been good for the U.S., good for the world, and good
for China, and one of the major achievements of American global
leadership.
Today the U.S. needs the system more than ever before. Why?
As Vice Chairman Brady said, after the crisis it has become
clear that U.S. prosperity depends upon transitioning from a
growth model that is less reliant on consumption and more on
investment and export, as outlined in President Obama's Export
Initiative.
Sadly, at the time when the U.S. needs this most, it is
also the time when public support for open trade is diminishing
sharply--and especially among those traditionally in favor of
free trade.
To be candid, Distinguished Members, current U.S. trade
policy vision and strategy, if indeed there is one, is either
unclear or ineffective, or both. The United States needs a new
strategic vision which will have two planks: a domestic plank
and an international plank.
International competitiveness begins at home. For the
medium run, this means strengthening American technological
capability, improving the education system, and creating a
regulatory climate that fosters entrepreneurship and
innovation.
The other domestic plank relates to the short run.
Increased global integration can impose distributional costs
domestically, especially on certain relatively low-skilled
workers and communities. Protecting them is desirable, but it
is also vital to shore up the fraying support for the important
objective of keeping global markets open.
This requires an effective and strengthened social safety
net to help those affected by trade and other dislocating
forces so that they do not suffer overwhelmingly and so that
they can be retooled and retrained to remain economically
engaged and active. This safety net would be a worthwhile, even
necessary, investment.
Then, the international plank. The U.S. must also engage
internationally to maintain the current rules-based
multilateral system not just to promote exports in
manufacturing, which is very important as Chairman Casey said,
but also to foster U.S. competitive advantage in tradeable
services.
Now China will be a critical part of this engagement, not
least because its policies--notably on the exchange rate, but
also government procurement services, access to rare earths--
will be critical for the United States. For example, my
colleague Bill Kline estimates that China's exchange rate is
undervalued by about 15 percent, and that, in current
conditions of slack resources in the U.S., eliminating the
undervaluation would add about 500,000 jobs to the U.S.
economy.
But one thing I really want to emphasize here--and this
flows from my book, which you so kindly introduced, Chairman
Casey--is that China has just become too economically dominant
for the United States to engage on its own. It is a sobering
reality, but one that needs to be accepted.
Fortunately, the desire and concern to ensure that China
will remain a force for good is shared amongst other larger
trading countries. For example, all these countries have
similar concerns on the exchange rate.
This provides an opportunity for the U.S. to embark on a
new strategy which I would call ``muscular multilateralism''
which would bring together the U.S. and trading partners to
engage with China on trade issues.
One concrete way to realize this muscular multilateralism
is to move beyond the Doha Round and start a new round of trade
negotiations which I call ``the China Round'' because I must
emphasize that the Doha Round as we know it is dead and beyond
rehabilitation. We need a new effort that focuses on the key
issues: exchange rates, government procurement, services,
technology, policy, and access to key resources, which are very
critical for China's trading relations with the U.S. and other
industrial countries.
Achieving this will not be easy. It will not be quick. But
it must be tried. And I believe that in the medium term China
too will have an interest in investing in the open system.
As a corollary, I think we must be very--the U.S. must be
very careful about engaging in bilateral regional agreements.
In short, neither the Doha Round nor the U.S. acting on its own
has worked. It is time for a new vision and strategy, time for
what I call a muscular multilateralism.
Thank you very much.
[The prepared statement of Dr. Arvind Subramanian appears
in the Submissions for the Record on page 30.]
Chairman Casey. I'll tell you, you are only 11 seconds
over. That is pretty good.
Dr. Levy.

STATEMENT OF DR. PHILIP LEVY, RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC

Dr. Levy. Chairman Casey, Vice Chairman Brady, thank you
very much for the opportunity to testify today on the
importance of international trade to American wellbeing.
The United States has a proud bipartisan tradition of
leading the world in economic integration. The country has
benefitted enormously from the open rules-based trading system
it helped create.
In difficult economic times, the remaining shortcomings of
the system can become particular salient. There are countries
who do not abide by the letter or spirit of global trade rules.
There are important areas of commerce that remain uncovered by
international agreements where we have yet to set rules to
govern fair play. And many countries retain significant
barriers against U.S. goods and services to their detriment and
ours.
This just demonstrates that work remains to be done. U.S.
leadership is more important than ever. A well-functioning,
open trading system is critical to America's future prosperity.
The United States is uniquely positioned to build and
sustain such a system. Revising U.S. leadership in trade would
not only lay the foundations for long-term U.S. economic
wellbeing, it would also send a positive short-term signal to
U.S. employers about an improved business climate and the
prospect for new economic opportunities.
These are the conditions in which investors in the U.S.
economy--both foreign and domestic--will create new jobs.
Why might we foresee a bright future for the United States
in trade? While forecasts of economic variables can sometimes
be sketchy, there are other trends in the world that are much
more predictable. And I will rely on two.
The first is demographic. While the U.S. population is
aging, it is doing so much more slowly than populations in the
major surplus countries of the world economy--Germany, Japan,
and China. As a general rule, an aged population will consume
more and produce less. As much as China may currently appear an
unstoppable juggernaut, the size of its labor force is set to
peak and then begin to decline in the near future. This is an
instance in which extrapolating from recent experience can be
highly misleading.
The second long-term tendency related to the first is that
those who have made loans will ultimately wish to be repaid.
The United States has run a Current Account deficit for
decades. The value of goods and services that we have imported
exceeded the value we sent back in exchange. The difference can
be thought of as IOUs issued abroad.
These IOUs ultimately are claims on future production of
U.S. goods and services. When aging populations around the
world cash in their IOUs, they will be providing a new net
demand for U.S. goods and services. In such a world, the United
States will rely heavily on the rules and sureties of a healthy
global trading system.
The prospect of the United States as a surplus country is
hardly the only reason to support an open trading system. There
is a natural tendency to equate exporting with economic
success, but this sort of mercantilism was discredited long
ago.
In the recent financial crisis, we saw the U.S. Current
Account deficit decline at the same time that unemployment
painfully rose. The simple arithmetic whereby exports are
proportional to jobs gained and imports proportional to jobs
lost is both theoretically unsound and empirically unsupported.
Yet international trade remains suspect in the United
States, frequently seen as an affliction more than an
opportunity. In my written testimony I discuss a number of
popular misconceptions about trade, including the different
role of trade when there is globally integrated production, and
the misleading nature of bilateral trade imbalances.
In the interests of time, I would like to focus here on a
third central misperception: the idea that there is a fixed
number of manufacturing jobs in the world. If a manufacturing
job is lost in the United States, it must be found somewhere
abroad, the reasoning goes; hence, the ``offshoring'' of U.S.
manufacturing jobs.
Yet, while U.S. manufacturing employment was falling in
relative and absolute terms in recent decades, manufacturing
output was rising dramatically. The difference in the
employment and output trends is due to a major increase in
manufacturing productivity, as Vice Chairman Brady referenced.
As production technology has advanced, many countries have
seen manufacturing shift to less labor-intensive techniques.
For the U.S. manufacturing jobs that have been lost to
technological change, no amount of misdirected railing against
foreign trade will bring them back.
So far I have argued that trade presents the United States
with a significant economic opportunity and that many of the
common popular objections to open trade are flawed. How then
can the United States take advantage of this opportunity?
The country must reclaim its role as a leader in global
trade liberalization. It can do so through multilateral bodies
such as the World Trade Organization that Arvind referenced, or
through regional groupings such as the TransPacific
Partnership.
To have credibility in any of these fora, however, a
prerequisite is the passage of the pending Free Trade
Agreements with South Korea, Colombia, and Panama. Those
agreements will benefit the U.S. economy directly by lowering
barriers to U.S. exporters and stimulating economic activity.
Even more important, however, will be the reassurance to
countries around the world that the United States is a credible
economic partner.
There is much more to a successful U.S. trade policy than
passing the pending FTAs, but it is an indispensable first
step. Then, serious work must be done to restore trade
negotiating authority, or TPA, to the Executive Branch.
Once these two steps are accomplished, the United States
will then be equipped to reclaim its position of global
leadership in economic matters. In that position, it can work
to shape global commercial rules and standards in a favorable
way and ensure market access for the country's producers and
employers. This will work to the benefit of all sectors of the
U.S. economy, certainly including manufacturing. I thank the
Committee for the opportunity to discuss these issues and look
forward to responding to any questions you might have.
[The prepared statement of Dr. Philip Levy appears in the
Submissions for the Record on page 43.]
Chairman Casey. Doctor, thank you very much. Mr. Slater.

STATEMENT OF MR. GREG SLATER, DIRECTOR, GLOBAL TRADE AND
COMPETITION POLICY, INTEL CORPORATION, WASHINGTON, DC

Mr. Slater. Thank you, Chairman Casey, and Vice Chairman
Brady, I appreciate the opportunity to appear before you and to
discuss manufacturing and international trade issues.
Intel is a leading manufacturer of computer communications
and network products. We currently have 44,000 employees in the
U.S. We generated over $40 billion in revenue last year from
sales to customers in more than 120 countries.
Even during the strained economic climate, Intel has
continued to invest in the U.S. to stimulate economic and job
growth. Since 2009, the company has announced plans to build
two new factories in Oregon and Arizona, and upgrade
manufacturing facilities in those two states, and in New
Mexico, which will require $18 to $20 billion in investment,
and create 15,000 construction jobs and thousands of more
permanent jobs, all of which are sustained by sales overseas.
I want to briefly make four points today in support of the
need for the U.S. Government to pursue an ambitious trade
agenda, even as it explores ways to improve our manufacturing
ecosystem at home. Each of these points is discussed in detail
in my written submission.
First, many industries are highly dependent on market
access overseas to maintain and create jobs at home, including
ours. While Intel manufactures three-quarters of its products
here at home, we generate more than three-quarters of our
revenue overseas. And this operating profile is similar to that
of our industry colleagues.
Our ability to export and sell to the 95 percent of
customers overseas is critical to our earnings and has led to
record earnings during these turbulent times, even as our
economy has suffered. Robust FTAs are critical to market access
and continued growth.
Second, we need to implement the pending FTAs with Korea,
Colombia, and Panama as soon as possible. These three FTAs will
provide significant benefits to the U.S. economy that USTR,
USITC and others have documented. But every day that they are
not passed, we fall further behind. For example, South Korea is
our seventh largest trading partner, yet the U.S. share of the
Korean market has declined over the last several years. China,
Japan, and Europe all enjoy greater market shares now, and our
share will continue to decline unless the U.S.-Korea FTA is
implemented, because Korea continues to negotiate more trade
agreements and already has trade agreements with India, Chile,
Singapore, and others, and is negotiating additional ones,
putting American companies and workers at a severe competitive
disadvantage.
As a result of the EU-Korea FTA, EU exports to South Korea
already have increased 44 percent from the time it was
implemented on July 1st to July 20th as compared to exports
during the same time period in 2010, while U.S. exports during
the same period only increased 8.5 percent.
Similarly, if you look at the U.S.-Colombia trade, the
Colombia market being a $32 billion market, our share is
expected to drop considerably now that the Canada-Colombia FTA
is in effect.
The U.S. share of Colombia's total imports of wheat, corn,
and soybeans, for example, has already fallen from 71 percent
in 2008 to 27 percent in 2010 because of the implementation of
Colombia's Trade Agreement with Merkerser.
Third, we need to pursue and enter into other robust free
trade agreements on an accelerated basis. Vice Chairman Brady
already cited some statistics here. Let me just say that trade
flow data shows how important these FTAs are to the U.S.
economy. Trade with just the 17 countries with which the U.S.
has an FTA accounted in effect for approximately $1.1 trillion,
or nearly 34 percent of total U.S. trade. And yet, those 17
countries only represent 7 percent of the world economy.
U.S. exports have increased dramatically every time an FTA
has been implemented. U.S. exports create and sustain U.S.
jobs, and robust FTAs open up new markets to our exports and
reduce the cost of doing business overseas. We need more FTAs
to create more U.S. jobs.
Fourth, as has been mentioned already, USTR needs to
improve these FTAs. It has done so, but it needs to further
refine them to address a host of emerging domestic market
preferences being used by governments to increase domestic R&D
innovation, IP, and manufacturing. China is no longer the only
country developing indigenous innovation policies. Moreover,
FTAs also need to take into account the trade challenges that
arise from rapid technological developments in a digital
economy.
These include discriminatory national standards, which have
been mentioned, as well as legitimate concerns around security,
privacy, and intellectual property leakage such as trade
secrets that are created in part by global data flows.
The TPP provides a great opportunity to effectively address
these challenges, but we need to continue to make sure as, Mr.
Chairman, you mentioned, that these agreements are looked at
through the lens of how are they going to protect and create
more U.S. jobs.
Intel thanks you for this opportunity to testify. We look
forward to working with you to develop a more aggressive and
robust trade policy to create additional U.S. jobs.
[The prepared statement of Mr. Greg Slater appears in the
Submissions for the Record on page 50.]
Chairman Casey. Thank you, Mr. Slater.
Mr. Bloomingdale.

STATEMENT OF MR. RICK BLOOMINGDALE, PRESIDENT, PENNSYLVANIA
AFL-CIO, HARRISBURG, PA

Mr. Bloomingdale. Good afternoon, Chairman Casey, Vice
Chairman Brady, and Committee Members:
My name is Rick Bloomingdale. I am President of the
Pennsylvania AFL-CIO, a federation of unions representing over
800,000 union workers.
It is an honor for me to testify today on behalf of
policies that will help make the United States of America and
Pennsylvania more competitive. I propose three steps to achieve
this goal:
The first step is to establish a manufacturing policy that
will put ``Made in the USA'' back in the forefront of the
global economy.
The second step is to establish an effective assistance
program for trade-displaced workers.
The third step is to capitalize on the contributions that
unions can make to revive our manufacturing foundation.
The first step to revising America's manufacturing
foundation is to put ``Made in the USA'' back in the forefront
of our global economy. I travel around Pennsylvania quite
extensively and talk with Union members, unemployed workers,
and local business leaders who wonder why our trade policies
seem to encourage outsourcing and discourage hiring Americans.
Our policy of free trade instead of fair trade has caused
the flight of millions of family-sustaining jobs. NAFTA is an
example. It was promoted as a way to create hundreds of
thousands of jobs in America. However, our manufacturing jobs
continue to decrease and our trade deficits with Canada and
Mexico continue to increase.
NAFTA is only one example of bad trade policies that have
contributed to Middle America's declining incomes. The trade
deficit with China has eliminated or displaced 2.8 million jobs
in America, 1.9 million of which were in manufacturing. In
Pennsylvania, the trade deficit with China has eliminated or
displaced 107,000 jobs.
At a recent meeting with Chinese wind industry
representatives and government officials, I was told that I was
the first American whom they had heard say that we want to
bring manufacturing back to the United States. They said
everyone else seems to want to manufacture in China. I just
hope they were being polite to me.
The point is, most countries have trade policies that aim
to protect their citizens and their economies. To protect
American citizens and America's economy we must secure more
balanced trade policies to promote our manufacturing.
Manufacturing must come back to the United States.
Manufacturing is the foundation of a strong economy. It is the
highest multiplier of ancillary jobs in our economy.
Manufacturing creates a demand for raw materials, creates a
demand for transportation to move raw materials and finished
products, and it creates a demand for commercial media to
communicate the availability of products.
Manufacturing creates a demand for wholesalers and
retailers. All of these foregoing demands are satisfied by a
supply of workers. America has a great supply of workers, great
in numbers and distinguished by a great work ethic and great
accomplishment. However, too many Americans are not employed,
especially in manufacturing, as they should be.
Now, too many Americans vie for jobs that yield less
disposable income and a downward spiral of demand-side
recession begins on Main Street. Demand decreases, businesses
close, unemployment increases.
America's economy is ailing because products made in the
USA are decreasing. One way to help restore America's
manufacturing foundation is for the United States to legislate
trade policies that are more balanced.
The second step to reviving our manufacturing foundation is
to properly assist trade-displaced workers. So long as American
workers lose their jobs to outsourcing, it is vital to our best
national interests to continue the Trade Adjustment Assistance
Program.
Trade-displaced workers also deserve training programs for
jobs in demand that will support a family. The question has
become: Which jobs will be in demand that will support us?
This brings us to the third step to revive America's
manufacturing foundation: Capitalizing on contributions that
unions can make.
Unions can help revive America's manufacturing foundation
in four ways:
First, unions are in a unique position to satisfy
manufacturers' demands for properly trained workers. TAA
recipients have told us that they want to be trained for jobs
that exist now so that they can get back to work. That is why
it is essential that we work with local business organizations
to determine what skills they need so that we can get people
back to work.
For instance, while working with the Manufacturers
Association of South Central Pennsylvania, we found that small
machine shops needed trained machinists and tool and die
makers. Unfortunately, those small businesses could not do
their own training, so we tried to find some state and federal
funds to help get people trained.
Now the South Central Manufacturers Association has a
terrific apprenticeship program that serves both union shops
and nonunion shops. One of the biggest improvements that we
could make in job training is matching job needs with that
training.
Manufacturers must invest in current and future workers
because they increase premium on skills and high rates of
retirement. Better wages and benefits would enable
manufacturers to compete for the most talented new workers.
Also important, a revival of manufacturing unions could ensure
that workers have the voice and dignity on the job that helps
attract and retain workers.
Second, skill-based manufacturing unions can also spur
innovation in America, including in new markets spawned by
ongoing technological innovation--for example, robotics and the
emergence of a clean economy.
In Pennsylvania, we have begun a partnership with Carnegie
Mellon University to examine the future of work and job growth
trends. Pennsylvania AFL-CIO, with some of Pennsylvania's great
engineering universities, currently seek how to provide workers
with the skills they need to develop, manufacture, and
commercialize new technology spinoff products.
Third, unions block the low road. That is, unions make it
harder for companies to compete using low-wage strategies that
are a dead-end game for America because low-wage countries can
always beat us at this game.
The fourth way by which unions can help revive America's
manufacturing foundation is by enabling middle class wages to
keep pace with global marketing. The role is simply an update
in globalization of the national argument circa the 1930s that
collective bargaining helped lift us out of the Great
Depression.
At present, the broken link between wages and productivity
growth means that countries such as China and Mexico cannot
consume their own manufacturing output, so they must sell it to
us.
Union revival in America and union growth in our trading
partners can help get us to a global New Deal, Made in the USA.
I believe one of the best ways to revive U.S. manufacturing was
the help of labor unions that have a central role in skill
development and innovation. To distill my point to a sentence:
We can't get to a high road in American manufacturing, and
we can't rebuild the American Middle Class without the help of
broadly based high-road manufacturing unions.
Thank you very much for your time.
[The prepared statement of Mr. Rick Bloomingdale appears in
the Submissions for the Record on page 62.]
Chairman Casey. Thanks very much. I will start the round of
questions, and then Vice Chairman Brady will follow me.
I wanted to start with two experiences I had traveling
across Pennsylvania, just two products, two companies that get
to the question--and I will get to China currency in a moment
because I think that is an important topic--but this whole
problem of intellectual property theft, or infringement.
One is Martin Guitar in the Lehigh Valley, the eastern side
of our state. They have been making guitars for I think it's
150 years. Only the trained eye could detect or ascertain what
has happened to their product, but they have got some folks in
China who have basically stolen that product and made phony
knockoff guitars in China. That is one example.
The second was Zippo Lighters. People across the country
know that product from north central Pennsylvania. I visited
there and they were able to show me the same problem just in a
different product. Folks in China have produced a knockoff
product.
I would ask I guess either of our first two witnesses if
you have any advice for--and maybe Mr. Slater does, as well,
and Mr. Bloomingdale--if you have advice for any manufacturer
who is confronted with that kind of infringement, any advice
you would have for those who face that kind of infringement.
Much of it is persistent, and much of it is without any remedy,
or at least any actionable remedy that they can turn to.
Is there anything you could tell us by way of advice for
those companies?
Dr. Subramanian. Thank you, Senator Casey, for that
question. I used to--in fact, I was one of the people who
drafted the Intellectual Property Agreement in the GATT and
then the WTO, and it seems to me that China has clear
obligations not just on the rules of intellectual property, but
in terms of their enforcement.
So I think that the U.S. needs to be much more proactive
about bringing many more disputes to the WTO vis-a-vis China in
relation to enforcement of intellectual property rights. I
think there are a couple that are in the pipeline already, but
I think the U.S. needs to be much more proactive in bringing
these cases to the WTO.
Chairman Casey. Is there anything about that process,
though, that you think needs to be improved, amended somehow,
or do you think it is just a matter of making sure that more of
those actions are brought in front of the WTO?
Dr. Subramanian. I think I would just make two
observations. One is that I think the general reading of the
WTO dispute settlement process is that it is a little bit slow,
but finally the judgments are good. It works reasonably well,
as these things go.
And second, the virtue of bringing a body of cases is that
then you create, you know, a clear kind of impression that
China is falling short in terms of adhering to its
international obligations. And I think that opprobrium of being
in violation of clear international norms which the world
community abides by, that is a pretty powerful weapon we have,
the rest of the world has, vis-a-vis China.
Chairman Casey. Dr. Levy.
Dr. Levy. Thank you, Chairman.
I think I would raise a couple of points. First, I am not a
lawyer but we do have provisions such as Section 3.37, which
provides some recourse when there is clear evidence that
someone's intellectual property rights are being violated. And
I agree with you completely that that is important and
unacceptable when that is happening.
I guess in addition to what Arvind just said, I would say I
think we probably do need a strengthening of global trade rules
along these lines. I think China made quite a few--undertook
quite a few obligations when it joined the WTO, or the GATT at
the time. I think the problem is there have been some
questions, for example, of do they need to go about--what is
the level of enforcement domestically that they need to
undertake? Do they need to do any sort of extraordinary
measures relative to the kind of enforcement difficulties that
many developing countries have. And that is giving them
something of an out.
So I think this is the kind of thing where if we had
successful new global negotiations, it is certainly a point
that U.S. negotiators would want to stress.
And the last point I would mention is, I think we
sometimes--there is a question about enforcement of why we
don't do more at the WTO. My experience has been that it is
sometimes the case that complainants are less than willing to
be the public face of a complaint against China. That is
probably not as true when it is a small U.S. manufacturer
competing, but for the larger ones who would have the resources
to press a case like this, that may be an obstacle.
Chairman Casey. Thank you for that. I will ask one more
question before my time runs out.
I would ask Mr. Slater or Rick Bloomingdale about the
impact as you see it of China's currency policies, from your
own vantagepoint, or from your own observations or experience.
Mr. Slater. Well for us it is a wash. It's neutral, because
we have raw materials going into China. We've got product
coming out of China. And we are in probably a different
position than some other industries. And so it is not--and I
think one of the other witnesses said this--we would much
rather focus the efforts on some of these indigenous innovation
policies that are hurting companies, and the counterfeiting
problem.
Mr. Bloomingdale. In terms of the currency manipulation,
obviously--and I am not an expert on currency or anything like
that--but I do see the impact in Pennsylvania. You mentioned
Martin Guitar and the theft of intellectual property, but you
also see more and more like tools and things made in China
coming over.
In Pennsylvania we make Channellock Pliers, up in
Meadville, Pennsylvania, but more and more you are seeing
knockoffs, counterfeits. I do not know how much of that is due
to their currency manipulation or the fact that, you know, we
cannot sell Channellocks in China, but they can sell their
stuff here. I mean there seems to be an imbalance somewhere,
and I think we really need to figure out a way to address that
so that our products, which are the best in the world, can
compete globally.
Dr. Subramanian. Can I----
Chairman Casey. I am two minutes over. I will get back to
you.
Dr. Subramanian. Okay.
Vice Chairman Brady. Thank you, Chairman.
I have a China question as well that I would like to make
in our second--are we going to go to a second round?
Chairman Casey. Oh, sure.
Vice Chairman Brady. I will reserve that.
I want to thank all the panelists here. There are a broad
range of opinions, but this is critical. And each is coming
from their personal experience and their organizational
educational studies.
I wanted to ask Mr. Slater, you are a job creator. Your
company is a job creator in America. You are competing in the
global marketplace. Much of your sales is overseas in a growing
area. Much of your workers are here in America. You do have
some manufacturing facilities close to the customers, but you
continue to make, and have announced multibillion dollar
manufacturing facilities here in America close to the
innovations, the R&D that you as a company invest in very
heavily.
So the question is: For a company like yours, how hard is
it to make that--financially to make the choice to manufacture
in America? Is our tax structure punitive for companies like
yours? Is it harder without trade agreements to have a level
playing field to compete against, as you do compete around the
world? Do we make it tough for companies to make that
manufacturing decision here at home?
Mr. Slater. Thank you. There are multiple component sets. I
will try and be brief.
The corporate tax rate is definitely a disadvantage. We
have the second-highest rate in the OECD. It is painful. There
is at least a billion dollar cost difference between setting up
a manufacturing facility here in the U.S. and one overseas.
We are able to take that pain, if you will, because we have
the talent here, and the intellectual property here, and the
innovation here, and that can compensate for the additional
cost.
But we are a leading manufacturer, and as such make more
profit than some of our colleagues. And so the tax difference
may hurt others more than they hurt us. It certainly hurts us,
but we continue to manufacture here because of the reasons that
I mentioned.
Vice Chairman Brady. Can I go back a minute? Did you just
say it costs you one billion dollars more to locate that
manufacturing plant here than in some other locations?
Mr. Slater. At least one billion dollars.
Vice Chairman Brady. A billion?
Mr. Slater. Yes.
Vice Chairman Brady. And how much of that is due to wages,
regulation, or tax costs?
Mr. Slater. Most of it is due to tax. Close to 90 percent--
I do not have the exact figure; it is the high 80s, 90 percent
of it is tax. Wages and raw material costs are a small fraction
of the actual, the additional cost.
Vice Chairman Brady. Thank you, Mr. Slater. Therein lies
the problem right there.
Dr. Levy, it is common to hear around Washington that trade
is a race to the bottom. Yet with our Free Trade Agreements,
the opposite seems to be true. When we insist on two-way trade,
when our agreements insist on a level playing field, where
there are rules for investment, environment, labor, where there
is incentive to create rule of law and a higher standard of a
number of issues, where expropriation is negligible, does it
seem--am I wrong in believing that these agreements actually
create a race to the top in the sense of establishing rules-
based trade that actually raises the standard of business trade
between the countries?
Dr. Levy. No, sir, you are not wrong at all.
I think you have it quite right, especially when we are
talking about trade agreements between the developed world and
the developing world.
Frequently what the developing world is seeing as an
opportunity is the chance to commit to these kinds of higher
standards. They are trying to do this as a way to promote their
own growth and to attract investment. That has often been a
major foreign policy goal of the U.S. We have devoted
substantial sums to try to get Colombia to develop in a more
positive way.
So these agreements, such as the one with Colombia, have
this effect. These countries undertake often more onerous rules
in this respect, and in exchange they grant us greater market
access, which means that they are a very beneficial policy from
the U.S. perspective.
Vice Chairman Brady. All right. Thank you, Dr. Levy.
Yield back.
Chairman Casey. Thanks, Vice Chairman Brady. He was on time
with his questions. I was over.
I wanted to--oh, Doctor, did you want to make a point when
I was wrapping up?
Dr. Subramanian. A point about currency?
Chairman Casey. Sure. Sure.
Dr. Subramanian. On the currency, I want to make two
observations, Senator Casey and Vice Chairman Brady.
One is that, while Dr. Levy is absolutely right in saying
that, you know, we should export more and not import is
outdated, I think the difference is that, at a time when we
have slack capacity and unemployment in the U.S., the trade
deficit does matter for output, the deficit and jobs.
The second point I think is actually a very important
point. If you listen to Dr. Slater, and in fact that is the
kind of general position of American--corporate America, that
basically the exchange rate for them is a bit of a wash, and to
me that explains why the U.S. has not been able to be more
muscular on China currency. Because the domestic political
support for that is not very strong.
So that is why I have always argued that, because the China
current affects many, many other emerging market countries as
badly--Mexico, Brazil--you know, Brazil is imposing antidumping
duties against Chinese currency; India, Turkey, South Korea--
the U.S. has tended to rely too much on wanting to do this
alone and not having the domestic support, and has not spent
enough I think effort, diplomatic effort, in mounting a
coalition on the exchange rate, which in my view could be more
effective and more legitimate in some ways. Because it is not
just the U.S. saying, oh, China is manipulating its currency,
but a multilateral coalition that is saying that.
Chairman Casey. Let me just ask you as well, just to follow
up on that: In your testimony, Doctor, you say--and I am
quoting from, I do not have a page number here, but: ``For a
number of domestic reasons, China will want to change its
exchange rate policies,'' and then you go on to describe why.
Can you sum that up very quickly, why you think on their own
they may be moving in that direction?
Dr. Subramanian. Well I think----
Chairman Casey. I am not sure I buy it, but it is
encouraging.
Dr. Subramanian. But I want to--you know, I do not want to
be too kind of rosy-eyed about that, but I think there are at
least three kinds of pressures on China which might want to
change on its own.
One is that it is facing high inflation, and so they need
to appreciate the currency to bring down the cost of imported
goods.
Second, China discovered in the global financial crisis in
2008 that because it was so dependent on foreign markets its
economy threatened to collapse because exports completely, the
bottom went out under exports, and they were able to offset it
because they could bring in a fiscal package to offset that.
Had they not had the fiscal capability--for example, had
they been like the U.S. in that situation--it would have been
very difficult for them. The exposure created huge
vulnerabilities.
Third, I think there is a constituency in China that wants
to internationalize the currency, and, you know, to make the
Renminbi a reserve currency to rival the dollar. And so these
are three powerful forces which act toward China wanting to act
on its own.
But the caveat of this is that it ain't gonna happen very
soon. It is going to be very gradual. And that is why any
additional external multilateral legitimate pressure that we
can bring upon that, it would accelerate that process.
Chairman Casey. I wanted to move to another topic--I know
we are short on time--to Rick Bloomingdale on Trade Adjustment
Assistance.
Just as someone who has spent a lot of time on the ground
in Pennsylvania talking to workers and representing them and
advocating for them, but also working with a lot of good
companies, how do you view it in terms of the impact that it
can have, especially at these times? And for those who do not
know, one of the things we are trying to do now is to keep in
place some of the enhancements that were put in place in 2009.
Mr. Bloomingdale. Thank you, Senator Casey. You know, one
of the most frustrating things with somebody, and I mean
everybody here understands it, we Americans are tied up in our
work. You know, we are a nation of workaholics, as it were. And
when somebody loses their job, something they have been doing
20, 30 years, I mean that is a tremendously unnerving and
potentially destructive thing when somebody loses that job.
And to have something to fall back on, some kind of
training assistance, especially if it is trade related, because
I think as was mentioned earlier a lot of those jobs will not
be coming back. So to get those folks the training that they
need in order to go on with their lives and get back to leading
productive lives, and raising their families, is critical.
But one of the biggest issues--and we just spent the summer
talking to a lot of folks who were using TAA, and what is good
for the system, and what works in the system. And by the way,
our State got huge marks for our rapid response team, the
Governor's group that goes in and works with factories that are
closing down, to make sure that people know what benefits are
available to them. But what they are really looking for is to
get back to work.
And they want to find, first of all, what the work is going
to be. Because if your steel mill just closed down, are you
going to be able to go to Martin Guitar and make a guitar?
Probably not. I mean, that is a whole different skill,
woodworking versus metalmaking. Although, you know, there are
jobs in, like I said, tool & die, and small manufacturing and
machinists.
So we really need to find a way to match those jobs, that
training with those jobs that are available. For young workers,
for instance, you know, we have a lot of linemen retiring for
the utility companies. It is hard to climb poles when you are
in your late 50s, early 60s. So those jobs, we need to find
kids, young men and women who are willing to climb poles when
it's 30 degrees outside, and get our electricity back on.
So matching that training is critical. If there is some way
to do that in the reauthorization of the law, or the passage of
the new law, to work with again our local business
organizations--we work with the South Central Manufacturers
Association all the time; we work with the Philadelphia
Workforce Investment Board--matching those skills with the jobs
that are available is critical in order to get people back to
work.
Chairman Casey. Thanks.
Vice Chairman Brady.
Vice Chairman Brady. Thanks, Chairman.
China is an important trading partner with us and is
becoming increasingly more important as a customer source for
many American companies.
I think we have made a mistake, focusing in Congress almost
solely on currency. Yes, that is an issue. Clearly it needs to
rise. Although, with quantitative easing ourselves and having
devalued our own dollar by about 15 percent, it is hard to come
to that issue with clean hands.
We do need to continue the pressure on. I agree with Dr.
Subramanian. It has got to be a multinational effort to be
successful in that area.
My question is: Rather than to focus simply on currency,
shouldn't we be looking at the broad range of barriers to full
trade in China? It seems to me, listening to our companies, it
is protection of intellectual property rights. It is indigenous
innovation. It is directed lending, subsidies to certain
companies. Restrictions on raw and rare exports. It's a closed
capital account. There are a number of those barriers, some
obvious, some becoming much more subtle going forward.
If we are to insist that China plays by the rules,
shouldn't we be examining the whole broad range of barriers
that really stop American companies from fully accessing the
China markets?
And, Doctor, I will just go down the line, if you would
like.
Dr. Subramanian. Vice Chairman Brady, I completely agree
with that, although at this stage the exchange rate has
particular salience. I think the issues you have identified are
much broader and very important, and I think we need to engage
China on that.
The question is: How? How do we do that? And my very strong
plea to you would be to do this multilaterally, because lots of
countries out there have very similar concerns. And that would
be my----
Vice Chairman Brady. I agree. I agree. Thank you. And I
also think we need some metrics. You know, there have been
commitments made in dialogues with the U.S., but no real way of
measuring. You know, IPR protections, for example. And there
may be some progress at the national level, but is it being
done at the provincial level, but probably not. So we need I
think a different way of measuring.
Dr. Levy.
Dr. Levy. I agree completely with you that we should be
focusing on these other issues. I think that the analysis that
we have to make in our economic diplomacy is, first of course
what is the impact on the U.S. of these policies? But also, how
likely is it that we are going to be able to bring about
change?
And we need to be cognizant of the fact that we do not get
to present an unlimited number of top issues in negotiations
with the Chinese. And if we dilute our requests too broadly, we
achieve absolutely nothing. And I think what experience has
shown is that policies such as indigenous innovation, rare
earth, some of the investment policies, exactly the ones that
you mentioned, are perhaps more open to change. It doesn't make
them easy, but a much better focus of U.S. policy.
Vice Chairman Brady. Thank you.
Mr. Slater. The metrics would make the nonbinding
commitments made in the GCCT and SNED have more bite. So I
agree with that point.
The other point is, there has been multilateral
collaboration with Europe and Japan on specific issues when
they come up, like government procurement linked to domestic
IP. It would be nice to take a more holistic approach with
those same governments. Here are the principles, whether they
are reflected in WTO commitments or not, that need to be lived
by. Here is what we are going to hold you to. Instead of doing
the whack-a-mole game with Japan and Europe.
Vice Chairman Brady. Thank you.
Mr. Bloomingdale.
Mr. Bloomingdale. Well, like I said, currency manipulation
is not a real area of expertise that I have, but again we
continue to look at policies that China has. They have,
obviously, lower wage rates. We have all heard about the
suppression of workers' rights. Those kind of things that tend
to unbalance the fairness of trading.
And again, you know, the AFL-CIO's position is we are not
opposed to trade, we just want fair trade. And some of the
things you mentioned earlier, Vice Chairman Brady, about having
environmental protections, labor rights, all those things are
critical in promoting fair trade.
Vice Chairman Brady. Thank you. Can I ask a final, with 30
seconds left. You know, we worked hard to move China into the
WTO rules-based trading system because it's like basketball.
There is a reason a college team, a college the size of 1,500
can compete against a college of 50,000 on a basketball court.
It is because they play by the same rules.
We have been very successful in taking China to dispute
issues and settling in advance. Looking back, for America, was
it wise to move China into the WTO?
Dr. Subramanian. Oh, unquestionably. Absolutely no doubt
about that. Unambiguous positive. The question is: Was it
enough? Has China kind of reversed a little bit on that? And
what do we need to do going forward? But to continue that
process.
Dr. Levy. Yes, it was absolutely the right move.
Mr. Slater. We have benefitted a lot from that, personally,
our company. We just need to move them to WTO-plus now.
Vice Chairman Brady. Absolutely. I understand. Thank you.
Yield back, Mr. Chairman.
Chairman Casey. Senator Klobuchar.
Senator Klobuchar. Very good. Thank you very much,
Chairman, and Vice Chairman. It was nice to take a little break
from the Google hearing. There is a lot going on in there.
It is good to be here on such an important topic. I wanted
to say first, I head up the Subcommittee on Commerce on
Innovation, Competition, and Export Promotion, and I have been
really focused, despite the fact that my State is actually
doing much better than the rest of the country when it comes to
the unemployment rate where it is about two points below the
national average, and a lot of it has to do with exports. Our
Ag exports are up 22 percent. And then we are now first per
capita for Fortune 500 companies.
But on the other hand, I have seen the small- and medium-
sized businesses trying to get a piece of that, and make sure
that we are letting them export, and helping them when they
cannot have full-time experts on Kazakhstan in their company, I
have really come to be a big believer in the Foreign Commercia
Service group that works in the Commerce Department in terms of
the vetting they can do of customers for such a small price and
the advice they can give them on where their products could
sell.
I don't know if anyone wants to comment about that, but it
seems to be worth its price. And it is not that expensive. I
don't know if you want to say anything, Dr. Subramanian? No?
Anyone?
[No response.]
Okay, thank you, Mr. Bloomingdale.
Mr. Bloomingdale. I will comment on that. A good friend of
mine is the CEO of a small manufacturer represented by the Mine
Workers who makes stainless steel exam tables. Through the
efforts of the Department of Commerce and our State Department
of Economic Development, it has had tremendous success
exporting more and more of her quality-made exam tables--even
though she has dealt with some counterfeiting with some other
countries.
But those kind of programs are extremely beneficial to our
small manufacturers and can go a long way towards opening up
markets for our small manufacturers that employ lots of folks
in Pennsylvania.
Senator Klobuchar. The other thing I wanted to--I will
start with you, Mr. Bloomingdale, that I have really noticed in
going around my State, is that there actually is a need for
more workers in certain areas.
We had a recent state-wide survey. Forty-five percent of
manufacturers in Minnesota said that it is difficult for them
to attract candidates to fill their firms' vacancies. I know
that sounds unbelievable at this time, but they cannot find a
welder at AgCo in southern Minnesota because there are not
enough people getting those type of two-year technical degrees.
Alexandria Tech in the western part of our State has a 96
percent placement rate right now. And I think one of our issues
here is how we get high school students and then workers who
have been displaced workers who don't have jobs to look at some
of these two-year technical degrees which can tend to be more
tailored to where the needs are. They are no longer your
grandpa's tech schools. They are running the computer systems
that are running the assembly lines, that run Boise Cascade
Paper Mills. Or they are learning to do the robotics that make
the medical devices in Minnesota with the really quite well-
paying job. And that is what I have become really focused on
that as part of our way out of this rut, is making sure that we
have the skilled workers to fill the jobs we have.
I know I came in on the tail end of that discussion about
skill training, but if you want to go at it again with how we
integrate with our tech schools.
Mr. Bloomingdale. And it is not only integrating with our
tech schools, but it is working, as I mentioned earlier,
matching skills with training, the very thing that you just
talked about, and how we get those kids into those programs is
huge.
Too often our high schools focus totally on sending kids on
to college and not into a four-year degree program. We go
through the same things in Pennsylvania where some companies
and some organizations, along with the labor movement, have
started apprenticeship programs for manufacturing in order to
get kids, young men and women, and older displaced workers,
certified for those expanding jobs. You may have a need for
welders. We do, too, but also tool and die makers, machinists,
folks that run robots, not just make them but run the robotics.
Senator Klobuchar. That is exactly right. And not just fix
them when they break, it is running them day to day.
Mr. Bloomingdale. And even, you know, we still have some
garment manufacturing in Pennsylvania. People to repair sewing
machines, which is something you would never think about, but
it is critical that we get those people into those training
programs. Because, you know, those kinds of jobs will be around
because they are here.
Senator Klobuchar. Right.
Mr. Bloomingdale. It is hard to export a maintenance guy
overseas.
Senator Klobuchar. Exactly.
Dr. Levy.
Dr. Levy. Yes, I just wanted to agree and say I think you
have hit upon something very important here. Actually a decade
ago when I was teaching in Connecticut in the midst of a
downturn, there were similar stories in the Hartford Current
about manufacturers who could not fill positions. And it seemed
very, very odd but I think it is evidence of the fact that part
of what we have seen in the manufacturing sector is significant
change, technological change, where there are new skills'
demands. And this is the major challenge of how we get our
workforce to have these skills.
Senator Klobuchar. I think part of it is going to be
working with our high schools around the country to make that
transition, if students are interested, to show them where
those jobs are.
A lot of these two-year degrees are in community colleges,
and technical colleges throughout the country.
The other thing I have found amazing is how they can work,
the Mayo Clinic can work with their local colleges to say,
okay, now we are going to need more nurses in this area in one
year. Because they know. So then they can quickly revamp that
curriculum to get those nurses. So it is just making that a
much higher priority so students are getting degrees that they
can actually use.
Okay, very good. Thank you very much. I now get to return
to fun land over there.
Chairman Casey. Senator Klobuchar, thanks very much.
I want to thank our witnesses. We are just about done, but
I wanted to do something before. I want to make sure this gets
into the record.
Vice Chairman Brady had to go to a vote, but I wanted to
make sure that the written testimony submitted by the American
Apparel and Footwear Association, which is testimony for
today's hearing, dated September 21st, 2011, I want to make
sure that testimony is made part of the record.
[The prepared statement of the American Apparel and
Footwear Association appears in the Submissions for the Record
on page 70.]
Chairman Casey. And then secondly, the statement of Daniel
J. Ikenson, Associate Director for the Herbert Stiefel Center
for Trade Policy Studies, at the Cato Institute in Washington.
His statement, as well, will be made part of the record for
today's hearing.
[The prepared statement of Daniel J. Ikenson appears in the
Submissions for the Record on page 73.]
Chairman Casey. I know we have to go, and I know the time
is short, but I wanted to ask kind of a broader question about
we are going to have a lot of debates in the days and weeks,
and maybe even months ahead, on trade policy.
You heard here both at the witness table from our witnesses
and also from the Members of Congress who have been here today
different approaches to trade, and different strategies, but I
would hope no matter the outcome of any vote on a specific
trade deal that we can get away from this ongoing battle we
have where we have both sides marshalling their forces. We go
and have a vote on a trade deal, and it goes up or down, and
then we move on to something else.
We have to figure out a way I think to arrive at a policy
that is bipartisan, that is shared by business and labor, and
any interested party, so that any trade deal, any agreement can
be judged against that policy.
Unfortunately, the United States of America does not have a
trade policy. We have periodic battles and different
philosophies about trade deals. And I am not saying that is
unhealthy all the time, but I would rather us agree on the
foundation and then we can have a big debate and a big fight
about what comes on top of that foundation.
But I just want to leave it open for the witnesses. We will
have more questions in writing, but anything before we adjourn?
Any point you want to make before we adjourn?
Dr. Subramanian, maybe will just go left to right.
Dr. Subramanian. I agree entirely with what you just said,
Senator Casey. I think it is getting a little bit more
worrisome than just a lack of policy, because actual support,
the kind of bipartisan centrist support for open trade, if you
look at the polls, that is fraying. And that I think needs to
be salvaged quickly with a concerted bipartisan effort so that
at least we are agreed on the basic policy that open markets
internationally are good for the U.S. and good for the world.
And that is something that we work towards.
We can debate the mechanisms, the means, the forums, the
instruments, but that basic consensus is too valuable to lose.
Chairman Casey. Dr. Levy.
Dr. Levy. I would agree with that point, and very much
commend your push towards trying to achieve a bipartisan
consensus on this. It is something that used to apply in trade
policy about two decades ago, and it has been very, very
unfortunate that we have moved away from this and it has become
as fractious as it has.
Chairman Casey. Unfortunately I think we are going to have
to have a vote on these agreements first in order to begin that
conversation, and that conversation, by the way, could take a
lot of years. But we will look forward at least after the big
fight coming up.
Mr. Slater.
Mr. Slater. I really like the idea of a trade policy. And
here is one reason why. There are a number of issues that are
what I call interface issues, where they involve more than
USTR. They involve the DOJ and FTC, if it is an issue that
crosses over between intellectual property and competition,
which are are seeing more and more of.
There is the SOE, the State-Owned-Enterprise issue that we
tend to tackle with specific agreements, rather than apart from
the agreements where it is a calmer environment, an environment
where the different views and the data can be considered and
the judgment is not rushed.
So the interagency process should happen apart from FTAs
and develop this trade policy, and then it would be a much
cleaner--I think a cleaner process.
Chairman Casey. Rick Bloomingdale.
Mr. Bloomingdale. Senator, thank you.
I agree that we need a trade policy, but I also, as I
mentioned in my testimony, we need a manufacturing policy.
Because what we have seen, and whether Americans are right to
blame trade or not, we have seen a decline in their incomes.
They have seen a decline in their incomes over the last 20
years, since some of these big trade agreements that were
highly politicized since NAFTA passed, and since then we have
seen declining incomes, a decline in our manufacturing base,
whatever the cases. So that we need to make sure that, whatever
policies we have, in order to trade with other countries, that
it be fair and have those protections for workers, have the
retraining for workers, have those things that are necessary to
make sure that America's middle class continues to exist and
grow, rather than to decline as incomes decline.
So I think however we get to a trade policy, we have got to
make sure it is one that treats the American workers fairly and
provides a level playing field. Because if they have a level
playing field, America's workers are the best in the world.
Chairman Casey. I couldn't agree more. Thanks very much
everyone. We are adjourned.
[Whereupon, at 3:21 p.m., Wednesday, September 21, 2011,
the hearing was adjourned.]

SUBMISSIONS FOR THE RECORD

Prepared Statement of Representative Kevin Brady, Vice Chairman, Joint
Economic Committee

Chairman Casey, thank you for convening this important hearing.
It is long past time to debunk the myth that the economic freedom
to trade leads to offshoring of U.S. jobs. The facts are just the
opposite. It is the absence of an aggressive, proactive trade agenda
that leaves America falling behind its global competitors and places
our manufacturers at a severe disadvantage when competing for the 95%
of the world's consumers that live outside our borders.
For American manufacturing, trade means jobs. America is the third
largest exporting nation in the world, and our share of global
manufacturing has essentially held steady through the past 30 years.
The concern is that our share of the world's market in manufacturing
has declined significantly while the Chinese share has exploded upward.
If you examine what America sells and ships overseas, it is
manufacturing that accounts for the bulk of U.S. sales abroad. Much of
those sales are in advanced technology and capital goods such as
computers, electronics, scientific instruments and aerospace
equipment--along with chemicals, oil and coal, machinery and equipment
critical to the production of finished products. These are high-value
items, creating high-paying jobs and requiring high-value research and
development.
Trade is important to American workers. Not only is one of every
five American manufacturing jobs tied to sales overseas, workers in the
most trade-competitive industries earn an average compensation package
of $86,000 a year--which is nearly fifty percent higher than they would
earn in the least trade-competitive industries, according to a report
by the National Association of Manufacturing.
Thanks to technology, communications and the internet, more and
more small- and midsized manufacturing firms in America are competing
successfully in the global market.
Make no mistake, the world has changed. It is no longer enough to
simply ``Buy American.'' To grow jobs and remain the world's largest
economy we must ``Sell American'' as well. Yet when American
manufacturers compete around the world they often find themselves at a
disadvantage--victims of an isolationist trade agenda in Congress and
saddled with significantly higher product costs due to excessive
regulation and an increasingly outdated tax code.
The bottom line is that America is falling behind. While for the
past four years Congress has removed America from the global trading
field our competitors in Europe, China and the western hemisphere have
not. They've taken smart advantage of America's benching itself to the
sidelines and established trade agreements that lock in growing
overseas markets and lock out American manufacturers.
Today there are 238 bilateral or regional free trade agreements in
force around the world. The United States is a party to a mere 11.
Today our competitors are negotiating more than 100 market-opening
trade agreements. The United States is currently participating in only
one: the Trans-Pacific Partnership.
If we want our manufacturers to secure new customers and create new
jobs here at home we must get America back on the trade field, fighting
for a level playing field so our manufacturers can compete and win.
That can't happen as long as the White House continues to delay
submitting the three pending agreements with South Korea, Colombia and
Panama. These countries already sell many of their products into
America with low or no border taxes. It's time to turn this one-way
trade into two-way trade and secure an estimated $13 billion of new
sales for American manufacturers, agricultural businesses, and service
companies.
Every day we delay hurts our manufacturers. Europe, China and
Canada have moved aggressively to enter into their own trade agreements
with these countries in order to land customers and contracts in these
growing economies--they take market share away from American companies
as we speak.
There is bipartisan support for these sales agreements today. We
can pass these agreements today. As the President is fond of saying
these days, send Congress these agreements so we can ``pass these bills
now.''
As long as the White House delays and our global competitors
bolster their economies through free trade agreements, we should not be
surprised if both American and foreign manufacturers decide to build
new factories and create new manufacturing jobs outside of the United
States.
Trade isn't the cause of off shoring jobs--it's the antidote.
Landing new customers overseas, making our tax code competitive, and
reducing the price disadvantage from excessive regulation and mandates
will strengthen the hand of America's local manufacturers and create
good-paying jobs here at home.
Final point: It's time to stop blaming trade agreements for the
loss of manufacturing jobs in America.
Technological breakthroughs over the past two decades have made
American companies more productive--like many countries we are
manufacturing more with fewer workers.
The need at times to locate manufacturing facilities overseas is
not a function of trade agreements, but the need to be closer to the
customers--to successfully compete against Europe, China and the rest
of the world for these sales. An estimated 95% of the products produced
in U.S. manufacturing overseas are for customers overseas. Absent a
trade agreement with the host country, this may be the only competitive
choice remaining for our companies.
Why aren't we making a concerted, bipartisan effort to restore
America's business climate so that American companies are no longer
economically punished for locating their manufacturing facilities where
the innovation is occurring?
And while it does not fit on a bumper sticker, the fact is that
America is running a manufacturing trade surplus with our trade
agreement partners--yes a surplus, yes in manufacturing--even with our
NAFTA partners. That's because, when you level the playing field and
play by the same rules, American manufacturing and its workers win.
Our manufacturing trade deficit is wholly with countries with which
we do not have a trade agreement. This is because our competitors have
signed trade agreements in these markets, and we have left our
companies to face tariffs five times higher than these countries face
when selling into the United States.
It's time to stop blaming everyone else and time to start leading
again on trade.
Mr. Chairman, I look forward to the testimony today.

[GRAPHIC] [TIFF OMITTED] T1032.001

[GRAPHIC] [TIFF OMITTED] T1032.002

[GRAPHIC] [TIFF OMITTED] T1032.003

[GRAPHIC] [TIFF OMITTED] T1032.004

[GRAPHIC] [TIFF OMITTED] T1032.005

[GRAPHIC] [TIFF OMITTED] T1032.006

[GRAPHIC] [TIFF OMITTED] T1032.007

[GRAPHIC] [TIFF OMITTED] T1032.008

[GRAPHIC] [TIFF OMITTED] T1032.009

[GRAPHIC] [TIFF OMITTED] T1032.010

[GRAPHIC] [TIFF OMITTED] T1032.011

[GRAPHIC] [TIFF OMITTED] T1032.012

[GRAPHIC] [TIFF OMITTED] T1032.013

[GRAPHIC] [TIFF OMITTED] T1032.014

[GRAPHIC] [TIFF OMITTED] T1032.015

[GRAPHIC] [TIFF OMITTED] T1032.016

[GRAPHIC] [TIFF OMITTED] T1032.017

[GRAPHIC] [TIFF OMITTED] T1032.018

[GRAPHIC] [TIFF OMITTED] T1032.019

[GRAPHIC] [TIFF OMITTED] T1032.020

[GRAPHIC] [TIFF OMITTED] T1032.021

[GRAPHIC] [TIFF OMITTED] T1032.022

[GRAPHIC] [TIFF OMITTED] T1032.023

[GRAPHIC] [TIFF OMITTED] T1032.024

[GRAPHIC] [TIFF OMITTED] T1032.025

[GRAPHIC] [TIFF OMITTED] T1032.026

[GRAPHIC] [TIFF OMITTED] T1032.027

[GRAPHIC] [TIFF OMITTED] T1032.028

[GRAPHIC] [TIFF OMITTED] T1032.029

[GRAPHIC] [TIFF OMITTED] T1032.030

[GRAPHIC] [TIFF OMITTED] T1032.031

[GRAPHIC] [TIFF OMITTED] T1032.032

[GRAPHIC] [TIFF OMITTED] T1032.033

[GRAPHIC] [TIFF OMITTED] T1032.034

[GRAPHIC] [TIFF OMITTED] T1032.035

[GRAPHIC] [TIFF OMITTED] T1032.036

[GRAPHIC] [TIFF OMITTED] T1032.037

[GRAPHIC] [TIFF OMITTED] T1032.038

[GRAPHIC] [TIFF OMITTED] T1032.039

[GRAPHIC] [TIFF OMITTED] T1032.040

[GRAPHIC] [TIFF OMITTED] T1032.041

[GRAPHIC] [TIFF OMITTED] T1032.042

[GRAPHIC] [TIFF OMITTED] T1032.043

[GRAPHIC] [TIFF OMITTED] T1032.044

[GRAPHIC] [TIFF OMITTED] T1032.051

[GRAPHIC] [TIFF OMITTED] T1032.045

[GRAPHIC] [TIFF OMITTED] T1032.052

[GRAPHIC] [TIFF OMITTED] T1032.046

[GRAPHIC] [TIFF OMITTED] T1032.053

[GRAPHIC] [TIFF OMITTED] T1032.047

[GRAPHIC] [TIFF OMITTED] T1032.054

[GRAPHIC] [TIFF OMITTED] T1032.048

[GRAPHIC] [TIFF OMITTED] T1032.055

[GRAPHIC] [TIFF OMITTED] T1032.049

[GRAPHIC] [TIFF OMITTED] T1032.056

[GRAPHIC] [TIFF OMITTED] T1032.050