[Senate Hearing 115-843]
[From the U.S. Government Publishing Office]
S. Hrg. 115-843
THE IMPACT OF ZERO TARIFFS
ON U.S. AUTOWORKERS
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE IMPACT OF ZERO TARIFFS ON UNITED STATES AUTOWORKERS
__________
SEPTEMBER 5, 2018
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Printed for the use of the Committee on Health, Education, Labor, and Pensions
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Available via the World Wide Web: http://www.govinfo.gov
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U.S. GOVERNMENT PUBLISHING OFFICE
31-557 PDF WASHINGTON : 2020
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming PATTY MURRAY, Washington
RICHARD BURR, North Carolina BERNARD SANDERS (I), Vermont
JOHNNY ISAKSON, Georgia ROBERT P. CASEY, JR., Pennsylvania
RAND PAUL, Kentucky MICHAEL F. BENNET, Colorado
SUSAN M. COLLINS, Maine TAMMY BALDWIN, Wisconsin
BILL CASSIDY, M.D., Louisiana CHRISTOPHER S. MURPHY, Connecticut
TODD YOUNG, Indiana ELIZABETH WARREN, Massachusetts
ORRIN G. HATCH, Utah TIM KAINE, Virginia
PAT ROBERTS, Kansas MAGGIE HASSAN, New Hampshire
LISA MURKOWSKI, Alaska TINA SMITH, Minnesota
TIM SCOTT, South Carolina DOUG JONES, Alabama
David P. Cleary, Republican Staff Director
Lindsey Ward Seidman, Republican Deputy Staff Director
Evan Schatz, Democratic Staff Director
John Righter, Democratic Deputy Staff Director
C O N T E N T S
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STATEMENTS
WEDNESDAY, SEPTEMBER 5, 2018
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, Opening statement......................... 1
Murray, Hon. Patty, Ranking Member, a U.S. Senator from the State
of Washington, Opening statement............................... 3
Witnesses
Moore, Stephen, Distinguished Visiting Fellow, Project for
Economic Growth, Institute for Economic Freedom and
Opportunity, The Heritage Foundation, Washington, DC........... 6
Prepared statement........................................... 7
Riley, Bryan, Director, Free Trade Initiative, National Taxpayers
Union, Washington, DC.......................................... 17
Prepared statement........................................... 18
Summary statement............................................ 26
Lee, Thea, President, Economic Policy Institute, Washington, DC.. 26
Prepared statement........................................... 28
Bozzella, John, President and CEO, Association of Global
Automakers, Washington, DC..................................... 31
Prepared statement........................................... 32
Summary statement............................................ 38
THE IMPACT OF ZERO TARIFFS
ON U.S. AUTOWORKERS
----------
Wednesday, September 5, 2018
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The Committee met, pursuant to notice, at 10:06 a.m., in
room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, Chairman of the Committee, presiding.
Present: Senators Alexander [presiding], Isakson, Scott,
Young, Murray, Casey, Bennet, Warren, Kaine, Hassan, Smith, and
Jones.
OPENING STATEMENT OF SENATOR ALEXANDER
The Chairman. The Committee on Health, Education, Labor,
and Pensions will please come to order.
Senator Murray and I will have an opening statement. Then
we'll hear from our witnesses, and then we look forward to
questions and conversations between Senators and witnesses.
There's a lot going on in the Senate today, so people will
be coming in and out. But this is an interesting topic, and we
look forward to it.
President Trump has set as a goal zero tariffs. He said at
the G-7 meeting no tariffs, no barriers. That's the way it
should be. In a meeting a few weeks later with the president of
the European Commission, they said, ``We agreed to work
together toward zero tariffs, zero non-tariff barriers, zero
subsidies.''
Today is an opportunity to make the case why zero tariffs
are good for the U.S. autoworker, and I'll be using the impact
of an essentially zero tariff agreement, the North American
Free Trade Agreement, on the Tennessee autoworker to make my
part of that case.
Let me begin with the story of the Rogue. Rogue is a Nissan
vehicle. It's very popular in the United States. It's a small
SUV. A few years ago, Nissan internally had a competition to
see where to build it, whether in South Korea or Japan or the
United States, and the Nissan plant in Smyrna, Tennessee, which
employs 8,400 people, won that competition. As a result, all of
the Rogues sold in the United States today are built in
Tennessee.
A major reason why the plant in Tennessee was able to win
that competition with South Korea and Japan was because of the
North American Free Trade Agreement and its zero tariff,
essentially zero tariff, polices. Nissan is able to move parts
and even cars back and forth across the North American borders
in order to make a car competitively, one that is low enough
cost and high enough quality to compete in the marketplace.
It's not always been true that U.S. automakers have been
able to build a car competitively. If one reads David
Halberstam's book in 1979, The Reckoning, he talks about how
the Midwestern auto plants, which was most of our auto plants
then, were growing not competitive with European and Japanese
cars and were losing the market. What has happened since then
is pretty remarkable, and it's especially remarkable in our
state.
Let me use a story as an example. Forty years ago, I walked
across Tennessee in a campaign for Governor, spending the night
with people along the way. One family I stayed with was the
Knight family outside Murfreesboro, Tennessee, south of
Nashville. Lillian Knight told me she was sad because she had
twin sons, high school students, and she said, ``They're very
smart, but they'll never get a job around here, and I'll never
see my grandchildren.''
Two years ago, one of those twins, Randy, stepped down as
the CEO of Smyrna's Nissan plant, which employs 8,400 people.
Since that time, we've added the General Motors plant and
the Volkswagen plant and 1,000 suppliers. Auto suppliers are
now in 88 of our 95 counties and are one-third of our
manufacturing workers. One out of 15 vehicles made in the
United States is now made in Tennessee, and none were 40 years
ago.
It's important to us what happens in the auto industry, and
much of all the good that I just described has happened since
1994, when NAFTA and its gradual move toward zero tariffs in
North America went into effect. Tennessee auto jobs have nearly
doubled since 1994. National auto jobs have doubled since 2010.
It's true that many auto jobs were lost in the Midwest, about
3.6 million, since 1994. But on the other hand, about 3.6
million jobs were gained in the Southeastern United States. So
the United States is producing about the same number of cars
today that it did when NAFTA was signed.
Half the cars, nearly, according to the Global Automakers
Alliance, are built by so-called foreign-owned cars, who make
in the United States what they sell in the United States, like
the Rogue. And the practical effect is that in our state, it
means family incomes have gone up, as jobs which paid less are
being replaced by auto jobs which pay more.
Here's what President Trump said at the G-7 summit in June:
``No tariffs, no barriers. That's the way it ought to be.'' And
then later, in July, with the European Commission president,
they said, ``We agreed today, first of all, to work together
toward zero tariffs, zero non-tariff barriers, and zero
subsidies on non-auto industrial goods.''
One of our witnesses, Stephen Moore, wrote in a piece for
the Washington Times in July, quote, ``Zero tariffs would be
the ultimate victory for totally free and fair trade. It would
advantage the United States most because we already impose the
lowest trade barriers.'' Zero tariffs, in my view, are the
right goal. Piling tariffs on top of tariffs, in my view, is
the wrong goal. You don't have to be a math professor to figure
that out.
Nissan says that 70 percent of the weight of the vehicles
it makes in Tennessee and Mississippi are steel. The cost of
steel is up since January by 40 percent, according to Steel
Benchmark. That means a several thousand dollar increase in the
cost of a Rogue made in Smyrna.
Or you can look at President Bush's experience with steel
tariffs. He found out pretty quickly that while there are about
139,000 people--that's today's number--producing steel in the
United States, there's 17 million Americans working in
industries that use steel. He abandoned steel tariffs, because
after about a year, they had destroyed more jobs in the steel-
using industry than existed then in the steel-producing
industry.
We see the same thing in Tennessee. Electrolux, an
appliance manufacturer, has canceled a $250 million expansion
because of the new high cost of steel, even though they buy all
their steel in the U.S. You import steel, put a tax on it, and
everybody else raises their prices, too.
Same with Bush brothers, who can beans, about a third of
all the beans in the United States. They estimate their
revenues will go down 8 percent because of the higher cost of
steel.
Same with Bridgestone. They buy steel cord for tires. None
of that is made in the United States, so they have to pay for
it--the higher price for imported steel. There are 38,000
waivers at the Department of Commerce from people who would
like not to pay the higher tax on steel that's imported.
The zero tariff goal also keeps us from talking about what
I consider to be the wrong goal when we talk about trade, and
that is to focus on the trade deficit, which really is
irrelevant to this discussion. For example, look at the North
American Free Trade Agreement. One of the sticking points still
is dairy between Canada and the United States. The problem is
not a trade deficit. The United States has a trade surplus with
Canada on dairy, a pretty big one. The problem is Canada does
not do for us what we do for them. Reciprocity, or lack of it,
is the problem.
Also, the trade deficit is not a good focus because Mexico,
for example, spends about a quarter of its entire wealth buying
stuff from the United States. The United States spends one-
fifth of 1 percent of what our GDP is buying stuff from Mexico.
So the focus--and a zero tariff places this focus properly--
should be on reciprocity. Is the other country doing for us
what we do for them?
We hope to learn today from distinguished witnesses what
the impact of a zero tariff policy will be on U.S. autoworkers.
What can we learn about the goal the President has talked
about, and what will the impact be?
Senator Murray.
OPENING STATEMENT OF SENATOR MURRAY
Senator Murray. Well, thank you very much, Chairman
Alexander.
Thank you to all of our witnesses for being here today, and
I especially want to thank Ms. Thea Lee, who has a long history
of fighting on behalf of workers for better trade policies. I
appreciate your advocacy.
We don't often talk about trade and tariffs in this
Committee. It's usually a conversation that takes place over in
the Finance Committee. But there is no question that President
Trump's escalating trade war is already hurting a lot of
workers in our country, and things will only worsen on working
families if he continues to pursue these reckless trade
policies. That is something that everyone, not just the Finance
Committee Members, should be worried about.
The Chairman focused on the impact of President Trump's
proposed tariffs on the auto industry--very important, but the
damage done by the President's ill-conceived ideas could go
much further than just the auto industry, and that has the
potential of hurting workers in every industry across all 50 of
our states. As a voice for my home State of Washington, I hope
we can broaden the conversation, because perhaps no state has
more to lose in Trump's trade wars than Washington State.
About 40 percent of all jobs in Washington State are tied
to trade. So whether we're talking about wheat farmers in
eastern Washington or longshoremen who load goods onto ships at
one of our ports on the west side, a lot of workers in my home
state are at risk.
Last month, I had the opportunity to meet with members of
the Agricultural Committee as well as the men and women who
work at our ports, and I have to tell you they are already
feeling the pain of Trump's reckless trade policies. One
example was our fruit tree growers, people who produce those
delicious cherries you all love and our famous Washington State
apples. They have estimated their losses are already in the
tens of millions of dollars for this year alone due to
retaliatory tariffs.
Others are feeling the pain because of the uncertainty of
this administration's ham-handed approach. They are wrapping up
this year's harvest and should be planting for next, and while
the Trump administration is telling them to be patient, they
cannot hold out forever. And as they made very clear to me, a
one-time taxpayer funded aid package like the one the
administration announced this summer is not a long-term
solution, even if it somehow trickled down to every affected
worker, which right now it does not.
What's so important to remember is that our growers and our
longshoremen are just the first to feel the effects of
President Trump's misguided trade war. We know that their
losses will trickle out to workers at businesses I've heard
from, to farm suppliers, to local car dealerships, to regional
businesses and restaurants, to them and their families and
their communities and many more, and that list will go on. The
domino effect is very real. It is urgent for my home state and
for every state. President Trump is playing a very dangerous
game right now, and it's the American workers who are being
forced to pay the price.
How do we craft a trade policy that achieves fair trade and
lifts up U.S. workers? The answer is not to simply eliminate
all trade barriers, including tariffs, but it also is not
President Trump's scatter-shot tariffs. There is a toolbox at
our disposal to help level the playing field. One example:
tariffs can be used carefully and have been by several
administrations to combat unfair trade practices or level the
playing field or improve conditions for workers. But they have
to be used in a strategic, coherent manner that, frankly, has
been missing from the current administration to date.
There are other tools that can be used to achieve fair
trade, including building stronger labor standards into our
trade agreements to make sure our trade partners are respecting
their workers' rights and to make sure American workers are
competing on a level playing field. And labor standards must
not be an afterthought. Meaningful enforcement of basic labor
rights abroad should be at the center of our trade policies.
America's workers are dedicated, they are increasingly
productive, and they are creative. But it is unfair to ask them
to compete against countries who are dumping their products
into U.S. markets with workers making sub-minimum poverty wages
or workers who face deadly violence or intimidation when they
organize for better conditions.
Fair trade should be about respecting workers while growing
jobs here at home and opening up markets for our goods
overseas, not a race to the bottom. President Trump is not
pursuing a rational trade policy that puts our workers first,
and I'm very deeply concerned that if he continues to engage in
this scatter-shot, tit-for-tat trade war while demonizing our
closest allies and long-time trading partners instead of
working with them to root out bad actors and address systemic
issues, it will be the millions of workers in communities
across this country who are forced to bear the brunt of
President Trump's trade war.
Mr. Chairman, I stand ready to work with you as well as
anyone from either side of the aisle who is willing to work on
solutions that restore certainty to our communities and pursue
trade policies that work for our families, our workers, and the
states we represent. Our workers can't wait much longer, Mr.
Chairman.
Thank you.
The Chairman. Thank you very much, Senator Murray.
We'll now hear from our witnesses and then go to questions
from Senators. I will introduce our witnesses.
The first is Stephen Moore, Distinguished Visiting Fellow
with the Project for Economic Growth and the Heritage
Foundation's Institute for Economic Freedom and Opportunity,
currently a senior economic analyst for CNN, former member of
the Wall Street Journal editorial board.
Next, Bryan Riley, Director of National Taxpayer Union Free
Trade Initiative. He has led grass roots efforts in support of
initiatives like the North American Free Trade Agreement and
has researched the domestic impact of trade.
Next, Thea Lee. Ms. Lee is President of Economic Policy
Institute, has previously worked with the AFL-CIO. She has
served on the State Department's Advisory Committee on
International Economic Policy, the Export-Import Bank Advisory
Committee, and the Board of Directors of the National Bureau of
Economic Research.
Our final witness today is John Bozzella, President and
Chief Operating Officer of the Association of Global
Automakers. He has previously served as a Senior Operating
Executive for Cerberus Operations, an advisory company, and
Senior Vice President of External Affairs and Public Policy for
the Chrysler Group.
Welcome again to all our witnesses.
Mr. Moore, why don't we begin with you.
STATEMENT OF STEPHEN MOORE, DISTINGUISHED VISITING FELLOW,
PROJECT FOR ECONOMIC GROWTH, INSTITUTE FOR ECONOMIC FREEDOM AND
OPPORTUNITY, THE HERITAGE FOUNDATION, WASHINGTON, DC
Mr. Moore. Thank you, Mr. Chairman. It is a privilege to
testify before this Committee. I am an economic researcher at
the Heritage Foundation, but my remarks today are my own views
as an economist, not necessarily those of Heritage.
I would start by saying that, Mr. Chairman, you stole my
thunder. I mean, I agree with virtually everything you just
said. You get an A in economics today, because you got the----
The Chairman. I never did before, so thank you.
Mr. Moore. You had it exactly right. And, by the way, I
agree with many of the points that Senator Murray made as well.
Let me start by saying that I also served as a senior
economic advisor to the Trump campaign and so had many
occasions to speak to Donald Trump about trade policy, and he
used to always say that--every once in a while, I would say,
``Well, you know''--then, we would call him Donald--``those are
protectionist trade policies,'' and he would say, ``No, I am
not for protectionism. I'm for''--as you said--``I want
reciprocity. I want a level playing field. I want more trade,
but I want to make sure that it's fair.''
I was always somewhat skeptical of that approach. But I
would say today I'm less skeptical than I was 6 months ago or 9
months ago. I think that, so far, it appears that Trump is on a
right course. I love what you just said, Mr. Chairman, about
the zero tariff policy. This is something that I--and I think
some of the others at this table--have been urging as a
strategy. And you're right. Donald Trump has talked a lot about
this. His chief economic advisor, Larry Kudlow, talks a lot
about that as well.
I think that the Mexico agreement is a pretty good start. I
think we're going to get an agreement in the next few weeks
with Canada. The handshake deal that he has with Europe I think
is a very promising thing, and, as you know, at the end of that
deal, it says the goal here is to get down to zero tariffs so
that we have zero tariffs across the Atlantic. That would be a
very positive thing.
Then, you concentrate your efforts on China. China is
clearly the bad actor on the international scene. They are the
country that is abusing our trade laws and our intellectual
property. So I think it's going in the right direction.
Senator Murray is right that this is a dangerous game.
We're in the fourth inning of the game. So far, it looks like
it's going pretty well, but you never know how this is going to
end.
A second point I'd make is one that you made as well, Mr.
Chairman, which is the U.S. auto industry is healthy in the
United States. It really is, and it's healthy--even it's
recovering big time in states like Michigan, those Midwestern
states. I'm from Illinois, so I'm a Midwesterner. But it's very
strong in the southern states, states like yours, in Tennessee,
Alabama, Texas, and I've been--I travel a lot on my job. I go
to a lot of these factories, and I've seen the economic
vibrancy that's going on as a result of the movement of the
auto industry into the southern states. So that's a very
positive thing.
My kind of view when it comes to auto is if it ain't broke,
don't fix it. This is a positive trend, and I have some charts
in my testimony that show that it's been a healthy recovery for
the auto industry.
The next point I would make is that one of the reasons I'm
opposed to protectionist measures, whether it's steel or
whether it's aluminum or, in this case, whether it's autos, is
that I think we should learn the lessons from the 1970's. We
tried that approach in the 1970's of protecting our industries
with tariffs, and it led to a loss of jobs. It hurt the
American consumer big time. In fact, almost all studies show
that the negative wealth effects to consumers outweighed any
benefits to the protected workers.
But, more importantly, is that what we discovered from
these protectionist policies is that when you gave American
industry a kind of cloak of protection of 20 percent, 30
percent, 40 percent trade barriers, they became fat and flabby
and inefficient. They didn't have to compete, and that's the
worst thing. I'm a big believer--as you said, Senator Murray,
we've got the best workers in the world. If you give American
industry and American workers a level playing field, we can out
compete the Japanese, the Chinese, the Canadians, the Germans,
and so on. And the worst thing to do is to give them a cloak of
protection, which I think in the long run has a negative
effect.
I think we're going to win on these trade policies. As I
was saying, Senator Murray, when you were out, I think you're
exactly right that this is a bit of a dangerous strategy that
Trump is proposing, but I think at the end of the day, I'm an
optimistic, and I think this will work out if we move toward
the policy of zero tariffs with the kind of labor protections,
Senator Murray, that you're talking about.
Thank you.
[The prepared statement of Mr. Moore follows:]
prepared statement of stephen moore
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The Chairman. Thank you, Mr. Moore.
Mr. Riley.
STATEMENT OF BRYAN RILEY, DIRECTOR, FREE TRADE INITIATIVE,
NATIONAL TAXPAYERS UNION, WASHINGTON, DC
Mr. Riley. Thank you, Chairman Alexander, Ranking Member
Murray, and distinguished Senators, for the opportunity to be
here today.
I'm Bryan Riley. I'm with the National Taxpayers Union.
Founded in 1969, NTU is the Nation's largest taxpayer
organization, and we have a long history of opposing import
taxes that drive up prices for American consumers and weaken
our economy.
You know, I think most Americans remember in our
Declaration of Independence the line about no taxation without
representation, and maybe not as many remember the line right
before that which accuses the king of England of cutting off
our trade with all the countries in the world.
Today, you could call any economist at the Economics
Department at Vanderbilt or Washington State or almost any
university in the country, and they would tell you the same
thing. I think they would tell you the same kinds of things
which we heard in the opening statements and in Steve Moore's
comments and in my comments, that these proposed tariffs and
existing tariffs on steel and aluminum and automobiles are a
terrible idea, and they're self-destructive.
You know, earlier this year, NTU released a letter from
over 1,200 economists, including 15 Nobel laureates, who
agreed: ``We are convinced that increased protective duties
would be a mistake. They would raise the cost of living and
injure the great majority of our citizens. Such action would
inevitably provoke other countries to pay us back in kind by
levying retaliatories against our goods.''
NTU strongly supports the kind of zero tariff, zero subsidy
agreements that Senator Alexander and Steve Moore have alluded
to earlier, and we continue to encourage the administration to
move in this direction. However, we are concerned that for the
first time since the end of World War II, we're in a cycle of
increasing tariffs and trade barriers, not just in the United
States, but from our trading partners. A 25 percent tariff on
imported auto parts, for example, clearly would be harmful to
America's autoworkers. It would be additional damage on top of
the steel and aluminum tariffs that are harming America's
workers.
Another point I wanted to be sure and share was this is not
a policy that most Americans, I think, endorsed. When the
Commerce Department held public hearings on tariffs on
automobiles earlier this summer, nobody endorsed the idea.
There was one--the speaker from the United Auto Workers didn't
wholeheartedly endorse it, but didn't wholeheartedly oppose the
idea. But none of the other people speaking endorsed the idea
of new tariffs on automobiles.
NTU went through nearly 2,300 comments that were submitted
online about possible tariffs on automobiles and parts. Only
about 1 percent of the comments were in support of new
restrictions on imports, and these findings are in line with
the public opinion polls, which show that more Americans than
ever are supportive of international trade.
I'm concerned that the U.S. is getting left behind as other
countries are cutting zero tariff deals. If you're a car maker
in Canada or Mexico, you can export to Europe without paying a
tariff. If you're based in the U.S., you have to pay a 10
percent tariff. That's not because of any unfair barrier. It's
because Canada and Mexico have negotiated deals. I see no
reason why the United States should not be able to do the same
thing.
In conclusion, I just want to reiterate that we support the
goal that the President has stated of moving toward a zero
tariff policy. We strongly believe that imposing new regressive
taxes on Americans is the wrong approach for U.S. trade policy.
I look forward to hearing any questions that you all may
have later this morning.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Riley follows:]
prepared statement of bryan riley
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[summary statement of bryan riley]
Trade has been an important part of our country's
history from the very start, beginning with the Declaration of
Independence, which was in part a response to barriers that cut
off our trade with all parts of the world, and the U.S.
Constitution, which created the largest and most successful
free trade area in history.
NTU supports President Trump's stated goal of zero
tariffs, zero non-tariff barriers, and zero subsidies in
international trade. However, we are concerned that for the
first time since the end of World War II, U.S. and foreign
trade barriers are increasing precipitously.
Tariffs harm the economy and weaken U.S. security.
Forcing American manufacturers to pay more for steel
and aluminum has costly implications for downstream industries
like car manufacturing. One study found that when the Bush
administration imposed steel tariffs in 2002, 200,000 Americans
lost their jobs as a result. That was more than total steel
industry employment at the time. A 25 percent tariff on
imported auto parts would further reduce U.S. automaking
employment by imposing a significant new cost on assembling
cars in the United States.
The U.S. automobile manufacturing industry has never
been stronger.
New auto tariffs would be a big, regressive tax
increase on American workers.
Eliminating tariffs on steel, aluminum, and parts
would benefit U.S. autoworkers.
The United States risks being left behind as other
countries negotiate zero-tariff agreements.
NAFTA and other agreements should not impose new
costs on the auto industry, and should not undermine the
ability of the United States to modify its laws to attract
global investment.
Negotiating more zero-tariff trade agreements,
cutting import taxes on inputs used by U.S. manufacturers, and
resisting the impulse to impose new levies on imported cars and
other goods are the right policies for America.
______
The Chairman. Thank you, Mr. Riley.
Ms. Lee, welcome.
STATEMENT OF THEA LEE, PRESIDENT, ECONOMIC POLICY INSTITUTE,
WASHINGTON, DC
Ms. Lee. Thank you, Mr. Chairman. Thank you, Ranking Member
Murray, Members of the Committee, for the opportunity to be
here today for this important hearing.
I am Thea Lee, President of the Economic Policy Institute.
EPI is a nonprofit, nonpartisan think tank, and for just over
three decades, we have analyzed the effects of economic policy
on the lives of America's working families.
I wanted to start by stepping back for just a moment to put
in perspective what has actually happened so far in the so-
called trade war the last several months. While there have been
a number of separate announcements of tariffs on various goods,
all told so far, the total implemented tariffs only affect
about one-tenth of 1 percent of the U.S. economy. There may be
additional tariffs implemented in the coming months and years,
but even those amount to about eight-tenths of a percent of GDP
at most, even assuming that tariffs are applied to all motor
vehicles and parts, imports, after the auto 232 investigation.
Of course, there is a lot of uncertainty about how other
countries may react in retaliation, but even then, it is
important to remember that countries often threaten retaliation
without actually following through. These tariffs that we've
been discussing so far will not by themselves cripple a $19
trillion economy. But, of course, it is important to assess
whether they are working as planned and are as effective as
possible.
It's important to note that tariffs used strategically can
be an important and useful tool. In the case of our trade
relationship with China, specifically, tariffs can provide
essential leverage to address egregious unfair trade practices,
including currency manipulation, illegal subsidies,
intellectual property theft, the non-economic motives and
actions of state-owned enterprises and other problematic
actions.
However, the Trump administration's tariffs have been
erratically implemented, inconsistently messaged, and sometimes
apparently motivated by politics or whim. Rather than seeking
to coordinate, as Ranking Member Murray said, a comprehensive
and coherent strategy in conjunction with our allies and
complementary to our domestic policies, this administration
appears to have no overarching strategy or goal in sight.
Tariffs are designed to change behavior and to disrupt by
their nature. They disrupt both domestic producers, consumers,
and our trading partners. In an ideal world, they are applied
as a short-term strategy to motivate desired behavioral
changes, for example, to motivate opening foreign markets or
ending illegal subsidies or enforcing workers' rights
obligations. Or they can provide short-term relief to an
industry experiencing destabilizing imports. During that
period, prices do rise. They are meant to rise temporarily.
Sometimes, when it's working as planned, that allows domestic
producers to regain their competitive edge and motivates
trading partners to cease their objectionable actions,
ultimately leading to a more efficient outcome and potentially
lower prices and more jobs.
But if we are not clear--if the government is not clear
about our ultimate goals, then our trading partners and
businesses have insufficient information to adjust, and if we
alienate and insult our trading partners, then we cannot
present a united front to address problematic behaviors. And if
our domestic tax and spending policies are contributing to an
over-valued dollar and creating incentives to outsource, then
we are working at cross-purposes.
In fact, the current tariff regime is problematic on a
number of fronts and does not appear so far to be having the
desired effects. The U.S. trade deficit with China is up 8.5
percent through June. The overall U.S. trade deficit is up 7.3
percent, which itself is increasing twice as fast as the
overall economy. So our trade problems with China are getting
worse, not better.
The current administration's trade strategy is likely to
deliver the maximum uncertainty and pain from higher import
prices but little of the gain in increased exports, jobs,
domestic production, and profits that we would get from a more
strategic and coordinated implementation or by realigning,
reducing the value of the U.S. dollar by about 25 percent to 30
percent. Addressing currency misalignment, in our view, is the
single most important step that the U.S. Government should take
to rebalance trade and support good jobs.
In conclusion, we absolutely do need to change and reform
our current trade policy, but not in a haphazard and reckless
way. We need to work together--and I'm glad to see this
bipartisan hearing today--to develop and implement a strategic
trade policy that aligns with our values and goals and that
works as a complement to our domestic policy to create good,
skilled, high-wage jobs in manufacturing and agriculture and in
the service sector.
The key elements of reform include the following: address
currency misalignment, stop seeking additional NAFTA styled
trade agreements that have not delivered, make access to the
U.S. market contingent on respect and enforcement of
internationally recognized core labor rights, and, finally,
develop a real economic plan to help workers in America by
focusing on skills, workforce development, job quality,
infrastructure, clean energy, and expanding a strong social
safety net.
Thank you for your attention. I look forward to your
questions.
[The prepared statement of Ms. Lee follows:]
prepared statement of thea mei lee
Thank you, Chairman Alexander, Ranking Member Murray, and Members
of the Committee, for the invitation to participate in this important
hearing. I'm the president of the Economic Policy Institute (EPI). EPI
is a non-profit, non-partisan think tank based in Washington, DC, and
for just over three decades, we have analyzed the effects of economic
policy on the lives of America's working families.
The policies we've put in place to shape and regulate trade and
globalization have major impacts on the wages, jobs, and communities of
American workers and on the vitality of American industries and the
economy. EPI has examined U.S. trade policy from the perspective of
working families since the early 1990's when NAFTA was first proposed--
raising concerns about currency, outsourcing, and workers' rights. EPI
research assesses the potential economic benefits for the Nation,
states, and congressional districts from negotiating better trade
agreements and curbing currency manipulation and other unfair trade
practices.
What's actually happened
As we begin this discussion, it is important to step back for a
moment and separate fact from fiction on what has actually happened in
the so-called ``trade war'' of the last several months. While there
have been a number of separate announcements of tariffs on various
goods applicable to different countries, all told so far, total
implemented tariffs only affect 0.1 percent of the U.S. economy.
Additional tariffs may be implemented in the coming months, but even
those amount to 0.8 percent of GDP at most, even assuming that tariffs
are applied to all motor vehicle and parts imports after the auto 232
investigation. Of course, there is uncertainty about how other
countries may react in retaliation, but even then it is important to
remember that countries often threaten retaliation without actually
following through.
The steel and aluminum tariffs announced by President Trump in
March affect only a narrow sliver of the U.S. economy and are quite
modest in size. Nevertheless, defenders of the globalization status quo
have responded hyperbolically. For instance, many critics of the
tariffs have referenced a 2018 study by Francois and Baughman of The
Trade Partnership claiming that five jobs will be lost for every new
job created in U.S. iron, steel, and nonferrous metals. EPI has already
produced a comprehensive report explaining why this study should be
considered an outlier and showing that the actual economic impact of
the tariffs will be quite minor.
Tariffs as a tool
It is also important to note that tariffs, used strategically, can
be an important and useful tool. In the case of our trade relationship
with China specifically, tariffs can provide essential leverage to
address egregious unfair trade practices, including currency
manipulation, illegal subsidies, intellectual property theft, the non-
economic motives and actions of state-owned enterprises, and other
actions.
However, the Trump administration's tariffs have been erratically
implemented, inconsistently messaged, and sometimes apparently
motivated by politics or whim. Rather than seeking to coordinate a
comprehensive and coherent strategy in conjunction with our allies and
complementary to our domestic policies, this administration appears to
have no overarching strategy or goal in sight. In fact, my colleague
Rob Scott has referred to the administration's approach as ``tactics in
search of a strategy.''
Tariffs are designed to change behavior--both of domestic producers
and consumers and of our trading partners. In an ideal world, they are
applied as a short-term strategy to motivate behavioral changes (for
example, opening foreign markets or ending illegal subsidies or
enforcing workers' rights obligations). Or they can provide short-term
relief to an industry experiencing destabilizing imports. During that
period, prices do rise--temporarily. Sometimes that allows domestic
producers to regain their competitive edge, ultimately leading to a
more efficient outcome and potentially lower prices and more jobs.
But if we are not clear about our ultimate goals, then our trading
partners and businesses have insufficient information to adjust. And if
we alienate and insult our trading partners, then we can't present a
united front to address problematic behaviors. And if our domestic tax
and spending policies are contributing to an overvalued dollar and
creating incentives to outsource, then we are working at cross
purposes.
In fact, the current tariff regime is problematic on a number of
fronts and does not appear so far to be having the desired effects. The
U.S. trade deficit with China is up 8.5 percent through June (year to
date, over the same period last year), significantly faster than the
overall U.S. goods trade deficit, which increased 7.3 percent, twice as
fast as the overall economy is growing. Our trade problems with China
are getting worse, not better. And the International Monetary Fund
recently projected that the overall U.S. current account deficit will
rise from $466 billion in 2017 to $798 billion in 2020, an increase of
more than 70 percent within the next 3 years. \1\
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\1\ The U.S. trade deficit is expected to rise in the future as a
result of recent increases in the value of the dollar, higher rates of
growth in the United States relative to our trading partners, and
recent increases in the U.S. budget deficits as a result of recent tax
cuts and spending increases included in the most recent Federal budget,
which are expected to surpass one trillion dollars by 2020.
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With sloppily applied tariffs as the centerpiece of the Trump
administration's trade strategy, we can expect to get all of the pain
from higher import prices, but little of the gain (in increased
exports, jobs, domestic production and profits) that we would get from
a more strategic and coordinated implementation or by realigning
(reducing the value of) the U.S. dollar by 25-30 percent. The Trump
administration's tariff policies are also a missed opportunity to work
with our international allies to assemble a coordinated plan. However,
this is not particularly surprising given that the President appears to
approach trade policy as a way to antagonize foreign governments and
grandstand, rather than a critical way to help workers in the U.S.
regain some ground.
Over the past two decades, growing trade deficits with China and
other countries have eliminated millions of good manufacturing jobs in
the United States. These deficits are the single most important cause
of the loss of 5 million manufacturing jobs since 1997 (Houseman 2018),
roughly 30 percent of industry employment, and the disappearance of
nearly 90,000 U.S. manufacturing plants.
One reason we are so concerned about the loss of jobs caused by
flawed trade policies is that the jobs that are directly displaced are
often manufacturing jobs, which provide excellent wages and benefits,
especially compared to the service sector, where employment has been
growing. These manufacturing jobs have often been unionized, and have
generally provided higher wages, on-the-job training, and benefits like
health care and retirement security. And EPI research has shown that
the wage-suppressing effects of our poor approach to globalization and
trade has hit all workers without college degrees across the country--
of all races and ethnicities--not just those in manufacturing who have
lost jobs directly to import competition. While trade-displaced workers
face the largest individual losses, in the aggregate the costs of these
job losses are much smaller than the wider effects of downward pressure
on wages.
Manufacturing also supports millions of good jobs in high-wage
industries such as law, accounting, and engineering and technical
services. And it was also responsible for two-thirds of private sector
R&D in 2015, according to the National Science Foundation.
Yet, instead of striving to create more good jobs with similar
qualities in infrastructure or the clean energy sector, or improving
the wages, labor standards, and quality of all jobs, the Trump
administration and Republicans in Congress have repeatedly attempted to
repeal or undermine the Affordable Care Act, to actively roll back or
stall basic labor standards (including killing a record-breaking number
of workplace safety and other labor regulations through unprecedented
use of the Congressional Review Act), and have failed to take action on
expanding meaningful retirement security for all. This Congress also
recently pushed through the Tax Cuts and Jobs Act, which is likely to
increase incentives to offshore production and profits of American
firms, by providing a major tax advantage for foreign profits over
domestic profits.
What we should be doing on trade policy
In conclusion, it is crucial that we work together to develop and
implement a strategic trade policy that aligns with our values and
goals, and that works as a complement to our domestic policy to create
good, skilled jobs in manufacturing, in agriculture, and in the service
sector. To do that, we need to recognize that our current and past
trade policies have failed on a number of fronts.
The key elements of reform include the following:
Address currency misalignment. We need to abandon the strong dollar
dogma and target a currency that allows for a manageable and stable
trade deficit. We absolutely can manage the value of the U.S. dollar,
and we need to set it at a level that essentially balances trade. This
will give U.S. manufacturing the breathing room it needs to get back a
few million jobs. (See this EPI report on the pervasive negative impact
currency misalignment has had on American jobs and wages.)
Stop seeking additional NAFTA-style trade agreements. There's no
reason to devote policy resources to chasing a ``better trade deal''--
certainly not by negotiating agreements that incentivize outsourcing
and boost the profits of the U.S. pharmaceutical and software companies
while actively subverting the bargaining power of American workers.
Policymakers who want to work across international borders could
instead focus on eliminating tax havens or harmonizing climate policies
to ensure that countries do not free ride on others' efforts to
mitigate greenhouse gas emissions (see the recommendations in this 2017
report from EPI on how to reorient national policy toward measures that
will benefit the U.S. and other countries ).
Make access to the U.S. market contingent on respect and
enforcement of internationally recognized core labor rights. These core
labor standards include the right of freedom of association and the
right to bargain collectively, as well as freedom from discrimination,
forced labor, and child labor. Enforcing these core labor rights is
win-win for workers in all countries. While the U.S. has included some
labor rights provisions in our trade agreements for many years, they
have not been effectively and consistently enforced.
We need a new approach and commitment. Prime Minister Trudeau of
Canada has requested that U.S. ``right-to-work'' laws meant to thwart
collective bargaining be ended as a condition for NAFTA renegotiation.
This is the kind of ambitious, big-picture thinking about how to
leverage trade policy to boost labor's bargaining position that we
could really use in the United States, and it's been lacking from the
Trump administration and recent Democratic administrations alike.
Finally but just as significantly, we need to develop a real
economic plan to help workers in America--by focusing on skills and
workforce development, job quality, infrastructure, the clean energy
transition, and expanding a strong social safety net. The U.S.
Government has its own responsibility to develop and implement a
coherent long-term economic strategy with respect to both manufacturing
and services, both trade-related and domestic. We have failed to invest
adequately in infrastructure and skills for decades, and business has
not filled the void. We have a tax system that rewards capital over
labor and outsourcing over domestic production. It remains riddled with
unproductive loopholes, and--especially after last year's changes--it
fails to raise adequate revenue to fund needed investments. We must use
domestic tax, infrastructure, and workforce development policies to
ensure that American workers and businesses have the tools and skills
they need to compete successfully.
While textbook trade models show that cutting tariffs is win-win,
they also show that the amounts of income redistributed by trade, from
workers at the bottom to those at the top, vastly exceed the gains from
trade. As Josh Bivens and Dean Baker have explained, the textbook trade
models simply imply that the winners from trade gain more than the
losers lose, even if the losers far outnumber the winners. A win for
everyone from cutting tariffs only occurs if the winners compensate the
losers. And that is what we have never done in the United States. It is
incumbent upon us to develop trade, manufacturing and labor policies
that will create good jobs with rising incomes for all working
Americans, especially the 70 percent of the labor force that has
experienced wage stagnation during the past four decades of
globalization.
Thank you for your attention, and I look forward to your questions.
______
The Chairman. Thank you, Ms. Lee.
Mr. Bozzella, welcome.
STATEMENT OF JOHN BOZZELLA, PRESIDENT AND CEO, ASSOCIATION OF
GLOBAL AUTOMAKERS, WASHINGTON, DC
Mr. Bozzella. Thank you very much, Mr. Chairman, Ranking
Member Murray, Members of the Committee. Thank you very much
for holding this hearing today. My name is John Bozzella. I am
the President and CEO of Global Automakers and spokesperson for
Here for America.
Mr. Chairman, I wholeheartedly agree with your assessment
of the benefits that NAFTA has brought to the U.S. and states
like Tennessee. There's just no question about that. And I
agree also that we should be working toward zero tariffs. That
is the right goal. Our concern is that we appear to be going in
a different direction. I'm grateful for the chance to speak
this morning on behalf of the industry, which is united in its
concern over the impact of tariffs on our workers, our
customers, and, frankly, our future.
The industry is already facing additional costs for steel
and aluminum and export restrictions due to foreign
retaliation. The uncertainty associated with the still ongoing
NAFTA negotiations and especially the Commerce Department's
investigation of whether trade in autos and auto parts
threatens national security foreshadow a future of complex and
intrusive rules, higher costs, lower demand, and fewer export
opportunities.
Mr. Chairman, today, 14 companies build cars and trucks in
the United States, with a 15th soon to begin production in
2021. These companies support a value chain of U.S. businesses
across the country. The value chain includes R and D, the
manufacture of motor vehicles and high-value components like
engines and transmissions, the sale and distribution of cars
and trucks, financing, and after sale service.
Directly and indirectly, the United States auto industry
currently employs 10 million Americans. All of these employees
work at jobs and live in communities that will be directly
affected by tariffs on the goods they use and produce. With all
due respect to those with a contrary view, these people are not
leverage or tactical instruments in a game of international
chess. They should be front and center in any discussion of
tariffs, along with our customers, who, of course, will also
share the brunt of these higher costs.
Many of you heard directly from these hardworking Americans
in July when more than 100 autoworkers from U.S. facilities of
international automakers came to Washington from across the
country, many for the first time in their lives, to express
their concern over the effect that high automotive tariffs
would have on their jobs, their families, and their
communities. They drove to Capitol Hill in cars they built
themselves to deliver the message that tariffs are taxes, and
these taxes cost jobs.
Mr. Chairman, as you and other Members of the Committee
heard from these workers, the U.S. auto industry is, in fact,
quite healthy. The vehicles available to American consumers
today are unquestionably safer, cleaner, and better built than
ever before. Amid all the change, the U.S. auto industry is
producing as many vehicles as it has on average during the past
25 or 30 years and selling and exporting American made cars and
trucks at near record levels.
Tariffs like those already implemented and those on the
horizon raise the cost of producing vehicles in the United
States. Higher prices for vehicles made in the United States
and imported from abroad inevitably depress sales. With fewer
sales, we need fewer workers to build our cars, fewer workers
to build parts for those cars, and fewer people to sell and
service those cars.
A better way to strengthen and enhance the American auto
industry is, first, by holding our trading partners accountable
and working toward zero tariffs worldwide for cars and trucks;
and, second, by focusing our policy efforts on the development
of a workforce equipped with the skills necessary for the auto
manufacturing jobs that we have today and that we will have
tomorrow. We don't need tariffs to create U.S. auto
manufacturing jobs. We need more workforce training to fill the
many openings we have right now.
When America does trade the right way, eliminating trade
barriers and expanding access to more markets, we create jobs,
promote innovation, and build the foundation for sustainable
prosperity. When America does trade the wrong way, with
unnecessary and self-defeating restrictions, we raise costs and
prices, depress demand, limit consumer choice, discourage new
investment, and threaten jobs and opportunity.
Mr. Chairman and Members of the Committee, thank you again
for the opportunity to speak to you today and for your work to
promote American jobs, investment, and growth.
[The prepared statement of Mr. Bozzella follows:]
prepared statement of john bozzella
Chairman Alexander and Ranking Member Murray, thank you for the
opportunity this morning to testify before the Senate Committee on
Health, Education, Labor and Pensions. My name is John Bozzella. I am
the President and CEO of Global Automakers \3\ and the spokesperson for
Here For America \4\.
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\3\ The Association of Global Automakers represents the U.S.
operations of international motor vehicle manufacturers, original
equipment suppliers, and other automotive-related trade associations.
For more information, visit www.globalautomakers.org.
\4\ Here For America is an initiative of the Association of Global
Automakers to increase public awareness about the importance of
international automakers to American job creation, economic growth,
technological innovation and strong communities. Visit
www.hereforamerica.com.
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The U.S. auto industry today comprises fourteen companies that
build cars and trucks in the United States. A fifteenth is scheduled to
begin production in 2021. These companies support a value chain of U.S.
businesses all across the country conducting research and development,
manufacture of vehicle components such as engines and transmissions,
vehicle assembly, sales, service, logistics and aftermarket products
and services, employing 7 million Americans. Add in indirect
employment, and their ranks grow substantially.
Thirteen of those fifteen automotive manufacturers may be
incorporated outside the U.S., but they have put down deep roots in the
United States. Several have been building vehicles here for more than
30 years.
All of these 7 million employees work at jobs and live in
communities that will be directly and quickly affected by tariffs on
the goods they use and produce. These people are not tactical
instruments in a game of international chess. Any discussion of tariffs
should put them front and center in the discussion, and that is among
the many reasons we appreciate your convening this hearing today.
Back in July, Here For America hosted the first ever ``Drive-In''.
More than 100 autoworkers from U.S. facilities of international
automakers came to Washington DC from all across the country--many for
the first time in their lives--to express their concern over the effect
that proposed punitively high automotive tariffs would have on their
jobs, their families, and their communities. They drove to Capitol Hill
in cars they built themselves to participate in a press conference at
the U.S. Capitol, followed by meetings with Members of Congress from
both parties, during which they delivered the message that tariffs are
taxes, and that tariffs mean fewer jobs.
Many Senators on this Committee devoted time to hear from these
workers directly. Chairman Alexander met with associates from Nissan
and Toyota who were here from Tennessee. Senator Jones cohosted the
press conference with a bipartisan group of House Members, in which
they highlighted the economic opportunities that Hyundai, Honda,
Daimler, and Toyota have created in Alabama and across the country.
Senator Jones then took time to meet personally with auto workers who
came to Washington from across his home state to further discuss
concerns over potential tariffs. Senator Young energized a packed house
at our welcome dinner, which included Hoosiers who work for Honda,
Subaru, and Toyota. Senator Isakson's staff met with associates from
Kia and Honda who came up from Georgia, and Senator Paul's staff met
with associates from Toyota in Kentucky.
Here's what these people had to say.
John Hall, a maintenance worker at the Hyundai Motor Manufacturing
plant in Montgomery, Alabama, said ``new tariffs on automotive imports
would have a devastating effect. I am one of thousands of American
workers whose livelihoods would be put at risk by a substantial tariff
on automotive goods. It would not be possible to change our supply
chain overnight, and a 25 percent tariff on parts would raise
production costs at our Alabama factory by about 10 percent annually.''
Jennifer Adair, Team Leader in Quality at Toyota Indiana shared
these thoughts: ``My message is simple, I'm an American auto worker and
these tariffs will hurt Toyota. Every day, I go to work at Toyota Motor
Manufacturing in Indiana and ensure the vehicles we build are ready for
our consumers. We produce vehicles that are built here, sold here and
exported all over the world.''
Stuart Countess, Chief Administrative Officer, Kia Motors
Manufacturing Georgia said: ``While we recognize free trade makes the
United States competitive, broad restrictions such as tariffs on auto
and auto part imports will raise costs for our customers and their
families. We don't want to risk losing all of the gains our community
and our team members have achieved, that is why we echo the plea, Don't
Tax My Ride.''
These workers are proud to work at companies providing high-value,
high-tech jobs that continue to contribute significantly to the
communities you represent and know very well.
The city of Chattanooga, Tennessee, became home to the Volkswagen's
newest facility in 2011. Today, VW Chattanooga employs around 3,500
people who have built over 800,000 vehicles, paying out well over $250
million in annual payroll to its manufacturing employees. \5\ These
operations are responsible for supporting an additional 21,000 jobs
through suppliers, port facilities, and transportation services,
accounting for $1.5 billion in incomes for these residents of Tennessee
and Georgia. \6\ Tennessee Governor Haslam said in July,
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\5\ https://media.vw.com/en-us/releases/1055.
\6\ http://cber.haslam.utk.edu/pubs/bfox309.pdf.
``I want to thank all 3,500 employees at the plant. Your brand
has become our brand, and while you are making world-class
vehicles in Chattanooga, you might not know it, but you are
actually helping build Tennessee, as well. We're grateful for
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that and the impact that you've made.''
VW is not the only one making a difference in Tennessee. Nissan
manufacturing facilities around Nashville employ over 12,000 people
directly and pay over $800 million in payroll annually. International
auto manufacturers account for over 16,000 jobs and 5 percent of
Tennessee's Gross State Product. That's a $17 billion contribution to
Tennessee's economy.
The city of West Point, Georgia, has benefited greatly from the
manufacturing facility built by Kia in 2009. Prior to 2006, the
residents of West Point believed that they would become casualties of
the textile flight of the 1990's. That changed when Kia announced it
was building a facility in the city. People were so overjoyed that they
put ``Thank You Jesus for Bringing KIA'' signs in their front yards.
\7\ Since then, Kia has invested $1.6 billion in Georgia to date,
employs over 2,700 people directly, and supports another 14,000
indirect jobs through its suppliers, some only a mile or two down the
road from Kia's facility. \8\ Along with these direct factory and
indirect supplier jobs, Kia supports thousands more jobs in the local
community through retail and restaurant sales. The mayor of West Point,
Steve Tramell, said to NPR in July of this year, ```We've been through
that down time. . . We don't ever want to go through that again.''' \9\
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\7\ https://www.complaintsboard.com/messup/thank-you-jesus-for-
bringing-kia-to-our-town.html.
\8\ https://www.kmmgusa.com/about-kmmg/our-company/.
\9\ https://www.npr.org/2018/07/27/631839199/trumps-proposed-auto-
tariffs-threaten-kia-plant-in-georgia.
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In Lincoln, Alabama, Honda completed a massive production and
management facility in 2001 that now employs over 4,500 workers and
produces three popular vehicles, the Odyssey, the Pilot, and the
Ridgeline, as well as V6 engines that power them. Since the start of
Honda's production operations in Lincoln, Alabama, the entire area
around the Honda facility saw growth in both employment and income.
Talladega and Calhoun Counties, the two closest counties to Lincoln,
gained over 3,000 jobs from Honda and Tier-1 suppliers, accounting for
an additional $380 million of payroll in just these two counties. The
total impact of Honda's facility in Alabama was 43,000 new jobs, $1.7
billion in payroll, and $170 million in state and local tax revenue
going to fund schools and infrastructure projects. \10\
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\10\ https://www.edpa.org/wp-content/uploads/The-2014-Economic-
Impacts-of-Honda-Manufacturing-of-Alabama-LLC-and-its-Tier-1-
Suppliers.pdf
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BMW in Greer, South Carolina, began production in 1994, and the
Counties of Greenville and Spartanburg saw an immediate 2 percent drop
in unemployment. Manufacturing is now the largest economic sector in
both counties. \11\ BMW has invested over $9.3 billion in the Upstate
region of South Carolina and currently directly employs 10,000 people.
BMW South Carolina is now the company's largest production facility in
the world. This investment and commitment to South Carolina has allowed
the city of Greer and surrounding counties to have a reliable pool of
employment and tax revenue. Greer's population has grown by 22,000
since the year 2000, and the city plans to support a population of
100,000 by 2030 through community development projects that include a
complete revitalization of Greer's downtown region, replacing a 100-
year-old sewer system, building a new 100-room hotel, and repaving the
roads and sidewalks. \12\ These projects would not be possible without
the investment in South Carolina that BMW has facilitated.
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\11\ https://fred.stlouisfed.org/series/SCGREE5URN.
\12\ https://upstatebusinessjournal.com/downtown-greer-
experiencing-dramatic-evolution/.
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These are just a few of the hundreds of success stories that stem
from the investment international automakers have made in the United
States. And they are not done yet. Volvo Cars has just this week
started production of its S60 model in an all new U.S. factory in South
Carolina. Volvo Cars plans to expand to include production of the XC90
in the same facility for a total investment of $1.1 billion. Honda is
going to invest another $55 million in Alabama, bringing its total
investment in Alabama to more than $2.6 billion, and Mazda and Toyota
have announced a joint venture that is set to open in Huntsville in
2021. Additionally, Toyota will invest another $10 billion over the
next 5 years in its U.S. operations. \13\, \14\
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\13\ 13 https://www.al.com/news/anniston-gadsden/index.ssf/2018/07/
honda_announces_548_million_ex.html.
\14\ 14 https://www.reuters.com/article/us-usa-autoshow-toyota/
toyota-to-invest-10-billion-in-u-s-over-five-years-idUSKBN14T1NN.
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Overall, international automakers have invested nearly $82 billion
in the United States, which, combined with the investment of U.S.-
headquartered companies, supports a vibrant, highly competitive and
innovative U.S. industry. This has occurred during a period of expanded
trade that has yielded a thriving industry that produced almost 11
million vehicles last year, nearly twice the level during the Great
Recession. Sales remained high at 17.2 million in 2017, while exports
in 2017 exceeded 1.9 million vehicles.
Exports of U.S.-built cars and trucks worldwide have more than
doubled since 1993, when NAFTA became effective, increasing from
978,155 vehicles to 1.981 million vehicles. The value of these same
exports has nearly quadrupled, rising from $14.3 billion in 1993 to
more than $57 billion in 2017.
These conditions have also driven an unprecedented era of
innovation in the industry generally, and in the United States
specifically. International automakers alone employ hundreds of highly
skilled engineers and designers at 65 R&D facilities in 16 states.
Additionally, the U.S. automotive industry includes not only original
equipment manufacturers, but a broad ecosystem of suppliers that
develop and produce highly advanced systems components. Their spending
supports the development and deployment of critical automotive
technologies, including artificial intelligence, radar and lidar camera
systems, along with many others.
All of this has happened while the industry operated under the
current system of trade rules, many of which were put in place under
Presidents Clinton, Bush, and Obama, with bipartisan support in the
Congress.
Today, however, the U.S. industry faces tremendous uncertainly as
it assesses the risk of extremely high import tariffs.
Steep tariffs recently placed on steel and aluminum, imposed
pursuant to an investigation into whether imports of these metals are a
threat to U.S. national security under section 232 of the Trade
Expansion Act of 1962, are already rippling through the automotive
supply chain. The costs of these goods, including steel and aluminum
produced in the U.S. increased across the board. \15\, \16\ The price
of steel has gone up almost 50 percent since tariffs were announced--
that's announced, not imposed--and the 50-percent price increase is
more than twice the amount of the tariffs that were imposed.
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\15\ https://www.wsj.com/articles/steel-aluminum-prices-rise-on-u-
s-tariffs-1527792759.
\16\ https://agmetalminer.com/2018/06/12/raw-steels-mmi-domestic-
steel-price-momentum-continues-to-grow/.
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Rising input costs directly impact the cost of production for U.S.
automakers. Toyota, which sources 90 percent of the steel for its U.S.-
based facilities from American mills, stated,
``The (U.S.) administration's decision to impose substantial
steel and aluminum tariffs will adversely impact automakers,
the automotive supplier community and consumers.'' \17\
---------------------------------------------------------------------------
\17\ https://www.reuters.com/article/usa-trade-toyota/toyota-says-
u-s-tariffs-on-steel-aluminum-will-substantially-raise-production-
costs-idUST9N1N004M.
Ironically, the steel tariffs have created an opening for foreign
producers. Bloomberg reported on July 5 that ``So successful have
tariffs been in pushing up American steel that foreign metal is
becoming more appealing.''
The U.S. Department of Commerce is conducting a similar
investigation into whether imports of autos and auto parts are a threat
to our Nation's security. This broad authority to impose these tariffs
in the name of national security was granted to the President of the
United States by Congress. Unlike other authorities to impose tariffs
to respond to unfair trading practices or to provide temporary
protection to a struggling industry facing import competition, this
``232'' authority is so broad, and the impacts of tariffs imposed under
it are so widespread and of such indeterminate length, that Congress
must ask whether this authority is being used for the purposes
intended.
There is simply no support for the proposition that imports of
cars, trucks, SUVs and auto parts threaten the national security of the
United States. No automaker or auto parts supplier has requested
protection under our trade laws. Auto sales, production and exports are
in fact at or near all-time highs.
The Department of Commerce so far has been unable to outline any
theory explaining how the commercial production of cars and trucks is
connected to U.S. national security. Simply running a sectoral trade
imbalance, which the Secretary suggested as a rationale during a recent
appearance before Congress, seems insufficient because it does not
distinguish the U.S. automobile industry from other industries where
this is also the case.
In response to the Department's call for public comments on the 232
tariffs, only three substantive statements, out of more than 2,300
comments of all types, were filed supporting tariffs or other
restrictions on auto or auto parts imports, and that support was often
tepid at best. In addition to the absence of public support,
associations representing the entire U.S. auto industry oppose the idea
of tariffs and urge that this investigation be reconsidered. This unity
is as remarkable as it is unprecedented.
Tariffs are Taxes. No ifs, ands or buts.
U.S. tariffs placed on imports are taxes paid by Americans. If
punitive tariffs of 20-25 percent are imposed on auto-and auto-parts
imports, as the U.S. Department of Commerce is now considering, new
vehicle prices will increase. The Peterson Institute for International
Economics estimates that vehicle prices will increase by $2,100, to up
to $7,000 per vehicle. \18\ Every vehicle sold in America would see
price increases because a global supply chain supports high-value auto
manufacturing in the U.S. This will reduce demand for new cars,
creating excess manufacturing capacity across the country. The Peterson
Institute estimates U.S. auto and parts production would fall by 4
percent. Used car prices would also rise as new cars become less
affordable. And, the cost of servicing and maintaining vehicles would
increase as imported parts are taxed. Adding additional injury, U.S.
trading partners would retaliate with tariffs on our exports. As a
result, 624,000 Americans could lose their jobs. \19\
---------------------------------------------------------------------------
\18\ https://piie.com/system/files/documents/pb18-16.pdf.
\19\ https://piie.com/blogs/trade-investment-policy-watch/trumps-
proposed-auto-tariffs-would-throw-us-automakers-and.
---------------------------------------------------------------------------
The gains that the auto industry has achieved recently are
jeopardized by the prospect of tariffs. Hakan Samuelsson, the CEO of
Volvo Cars, stated recently at the facility opening in Charleston,
South Carolina,
``If you have trade barriers and restrictions, we cannot create as
many jobs as we are planning to. . . We want to export and if suddenly
China and Europe have very high barriers, it would be impossible. . .
then you have to build the cars there. And then all cars will be more
expensive, you have to invest more tooling and have every model in
every country. That's against all the logic of modern economies that
trade with each other.''
The Center for Automotive Research (CAR) calculated that the
overall effects of these price increases could reduce sales by 2
million units and cost more than 700,000 jobs if tariffs were applied
to all trading partners.
Retaliation by our trading partners is inevitable. China recently
hit the U.S. with retaliatory tariffs on autos and other products in
direct response to our tariff actions. \20\ Last year, the U.S.
exported over 267,000 new vehicles to China, totaling over $9 billion
in value. \21\ Retaliation hurts all American automakers.
---------------------------------------------------------------------------
\20\ https://www.wsj.com/articles/u-s-car-makers-left-in-the-dust-
as-chinas-tariff-cuts-boost-europe-japan-1533901068.
\21\ https://www.trade.gov/td/otm/assets/auto/
New_Passenger_Exports.pdf.
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For instance, BMW in South Carolina builds over 400,000 vehicles
every year, all of them from their X-series line of SUV's. They make
almost all SUV's in Spartanburg County, South Carolina and are
America's largest auto exporter. \22\ Of the almost 280,000 vehicles
they export, around 85,000 go to China, which greatly lessens our trade
deficit with the country. Mercedes-Benz manufactures vehicles in
Alabama and South Carolina and exports around 50,000 U.S.-made vehicles
to China. \23\ Seven of the top ten vehicle models exported to China
from the U.S. are manufactured by BMW and Mercedes-Benz, the two
companies holding the top three spots. \24\
---------------------------------------------------------------------------
\22\ https://www.nytimes.com/2018/07/19/business/economy/tariffs-
south-carolina-bmw.html.
\23\ https://www.cnbc.com/2018/04/05/chinas-trade-threat-could-
hurt-german-carmakers-more-than-us-auto-giants.html.
\24\ https://www.usatoday.com/story/money/cars/2018/04/10/chinese-
auto-tariffs-xi-jinping/503470002/.
---------------------------------------------------------------------------
These companies need unimpeded access to Chinese markets to
continue to sell American-made vehicles in the world's largest car
market. The harder we make it to access that marketplace, through
tariffs and retaliation, the greater the potential for production to
move outside of the United States.
Trade and Investment Environment is Highly Uncertain, Adding to
Industry Challenges
There is an enormous amount of uncertainty facing manufacturers who
build cars and trucks in the United States: steel and aluminum tariffs,
the future of NAFTA, the prospect of Section 232 tariffs on autos and
auto parts, and so forth.
Uncertainty dampens investment, which crimps innovation and
curtails jobs. The Congressional Budget Office (CBO) stated in its
August 2018 economic report,
`` . . . heightened uncertainty about trade policy could
discourage businesses from making capital investments that they
might otherwise have made, because changes to trade policy
affect price competitiveness in foreign markets as well as the
costs associated with global supply chains. Recent volatility
in equity markets might indicate that such uncertainty is
already taking a toll on the value of U.S. businesses.'' \25\
---------------------------------------------------------------------------
\25\ https://www.cbo.gov/system/files?file=2018-08/54318-
EconomicOutlook-Aug2018-update.pdf pg 15.
Auto companies are already taking notice of this uncertainty. The
auto industry requires long lead times to plan, develop and manufacture
vehicles. Decisions made in the face of this uncertainly cannot be
easily undone. A stable investment climate includes clear, fair, free
and open trading rules. As the nature of the industry forces it to plan
production, investment, and employment years in advance, trade turmoil
is causing some to reconsider the status of their U.S. investment, just
as the CBO is predicting. \26\
---------------------------------------------------------------------------
\26\ https://www.bizjournals.com/columbus/news/2018/07/13/honda-
ironic-if-tariffs-punish-foreign-automakers.html.
---------------------------------------------------------------------------
The auto industry is now in the midst of a transformation as it
pursues electrification and automation, and as consumers consider new
ways of accessing personal mobility, such as ride sharing and
subscription services.
The United States is today the world leader in the electrification
of vehicles and in the development of automated transportation.
Automakers and suppliers worldwide develop, test, and sell the latest
technologies in our market because it is so open and friendly to
innovation. Our research and academic institutions are the standard of
the world for their expertise in sensors, robotics, artificial
intelligence, and more.
Trade restrictions put that leadership at risk.
Free trade in goods, resources, intellectual content, materials,
and production is the key to successfully addressing those challenges.
Electrification of the vehicle fleet will require metals and minerals.
Automation will require sensors and chips and AI capabilities.
Countries that arbitrarily and indiscriminately restrict trade in any
of these areas will soon be eclipsed. Future research and development
activities--and the expertise and production capacities that are
developed--will happen elsewhere.
Advanced Manufacturing in the US and American Workers
International automaker facilities already have a problem to solve
without imposing harmful tariffs. It's a comparatively good problem to
have: too many jobs. Deloitte estimates that there will be 2 million
unfilled manufacturing positions by 2025 due to retirements and
education gaps. \27\ Many facilities face issues with finding a
qualified workforce.
---------------------------------------------------------------------------
\27\ https://www2.deloitte.com/us/en/pages/manufacturing/articles/
boiling-point-the-skills-gap-in-us-manufacturing.html.
---------------------------------------------------------------------------
However, automakers are already getting ahead of some of these
workforce issues by investing in their local communities and workforce.
Much of this investment takes the form of educational programs,
partnering with local high schools and colleges to train the next
generation of manufacturers.
VW's Mechatronics Akademie, in tandem with the local government, is
training future employees for its factory in Chattanooga, and recently
saw its first 24 graduates of the program. This is just one of four
educational programs VW is involved with, including a five-week
pipeline program offered free to qualified candidates, and a $1 million
donation to the State of Tennessee for manufacturing educational
materials.
Honda of Ohio, which has five facilities in the state, operates a
workforce development initiative named EPIC. This program focuses on
introducing manufacturing technology to people earlier in life and
includes Summer STEM camps, a work-study program with Columbus State
Community College, and supporting the Marysville Early College STEM
High School, among other initiatives. This is in addition to
scholarships for students pursuing an associate degree in manufacturing
or mechanical engineering technology from local college institutions.
\28\
---------------------------------------------------------------------------
\28\ https://ohio.honda.com/article/building-the-manufacturing-
workforce-of-the-future.
---------------------------------------------------------------------------
In Georgia, Kia has been able to partner with the state's Quick
Start Program to train people for the facility in West Point. Together
they collaborated to design and develop the building, a 70,000 square
foot state-of-the-art training facility where all of Kia's 2,700
manufacturing employees received training, with some receiving more
specialized training in robotics, welding, and electronics labs. \29\
Thanks to this program, Kia was able to achieve 70 percent production
efficiency at launch, well above industry standards. As Kia has
continued to mature and grow, the company has renewed contracts to
continue the beneficial partnership with Quick Start. \30\
---------------------------------------------------------------------------
\29\ https://www.industryweek.com/quick-start.
\30\ http://www.georgia.org/wp-content/uploads/2014/08/
KIA_Case_Study_Final.pdf.
---------------------------------------------------------------------------
Hyundai Motor Manufacturing Alabama (HMMA) in Montgomery partners
with Trenholm State Community College to run a 6-month maintenance
apprenticeship program for HMMA team members that includes both
classroom and hands-on training. The Hyundai manufacturing plant also
offers internship programs for undergraduate students who attend
designated universities in a variety of disciplines, including
accounting, human resources, legal, production control and engineering.
Many of these programs allow people to graduate from a vocational
or associates program for little to no cost. People with associates/
vocational degrees tended to earn $10,000 more annually than people
with high school degrees. This is quite the investment to make in one's
self, unless that person happens to work at Subaru in Lafayette,
Indiana. Subaru has one of the most direct forms of workforce education
we see, a branch campus of Purdue Polytechnic Institute, located
directly on the facility grounds. Subaru pays for its associates to
earn degrees at Purdue or the local community college, Ivy Tech.
Considering the high-tech nature of the auto making industry, these
programs spend a great deal of time equipping people with the skills
they need to be productive employees. These programs that are run and
funded by these automakers are not just training a workforce, they are
setting people up for lucrative and fulfilling careers in the
manufacturing industry.
Conclusion
When America does trade the right way, eliminating trade barriers
and expanding access to more markets, we create jobs, promote
innovation, and build the foundation for sustainable prosperity. When
America does trade the wrong way, with unnecessary and unwanted
restrictions and intervention, we raise costs and prices, depress
demand, limit consumer choice, discourage new investment, and thereby
threaten jobs and opportunity. Our own experience should teach us the
course we should take.
______
[summary statement of john bozzella]
The U.S. Auto Industry today comprises fourteen
companies that build cars and trucks in the United States, with
a fifteenth scheduled to begin production in 2021. This
investment supports a value chain of U.S. businesses across the
country providing components, sales, service, logistics and
support employing 7 million Americans. Many of these workers
could be harmed by potential tariffs on auto and auto parts
imports.
U.S. tariffs placed on imports are taxes paid by
Americans. If punitive tariffs of 20-25 percent are imposed on
auto-and auto-parts imports, as the U.S. Department of Commerce
is now considering, new vehicle prices will increase by as much
as $7,000. \1\ Every vehicle sold in America would see price
increases because a global supply chain supports high-value
auto manufacturing in the U.S. This will reduce demand for new
cars, creating excess manufacturing capacity across the
country. Used car prices would also rise as new cars become
less affordable. The cost of servicing and maintaining vehicles
would increase as imported parts are taxed. U.S. trading
partners would retaliate with tariffs on our exports. As a
result, 624,000 Americans could lose their jobs. \2\
---------------------------------------------------------------------------
\1\ https://piie.com/system/files/documents/pb18-16.pdf.
\2\ https://piie.com/blogs/trade-investment-policy-watch/trumps-
proposed-auto-tariffs-would-throw-us-automakers-and.
Current trade policy has fostered a healthy and
competitive auto industry in the United States and created
---------------------------------------------------------------------------
robust markets for U.S.-built vehicles all around the world.
This success at home and abroad has led to an
unprecedented era of innovation in the auto industry.
International automakers have invested significantly in R&D,
employing hundreds of highly skilled engineers at 65 facilities
in 16 states.
Innovation has reshaped the workforce as well.
Today's auto production jobs are high-tech, highly paid,
career-building opportunities for which there is a shortage of
talent. Therefore, auto manufacturers have invested heavily in
workforce development initiatives such as apprenticeship
programs, and partnerships with local high schools, colleges,
and universities to train the next generation of manufacturers.
When America does trade the right way, it creates
more investment and more opportunities for American workers.
The success of international automakers over the last several
decades should inform policymakers as they reexamine trade
policy and consider restrictive measures such as tariffs.
______
The Chairman. Well, thank you, Mr. Bozzella, and to each of
you, we'll now begin a 5-minute round of questions, and I will
start.
Mr. Bozzella, I mentioned in my opening statement that
according to Benchmark Steel, the tariffs have caused an
increase in the price of steel in the United States by about 40
percent since January 1. Nissan tells me that 70 percent of the
weight of the vehicles it makes in Tennessee and Mississippi
are steel. Now, you don't have to be a math professor to figure
out what that would do to price.
Are we beginning yet to see the effect on the price of
automobiles sold in the United States of the steel tariffs?
Mr. Bozzella. Yes, we are. You're exactly right, Mr.
Chairman. And, in fact, most of the steel that the U.S. auto
industry uses in the United States is produced here in the
United States, and it's the price of U.S. produced steel that
is going up. So, for example, not only Nissan, but there's a
company in Indiana that gets 90 percent of its steel from an
Indiana mill. The price of that steel has gone up 30 percent.
The Chairman. The reason the price is up is because the
price of imported steel went up and so----
Mr. Bozzella. That's right.
The Chairman.----The domestic manufacturer meets the price.
Mr. Bozzella. That's correct.
The Chairman. Our steel imports from China this past year,
according to my figures, is about 2 percent. Is this beginning
to have an effect on these increased prices? If I go to buy a
Rogue or some car, is the price higher today? Or if it's not,
when will it be higher?
Mr. Bozzella. Well, there's no question production costs
are already higher from the steel and aluminum tariffs as well
as from foreign retaliation, for example, between the United
States and China. When it actually has an impact on prices is
really going to be dependent on the competitiveness of a
particular vehicle segment and how an individual company
decides to act. A company could, frankly, just take less profit
or take a loss on the vehicle, or they could pass on the price.
I think we will see a price increase.
The Chairman. Well, that would be a pretty big loss,
wouldn't it? I mean, if steel prices are up 40 percent, and the
weight of steel in a vehicle 70 percent, that's several
thousand dollars of vehicle.
Mr. Bozzella. Yes, I think that's right, and if you look at
the analysis that has been done with regard to the auto tariffs
and auto parts tariffs, a 25 percent tariff on a vehicle or on
a part would result in a price increase of between $2,000 and
$7,000 of vehicle. There is no question that these price
increases would be significant.
The Chairman. Mr. Moore, let's talk about a zero tariff
goal. The way I look at the North American Free Trade
Agreement, it's essentially a zero tariff agreement with some
important exceptions. Isn't that right? I mean, between 1994
and 2008, we got rid of most of the tariffs between Mexico,
Canada, and the United States.
Mr. Moore. That's right, Mr. Chairman, and, in fact, I'm
old enough to have been here when that happened. I think it was
1994, '93-'94. It was a genuine bipartisan achievement. We had
bipartisan laws that passed back then. It was a Democratic
president, Bill Clinton, who signed that into law. Most of the
Republicans----
The Chairman. Well, let me--without interrupting----
Mr. Moore. Yes, sir.
The Chairman. I want to stay within my time. So it took a
while to get to a zero tariff. I mean, it was 1994. I think it
was nearly 2008 before most of the tariffs were removed. So
let's talk about how we do that with other countries, for
example, with the European Union.
Now, I know that agriculture and non-tariff barriers are
also big issues that we have to deal with. But would it be
possible to head toward zero tariffs by having a step toward
equal tariffs on cars between the European Union and the United
States? For example, today, I believe the EU has a 10 percent
tariff on cars imported from the U.S., but we only have a 2.5
percent tariff on cars imported from the European Union. On the
other hand, we have a 25 percent tariff on light trucks.
What if we each took a step toward lower tariffs in an
equal way? Would that be a reasonable way to start toward a
zero tariff policy on automobiles between our country and the
European Union?
Mr. Moore. Yes, it absolutely would, Senator, and you're
exactly right that most countries--you said this in your
opening statement, that most countries actually do impose
higher tariffs than we do, and this is something that Donald
Trump complains about, and he's right. We have a lot of these
trade agreements with countries, and yet when you look at the
actual facts, they do impose higher tariffs. And let's not
forget the non-tariff trade barriers, which a lot of countries
like Japan and China--that can be a bigger problem as such.
One of the pitches that we used to make to President Trump
and still do is, look, if we can lower those tariffs on
everything, relatively, the United States benefits from that.
The United States worker benefits. The United States companies,
whether they're in Tennessee or Washington state--because, we
have to lower our tariffs more than these other countries do.
Now, there are some cases, as you said, with respect to light
trucks, where we may have to reduce our tariffs more than these
other countries. But on balance, it's a good deal for the
United States.
The Chairman. Thank you, Mr. Moore.
Senator Murray.
Senator Murray. Thank you all very much for your testimony.
Ms. Lee, let me start with you. You said it, and we all
said it--President Trump has taken a reckless and haphazard
approach to trade policy. It's really led to a lot of confusion
and frustrated some of our key allies and has really not
changed the behavior of our trading partners for the better.
Even some of our staunch worker advocates that support doing
more to achieve fair trade for U.S. workers, like the United
Steel Workers and the AFL-CIO, have expressed concerns about
the President's actions.
The AFL-CIO Executive Council recently said, and I quote,
``We have serious concerns regarding the administration's
seemingly haphazard approach to the implementation and design
of the enforcement efforts and the backlash it has generated.
Tariffs are most likely to be effective when they are
appropriately targeted to specific trade practices, part of a
well-developed strategic plan, and employed in coordination
with allies, such as Canada, rather than aimed at them,'' end
quote.
Can you talk to us about how President Trump's approach has
been ineffective and even harmful and explain what a more
targeted, strategic, and worker-focused trade policy would
actually look like?
Ms. Lee. Thank you, Senator Murray. I think the Trump
policies, because they've been so irregular and erratically
announced and unexpected and sometimes driven by a news
announcement or a tweet or something--I think they've created
the maximum uncertainty, and that isn't ideal, because if you
want people to change their behavior, you want businesses and
governments to change their behavior, you want them to know
what they need to do and when they need to expect it. I think
that that's something we can focus on.
These policies need to be better targeted, identify the
problem actors, the problem sectors, and the problem behaviors.
That has not clearly been done, and they've been applied too
broadly. If we've identified the unfair trade relationship with
China and the very imbalanced trade relationship with China as
one of our key economic problems--and I would agree that is our
key economic problem--it would make much more sense to bring
some of our allies in a coordinated way to take concerted
action so that we could be more effective.
If Europe and Canada, for example, were working with the
United States to address unfair practices or global excess
capacity in steel in China, which is clearly a problem, then I
think we'd be much more likely to be effective. The other thing
is that these tariffs should be short-term with clear goals,
and that is, I think, the other way that you can achieve the
maximum with the minimum amount of pain as opposed to the
opposite way.
I would say in terms of issues that there are two issues
that I think are most important. I said currency misalignment
earlier. You can do a lot of work to reduce tariffs, but if you
haven't taken any action to address currency misalignment, all
your good work in reducing tariffs and disciplining subsidies
can be undermined by currency movements. I think that's some of
the experience that the United States has had over the last 25
years with Mexico, with China, where we go to a lot of trouble
to negotiate these deals, but we don't address currency, and
the tariff reductions become ineffective.
The other piece is workers' rights, which you mentioned,
Senator Murray, and I think that that's part of a longer-term
picture of the kind of global economy we want to live in, where
workers can exercise their basic rights, and American workers
are not put at a competitive disadvantage by having to compete
with workers who lack basic human rights at the workplace.
Senator Murray. Thank you. You know, the U.S. economy is
becoming increasingly global. With the expansion of trade and
the selling of more of our goods overseas, we are seeing new
opportunities. We're also seeing new challenges. And I know
Members of Congress have differing views on what a fair trade
agenda should look like, but I think we can all agree that
trade should not negatively impact working families here in our
country.
Talk to us a little bit about the essential components that
Congress should ensure are included in an international system
so that we don't inadvertently create an economic situation
that leads to depressed wages or working conditions or
bargaining power for our workers.
Ms. Lee. Thank you, Senator. I think that's an excellent
question, and it's part of how the U.S. sees its role in the
global economy. It's a mistake, I think, for the U.S. to try to
be--to win a low-road contest of getting the cheapest labor,
the lowest taxes, and the most lax regulation. That's not even
a good strategy for a developing country, but certainly not a
wealthy industrialized country from the United States.
Our success will come from investing in our workers, our
infrastructure, and in making sure that we're using technology
to benefit workers and communities, not just profit. So we need
to have both adjustment programs in place, re-training,
skilling, but we also need to invest in our own infrastructure
and our own skills, and we have failed to do that over the last
couple of decades.
Senator Murray. Thank you.
Thank you very much, Mr. Chairman.
The Chairman. Thank you, Senator Murray.
Senator Isakson.
Senator Isakson. Thank you, Mr. Chairman. I've tried to
listen closely.
Mr. Moore, I've enjoyed meeting with you many times. Would
you tell me what you think the policy of the United States is
today regarding trade?
Mr. Moore. Well, we've been kind of the leader in the free
trade movement that Bryan Riley was just talking about for 30
years, and this has been something that almost all economists
agree on, that a great period of prosperity all around the
world that began in the early 1980's through around 2007, a 25-
year period, moved literally a billion people out of abject
poverty. So it's probably one of the great anti-poverty
programs of all time--is free trade.
Trump has challenged the kind of orthodoxy that we've lived
by here in the United States for the last 25 years, in some
ways, I think, in a productive way, and in some ways in a
nonproductive way. Trump believes that all these other
countries are not playing by the rules, and in some ways, he's
right about that, as I was telling the Chairman. As you look at
the data, there's a very good analysis of this--by the way, I
would recommend to all of you--in the President's Council of
Economic Advisers Report on Trade that shows a lot of these
countries just aren't playing by the rules, and the question is
how do you get them to play by the rules.
I'll just summarize this by saying in the last 25 years,
we've used the carrot of free trade agreements to try to reduce
tariffs, and that, on balance, I would say has been a positive
thing. Trump is using this kind of club of threatened tariffs
to try to get countries to behave and play by the rules, and we
will see. I mean, the jury is still out as to whether that will
work.
I was saying in my statement that I think, so far, we're
making some progress here. I think we've made some progress in
Mexico. I think we've made some progress with the Europeans.
And the big fight to come--I mean, this is the big fight of our
time--will be whether or not Donald Trump can get China to
start playing by the rules. They cheat, they steal. They steal
$300 billion a year of our technology, our intellectual
property.
Senator, you're from Washington State, where you have an
incredible technology industry. A lot of that stuff that is
being produced by our great minds and talents is being stolen
by the Chinese. So we need to get China to behave, and he's
going to use these threatened tariffs to try to make that a
reality.
Senator Isakson. Not to cut you off, but to try and make it
a shorter answer----
Mr. Moore. Sorry.
Senator Isakson. I want you to respond to this kind of
census I'm going to do. We've gone from having a clear and
understandable trade policy to not having a clear and
understandable trade policy. Is that fair to say? The U.S.
trade policy used to be predictable and now is not?
Mr. Moore. I think we are in a--I think that's absolutely
right. I think we're in a period where people are still trying
to figure out what the trade policy is in this administration,
and I think Trump has to be clearer about what the goals are.
But I know this, that he believes that workers in some of these
states, like Michigan and Ohio and Pennsylvania and Iowa, those
Midwestern states--I'm a Midwesterner--have been hurt by some
of these trade policies.
Now, I don't always agree with them, but you talk to
workers in those states--I guarantee you, I was on the campaign
trail--a lot of those workers in those states believe their
factories are not there because of China or because of Mexico
or other countries, and we'd better figure out, and this is
sort of your job, as the policymakers, to figure out how we
have a trade policy where all Americans benefit.
Senator Isakson. Well, let me say this. I have been openly
in opposition to the trade policy since the President announced
it. I got concerned when they dropped TPP. That really knocked
me for a loop. I was a big supporter of TPP. And then when you
start talking about NAFTA, I'm from a 21 percent agricultural
state, Georgia, and that's a big-time problem for us. The
agricultural states are the ones that are really getting killed
in competitive trade or tariff between countries.
It concerns me that we don't have a known commodity in
terms of what is our trade policy. Two, we have an environment
that is, at best, uncertain. And, three, it is beginning to
show its evidence in the marketplace.
I am going to be quick, Mr. Chairman, but I want to make
this point. I was with a friend of mine on Labor Day two days
ago, and the family was going to buy a boat for next year. They
bought a new lake house, and they were talking about the boat
they were going to buy, and they found it last weekend and came
back this weekend to the lake to make the deal.
They went to the dealership, and the boat was $500 more
than it was the week before. It's not a big boat, but $500 is
$500. And the guy told me--he said, ``I asked the boat dealer
why the price had gone up, and he said, `Well, actually, the
boat is on sale versus what it was two weeks ago. The problem
is our cost has gone up so much that we're having to raise the
price that much more because of the tariff situation in
Washington.' '' This is the aluminum and steel component on
boats and yachts and things like that.
But my point is we are beginning to see the effects of a
trade policy that is, at best, not clear and unsettling and
uncertain, vis-a-vis, what American has been. I think that's a
mistake for us, and I think the quicker we get to a place where
a panel like the five of you, before anybody, can say, ``Well,
U.S. trade policy today is X and it ought to be Y,'' then we'd
be in a lot better shape than everybody speculating on what it
really is or what it really should be.
I just wanted to make that point, and I think it's
beginning to have an effect, Mr. Chairman.
The Chairman. Thank you, Senator Isakson.
Senator Bennet.
Senator Bennet. Thank you. Thank you to all of you for
being here, and thank you, Mr. Chairman, for holding this
hearing.
Ms. Lee, you had mentioned in an answer to Senator Murray
something that I think is the real problem, which is China. I
wondered whether you could talk a little bit about--if we were
serious about dealing with this--how we would deal with it and
how we would use our allies strategically--you referenced that
as well--if we were trying to counteract the problem that we
really face.
Ms. Lee. Thank you so much, Senator Bennet. I do think if
you look at the China trade relationship, it's a $375 billion
deficit, and I do believe that the snapshot of a trade
relationship between two countries gives you a lot of
information. It's not the only thing you need to look at, but,
in this case, it shows you that there's a tremendous imbalance
there.
Particularly, if you look at the composition of our trade
imbalance with China, you see that $100 billion of that is in
advanced technology products. Those are areas where the United
States, as a wealthy industrialized country, should have a
comparative advantage, and we have a comparative advantage with
other countries, but not with China because of a combination of
the kinds of unfair trade practices that the Chinese government
has engaged in. So I think we need to be very targeted.
But I would say, as I said before, I think currency
misalignment is one of the key issues with respect to China,
and workers' rights. When I was at the AFL-CIO, we brought two
Section 301 cases against China on currency manipulation and
violation of workers' rights, and we alleged that in both of
those cases, those unfair trade practices were costing American
workers and businesses hundreds of millions of dollars in terms
of lost profits and good jobs.
I think those two issues are crucially important in terms
of that imbalanced trade relationship, and that's where I'd
like to see the energy of the U.S. Government go.
Senator Bennet. What could our allies do to help with that?
Ms. Lee. Well, I think in both of those areas, places like
Europe and Canada have also been subject to some of the same
unfair trade practices and some of the pressures around
currency misalignment and workers' rights, and they ought to be
our allies on that. So if we were to go in with a coordinated
strategy and to put in place similar protections, we would have
a stronger case, both if it came to the--we were challenged at
the World Trade Organization, but also the impact on China.
China would not be able to play us off against each other or
to, give business to Europe or Canada to punish the U.S. for
raising those issues. We would have a united front, and I think
that would be much more effective than the approach that's
being currently taken.
Senator Bennet. You mentioned the World Trade Organization.
You know, one of the--Mr. Moore had said earlier that free
trade had been one of the great anti-poverty programs because
people in other countries had been lifted out of poverty.
That's no doubt true.
Part of the challenge that we face in the United States is
that wages for the bottom 90 percent of Americans have been
flat for 50 years in America, and a lot of that has to do with
letting China into the WTO, and then what? Not enforcing the
rules of the WTO, not having the right rules? Can you talk a
little bit about that, what our rational expectation should be?
Because those flat wages are really decimating the hopes and
dreams of really the vast majority of Americans at this point.
Ms. Lee. Thank you, Senator. That is exactly right, and the
stagnation of wages for the vast majority of American workers
over the last several decades should be, I think, the key
policy concern of all lawmakers in the United States, both
Republican and Democratic.
Globalization, the wrong kind of globalization, and the
kind of trade policy we've had with China, in particular, has
been an important factor, not the only factor, but an important
factor in undermining the bargaining power of American workers,
because when American workers go to organize a union or to ask
for a raise or to ask for health benefits or a bathroom break
or safety goggles, often they're told, ``We don't need to give
you that because we can go to China,'' and workers there do not
have basic rights to demand those kinds of protections. They
don't have basic democracy, either, in China. So that
imbalance, I think, is at the core of what's wrong.
Also, the perceived unfairness of U.S. trade policy.
American workers know that they are productive and that they
can compete on equal terms with workers in the rest of the
world. But they can't compete with workers who get thrown in
jail for trying to organize a union or for asking for a raise.
Senator Bennet. Thank you, Ms. Lee.
I would say, Mr. Chairman, with my last 15 seconds, from
Colorado's perspective, just from my state's perspective, the
last thing we would do would be to punish our closest trading
partners, Canada and Mexico. Certainly, from the perspective of
the agricultural community in Colorado, it makes absolutely no
sense when the problem is China.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Bennet.
Senator Scott.
Senator Scott. Thank you, Mr. Chairman, and thank you to
the panel for being here with us this morning.
When I think about the hearing this morning, about the
impact of zero tariffs on U.S. autoworkers, I think of my home
state of South Carolina. Perhaps unbeknownst to many, South
Carolina is the No. 1 state in the export sales of both tires
and completed vehicles, passenger vehicles. Sixty-six thousand
people work in the automotive industry in South Carolina.
Twenty thousand two hundred and twenty new jobs have been
created in just the last six or seven years.
The question as it relates to tariffs and its impact on
U.S. autoworkers is a question that is very important to South
Carolina. I think the answer, really, is pretty clear as well,
which is whether you're the Continental Tire employee in Sumter
or the Engine Systems employee in Fountain Inn, the answer is
not much.
It actually may be beneficial for those autoworkers in
South Carolina, because of the fact that so many of the best-
selling vehicles sold in America--maybe they're Japanese
vehicles, Toyota or Nissan, or maybe they're European vehicles,
but their production happens in the country.
The question, I think, is simple--doesn't have a negative
impact, perhaps it has a positive impact.
The question I have, really, is the impact of using tariffs
as a negotiating tool--what is the long-term impact on
businesses? Having been a small business owner, when you tell
me that there are headwinds in one direction, I typically head
in the other direction. My concern is that, as my BMW folks in
the upstate and the new Volvo plant in the Low Country, when we
talk about tariffs, are we changing business systems today,
whether or not those tariffs actually come to fruition?
Anyone on the panel.
Mr. Bozzella. If I may, Senator, I would say absolutely
yes, and I think Ms. Lee made a very, very good point that, at
the very least, we've created--and I think all of the panelists
have--we've created a degree of uncertainty that is clearly
affecting business decisions. There's no doubt about that.
I think if you take the examples of BMW in Spartanburg,
Tennessee----
Senator Scott. South Carolina.
Mr. Bozzella. Excuse me, Spartanburg, South Carolina. I
apologize. I got the city right, and I'm looking right at
Senator Scott. My apologies.
Senator Scott. People get us confused all the time.
[Laughter.]
Mr. Bozzella. In Spartanburg, BMW is a major exporter.
Senator Scott. Yes.
Mr. Bozzella. They export over 80,000 vehicles to China.
China is the second largest source of U.S. built vehicles in
the world. We export a whole assembly plant of annual
production to China. Those vehicles now have a 40 percent
tariff on them. So, yes, there are critically important issues
that need to be resolved between the U.S. and China. The
trading relationship isn't right and needs to be rebalanced.
But the impact of this retaliation is very real. There's no
question about that. That will affect business decisions. It is
increasing the cost of production. In Spartanburg, South
Carolina, that's a problem.
Ms. Lee. If I may?
Senator Scott. If you could just have a short answer,
because, unfortunately, I have a minute and 20 seconds.
Ms. Lee. Short answer. I would say both business and labor
would agree that it can be useful to use tariffs strategically
if you achieve your goal, if you change the behavior, if you
end the unfair trade practices. So that can be useful. But if
you're doing it with no clear goal in sight--and I think that
the current tariffs are a little bit ill defined--then it's
more problematic.
Senator Scott. Thank you, ma'am.
To that, I think, Mr. Moore, perhaps you are the person to
answer the question. I think the President's objective has been
to change behavior through the threat of tariffs. It is
certainly an unorthodox approach. It seems to have worked,
especially with economies like South Korea. The chorus
agreement, I think, is a better agreement.
Mexico--I think we are in a better position going into
NAFTA than we would have been without the unorthodox approach.
Do you want to comment on the unorthodox approach? And then
we'll have about 10 seconds left to make a point.
Mr. Moore. Look, unorthodox is probably a good word to
describe this trade strategy. I used this metaphor before. I'll
use it again. We're in the fourth inning of this baseball game.
I think in the end, Trump is going to prevail. I think he's
going to get real concessions from especially nations like
China. But as the Senator said, this is a high-risk strategy,
but we can't live with the current--especially when it comes to
China, I think almost all Americans agree we can't live with
the status quo any longer.
One other quick point. Your point is so good about--what is
an American car today? I mean, right?
Senator Scott. Excellent question.
Mr. Moore. You know, you have BMWs that are more American,
made with American labor, and Fords that are not made with
American labor. So even this whole idea of what an American
automobile is today--we're not living in the 1970's or 1980's
any longer.
Senator Scott. Let me just, if I may, Mr. Chairman, end
with this thought on the future of the American autoworker and
the importance of what companies are doing to train and provide
opportunities for folks who too often have been carved out of
the workforce. BMW and their Scholars Program has provided an
apprenticeship approach that has had a positive impact on folks
who have been carved out of the workforce from an opportunity
standpoint for far too long, and one of the goals we should
have is to see more companies invest in workers and, frankly,
future workers in a fashion that we're seeing at home in South
Carolina.
Thank you for the extra time.
The Chairman. Thank you, Senator Scott, and I'll give
Senator Warren a little extra time to make up for it.
Senator Warren.
Senator Warren. Thank you very much. Thank you, Mr.
Chairman, and thank you all for being here.
You know, for decades now, American trade agreements have
hurt American workers. These trade deals have been written
behind closed doors with corporate lobbyists whispering in the
ears of our negotiators, and what has that meant for workers?
It's meant flat wages and hundreds of thousands of jobs that
are sent overseas. Meanwhile, we have undermined important
environmental protections, we've let drug costs soar through
the roof, and we've hung small businesses out to dry. So we
need a new approach to trade, an approach that puts American
workers and American interests first.
Let me start with you, Ms. Lee. You're an international
trade economist who's been following the changes in our economy
for a while now. Do you think that tariffs can play a role in
making sure that our trade policy supports American interests?
Ms. Lee. I think tariffs can absolutely play a role. That's
why we have an international trading system. That's why we lay
out the rules to address unfair trade practices, global excess
capacity, violations of workers' rights. So we need to be able
to use tools in our toolbox, and tariffs are a key one.
Senator Warren. Thank you. Tariffs are an important tool
that we should be willing to use to make sure that American
workers and American businesses can compete fairly with their
counterparts in other countries. But tariffs alone won't solve
the problem. They have to be part of a bigger strategy, a
strategy for protecting American workers.
Ms. Lee, what do you think a real pro-worker agenda would
look like? What should the government be doing to raise wages
and give people some economic security?
Ms. Lee. I think that's an excellent question, Senator
Warren. We need to rebuild the bargaining power of American
workers. That's what I would say is the key economic problem in
the U.S. economy today. You could do that by strengthening
unions, by raising the minimum wage, but also by making sure
that our trade policy is geared toward good jobs at home and
not toward the profits of multinational corporations, which I
would say if you look at the content of the trade agreements
we've put in place over the last couple of decades, they have
been more focused on corporate mobility and flexibility and
power and profits than on good jobs in our communities and
making sure that workers have that fair playing field.
But, also, all the kinds of social safety net things that
have been undermined and underfunded recently--family medical
leave, retirement security, job safety--those are the kinds of
things that American workers need. They need fair scheduling.
They need decent wages. They need leverage and bargaining power
at the workplace. I think that is actually what makes a healthy
and vibrant U.S. economy that can compete in the global economy
on fair terms.
Senator Warren. Okay. So you've identified strengthening
unions, raise the minimum wage, family medical leave,
protection for retirement, schedules that work. Have President
Trump and the Republican Congress taken any of these steps?
Ms. Lee. They have not.
Senator Warren. All right. Let's talk about what they've
done instead. They delayed and weakened protections against
workers' exposure to carcinogenic materials like silica and
beryllium. Is that part of a pro-worker agenda?
Ms. Lee. It is not.
Senator Warren. They've opened the door for taxpayer
dollars to flow to Federal contractors that have stolen wages
or injured or killed their workers. Does that help working
families?
Ms. Lee. That does not help working families.
Senator Warren. They've rolled back collective bargaining
rights by putting corporate attorneys who've spent their
careers trying to stop workers from organizing in important
agencies like the NLRB. Does that help create good jobs?
Ms. Lee. That is the opposite of what's needed to create
good jobs.
Senator Warren. Thank you. You know, we absolutely need to
fix our trade policy so that it puts the interests of American
workers first, not the interests of giant multinational
companies. But that is not enough. We should be standing up for
American workers and their families in every area, their wages,
their right to organize, workplace safety, retirement security,
access to affordable healthcare. That's what workers in
Massachusetts and around the country desire, and it's what all
of us here in Washington should be focused on.
Ms. Lee. Thank you, Senator.
Senator Warren. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Warren.
Senator Young.
Senator Young. Thank you, Mr. Chairman. I'm grateful we're
holding this hearing.
As I think about the auto industry, I think about, of
course, those autoworkers I represent, the communities that our
auto industry helps keep vibrant, places like Princeton,
Indiana; Greensburg, Indiana; Lafayette, Indiana, where Toyota
and Honda and Subaru have made major investments over the
years, and so many Hoosier families benefit from that economic
impact, which in the State of Indiana is nearly $7 billion. On
the employment side, we have approximately 123,000 Hoosiers who
are supported by the international auto industry, and that's
the equivalent to over $7.3 billion of total employee
compensation. So this matters to the State of Indiana, and I
know so many other states in our Nation, more broadly.
With that said, I'm really concerned about the
administration's strategy, to the extent we understand it, as
it pertains to trade. I've been vocalizing this for months and
months and months. We've heard from, I think, every United
States Senator here today that they're concerned about the
uncertainty. Every panelist here does not know what our trade
policy is.
I think there's one means by which we could insist on
clarity, not just from this administration, but future
administrations as well. That is by requiring each
administration to develop a comprehensive, whole-of-government
economic security strategy.
We have a national security strategy that deals with highly
classified information, highly consequential issues, and they
work across different departments of government. The National
Security Advisor elicits information from the State Department,
Department of Defense, Treasury, and beyond, and they put
together an unclassified document with a classified annex.
We ought to be doing the same sort of thing, to my mind,
with respect to our economic strategy. It could deal with such
things as Ms. Lee has pointed out, like currency manipulation,
although I think that's the most difficult of all of them,
candidly, to deal with. It can deal with things like tariffs,
intellectual property theft, joint forced technology transfer,
state-owned enterprises and the dumping of their manufactured
goods into places like Indiana, where you're effectively
imposing 100 percent tax rate on those workers who lose their
jobs on account of dumped commodities and products.
Why don't we have a written national economic security
strategy? Would anyone like to speak to this issue?
Mr. Moore. Well, let me just quickly address that. Look,
we've got--I think we have a national economic strategy under
this President. We have the strongest economy in 25 years. The
growth rate in economy was 4 percent in the first quarter of--
--
Senator Young. Let me interject respectfully. So you're
rattling off a number of successes, but with respect to this
issue, an economic security strategy, and we deal with
predatory economic practices, you said earlier, Mr. Moore, we
need to get more clarity from the administration. We can get
more clarity through a written document that allows Members of
Congress to critique that document, to embrace portions of it,
just as we do with the national security strategy, and it will
serve a signaling purpose to our allies, partners, and
adversaries alike.
What say you, sir?
Mr. Moore. Well, my point was maybe it started--even
Senators on both sides of the aisle--it's about time we maybe
start giving Donald Trump the benefit of the doubt here. I
mean, the improvement in the economy over the last 20 months
has--and I'm a big advocate of what----
Senator Young. We should trust him on trade policy without
clarity on the plan.
Mr. Moore. On trade policy, look, I've made my--you quoted
me correctly. I do think that there are problems with this
strategy. I think it lacks a coherence. We'll see--I mean, six
months from now, let's see where we're at. I'm an optimist. I
do think we're going to see some greatly improved trade deals
over the next six months. I may be wrong, but I think if that
happens, the economic benefits to workers and American
companies will be profound.
Senator Young. I am most hopeful, and I'm cheering for this
president. I actually credit this president for elevating these
predatory practices to the highest level in China and, to a
lesser extent, India, Brazil. These countries are the biggest,
I think, violators of international trading norms and laws, and
my sense is it's not my job to develop a strategy, per se, but
I think if we did what some of the other panelists indicated,
which is partner with the largest other economies of the world
and apply our collected leverage, vis-a-vis, the worst actors,
we could have even greater success.
I acknowledge that we are seeing some signs of brittleness
within the Chinese economy and others, and I, too, share your
hope, Mr. Moore.
Thank you all for being here.
The Chairman. Thank you, Senator Young.
Senator Casey.
Senator Casey. Thank you, Mr. Chairman, and I want to thank
the panel for being here and for your testimony.
I'm going to direct my questions to Ms. Lee for one
purpose, and that's to focus for a couple of minutes on China.
I was particularly impressed by the statement that you gave. I
wasn't here when you presented it, but the written statement
I've taken a look at.
When I consider--and I don't think this is just true for
Pennsylvania, but I think it's true for the Nation. When China
cheats, we lose lots of jobs in Pennsylvania, and when you
consider who's the serial violator out there, it's China in
every instance, it seems. I think the U.S. needs both a
sustained and coordinated strategy to address these threats,
but we've got to work with our allies to execute it.
I guess the real focus of not just my questions, but your
statement was the impact of China's trade practices and the
kind of unfair practices both our companies have faced and have
been fighting against, and our workers. I think the worker part
doesn't get nearly enough attention. It did in your statement,
but maybe not in the course of our discussions.
Whether it's currency manipulation or illegal subsidies or
intellectual property theft or actions by state-owned
enterprises, all of them in one way or another and sometimes
substantially--they all harm American workers.
There's a recent study focusing on the impact of China on
American workers by MIT economist David Autor and his co-
authors. They found that almost 40 percent of the decline in
U.S. manufacturing just between the years 2000 and 2007, just
that seven-year time period, was due to a surge in imports from
China. So 40 percent attributable just in seven years only to
China.
I guess the first question is can you discuss the impact of
China as it relates to both jobs and wages on U.S. workers?
Ms. Lee. Thank you, Senator Casey, for the question.
Because of the sheer size of China and because of the
systematic unfair trade practices, China has an outsized impact
on the United States, and you can measure the impact on both
jobs, wages, and on businesses. I think that's something that
we also don't give enough attention to, which is that American
businesses that are trying to produce in the United States on
American soil are put at a ridiculous disadvantage when trying
to compete with China because of the illegal subsidies and the
theft of property and the workers' violations, the
environmental violations, and so on.
I think--we've looked at several million jobs that are
impacted by unfair trade with China, and so this absolutely
should be a top economic priority for the President and for the
Congress. But in order to be effective, as I said before, I
think it needs to be done in coordination with our allies, and
it needs to be done in a very systematic way and identify the
right problems.
I think the right problems are currency manipulation and
workers' rights violations. Those are both things that have a
systematic impact on--every single item that we import from
China is underpriced because of currency misalignment and
because of the fact that workers lack basic human rights in
China. They don't have the Democratic right to go and change
governments if they want to. They can't go to their manager and
organize a union, an independent Democratic union, at their
workplace if they want to, and that puts--every American
business is at a disadvantage.
A lot of American business--when I was at the AFL-CIO,
people used to come and say they were afraid to complain
because they didn't want to bring the Chinese government down
on them. But even businesses said they were facing such unfair
trade conditions that they could not survive, but they didn't
have the tools to act, and that's why it needs to be done
overall in a very concerted way by the U.S. Government.
Senator Casey. In the remaining time I have--I know we have
less than a minute. But it's my belief--and I think there's a
lot of data to validate my belief--that the decline of unions
is one of the reasons why we've had a wage decline or at least
stagnation over time.
Can you walk through just in a few--in the remaining time
we have some of the causes of wage stagnation as you see it in
your research?
Ms. Lee. Yes. The decline of unions is a key factor where
workers don't have the countervailing power to go in to bargain
effectively. The decline in the minimum wage also has lowered
the floor so that people don't have that backstop that they
used to have. And then a series--and the fact that we have not
had full employment in the U.S. economy consistently over the
last couple of decades means that workers don't have the
bargaining power, the ability to go in on a regular basis, and
then employers have come up with a bunch of different measures
to undermine workers' bargaining power like forced arbitration,
non-compete agreements, and other things that workers are
pressured into signing as a condition of employment.
Senator Casey. I'm out of time, but thank you very much.
Ms. Lee. Thank you, Senator.
Senator Casey. Thanks to the panel.
The Chairman. Thank you, Senator Casey.
Senator Jones.
Senator Jones. Thank you, Mr. Chairman, and thank you for
this hearing, and I also want to thank you, Mr. Chairman, for
the work that we've been doing together on automobile tariffs.
It is important to your State of Tennessee. It's important to
my State of Alabama, where 57,000 people are now involved in
some way with the automobile industry.
I have been--like so many expressed here--have been very
concerned about the President's trade policy broadly. I, too,
think it is totally incoherent and is hurting my businesses. It
is hurting farmers.
With all due respect, Mr. Moore, I don't think you give the
benefit of the doubt to an incoherent policy for a while, to
just let it ride, that you need to work--and we have an
obligation to work to change that incoherent policy or at least
to try to do what we can, to do that as opposed to just
following the Disney song, wishing upon a star. I think we need
to be continuing to speak out, as Senator Young has and others
have done.
My concern--because Alabama has grown so much economically
because of the automobile industry, I've got a specific concern
about that. I've got a concern about farmers who are being
affected, and with regard to that, especially, it hits the
farmers most obvious, because the farmers are going to lose
markets with this trade policy. If we wait 6 months and hope
for the best, we may get a good trade policy, but we may have
also lost markets, and it hurt us in the long run.
Mr. Bozzella, I'd like to ask you--it's not quite as
obvious to me about the markets for automobiles. We ship a lot
of automobiles to China. We ship--Alabama, I think, is the
third largest exporter of automobiles. But with supply chains
and suppliers, do these tariffs also have the ability to affect
markets for those automobiles that are produced in America
overseas?
Mr. Bozzella. There's no question about it, Senator. As you
noted, there's a huge number of vehicles that are built in
Alabama that are exported to countries all around the world.
What we're seeing as a result of these trade policies is we're
seeing retaliation from our trading partners, and what that
means is that it's more difficult for us to export cars that
are built in Alabama, and the price of building those cars in
Alabama, because of the tariffs on steel and aluminum, has gone
up. It's a double whammy that hurts Alabama autoworkers.
Senator Jones. All right.
Mr. Riley, you've talked a little bit about how the tariffs
here are a regressive tax. I don't think there's any question
about that. Clearly, unlike what the President said early, that
these other countries are going to pay for these tariffs, that
is just a complete misunderstanding about tariffs, in general.
It's a regressive tax on American consumers, on American
businesses.
I was not here during the tax bill, when it was passed last
December. I didn't take office until January. But it seems to
me that these tax--that tariffs and the increase in the cost of
these goods is not only going to undercut the benefits that
American businesses have seen from those tax cuts. Also, these
tax cuts that American consumers have seen, what we've given to
them, we're about to take away with these tariffs. Is that a
fair statement, or am I completely off base?
Mr. Riley. It's a fair statement. If you look at all the
tariffs or taxes that the administration has put in place or
has proposed, you're looking at about $130 billion a year, up
from about $33 billion. So that's a big tax increase. It would
take away a lot of the benefits that we have seen from the tax
reform, tax cutting legislation.
In my introductory remarks, I referred to the Declaration
of Independence. I now refer to the Constitution, which is it's
not the executive branch, but Congress that has the power to
tax, and I'd sure like to see Congress take a more active role
in overseeing and, actually, more active oversight before these
taxes could go into effect in the future.
Senator Jones. Last question, and this is just for anyone
on the panel. Senator Portman and Senator Ernst and I have a
bill introduced that would take away the decision of what is a
national security interest--which I find it just a little bit
bizarre that the BMWs and Mercedes that I see around Alabama
and different places are a national security concern. But be
that as it may, this bill would take that out of the Commerce
Department and put that over with national defense, where it
appears to be the more obvious reason to determine whether it's
national security.
Does anyone have any thoughts about that and if we can
reform this process a little bit with that?
Mr. Riley. Well, real quickly, if it's a defense issue,
Section 232, it seems to me the Defense Department ought to be
the key agency involved, and I think that Congress ought to
have a chance to weigh in before these taxes go into effect in
the future.
Mr. Bozzella. I would agree. I would agree with that. I
think it's important that Congress look at--you have the
authority over tariffs and taxes. You should make sure, I
think, that the administration is conducting itself in the way
in which you intended it, and I think that's part of what the
bill does, and I think it's important.
Senator Jones. Right. Well, thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Jones.
Senator Kaine.
Senator Kaine. Thank you, Mr. Chairman, and thanks to the
witnesses.
I apologize for walking in late, but I was at a Foreign
Relations hearing about the future of NATO, and a lot of what
we were talking about in that future of NATO is how it is
perceived by NATO allies when we use trade against them, when
we use national security waivers against Canada, against
Europe, when we call the EU a foe--by we, I mean the President.
So it's interesting to come to this hearing. It's connected.
I know you've talked about many of these issues with the
other Senators. I want to talk to you about two things that
concern me, and the two are uncertainty and then the place of
Canada in the discussion about NAFTA right now.
Uncertainty--in Virginia, one of the best assets we have
that has enabled our economy to be strong is the Port of
Virginia, which is, by some measures, the second or third most
active port on the East Coast of the United States. The CEO of
the port talks about the tariffs as, quote, ``significantly
putting our infrastructure advancements at risk.'' This is an
article from three or four days ago. And he can't quantify
that, because it's an uncertainty, but it's an uncertainty that
makes them very, very nervous.
When I was Governor, I encouraged Volkswagen to relocate
their North American headquarters from Michigan to Virginia,
which they did, and they have a global business, including the
manufacture and sale of a lot of vehicles in China. They are
very, very worried. I was speaking to VW execs within the last
week. They're extremely worried about the tariffs and the
uncertainty it creates, and especially uncertainty around
disruption of global supply chains that they now require.
Then, finally, the only vehicles that are manufactured in
Virginia are Volvo trucks. There's a Volvo truck plant in
Dublin, Virginia, Pulaski County, far southwestern Virginia,
the economically most challenged part of our state, and they
are also dealing with the effect of tariffs on the aluminum and
steel that they use, and they are very, very worried about
this. And when I say they, it's interesting. I can talk to both
management or I can talk to UAW workforce, and they express the
same concerns. At the port, I can talk to management or I can
talk to the 19 unions that do work as part of the port council.
They are concerned, similarly with VW.
As a mayor and Governor, I love certainty. I feel like if
we can give people certainty, they can figure out in the
private sector, or our public planners, how to adjust around
it. Even if they don't like the certainty that we're giving
them, they can adjust around it. But it's really hard to adjust
around an asterisk or a question mark.
I would like to ask you first about kind of the uncertainty
effect of all this. What's the end game? What's the off-ramp?
Where are we going? We've not really had the administration
come here and brief us on where they think we're going to get
with this. If you could share either--do you share my concern,
or am I too worried about something I shouldn't be worried
about?
Mr. Bozzella. Yes. Uncertainty is hugely problematic.
Senator Alexander said earlier in the hearing that a lot of
what happens in decisions that management is making about where
to introduce a new product is really essentially a competition
within the company between different regions of the world. We
want to win that competition for American workers. Uncertainty
is a killer in that competition.
Ms. Lee. I would just agree with that. Uncertainty is
counterproductive for everybody, for all the players, because
you can't get businesses to change their behavior in ways that
you want them to and you can't get governments to change their
behavior if we don't have clarity about the goals, the
duration, the magnitude, and the targets of these tariffs, and
that's what's missing in this current strategy.
Senator Kaine. Mr. Riley or Mr. Moore.
Mr. Riley. Well, I agree with my prior two panelists. You
mentioned the port, and if we're losing a trade, as some people
think, it seems to me we ought to just close down all the ports
and pave over them. Of course, nobody would think that's a good
idea. The countries around the world that are going to prosper
are the ones that are going to have an environment of certainty
and are the ones that are going to work to attract
international trade and international investment, and that
includes getting to a zero tariff regime for all the inputs and
parts, not just for car workers, but others across the United
States.
The idea that, well, in the long run, this is going to work
out, and we can just do our patriotic duty and suffer in the
meantime--it's important to point out there's a lot of people
around the country who are hurting right now because of the
tariffs and the threat of new tariffs and the uncertainty.
Senator Kaine. Mr. Moore.
Mr. Moore. I don't have any difference of opinion with my
colleagues here. I would simply say that there is chaos right
now in our trade policy, but I'm hopeful here that we're
experiencing short-term pain for long-term gain if we can get
to the kind of trade agreements that better benefit American
companies and American workers.
I think there's universal agreement among the four of us
that the steel tariffs just don't make a lot of sense. I mean,
we're not really--we're not even adding to the jobs of
manufacturing workers, because for every steel worker we're
protecting--and, look, I care--we all care about our steel
workers. But for every manufacturing job that we protect, we're
likely to lose two or three or four workers.
It's so apropos to your industry, the auto industry. If you
want to save auto jobs, you don't want to impose steel tariffs.
I mean, that was the point that you were making, Mr. Chairman.
Ms. Lee. But I just want to, for the record, say that I
don't agree with that, necessarily, that the steel tariffs are
addressing a problem of global excess capacity that is an issue
and has been an issue and causes inefficiency and distortions
in the global steel trade. But whether they've been applied
correctly is a different question.
Senator Kaine. Mr. Chairman, I'm over my time. I could ask
my Canada question for the record, but seeing that I'm the last
witness, I could also ask it right now.
The Chairman. Go ahead.
Senator Kaine. I appreciate your sufferance.
I am very nervous about the NAFTA renegotiation leaving out
Canada. Now, I support the President--at 20-plus years into
NAFTA, why wouldn't we get into it and see if we could make it
better? I mean, we would be foolish not to. So that I
completely agree with.
But I do know that even strong opponents of NAFTA 20-plus
years ago are now saying that the supply chains are so
integrated that to try to extract or sort of partially extract
Canada in this case would be very devastating. Do you agree
that Canada is one of our top two trading partners. We cannot
leave--if we're going to do an update of NAFTA, it would be
very foolish to not have them in.
Mr. Bozzella. Yes, I agree. NAFTA has been a winner for the
U.S. auto industry. NAFTA should and needs to be modernized.
There is no NAFTA without Canada. Even the framework agreement
between the U.S. and Mexico is completely unworkable for the
auto industry if Canada is not a party to the deal. So we do
need Canada in NAFTA.
Ms. Lee. I would totally agree with that. Canada is
obviously a valued trading partner with shared values, with
high standards, good jobs, shared values, and, as you say,
integrated supply chains. It makes no sense to go forward
without Canada at the table.
Mr. Riley. I agree.
The Chairman. Well, thanks to all of you.
Mr. Riley, you didn't get to answer as many questions. I'm
going to ask you one before I wrap up.
Mr. Riley. Thank you.
The Chairman. Would you restate what your National Taxpayer
Union calculates the amount of new taxes are on the American
people as a result of the tariffs on steel and aluminum?
Mr. Riley. Thank you. It's about $133 billion, Mr.
Chairman, and we'll provide that for the record. We have a
formal report on that coming out just in the next few days. I
should note that is the tax that Americans are paying due to
U.S. tariffs. It doesn't include all the taxes that foreign
governments have imposed on U.S. exporters, and it's important
to consider those economic costs as well. So we'll be happy to
provide the Committee with that exact number going forward, but
it's a big cost.
The Chairman. I thank the four of you for coming. It's been
a very useful hearing, and I think you can tell that from the
Senators' participation.
The hearing record will remain open for 10 business days.
Members may submit additional questions to our witnesses within
that time.
Thank you for being here. The Committee will stand
adjourned.
[Whereupon, at 11:36 a.m., the hearing was adjourned.]