    [Senate Hearing 115-838]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 115-838

                            IMPACT OF TARIFFS ON THE
                            U.S. AUTOMOTIVE INDUSTRY

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

                                    HEARING

                                   BEFORE THE

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 26, 2018

                                   __________

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                Printed for the use of the Committee on Finance

                                    __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    40-897 PDF                  WASHINGTON : 2020

    --------------------------------------------------------------------------------------

                              COMMITTEE ON FINANCE

                         ORRIN G. HATCH, Utah, Chairman

    CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
    MIKE CRAPO, Idaho                    DEBBIE STABENOW, Michigan
    PAT ROBERTS, Kansas                  MARIA CANTWELL, Washington
    MICHAEL B. ENZI, Wyoming             BILL NELSON, Florida
    JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
    JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
    RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
    JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
    ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
    PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
    DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
    TIM SCOTT, South Carolina            CLAIRE McCASKILL, Missouri
    BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island

               Jeffrey Wrase, Staff Director and Chief Economist

                  Joshua Sheinkman, Democratic Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman,
      Committee on Finance...........................................     1
    Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                                   WITNESSES

    Haughey, Michael, president and CEO, North American Stamping
      Group, Portland, TN............................................     5
    Schostek, Rick, executive vice president, Honda North America,
      Incorporated, Marysville, OH...................................     6
    Gates, Steve, dealer principal, Gates Auto Family, Richmond, KY..     8
    Nassar, Josh, legislative director, United Auto Workers, Detroit,
      MI.............................................................    10
    Britt, H. David, chairman, Spartanburg County Economic
      Development Committee, Spartanburg, SC.........................    11

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Britt, H. David:
        Testimony....................................................    11
        Prepared statement...........................................    39
    Gates, Steve:
        Testimony....................................................     8
        Prepared statement...........................................    40
    Hatch, Hon. Orrin G.:
        Opening statement............................................     1
        Prepared statement...........................................    44
    Haughey, Michael:
        Testimony....................................................     5
        Prepared statement...........................................    45
    Nassar, Josh:
        Testimony....................................................    10
        Prepared statement with attachments..........................    54
        Responses to questions from committee members................   145
    Schostek, Rick:
        Testimony....................................................     6
        Prepared statement...........................................   155
    Wyden, Hon. Ron:
        Opening statement............................................     3
        Prepared statement...........................................   158

                                 Communications

    Association of Global Automakers, Inc. and Here for America......   161
    Multi Parts Supply (MPS).........................................   164
    National Association of Foreign-Trade Zones (NAFTZ)..............   166
    National Pork Producers Council (NPPC)...........................   171
    Sea Link International, Inc......................................   172

                                     (iii)

                           IMPACT OF TARIFFS ON THE
                            U.S. AUTOMOTIVE INDUSTRY

                                  ----------

                         WEDNESDAY, SEPTEMBER 26, 2018

                                           U.S. Senate,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:30
    a.m., in room SD-215, Dirksen Senate Office Building, Hon.
    Orrin G. Hatch (chairman of the committee) presiding.
        Present: Senators Grassley, Portman, Toomey, Scott,
    Cassidy, Wyden, Stabenow, Cantwell, Menendez, Carper, Cardin,
    Brown, Casey, Warner, and McCaskill.
        Also present: Republican staff: Jeffrey Wrase, Staff
    Director and Chief Economist; Nasim Fussell, Deputy Chief
    International Trade Counsel; Rory Heslington, Professional
    Staff Member; and Shane Warren, Chief Trade Counsel. Democratic
    staff: Joshua Sheinkman, Staff Director; Elissa Alben, Senior
    Trade and Competitiveness Counsel; Roberta Daghir, Detailee;
    Greta Peisch, International Trade Counsel; and Jayme White,
    Chief Advisor for International Competiveness and Innovation.

     OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
                  UTAH, CHAIRMAN, COMMITTEE ON FINANCE

        The Chairman. The committee will come to order.
        I want to say ``good morning'' and ``welcome'' to every one
    of you here today to this hearing on the impact of tariffs on
    the U.S. auto industry. In particular, I would like to welcome
    our witnesses and thank them for joining us today.
        I intend to focus this morning on the investigation that
    was self-initiated by the Department of Commerce under section
    232 of the Trade Expansion Act of 1962 to determine whether
    imports of automobiles and automotive parts threaten to impair
    our national security. Many of us on the committee have already
    expressed our concerns about the administration's heavy
    reliance on tariffs.
        In June, Secretary Ross appeared before this committee to
    explain the Department's finding that steel and aluminum
    imports threatened to impair our national security. As a result
    of that determination, the United States is currently imposing
    tariffs of 25 percent on steel products and 10 percent on
    aluminum products. Combined, these tariffs directly affect
    almost $50 billion worth of goods, while also affecting many
    billions of dollars more in downstream goods.
        These tariffs cause American manufacturers and farmers to
    pay more to conduct business and consumers to pay more to buy
    these things. One industry that has been harmed by the steel
    and aluminum tariffs is here before us today--the auto
    industry.
        The American Automotive Policy Council estimates steel and
    aluminum tariffs will cause a $400 per-car increase. Auto
    suppliers and consumers are already suffering from section 232
    tariffs. That is one reason I was stunned that on May 23rd, the
    Department of Commerce initiated another investigation under
    section 232, this time into the national security threat from
    automobile and auto parts imports. This investigation covers
    more than $200 billion worth of trade, which is four times
    larger than that under the steel and aluminum investigations
    combined.
        For most American families, a car is one of the most
    expensive purchases they make, often second only to the
    purchase of a residence or home. It is a significant financial
    commitment for most families, often paid for with debt. And I
    am shocked that anyone would consider making it more expensive.
    If the Department of Commerce were to recommend a 25-percent
    tariff on cars, it would effectively be recommending raising
    the cost of an average imported car for an American family by
    as much as $6,400.
        According to the American Automotive Policy Council, if a
    25-percent tariff is applied to auto parts, the cost to
    manufacture a passenger vehicle domestically would also
    increase by about $2,000. That is why I call tariffs a tax on
    American families. The Tax Foundation estimates that auto
    tariffs could result in a $73-billion tax increase on American
    consumers and businesses, erasing some of the benefits of tax
    reform passed earlier this Congress, something we are very
    proud of and pleased with.
        These taxes will hurt American families and put American
    jobs at risk. The Peterson Institute calculates that auto
    tariffs could cause 195,000 workers to lose their jobs. That is
    nearly 200,000 people out of work. And that is before other
    countries retaliate, which could put over 600,000 U.S. jobs at
    risk.
        These tariffs could cost the U.S. auto industry up to 2
    million lost vehicle sales annually. And it cannot be
    overlooked that international automakers and dealers
    significantly contribute to our U.S. economy. Together they
    accounted for 47 percent of all U.S. vehicle production in
    2017, throughout 31 manufacturing facilities, generating 2.47
    million jobs in the United States. And this is just the
    automakers.
        Motor vehicle parts suppliers are the largest sector of
    manufacturing jobs in the United States. Suppliers directly
    employ over 870,000 Americans, and nearly 8,000 in my home
    State of Utah alone. Direct employment by parts suppliers has
    increased 19 percent in the last 5 years, and tariffs threaten
    the sector's continued job growth.
        In short, the U.S. auto industry is a major driver of the
    U.S. economy, supporting approximately 10 million American jobs
    and accounting for 3 percent of our GDP. Without question, any
    tariffs that are imposed will have a negative impact on the
    U.S. auto industry and our economy.
        Our focus should be on building on the benefits from our
    historic tax reform achievement earlier this Congress. Our
    trade policy should strengthen our relationships with our
    allies while targeting China's most harmful trade practices.
    Tariffs on autos and auto parts are not going to help us
    achieve any of these things.
        With that, I am going to turn to Senator Wyden for his
    comments.
        [The prepared statement of Chairman Hatch appears in the
    appendix.]

                 OPENING STATEMENT OF HON. RON WYDEN,
                       A U.S. SENATOR FROM OREGON

        Senator Wyden. Thank you very much, Mr. Chairman, and I
    appreciate your scheduling this hearing.
        Mr. Chairman and colleagues, the President has made it a
    practice to get up in front of the television cameras, tout new
    trade deals, reap splashy headlines, but those announcements
    have been consistently hollow and the results underwhelming.
        This week's announcement about the U.S.-Korea Trade
    Agreement says it all. The administration touts it as a massive
    overhaul of a trade deal that they claim had previously cost
    hundreds of thousands of American jobs. But if you search
    carefully for significant changes in this agreement, concrete
    wins that will deliver red, white, and blue jobs on the scale
    the President has talked about, you are going to come to the
    conclusion that there is no ``there'' there. A recent Bloomberg
    News article summed up the U.S.-Korea Free Trade Agreement very
    bluntly, and I am just going to quote here: ``Trade analysts
    say changes to the South Korea agreement were largely
    cosmetic.''
        There is no evidence that the renegotiation will actually
    result in an increase in the number of American-made cars sold
    in South Korea. In at least one case, the changes are not even
    cosmetic. They simply do not exist at all.
        Earlier this year, the White House even went on record
    announcing a deal with Korea on currency manipulation. That is
    nowhere to be found in the final text or anywhere else. So,
    when it comes to South Korea, the Trump administration over-
    hyped and under-delivered. And my view is, that is their record
    on trade in microcosm.
        In recent months, the President has threatened to impose
    sweeping tariffs on automobiles. Now, if the administration
    comes up with a coherent strategy that is actually going to
    produce more high-paying jobs here at home and greater access
    for American-made cars and markets overseas, I sure want to
    know about it. But where things stand now, it looks like this
    may just be more haphazard bluster.
        Furthermore, the President's threats to impose auto tariffs
    are already doing harm at home, stifling investment, likely
    costing jobs in the long run, and raising costs for American
    consumers. In one case, Ford announced that it decided not to
    sell a particular model of car in the United States because of
    the looming threat of tariffs. So there is the start of
    Americans having fewer choices when they go out and visit the
    showrooms.
        One last point--and one I feel very strongly about--the
    President believes he has the authority to impose auto tariffs
    because the Congress gave it to him. So I want to put the
    administration on notice this morning. Under the Constitution,
    it is the Congress that is in charge of trade and in charge of
    tariffs. In the absence of a real strategy and tangible wins on
    trade, perhaps it is time for the Congress to think about
    reclaiming this authority.
        I want to thank our witnesses for coming. This is an
    important opportunity for the Finance Committee to draw a
    distinction between two different approaches to trade and
    autos. The approach I am in favor of is one that is based on
    concrete well-planned strategies that are actually going to
    create high-skill, high-wage auto manufacturing jobs and
    deliver for our workers. But in my view, the administration is
    delivering--and it's pretty much right out of their playbook--a
    lot more chaos. It is trade policy dictated by early morning
    tweets and bluster, and it may end up costing jobs and doing
    more harm than good.
        Mr. Chairman, this is an important hearing, and I thank you
    for scheduling it.
        The Chairman. Thank you, Senator Wyden.
        [The prepared statement of Senator Wyden appears in the
    appendix.]
        The Chairman. I would now like to introduce each of our
    witnesses who have graciously agreed to be here today to talk
    to us and answer our questions. I will begin with Mr. Michael
    Haughey, who is currently the president and CEO of the North
    American Stamping Group. Mr. Haughey joined the North American
    Stamping Group in 1990 as a partner. He encouraged and led the
    company's NAFTA expansion, increasing its manufacturing
    footprint in the automotive market. Under Mr. Haughey's
    guidance, the company continued to expand its operations in the
    United States and North America.
        So we welcome you to the committee, Mr. Haughey.
        We will now welcome Mr. Rick Schostek. Mr. Schostek is
    currently the executive vice president of Honda North America.
    Mr. Schostek joined Honda in 1987 as an attorney and continued
    to work within the company in various leadership roles until
    his promotion in 2012 to senior vice president. He serves on a
    number of boards, including for Fuel Cell System Manufacturing
    LLC, Global Automakers, and the National Association of
    Manufacturers.
        I want to thank you for coming to speak with us today. And
    we appreciate your time.
        Now we turn to our third witness, Mr. Steve Gates.
    Currently, Mr. Gates is the dealer principal at Gates Auto
    Family in central Kentucky and Indiana. Mr. Gates began his
    career as a lot attendant at his father's car dealership in
    1965. Since then, Mr. Gates started his own company, worked for
    BMW in financial services and as a used car manager, and now
    has realized his ambition of becoming a new car dealer. Mr.
    Gates serves on the American International Automobile Dealers
    Association board and the Toyota National Dealer Council.
        Mr. Gates, we are grateful to have you here and want to
    thank you very much for being here today.
        Our fourth witness today is Mr. Josh Nassar. Mr. Nassar is
    currently the legislative director of the United Auto Workers.
    Before this position, Mr. Nassar served as the assistant
    director of legislation for the Service Employees International
    Union or the SEIU, one of the most important unions in the
    world, really. Prior to his work at the SEIU, Mr. Nassar had
    been the vice president for federal affairs at the Center for
    Responsible Lending, and also served as Legislative Assistant
    for Congresswoman Jan Schakowsky from Illinois.
        Mr. Nassar, we thank you for joining us here today as well.
        Finally, we have H. David Britt. Mr. Britt is the vice
    chairman of the Spartanburg County Council. In his 25 years on
    the Spartanburg County Council, Mr. Britt has led numerous
    economic development efforts, resulting in the county having
    the highest international investment per capita in the Nation
    in recent years.
        So, Mr. Britt, we are grateful to have you here and look
    forward to your testimony.
        Let us begin over here with our friend on our left.

    STATEMENT OF MICHAEL HAUGHEY, PRESIDENT AND CEO, NORTH AMERICAN
                      STAMPING GROUP, PORTLAND, TN

        Mr. Haughey. Good morning, Chairman Hatch, Ranking Member
    Wyden, and the other members of the committee. My name is
    Michael Haughey, and I am the president and chief executive
    officer of the North American Stamping Group.
        The North American Stamping Group is a Tier 2 automotive
    metal stamper and assembler founded back in 1978 that
    manufactures for both the new original equipment market, as
    well as the aftermarket. We produce components and assemblies
    for passenger car, light truck, and commercial vehicles. Our
    sales have grown annually at a compounded rate of 18 percent
    for the last 8 years. We are one of the largest Tier 2
    suppliers, with annual sales approaching $450 million.
        We have 13 facilities in the NAFTA region. Over the last
    decade, we have deployed nearly $200 million in capital
    spending for new facilities, expanded facilities, new
    equipment, technologies, processes, and acquisitions. This
    investment has allowed us to open up significant capacity
    throughout the entire NAFTA region to support future growth for
    our strategic customers.
        Our 13 facilities encompass 1.6 million square feet. Ten of
    the facilities are production facilities, two are research
    centers, and one is the sales office. Specific to the United
    States, we have 10 facilities: one in Michigan, five in Ohio,
    one in Indiana, and three in Tennessee, employing 1,500 team
    members. NASG is part of a vibrant supply chain, but keep in
    mind this supply chain depends on a global market to thrive in
    the U.S.
        We applaud the administration and the Republican Congress
    for the tax cuts. We applaud the administration for the
    decrease in business regulations that we have enjoyed. We
    applaud the administration for attempting to level the playing
    field on trade. However, we do not believe tariffs are the
    right approach to promote American competitiveness. Our
    industry is in turmoil. Last year, we were on a bridge from the
    internal combustion engine to the electric car. However, in the
    last 6 months, we have come off the rails. Our turmoil includes
    the administration-proposed changes on CO2
    regulations that are currently unresolved and the
    administration-proposed changes on CAFE regulations that are
    currently unresolved. Other factors include section 232 steel
    and aluminum tariffs already implemented, the other 232 tariffs
    proposed, section 301 tariffs proposed that since this time
    have now come into effect, what looks like an inevitable trade
    war, rising oil prices, rising interest rates, auto
    manufacturers profits decreasing, electric automobile tax
    credits expiring, the car discount that is reaching
    unsustainable levels, and increased forecast of a recession
    based on the preceding points.
        We thank the committee for holding a hearing today on the
    impacts of tariffs on the U.S. auto industry. The industry is
    already feeling the effects of tariffs on steel and aluminum.
    Since the start of the current administration, steel has risen
    steadily with the ongoing talks of steel tariffs. The market
    prices peaked up 50 percent from $600 per ton for hot-rolled
    steel up to $900 per ton today with the implementation of
    tariffs on March 23, 2018.
        Potential outcomes of steel tariffs and the resulting steel
    price increases include trade partner retaliation--which we
    have experienced--and a forecast of vehicle prices increasing
    by $2,000 for U.S.-made and $7,000 for imported vehicles. It is
    estimated that suppliers like ourselves will have to absorb a
    third of the steel increases, thereby reducing our earnings.
    These reduced earnings will result in less technology spending,
    less capital spending, and fewer wage increases. This will
    crimp consumer confidence, leading 60 percent of economists to
    forecast a recession in 2020, which will reduce automobile
    sales--an estimated decline of 15 percent, resulting in 750,000
    to 1.25 million American automobile workers potentially losing
    their jobs.
        From an NASG standpoint, we have experienced steel price
    increases exceeding $10 million annually. So we can believe the
    car price increases that I noted above. Our share of steel
    increases, which we are unable to pass on to our Tier 1
    customers and the original equipment manufacturers, has a
    negative consequence to our business. Our actions have included
    reducing overtime, putting on hold and dramatically paring down
    all open team member hiring, putting on hold and dramatically
    paring down capital spending, and reducing all discretionary
    spending.
        In summary, I have suspended growing our business until
    uncertainty in the industry is resolved. Obviously, our actions
    due to the tariffs have a negative effect on our team members,
    our suppliers, and our surrounding communities. The sentiment
    in the industry is similar to 2008 just before the Lehman
    demise. Our business plans include bracing for a 2019-2020
    recession.
        I thank you for the opportunity to testify today, and I
    look forward to your questions.
        The Chairman. Thank you, sir.
        [The prepared statement of Mr. Haughey appears in the
    appendix.]
        The Chairman. Mr. Schostek, we will turn to you now.

      STATEMENT OF RICK SCHOSTEK, EXECUTIVE VICE PRESIDENT, HONDA
              NORTH AMERICA, INCORPORATED, MARYSVILLE, OH

        Mr. Schostek. Thank you, Chairman Hatch, Ranking Member
    Wyden, and members of the committee. We appreciate the
    opportunity to testify today. My name is Rick Schostek. I am
    executive vice president of Honda North America. I am here on
    behalf of Honda and our 31,000 associates in the United States.
    But I share the concerns about the potential impact of auto
    tariffs with all sectors of the auto industry, including
    domestic and international automakers, suppliers, dealers, and
    aftermarket companies. The auto industry is not seeking
    protection and is certainly not asking for additional tariffs
    which will harm manufacturing in the U.S., harm our workers,
    and, most importantly, harm U.S. consumers.
        Let me give you a brief history of Honda in the U.S. and
    some statistics. Prior to 1982, when Honda began building the
    Accord in Ohio, every vehicle we sold in the U.S. was built in
    Japan--100-percent imported prior to 1982. Since then, a great
    deal has changed. We have produced more than 25 million
    vehicles in America. And last year, of the vehicles we sold in
    the U.S., 66 percent were built in our U.S. factories, 20
    percent came from Canada, 7 percent from Mexico, 4 percent from
    England, and finally--yes, finally--3 percent from Japan. We
    have gone from 100-percent import to 3 percent from Japan.
        Our history in America highlights two factors that are
    critical to attracting and retaining investment: stability and
    maintaining a welcoming business environment. So let us start
    with stability.
        The process of developing a new vehicle takes several
    years. Each vehicle represents hundreds of millions of dollars
    of investment and advanced planning. This is where disruptions
    like new taxes in the form of tariffs come in. These taxes
    represent an addition to the cost of building a vehicle. These
    costs must either be passed on to our customers or borne by
    manufacturers. And this diverts money intended for other
    critical purposes, including investment in future technologies
    and capital improvements.
        The second critical factor is the need for a business
    environment that welcomes manufacturing. The U.S. has long
    worked to ensure that manufacturers have an environment that
    brings the best reasonably priced products to consumers.
    However, America is now experiencing a fundamental change in
    the philosophy of open markets, and it is a change that
    threatens our competitiveness. Tariffs inevitably lead to
    unanticipated harmful effects. For example, let us talk about
    the steel tariffs that are now in effect.
        More than 90 percent of the steel we use to produce our
    vehicles here is sourced here in America. So we are paying
    direct tariffs on the less than 10 percent that we import. But
    even more significantly, domestic steel manufacturers have
    raised their prices, and this has burdened us with hundreds of
    millions of dollars in new costs. So, even though we
    overwhelmingly source steel in the U.S., we are paying as if we
    are importing. Does that make sense? And on top of that, we are
    dealing with retaliatory tariffs on our exports.
        In a similar vein, Honda's North American-built vehicles
    have high U.S. content, but every manufacturer--no matter which
    one--that builds vehicles does it with both domestic and
    globally sourced parts. A new tax on imported parts would
    increase the price of every vehicle built in U.S. factories.
    And similarly, a 25-percent tariff on imported vehicles would
    depress sales. The industry would end up purchasing less from
    U.S.-based suppliers, resulting in U.S. job loss. It is
    estimated that the tariffs will increase the price of a new
    vehicle up to $7,000. Industry-wide, these tariffs will hurt
    not only jobs in States with auto plants, but wherever there
    are parts manufacturers, auto dealers, service outlets, and
    other businesses that serve our industry. In other words,
    tariffs impact every State in America.
        As the price of a new car grows beyond the reach of more
    Americans, the price of used vehicles will also rise, as will
    the cost of service parts. These tariffs will ripple across all
    aspects of the auto industry and the broader economy. They will
    harm American consumers and American workers.
        The auto industry is already dealing with the impact of the
    steel and aluminum tariffs. Now we face the addition of new
    auto and auto parts tariffs--and tack on the pending changes to
    NAFTA, and the cumulative impact on the industry would be
    unprecedented.
        Mr. Chairman, we have seen positive improvements that are
    helpful to manufacturing, including the historic tax bill which
    came from this committee and efforts to streamline regulation.
    We appreciate efforts to remove barriers to trade everywhere,
    but imposing tariffs in the U.S. will put American workers,
    American consumers, communities, and the American economy at
    risk. And for this reason, Honda has joined every automaker
    doing business in the U.S. in opposing new tariffs on
    automobiles and auto parts.
        I look forward to taking the committee's questions, Mr.
    Chairman.
        The Chairman. Thank you, sir.
        [The prepared statement of Mr. Schostek appears in the
    appendix.]
        The Chairman. Mr. Gates, you are next.

              STATEMENT OF STEVE GATES, DEALER PRINCIPAL,
                    GATES AUTO FAMILY, RICHMOND, KY

        Mr. Gates. Good morning, Chairman Hatch, Ranking Member
    Wyden, and members of the Finance Committee. Thank you for
    having me here today. My name is Steve Gates, and I am a third-
    generation car guy. My grandparents, beginning in 1915, would
    drive from Loogootee, IN to buy one Dodge from the Dodge
    Brothers and then return to Loogootee to sell it out of a
    livery stable.
        My dad was also a car dealer. He became a Chrysler dealer
    in the early 1950s and a Chevrolet dealer in 1958. Then in
    1970--against all odds and against all advice, including my
    mom's--my dad bet everything on a new brand, Toyota. My
    grandparents and dad took unbelievable risks, but they knew
    with hard work, dedication, a plan, and a little luck, anything
    was possible.
        I never wanted to do anything other than become a car
    dealer. From the seventh grade through college, I worked in the
    parts department, the service department, the body shop, and I
    washed a lot of cars. My life's dream became reality in 1989,
    when a great man, Bob McCamy, helped me become a Toyota dealer
    in Richmond, KY. Today, we sell Toyota, Honda, Lexus, Kia,
    Hyundai, Nissan, and Audi. And we employ over 500 people in
    Indiana, Kentucky, and Tennessee. Now a fourth generation, my
    daughter MacKenzie, has entered the business with us.
        I have given you my background just so you know that I
    really understand the retail car business. It is what I love.
    But why am I here? Because I was stunned to read that the U.S.
    Department of Commerce opened an investigation into whether
    imported cars and automotive parts pose a threat to our
    national security. So I had to come to Washington to fight for
    my industry, to fight for my family.
        I used to think if I worked hard and I kept my expenses in
    line and took care of my customers, that I could at least get
    by. But if a 25-percent tax is levied on imported vehicles and
    parts, it will not matter how good a car dealer I am--people
    cannot or will not buy cars. They would just be too expensive.
        Affordability concerns are not new to our industry. Over
    the past 20 years, the average cost of a car has risen 35
    percent while household income has grown only 3 percent. And
    let me dispel a popular myth. All cars sold in the United
    States contain imported parts. So the cost of all cars will go
    up.
        When a customer visits our dealership, among the first
    questions are, how much is the car and what is the payment?
    Well, rising interest rates have already raised monthly
    payments. And I found that the Center for Automotive Research
    estimated that under a 25-percent tariff, the price of a new
    car could rise by as much as $7,000. According to Kelley Blue
    Book, the average transaction price on a new light-duty vehicle
    in 2017 was $36,000. Again, a 25-percent tax added to the
    already rapidly rising price would put a new vehicle out of
    reach of many, if not most American families.
        Those not in the market for a new car will also be
    affected. The tariff on parts would drive up the cost of
    maintenance and repairs. According to the Auto Care
    Association, each U.S. household will pay an extra $700 per
    year in increased ownership costs. It gets even worse. As the
    cost of your car goes up and the cost of parts goes up, the
    cost of insuring your car goes up. The auto insurance industry
    testified this summer that under a 25-percent tariff, personal
    insurance premiums will rise by $3.4 billion.
        From deregulation to tax reform, the administration and
    Congress have built a healthy environment for businesses large
    and small. To maintain full employment, an atmosphere for
    business investment is crucial to creating a strong economy.
    Dealers are benefiting from this economy and see new
    opportunities, but we know that the possible 25-percent tariff
    will negatively affect our ability to operate and provide work
    for thousands of Americans.
        There are 16,802 franchise car dealers in the United
    States. We directly employ over 1.13 million American workers.
    We also account for 1.27 million indirect jobs. The average
    salary at a dealership is almost $58,000. These are great
    American jobs that grew out of global trade. The car study that
    I mentioned earlier predicts that new car dealerships would see
    a loss of at least 117,000 jobs and a loss of as much as $66.5
    billion in revenue if a 25-percent tariff is implemented.
        Clearly, I am not an expert on politics or global security,
    but I know cars, and I know the cars and trucks I sell, the
    services I provide, and the taxes I pay are not a national
    security threat. The men and women who show up to work every
    day, they are not threats to national security either. These
    proposed tariffs are the real threat and the real danger to our
    country and our economy.
        Thank you.
        The Chairman. Thank you.
        [The prepared statement of Mr. Gates appears in the
    appendix.]
        The Chairman. Mr. Nassar?

      STATEMENT OF JOSH NASSAR, LEGISLATIVE DIRECTOR, UNITED AUTO
                          WORKERS, DETROIT, MI

        Mr. Nassar. Thank you for the opportunity to testify today
    on behalf of our president, UAW president Gary Jones, and our 1
    million members and retirees. The vast majority of our members
    rely directly on the success of the U.S. auto industry, not
    just our active members, but our retirees as well. So this is a
    topic of great importance to us. And we really welcome this
    discussion and thank the committee for having it.
        From our point of view--I just want to back up for a second
    and talk about, well, what is the problem we are trying to fix?
    In our view, the problem is that we have lost many
    manufacturing jobs, millions over recent years, and that wages
    and working conditions for autoworkers have dropped
    considerably; in fact, for manufacturing workers across the
    board.
        You see a lot of manufacturers that do not even directly
    hire workers anymore. They use temp agencies to hire their
    workforce. We see companies that spend millions of dollars to
    try to intimidate workers into not joining unions. There are
    problems that have to be fixed as part of the solution here.
        We also think we have to look at these policies in a
    holistic way. We need to have tax policies, for example, that
    complement trade policies, and we have concerns with provisions
    in the tax code that actually give greater incentives and
    benefits to companies that create jobs overseas rather than in
    the United States. So there are a lot of problems that have to
    get fixed, including also investing in the workforce. We are
    falling behind in that as well.
        Now, let us talk about trade. So, our fundamental view is
    that our trade model needs to be changed. If you look at our
    free trade agreements, we have never had a labor chapter that
    has effectively improved the standard for workers in other
    countries. In NAFTA, there is no enforceable labor chapter, but
    workers in all three countries, auto workers, have seen their
    wages drop since NAFTA. And what we have seen happen in the
    case of Mexico is, auto manufacturers and suppliers, dozens and
    dozens, close shop in the United States then build the exact
    same product they used to build in the United States and ship
    it back to the U.S., with the vast majority of auto products
    from Mexico going to the United States.
        This is not a good arrangement for workers in Mexico or the
    U.S., because in Mexico, they do not have the right to
    collectively bargain most of the time. They have company
    unions, and workers rarely even get to see the contracts that
    they are obliged to follow.
        Trade is not a black-and-white issue for us. Of course, we
    are for trade. Our members build products that are exported
    around the world, and it is very important that we have
    functioning, good trade markets. And that is why we think that
    going back to an actual trade model and trade agreements is an
    important thing to do. So, we think that is an important part
    of this.
        Now, when it comes to tariffs, we think that at times
    tariffs can be an appropriate tool to address a problem, but
    they do not constitute a comprehensive strategy in and of
    themselves. Looking at the 232--and I want to remind everyone
    that on the auto 232, we are just having a study at this point.
    Nothing has actually been implemented. Nothing has happened.
        We think the idea of having a study and examination about
    the loss of a lot of domestic capacity makes sense, and not
    just now but for the future. For example, we are losing the
    battle to build electric cars, which are going to be the
    vehicles of the future. We do not have enough capacity for
    lithium ion batteries or semi-conductors--and this could
    provide a situation where in the future, you see our share of
    the market really drop greatly.
        So, we do think the examination is worthwhile, but that
    does not mean that we are naturally going to endorse whatever
    the administration decides to do, because we think a targeted
    approach is needed to address direct problems. Having something
    that would kind of apply across the board without any real
    strategic sense does not make sense and would not be a good
    idea, so we are keeping an open mind on the auto 232s.
        I want to emphasize that when we are looking at our
    competitiveness in the auto industry, we are falling behind. We
    do not have a comprehensive strategy. The reality is, countries
    like Germany are spending a lot more resources and energy in
    trying to ensure they make the vehicles of the future. And we
    are not doing that. So, there are a lot of problems we need to
    fix. We think that trade tariffs can be part of the solution,
    but there is an awful lot to be done.
        And again, we really thank the committee for the
    opportunity to testify and share the views of the United Auto
    Workers, and I look forward to answering your questions. Thank
    you very much.
        The Chairman. Well, thank you, sir.
        [The prepared statement of Mr. Nassar appears in the
    appendix.]
        The Chairman. Mr. Britt, we will finish with you.

       STATEMENT OF H. DAVID BRITT, CHAIRMAN, SPARTANBURG COUNTY
            ECONOMIC DEVELOPMENT COMMITTEE, SPARTANBURG, SC

        Mr. Britt. Thank you, Mr. Chairman, Senator Wyden, the rest
    of the committee. It is my honor to present to you today.
        In Spartanburg, SC, we build things. For over 100 years,
    our mills were the heart of American textile manufacturing. In
    the 1990s, our once-bustling mills begin to shutter and close.
    More than 25,000 workers found themselves unemployed, and our
    county was changed forever.
        If you visit Spartanburg County today--and I encourage you
    to do so--you will see a community that is the economic envy of
    many States, and indeed, many other countries. The
    transformation began in 1992 when BMW decided to build its U.S.
    manufacturing facility in Spartanburg, SC. In the last 26
    years, BMW has invested over $9.3 billion in Plant Spartanburg
    and has produced over 4 million vehicles, and over 70 percent
    of those are shipped all over the world. BMW employs over
    10,000 associates at Plant Spartanburg, and they produce an
    astonishing 1,450 vehicles every day.
        This has helped South Carolina become the Nation's leader
    in the export sales of completed passenger vehicles, accounting
    for 16 percent of the total U.S. market. In fact, South
    Carolina's automotive footprint is so robust that automotive
    suppliers are in 37 of our 46 counties, employing over 66,000
    South Carolinians in our 400 plants.
        A 2017 study concluded that for every 10 jobs BMW directly
    creates at its Plant Spartanburg, 90 more are created as a
    direct result elsewhere in the U.S. Just last year, the
    automaker announced plans to invest an additional $600 million
    in Plant Spartanburg and create 1,000 more jobs. That decision
    is a testament to the quality of the company and their
    associates.
        Through our success with BMW, Spartanburg County learned we
    could complete and win on an international stage. Our culture
    of craftsmanship, which once saw workers spinning and weaving,
    translated to the economy of innovation. Today, more than 200
    foreign-owned companies from 25 countries operate in
    Spartanburg County, including Michelin, Alcoa Fujikura, Toray,
    and Kobelco. And less than 30 percent of those companies are
    automotive-
    related.
        Companies such as Volvo, Mercedes, and Boeing now call
    South Carolina home, employing thousands and building products
    used around the world. In 2017, South Carolina won 157 economic
    development projects, representing $5.24 billion in capital
    investments and creating nearly 18,500 jobs. And more than half
    of that investment came from foreign countries. Time and time
    again, I hear a common refrain from these companies: South
    Carolina is a handshake state--a place where one's word still
    means something, and where fairness and partnerships are
    valued.
        In a global economy, it is important to be fair. That is
    why I initially supported President Trump's efforts for
    equitable trade agreements with countries. However, such
    arrangements should not create less incentive for American
    companies to look for innovative ways to increase their
    productivity and make products more efficiently. As evidence,
    look no further than U.S. steel manufacturing. Since March of
    this year, the price of U.S. steel has increased 23 percent on
    the heels of President Trump's tariffs. Instead of innovating
    or even raising prices slightly, U.S. steel manufacturers have
    increased their prices to just shy of the imported steel price.
        This marked price increase will cascade to our consumers,
    whether they realize it or not. Large construction projects
    built with precast concrete and steel beams may suddenly seem
    too costly and be shelved. Infrastructure improvement projects,
    the roads and bridges crucial to so many, may be delayed or
    canceled.
        This is a perfect example of why government should not use
    tariffs to pick winners and losers. We have over 100 years of
    history proving this does not work, from the sugar tariffs of
    the 1880s to the chicken tariffs of 1963, where in January of
    1964, the United States placed a 25-percent tariff on all
    imported trucks, and it is still in place today, 54 years
    later. Every truck owner in the United States is paying
    substantially more for their truck because of this tariff,
    including me.
        The prices on everything from toothbrushes to groceries and
    cars will rise in 2019, if not sooner. These economic policy
    decisions do not exist in a vacuum. The impact will not only be
    felt in boardrooms and capitals but will be passed on to
    consumers across this country and the world.
        I keep hearing, ``Be patient. The President has a plan.''
    Well, our trading partners and our citizens are running out of
    patience. They are asking themselves questions, because their
    lives and their futures are at stake. Our neighbors are asking
    themselves, ``Can we afford to buy a new home or a car with a
    trade war looming?'' Companies are asking, ``Can we risk this
    new investment in a new or existing facility in Spartanburg, or
    do we put it elsewhere in the world?''
        In Spartanburg and South Carolina, we experienced firsthand
    the failures of a protectionist mentality. We must not repeat
    the mistakes of the past. As a community that was given the
    option to change or die, we have grown and thrived under a new
    economy, one built with a strong emphasis on education,
    collaboration, and innovation. In the years since the textile
    industry collapsed, companies have invested more than $17
    billion in Spartanburg County alone, creating over 55,000 new
    jobs. We are poised for even brighter days to come, provided
    these tariffs do not put their foot on the throat of growth.
        A reporter recently asked me what I might say to President
    Trump if given the opportunity. I would say, ``Mr. President,
    come to Spartanburg and let me show you firsthand how we have
    opened our minds, our hearts, and our ingenuity to the world
    for the benefit of everyone.''
        Politics is the art of getting things done through people,
    and in my 32 years of elective office, it has never rung truer
    than today. In Spartanburg, we have learned to accomplish our
    objectives through trust and partnerships, not a hammer,
    because in Spartanburg County, we build things, including
    relationships.
        Again, Mr. Chairman, Senator Wyden, and the rest of the
    committee members, I thank you for giving me the opportunity
    and the responsibility to present my testimony before this
    committee. I will look forward to your questions.
        The Chairman. Well, thank you.
        [The prepared statement of Mr. Britt appears in the
    appendix.]
        The Chairman. We appreciate all of you testifying here
    today.
        Let me start with Mr. Schostek. You have been in this
    business long enough to experience firsthand the benefits of a
    business environment that supports manufacturing. You said in
    your testimony that American policies welcomed Honda's
    investment and made it possible to begin U.S. production in
    1979. As your company is now approaching 40 years in the United
    States, what is at stake with the prospect of tariffs on U.S.
    imports of autos and auto parts?
        Mr. Schostek. Thank you, Mr. Chairman.
        You are absolutely correct. We came to the United States
    because we wanted to build product where we were going to sell
    product. And we found a welcoming environment and grew our
    footprint step by step, including building engines,
    transmissions, and full-line R&D right here in the United
    States.
        The problem with the tariffs is, tariffs are taxes. And
    tariffs are going to increase the cost of manufacturing, which
    is then going to increase prices to consumers. Demand will
    fall, and this, as I and the other witnesses have said this
    morning, will ripple through the entire economy. Tariffs
    disrupt and distort the market and are going to divert
    resources that we need to invest in new technologies going
    forward and will undermine the stability of that welcoming
    environment that we first found. So we see it, sir, as quite a
    threat.
        There are 14 auto companies producing cars in the U.S.
    Together, we all have healthy competition. The auto industry is
    not in need of protective tariffs, and they could destabilize
    the industry, as you have heard this morning.
        The Chairman. Thank you.
        Mr. Gates, you witness daily the joy and often the stress
    of the companies purchasing a vehicle. A car is one of the
    largest investments that a consumer will make.
        And as you said, one of the most important considerations
    for your customers is price. What impact would auto tariffs
    have on your consumers? You can talk about consumers across the
    Nation.
        Mr. Gates. Well, I am afraid that I think I cited some
    research that perhaps 2 million cars--we would sell 2 million
    cars less. I think it is greater than that. I know just from my
    own experience, cars are very price-sensitive. It is all about
    payment. If cars rose an average of $4,000 to $6,000, that
    adds--$4,000 adds $80 a month to a payment. Everybody who buys
    a car cares about the payment.
        So to me--and again this probably goes against some of the
    research--but to me I think it is devastating. I do not think I
    can survive long-term if this occurs.
        The Chairman. Well, thank you.
        I am in agreement with you guys, I will tell you.
        Mr. Haughey, let me go to you. You and your fellow
    witnesses have reminded us today that the automotive supply
    chain is both dynamic and fragile. One small change can set off
    a domino effect, ultimately hurting consumers and the economy.
        As you noted in your testimony, the supplier industry has
    already felt the effects of steel and aluminum tariffs. Now,
    these tariffs are costing your company alone $10 million a
    year. What would the impact of additional tariffs be on your
    business as well as the entire supply chain?
        Mr. Haughey. Senator, it has had a big impact. It is
    obviously--we have started delaying our growth. And that is a
    big problem for us.
        We do not import a lot ourselves. We manufacture everything
    in the country where we use it, but the big effect is going to
    be just--the overall volumes of the industry go down. We are
    selling parts for cars that may be supported by imported
    components.
        We have had one layoff in the history of the company back
    in 2009. If volumes go down, that is where we become very
    susceptible to our team members.
        The Chairman. Mr. Britt, several witnesses described today
    the auto industry as highly integrated. Automakers create a
    great deal of opportunity in the communities in which they
    operate. How dependent is your community on the health of the
    automotive industry?
        Mr. Britt. Mr. Chairman, I mentioned the 25 years of growth
    that we have had since BMW first announced in 1992. It is still
    fresh on every citizen's mind in Spartanburg--and I think in
    South Carolina--when the textile industry collapsed, all of
    those jobs that were lost.
        I think it is very important to realize in South Carolina,
    we are still tied in very carefully to what is going on on the
    automotive side, as the dealers have already spoken to that.
    But with BMW being such an impact on Spartanburg and South
    Carolina, it is not just the employees at BMW, the 10,000
    employees there--as Mr. Gates mentioned, very few parts are
    made by BMW that go into their vehicle, or a Honda, or a
    Toyota, whatever. In fact, BMW only makes the engine for the
    most part, so all of those other components are made by the
    supplier network.
        And a lot of them are in South Carolina, but still a lot of
    those products come in from the international companies. If BMW
    cannot sell the number of vehicles that they have done in the
    previous year--and every BMW is sold before it is made. Those
    1,450 vehicles being made today are already sold.
        So if they cut back--for instance, we do not need 450,000
    this year; we need 350,000. So they cut 100,000 cars out. That
    means a 20-percent to 25-percent reduction in their potential
    workforce, as well as all the 66,000 across South Carolina.
        Take for instance, Magna Seating; they produce seats for
    BMW. When they came to Spartanburg--they have had two
    expansions since their first announcement 3 years ago. They
    make four seats for every BMW that is made, because they make
    the X cars in Spartanburg, the SUVs. So if they do not need
    100,000 vehicles next year at BMW, that means there are 400,000
    seats at Magna, then all of the other producers--ZF Lemforder,
    Draxlmaier, all the others that support the BMW production--
    they cut back. But it is not just even the auto suppliers. It
    is the golf cart sales group in Spartanburg on Highway 221--
    they stopped me recently and wanted to thank our team, our
    council and our economic development team, for this growth that
    we have experienced. That is $17 billion.
        They have doubled the size of their shop, their workforce,
    and have moved into a new facility, all because of this growth.
    If that growth goes backwards, they have to cut back. They have
    to lay off. Then they have to face paying their bills for this
    new building.
        This ripples all across Spartanburg and South Carolina. And
    it is very, very serious and very dangerous.
        The Chairman. Well, thank you.
        Senator Wyden?
        Senator Wyden. Thank you very much, Mr. Chairman. This has
    been a very good panel, and we appreciate all of you being
    here.
        Let me start with you if I could, Mr. Nassar. The steel
    tariffs seem to be increasing company profits, but not
    increasing wages for the workers. And I would be interested in
    having you start by giving us a sense of what mix of policies
    you would favor that would be good for workers and companies.
        Mr. Nassar. Thank you for that question.
        I think, first of all, if you just look at what would be
    good for workers and for companies, it is for workers to have a
    voice on the job. And quite frankly, what we have seen in a
    large percentage of auto parts, but also in auto manufacturing
    is, fewer and fewer workers do have a voice on the job. And
    workers who seek to have a voice collectively bargaining are
    often intimidated, and in fact, the common threat is, if you
    push too hard, we are going to Mexico.
        So I think, (1) is that we really need to have a
    reexamining of our tax laws and make sure we are not giving
    incentives to offshore jobs, and (2) we have to reexamine----
        Senator Wyden. That is especially important because, when
    you look at this tax bill, it is still more profitable to do
    business overseas than to do it in the United States. So you
    can be assured that there are a lot of us here who are very
    interested in that.
        Mr. Nassar. Yes, it contradicts what we are trying to
    accomplish in trade policy, for sure.
        And then the other thing is, we need to reexamine our trade
    agreements fundamentally. And I want to just make the point
    that what we have seen is, sometimes an argument is made that,
    hey, we have lost capacity. We cannot build certain parts here
    anymore.
        Well, those were deliberate decisions that were made by
    companies to move overseas. And what we have seen is that the
    truth is--take NAFTA. Auto production has increased rapidly
    there. And nearly every car manufacturer has plans to expand in
    Mexico.
        What we are also seeing is, the supplier networks that are
    being talked about here, they are moving to Mexico as well. Why
    that is such a concern is because, obviously, that means lost
    jobs here, lower wages here as well.
        Also, we have to talk about worker training. We have to
    talk about apprenticeships. If you look at it, we are not
    really investing and making that a priority like we need to.
    And frankly, we need to make sure that we have a stronger
    middle class, and having a stronger middle class means having a
    strong safety net, having strong collective bargaining rights,
    and really a pathway to the future.
        We at UAW are proud of that fact that we helped establish
    manufacturing jobs as middle-class jobs. That is less and less
    the case today, and it is devastating communities around the
    country. So really a holistic approach----
        Senator Wyden. I appreciate the answer. We will keep the
    record open so you can give more to us in writing. But the
    prism I am talking about is your ideas, and for all of you, so
    that workers win, companies win, we widen the winner circle for
    more middle-class, good-paying jobs in America. So I thank you
    for that.
        Mr. Schostek, let me talk to you about this whole question
    of exclusions that has become a part of this trade bill. And as
    you know--we talked about it in the office--I think the way
    this was set up was arbitrary from the get-go. Secretary Ross
    came here to talk about the so-called ``product exclusion
    process.''
        I want you all to know I think this comes directly from La
    La Land. It is almost incomprehensible to figure out how it
    actually works. We keep hearing from constituents, all of us,
    that they cannot figure out what is going to happen. Are they
    going to be approved? Are they not going to be approved?
        Mr. Schostek, tell us if you would--and also we have not
    been able to get answers from Secretary Ross. Members of this
    committee, in effect, gave him scores of questions with respect
    to exclusions. Three months later, we have not gotten any
    answers from him. So my question to you, Mr. Schostek, is, what
    has been your experience with the suppliers, and what have the
    ramifications been for your business, because I gather you are
    having some hassles and they cannot get answers? But walk us
    through what it really means for you.
        Mr. Schostek. Sure. Thank you, Senator Wyden. That is a
    very important question, and I am glad you brought it up this
    morning.
        The auto industry supply base, with respect to the steel
    and aluminum tariffs, is very interdependent. There are many
    suppliers that have requested exclusions from the Department.
    There are three, in particular, that we have been tracking
    along with. There are more than that in our supply chain. But
    there were three, and in fact, I just checked on them yesterday
    after we had a chance to speak in your office.
        All three of them applied soon after the window opened, so
    to speak, for exclusion requests. I think they applied in maybe
    the June timing. None of the three has an answer yet. So they
    are still waiting to understand if their exclusion request will
    be granted.
        Senator Wyden. What does that mean for you?
        Mr. Schostek. It means uncertainty, which is what the whole
    theme of this activity is. We are uncertain if they are going
    to be able to get an exclusion. Then of course if they do, the
    tariff would not apply and things would be differently priced
    in the commerce we have with them.
        Now we have heard--to be clear, there has been some
    improvement very recently in terms of reducing the backlog. But
    again, as we sit here this morning, those three suppliers that
    we have been tracking pretty closely are waiting for an answer.
        Senator Wyden. I appreciate it.
        My time is up. And we keep hearing that there have been
    improvements in the backlog. It always reminds me of the
    marquee at the old movie house where it says, ``coming soon.''
    And then it never gets there because, when I talk to companies,
    my experience is what you have said. They have two or three
    suppliers, and they have been waiting, and they do not have any
    sense of when they are finally going to get an answer, and then
    they do not have the certainty and predictability to go out and
    invest in jobs.
        So I thank all of you, and I know my colleagues are
    waiting.
        Thank you, Mr. Chairman.
        The Chairman. Thank you. Senator Stabenow?
        Senator Stabenow. Thank you, Mr. Chairman, very much for
    holding this hearing.
        When we talk about trade in the auto industry, put Michigan
    right at the top of the list. So this is, obviously, a very
    important topic for our businesses and our workers and
    communities in Michigan.
        I have to say it, Mr. Gates: I grew up on a car lot. My dad
    and grandfather had the Oldsmobile dealership when I was
    growing up, Greer Auto Sales. My first job was washing the cars
    on the car lot. So I appreciate all of your efforts. I am glad
    that we were able to actually preserve an American automobile
    industry with the rescue we did a number of years ago that
    impacted not only the OEMs and the suppliers, but I think
    120,000-plus auto dealers in every community--so very, very
    important.
        First, Mr. Nassar, I wanted to talk to you a little bit. My
    mantra, always--in Michigan, we are the fifth largest exporting
    State, both manufacturing and agriculture. We need to make
    things and grow things. My mantra is that we want to export our
    products, not our jobs.
        So that requires a level playing field. And you have spoken
    about what that means. It is one thing--we go back and forth
    across the Ambassador Bridge or other bridges to Canada every
    day; the supply chain is very comparable. The problem is in
    Mexico. If they are paying $2 an hour, we suddenly see a race
    to the bottom, which means that we are are losing middle-class
    jobs.
        If you could, talk about how the administration should be
    pushing for better labor standards in Mexico. What does that
    mean to you? And what do we stand to lose if we do not, in
    fact, have meaningful labor standards and opportunities for
    people in Mexico to negotiate in the workplace, like we do in
    the United States and in Canada?
        Mr. Nassar. Thank you for that question. I think, first of
    all, I want to make sure I am making the point that we care
    about workers everywhere, but our members really care about
    what is going on in Mexico because the wages are so low there
    that it creates a real incentive to bring more and more work
    down there. So we want to bring the wages up there. It is not
    just for the workers in Mexico. It is for the workers in the
    United States.
        We view it as, when companies set up in Mexico, create
    these company unions that often, frankly, rely on repressive
    State policies to keep workers down, that that is an unfair
    trade advantage in our view. And the company that chooses to go
    that way should not just be able to have no consequences.
        What we are looking for in NAFTA renegotiations is
    fundamentally ending these protection contracts and changing
    Mexico's law so people have a real chance to join unions and to
    have a voice, if they want to--or not to join the union.
        The other thing is, you have to have serious enforcement in
    order to make that stick, because what we have seen in other
    trade agreements is, it looks good on paper, but if you have
    this dispute settlement, really clunky, lengthy, inefficient
    process, that does not lead to justice. So we think that is
    another thing.
        As far as unfair practices, I just want to say that when
    you look at many countries around the world, they manipulate
    their currency to make their products cheaper. There are a lot
    of countries that highly subsidize their industries. The idea
    that we should not do anything about that, that we should take
    no corrective action, just means that we are going to, over
    time, lose more and more manufacturing. That will be the result
    if we stick with the status quo. So that is not an option.
        The truth is that many of our competitors continue to use
    unfair trade practices, and they make it really hard for us to
    export there. We have to deal with all of that to have a level
    playing field.
        Senator Stabenow. I agree that we need trade enforcement.
    That is something that I worked on for a number of years. I
    helped create the trade enforcement office that we have now.
        And the President had indicated that he would call China a
    currency manipulator on day one. I was very supportive of him
    doing that. I am sorry that that has not happened. Currency
    manipulation is a serious issue. But at the same time----
        Let me turn--Mr. Haughey, thank you for being in Michigan
    with one of your plants. We know that we have a set of issues
    that need to be addressed to level the playing field, very
    important, because we want the jobs--I want the jobs in
    America. I think we all want the jobs here in America, and we
    want American businesses to thrive.
        And we also know most of the jobs come in the supply chain,
    not in the assembly. It is in the supply chain. So it does
    matter, though, that we have stability. It worries me, and I
    understand. But when you said you suspended growing your
    company because of the instability--deep concern about that. We
    need to have you doing well and to have stability. And what is
    happening--unfortunately, we are sort of throwing everything at
    the wall, which is what they are doing: section 232, section
    301, NAFTA, I mean everything, so that there is total
    instability right now.
        So I would just ask you----
        The Chairman. You are way over----
        Senator Stabenow. If I could just ask one thing, if I
    might, one thing----
        The Chairman. You are way over time, but go ahead.
        Senator Stabenow. Thirty-six, thirty-seven seconds--so
    everybody went over 1 minute so far, so if I might.
        The Chairman. It is okay.
        Senator Stabenow. Could you walk through what it takes to
    get new components into the supply chain? And I know you talked
    about CAFE standards. Nobody in the auto industry I know of is
    asking for changes there. You are making the new parts. You
    have retooled already to make the new parts.
        So when we look at all of this, what kind of certification
    and testing is required? How long does it take? When we walk
    through new components and what it takes to get in the supply
    chain and how you are impacted by these actions, I wonder if
    you might just speak a moment to that.
        Mr. Haughey. Thank you, Senator.
        We would work with our Tier 1 customers to develop new
    products. Tools that we manufacture for metal forming can take
    over 6 months, sometimes up to a year, depending on the
    complexity and the number of different tools. The parts would
    then go to the Tier 1s and eventually to the OEMs. There is so
    much testing to be done now, crash testing, all kinds of
    different validations. So it is a very long chain. It is
    interdependent on everyone.
        Now we have been kind of working on electric vehicles,
    connected vehicles, shared vehicles, lightweight--there has
    been a lot of progress made in the industry, but now everyone
    is kind of sitting back going, ``Boy, we are not sure how all
    the trade is going to work out. Are we going to be
    disadvantaged in the U.S. by tariffs?''
        There is big concern in our industry that if we block off
    access to the market, a lot of those technologies will be
    developed over in China or Europe. And we do not want to see
    that. We obviously want to stay on the leading edge of
    technologies.
        Senator Stabenow. Well, we want you here too.
        Thank you, Mr. Chairman, for your patience.
        The Chairman. Well, I apologize for interrupting you.
        Senator Stabenow. That is all right.
        Mr. Britt. Mr. Chairman, can I jump in on Senator
    Stabenow's question? I would like to add a little bit if I can.
        The Chairman. Sure.
        Mr. Britt. She is absolutely right. Both American and
    international companies depend on predictability and certainty.
    And in this regulatory climate that we are in right now in
    2018, I think it is the worst it has ever been in the country's
    history.
        Companies, again both American and international, depend--
    it is all about risk avoidance when you are talking about
    putting money in to expand or to retool, putting new equipment
    in, in the state that we are in right now. And it goes back to
    what Senator Wyden was saying too. The complexity, the
    difficulty of reading all of this change--at our company, the
    Tindall Corporation in Spartanburg, our purchasing agent got a
    125-page document sent to us by one of our suppliers and asked
    us to read it to decide what was applicable and not applicable.
        And we are trying to do business. So when they are asking
    us--Senator Wyden, you said you had a tough time getting it.
    You do not want to see it. It is too complex.
        Just again, we need this predictability and this certainty.
    One of our suppliers out of Ohio--I just got this email
    yesterday from our chief project manager, Ashley Fortenberry.
    It is an increase in our steel prices effective immediately
    because of the tariff that was just put into place last week,
    the 10-percent of 200 billion in China. We just got a 10-
    percent increase on top of the 23 percent that we got back in
    March. And we are warned right now that it is going to go up 15
    percent more in January. And that is a steel producer supplying
    steel to a company that uses steel primarily in our product.
        Let me say this, just to make sure everyone understands
    this. For every $1 that the steelmakers contribute to the GDP,
    the steel users--just like all of the automotive manufacturing
    companies, just like Tindall and all of those companies in
    Spartanburg--we add $29 to the GDP compared to that $1. For
    every 1 job that the U.S. steel manufacturers make and create,
    we create 46, the steel users. And this is in every State in
    this United States. And it is very, very important. And it is
    going to cost the consumers.
        Thank you, Mr. Chairman.
        The Chairman. I am concerned about it too. I am on your
    side, between you and me.
        Senator Grassley?
        Senator Grassley. In the four or five times I have been to
    the White House to talk to the President about his trade
    policies and the tariffs, et cetera--most of the time,
    obviously, from my State I talk about agriculture, but also
    within my State, we have thousands of jobs that are connected
    with parts for cars, even though we do not make cars in my
    State. So this concerned me very much.
        Before I ask a couple of questions, I hope we all would
    agree, even though we are raising concerns about what is going
    on right now, that if the President accomplishes his goals of
    getting intellectual property rights protected and companies
    not having to give away trade secrets, and getting other
    countries to lower tariffs, that if he can accomplish that,
    obviously we are all going to be better off, whether it is
    automobiles, or our farmers, or our services, or anything else.
    So I hope we can agree on that, if he can accomplish it. I know
    that is a big ``if.'' He has made some progress, maybe with
    Mexico, as an example.
        So I am going to go to Mr. Schostek and Mr. Gates. And, Mr.
    Gates, you spoke to this question, but I want to bring it down
    to the family level. Could you estimate--now this stems from
    what I think you said, $6,000 to $7,000, if the proposed tariff
    goes in, with an increase in the cost of a car.
        Could you, Mr. Gates--and you do not need to repeat this,
    Mr. Schostek, if you agree with what he said. Could you
    estimate what that means for a person's monthly payments with
    current interest rates, and how much extra per month does a
    middle-class consumer have to come up with to finance a new car
    with these costs?
        Mr. Gates Well, $6,000, roughly, is $120 a month.
        And believe me, people leave dealerships because of a $5
    difference. One hundred twenty dollars is a huge number.
        Senator Grassley. Do you have anything to add to that?
        Mr. Schostek. Senator, I would not disagree with Mr. Gates
    at all, except to add on the fact that as new car prices
    increase and consumers are priced out of that segment of the
    market, they are going to be looking for used cars. And used
    car prices are also going to increase because of demand, and
    then service parts prices.
        So there is a ripple throughout the entire chain of
    distribution here that is going to hurt American consumers.
        Senator Grassley. Okay.
        And for you, Mr. Schostek, this question: you mentioned the
    lead time for designing and launching cars--I think roughly 5
    to 6 years. Clearly you have to make decisions years out before
    production starts.
        I doubt that you all have made major plans yet to move
    production as a result of the tariffs. However, at some point
    you might. Could you estimate how long the current tariffs and
    general trade uncertainty could last before your company would
    start seriously considering making significant production
    changes to lower costs?
        Mr. Schostek. Senator, we came to the U.S. to build
    products where we sell them. And we found here a welcoming
    environment, and we have grown in America. We do full-line
    manufacturing, full-line R&D here in the United States. We plan
    to stay, but the current environment is unsettling. It is
    certainly unsettling for us. And that is why I came here today.
    I wanted to talk to the committee about this.
        You mentioned being from an agriculture State, and
    certainly retaliation. We can see it there. We can see it in
    other aspects. The problem with the tariffs is, they are a kind
    of unintended consequence. So we have an action, which is a
    tariff. Then we have a reaction, which is retaliation. Workers
    lose on both ends of that, and consumers lose on both ends of
    that.
        We are experiencing retaliation in our business right now.
    For example, in Swepsonville, NC we are making lawnmowers.
    Those lawnmowers are sold in the United States. We also export
    them to Canada. Canada has put a 10-percent tariff on the
    lawnmowers we are making in Swepsonville, NC, disadvantaging
    our workers there in North Carolina. Further, we are sending
    transmissions from Tallapoosa, GA to China.
        So we have a new product, the Acura RDX. We make that
    product for the U.S. market in Ohio in East Liberty, OH. And we
    provide the transmission from Georgia to Ohio. But in addition,
    for the China market--and China is a big market--we make the
    RDX in China as well. We are sending transmissions from
    Tallapoosa, GA to China. And those are now subject to the
    retaliatory tariffs, again, affecting the work of Americans--
    Americans in Georgia.
        And there are other examples as well, just within our
    company. And then we can talk about the supply chain as well.
    This is happening all over the place, Senator.
        Senator Grassley. Thanks to both of you.
        The Chairman. Thank you, Senator.
        Senator Brown?
        Senator Brown. Thank you very much, Mr. Chairman.
        Mr. Nassar, let me start with you. Earlier this year, GM
    announced it was laying off the second shift at the Lordstown
    Plant in northeast Ohio where they make the Chevy Cruze. Twelve
    hundred workers at the plant got pink slips. That was in
    addition to the more than 1,000 workers on the third shift that
    had lost their jobs.
        Senator Portman and I have done everything we could, and
    still Mary Barra, GM's CEO, will not commit to keeping the
    plant open, will not commit to retooling it to make a better-
    selling, probably, SUV. To make bad matters worse, on the day
    that the second shift left, GM announced, literally the same
    day, they were going to build the Chevy Blazer in Mexico.
        There is something wrong with this picture. A company
    decides to lay off more than 2,000 experienced auto workers at
    a historic auto plant in the United States, then announces they
    are going to build cars for the American market in Mexico.
        Do you agree GM's decision is proof that our policies do
    not do enough to encourage U.S.-based production?
        Mr. Nassar. It is absolutely proof. And it is proof that we
    have seen time and time again. Unfortunately, we have a
    situation where there are no negative economic consequences for
    companies taking big tax breaks, breaking promises, and
    creating jobs overseas. So, it absolutely is a failure of
    policy that encourages this offshoring.
        Senator Brown. Let me talk about a potential solution. In
    response to that decision, I introduced the American Cars,
    American Jobs Act. The bill has two parts. First, customers who
    buy cars that are made in the U.S.--roughly 50 percent domestic
    content--and assembled here get $3,500 off at the dealership.
    The discount would apply to nearly 100 cars, trucks, and SUVs,
    including all passenger vehicles assembled in Ohio.
        Second, companies that cut the number of American jobs they
    had on the day the much-vaunted GOP tax bill passed, and add
    those jobs overseas, lose a tax break they get on some of their
    overseas profits. Essentially, they lose their 50-percent-off
    tax coupon that this committee and this Senate gave them a year
    ago.
        Would this bill help keep auto jobs in the U.S.?
        Mr. Nassar. Absolutely it would help keep auto jobs in the
    U.S., because it incentivizes more purchasing in the U.S.
    markets, which is really important. And also because it,
    frankly, addresses an abuse we see, where companies are saying
    they cannot invest in the United States, but then they are
    investing overseas, and they are taking no consequences for it.
        Our laws absolutely should react to that abuse, and your
    legislation would surely help.
        Senator Brown. Thank you, Mr. Nassar.
        Mr. Schostek, welcome to the committee. Welcome all five of
    you to the committee.
        Thank you for the work that Honda has done as a leading
    auto producer in Ohio for decades. I remember the late 70s when
    Honda broke ground in Marysville and built motorcycles.
    Obviously, you have come a long way from motorcycles, to cars,
    to lawnmowers--a new product that most people in this room
    probably did not know was also a Honda product.
        Your company made its first Accord in Marysville, northwest
    of Columbus, 36 years ago. In the last 25 years, you have
    assembled 11 million Accords at that plant. You now have 15,000
    employees. They work in Ohio alone. They work at Marysville.
    They work at the world-renowned research facility and logistics
    center, engine plant, transmission plant, the East Liberty
    assembly plant, which you mentioned.
        My understanding from my visit to Honda and my discussions
    with you and others, and Ed Cohen and others, is you have never
    once laid off a shift of workers. If more auto companies
    invested in the U.S. like Honda has invested in Ohio, this
    conversation would have been very different today.
        So give us a couple of minutes on the policies you think we
    should consider in this body to encourage other companies to
    invest in the U.S. as extensively as Honda has.
        Mr. Schostek. Thank you, Senator Brown. Good to see you
    again, and thank you for the support. I have talked about the
    welcoming environment we have found in Ohio. You are a key part
    of that. Your support on workforce development and many other
    topics over the years has been invaluable for us. So we
    appreciate it.
        Your understanding about not laying off a shift is correct.
    So I can confirm that for you. And we found a very welcoming
    place in Ohio and elsewhere in this country.
        There are 14 companies producing cars in the United States
    right now. That is a lot of companies. So we have a healthy
    competition that exists among the auto industry. This industry
    is not in need of protective tariffs, and that is what brought
    me here today. That is why we are concerned. So we are
    concerned that the tariffs will increase the cost of
    manufacturing, and, as we have discussed, the price to
    consumers, both for new vehicles as well as for used vehicles.
        But we are going to keep strong. Our operations in Ohio--
    which by the way, as you mentioned, include our largest engine
    plant in the world in Anna, OH. And we have a very, very strong
    R&D operation in Ohio.
        We have developed 30 different automobile and light truck
    models in the U.S. exclusively by Americans working in Raymond,
    OH, as well as their colleagues in the Los Angeles, CA area. So
    we are a full-line, full-value chain manufacturer here in
    America.
        The Chairman. Thank you.
        Senator Warner?
        Senator Warner. Thank you, Mr. Chairman. I appreciate you
    holding this hearing.
        I am not even sure where to begin when it comes to talking
    about this administration's approach on trade. When you have a
    President of the United States who starts by stating that trade
    wars are good--and we have absolutely no factual basis on
    that--I think you end up in the circumstances where we are
    right now.
        Let me tell you, I would be the first to agree that China
    does not play by the fair international rules. We have seen
    that in terms--I have seen it, particularly in my old industry
    in technology, where the price of admission for an American
    company into the Chinese market is giving up their intellectual
    property. We have seen it with Chinese efforts in intellectual
    property theft. We have seen it on Chinese use of their
    students who attend our universities, again to steal
    intellectual property. And we have seen it where the Chinese
    firms do not operate on market-based principles. They have
    enormous direct state subsidies.
        I would argue that the way to approach that would have been
    to build an international coalition. I think there was a
    growing recognition about the real threat that China poses over
    the last couple of years, and there was an opportunity to build
    a coalition, not only with our North American allies, but our
    European allies, many Asian nations that have been direct
    targets of this Chinese aggressive action. But instead, we have
    seen this administration use a part of our law, the section
    232, under national security provisions, to basically call out
    allies like Canada. And the Canadians have a right to be upset
    with our administration, this administration's portrayal of
    Canada. They are our friend, not a national security threat--as
    are our European allies and others.
        And clearly in the realm of, whether you are talking about
    Toyota, whether you are talking about the supply chain that has
    been integrated across North America, these policies are going
    to hurt American consumers. They are going to hurt American
    jobs.
        In a State like mine, in Virginia, where we actually have
    enormous net surpluses with many of our trading partners, this
    is going to hit us at the bottom line--so action against China
    makes sense. This administration's approach, I do not believe
    meets that criteria. So I want to make sure I do get in a
    couple of questions rather than just my views here.
        Mr. Gates, one of the things that I think you mentioned in
    your testimony I would like you to expand on a little bit, and
    that is the fact that if this trade war in autos is allowed to
    continue, not only will American consumers feel that price
    increase on the front end when they go out and purchase a new
    car, but in many ways the real hit may come to the pocketbook
    when they go back and service their cars, because many of the
    auto parts will also be penalized. Could you expand on that a
    little?
        Mr. Gates. Of course; thank you for the question.
        I will start by saying in Kentucky, the legislature
    recently passed a law which now charges a 6-percent tax on
    labor. So not 25 percent, just 6 percent. And that has caused
    many people to put off maintaining their vehicles. So a 25-
    percent tax on parts would clearly, I think, be devastating.
        It is easy to put off maintenance. It is a little
    frightening though, because part of that is certainly safety-
    related. And I, sort of, hate to be driving around with people
    who have unsafe cars on the road.
        Senator Warner. Amen to that.
        I think people have not felt the full burden of the Trump
    trade war yet. I do not think Americans are going to come to
    the consensus this is good. I do think China is a threat, but
    you could have rallied the international coalition.
        Mr. Schostek, can you speak to one of the areas I know your
    company is investing in? Even though there are going to be some
    bumps, I think the notion of autonomous vehicles holds a great
    deal of possibility, and we are talking about direct price
    penalties.
        But can you speak to the question about R&D and R&D that
    your company might otherwise have chosen to do here in America?
    You have an international market, so how do you make the
    decisions around tariffs that will affect your decisions about
    where to do your R&D on autonomous vehicles and otherwise?
        Mr. Schostek. Great. Absolutely, Senator. Thank you for the
    question.
        The concern about tariffs is, they are diverting resources.
    Right now the auto industry is at quite an inflection point in
    terms of many items: electrification, connected and autonomous
    vehicles. These require major investments by us, the OEMs, by
    the supply community, in order to make these changes that are
    necessary for the future. The fact that we have tariffs and
    retaliation going on is doing nothing but diverting resources
    from very important R&D and technology activity that we need to
    perform in order to stay viable into the future. So it is
    certainly a key issue for us.
        Senator Warner. Mr. Chairman, I know you have been a big
    advocate, as the ranking member has been, about technology
    development in this country. I hope, again, we can send this
    message that this is not only hurting Americans in their
    pocketbook, but it is curtailing the ability for auto companies
    to do the needed R&D investment in this Nation.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator. I agree 100-percent with
    you.
        Senator Cantwell?
        Senator Cantwell. Thank you, Mr. Chairman.
        I thank the witnesses. I have stayed for most of this
    hearing because I think it is such an important topic.
        I think the United States of America figuring out how it
    keeps U.S. manufacturing jobs and jobs related to manufacturing
    is a very key point to our economy. Why? Because manufacturing
    jobs help people move from working-class to middle-class. So I
    am not saying other sectors cannot do that, but certainly the
    manufacturing sector can.
        I think we are probably one of the few States that--we
    definitely import a lot of cars through the State of
    Washington. We export some as well, but I am struck by the
    commonality of the views at the table as opposed to the
    divergence of your ideas.
        And I just want to make sure I am clear on this, because
    one of the things that I think is, if you want to have
    manufacturing in the United States of America, you make sure
    you are making all of those investments in the supply chain.
    Because if you own the supply chain and it can be lean
    manufacturing, that is the best bet to what Mr. Nassar was
    saying and to what everybody was saying. So is that right? To
    the greatest degree possible, keeping a robust and lean supply
    chain in the United States helps us to continue to produce jobs
    here? Is that correct?
        Mr. Schostek. Senator, as an OEM, absolutely. Absolutely
    correct.
        Senator Cantwell. Anybody else?
        Mr. Haughey. From our standpoint, if you go back to 2009,
    the different suppliers, when they start to fall, it affects
    everyone. There is such an interdependency. A company like
    Honda deals with all kinds of different suppliers. All you need
    is just one weak link and you get into trouble.
        Senator Cantwell. Mr. Nassar?
        Mr. Nassar. Yes, I would say definitely maintaining supply
    chains in the United States is absolutely critical. Most of the
    work done on a car is in the supply chain.
        But that is also why it is important that we look at where
    automakers are investing in new plants. And I think there is
    the distinction between where the workers and companies stand
    when it comes to our bottom lines. For corporations, it is
    shareholder value at the end of the day. If they could invest
    overseas and make a lot of money doing it, that helps their
    shareholders. That does not help American workers.
        Our main thing is having the jobs in the United States and
    having good-paying jobs. So----
        Senator Cantwell. Do you believe in the supply chain? This
    is my point.
        Mr. Nassar. Absolutely.
        Senator Cantwell. You are in agreement with these
    gentlemen.
        Mr. Britt, I am assuming you agree with the supply chain?
        Mr. Britt. Absolutely, Senator.
        And again, a great example is Spartanburg, SC and the State
    of South Carolina. We have over 400 companies that are in the
    supply chain for all of these automotive manufacturers. It is
    not just BMW. It is Honda, Toyota, Kia--you name it. Those
    suppliers supply for everybody in the United States. The key
    thing is, when they move offshore, they do not come back.
        Senator Cantwell. Yes. So in keeping the supply chain--my
    guess is you all agree on this too--having a well-trained and
    highly skilled workforce in the United States is key to keeping
    that supply chain. Is that right?
        Mr. Britt. Can I answer that question, Senator?
        Senator Cantwell. Yes.
        Mr. Britt. I am going back to my testimony earlier where I
    talked about 100 years of textile manufacturing in Spartanburg
    and in South Carolina. We were used to a protectionist State.
    Our State was designed and our tax laws were designed to keep
    industry out, to protect the home team, the textile
    manufacturing in the upstate, the agricultural industry in the
    lower part of the State.
        I grew up on a small tobacco farm in Dillon County where
    the floods are now hitting. And I am thinking and praying about
    all those folks down in the Pee Dee. But that State's tax setup
    for over 50/60 years now was designed to keep those other
    companies out.
        The first international company to come to Spartanburg
    County was Michelin in 1978, outside of the textile
    manufacturing equipment suppliers. Since that date, we have
    changed our community. I mentioned earlier, our focus is on
    education. It was not supportive of education for those 100
    years that we operated in a closed environment. It was not
    important for a family member to go get a college education or
    even a high school education, because they had a job in the
    textile plants, or in the tobacco fields, or in the cotton
    fields of the lower part of the State.
        Take a look at BMW. Again, I said they changed Spartanburg
    and South Carolina forever. Look at their investments that they
    do in the BMW scholar program. They have raised that bar on
    education now because, of those 10,000 associates who work in
    BMW, a small percentage actually works on the production floor.
    They are in engineering----
        Senator Cantwell. I only have a few minutes left, so I----
        Mr. Britt. Excuse me.
        Senator Cantwell. I am assuming, Mr. Nassar, you agree, and
    the other witnesses?
        Mr. Schostek. Senator, just very quickly if I might.
        We talked about R&D and new innovations, new technologies
    before. That is true in the product. That is also true on the
    plant floor. The plant floor in 2018 is far, far different than
    in the 1980s. And we as companies have responsibilities to keep
    our workers trained and up to speed on this new technology.
        Senator Cantwell. I guess my point here is, what you all
    have articulated in this broad fashion here is the same. If we
    want to keep these jobs in the United States of America, then
    we should invest in the supply chain. We should invest in
    skilling our workforce. We should invest in the R&D, and that
    is what will keep us competitive.
        And I think that the tariff idea--Mr. Britt, you said it
    best. You guys build relationships. Okay, and building
    relationships and figuring out how to get access to these
    markets, but still keeping our eye on what makes America
    competitive, is what we need to do. And right now, these
    tariffs are not making us very competitive, I can tell you
    that. And they are going to make it, as all the witnesses said,
    more expensive for consumers.
        So I just--look, we believe in this. You guys need to keep
    doing this, because you represent what the consensus is here
    about the direction for us to grow jobs here.
        Thank you.
        The Chairman. Thank you, Senator.
        Senator McCaskill?
        Senator McCaskill. Thank you, Mr. Chairman.
        Four weeks ago I chaired a roundtable on trade with
    representatives of Missouri's manufacturers and agricultural
    communities. It was a stark several hours listening to the
    reality that these businesses are facing and these farmers are
    facing in light of the tariffs that have already been applied.
        We are a major auto hub in Missouri. We have over 10,000
    members of UAW employed at General Motors, and at Ford and
    Toyota. We are the birthplace of the Ford F-150, which we are
    very proud of, along with the Chevy Colorado and the GMC
    Canyon.
        We have--I think 167,000 is the estimate of workers we have
    in Missouri associated with the manufacturing of automobiles.
    So it is a big deal to my State how we handle this. So far,
    these tariffs are impacting farmers in my State, workers in my
    State, and consumers in my State all negatively--all
    negatively.
        It is a real head-scratcher that this administration is
    doing this under 232, national security. It seems to me that
    this is a stretch on national security. You can kind of dress
    up aluminum and steel, that we need that production capability
    if we need to go internally to produce weaponry or other
    things. But the car thing seems to be a stretch for me.
        I think what I would like to ask you all is if you agree or
    want to make a comment on--the Center for Automotive Research
    estimates a 25-percent tariff on automobiles would add an
    average of $4,400 to the cost of a car. That seems very high.
        Have any of you taken a look at this, because, obviously,
    if it goes up that much, that ultimately impacts demand, which
    ultimately impacts jobs negatively for the workers that I am
    most concerned about in this scenario.
        Mr. Nassar. Well, just as far as the research goes, I think
    that some of the idea that every penny that gets raised in cost
    by the company has to be passed on to the consumers is a little
    bit overstated at times. We are talking about many companies
    that have a very, very healthy profitability and pay their
    executives quite handsomely. So the idea that absolutely every
    penny is going to get passed on is a reach also.
        I think the other thing is, when looking at these policies,
    we also have to keep in mind some of the--I am not saying how
    it will pan out--but the long-term impacts, because the idea
    is, you are potentially trying to change behavior, change
    investment patterns, so some of it does not play out right
    away.
        But I do think that we really need to have a more
    comprehensive trade policy for sure.
        Mr. Schostek. Senator, you mentioned there are various
    studies out there. There is a lot of data out there to be had,
    and we can certainly follow up with you on any of those items.
        But you also mentioned the basis for the 232 tariffs. I can
    tell you as a business person, I cannot begin to understand
    that. But what I would say is that we are very heavily
    invested, as we have described, in manufacturing, in R&D,
    especially in R&D here in the United States and through the
    entire value chain. So I think we, Honda, and this industry in
    general, are contributing significantly to the U.S. industrial
    base.
        And then again, as a business person, I can only speak to
    the impacts that these tariffs would have. And we can see
    impending harm to U.S. manufacturing, to workers, and as you
    mentioned, to consumers.
        Senator McCaskill. Let me--Mr. Nassar, I understand that
    there is support for the idea that we could bring these jobs
    back to the United States, many of which have chased lower
    labor costs, and I completely understand. I would point out to
    UAW and your thousands of members across the country, that you
    should look at your brothers in the steel industry and what is
    going on right now.
        We have 30,000 steel workers who have authorized a strike
    on the heels of very generous tariffs. Clearly the price of
    steel has gone up dramatically. That is also impacting
    automobile manufacturing. Clearly it has bumped up to just
    under the tariff amount. So for all of the people around this
    country who are manufacturing, this is added cost that is just
    getting passed on.
        But it is not--in the negotiations with the steel workers,
    they offered the minimal raise, but they cut the health care so
    much that they ended up going in the hole at this moment in
    time. It is just amazing to me that this was somehow pitched as
    great for the workers. That the workers were really going to
    enjoy this. And a few months later, you have 30,000 steel
    workers ready to go on strike.
        Mr. Nassar. And if I could respond, I think that that
    points out the fact that we need to look at these policies in
    an integrated way. And the fact is that our labor laws are very
    weak. Enforcement is very weak, and the workers have less power
    and less voice. So it creates these kinds of decisions where
    workers can and do get taken advantage of all the time.
        I think it speaks to a real power imbalance we have in this
    country.
        Senator McCaskill. Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Senator Scott?
        Senator Scott. Thank you, Mr. Chairman. Thank you to the
    panel for sharing your expertise here this morning and now this
    afternoon. So I really appreciate that.
        South Carolina has greatly benefited from the resurgence of
    manufacturing exports and foreign direct investment. More than
    700 international companies employ more than 130,000 South
    Carolinians, with most of that in the manufacturing sector.
        It might be debatable whether or not South Carolina is the
    number one automotive State in the country. What is not
    debatable is the fact that we are at least in the top two or
    three in the Nation, and certainly always in the conversation.
    We have 66,000 employees working at 400 companies, as Mr. Britt
    just stated earlier, in the auto industry, along with vehicle
    manufacturers like BMW, Daimler, and now Volvo. There has been
    significant investment from automotive suppliers, both large--
    Bosch, Continental, Mag-na--and small.
        This industry is essential to continued progress in my
    State. Good trade policy unlocks opportunities for American
    families and obviously, it has unlocked real opportunities for
    South Carolinians without question.
        With those thoughts in mind, I would like to ask a few
    questions. Mr. Britt, I will start with you. I know that you
    have spent 25 years on the county council in Spartanburg. Thank
    you for your public service. You have spent years as a part of
    the economic development apparatus in Spartanburg. You guys
    have brought in about $16 billion of investment, creating or at
    least attracting 45,000 jobs.
        I wonder, as we think about the 232 autos and parts
    investigation, what the impact of that is on business? When I
    talk to business leaders in the sector, what I find is real
    concern and hesitation. The question for you is, are you
    hearing similar things back at home, or am I just hearing from
    a few people?
        Mr. Britt. Senator, you are hearing exactly right. And I
    appreciate the kind comments. Actually, I have served on the
    council 28 years.
        Senator Scott. Excuse me.
        Mr. Britt. And the reason I point that out is, I was
    elected May 7, 1991, when we were in the depths of the biggest
    depressing time in the history of Spartanburg County and in the
    upstate because all of those 25,000 jobs had left the textile
    industry. So I was there to help recruit BMW. I was just one of
    the players.
        As you know, our great Governor, former House member----
        Senator Scott. Carroll Campbell.
        Mr. Britt. Carroll Campbell.
        Senator Scott. Absolutely.
        Mr. Britt. He was the quarterback. Foster Chapman, Carter
    Smith, and David Britt were just players on that team, but we
    worked hard to help Governor Campbell bring that company to
    Spartanburg.
        You, yourself, you started as a council member in
    Charleston County. And you and I share a lot of our upbringing.
        Senator Scott. Absolutely.
        Mr. Britt. As I said, I grew up in Dillon County on a small
    tobacco farm. You grew up in Charleston--single mom, at the age
    of 7 supported three children. And now you are a United States
    Senator.
        But when you were a council member, you knew how it was.
    When you go to the grocery store, you go to the YMCA, you go to
    church, people talk to you.
        Senator Scott. Yes, sir.
        Mr. Britt. When you were in the State House, you actually
    got to go to Columbia a little bit. My friends who are actually
    in the House in Columbia say, ``I do not know how you deal with
    it on council. You see these people every day.''
        And that is right. That is why I have done it for so long,
    because I feel like that is my calling. I listen to them in the
    grocery store. Dick Mahon is stopping me and my wife is calling
    me on the phone and saying, ``You have been there for an hour.
    All you needed to do was go get milk. What are you doing?''
        These people are talking about this concern. So I think Mr.
    Schostek made a comment earlier, we are dealing with the most
    educated workforce and consumer group in the history of the
    United States. With smartphones and the associates who work in
    these companies, it is no longer that you work on the
    production floor, punch in, and go out 8 hours later. You are
    on teams. You are on management teams. You are on leadership
    teams.
        Just like at Tindall, our associates are the company. They
    know exactly what is going on. They know how much money we made
    last month. And there was a comment made earlier that companies
    make so much money, all of this profit. I would like to know
    who these companies are, because every company that I deal
    with--those 211 international companies in Spartanburg as well
    as the Americans--all operate on very fine margin.
        Senator Scott. Yes.
        Mr. Britt. And when you increase it, it hurts. But you are
    hearing it exactly right.
        Senator Scott. Excellent.
        Mr. Britt. Tremendous concern.
        Senator Scott. Let me, in my 30 seconds or so that I have
    left, ask you a question, Mr. Schostek, about the supply chain.
    You have been pretty clear. I listened to you this morning on
    the negative impacts on the supply chain, and frankly on
    American jobs connected to those supply chains.
        I think Mr. Britt said it earlier, and Senator Cantwell
    agreed, that when these supply chains leave, getting them back
    is very difficult. I think you said earlier, sir, that whether
    it is $4,000 added cost, whether that goes to the consumer,
    whether it comes out of the company, the fact is that it
    matters; a loss of profit does jeopardize jobs. No matter who
    pays the price, whether it is the consumer or the company,
    ultimately the workers will feel a negative impact.
        So my question to you is, it seems to me that all auto
    companies are connected and linked to global supply chains. And
    at the end of the day, is it not true that tariffs on auto and
    parts imports will raise the cost of vehicles, whether that is
    $4,000 or $6,000? And if we raise the prices of vehicles, we
    can imagine that consumers will buy fewer of them. And if the
    consumers buy fewer of them, then the employee whose work
    produced those vehicles will be at least more vulnerable to
    layoffs and challenges.
        Mr. Schostek. Absolutely, Senator Scott, and thank you for
    the question.
        We are proud to make ATVs and side-by-sides in
    Timmonsville, SC.
        Senator Scott. Timmonsville, SC. No question.
        I did ask to go on one of the side-by-sides, and they told
    me that I was not an expert at driving, so stay out of vehicles
    immediately.
        Mr. Schostek. Safety first, Senator.
        Senator Scott. Safety first.
        Okay. I wanted to make sure that was accurate. [Laughter.]
        Mr. Schostek. And we also have 41 suppliers in South
    Carolina----
        Senator Scott. Yes, sir.
        Mr. Schostek [continuing]. That support not only our
    motorcycle business and ATV business, but the auto business as
    well--so critical.
        But you hit the nail right on the head in terms of the
    ripple effect of these tariffs. So it starts with the raw
    material right now. It starts with aluminum and steel.
        If we add it to the parts that are being imported, and you
    are absolutely right, every single manufacturer--I do not care
    if your headquarters is in Asia, if your headquarters is in
    Europe, or if your headquarters is in Detroit--every single
    manufacturer, and there are 14 of them operating here in the
    United States, uses parts they source from the U.S., but also
    globally.
        The suppliers, companies like Mr. Haughey's--he has
    organized his company to cover various regions. He is not just
    in one place.
        Senator Scott. Right.
        Mr. Schostek. Right; so this is a very interdependent and
    complex supply chain, and the value chain from the beginning of
    concept and design, doing R&D here all the way to the end of
    distribution, getting things into Mr. Gates's door--tariffs are
    going to hurt the whole supply chain. I have seen it ripple
    right across.
        Senator Scott. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Menendez?
        Senator Wyden. Mr. Chairman, I think it is Senator Portman
    and then Senator Menendez.
        The Chairman. I guess that is right.
        Senator Portman, I have to leave. Will you wrap this up
    then?
        Senator Portman. Yes, that is fine.
        The Chairman. Thank you.
        Senator Portman. First of all, thanks to the ranking member
    and chair for their patience with those of us who have other
    responsibilities. I have two markups and two hearings going on
    at the same time this morning.
        I really appreciate you all being here. I was here earlier
    to hear some of your back and forth, the questioning. And
    although I heard my colleague from Michigan claim that Michigan
    is the auto State, Ohio is really the auto State. [Laughter.]
    In fact, we are the country's leading manufacturer of engines
    and transmissions. So maybe fewer auto plants per se, but we
    are a huge auto State.
        The Chairman. Senator Portman, if I could interrupt you. I
    have to leave, but I just--Senator Portman will take over, but
    I just want to thank you all for being here. It has been a
    stimulating hearing and one where I think we are all pretty
    much in agreement in a lot of ways. And you are not wasting
    your time. So we are glad you are here.
        Senator Portman, if you will forgive me. Will you close
    this?
        Senator Portman. Of course. Thank you, Mr. Chairman.
        The Chairman. I appreciate it.
        Senator Portman [presiding]. I think the chairman makes a
    good point. I think there is actually some consensus building
    around what I consider the misuse of section 232. It is meant
    for national security purposes.
        And again, for my State it is particularly concerning that
    we might shift to autos. I do think with regard to steel, you
    can make an argument that, as to certain countries and certain
    products, there is a national security issue. I would say
    electrical steel is a good example of that, where we only have
    one factory left and we have an enormous increase, almost a
    100-percent increase, in terms of electrical steel imports
    where we need it for the grid.
        Autos are a different case. I did listen, again, to some of
    the back and forth, and I read your testimony. And I think we
    have to be very careful here, particularly with regard to our
    allies, because national security is ultimately about us having
    a concern about enemies, not allies.
        Second, I am concerned that this course of action would
    actually make it harder to make a car in America. And that is
    my concern. If it is not done--Mr. Nassar, you seem to be the
    most supportive of 232, but even you have said it needs to be
    very targeted and specific as to country, as to product, for
    that very reason.
        So the framers of 232 knew this might happen, by the way.
    And they were concerned that people would take 232, which is
    for national security, and use it for a broader purpose, what
    they viewed as protectionism. I think that is kind of where we
    are today.
        The Ways and Means chair at the time said, ``The national
    security exception is to protect and preserve the national
    security. That is its sole purpose. It is not intended to serve
    as a device to afford protection to those industries that might
    claim it.'' That was many years ago, back in the 1960s. And it
    has only been used a couple of times since--in the 1970s for
    oil. But I think this is an issue.
        There is legislation that was introduced called the Trade
    Security Act. Some of you have been involved with that. The
    Trade Security Act is a bipartisan bill, and it is trying to
    make good on those words of that chair of the Ways and Means
    Committee: let us focus on national security.
        So it says, instead of 232, you have the Commerce
    Department making a determination on national security, vested
    as phase 1 in the Department of Defense, where you have the
    expertise. And then with regard to the remedy, of course you
    then turn back to Commerce. Second, it gives the Congress the
    chance, through a motion of disapproval, to actually weigh in.
    And I think those two things would make a huge difference.
        Mr. Schostek, you are familiar with the bill I know,
    because Honda has endorsed it. I guess you have more
    autoworkers than any other company in Ohio. Can you speak
    briefly about the need for this kind of narrowing of the 232
    provision so that it meets its original goals?
        Mr. Schostek. Thank you, Senator Portman. It is good to see
    you again, and thank you for the kind words about operations in
    Ohio. A lot of those engines and transmissions are made by
    Honda workers in Ohio, as you well know.
        I was listening intently, because I know you have quite a
    bit of experience in this area, in the trade area, and I was
    trying for myself--the basis under 232 for how these tariffs
    could be applied. And honestly, it is probably over my head or
    above my pay grade. So I think any clarity we can get in terms
    of that is very important and why we endorsed your bill.
        Again, we are heavily invested in manufacturing. You know
    our R&D strength in Ohio. And we are really contributing
    significantly to the U.S. industrial base. I say that for Honda
    as a company, but I can say that for the entire auto industry.
    All 14 companies that are doing business or making product here
    in the United States are contributing to the industrial base.
        So we would appreciate some clarity on that as well. So,
    thank you very much.
        Senator Portman. Mr. Haughey, you make a lot of stuff in
    Ohio too. It is more parts, and we appreciate your suppliers,
    your companies in Ohio. Talk to us about what the cost to the
    car is going to be. We have a $2,000 increase on average for a
    domestically produced car. A car has over 30,000 parts, and
    they come from all over the world, do they not?
        Mr. Haughey. They do. Thank you, Senator.
        The price of steel has just gone up. You have to think a
    little bit too about the timing. So we have seen the tariffs
    come in, the prices go up, and then as contracts expire--you
    know, we have only really just started this.
        I think it is going to cascade for a long period of time
    until finally the auto companies have no choice but to take the
    price of a car up. And then when they do that, volumes will
    eventually come down because cars will not be affordable.
        I think one of the ironic things we see--our operations in
    Ohio are a good example. We are having a very difficult time
    hiring people. One of the reasons we did a hiring freeze is
    just the uncertainty, but the other thing is that, within the
    U.S., we had probably about 100 open jobs at the time that the
    tariffs hit and a very difficult time hiring workers.
        In our headquarters in Tennessee, as an example, we have
    had to set up our own school inside the plant. We have a full-
    time teacher, trainers, and a tool-and-die apprenticeship
    program.
        Senator Portman. I am hearing it all over the State.
        Mr. Menendez needs to ask his questions now.
        But that is the topic of another hearing. Let us not make
    it worse by adding to the cost of automobiles for consumers. At
    a time when our economy is doing well, we need more workers.
    Let us focus on worker retraining and on better CTE and other
    skills training for younger people.
        So thank you all for being here. And I will now turn to Mr.
    Menendez.
        Senator Menendez. Thank you very much.
        Thank you all for your testimony. We were at another markup
    of the Foreign Relations Committee, so we were not able to get
    here earlier.
        But I want to begin by saying that I am glad that we are
    focusing today on how to deal with the impact of the global
    economy on working families in New Jersey and across the
    country. In my view, tariffs that are tactfully and carefully
    targeted on the right products and countries could be part of a
    comprehensive trade and economic strategy aimed at helping
    working families and businesses succeed. Unfortunately, we do
    not have such a strategy from this administration.
        As our friends in the United Auto Workers have pointed out,
    ``Targeted enforcement approach is needed, and not all trade
    deficits have the same impact. For example, Canada's 16.7
    billion finished automobile deficit is nearly offset by our
    14.7 billion surplus in automotive bodies and parts. It should
    not be held in the light of more egregious actors.'' I agree.
        As is often said, in the case of this administration, I am
    afraid their scatter-shot, tweet-from-the-hip approach adds
    more confusion than clarity to the lives of our workers and
    businesses. A real strategy demands clear and achievable goals.
        But what we need is a comprehensive game plan. I had hoped
    that--there is no doubt that China has unfair trading practices
    and barriers. But creating a global coalition of the European
    Union, Canada, Japan, South Korea, Australia, and others at the
    WTO against China, making China's assault the central point,
    would be far more productive at the end of the day.
        For years, my Democratic colleagues and I have urged this
    body to include enforceable labor standards in our trade
    agreements and to more forcibly use our tremendous market
    leverage to push back on unfair trade barriers by our global
    partners. It seems to me we have to use our trade agreements to
    look more seriously at how we protect our jobs, our
    environment, and our businesses from falling behind in our
    fast-changing, increasingly interconnected global economy.
        From stagnant wages at home, to unfair working conditions
    abroad, to intellectual property thefts--something I focus a
    lot on in this committee, because New Jersey is at the apex of
    creating intellectual property--and government-subsidized
    businesses, it is a tough world out there. So we are still
    waiting for a strategy, because a one-size-fits-all approach
    just is not going to cut it.
        I would like to ask the panel this question: the President
    has said that China is paying us billions in tariffs. Is that
    true?
        Mr. Schostek. Everybody is looking around, Senator.
        Senator Menendez. Well, I appreciate your bravery in coming
    up to answer the question.
        Mr. Schostek. You know, China is--let me just give some
    overall perspective on China. It is a huge market. It is a 28
    million vehicle market. It is two-thirds larger than the United
    States, and it is growing.
        There are certainly issues with the trading relationship,
    issues regarding IP, issues regarding foreign investment.
        Senator Menendez. But are they paying us billions in
    tariffs?
        Mr. Schostek. So we have put--there are tariffs that have
    been in effect. Retaliation from China is affecting our own
    shipments over there, as I mentioned earlier in my testimony.
        I do not know the exact amount of tariffs that China is
    paying, but I do know that we need to resolve this trading
    relationship. The right way to solve it would most likely be to
    work with our trading allies in approaching this issue.
        Senator Menendez. Mr. Britt?
        Mr. Britt. Senator, I cannot answer the question whether
    China is paying us billions. Countries do not pay the tariffs.
    Consumers pay the tariffs, whether you are in the United
    States, whether in China, in Japan, Germany, and that is the
    bottom line.
        This whole issue--we will not win a tariff argument. It is
    not going to happen. We will win tariff agreements through
    trust and diplomacy, and it is just as you said: with our
    partners and allies beside us.
        The way we impact China and the whole issue of trade is by
    making our partners and their citizens more wealthy and freer.
    That is what puts pressure on China to work with us, not
    getting into this ill-conceived tariff war. I have a list of 27
    countries that are in Spartanburg County. We have caused a
    problem with every one of them, to the point that they are
    contacting us. They are concerned about it.
        We just need to be building bridges, not digging ditches.
        Senator Menendez. All right.
        I am for that. I am for building bridges, not building
    walls. I am for making sure that we have the appropriate policy
    and create an alliance of allies against an unfair trading
    partner.
        But I think you answered the question that I was looking
    for, which is ``no.'' China does not pay us billions. No
    government pays the tariff. Ultimately, it is the private
    sector and consumers who get hit by the tariffs.
        So I am concerned if the President does not even understand
    how tariffs work, how the hell are we thinking that his policy
    is ultimately going to be one that can work? You have to
    understand how tariffs work. China is not paying us anything.
        Thank you very much.
        Mr. Britt. Senator, could I add one more thing to that?
        The President, again--the question was asked by Senator
    McCaskill, this whole thing about tariffs and tariff wars. We
    have never won a tariff war in the United States. And when the
    President says, ``tariff wars are good, they are easy to win,''
    show me one in the history of the United States.
        He also tweeted out that if you do not agree with him, you
    are foolish. So I have to be the biggest fool in Washington, DC
    today and in America, because I disagree totally with the
    tariff war.
        Senator Menendez. Yes. That is like ``debt is good'' too.
    Thank you.
        Senator Portman. Senator Wyden?
        Senator Wyden. Thank you very much. Senator Menendez, thank
    you for joining us. I know you are juggling a lot. I appreciate
    your points.
        So gentlemen, here is where we are 2 hours into this--and I
    thank you all. It has been an excellent hearing.
        What we have seen is a textbook case of how trade policy
    has been enveloped in chaos. There is no other explanation, in
    my view, for what we are dealing with.
        In my State, trade is so important. One out of five jobs
    revolves around trade. The trade jobs often pay better than do
    the non-trade jobs. So this is about as important as it gets.
        All of you have talked about the need for certainty and
    predictability. Mr. Nassar, I very much appreciate your
    response to my question of how do we come up with winning
    policies for workers and for companies. We look forward to you
    elaborating on that.
        But I want to just close with where I think we are now. You
    all have told us that what is needed is some certainty and
    predictability.
        What we are faced with now is the question of whether there
    are going to be auto tariffs. We are going to have to deal with
    the exclusions. You should know, during the course of the
    hearing, I had the staff running down the numbers, and contrary
    to what Secretary Ross says, this number as to how many have
    actually been processed is really still quite low.
        And then, of course, we want to know whether we are going
    to have a good deal with Canada or are we just going to say,
    hey, we will say we are not going to do that. And I have tried
    to advise this administration that they do not have the
    authority to do this, that Article 1 says Congress has that
    kind of authority. But all of that goes into the mix.
        There is chaos now, and if those issues are not resolved in
    a way that brings people together and gives more certainty and
    predictability, what we are hearing about today is going to
    look like a small order compared to what is ahead.
        And then finally, I very much appreciated what you all have
    had to say as it relates to the supply chain, because the
    supply chain literally runs from sea to shining sea. And
    today--I remember when I came to Congress, people essentially
    did business with folks who were an hour or two away. Today,
    the supply chain is not just national, but it is global.
        And when you have suppliers--Mr. Schostek said--that are
    still waiting for answers, you again poor gasoline on the fire
    of uncertainty for companies and workers. So we have some heavy
    lifting to do.
        I hope you are all walking out of here seeing that there is
    a lot of common ground in this committee for modern trade
    policy. Virtually every Senator whom I talk to says they do not
    want NAFTA abolished, but they want it updated. They want it
    modernized. They want, as you said, Mr. Nassar, to make it work
    for workers and for companies.
        So, thank you all. This has been an instructive snapshot in
    modern American trade policy. You have given us a sense of the
    heavy lifting ahead, and I thank you for it.
        I am glad I had 2 hours to make sure that you could
    enlighten me as to the extent of the problem, because not only
    does it reaffirm the concerns I walked in here with, I think it
    is a reason for us to double down and work even harder to
    modernize trade policy in a manner that works for both our
    companies and for our workers.
        So, I thank you all.
        Chairman Portman, thank you.
        Senator Portman. Thank you, Senator Wyden.
        And to our witnesses, thank you for being here. We have a
    lot of balls in the air right now with regard to trade. Some
    are related. The 232 issues we talked about today and a
    potential for 232 to be used with regard to autos has been the
    main topic. And it seems like there is quite a bit of consensus
    around that. Maybe not absolute agreement, but a lot of
    consensus.
        I would argue that it also relates to what we are trying to
    do with regard to the North American Free Trade Agreement,
    because when I hear from the negotiators, I get the sense that
    the potential for a 232, particularly on autos, and a
    resolution on 232 as it relates to steel and aluminum, are very
    much related to us coming to a solution with Canada.
        I think the Mexican part of the agreement having been
    resolved, at least on a preliminary basis, is very good news.
    And I think we are very close with regard to Canada.
        But my sense is, 232 is a shadow over those talks, and if
    not the most important one, one of the more important issues to
    be resolved. So you being here is very timely as to that issue.
        And then of course, there is the broader issue of what we
    do about China and the 301. I understand Mr. Britt's point of
    view. I will say that we have kicked the can down the road for
    a long time on some of these issues with China, particularly
    the structure issues, even forgetting the enormous trade
    deficit.
        And we do need to face up to those issues, and the question
    as to what the right approach is, is a legitimate one. And a
    concern that I have raised, and others have raised, is to be
    sure that we are being clear about our objectives. It is not
    just about buying more soybeans, which I would love, from Ohio.
    It is not just about buying more LNG, which would be good for
    our economy, Ohio as well. It is about some of these structural
    changes to ensure that intellectual property can be protected
    and that we can have a true level playing field with the second
    biggest economy in the world.
        So that is a tougher one, but with regard to 232 and our
    allies in Canada and in Mexico, one would hope that we could
    resolve those issues now, soon, and then move on to resolving
    some of the European issues--and then get in the business of
    opening markets again by having some new trade agreements,
    which I know the administration is interested in doing, not
    just with the UK and Japan that have been in the news, but also
    with some African countries and elsewhere. I think that is an
    exciting part of the agenda we should pursue.
        So with that, again, thank you for your attendance and
    participation. All five of our witnesses gave us a lot of great
    information today focusing, again, on the impact of the tariffs
    on autos. We appreciate your help.
        Any member wishing to submit questions for the record needs
    to do so by the close of business on Wednesday, October 3,
    2018.
        With that, this hearing is adjourned.
        [Whereupon, at 12:35 p.m., the hearing was concluded.]

                                A P P E N D I X

                  Additional Material Submitted for the Record

                                  ----------

                Prepared Statement of H. David Britt, Chairman,
               Spartanburg County Economic Development Committee
        In Spartanburg County, SC, we build things.

        For over 100 years, our mills were the heart of American textile
    manufacturing. In the 1990s, our once-bustling mills began to shutter
    and close. More than 25,000 workers found themselves unemployed and our
    county was changed forever.

        If you visit Spartanburg County today--and I encourage you to do
    so--you'll see a community that is the economic envy of many States,
    and indeed, many other countries. The transformation began in 1992 when
    BMW decided to build its U.S. manufacturing facility in Spartanburg,
    SC.

        In the last 26 years, BMW has invested over $9.3 billion in Plant
    Spartanburg, and has produced over 4 million vehicles, over 70 percent
    are shipped all over the world. BMW employs over 10,000 associates at
    Plant Spartanburg, and they produce an astonishing 1,450 vehicles a
    day.

        This has helped South Carolina become the Nation's leader in the
    export sales of completed passenger vehicles, accounting for 16 percent
    of the total U.S. market share. In fact, the South Carolina automotive
    footprint is so robust that automotive suppliers are in 37 of our 46
    counties, employing more than 66,000 South Carolina citizens in over
    400 plants.

        A 2017 study concluded that for every 10 jobs BMW directly creates
    at its Spartanburg plant, 90 more are created as a direct result
    elsewhere in the U.S. Just last year, the automaker announced plans to
    invest an additional $600 million in Plant Spartanburg and create 1,000
    more jobs. That decision is a testament to the quality of the company
    and their associates.

        Through our success with BMW, Spartanburg County learned we could
    compete and win on the international stage. Our culture of
    craftsmanship, which once saw workers spinning and weaving, translated
    to the economy of innovation. Today, more than 200 foreign-owned
    companies from 25 countries operate in Spartanburg County, including
    Michelin, Alcoa Fujikura, Toray Industries, and Kobelco. Less than 30
    percent of those companies are automotive related.

        Companies such as Volvo, Mercedes, and Boeing now call South
    Carolina home, employing thousands and building products used around
    the world. In 2017, South Carolina won 157 economic development
    projects, representing $5.24 billion in capital investment and creating
    nearly 18,500 jobs. More than half of that investment came from foreign
    countries.

        Time and again, I hear a common refrain from these companies: South
    Carolina is a handshake State--a place where one's word still means
    something, and where fairness and partnerships are valued.

        In a global economy, it's important to be fair. That's why I
    initially supported President Trump's efforts for equitable trade
    agreements with countries. However, such arrangements should not create
    less incentive for American companies to look for innovative ways to
    increase their productivity and make products more efficiently.

        As evidence, look no further than U.S. steel manufacturing. Since
    March, the price of U.S. steel has increased around 23 percent on the
    heels of President Trump's tariffs. Instead of innovating, or even
    raising prices slightly, U.S. steel manufacturers simply have increased
    their prices to just shy of imported steel.

        This marked rise in steel prices will cascade to consumers, whether
    they realize it or not. Large construction projects built with precast
    concrete and steel beams may suddenly seem too costly and be shelved.
    Infrastructure improvement projects, the roads and bridges crucial to
    so many, may be delayed or canceled.

        This is a perfect example of why governments should not use tariffs
    to pick winners and losers. We have over 100 years of history proving
    this does not work, from the sugar tariffs of the 1880s to the chicken
    tariffs of 1963, where in January 1964 the United States placed a 25-
    percent tariff on all imported passenger trucks and it is still in
    place to this day, 54 years later. Every truck owner in the United
    States is paying substantially more for their truck because of this
    tariff, including me.

        The prices on everything from toothbrushes, groceries, and cars
    will rise in 2019 if not sooner. These economic policy decisions do not
    exist in a vacuum. The impact will not only be felt in board rooms and
    in capitals but will be passed on to consumers across the country and
    this world.

        I keep hearing: ``Be patient, the President has a plan.'' Well our
    trading partners and citizens are running out of patients they have
    their lives and futures at stake. Our neighbors are asking themselves,
    can we afford to buy a new home or car with a trade war looming?
    Companies are asking, can we risk this new investment in a new or
    existing facility or do we put it elsewhere in the world?

        In Spartanburg and South Carolina, we experienced firsthand the
    failures of a protectionist mentality. We must not repeat the mistakes
    of the past. As a community that was given the option to change or die,
    we have grown and thrived under a new economy, one built with a strong
    emphasis on education, innovation, and collaboration.

        In the years since the textile industry collapsed, companies have
    invested more than $17 billion in Spartanburg County alone, creating
    over 55,000 jobs. We are poised for even brighter days to come provided
    these tariffs do not put their foot on the throat of growth.

        A reporter recently asked what I might say to President Trump if
    given the opportunity. I would say, ``Mr. President, come to
    Spartanburg and let me show you firsthand how we have opened our minds,
    hearts, and ingenuity to the world for the benefit of everyone.''

        Politics is the art of getting things done through people, and in
    my 32 years of elected office it has never rung truer than now. In
    Spartanburg, we have learned that you can accomplish our objectives
    through trust and partnership--not a hammer.

        Because in Spartanburg County, SC, we build things--including
    relationships.

                                     ______

                      Prepared Statement of Steve Gates,
                      Dealer Principal, Gates Auto Family
        This statement is submitted by Steve Gates, Dealer Principal of
    Gates Auto Family. Today there are 16,802 auto dealers across the
    county, with over 1.1 million employees. Tariffs would harm our
    business, the communities we serve, and our customers across the U.S.
    seeking affordable, safe transportation for their families.
                         four generations of car people
        My name is Steve Gates, and I'm a third-generation auto dealer
    operating multiple stores and providing work for 500 employees in
    Kentucky, Indiana, and Tennessee. I am proud to say The Gates Auto
    Family has recently expanded into the fourth generation as my daughter,
    MacKenzie, has chosen to join me in the auto business. I currently have
    franchise dealerships that sell Audi, Toyota, Nissan, Hyundai, Honda,
    Lexus, and Kia. In the course of my career I have also owned and sold
    Chevrolet and Ford dealerships.

        The Gates Auto Family began in 1915, when my grandparents, Bernard
    and Marian, took a chance selling Dodge Desotos out of an Indiana
    livery stable, imported one at a time from Detroit, with Grandma Marian
    behind the wheel. Their spirit of entrepreneurship still runs in our
    blood. That's why in 1970 my dad, at the time one of the largest Chevy
    dealers in the Midwest, risked buying a start-up brand called Toyota.
    It's why I continue to bet on the future, investing in new stores, and
    encouraging my daughter to continue in the family business with me.

        I learned the car business from the ground up. In 1965 I started as
    a lot attendant at my father's dealership, Bud Gates Chevrolet.
    Throughout junior high school, high school, and college, I worked in
    parts, service, and in the body shop at Bud Gates Chevrolet-Toyota. I
    went on to explore the other side of the auto business after college by
    starting a company that sold accessories and financial services to new
    car dealers in Indianapolis. I sold that business in 1982 and went to
    work for BMW Financial Services/Dealer Services establishing finance
    and insurance departments for BMW dealerships. In 1986, I decided to
    reenter the retail automobile business as the used car manager for
    Dreyer and Reinbold BMW. Finally in July of 1989, I decided to go all
    in and became a partner at Toyota South in Richmond, KY, and I have
    never looked back.
                              costing the consumer
        There's nothing easy about being a car dealer in the United States
    today, but the work is always interesting, and rewarding in more ways
    than I could ever explain. That's why it was so important to me to take
    time away from my business and fly here to talk with you today.

        It was alarming to learn that the U.S. Department of Commerce in
    May opened an investigation into whether imported automobiles and
    automobile parts are a threat to our national security, with a 25-
    percent tariff on those imported cars and parts as a possible outcome.
    In a market where costs are already rising and sales are flattening,
    adding a 25-percent tax on autos and auto parts causes alarm bells to
    go off for me.

        Unfortunately, affordability concerns are not new to the auto
    industry. According to Cox Automotive,\1\ over the past 20 years the
    cost of a new car has increased by 35 percent, while household income
    has only grown 3 percent. A 25-percent tariff would make this already
    difficult situation truly impossible for many middle-class families.
    ---------------------------------------------------------------------------
        \1\ Cox Automotive is a leading provider of products and services
    spanning the automotive ecosystem. No matter the stage of the auto
    buying or selling process, we have a solution for clients of any size.

        Not surprisingly, when a customer walks into one of my dealerships,
    one of the most important considerations for them is price. Following
    the purchase of a house, a car is often a consumer's largest
    investment, and the vehicle they buy has to fit their needs and fit
    their budget. A recent study by the Center for Automotive Research
    (CAR) \2\ for the National Automobile Dealers Association estimated
    that under a 25-percent auto tariff, the price of a new vehicle would
    rise by as much as $6,875. The same study found that the used car
    market would be impacted as well, as many would-be new car buyers are
    driven into the used car market, increased demand and constricted
    supply would drive up used car prices. The chart below tracks the
    steadily increasing averages for new and used car prices over a 5-year
    period. As you can see, according to Kelley Blue Book, the estimated
    average transaction price for new light vehicles in 2017 was $36,113,
    an increase of $583 from 1 year prior. At the same time, according to
    Edmunds, the average price of a used car rose to $19,400 in 2017. In
    the first quarter of 2018, the average price of a used car hit a new
    13-year high \3\ of $19,657, up 17.6 percent from 5 years ago. Adding a
    25-percent tax to these already rapidly rising prices would put a new
    car or truck out of reach of many, if not most, American families.\4\
    ---------------------------------------------------------------------------
        \2\ Center for Automotive Research (CAR): https://www.cargroup.org/
    wp-content/uploads/2018/07/NADA-Consumer-Impact-of-Auto-and-Parts-
    Tariffs-and-Quotas_July-2018.pdf.
        \3\ Used-car prices hit a 13-year high as more late-model cars came
    off lease: https://www.
    usatoday.com/story/money/cars/2018/06/15/used-cars-price-hit-record-
    high/700362002/.
        \4\ RoadLoans.com, Average New and Used Car Prices, and The
    Advantages of Flexible Financing: https://roadloans.com/blog/average-
    car-price.

        Those not in the market for a vehicle--new or used--will still feel
    the pain of an auto tariff as higher automotive parts prices drive up
    the cost of maintenance and repairs. According to the Auto Care
    Association, each U.S. household will spend an extra $700 per year in
    increased ownership costs. Current car owners unable to pay the higher
    prices an auto tariff would bring to our service centers, will likely
    put off needed repairs and safety improvements, making for a dangerous
    situation for them and others on the roads. As the cost of your car
    goes up and the cost of your parts go up, the cost of insuring your car
    will also go up causing customers to pay higher premiums. In testimony
    submitted to the Department of Commerce this summer, the auto insurance
    industry estimated that under a new 25 percent auto tariff, personal
    ---------------------------------------------------------------------------
    insurance premiums will rise by 2.7 percent or $3.4 billion.

        When Americans are priced out of safe, affordable transportation,
    those who least can afford it will be the first to suffer. According to
    a recent study by the Tax Foundation,\5\ a new 25-percent tariff on
    automobiles and auto parts would reduce after-tax incomes for all
    taxpayers by 0.47 percent in 2018 while making the distribution of the
    tax burden less progressive. These tariffs would fall harder on those
    taxpayers in the bottom 80 percent, reducing their after-tax income by
    0.49 percent, and by 0.45 percent for the top 20 percent. The relief
    provided to families through tax reform would therefore be greatly
    reduced and in fact these tariffs would amount to a $73 billion tax
    increase on American consumers.
    ---------------------------------------------------------------------------
        \5\ Tax Foundation, ``Automobile Tariffs Would Offset Half the TCJA
    Gains for Low-income Households,'' https://taxfoundation.org/
    automobile-tariffs-2018/.

        If these tariffs are implemented, our customers will pay more to
    buy their car, pay more to fix their car, and pay more to insure their
    car.
                    hurting dealership sales and employment
        From deregulation to tax reform legislation, the administration and
    Congress have built a healthy environment for businesses, large and
    small, to thrive. Maintaining high employment and an atmosphere for
    business investment is crucial to creating a strong economy that is
    vital to national security. Dealers welcome this economy and see new
    opportunities to grow, but we worry that the possible 25-
    percent tariff will negatively affect our ability to operate and
    provide work for thousands of Americans. The reason tariffs present
    such a possible catastrophe for the auto retail industry is twofold;
    our business is incredibly price-sensitive, and our margins are already
    razor thin. There isn't much wiggle room in today's flattening retail
    market for cars and trucks. And it isn't just imported brands that will
    be impacted. All vehicles sold in the United States today contain
    imported parts.

        Facing rising prices, along with increasing interest rates,
    customers will delay or even avoid a purchase all together. Currently,
    the average age of a vehicle on our roads is 11.7 years. That's the
    highest it's ever been. Americans are already holding onto the cars
    longer because they can't afford to replace them. Unfortunately, we all
    know there is a direct correlation to the number of cars we sell and
    the number of Americans we employ.

        Across the United States and in communities large and small,
    Americans are employed in the automobile retail industry, including the
    over 1.13 million who are employed at 16,802 automobile franchises.
    Dealerships like mine have a combined annual payroll of $65.3 billion,
    and also account for an additional 1.27 million indirect jobs. The
    average salary at a dealership is $57,800. These are good, American
    jobs that grew out of free trade. These are jobs you can raise a family
    on and we need more of them, not less.

        The CAR study I mentioned earlier predicts new vehicle dealerships
    would see a decline by as many as 117,500 jobs and a loss of as much as
    $66.5 billion in revenue if a 25-percent tariff is implemented.

        Another study by LMC Automotive \6\ on the effects of a 25-percent
    tariff on automobile sales found similarly that sales of new cars and
    trucks will also be negatively impacted. Assuming automakers and
    dealers absorb at least half the cost of a possible 25-percent tariff,
    these tariffs would still lead to a loss of 1 million annual unit
    sales. If the full burden of the tariff is passed on to the consumer
    that jumps to a loss of 2 million units per year, more than 10 percent
    of annual U.S. sales.
    ---------------------------------------------------------------------------
        \6\ Bloomberg, ``Trump Tariffs May Cost Carmakers at Least 1
    Million Annual Sales,'' https://www.bloomberg.com/news/articles/2018-
    06-12/trump-tariffs-may-cost-carmakers-at-least-1-million-annual-sales.

        It's no wonder that, according to Cox Automotive,\7\ 56 percent of
    franchised new car dealers believe an auto tariff will hurt their
    business.
    ---------------------------------------------------------------------------
        \7\ Cox Automotive Dealer Sentiment Index, Third Quarter 2018:
    https://www.coxautoinc.com/news/CADSI-Q318/.

        As you can see from the below chart, there is a direct correlation
    between auto sales and auto dealership employment. A loss of sales
    would certainly result in a corresponding loss of jobs at auto
    dealerships across the country.\8\
    ---------------------------------------------------------------------------
        \8\ NADA, National Automobile Dealers Association, https://
    www.nada.org/nadadata/.

                         trade agreements, not tariffs
        Global trade is an engine of economic growth and is a proven
    strategy for building global prosperity. Open trade and investment
    policies play a vital role in allowing international nameplate dealers,
    many of whom, like me, operate multigeneration family businesses, to
    compete on a level playing field in cities and towns across the U.S.

        I believe we should always learn from history and look back to
    avoid mistakes that should not be repeated. The United States has
    experimented with auto tariffs in the past, and it is still affecting
    us negatively today. In 1963, President Lyndon B. Johnson signed
    Presidential Proclamation No. 3564 in response to Europe imposing a
    tariff on chicken imports. Among the items included in the list of
    retaliatory tariffs was a 25-percent tariff on imported trucks, and it
    is the only one on the list still implemented today. That's why I can't
    sell a Hyundai or an Audi pickup truck at my franchises. The 25-percent
    ``chicken tax'' on trucks limits choices for consumers and increases
    costs. And now we're talking about doing it to every motor vehicle and
    all their parts. That is what I consider a real threat.

        American auto dealers strongly support a pro-growth economic
    agenda, and believe it can be accomplished with a positive trade
    message, not the threat of tariffs and taxes. We don't need more
    tariffs. We need more trade agreements. Trade keeps our economy open,
    dynamic, and competitive, and helps ensure that America continues to be
    the best place in the world to do business.
                                   conclusion
        It is very difficult to understand how a tariff on imported
    vehicles and parts would improve national security, but quite clear how
    it would actually harm our economic security. Regardless of which study
    you reference or which math you use, an auto tariff would significantly
    increase the cost of buying, owning, and maintaining a car for American
    families.

        If these tariffs are applied to our vehicles and vehicle parts, my
    partner and I will do all we can to keep the lights on in our stores.
    We'll cut every expense possible. And then we'll do what no small
    business owner wants to do--we'll start cutting jobs. At the Toyota
    store in Richmond, KY, where I spend most of my time, we'll start to
    let people go--put good people with families to support out of work.

        Before long, there will come a point when there are no costs left
    to cut. I won't be able to floorplan--that's what we call it when we
    buy and finance our vehicles from the manufacturers to sell. Just like
    in the downturn of 2008, it will be harder and harder to be financed
    and no banks will lend me the money.

        The ripples from these tariffs will continue to spread. Dealers
    might directly employ 1.13 million Americans, but we're also
    responsible for an additional 1.27 million indirect jobs. When I say
    these tariffs will be a catastrophe, I don't only mean for my stores or
    the auto industry--I mean a catastrophe for our entire country.

        I've been in this business my whole life. I may not be an expert on
    politics or global security, but I know cars. And I know the cars and
    trucks I sell, the services I provide, and the taxes I pay, are not a
    national security threat. The men and women who show up to work for me
    every morning, rain or shine, they aren't threats to our national
    security either. These proposed tariffs are the real threat, and the
    real danger to our country and our economy.

                                     ______

                  Prepared Statement of Hon. Orrin G. Hatch,
                            a U.S. Senator From Utah
    WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah)
    today delivered the following opening statement at a hearing entitled
    ``Impact of Tariffs on the U.S. Auto Industry.''

        I intend to focus this morning on the investigation that was self-
    initiated by the Department of Commerce under section 232 of the Trade
    Expansion Act of 1962 to determine whether imports of automobiles and
    automotive parts threaten to impair our national security.

        Many of us on the committee have already expressed our concerns
    about the administration's heavy reliance on tariffs. In June,
    Secretary Ross appeared before this committee to explain the
    Department's finding that steel and aluminum imports threaten to impair
    our national security.

        As a result of that determination, the United States is currently
    imposing tariffs of 25 percent on steel products and 10 percent on
    aluminum products. Combined, these tariffs directly affect almost $50
    billion worth of goods, while also affecting many billions of dollars
    more in downstream goods. These tariffs cause American manufacturers
    and farmers to pay more to conduct business and consumers to pay more
    to buy things.

        One industry that has been harmed by the steel and aluminum tariffs
    is here before us today--the auto industry. The American Automotive
    Policy Council estimates steel and aluminum tariffs will cause a $400
    per-car price increase. Auto suppliers and consumers are already
    suffering from section 232 tariffs. That's one reason I was stunned
    that on May 23rd the Department of Commerce initiated another
    investigation under section 232, this time into the national security
    threat from automobile and auto parts imports.

        This investigation covers more than $200 billion worth of trade,
    which is four times larger than that under the steel and aluminum
    investigations combined.

        For most American families, a car is one of the most expensive
    purchases they make--often second only to the purchase of a home. It is
    a significant financial commitment for most families, often paid for
    with debt, and I'm shocked that anyone would consider making it more
    expensive. If the Department of Commerce were to recommend a 25-percent
    tariff on cars, it would effectively be recommending raising the cost
    of an average imported car for an American family by as much as $6,400.
    According to the American Automotive Policy Council, if a 25-percent
    tariff is applied to auto parts, the cost to manufacture a passenger
    vehicle domestically would also increase by about $2,000. That's why I
    call tariffs a tax on American families.

        The Tax Foundation estimates that auto tariffs could result in a
    $73-billion tax increase on American consumers and businesses, erasing
    some of the benefits of tax reform passed earlier this Congress. These
    taxes will hurt American families and put American jobs at risk. The
    Peterson Institute calculates that auto tariffs could cause 195,000
    workers to lose their jobs. That's nearly 200,000 people out of work.
    And that's before other countries retaliate, which could put over
    600,000 U.S. jobs at risk. These tariffs could cost the U.S. auto
    industry up to 2 million lost vehicle sales annually.

        And it cannot be overlooked that international automakers and
    dealers significantly contribute to the U.S. economy. Together, they
    accounted for 47 percent of all U.S. vehicle production in 2017
    throughout 31 manufacturing facilities, generating 2.47 million jobs in
    the United States. And this is just the automakers. Motor vehicle parts
    suppliers are the largest sector of manufacturing jobs in the United
    States. Suppliers directly employ over 870,000 Americans and nearly
    8,000 in my home State of Utah alone. Direct employment by parts
    suppliers has increased 19 percent in the last 5 years, and tariffs
    threaten the sector's continued job growth.

        In short, the U.S. auto industry is a major driver of the U.S.
    economy, supporting approximately 10 million American jobs and
    accounting for 3 percent of our GDP. Without question, any tariffs that
    are imposed will have a negative impact on the U.S. auto industry and
    our economy.

        Our focus should be on building on the benefits from our historic
    tax reform achievement earlier this Congress. Our trade policy should
    strengthen our relationships with our allies while targeting China's
    most harmful trade practices. Tariffs on autos and auto parts are not
    going to help us achieve any of these things.

                                     ______

           Prepared Statement of Michael Haughey, President and CEO,
                         North American Stamping Group
                      about north american stamping group
        North American Stamping Group (NASG) is a Tier 2 automotive metal
    stamper and assembler, founded in 1978, that manufacturers for both the
    new original equipment vehicle market, as well as the aftermarket. NASG
    produces components and assemblies for passenger car, light truck, and
    commercial vehicles. Sales have grown annually at a compounded rate of
    18 percent for the last 8 years. NASG is one of the largest Tier 2
    suppliers with annual sales approaching $450 million.

        NASG has thirteen facilities in the North American Free Trade
    Agreement (NAFTA) region. Over the last decade, the company has
    deployed nearly $200 million in capital spending for new facilities,
    expanded facilities, new equipment, technologies, processes and
    acquisitions. This investment allowed the company to open significant
    capacity throughout the entire NAFTA region to support future growth
    requirements with strategic customers. NASG's thirteen facilities
    encompass 1.6 million square feet. Ten of the facilities are production
    facilities, two are technical centers and one is a sales office. In the
    United States, NASG operates ten facilities: one in Michigan, five in
    Ohio, one in Indiana and three in Tennessee. These facilities employ
    over 1,500 team members.

        NASG is a member of the Original Equipment Suppliers Association, a
    division of the Motor and Equipment Manufacturers Association.
            about the motor and equipment manufacturers association
        The Motor and Equipment Manufacturers Association (MEMA) represents
    more than 1,000 vehicle suppliers \1\ that manufacture and
    remanufacture new original equipment (OE) and aftermarket components
    and systems for use in passenger cars and heavy trucks. Our members
    lead the way in developing advanced, transformative technologies that
    enable safer, smarter, and more efficient vehicles, all within a
    rapidly growing global marketplace with increased regulatory and
    customer demands.
    ---------------------------------------------------------------------------
        \1\ MEMA represents vehicle suppliers through the following four
    divisions: Automotive Aftermarket Suppliers Association (AASA), Heavy
    Duty Manufacturers Association (HDMA), Motor and Equipment
    Remanufacturers Association (MERA), and Original Equipment Suppliers
    Association (OESA).

        Vehicle suppliers are the largest sector of manufacturing jobs in
    the United States, directly employing over 871,000 Americans in all 50
    States. Together with indirect and employment-induced jobs, the total
    U.S. employment impact of the supplier industry is 4.26 million
    jobs.\2\ Nearly $435 billion in economic contribution to the U.S. GDP
    is generated by the motor vehicle parts manufacturers and its supported
    activity.
    ---------------------------------------------------------------------------
        \2\ ``Driving the Future: The Employment and Economic Impact of the
    Vehicle Supplier Industry in the U.S.,'' available here: https://
    www.mema.org/sites/default/files/MEMA_ImpactBook.pdf, released by MEMA
    in January 2017.

        Suppliers provide about 77 percent of the vehicle value. To put
    this into perspective, a typical vehicle contains more than 30,000
    components. Vehicle suppliers manufacture materials, parts, and systems
    for a wide range of customers including new vehicle manufacturers
    (a.k.a. ``OEMs'') and other Tier 1-3 suppliers. They also manufacture
    for the vehicle aftermarket by way of multiple channels to provide
    vehicle service technicians, commercial fleets, and consumers the parts
    and materials needed for vehicle maintenance and repair. The variety of
    service applications ranges widely too: from passenger cars, SUVs and
    pickups to heavy-duty vocational trucks, semi-tractor trailers and
    military tactical vehicles--suppliers provide the components necessary
    to support the production of millions of these vehicles annually. MEMA
    members make a wide array of vehicle components for new vehicles as
    original equipment and for the aftermarket as replacement parts. They
    manufacture and produce essential vehicle components and materials--
    such as axles, brakes, tires, wheels, batteries, wire harnesses, seats,
    front/rear lights, bearings, oil filters, fluids, plastics, metals,
    composites, and thousands more. Suppliers also innovate and create
    complex and highly integrated vehicle systems--such as advanced
    refrigerants and HVAC systems, emissions control technologies,
    regenerative braking technologies, alternative propulsion systems,
    advanced driver assistance systems, vehicle-to-vehicle communications,
    and automated driving systems.
                               executive summary
        NASG and MEMA support the administration's agenda to assure free,
    fair, and reciprocal trade and a level playing field for all Americans.
    However, we are very concerned about the adverse impact on
    manufacturing jobs resulting from the section 232 steel and aluminum
    tariffs and section 301 China tariffs already in place. The combined
    impact of these tariffs has thrown many supplier companies close to a
    financial crisis and has made some of them question their future
    investments in the U.S. Tariffs are having a negative impact on these
    manufacturers, the jobs they create, and ultimately the American
    consumer. The threat of further tariffs from the section 232 automotive
    and auto parts investigation will increase the cumulative negative
    effect on suppliers.

        NASG and MEMA strongly oppose any broad, unilateral, and import-
    restrictive measures--such as tariffs, quotas, or other adjustments--on
    imported automobiles or motor vehicle parts. We recognize the
    Department of Commerce is currently investigating these matters and
    that no specific recommendations have been made. However, recent
    actions and statements from the administration signal that tariffs will
    soon be imposed on our industry.

        The imposition of section 232 tariffs on imported autos and motor
    vehicle parts will place manufacturers at a competitive disadvantage to
    their global counterparts, erode U.S. jobs and growth, and will not
    protect the national security of the United States. Such actions would
    weaken our Nation's economy by harming U.S. manufacturers of vehicles
    and vehicle parts and would deter U.S. investments in new innovative
    technologies. In fact:

              Tariffs will jeopardize 871,000 parts manufacturing jobs in
            the United States;
              Tariffs will harm global competitiveness of the United
            States;
              Tariffs, quotas, or other adjustments will diminish
            investment in the United States; and
              The broad scope of the investigation has negative
            consequences for the United States.

        NASG and MEMA urge this committee to work with the administration
    to reset our discussions with our trading partners to pursue our joint
    goal of free and fair trade.
                       structure of the supplier industry
        In the vehicle manufacturing industry, suppliers are categorized in
    tiers. Tier 1 manufacturers provide new original equipment (OE)
    finished parts, components, and systems directly to their vehicle
    manufacturer customers. Tier 2 manufacturers are often niche or
    specialty component manufacturers that provide subcomponents and other
    content to Tier 1 manufacturers. Tier 3 companies are typically the
    suppliers of raw or semi-finished materials, such as metals or
    plastics, for both Tier 1 and 2 suppliers. Often, Tier 2 and 3
    suppliers may also provide products and supply customers in other
    industry sectors outside of the vehicle industry (such as, computer
    chips, PCB boards, sensors, cameras, metals, glass, plastics,
    chemicals).

        In Figure 1 below, we estimate that approximately 40 percent of the
    suppliers are Tier 1s and about 60 percent are Tier 2s and 3s. The
    dashed line indicates the frequent crossover of suppliers that may be a
    Tier 1 to several vehicle manufacturers, but also a Tier 2 supplier to
    a Tier 1. The vehicle aftermarket provides finished components via a
    variety of channels directly either to consumers or to vehicle service
    technicians and repair facilities. These goods are used for the
    maintenance and repair of over 260 million cars, trucks, and buses on
    our Nation's roadways.

        The supply chain, their customers, and the jobs they support are
    highly interdependent. Like a stone in a pond, one small change to the
    chain can cast off multiple ripple effects. The vehicle industry has
    repeatedly witnessed the narrow threads that bind its successes and
    prevent its weaknesses. This past May, a fire at a U.S. supplier
    facility stopped production and pinched availability of specialized
    parts that only a few suppliers make. Multiple vehicle manufacturers
    were impacted and had to pause production of finished vehicles.\3\
    Certainly, other examples of supply chain disruption and the short- and
    long-term ripple effects include the worldwide economic crisis in 2008,
    which drastically slowed overall vehicle production, and the ``Great
    Sendai Earthquake'' in 2011, which impacted capacity for the materials
    and subcomponents. The point is that these are just a few examples that
    demonstrate how the U.S. vehicle industry relies on both its global
    suppliers and its local domestic component manufacturers to be viable
    with as little disruption and as much predictability as possible.
    ---------------------------------------------------------------------------
        \3\ ``Supplier fire isn't just hurting Ford, supply issues are
    rippling across auto industry,'' by Phil LeBeau, CNBC.com, published
    May 10, 2018, updated May 11, 2018, https://www.cnbc.com/2018/05/10/
    supplier-fire-isnt-just-hurting-ford-gm-and-others-may-feel-
    impact.html.

    [GRAPHIC] [TIFF OMITTED] T2618.003

        The Figure 2 below, sourced with permission from IHS Markit,
    illustrates the interconnectedness of the North American supply base
    and their OEM customers. For example, looking at General Motors, this
    chart shows that GM shares 76 percent of suppliers with Ford Motor
    Company. OEM after OEM show significant percentages of shared supply
    base for their vehicles. The interdependency is clear. This chart
    underscores the interconnectedness of our industry and the North
    ---------------------------------------------------------------------------
    American region.

    Figure 2

                                         North American Supply Base Independence
    ----------------------------------------------------------------------------------------------------------------
                                                                 Also supply to
     OEM Supply Base for  ------------------------------------------------------------------------------------------
         NA Vehicles                                                             Hyundai/
                              GM      Ford     FCA     R-N-M    Honda    Toyota     Kia       VW    Daimler    BMW
    ----------------------------------------------------------------------------------------------------------------
    GM                       100%      58%      61%      47%      41%      29%       32%      47%      42%      44%

    Ford                      76%     100%      66%      50%      49%      30%       35%      50%      46%      49%

    FCA                       72%      60%     100%      51%      46%      32%       32%      46%      49%      47%

    R-N-M                     64%      52%      59%     100%      60%      40%       28%      50%      44%      39%

    Honda                     60%      55%      56%      65%     100%      45%       32%      49%      41%      41%

    Toyota                    56%      44%      51%      56%      59%     100%       25%      40%      32%      33%

    Hyundai/Kia               54%      46%      46%      36%      37%      23%      100%      39%      31%      36%

    VW                        72%      59%      59%      56%      51%      32%       35%     100%      60%      64%

    Daimler                   66%      55%      64%      51%      45%      26%       29%      62%     100%      61%

    BMW                       80%      68%      71%      52%      52%      32%       38%      76%      70%     100%
    ----------------------------------------------------------------------------------------------------------------
    Source: IHS Markit North American Component Forecast Analytics (CFA) as of 2017 calendar year. IHS Markit CFA
      tracks the supply of 90+ major light vehicle components/systems sourced from over 280 Tier 1 suppliers.

        Disruption to one implies disruption to all. As suppliers and OEMs
    develop new technologies and vehicles, this interconnectedness is
    critical to the long-term viability of the industry. Not only for new
    car production, but also the aftermarket production of the components
    needed to maintain vehicles.

        Taken together, these figures paint a picture of this industry.
    They illustrate that there are relatively few suppliers at both the top
    and bottom of the supply chain and there are a substantial number of
    jobs dependent on the success of many. Successful suppliers must have a
    wide range of customers in the vehicle industry providing content to a
    number of vehicle manufactures.

        As the cost of manufacturing in the U.S. increases for a non-
    traditional vehicle manufacturer, the entire supply base suffers. A
    supplier with only one manufacturing facility in the U.S. will find its
    market limited to the Tier 1s as the Tier 1 suppliers find their
    markets limited to its customer base. Indeed, smaller, more locally
    based Tier 2 and 3 suppliers may find it more difficult to reorganize
    their business models since they do not have other global facilities to
    move business to or absorb the economic impacts.

        There should be no doubt that the implementation of additional
    tariffs or quotas under a section 232 investigation on motor vehicle
    parts will cost U.S. jobs. In fact, some members have shared with MEMA
    that--if tariffs are implemented--the length of time it would take to
    feel the ramifications and impact is within one quarter for larger
    companies, and significantly less than that time for smaller to medium
    companies. In order to make adjustments, the first resources to get cut
    will be jobs. A majority of vehicle suppliers fall into that small/
    medium size and would be hardest hit because they will be squeezed on
    both ends to absorb the cost increases. These smaller companies have
    less capacity to absorb cost increases, and little or no ability to
    pass increases on to their customers. Suppliers are facing the
    cumulative effect of increased costs from section 232 steel and
    aluminum tariffs, section 301 tariffs and retaliatory tariffs from
    China, and the very real prospect of section 232 tariffs on imported
    vehicle parts.
           impact of steel and aluminum tariffs on supplier industry
        The supplier industry is already feeling the effects of tariffs on
    steel and aluminum. Steel prices have risen steadily with the ongoing
    talks and then implementation of steel tariffs. The market prices
    increased by 50 percent with an increase from $600 per ton for hot
    rolled steel up to $900 per ton today following the date the tariffs
    took effect on March 23, 2018.

        Steel and aluminum tariffs have led to retaliatory action by U.S.
    trading partners. In addition, it is forecasted that these tariffs
    could increase vehicle prices by $2,000 to $7,000 based on material
    price increases. All of these actions will have a detrimental impact on
    our economy. It is estimated that suppliers, like NASG, will have to
    absorb a third of the steel increases, thereby reducing earnings, which
    will result in less technology investment spending, less capital
    spending and lower wage increases. These cuts will lower consumer
    confidence, leading 60 percent of economists to forecast a recession in
    2020. If this forecast comes to pass, the results will include reduced
    automobile sales with an estimated 15 percent decline and between
    750,000 to 1,250,000 American automobile workers losing their jobs.

        NASG has experienced steel price increases exceeding $10 million
    dollars. As a supplier, NASG is unable to pass steel price increases to
    Tier 1 customers and vehicle manufacturers, regardless of whether the
    higher price was due to tariffs or increased prices as the domestic
    steel producers inflate prices. This has had negative consequences to
    their business. To mitigate the increases, NASG has reduced overtime;
    put on hold and dramatically pared down all open team member hiring
    requisitions, put on hold and dramatically pared down capital spending
    and reduced all discretionary spending. The decisions of NASG have been
    repeated throughout the supply chain.
      steel and aluminum exemption and exclusion processes are ineffective
        At the same time, the Department of Commerce and the U.S. Trade
    Representative (USTR) have implemented exclusion and exemption
    processes that are problematic and uncertain. After months of reviewing
    and posting over 31,000 exclusion requests, Commerce has begun to grant
    and deny applications. As of today, fewer than 10 percent of requests
    have been finalized. The process is opaque, inconsistent, and
    inaccessible. Some companies have described the experience as arbitrary
    and capricious, lacking substantial evidence for the denial
    determinations.

        On September 11, 2018, the Commerce Department's Bureau of Industry
    and Security (BIS) published a second Interim Final Rule (IFR) in the
    Federal Register. The IFR made a number of changes to the process that
    are welcomed by the industry, including development of a rebuttal and
    surrebuttal process and changing the date of refunds to the date of
    receipt of the request by Commerce.

        Suppliers have reported to MEMA that some objections have been
    filed by steel and aluminum producers that have failed product testing
    and validation. Other objections have been filed by producers that are
    late on current deliveries. In cases where objections have been filed
    and the request denied, the direction from BIS is that the company must
    start from square one and file a brand-new application and include any
    refuting information. This is inefficient and burdensome on both the
    company and the government resources required to re-process refuting
    applications.

        The rebuttal process, while welcome, is short. Supplier companies
    have shared frustration with MEMA that thousands of seven-day rebuttal
    comment periods opened the day the IFR was published and closed seven
    days later. This short turn around left many companies scrambling to
    complete rebuttal forms on dozens or more requests to submit before the
    comment periods closed. The quick turn around made this process
    unnecessarily difficult.

        NASG and MEMA encourage the committee to continue to monitor the
    implementation of the exclusions process and country exemptions and
    work with the administration to ensure that the process is fairly and
    justly implemented.

        Additionally, on August 29, 2018, the President signed a new
    proclamation making several changes to the exclusion project. These
    changes, such as extending retroactive relief back to the date of
    filing, were welcome. However, some changes did not do enough to
    improve the program. For example, the administration has lifted tariffs
    on specified grandfathered steel from quota countries for construction
    projects. This change should be expanded to allow all grandfathered
    steel and aluminum for manufacturers assuming contracts were in place
    before the tariffs took effect.
                 tariffs on imported autos and parts will harm
                  global competitiveness of the united states

        The United States is one of three main areas in the world that has
    a significant vehicle manufacturing industry, along with Europe and
    Asia. As shown in Figure 3, the U.S. has dominated North American
    vehicle and vehicle parts production totaling almost $150 billion in
    2017. Notably, over 75 percent of U.S. manufactured automotive parts
    were exported. As part of the North American region, the U.S. can
    compete with Asia and Europe in almost every facet of motor vehicle
    production. For the past 10 years, the vehicle industry has grown and
    thrived, due in part to the improving economy and the strength of the
    region's supply chain.

    [GRAPHIC] [TIFF OMITTED] T2618.004

        The U.S. is also strong on exports. Of the 83.3 million light
    vehicles produced in the U.S. since 2010, 15.5 million light vehicles
    have been exported despite a strong dollar (see Figure 4).

    [GRAPHIC] [TIFF OMITTED] T2618.005

        The U.S. automotive industry is running near full production
    capacity. Current capacity utilization for suppliers is at the highest
    it has been since 2000 (see Figure 5). Investment in duplicate capacity
    could slow U.S. research and development (R&D) investments in new
    technologies. Also, a common concern among various manufacturing
    sectors is finding enough skilled U.S. workers due in part to the
    currently strong economy and low U.S. employment rate. These factors
    make adding more U.S. capacity difficult. Thus, to remain competitive,
    U.S. vehicle suppliers leverage the global supply chain to source the
    materials, subcomponents, and parts needed for further component
    manufacturing and system integration.

        Tariffs on motor vehicle parts will jeopardize the vehicle
    industry's growth and success and--more importantly--the U.S. jobs and
    American innovation that comes with trade. Tariffs or other broad
    trade-restrictive measures would cause significant disruption and
    upheaval to the vehicle industry. Given the strength of the North
    American region's supply chain, certainly, if Canada and Mexico were to
    be exempted from these types of measures, the impact would be
    substantially reduced. Most OE and aftermarket suppliers have well
    established footprints in North America to support regional
    requirements. It is typical and normal for parts and subcomponents to
    be shipped back and forth over borders, often multiple times, within
    the region. If this accessibility is abruptly constrained or closed
    off, the results with be chaotic and catastrophic to the U.S. vehicle
    industry.

        The U.S. cannot simply stand on its own and manufacture the most
    fundamental components as well as the newest advanced technologies and
    remain competitive in a tariff compulsory environment. The supplier
    industry has long urged this administration to consider alternative
    policies and actions instead of tariffs to encourage and retain the
    development and deployment of the newest innovations in the United
    States.
      quotas or other adjustments will diminish investment in the united
                                     states
        Vehicle suppliers lead the way in developing advanced,
    transformative technologies that enable safer, smarter, and more
    efficient vehicles, all within a rapidly growing global marketplace
    with increased regulatory and customer demands. As key innovators,
    suppliers provide upwards of 77 percent of the content of vehicles
    manufactured in the United States.

    [GRAPHIC] [TIFF OMITTED] T2618.006

        Figure 6 below shows the capital expenditures (``capex'')
    investments for automakers and vehicle parts manufacturers. The capex
    invested in the U.S. is in the billions of dollars. The right side of
    the chart indicates that over the past 5 years $45 billion in capital
    expenditure investments have been made by U.S. vehicle parts
    manufacturers. About half of suppliers' capex spending is invested
    heavily into facilities, machinery, and tooling. Those investments go
    towards ensuring they can meet production demands for long product
    cycles. More importantly, these investments result in high-value U.S.
    jobs--whether it is skilled labor for manufacturing or engineers for
    product development.

        Moreover, suppliers invest a significant amount on R&D here in the
    United States, to innovate and create the advanced technologies
    necessary for the vehicles of today and tomorrow. Many suppliers have
    established U.S. technical centers and R&D facilities. This enables
    them to test and validate a whole host of systems and components for
    their customers.

        The vehicle industry finds itself at a critical inflection point
    with the development of transformative innovations in advanced safety,
    efficiency, and automated technologies. These technologies for advanced
    vehicle safety and efficiency systems are the building block
    technologies to automated driving systems, which require substantial
    development costs. The U.S. investment and research over the next
    several years in the vehicle industry--from Silicon Valley to Detroit
    and across America--may well determine global leadership in
    transportation and technology for generations to come. The United
    States has long been a leader in innovation. However, the imposition of
    trade-restrictive actions--like tariffs or quotas--on vehicle parts
    manufacturers will put these U.S. investments in jeopardy.
    Unfortunately, the uncertainty of the proposed actions and the
    potentially broad scope has made planning for future investments very
    difficult. In fact, many of our members have indicated that their
    companies are delaying, deferring, or canceling plans for further U.S.
    investments. These are the kinds of critical investments we need
    domestically to support jobs as well as support our Nation's economic
    growth and success.

    [GRAPHIC] [TIFF OMITTED] T2618.007

        The U.S. has a strong history of being a leader in innovation. Our
    Nation is uniquely positioned to lead the world in automated technology
    development and increasingly efficient propulsion systems. Unlike other
    manufacturing sectors, however, this innovation will occur in places in
    the world that provide the best economic and trading opportunities.
    Therefore, if suppliers are unable to access and import into the U.S.
    the needed materials, components, and technologies from other parts of
    the world, they may simply establish their centers of innovation
    elsewhere. Consequently, this current and future development depends on
    the free flow of trade for new and state-of-the-art parts, systems, and
    raw materials. Limiting access to these products in the U.S. will make
    other regions of the world more attractive for future investments.
                                   conclusion
        The motor vehicle sector requires long-term investments in
    facilities and employees, and thus depends on regulatory and market
    stability. The implementation of tariffs on steel and aluminum, which
    are important raw materials for the production of vehicle parts and
    finished automobiles in the United States, has already caused
    significant uncertainty and added costs to domestic manufacturers in
    the vehicle sector. The looming threat of additional tariffs or quotas
    on vehicle parts further jeopardizes U.S. innovation and investment in
    research and development.

        Given the immense complexity and ramifications of the broad scope
    of ``automotive parts,'' MEMA has urged the Department of Commerce to
    take following the actions in the pending section 232 investigation:

              Remove entirely ``automotive parts'' from the scope of this
            investigation.
              Exclude key U.S. allies, particularly Canada and Mexico,
            from the scope of this investigation.
              Clarify exactly which parts are subject to the investigation
            and how to delineate the parts. Parts used in commercial
            vehicles over 10,000 lb. GVWR should not be included in the
            scope of the investigation at all since those vehicles are not
            subject to the investigation.

        Finally, the administration must fully take into account the
    benefits of the vehicle industry to our economic and national security.
    Motor vehicle suppliers provide needed content for the Department of
    Defense and our armed forces. The imposition of tariffs will jeopardize
    this supply chain and, in turn, our national security.

        MEMA urges this committee to support these actions. If there is any
    additional information MEMA can provide for the committee, please
    contact Ann Wilson, MEMA senior vice president of government affairs,
    at awilson@mema.org or at 202-312-9246, Thank you for your
    consideration.

                                     ______

           Prepared Statement of Josh Nassar, Legislative Director,
                              United Auto Workers
        Chairman Hatch, Ranking Member Wyden, and members of the Senate
    Finance Committee, thank you for the opportunity to share our views on
    this important matter. It is my honor to testify on behalf of UAW
    President Gary Jones and 1 million active and retired members of the
    International Union, United Automobile, Aerospace, and Agricultural
    Implement Workers of America (UAW).

        The state of the domestic auto industry and the impact of policies
    emanating from Washington, DC is of great importance to our economy and
    working people throughout the country. Over 900,000 people work in the
    auto and auto-parts manufacturing sectors alone.\1\ The economic impact
    of the auto industry reaches far beyond the workers employed at the
    plants. When jobs from other linked industries are included, the auto
    industry is responsible for over 7.25 million jobs nationwide.\2\
    ---------------------------------------------------------------------------
        \1\ https://www.bls.gov/iag/tgs/iagauto.htm.
        \2\ Kim Hill, Deb Menk, Joshua Cregger, and Michael Schultz,
    ``Contribution of the Automotive Industry to the Economies of All Fifty
    States and the United States,'' January 2015.

        As researchers, engineers, and skilled trades and production
    workers in the automotive, aerospace, and agricultural and construction
    equipment industries, we welcome this long overdue discussion. In fact,
    the majority of UAW members and retirees work in, or are retired from,
    the auto industry. All of these workers, their families, and their
    ---------------------------------------------------------------------------
    communities are impacted by trade policy.

        When examining the question of the impact of tariffs in the auto
    industry, it is important to define the goal. Our goal is to create
    good paying U.S. jobs now and in the future. We proudly support
    policies that strengthen the middle class, create good paying jobs
    providing benefits and retirement security in the United States and
    reduce income inequality both here and abroad. It has been demonstrated
    time and time again that a vibrant middle class is needed in order to
    have a strong economy and democracy.

        We, as a country, need to take a holistic approach to succeed. It
    is a mistake to look at trade in isolation. We need to consider how tax
    law, worker training programs, labor rights, and other policies
    interact. For example, provisions in our tax laws that reward
    offshoring undermine trade policies that are intended to prevent jobs
    from leaving the U.S. We need a comprehensive strategy if we are to
    remain competitive.
                           1. auto trade with mexico
        Since NAFTA, the U.S. automotive and auto parts trade deficit with
    Mexico has grown significantly. In 1993, the U.S. had an automotive
    (NAICS 3361) trade deficit with Mexico of $3.5 billion dollars. By
    2016, that deficit had grown to $45.1 billion. For auto parts, the
    situation is significantly worse. In 1993, the U.S. had a very small
    auto parts (NAICS 3363/HS 8708) trade deficit with Mexico of $1
    billion.\3\ By 2016, it was 20 times larger at $23.8 billion. As the
    trade deficit increased, wages declined. Adjusted for inflation, auto
    parts production workers' average hourly wages declined by 23 percent
    in the past decade. Between 2000 and 2014 alone, employment in U.S.
    parts suppliers declined 36 percent.\4\ Changes in technology and
    attacks on workers' rights to collectively bargain have contributed to
    the decline. NAFTA has also played a big role in creating the enormous
    trade deficits we face in this sector today.
    ---------------------------------------------------------------------------
        \3\ Business data from the U.S. Census Bureau, Industry Statistic
    Portal. NAICS codes more accurately capture the auto parts sector.
    While a NAICS to HS crosswalk would include 8708, it would also include
    several non-auto specific codes.
        \4\ William A. Galston, ``How the Vise on U.S. Wages Tightened,''
    The Wall Street Journal, March 31, 2015.

        In 2016, the U.S. automotive (NAICS 33611/HS 8702) trade deficits
    within NAFTA were:

    ------------------------------------------------------------------------
                             2016 Automotive (NAICS
            Country           3361) Trade Deficit        Change 1993-2016
    ------------------------------------------------------------------------
    Canada                  $20.6 billion             +11.4%
    ------------------------------------------------------------------------
    Mexico                  $45.1 billion             +1,288%
    ------------------------------------------------------------------------
    Source: The North American Free Trade Agreement, CRS, May 24, 2017.

        The United States has an auto surplus (NAICS 3363) with Canada but
    a large deficit with Mexico.

    ------------------------------------------------------------------------
                              2016 Auto Part (NAICS
            Country            3363) Trade Deficit       Change 2006-2016
    ------------------------------------------------------------------------
    Canada                   -$12.4 billion          57% (larger surplus)
                              (surplus)
    ------------------------------------------------------------------------
    Mexico                   $23.8 billion           23,700%
    ------------------------------------------------------------------------
    Source: The North American Free Trade Agreement, CRS, May 24, 2017.

    [GRAPHIC] [TIFF OMITTED] T2618.008

        The United States had a trade surplus with Mexico in 1993, the year
    before the North American Free Trade Agreement (NAFTA) was implemented.
    Since the passage of NAFTA, U.S. trade deficits with Mexico cost almost
    700,000 U.S. jobs by 2010 per the Economic Policy Institute.\5\ Most of
    the jobs displaced were in manufacturing.
    ---------------------------------------------------------------------------
        \5\ See, e.g., Robert E. Scott, Jeff Faux, and Carlos Salas,
    ``Revisiting NAFTA: Still Not Working for North America's Workers,''
    Economic Policy Institute, 2007.

        Over the first 11 years of NAFTA (1994-2005), there were new
    production facilities in both the U.S. and Mexico. This was primarily
    due to foreign-based auto manufacturers adding production capacity in
    the region. However, in the subsequent 11 years (2005-2016), a
    different trend emerged. Production capacity was eliminated in the U.S.
    and Canada and added in Mexico. In many cases work was moved from the
    U.S. to Mexico. Between 1993 and 2014, Mexico's share of NAFTA
    production increased from 8 percent to 19 percent.

             Light Vehicle Final Assembly Plants in NAFTA 1994-2016
    ------------------------------------------------------------------------
                    1994      2005      2016          Change 1994-2016
    ------------------------------------------------------------------------
    Canada             14        13        10                            -4
    ------------------------------------------------------------------------
    Mexico              9        11        17                            +8
    ------------------------------------------------------------------------
    United             59        62        49                           -10
     States
    ------------------------------------------------------------------------
    NAFTA              82        86        76                            -6
    ------------------------------------------------------------------------
    Source: Ward's Automotive.

                            Share of NAFTA Production
    ------------------------------------------------------------------------
                           Country                          1993      2016
    ------------------------------------------------------------------------
    Canada                                                    15%       13%
    ------------------------------------------------------------------------
    Mexico                                                     8%       19%
    ------------------------------------------------------------------------
    U.S.                                                      77%       67%
    ------------------------------------------------------------------------

        We have every reason to believe Mexico's auto industry will
    continue to grow. Auto production in Mexico is up from 2 million cars
    and light trucks in 2008, to 3.2 million today. Production is expected
    to hit five million units by 2018. Mexico is now the fourth largest
    auto exporter, behind Japan, Germany, and South Korea. Nearly 80
    percent of Mexico's exports come to the United States.

        Almost every major automaker has increased or plans to increase
    capacity in Mexico. Many major automakers have opened new plants or
    announced plans to do so. Currently, there are almost as many auto part
    workers in Mexico (400,000+) as there are in the U.S. (480,000).
    Autoworker in Mexico often makes $3.00 an hour, with many making well
    below that amount.\6\
    ---------------------------------------------------------------------------
        \6\ Alex Covarrubias V., ``A Status Quo of the Mexican Auto
    Industry: Prospects and Tendencies'' (presentation, The College of
    Sonora, July 2014).

        The impact of trade agreements on the entire supply chain must be
    considered when analyzing the economic impact of motor vehicle
    manufacturing, not just final assembly. More assembly plants mean more
    1st tier parts, then more 2nd tier parts, and on and on. It is a
    vicious cycle for UAW members whose jobs have moved to Mexico. All of
    the following UAW-represented parts suppliers are now also in Mexico:
    Lear, Johnson Controls, IAC, Flex-n-Gate, Federal Mogul, Faurecia,
    ---------------------------------------------------------------------------
    Bosch, Magna, TRW, American Axle, and Metalsa.

        If it's not a first-tier assembly and it's stackable and shippable,
    it can be imported. Unfortunately, this has happened a great deal since
    NAFTA to the detriment of the U.S. economy and workers.
                           ii. auto trade with china
        Since 2002, the U.S.'s trade imbalance with China has increased
    $244 billion, or 237 percent. Between 2001 and 2015, it is estimated
    3.4 million American workers lost their jobs to unfair trade with
    China.\7\ While the U.S. has an automotive trade surplus with China, an
    auto parts trade deficit has exploded. In 2002, the U.S.'s auto parts
    trade deficit with China was $972 million, since then it has grown
    elevenfold to $10.7 billion.\8\ For American workers, this trend is
    untenable.
    ---------------------------------------------------------------------------
        \7\ Robert E. Scott (January 31, 2017), ``Growth in U.S.-China
    trade deficit between 2001 and 2015 cost 3.4 million jobs,'' Economic
    Policy Institute. Retrieved from http://www.epi.org/publication/growth-
    in-u-s-china-trade-deficit-between-2001-and-2015-cost-3-4-million-jobs-
    heres-how-to-rebalance-trade-and-rebuild-american-manufacturing/.
        \8\ https://usatrade.census.gov./.

        China tilts the playing field by propping up domestic companies and
    state-owned enterprises through direct subsidies and suppressing
    workers' rights.\9\ It uses unfair market access processes and policies
    to force technology transfers from foreign firms. Together these
    actions have caused a dramatic loss of U.S. manufacturing jobs,
    suppressed American wages, and potentially stifled innovation.
    ---------------------------------------------------------------------------
        \9\ ``Annual Report 2016,'' Congressional-Executive Commission on
    China (October 6, 2016), p. 18.
    ---------------------------------------------------------------------------
                         iii. u.s. auto industry today
        The UAW is proud of the its role in creating middle-class jobs
    which have enabled workers to provide for their families and see their
    children pursue their dreams. Unfortunately, our standard of living is
    under attack and auto jobs are not what they used to be.

        Since 2000, the U.S. has lost of over 3 million manufacturing
    production jobs--with trade playing a significant role.

        Another disturbing trend is the change in the mix of parts the U.S.
    is importing. The U.S. has growing deficits in high value auto parts
    like engines, transmissions, seating, steering, and suspensions (see
    graph below). These components employ tens of thousands of American
    workers.

        Over the past 15 years, U.S. automotive production workers' wages
    have shrunk dramatically. When adjusting for inflation, final assembly
    production workers' (BLS Occupational Code 51-0000) wages have dropped
    29 percent, while parts production workers' wages have dropped 13
    percent.

    [GRAPHIC] [TIFF OMITTED] T2618.009

        The U.S. is in a race with other advanced countries to develop the
    automobiles and technologies of the future. We recognize that trade
    enforcement actions alone will not get the job done. While Germany and
    other industrial countries have developed policies that are investing
    in its citizenry and infrastructure, the U.S. has instead taken a low-
    road approach. American companies may develop new products, but they
    have increasingly outsourced manufacturing to low-cost countries. As
    noted above, with job losses and decreases in wages, this has hollowed
    out much of middle America. Maintaining the status quo is not an
    option.

        Wages have fallen even though productivity has substantially
    improved. The average factory worker makes less than the median wage
    for all occupations. Real wages in manufacturing fell between 2003 and
    2013 at a faster rate for workers overall.\10\ One fourth of
    manufacturing jobs make less than $13.07 per hour.\11\ U.S. autoworkers
    wages have been suppressed and bad trade agreements have contributed to
    this troubling reality.
    ---------------------------------------------------------------------------
        \10\ ``Catherine Ruckelshaus and Sarah Leberstein, ``Manufacturing
    Low Pay: Declining Wages in the Jobs that Built America's Middle
    Class,'' November 2014.
        \11\ https://www.bls.gov/iag/tgs/iag31-33.htm.

        The number of workers in temporary or contract positions are on the
    rise in various industries including automotive. Perma-temps, the use
    of temps for extended periods of time with no path to full-time
    employment is becoming all too common in the auto industry--contract
    work is shifting from administrative jobs to blue collar occupations.
    Jobs in transportation and material moving and production now account
    for 42 percent of the temp industry. Furthermore, perma-temps earn 22
    percent less than private-sector workers and work with little to no
    benefits.\12\ The median worker in the staffing industry earns $12.40
    an hour, compared to an hourly wage of $15.84 by all private-sector
    workers, regardless of industry.\13\ The growing use of temp work
    drives down wages, benefits and job security in the auto industry and
    undermines good, middle-class jobs. Congress must stop ignoring the
    loss of good full-time jobs.
    ---------------------------------------------------------------------------
        \12\ Rebecca Smith and Claire McKenna, ``Temped Out: How Domestic
    Outsourcing of Blue Collar Jobs Harms America's Workers,'' National
    Employment Law Project, September 2, 2014.
        \13\ Ibid.

        Workers often face both direct and implied threats if they attempt
    to form a union. In many cases, employers will openly threaten to close
    their plant and move to Mexico when workers fight for job security,
    better wages, health and safety improvements and retirement security.
    Veiled threats force workers to accept lower wages for fear that the
    company will ship their jobs abroad.
     iv. policies to strengthen domestic manufacturing and the middle class
        As referenced earlier, our objective is to maintain and create
    strong middle-class jobs in the United States. Trade can play a key
    role towards achieving this objective.

        Yet, any effort to reset Americas trade policy must also be
    accompanied by a strong industrial policy focused on education,
    workforce training, research and development, support for advanced
    manufacturing and technologies, building a 21st-century infrastructure,
    and creating penalties for companies that turn their back on American
    workers. A properly crafted industrial policy will create new
    industries, as well as re-shore old ones. We also need Congress to
    advance equitable tax policies that uplift working families and not
    reward billionaire CEO's with massive tax breaks while incentivizing
    businesses to outsource jobs overseas. A comprehensive approach will
    improve living standards, reduce poverty, mitigate our environmental
    impact, and vastly improve American's quality of life.

        The right to collectively bargain strengthens the economic security
    of workers. On average, a worker covered by a union contract earns 13.2
    percent more in wages than a peer with similar education, occupation,
    and experience in a nonunionized workplace in the same sector.\14\
    Unionized workers are more likely to have health-care benefits, access
    to paid leave, employer provided pension plans, and safer working
    conditions compared to their non-union counterparts. Strengthening our
    labor laws and increasing penalties against employers who do not
    recognize worker's legal right to have a voice on the job will
    strengthen the middle class and reduce income inequality.
    ---------------------------------------------------------------------------
        \14\ Economic Policy Institute, ``How Today's Union's Help Working
    People,'' https://www.
    epi.org/publication/how-todays-unions-help-working-people-giving-
    workers-the-power-to-improve-their-jobs-and-unrig-the-economy/.
    ---------------------------------------------------------------------------
              v. supporting domestic production of future vehicles
        Most of the production footprint of tomorrow's advance automotive
    technology is overseas. Today, the U.S. only produces 13 percent of the
    world's semiconductors. By 2021, the U.S. will produce only 14 percent
    of the world's lithium-ion batteries unless significant steps are
    taken.

        Lithium-ion batteries are the most valuable component in electric
    vehicles (EVs). With the growth of demand from EVs, global lithium-ion
    battery production capacity is expected to grow by 73 percent between
    2017 and 2021 \15\ and lithium-ion batteries could become a $40 billion
    market by 2025. This has sparked a race to develop the production
    capacity to meet growing battery demand and it is this race that will
    determine the geography of much of the EV value chain.
    ---------------------------------------------------------------------------
        \15\ Bloomberg New Energy Finance, https://about.bnef.com/electric-
    vehicle-outlook/#toc-download.

        Based on developments so far, the U.S. is falling behind Asian and
    European countries in lithium-ion battery capacity. It is projected
    that by 2021, 56 percent of battery manufacturing capacity will be
    located in China and another 19 percent will be in Europe. The U.S.
    ---------------------------------------------------------------------------
    will only have 14 percent of global battery production capacity.

        China and Germany have plans to push the electric vehicle market
    forward. The United States does not have such a plan. Again, we need a
    comprehensive strategy to ensure the vehicles and technologies of the
    future are made in the United States and that good-paying jobs are
    linked to vehicles of the future.
                                vi. trade reform
        More needs to be done to address the disinvestment in America's
    workers, deteriorating infrastructure, and stifled innovation. A new
    trade model that is fair, balanced, and puts workers first will make
    the U.S. economy more competitive and create real opportunities for
    American workers.

        Tariffs can be effective when appropriately targeted to specific
    trade practices and are a part of a comprehensive strategic plan to
    address unfair trade actions. However, tariffs alone are insufficient
    to boost U.S. jobs and strengthen our industrial base. The UAW believes
    that tariffs are a tool, not a comprehensive plan for ensuring
    industries of the future are created and built in the U.S.

        It would be shortsighted to categorically rule out using tariff and
    other enforcement mechanisms to level the playing field. We shouldn't
    compete with one arm tied behind our back. For this very reason, we
    believe the administration should continue their auto 232
    investigation. We hope the administration will ultimately take a
    measured and targeted approach to bolster domestic manufacturing.

        It is critical to guard against non-tariff barriers, like currency
    manipulation, that has cost millions of U.S. jobs. Modern agreements
    must take this pervasive non-
    tariff barrier on directly.

        We cannot repeat the mistakes of the past. NAFTA and broken trade
    deals have had long lasting and deep impacts for workers, communities,
    businesses and our trade partners. We need a new trade model that is
    worker centric and values people over investor profits and discourages
    companies from outsourcing good paying jobs abroad.

        Thank you for the opportunity to share our views. I look forward to
    answering questions you may have.

                                     ______

                          From Bloomberg, May 5, 2017

                    How Mexico's Unions Sell Out Autoworkers

    Wage contracts are inked years before plants open and workers never get
                                     a say.

                        By David Welch and Nacha Cattan
    At a ceremony at Mexico's Los Pinos presidential residence in July
    2014, BMW Chief Executive Officer Harald Kruger pledged to spend $1
    billion to build a factory in the northern state of San Luis Potosi
    that will employ 1,500 workers. To mark the occasion, he presented
    President Enrique Pena Nieto with a model of a silver BMW race car.

    The German automaker had unwrapped its own gift two days earlier, a
    labor contract signed by a representative from the state chapter of the
    Confederacion de Trabajadores de Mexico (CTM), the country's largest
    union confederation, and notarized by a Labor Ministry official. The
    document, which Bloomberg reviewed, sets a starting wage of about $1.10
    per hour and a top wage of $2.53 for assembly-line workers. The
    starting rate is only a bit more than half the $2.04 an hour that is
    the average at Mexican auto plants, says Alex Covarrubias, a lecturer
    at the University of Sonora in Hermosillo.

    The paperwork was filed 2 years before BMW broke ground on the new
    plant, which will turn out $45,000 3 Series sedans. When workers begin
    to stream into the factory sometime next year, there's a good chance
    most won't know they belong to a union.

    So-called protection contracts--agreements negotiated between a company
    and a union that doesn't legitimately represent workers--are illegal in
    the U.S. and Germany. But Lance Compa, a senior lecturer at Cornell's
    School of Industrial and Labor Relations, says they're standard
    operating procedure in Mexico, where deals are cut factory by factory
    rather than collectively across a company or industry. Experts say this
    is a primary reason that wages in the auto sector have stagnated in
    recent years, despite a fresh wave of investments by foreign carmakers,
    most recently by German and Japanese manufacturers. Mexico's union
    bosses and politicians are more interested in keeping corporations
    happy than in raising the living standards of workers, Covarrubias
    argues. ``Protection contracts are a way to keep wages artificially
    low,'' he says.

    Since 2010, automakers have announced $24 billion in investments
    through 2019, while parts makers have committed another $3 billion,
    according to the Center for Automotive Research in Ann Arbor, MI.
    Companies often cite the trade agreements Mexico has signed with 45
    countries as a key reason they want to locate their plants there. Auto
    executives will rarely say they chose Mexico because its workers are
    among the cheapest in the world.

    Mexican assembly-line workers earn about one-tenth of what their U.S.
    counterparts make. Adjusted for productivity, base wages for workers in
    plants that make transportation equipment rose 20 percent in Mexico
    between 2006 and 2016, according to calculations by Boston Consulting
    Group Inc.; in China, they climbed 157 percent over the same period.

    Alejandra makes about $1.45 an hour working at a factory in Guanajuato
    state owned by Hirschmann Automotive GmbH, an Austrian parts maker. The
    machine operator, who asked that her last name not be used for fear of
    retaliation, says she has no idea if she and her co-workers are
    represented by a union. A public records search revealed that a CTM
    affiliate registered a contract in July 2015, almost 2 years before the
    factory was formally inaugurated. Perhaps Alejandra is in the dark
    because the union collects dues from Hirschmann, rather than
    employees--a common practice in Mexico.

    Alejandra's wage is about double the minimum in her state, but she says
    it's not enough to support her and her young son. She can't afford to
    buy shoes or fish and rarely eats out. ``As long as the authorities are
    lining their own pockets, the rest of us can all drown,'' she says.
    Hirschmann did not comment.

    On the campaign trail, Donald Trump vowed to renegotiate the North
    American Free Trade Agreement, to keep American carmakers and other
    manufacturers from shifting production to Mexico. Yet tweaking tariffs
    and rejiggering local-content rules may not do much to stop the sucking
    sounds of auto jobs moving to Mexico. ``Protection contracts are at the
    heart of the pressure on factory wages in the U.S. and beyond,'' says
    Harley Shaiken, a labor professor at the University of California at
    Berkeley.

    The contracts trace their roots to the 1930s, when labor laws allowed
    unions to initiate a strike at a factory whether it had employee
    membership at the plant or not, says Hector Barba, a labor lawyer for
    the National Workers Union, a CTM rival. This allowed unions to extort
    money from companies looking to prevent crippling work stoppages, he
    says. To protect investors, Mexico introduced laws in the 1980s
    allowing employers to register with one union, thus barring other
    syndicates from organizing strikes at their plants.

    That established a pattern that continues in which a company signs a
    contract with a union of its choosing as soon as it announces a new
    project. Ford Motor Co. unveiled plans to build a $1.6 billion plant in
    San Luis Potosi in April 2016; a collective contract was signed in
    July. It scaled back the investment after Trump called out the company
    for exporting jobs to Mexico.

    Ludwig Willisch, president and CEO of BMW of North America, says his
    company chose to build its newest plant in San Luis Potosi because auto
    exports from Mexico have low-tariff or duty-free access to twice as
    many countries as those from the U.S. When asked if BMW's German union
    had expressed concerns about wages in Mexico, he answered, ``IG Metall
    worries about what happens in Germany.''

    That's not what Angelica Jimenez-Romo, an IG Metall board member, says.
    Her organization ``has significant concerns,'' she says. ``Unions in
    Mexico and the CTM, too, often have mafia-like structures and many are
    directly linked to the Mexican ruling party. In those unions, workers
    don't get a say in their wage deals and don't get asked to participate
    either.''

    Founded in 1936, with the support of then-President Lazaro Cardenas,
    the CTM had a stranglehold on organized labor in Mexico during the more
    than 70 years the country was ruled by the Partido Revolutionario
    Institucional (PRI). Although its influence has waned somewhat with
    Mexico's transition to multiparty rule, the confederation, along with
    its affiliates, remains a force, with some 4 million members; the
    National Workers Union claims just 600,000 members. The CTM's current
    leader, Carlos Aceves del Olmo, is a member of the PRI who's served
    terms in both houses of Congress. Critics who accuse the CTM of signing
    protection contracts ``don't take into account the fact that workers in
    Mexico are mature and highly skilled, and when they don't receive the
    salaries they deserve, they quit,'' the CTM said in a statement.

    BMW spokesman Jochen Frey says, ``We checked closely which unions that
    are present in the San Luis Potosi area, and it was clear very quickly
    that CTM was the most common one.'' Frey said the automaker ``strives
    to pay wages that are in the top third level of what's typical for an
    area,'' and that Mexico is no exception.

    [GRAPHIC] [TIFF OMITTED] T2618.010

    The International Labour Organization, a United Nations agency that
    monitors labor rights worldwide, called on the Mexican government in
    2012 to address the issue of protection contracts. A constitutional
    reform signed into law in February requires unions to prove they
    legitimately represent workers and shifts responsibility for
    arbitrating labor disputes from the executive branch to the courts. In
    an interview, Deputy Labor Minister Rafael Avante acknowledges that the
    old system ``opened the door to vices,'' which is why the government
    has for more than a year now been inspecting plants to ensure that
    workers are aware of their contractual rights. Yet he says allowing
    employees to vote on contracts isn't desirable, as it could embroil
    companies in bitter negotiations. ``We have to bring order,'' Avante
    says.

    His boss, President Pena Nieto, has on several occasions boasted that
    labor tensions have diminished under his watch. ``There hasn't been a
    single strike in a year and a half under federal jurisdiction,'' Pena
    Nieto said during a ceremony in 2015 to mark International Workers'
    Day. He added: ``I express my highest regard to unions and worker
    confederations in the country for this constructive spirit, that
    without a doubt signals certainty and stability for investors, both
    national and international.''

    The bottom line: Wages in Mexico's auto sector have stagnated because
    of contracts that give workers no input on pay.

                                     ______

                           Economic Policy Institute

                     How Today's Unions Help Working People

      Giving workers the power to improve their jobs and unrig the economy

    Report

      By Josh Bivens, Lora Engdahl, Elise Gould, Teresa Kroeger, Celine
    McNicholas, Lawrence Mishel, Zane Mokhiber, Heidi Shierholz, Marni von
    Wilpert, Ben Zipperer, and Valerie Wilson

    August 24, 2017

    Americans have always joined together--whether in parent teacher
    associations or local community organizations--to solve problems and
    make changes that improve their lives and their communities. Through
    unions, people join together to strive for improvements at the place
    where they spend a large portion of their waking hours: work.

    The freedom of workers to join together in unions and negotiate with
    employers (in a process known as collective bargaining) is widely
    recognized as a fundamental human right across the globe. In the United
    States, this right is protected by the U.S. Constitution and U.S. law
    and is supported by a majority of Americans.\1\
    ---------------------------------------------------------------------------
        \1\ Article 23 of the Universal Declaration of Human Rights
    declares that everyone has a right to form and/or join a trade union.
    The right of labor unions to gather is given under the First Amendment
    to the United States Constitution, which protects the right to exercise
    freedom of speech in peaceful protest. The U.S. Congress enacted the
    National Labor Relations Act (NLRA) in 1935 to protect the rights of
    employers and employees, including the right to form, join, or assist
    labor organizations and to bargain collectively. Americans of all ages
    broadly support the ability of workers in various sectors to unionize,
    with shares supporting unions ranging from 62 percent to 82 percent,
    depending on the sector. See ``Mixed Views of Impact of Long-Term
    Decline in Union Membership: Public Says Workers in Many Sectors Should
    Be Able to Unionize,'' Pew Research Center, April 27, 2015.

    Over 16 million working women and men in the United States are
    exercising this right-these 16 million workers are represented by
    unions. Overall, more than one in nine U.S. workers are represented by
    unions. This representation makes organized labor one of the largest
    institutions in America.\2\
    ---------------------------------------------------------------------------
        \2\ In 2016 there were 16.3 million wage and salary workers age 16
    and older who were represented by a union, either because they were
    union members or (if they weren't union members) were in jobs covered
    by a union or an employee association contract. The share of workers
    who belonged to a union was 10.7 percent, and the share of workers
    covered by collective bargaining was 11.9 percent. (Source: EPI
    analysis of Current Population Survey Outgoing Rotation Group [CPS ORG]
    data for all workers age 16 and older).

    By providing data on union coverage, activities, and impacts, this
    report helps explain how unions fit into the economy today; how they
    affect workers, communities, occupations and industries, and the
    country at large; and why collective bargaining is essential for a fair
    and prosperous economy and a vibrant democracy. It also describes how
    decades of anti-union campaigns and policies have made it much harder
    for working people to use their collective voice to sustain their
    standard of living.

        ``Collective Bargaining'' Is How Working People Gain a Voice at
                Work and the Power to Shape Their Working Lives

    Almost everyone has at one point felt unheard or powerless as an
    employee. Joining a union simply means that you and your colleagues
    have a say because you negotiate important elements of employment
    conditions together. That could mean securing wage increases, better
    access to health care, workplace safety enhancements, and more
    reasonable and predictable hours. Through collective bargaining
    negotiations, the union also works with management to develop a process
    for settling disputes that employees and their managers are unable to
    settle individually.

    Once a collective bargaining agreement (CBA) is agreed to, union
    representatives work with employees and with management to make sure
    the rights and obligations spelled out in the agreement are honored.
    And they represent workers in high-stakes situations, such as when a
    safety violation has resulted in injury. By these means, collective
    bargaining gives workers a say in the terms of their employment, the
    security of knowing that there are specific processes for handling
    work-related grievances, and a path to solving problems.

    To cover expenses for negotiating contracts, defending workers' rights,
    resolving disputes, and providing support to members of the bargaining
    unit, unions collect dues.

    The National Labor Relations Act (NLRA) of 1935 and amendments govern
    private-sector unions and collective bargaining. While states generally
    have no jurisdiction over private-sector unions, the NLRA as amended
    does allow states to enact certain laws that govern fees paid by
    workers in unionized private workplaces (discussed later in this
    report).

    Nearly half (48.1 percent) of workers covered by a union contract are
    public-sector workers. Collective bargaining among federal workers is
    covered by the Federal Labor Relations Act of 1978 (FLRA). State laws
    (enacted from the late 1950s forward) govern state and local government
    employee unions. Each state has its own set of laws that govern
    collective bargaining for state and local public employees. Some states
    allow the full set of collective bargaining rights, others
    (approximately one-fifth) prohibit collective bargaining, and still
    others limit some activities, such as the right to strike or the right
    to collect dues automatically during payroll processing. About one in
    10 states have no state law addressing collective bargaining rights in
    the public sector.\3\
    ---------------------------------------------------------------------------
        \3\ The source for public sector's share of workers covered by a
    union contract is EPI analysis of Current Population Survey Outgoing
    Rotation Group [CPS ORG] data for all workers age 16 and older; the
    source for state laws covering collective bargaining is Jeffrey Keefe,
    Laws Enabling Public-Sector Bargaining Have Not Led to Excessive
    Public-Sector Pay, Economic Policy Institute, October 16, 2015.
    ---------------------------------------------------------------------------

                  Union Workers Are Diverse, Just Like America

    The typical union member is often thought to be a worker on a
    manufacturing line in the Midwest. Manufacturing does have a strong
    union tradition but people join unions in many industries and
    occupations. Union members include dental hygienists in Wisconsin,
    graduate students in Massachusetts, firefighters in Illinois,
    television writers and scientists in California, security guards in
    Washington, DC, digital journalists in New York, and major league
    baseball players in Georgia and other states.\4\
    ---------------------------------------------------------------------------
        \4\ Cathy Hester Seckman, ``The Unions: How Organized Labor Is
    Lending a Helping Hand to Dental Hygiene,'' RDH vol. 24, no. 4 (April
    2004); Liat Shapiro, ``Grad Students Vote in Majority for Labor
    Union,'' The Justice, May 23, 2017; Mark Konkol, ``Latino Firefighters
    Bullied into Taking Race-Based Promotions, They Say,'' DNAinfo Chicago,
    May 22, 2015; Jeffrey Fleishman, ``Working Hollywood: Writers Are the
    `Labor' and `Leprechauns' Behind TV's Latest Golden Age,'' Los Angeles
    Times, June 23, 2017; Tian Harter, notes from a talk by Paul K. Davis
    (Ames Federal Employees Union--IFPTE Local 30, Santa Clara County,
    California), titled ``Scientists and Engineers in Labor Unions?--Yes'';
    website of the Law Enforcement Officers Security Unions--DC,
    www.leosudc.org and ``Why Join AFEU?''; Ames Federal Employees Union,
    website accessed August 22, 2017; Gary Weiss, ``An Unlikely Big Player
    in Digital Media: Unions,'' Columbia Journalism Review, June 21, 2017;
    Jeff Fannell, ``The MLBPA: What We Do,'' MLBPlayers.com, August 31,
    2016.

    It is also true that, in the past, union workers were predominantly
    white men. But as of 2016, roughly 10.6 million of the 16.3 million
    workers covered by a union contract are women and/or people of
    color.\5\
    ---------------------------------------------------------------------------
        \5\ Non-Hispanic white men make up 34.5 percent of total persons
    represented by unions. These estimates are based on EPI analysis of
    Current Population Survey Outgoing Rotation Group (CPS ORG) data for
    all workers ages 16 and older. As of 2016, there are 15.5 million
    workers age 18 to 64 who are covered by a union contract; 10.1 million
    are women and/or people of color. The breakdowns by race and ethnicity,
    gender, and occupations in this section focus on workers age 18 to 64
    who are represented by a union, as do our estimates of union wage
    premiums (advantages) discussed later in the paper. We rely on our own
    tabulations in order to obtain race/ethnicity breakdowns that are
    mutually exclusive.

          About two-thirds (65.4 percent) of workers age 18 to 64 and
    ---------------------------------------------------------------------------
    covered by a union contract are women and/or people of color.

          Almost half (46.3 percent) are women.

          More than a third (35.8 percent) are black, Hispanic, Asian, or
    other nonwhite workers.

          Black workers are the most likely to be represented by unions:
    14.5 percent of black workers age 18 to 64 are covered by a collective
    bargaining agreement, compared with 12.5 percent of white workers and
    10.1 percent of Hispanic workers.

              Unions Represent Workers of All Levels of Education

          More than half (54.5 percent) of workers age 18 to 64 and
    covered by a union contract have an associate degree or more education.

          Two out of five (42.4 percent) have a bachelor's degree or more
    education.

             Union Workers Hail From a Variety of Sectors, but the
               Biggest Share Work in Education or Health Services

          Nearly two in five workers (39.8 percent) age 18 to 64 and
    covered by a union contract work in educational and health services.

          One in seven workers (13.9 percent) covered by a union contract
    work in public administration.

          One in eight workers (12.2 percent) covered by a union contract
    work in transportation and utilities.

          One in 11 workers (9.1 percent) covered by a union contract work
    in manufacturing.

              Unions Are Most Widespread in Public Administration
                         and Transportation Industries

    Because industries vary in size, industries with the highest numbers of
    union workers aren't always the industries with the highest union
    coverage rate. The five industries with the highest shares of 18- to
    64-year-old workers covered by a union contract (the ``union coverage
    rate'') are:

          Public administration (33.2 percent).

          Transportation and utilities (27.3 percent).

          Education and health services (20.0 percent).

          Construction (15.7 percent).

          Information (10.6 percent), which includes publishing, motion
    pictures, broadcasting, telecommunications, data processing, and other
    communications services.

             Unions Are Thriving in Diverse Workplaces--Including
                           ``New Economy'' Workplaces

    Working people join unions to have some say over their jobs and their
    workplaces. Given the self-determination unions afford, it is no
    surprise that they are thriving in some of the companies, industries,
    and occupations undergoing the most change.

          Television writers in Hollywood. Streaming services, cable
    offerings, and multiple viewing platforms are fueling what is referred
    to as ``the New Golden Age of Television.'' In 2016 the six major media
    companies that dominate film and television (CBS, Comcast, Disney, Fox,
    Time Warner, and Viacom), reported almost $51 billion in operating
    profits. Those profits have doubled in the last decade and continue to
    grow. Much of the industry's success is attributable to the roughly
    13,000 men and women who write television shows and films and who
    belong to the Writers Guild of America. Despite this contribution to
    the industry's record profitability, TV writers' incomes were in
    decline. WGA and the Alliance of Motion Picture and Television
    Producers (which represents the studios, networks, and independent
    producers) recently agreed on a collective bargaining contract that
    gave writers increases in compensation and digital residuals and
    preserved broad health care benefits.\6\
    ---------------------------------------------------------------------------
        \6\ Certain residual formulas in the pay TV and the subscription
    video-on-demand (SVOD) industries needed to be increased because they
    did not adequately reflect the value of the content created by WGA
    members. The WGA health fund had been running a deficit due to the
    rapid inflation in health care costs, and the WGA determined that the
    period of record profitability for the studios and networks was a good
    time to reverse the current trend to deficits with additional employer
    contributions. (Sources: Email correspondence with Neal Sacharow,
    Director of Communications, Writers Guild of America West, August 14,
    2017; Jeffrey Fleishman, ``Working Hollywood: Writers Are the `Labor'
    and `Leprechauns' Behind TV's Latest Golden Age,'' Los Angeles Times,
    June 23, 2017.

          Graduate students and adjunct faculty working at universities
    across the country. More than 64,000 graduate student employees are
    unionized at 28 institutions of higher education in the public sector,
    including universities in California, Florida, Illinois, Iowa,
    Massachusetts, Michigan, Oregon, Pennsylvania, Wisconsin, and
    Washington.\7\ While graduate teaching assistants in some public
    universities have practiced collective bargaining for nearly 50 years,
    the law has recently opened up the possibility in private universities:
    teaching and research assistants for universities such Yale, Brandeis
    University, Columbia, and Tufts University are now organizing for
    better compensation and working conditions.\8\
    ---------------------------------------------------------------------------
        \7\ Columbia University, 364 NLRB No. 90 (Slip. Op. 2016).
        \8\ The National Labor Relations Board in 2016 reversed an earlier
    decision and ruled that graduate students could unionize in the private
    sector. For more on recent graduate student organizing, see David
    Ludwig, ``Why Graduate Students of America Are Uniting,'' The Atlantic,
    April 15, 2015; Liat Shapiro, ``Grad Students Vote in Majority for
    Labor Union,'' The Justice, May 23, 2017; Stephen Markley, ``Adjunct
    Professors and Grad Students Are the Working Poor, and They Need
    Unions,'' Paste, January 19, 2017.

          Professional and technical employees in the Washington, DC,
    region and throughout the United States and Canada. The International
    Federation of Professional and Technical Engineers (IFPTE) includes
    more than 80,000 women and men in professional, technical,
    administrative, and associated occupations in the United States and
    Canada. Members work for a wide range of federal, public, and private
    agencies and companies. They include administrative law judges working
    for the Social Security Administration, scientists working for NASA,
    engineers and technicians working for General Electric and Boeing, and
    engineers, architects, and project managers working for Santa Clara
    County, California. The Economic Policy Institute is one of many
    unionized Washington-based nonprofits (including the Center for
    American Progress and DC Jobs With Justice) represented by IFPTE Local
    70.\9\
    ---------------------------------------------------------------------------
        \9\ See the ``About'' and ``About: Whom We Represent'' pages on the
    IFPTE website (ifpte.org); the IFPTE Local 70 website
    (ifptelocal70.org); and ``Center for American Progress Staff Sign First
    Contract'' [press release], International Federation of Professional
    and Technical Engineers, May 15, 2017.

          United Parcel Service (UPS) drivers, hub workers, pilots, and
    mechanics. UPS is the country's largest private-sector, unionized
    employer. Of 440,000 workers worldwide, nearly 250,000 (mostly drivers
    and hub workers) are represented by the Teamsters. UPS pilots are
    represented by the Independent Pilots Association, and UPS mechanics
    are represented by the International Association of Machinists.
    According to research firm Brand Keys, UPS is number one in parcel
    delivery loyalty, ahead of nonunionized FedEx.\10\
    ---------------------------------------------------------------------------
        \10\ Joe Allen, ``A Big Win at UPS Would Help Build Union Support
    at Amazon,'' In These Times, March 30, 2017; Sean Williams, ``UPS or
    FedEx: Which Company Is Best at Keeping Its Customers Loyal?'', The
    Motley Fool, May 9, 2014.

          Maine lobster fishers. The Maine Lobstering Union formed in 2013
    after a glut in the spring of 2012 that drove the ``boat price'' for
    lobster down about 33 percent to a 20-year low. It was the first
    fishing union in Maine in more than 75 years. While people who fish for
    a living in Canada and off the Washington and Alaska coasts have been
    organized for years, the 500-member Maine Lobstering Union seeks to
    close the growing gap between what consumers pay to eat lobster and
    what lobster fishers get. So the union is buying a wholesale lobster
    business. Union lobster fishers who sell to the union co-op will get
    market price for their lobster but also a share of cooperative
    profits.\11\
    ---------------------------------------------------------------------------
        \11\ Fellow locals in the International Association of Machinists
    and Aerospace Workers (IAM) are lending some of the funds for the
    purchase. See Penelope Overton, ``Maine Lobstermen's Union Votes to Buy
    Hancock County Lobster Business,'' Portland Press Herald, February 25,
    2017.

          Cafeteria and other contract workers in Silicon Valley. In July
    2017, more than 500 cafeteria workers who serve food at Facebook's
    Menlo Park, California, campus joined Local 19 of UNITE HERE, a labor
    union of more than 265,000 hotel, food service, laundry, warehouse, and
    casino workers in the United States and Canada. The Facebook cafeteria
    workers cannot afford housing in the extremely high-cost Bay Area and
    are seeking higher wages and more affordable health benefits from their
    employer, Flagship Facility Services. According to the San Jose Mercury
    News, ``thousands of contract workers such as janitors, security
    guards, and shuttle bus drivers at other major Silicon Valley tech
    firms, including Apple, Intel, and Google,'' have already unionized.
    The effort to unionize these workers is being led by Working
    Partnerships USA and the South Bay AFL-CIO Labor Council but counts
    other faith, community, and labor groups (including Communications
    Workers of America, Teamsters, and Service Employees International
    Union) as partners.\12\
    ---------------------------------------------------------------------------
        \12\ Queenie Wong, ``Hundreds of Facebook Cafeteria Workers Join
    Union,'' San Jose Mercury News, July 24, 2017; Angelo Young, ``A Labor
    Movement Is Brewing Within the Tech Industry,'' Salon, June 10, 2017;
    Silicon Valley Rising [fact sheet], accessed July 2017.

          Digital journalists. The changing media landscape has been a
    recent catalyst for newsrooms to organize. Since 2014, editorial
    employees at many media outlets--including In These Times, Vice,
    Gizmodo Media Group (formerly Gawker), Salon, The American Prospect,
    Fusion, The Root, and ThinkProgress--have formed unions. The Huffington
    Post, for example, ratified a contract in January 2017 that has
    provisions addressing editorial independence, the need to enhance
    newsroom diversity, comp time, discipline and dismissal policies, and
    severance in the event of layoffs.\13\
    ---------------------------------------------------------------------------
        \13\ Dave Jamieson, ``Staff of In These Times Magazine Joins
    Communications Workers of America Union,'' Huffington Post, February
    25, 2014; Hamilton Nolan, ``Vice Writers Get a Union Contract With a
    Big Raise,'' Gawker, April 15, 2016; Corinne Grinapol, ``The American
    Prospect Staff Unionize,'' Adweek, April 24, 2017; Dave McNary,
    ``Fusion Staff Unionizes with Writers Guild of America East,'' Variety,
    November 11, 2016; Michael Calderone, ``The Huffington Post Ratifies
    Union Contract,'' Huffington Post, January 30, 2017.
    ---------------------------------------------------------------------------

    Unions Strengthen Democracy by Giving Workers a Voice in Policy Debates

    Managers, business owners, and CEOs organize to advocate for their
    economic interests. That's what chambers of commerce, business
    associations, and national trade associations do. Unions provide
    working people who are not executives or company owners with an
    opportunity to get their voices heard in policy debates that shape
    their lives.

    Americans have a constitutionally protected right to associate and ask
    for change. Americans join together to change speed limits, school
    policy, laws governing gun ownership and drug possession and use, and
    more. And when Americans have wanted to make the economy fairer and
    more responsive to the needs of workers, they have traditionally joined
    together in unions to do so.

    Unions fought for--and work to strengthen--many of the humane standards
    and norms that protect and uplift Americans today. These essential laws
    and programs include Social Security, child labor laws,
    antidiscrimination laws, health and safety laws, unemployment
    insurance, compensation for workers who get hurt on the job, the 40-
    hour work week, and the federal minimum wage.\14\ Unions were a major
    force behind all the Great Society laws on discrimination, housing, and
    voting rights.
    ---------------------------------------------------------------------------
        \14\ ``11 Reasons to be Thankful for Labor Unions,'' Hiden Rott and
    Oertle, LLP (accessed July 27, 2017).

    As union coverage has declined and the voice of workers has
    correspondingly diminished, many of the key workplace standards past
    generations counted on have been eroded. For instance, there has been
    an erosion of overtime pay protection, slashing of workers'
    compensation programs, and a decline in the real value of the minimum
    wage, which is lower now than it was in 1968.\15\
    ---------------------------------------------------------------------------
        \15\ Economic Policy Institute, The Agenda to Raise America's Pay
    (last updated December 6, 2016).
    ---------------------------------------------------------------------------

      Unions Reduce Inequality and Are Essential for Low- and Middle-Wage
           Workers' Ability to Obtain a Fair Share of Economic Growth

    The spread of collective bargaining that followed the passage of the
    National Labor Relations Act in 1935 led to decades of faster and
    fairer economic growth that persisted until the late 1970s. But since
    the 1970s, declining unionization has fueled rising inequality and
    stalled economic progress for the broad American middle class. Figures
    A and B show that when unions are weak, the highest incomes go up even
    more, but when unions are strong, middle incomes go up.

    Research by EPI and other institutions shows this correlation is no
    accident. First, unions have strong positive effects on not only the
    wages of union workers but also on wages of comparable nonunion
    workers, as unions set standards for entire industries and occupations
    (these union and nonunion wage boosts are explored in detail in the
    next section of this report). Second, unions make wages among
    occupations more equal because they give a larger wage boost to low-
    and middle-wage occupations than to highwage occupations. Third, unions
    make wages of workers with similar characteristics more equal because
    of the standards unions set. Fourth, unions have historically been more
    likely to organize middle-wage than high-wage workers, which lowers
    inequality by closing gaps between, say, blue-collar and white-collar
    workers. Finally, the union wage boost is largest for low-wage workers
    and larger at the middle than at the highest wage levels, larger for
    black and Hispanic workers than for white workers, and larger for those
    with lower levels of education-wage increases for these groups help
    narrow wage inequalities.\16\
    ---------------------------------------------------------------------------
        \16\ The classic reference for the union impact on inequality, and
    many other matters, is Richard B. Freeman and James L. Medoff, What Do
    Unions Do? (New York: Basic Books, 1984). Also see Brantly Callaway and
    William J. Collins, ``Unions, Workers, and Wages at the Peak of the
    American Labor Movement,'' National Bureau of Economic Research,
    Working Paper no. 23516, June 2017, for evidence from the early postwar
    period. More recent estimates of union wage premiums by wage fifth,
    occupation, and education can be found in Lawrence Mishel, Josh Bivens,
    Elise Gould, and Heidi Shierholz, The State of Working America, 12th
    Edition, an Economic Policy Institute book (Ithaca, N.Y.: Cornell
    University Press, 2012), Table 4.37.

    We know how big a force for equality unions are by looking at how much
    their decline has contributed to inequality between middle- and high-
    wage workers: union decline can explain one-third of the rise in wage
    inequality among men and one-fifth of the rise in wage inequality among
    women from 1973 to 2007. Among men, the erosion of collective
    bargaining has been the largest single factor driving a wedge between
    middle- and high-wage workers.\17\
    ---------------------------------------------------------------------------
        \17\ Bruce Western and Jake Rosenfeld ``Unions, Norms, and the Rise
    in U.S. Wage Inequality,'' American Sociological Review 76 (2011), 513-
    37; Lawrence Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The
    State of Working America, 12th Edition, an Economic Policy Institute
    book (Ithaca, N.Y.: Cornell University Press, 2012), Table 4.37.

    [GRAPHIC] [TIFF OMITTED] T2618.011

             Unions Raise Wages for Both Union and Nonunion Workers

    For typical workers, hourly pay growth has been sluggish for decades,
    rising 0.3 percent per year or 9.9 percent in all from 1979 to 2015. If
    pay had risen with productivity during that period, as it did in the
    decades before 1979, pay would have gone up 63.8 percent.\18\ But pay
    for typical workers is not rising at this clip because ever-larger
    shares of economic growth are going to the highest wage earners. Income
    growth for the highest 1 percent of wage earners rose by nearly 190
    percent between 1979 and 2015, meaning that the highest-earning 1
    percent have claimed a radically disproportionate share of income
    growth.\19\
    ---------------------------------------------------------------------------
        \18\ From 1979 to 2015, productivity rose 63.8 percent while hourly
    compensation of the typical worker (production/nonsupervisory workers
    in the private sector) increased only 9.9 percent. See underlying data
    from Economic Policy Institute, The Productivity-Pay Gap (last updated
    August 2016).
        \19\ Thomas Piketty and Emmanuel Saez, downloadable Excel files
    with 2015 data updates to Thomas Piketty and Emmanuel Saez, ``Income
    Inequality in the United States, 1913-1998,'' Quarterly Journal of
    Economics vol. 118, no. 1 (2003).

    Working people in unions use their power in numbers to secure a fairer
    share of the income they create. Employers who have to bargain with
    workers collectively cannot pursue a strategy of ``divide and conquer''
    among their workers. Workers who are empowered by forming a union raise
    wages for union and nonunion workers alike. As an economic sector
    becomes more unionized, nonunion employers pay more to retain qualified
    workers and norms of higher pay and better conditions become standard.
    For example, if a union hospital is across town from a nonunion
    hospital and the two hospitals are competing for workers, then the
    ---------------------------------------------------------------------------
    nonunion workers will benefit from the presence of the union hospital.

    [GRAPHIC] [TIFF OMITTED] T2618.012

          Union workers earn more. On average, a worker covered by a union
    contract earns 13.2 percent more in wages than a peer with similar
    education, occupation, and experience in a nonunionized workplace in
    the same sector.\20\ This pay boost was even greater in earlier decades
    when more American workers were unionized.\21\
    ---------------------------------------------------------------------------
        \20\ The regression-based gap controls for gender, race and
    ethnicity, education, experience, geographic division, major occupation
    and industry, and citizenship. The log of the hourly wage is the
    dependent variable. The gap uses a 5-year average of wages from 2012 to
    2016. Source: ``Union Wage Premium by Demographic Group, 2011,'' Table
    4.33 in The State of Working America, 12th Edition, an Economic Policy
    Institute book (Ithaca, N.Y.: Cornell University Press, 2012), updated
    with 2016 microdata from the Current Population Survey Outgoing
    Rotation Group microdata.
        \21\ There are three groups of workers whose wages have been
    affected by the decline of unionization. First, there are the remaining
    union members, who according to research have experienced a decline in
    the earnings premium that comes from belonging to a union--a decline
    especially large for female members. For instance, the union wage
    premium fell over the 1973 to 2009 period by nearly a third for
    private-sector women. Among private-sector men, after peaking in the
    early 1980s, the earnings premium that comes from union membership had
    fallen slightly by 2009 (Jake Rosenfeld, Patrick Denice, and Jennifer
    Laird, Union Decline Lowers Wages of Nonunion Workers: The Overlooked
    Reason Why Wages Are Stuck and Inequality Is Growing, Economic Policy
    Institute, August 30, 2016). The estimates referenced are from Figure
    3.1 of Jake Rosenfeld, What Unions No Longer Do, Cambridge, Mass.:
    Harvard University Press, 2014).

          Unions also raise pay for workers by helping to enforce labor
    standards, like guarding against wage theft. Union workers are more
    knowledgeable about their rights, and union staff members communicate
    when needed with government enforcement agencies, which enhances
    enforcement of wage violations. For example, workers covered by a union
    are half as likely to be the victims of minimum wage violations (i.e.,
    to be paid an effective hourly rate that is below the minimum wage).
    This form of wage theft is costing workers over $15 billion a year,
    causing many families to fall below the poverty line.\22\
    ---------------------------------------------------------------------------
        \22\ Workers not covered by unions--those who are neither in a
    union themselves nor covered by a union contract--are almost twice as
    likely (4.4 percent) to experience minimum wage violations as those in
    a union or covered by a union contract (2.3 percent). See David Cooper
    and Teresa Kroeger, Employers Steal Billions from Workers' Paychecks
    Each Year: Survey Data Show Millions of Workers Are Paid Less Than the
    Minimum Wage, at Significant Cost to Taxpayers and State Economies,
    Economic Policy Institute, May 10, 2017.

          When union density is high, nonunion workers benefit from higher
    wages. When the share of workers who are union members is relatively
    high, as it was in 1979, wages of nonunion workers are higher. For
    example, had union density remained at its 1979 level, weekly wages of
    nonunion men in the private sector would be 5 percent higher (that's an
    additional $2,704 in earnings for year-round workers), while wages for
    nonunion men in the private sector without a college education would be
    8 percent, or $3,016 per year, higher. (These estimates look at what
    wages would have been in 2013 had union density remained at its 1979
    levels).\23\
    ---------------------------------------------------------------------------
        \23\ Union density is the share of workers in similar industries
    and regions who are union members. For the typical nonunion man working
    year-round in the private sector, the decline in private-sector union
    density since 1979 has led to an annual wage loss of $2,704 (2013
    dollars). For the 40.2 million nonunion men working in the private
    sector, the total loss is equivalent to $109 billion annually. The
    effects of union decline on the wages of nonunion women are not as
    substantial because women were not as likely to be unionized as men
    were in 1979. See Jake Rosenfeld, Patrick Denice, and Jennifer Laird,
    Union Decline Lowers Wages of Nonunion Workers: The Overlooked Reason
    Why Wages Are Stuck and Inequality is Growing, Economic Policy
    Institute, August 30, 2016.

          Where unions remain strong, unions have an ability to raise
    wages
    sector-wide. An example is the hospitality industry in Orlando.
    Negotiations between six local affiliates of the Services Trade Council
    Union (STCU) and Disney World in 2014 led to wage increases for union
    members to at least $10 an hour starting in 2016. These local
    affiliates represent housekeepers, lifeguards, cast members, and other
    service workers. Disney then extended the raises to all its 70,000
    Orlando employees, including nonunion employees. According to The
    Orlando Sentinel, the wage increases prompted much of Orlando's
    hospitality and retail sector, including Westgate Resorts, to raise
    wages.\24\
    ---------------------------------------------------------------------------
        \24\ Paul Brinkmann, ``Disney World Union Seeks to Reopen Wage
    Negotiations,'' Orlando Sentinel, July 26, 2017.

          Where unions are strong, wages are higher for typical workers--
    union and nonunion members alike. Compensation of typical (median)
    workers grows far faster--four times faster--in states with the
    smallest declines in unionization than it does in states with the
    largest declines in unionization.\25\
    ---------------------------------------------------------------------------
        \25\ The 10 states that had the least erosion of collective
    bargaining saw their inflation-adjusted median hourly compensation grow
    by 23.1 percent from 1979 to 2012. The 10 states that had the most
    erosion of collective bargaining saw their inflation-adjusted median
    hourly compensation grow by 5.2 percent. Erosion is measured by the
    percentage-point decline in the share of workers in the state covered
    by a collective bargaining contract. See David Cooper and Lawrence
    Mishel, The Erosion of Collective Bargaining Has Widened the Gap
    between Productivity and Pay, Economic Policy Institute, 2015.

          Unions bring living wages to low-wage jobs. Unions have
    transformed once-low-wage jobs in hospitality, nursing, and janitorial
    services into positions with living wages and opportunities for
    advancement. For example, after unionizing, dishwashers in Las Vegas
    hotels made $4 per hour more than the national average for that job,
    and they were offered excellent benefits. And hospitality workers in
    unionized Las Vegas enjoy a much higher living standard than those in
    Reno, where unions are weaker. In Houston, a 2006 first-ever union
    contract for 5,300 janitors resulted in a 47 percent pay increase and
    an increase in guaranteed weekly hours of work.\26\
    ---------------------------------------------------------------------------
        \26\ See Matt Vidal and David Kusnet, Organizing Prosperity: Union
    Effects on Job Quality, Community Betterment, and Industry Standards,
    Economic Policy Institute and UCLA Institute for Research on Labor and
    Employment, 2009; C. Jeffrey Waddoups, ``Wages in Las Vegas and Reno:
    How Much Difference Do Unions Make in the Hotel, Gaming, and Recreation
    Industry?'', UNLV Gaming Research and Review Journal vol. 6, no. 1
    (2001).

    By joining together, working people can transform not just their
    workplaces but sectors and communities. Here are two examples of how
    today's workers are using their ``power in numbers'' to raise wages in
    ---------------------------------------------------------------------------
    the workplace and for all working people:

          Raising the minimum wage for food service and other low-wage
    workers. Millions of Americans who work full time are not paid enough
    to make ends meet; many rely on public assistance, including food
    stamps, housing subsidies, or cash assistance to pay their bills. Food
    preparers, for example, earn a median hourly wage of $9.09; home health
    aides earn $10.87. A big reason that low-wage workers are struggling is
    the erosion of the value of the federal minimum wage, which, at $7.25
    per hour, is worth 25 percent less in inflation-adjusted terms than it
    was 50 years ago. The Service Employees International Union (SEIU) was
    an early and critical backer and remains a strong supporter of the
    Fight for $15, a campaign to raise wages for low-wage workers by
    enacting minimum wages increases in communities and states around the
    nation. Begun in New York and Chicago in 2012, the campaign has led to
    laws establishing $15 minimum wages in New York, California, the
    District of Columbia, and 21 cities and counties. The Fight for $15
    movement has also added momentum to successful campaigns for smaller
    minimum wage increases in 18 other states since 2014. (Through the
    campaign, some workers are also seeking paid sick time so that all
    workers, regardless of their job or wage level, can take paid time off
    when they are sick or need to care for a family member.) While many
    business owners have endorsed minimum wage increases, business owners
    who oppose raising the minimum wage have a voice too, through such
    groups as the National Restaurant Association, which lobbies in
    Washington, DC and in state capitals against minimum wage increases and
    paid sick days.\27\
    ---------------------------------------------------------------------------
        \27\ David Cooper, ``How We Can Save $17 Billion in Public
    Assistance--Annually,'' Talk Poverty, February 18, 2016; Economic
    Policy Institute, Why America Needs at $15 Minimum Wage [fact sheet],
    April 26, 2017; Economic Policy Institute, Minimum Wage Tracker [online
    interactive], July 10, 2017.

          Eliminating subminimum wages for farmworkers. In June 2017,
    Familias Unidas por la Justicia (FUJ) and Sakuma Brothers Berry Farm,
    one of the Pacific Northwest's largest berry growers, signed a
    collective bargaining agreement that ensures good wages for the more
    than 500 immigrant farmworkers who harvest berries at the farm. The
    contract ensures that the berry pickers--many of whom had been earning
    less than the state minimum wage of $9.47 an hour under the former
    piece-rate system (based on how many pounds of berries they picked)--
    now earn at least a minimum wage of $12; the revised piece-rate system
    it establishes seeks to deliver an average wage of $15 an hour. The
    contract is the culmination of four years of organizing, first as a
    workers organization and then as a recognized independent union in
    September 2016. Through strikes, informational pickets, and other
    efforts, FUJ gained national support for its successful efforts to
    change a host of practices at the farm, including 12-hour-plus
    workdays. FUJ also countered Sakuma Brothers' attempt in 2014 to
    replace its workforce with workers entering the United States under the
    H-2A temporary visa program.\28\
    ---------------------------------------------------------------------------
        \28\ C. Cosner, ``Historic Union Contract Signed by FUJ and Sakuma
    Bros. Berry Farm,'' Familias Unidas por La Justicia, June 17, 2017;
    Steve Leigh, ``Sakuma Workers Win Their First Contract,''
    Socialistworker.org, June 20, 2017; ``Combative Farm Workers in Only
    Indigenous-Led U.S. Union Win Labor Rights Defenders Award,'' teleSUR,
    May 24, 2017.
    ---------------------------------------------------------------------------

         Unions Help Raise Wages for Women and Lessen Racial Wage Gaps

    Unions help raise the wages of women and black and Hispanic workers--
    whose wages have historically lagged behind those of white men--by
    establishing pay ``transparency'' (workers know what other workers are
    making), correcting salary discrepancies, establishing clearer terms
    for internal processes such as raises and promotions, and helping
    workers who have been discriminated against achieve equity.

    Unions also narrow the racial wage gaps. Black workers for example are
    more likely than white workers to be in a union and are more likely to
    be low- and middle-wage workers, who get a bigger pay boost for being
    in a union than do higher-wage workers. This effect is an important
    tool in closing the black-white wage gap, which has actually grown
    somewhat since 1979, largely due to growth in the gap since 2000; while
    wages since 2000 have stagnated for both black and white workers, the
    decline in wage growth has been larger for black workers.\29\ Today,
    black workers are, on average, paid 85 cents for every dollar paid to
    white workers of the same gender and with similar education,
    experience, and location of residence.\30\
    ---------------------------------------------------------------------------
        \29\ Valerie Wilson and William M. Rodgers III, Black-White Wage
    Gaps Expand With Rising Wage Inequality, Economic Policy Institute,
    September 20, 2016.
        \30\ The wage gap is adjusted and is as of 2016; it comes from
    Economic Policy Institute, State of Working America Data Library,
    ``Wage Gaps: Black-White Wage Gap,'' last updated February 13, 2017.

          Unions help raise women's pay. Hourly wages for women
    represented by unions are 9.2 percent higher on average than for
    nonunionized women with comparable characteristics.\31\
    ---------------------------------------------------------------------------
        \31\ The regression analysis producing this estimate controlled for
    education, experience, race, citizenship status, geographic division,
    industry, and occupation. (Source: ``Union Wage Premium by Demographic
    Group, 2011,'' Table 4.33 in The State of Working America, 12th
    Edition, an Economic Policy Institute book [Ithaca, N.Y.: Cornell
    University Press, 2012], updated with 2016 microdata from the Current
    Population Survey Outgoing Rotation Group microdata.)

          Unions raise wages in the female-dominated service occupations.
    Union-represented workers in service occupations (which include food
    service and janitorial services) make 87.0 percent more in total
    compensation and 56.1 percent more in wages than their nonunion
    counterparts.\32\
    ---------------------------------------------------------------------------
        \32\ Data are unadjusted for factors such as demographics and
    employer size. Data are as of March 2017 and are drawn from EPI
    analysis of Bureau of Labor Statistics, ``Employee Benefits in the
    United States--March 2017'' [news release], U.S. Department of Labor.
    In 2016, women made up 56.6 percent of those employed in service
    occupations but only 46.8 percent of all workers employed in 2016
    (Bureau of Labor Statistics, ``Household Data, Annual Averages'' [data
    table], Current Population Survey, 1, 4). Service occupations include
    protective service, food preparation and serving, healthcare support,
    building and grounds cleaning and maintenance, and personal care and
    service.

          Unions help close wage gaps for black and Hispanic workers.
    Black and Hispanic workers get a larger boost from unionization than
    their white counterparts. Black workers, both male and female, are more
    likely than white workers to be covered by collective bargaining and
    the wage boost they get from being covered by collective bargaining is
    above average. The result is that collective bargaining lifts wages of
    black workers closer to those of their white counterparts. Hispanic
    workers have slightly lower union coverage than white workers but have
    much higher union wage advantages: thus wage gaps between Hispanic
    workers and their white counterparts are also smaller because of
    collective bargaining.\33\
    ---------------------------------------------------------------------------
        \33\ EPI analysis of 2016 microdata from the Current Population
    Survey finds that hourly wages for black workers represented by unions
    are 14.7 percent higher than wages paid to their nonunionized
    counterparts. Hispanic workers represented by unions are paid 21.8
    percent more than their nonunionized counterparts. In contrast, non-
    Hispanic white union workers have a smaller--9.6 percent--wage
    advantage over nonunionized white workers. The regression analysis
    producing this estimate controlled for education, experience, gender,
    race, citizenship status, geographic division, industry, and
    occupation.

          Unionized black workers earn even more in some sectors.
    Unionized black construction workers in New York City earn 36.1 percent
    more than nonunion black construction workers in New York City.\34\
    ---------------------------------------------------------------------------
        \34\ Lawrence Mishel, Diversity in the New York City Union and
    Nonunion Construction Sectors, Economic Policy Institute, March 2,
    2017.

    These data showing that unions raise wages for all workers--and
    especially for women and black and Hispanic workers--do not erase the
    problematic historical episodes of sexism and racism practiced by
    unions. Unions are an American institution, and like nearly every other
    American institution their past includes clear instances of gender and
    racial discrimination. But there has been significant progress in
    increasing the shares of women represented and in leadership. There has
    also been significant progress in the racial integration of unions and
    in ensuring that nonwhite workers have equitable access to
    apprenticeships, as illustrated by the progress in New York City
    construction unions.\35\ AFL-CIO President Richard Trumka recently
    claimed, with justification, that ``the labor movement is the most
    integrated institution in America.''\36\ Labor leaders are calling for
    broad and sustained attention to addressing racism and sexism where
    they continue to violate labor's democratic ideals.\37\
    ---------------------------------------------------------------------------
        \35\ Lawrence Mishel, Diversity in the New York City Union and
    Nonunion Construction Sectors, Economic Policy Institute, March 2,
    2017.
        \36\ Richard Trumka, speech given at the Steelworkers convention,
    July 1, 2008.
        \37\ Liz Shuler, Speech on Women and Work, posted October 28, 2015;
    Leslie Tolf, ``5 Women Labor Leaders Speak Their Minds on the Future of
    Labor,'' Huffpost [blog], September 7, 2015; ``AFL-CIO Chief Denounces
    Trump's `Spirited Defense of Racism and Bigotry,' '' CBS News, August
    16, 2017; ``Major `I Am 2018' Initiative Announced to Mark 50th
    Anniversary of Memphis Sanitation Strike, MLK Assassination'' [press
    release], June 28, 2017.
    ---------------------------------------------------------------------------

          Unions Improve the Health and Safety Practices of Workplaces

    More than 4,800 workers are killed on the job every year. An estimated
    50,000 to 60,000 more die of occupational diseases each year, and the
    estimated number of work-related injuries and illnesses exceeds 7
    million.\38\ Unions have always championed worker safety by investing
    in programs to educate workers about on-the-job hazards and working
    with employers to reduce worker injuries and the time lost due to
    injury.\39\ In unionized workplaces, workers generally have a right to
    involve a union representative in injury and fatality investigations,
    which gives workers a voice in their own safety. And researchers have
    suggested that unions create safer workplaces because union workers
    protected by their union from repercussions are more likely to report
    not only injuries but near misses that can lead to reducing work
    hazards.\40\ The union contribution to safety is particularly important
    because government health and safety regulations are being
    weakened.\41\
    ---------------------------------------------------------------------------
        \38\ AFL-CIO, Death on the Job: The Toll of Neglect 2017, April 26,
    2017.
        \39\ Roberto Ceniceros, ``Workplace Safety Is a Major Push for
    Unions,'' Business Insurance, February 12, 2012.
        \40\ Benjamin Amick et al., ``Protecting Construction Worker Health
    and Safety in Ontario, Canada: Identifying a Union Safety Effect,''
    Journal of Occupational and Environment Medicine vol. 57, no. 2
    (December 2015), 1337-42.
        \41\ Heidi Shierholz and Celine McNicholas, ``Understanding the
    Anti-regulation Agenda: The Basics'' [fact sheet], Economic Policy
    Institute, April 11, 2017; Economic Policy Institute, ``The Perkins
    Project on Worker Rights and Wages.''

          Union construction sites are safer for workers. In 2014, OSHA
    inspected New York state construction sites and found twice as many
    health and safety violations at nonunion construction sites as at union
    construction sites.\42\ Another study, of Missouri construction sites,
    found higher levels of OSHA violations among nonunion St. Louis
    residential construction job sites than at unionized St. Louis
    residential job sites.\43\
    ---------------------------------------------------------------------------
        \42\ New York Committee for Occupational Safety and Health, Deadly
    Skyline: An Annual Report on Construction Fatalities in New York State,
    January 2017.
        \43\ Harry Miller, Tara Hill, Kris Mason, and John S. Gaal, ``An
    Analysis of Safety Culture and Safety Training: Comparing the Impact of
    Union, Non-Union, and Right to Work Construction Venues,'' Online
    Journal for Workforce Education and Development vol. 6, no. 2 (2013).

          Mine workers in union mines are less likely to be severely
    injured or die on the job. Unionization is associated with a
    substantial and statistically significant drop in traumatic injuries
    and in fatalities in underground bituminous coal mines from 1993 to
    2010.\44\
    ---------------------------------------------------------------------------
        \44\ Overall, unionization is associated with a 14- to 32-percent
    drop in traumatic injuries and a 29- to 83-percent drop in fatalities.
    See Alison D. Morantz, ``Coal Mine Safety: Do Unions Make a
    Difference?'', ILR Review vol. 66, no. 1 (January 2013), 88-116.

          Unions ensure that employers are held accountable. Tragedies
    arise when employers cannot be held accountable. Miners in the Upper
    Big Branch Mine in West Virginia tried and failed to a join a union
    three times, according to In These Times. Each time, at least 65
    percent of the miners signed cards saying they wanted to be members of
    a union And each time, these workers were repeatedly intimidated by
    management at Massey Energy, which owns the mine: Massey CEO Don
    Blankenship delayed the election process for months while he threatened
    to close the mine if the workers voted for a union-and the workers
    ended up voting against joining a union to save their jobs.\45\ On
    April 5, 2010, an explosion collapsed the mine's roof, killing 29
    miners and injuring two. In the aftermath, reports surfaced that the
    nonunion mine had a record of safety violations and that coal miners
    who worked in the mine knew about the dangerous working conditions.
    Blankenship was found guilty on a charge of conspiracy to willfully
    violate mine health and safety standards and was sentenced to a year in
    prison.\46\
    ---------------------------------------------------------------------------
        \45\ Mike Elk, ``Overlooked DC Victory Shows Linking Safety, Labor
    Rights Is Winning Formula,'' In These Times, July 12, 2010.
        \46\ Mark Berman, ``Former Coal CEO Sentenced to a Year in Prison
    After 2010 West Virginia Coal Mine Disaster,'' Washington Post, April
    6, 2016.

    Here are some specific ways unions have improved safety in the
    workplace by representing workers' concerns in public and testifying
    ---------------------------------------------------------------------------
    before Congress and state legislatures:

          Nurses win violence prevention standards. In the past decade or
    so, the rate of reported violence against health care workers (who make
    up 9 percent of the nation's workforce) has more than doubled. The
    increase stems from cuts in state funds for mental health services and
    hospital budget cutbacks thinning the ranks of nurses and security
    guards. National Nurses United (NNU), which represents more than
    160,000 nurses across the country, has fought for and won workplace
    violence prevention standards in California, Minnesota, and
    Massachusetts. NNU is now petitioning the federal Occupational Safety
    and Health Administration (OSHA) for a formal workplace violence
    prevention standard that would apply nationwide.\47\
    ---------------------------------------------------------------------------
        \47\ The federal standard would include an assessment of risk
    factors (such as staffing levels), a postincidence response procedure,
    employee participation in the creation of a plan, and prohibition on
    retaliation against an employee who may seek legal assistance after an
    incident. See Alexia Fernandez-Campbell, ``Why Violence Against Nurses
    Has Spiked in the Last Decade,'' The Atlantic, December 1, 2016
    (updated June 19, 2017); ``NNU Petitions Violence Prevention in
    Workplace,'' National Nurses United, August 2, 2016. See also a
    Government Accountability Office report that found that workplace
    violence is a serious and growing concern for 15 million health-care
    workers and can be prevented through violence prevention programs: U.S.
    Government Accountability Office, ``Additional Efforts Needed to Help
    Protect Health-Care Workers from Workplace Violence,'' March 2016.

          Laborers, autoworkers, and others secure protections for workers
    from deadly silica dust. Roughly 2.3 million workers are exposed to
    silica dust, which causes silicosis (an incurable and often deadly lung
    disease), lung cancer, other respiratory diseases, and kidney disease.
    Silica dust is produced by grinding stone or masonry in mines or on
    construction sites. Although the hazards of silica dust have been known
    for at least a century, existing regulations limiting exposure were
    outdated and were not keeping up with worker exposure to silica in new
    industries such as stone countertop fabrication and hydraulic
    fracturing. A broad section of the labor movement--including the United
    Automobile Workers and the Laborers' International Union of North
    America--helped persuade OSHA to issue a new rule that reduces workers'
    exposure to silica.\48\
    ---------------------------------------------------------------------------
        \48\ Associated Press, ``OSHA Seeks New Limits on Silica Dust,''
    Washington Post, August 23, 2013; ``Heeding the Science (Finally) to
    Fight a Preventable Workplace Killer,'' Union of Concerned Scientists,
    September 2013; Centers for Disease Control and Prevention, ``Notes
    From the Field: Update: Silicosis Mortality--United States, 1999-
    2013,'' Morbidity and Mortality Weekly Report, June 19, 2015;
    Occupational Safety and Health Administration, ``OSHA's Final Rule to
    Protect Workers From Exposure to Respirable Crystalline Silica,'' U.S.
    Department of Labor (accessed July 26, 2017); United Auto Workers,
    ``New Crystalline Silica Rule Long Overdue,'' June 13, 2016; Stan
    Parker, ``Industry, Unions Lock Horns in OSHA Silica Rule Dust-Up,''
    Law360, November 21, 2016; James Melius, ``Testimony Before the U.S.
    House of Representatives Education and Workforce Committee,
    Subcommittee on Workforce Protections, Hearing on Reviewing Recent
    Changes to OSHA's Silica Standards,'' April 19, 2016; Alexia Elejalde-
    Ruiz, ``Workers Breathe Easier Over Silica Dust Rules as Construction
    Industry Winces,'' Chicago Tribune, March 24, 2016.

          Firefighters get relief from post-traumatic stress disorder
    (PTSD). Firefighters who develop PTSD after witnessing repeated trauma
    on the job don't always have recourse if the disorder means they cannot
    work while they seek treatment. When independent studies showed that
    post-traumatic stress rates are on the rise for Texas firefighters, the
    Texas State Association of Fire Fighters (TSAFF) launched an education
    campaign for state lawmakers leading to legislation to improve workers'
    compensation coverage for Texas first responders diagnosed with line-
    of-duty-related PTSD. The legislation (HB 1983) was signed into law by
    Governor Greg Abbott on June 1, 2017.\49\
    ---------------------------------------------------------------------------
        \49\ ``TSAFF Wins Workers' Compensation for Members With PTSD,''
    IAFF FireFighters (accessed July 27, 2017).
    ---------------------------------------------------------------------------

      Unions Support Strong Families With Better Benefits and Due Process

    About 6 in 10 adults (63 percent) say the average working person in the
    United States has less job security now than 20 or 30 years ago.\50\
    And the lack of paid sick days is depriving many workers of funds
    needed for basic necessities--an especially difficult problem for the
    lowest-wage workers, about three-fourths of whom don't get any paid
    sick days.\51\ Uncertain work hours, last-minute shift changes, and
    other scheduling practices are also hurting families. And research
    shows that jobs that are insecure, unpredictable, and risky also affect
    communities and society as a whole.\52\
    ---------------------------------------------------------------------------
        \50\ Anna Brown, ``Key Findings About the American Workforce and
    the Changing Job Market,'' Fact Tank (Pew Research Center), October 6,
    2016.
        \51\ Eighty-seven percent of private-sector workers in the highest
    10 percent of wage earners have the ability to earn paid sick days,
    compared with only 27 percent of private-sector workers in the lowest
    10 percent. For the average worker who does not have access to paid
    sick days, if the worker needs to take off 3 days, the lost wages are
    equivalent to the household's entire grocery budget for the month. See
    Elise Gould and Jessica Schieder, Work Sick or Lose Pay? The High Cost
    of Being Sick When You Don't Get Paid Sick Days, Economic Policy
    Institute, June 28, 2017.
        \52\ Bertil Videt and Danielle de Winter, ``Job Insecurity as the
    Norm: How Labour Market Trends Have Changed the Way We Work,'' The
    Broker, March 10, 2014. Videt and de Winter cite A. Kalleberg,
    ``Precarious Work, Insecure Workers: Employment Relations in
    Transition,'' American Sociological Review vol. 74., no. 1 (2009), 2.

    But working people in unionized workplaces are more likely to have
    benefits that strengthen families and improve job security and
    predictability. (Some of the items in the list below provide union-
    nonunion comparisons not adjusted for personal characteristics and
    other factors, while some, where indicated, provide adjusted
    comparisons.) \53\
    ---------------------------------------------------------------------------
        \53\ Unadjusted data (comparisons based just on union status, which
    include the by-industry comparisons) are as of March 2017 and come from
    Tables 2 and 6 in Bureau of Labor Statistics, ``Employee Benefits in
    the United States--March 2017'' [news release], U.S. Department of
    Labor, July 21, 2017. Adjusted data are based on analysis of fourth-
    quarter 1994 Employment Cost Index microdata as presented in Table 4.35
    in Lawrence Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The
    State of Working America, 12th Edition, an Economic Policy Institute
    book (Ithaca, N.Y.: Cornell University Press, 2012) and drawn from
    Brooks Pierce, ``Compensation Inequality,'' U.S. Department of Labor
    Statistics Working Paper no. 323, 1999.

          Union workers are more likely to be covered by employer-provided
    health insurance. More than nine in 10--94 percent--of workers covered
    by a union contract have access to employer-sponsored health benefits,
    compared with just 67 percent of nonunion workers. When adjustments are
    made for other characteristics that may affect benefits coverage--such
    as sector (public or private), industry, region, employee status (full-
    or part-time) and establishment size--union workers are 18.3 percent
    ---------------------------------------------------------------------------
    more likely to be covered.

          Union employers contribute more to their health-care benefits.
    Unionized employers pay 77.4 percent more (per hour) toward their
    employees' health coverage (providing better benefits for a greater
    share of workers) than comparable nonunion employers. Occupations with
    higher-than-average union impact on employer-provided health care
    include transportation, services, construction, extraction, and
    installation/maintenance/repair.

          Union workers have greater access to paid sick days. Almost nine
    in 10--87 percent--of workers covered by a union contract have access
    to paid sick days, compared with 69 percent of nonunion workers. Almost
    all--97 percent--of union workers in state and local government have
    paid sick days, compared with 86 percent of their nonunion peers. In
    the private sector, 79 percent of union workers have paid sick days
    compared with 67 percent of their nonunion peers.

          Union workers are more likely to have paid vacation and
    holidays. In the private sector, 89 percent of workers covered by a
    union contract get paid vacation and paid holidays, whereas 75 percent
    of nonunion workers get paid vacation and 76 percent get paid holidays.
    For workers overall (private and public) 80 percent of union workers
    get paid holidays while 75 percent of nonunion workers do. Equal shares
    of union and nonunion workers (74 percent) get paid vacation.\54\ When
    adjustments are made for other characteristics that may affect benefits
    coverage-such as sector (public or private), industry, region, employee
    status (full- or part-time), and establishment size-union workers are
    3.2 percent more likely to have paid leave.
    ---------------------------------------------------------------------------
        \54\ Union-nonunion gaps in access to paid vacation and holidays
    are much narrower in state and local governments because teachers make
    up a large portion of state and local government employment and they
    are not usually offered paid vacation. See Tech Notes on page 3 of
    Bureau of Labor Statistics, ``Employee Benefits in the United States--
    March 2017'' [news release], U.S. Department of Labor, July 21, 2017.

          Employers contribute more to paid vacation and holidays for
    union workers than nonunion workers. Union employers contribute 11.4
    percent more toward paid vacation and holidays for their workers than
    do comparable nonunion employers. Industries and occupations with
    higher-than-average employer contributions toward paid vacation and
    holidays include production, transportation, office and administrative
    ---------------------------------------------------------------------------
    support, service occupations, and construction.

          Unions provide due process. Private employment in every state
    except for Montana is generally at will, with employers free to dismiss
    workers for almost any reason, except for reasons specified by law
    (e.g., on account of race, religion, disability, or other identities
    that are protected classes). Union contracts have provisions that allow
    workers to be fired, but only when the employer shows a proper,
    documented performance-related reason for dismissing the worker.
    Usually, contracts include a transparent process for disciplining
    workers, and the employer--except in extreme cases--must follow that
    process and give a worker a chance to improve performance before the
    employer moves to dismiss the worker.

          Union workers have more input into the number of hours they
    work. Almost half (46 percent) of nonunion workers say they have little
    or no input into the number of hours they work each week, compared with
    less than a quarter (22 percent) of union workers.\55\
    ---------------------------------------------------------------------------
        \55\ EPI analysis of the 2016 General Social Survey Quality of
    Worklife and Work Orientations supplements. ``Union worker'' here
    refers to workers who said they belonged to a union.

          Union workers get more advance notice of their work schedules.
    More than one in three workers (34.4 percent) who belong to a union get
    at least a week's advance notice of their work schedules, whereas less
    than one in four nonunion workers (23.2 percent) do. (These
    calculations exclude workers whose schedules never change).\56\
    ---------------------------------------------------------------------------
        \56\ EPI analysis of the 2016 General Social Survey Quality of
    Worklife and Work Orientations supplements. Respondents were asked
    whether they or their spouses belong to a union. The sample excludes
    all workers who say their schedules never change.

    Unions also bring better benefits to the broader labor force. Here is a
    specific example of how unions have helped secure crucial benefits for
    workers by taking their concerns to the lawmakers and to the public at
    ---------------------------------------------------------------------------
    large:

          Winning paid sick days for workers. There is no federal law that
    ensures all workers are able to earn paid sick days in the United
    States. For workers who fall ill or whose families depend on them to
    provide care in the event of an illness, this means sick days can be
    incredibly costly. This is a particular problem for low-wage workers,
    73 percent of whom have no opportunity to earn paid sick days. Unions
    have participated in coalitions to enact paid sick days laws. For
    example, voter outreach by the United Food and Commercial Workers
    (UFCW) helped win passage of a paid sick days law in Oregon, while SEIU
    was a key player in enacting the nation's strongest paid sick days
    policy, in Massachusetts.\57\
    ---------------------------------------------------------------------------
        \57\ Eighty-seven percent of private-sector workers in the top 10
    percent of wages have the ability to earn paid sick days, compared with
    only 27 percent of private-sector workers in the bottom 10 percent.
    Sources: Elise Gould and Jessica Schieder, Work Sick or Lose Pay? The
    High Cost of Being Sick When You Don't Get Paid Sick Days, Economic
    Policy Institute, June 28, 2017; Justin Miller, ``With Oregon's Bill,
    Paid Sick Leave Gains Momentum,'' The American Prospect, June 16, 2015;
    ``2014: A Banner Year for Workers and Families in Massachusetts,''
    Massachusetts Communities Action Network, November 2014.
    ---------------------------------------------------------------------------

                Unions Are Good for Workers' Retirement Security

    Few Americans have enough to live on in retirement. A key part of the
    story of rising retirement income insecurity is a shift from
    traditional defined-benefit (DB) pensions that provide a guaranteed
    income to defined-contribution (DC) plans--401(k)s or similar plans--
    that force workers to bear investment risk without providing any
    guarantees.\58\ The shift from pensions to 401(k)s has also exacerbated
    inequality, benefiting only the very rich and leaving the vast majority
    unprepared for retirement. Nearly half of all families headed by a
    working-age adult have zero retirement savings.\59\
    ---------------------------------------------------------------------------
        \58\ DB pensions (such as those historically negotiated by unions)
    provide more secure, adequate, and egalitarian retirement incomes than
    401(k)-style DC plans. Workers are automatically enrolled in
    traditional pensions and, in the private sector, employer contributions
    fund the plan, so that the existence of savings does not depend on a
    worker's ability to set aside wages for retirement; in addition, the
    amount of retirement income is guaranteed with pensions, not contingent
    on the state of the stock market at the time when retirees need to
    access their savings. In contrast, employers that offer 401(k)-style
    plans typically require workers to contribute to the plans in order to
    receive an employer match, and these workers shoulder all the
    investment risk.
        \59\ Monique Morrissey, The State of American Retirement: How
    401(k)s Have Failed Most American Workers, Economic Policy Institute,
    March 3, 2016.

    Union members have an advantage in retirement security, both because
    union members are more likely to have retirement benefits and because,
    when they do, the benefits are better than what comparable nonunion
    workers receive: union members are more likely to have pensions, and
    employer contributions to the plans (whether pensions or DC plans) tend
    ---------------------------------------------------------------------------
    to be higher.

          Ninety percent of union workers participate in a retirement plan
    (of any kind), compared with 75 percent of nonunion workers.

          Seventy-four percent of union workers who have pensions
    participate in a traditional defined benefit pension, compared with 15
    percent of nonunion workers.\60\
    ---------------------------------------------------------------------------
        \60\ Data are from Bureau of Labor Statistics, National
    Compensation Survey: Employee Benefits in the United States, March
    2016, ``Table 2. Retirement Benefits: Access, Participation, and Take-
    up Rates, Civilian Workers, March 2016.''

          Traditional defined benefit pensions are especially important to
    black workers, who derive more than a fifth of their household income
    from these pensions in retirement.\61\
    ---------------------------------------------------------------------------
        \61\ Income estimate is for all seniors age 65 and older, whether
    retired or not. Source: Monique Morrissey, The State of American
    Retirement: How 401(k)s Have Failed Most American Workers, Economic
    Policy Institute, March 3, 2016.

          Union employers (when adjustments are made for various employer
    characteristics) are 22.5 percent more likely to offer an employer-
    provided retirement plan and, on average, to spend 56 percent more on
    retirement for their employees than do comparable nonunion
    employers.\62\
    ---------------------------------------------------------------------------
        \62\ Adjusted data are based on analysis of fourth-quarter 1994
    Employment Cost Index microdata as presented in Table 4.35 in Lawrence
    Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The State of
    Working America, 12th Edition, an Economic Policy Institute book
    (Ithaca, N.Y.: Cornell University Press, 2012) and drawn from Brooks
    Pierce, Compensation Inequality, U.S. Department of Labor Statistics
    Working Paper no. 323, 1999.
    ---------------------------------------------------------------------------

         Unions Create a Path to Sharing Knowledge and Solving Problems

    Because they are on the front lines, working people often have some of
    the best information on how to improve their workplaces and make their
    workplaces safer and more productive. Unions provide the means for
    workers to share their knowledge about what works and what doesn't--
    without fear of retaliation. Unionized workplaces also provide their
    workers with more transparency about company finances and processes
    that can help shape responses to problems.

    Here are a few examples of specific ways unions have sought to improve
    their workplaces:

          Shifting from teacher punishment to professional development.
    The Peer Assistance and Review (PAR) system created by the Toledo
    Federation of Teachers (TFT) in the early 1980s transformed teacher
    evaluation and professional development in Toledo and subsequently
    spread to other cities and counties in Ohio and throughout the country,
    including Boston; Rochester, New York; St. Paul, Minnesota; and
    Montgomery County, Maryland. Under the PAR program, new teachers--and
    experienced teachers who have been struggling--work with ``consulting
    teachers'' who provide mentoring and evaluation. Only after that
    process do principals get involved in evaluation. Veteran teachers may
    be referred to the program or seek it out on their own. Districts that
    have adopted PAR say that itstrengthens instruction, increases teacher
    leadership, and helps strengthen the relationship between the district
    and the teachers union.\63\
    ---------------------------------------------------------------------------
        \63\ See ``A User's Guide to Peer Assistance and Review,'' Harvard
    Graduate School of Education (accessed July 2017); Saul A. Rubinstein
    and John E. McCarthy, Collaborating on School Reform: Creating Union-
    Management Partnerships to Improve Public School Systems, Rutgers
    School of Management and Labor Relations, October 2010; ``Peer
    Assistance and Review (PAR) Program,'' Boston Teachers Union (accessed
    July 2017).

          Training manufacturing workers in new technology skills. Labor
    unions and the AFL-CIO Working for America Institute have been key
    partners in implementing a program that trains workers to operate more
    technical and highly specialized manufacturing processes. The
    Industrial Manufacturing Technicians (IMT) apprenticeship program began
    in Milwaukee and is expanding across eight states. The program,
    operated by the Wisconsin Regional Training Partnership (WRTP)/BIG
    STEP, provides workers with 2,700 hours of on-the-job training and 260
    hours with technical college instructors. Labor union partners include
    the International Association of Machinists and Aerospace Workers
    (IAMAW), the International Association of Sheet Metal, Air, Rail and
    Transportation Workers (SMART), the International Brotherhood of
    Electrical Workers (IBEW), the United Automobile Workers (UAW), and the
    United Steelworkers (USW). ``Union support ensures that the firm-
    specific design of the program is responsive to worker feedback as well
    as to lessons learned from IMT programs at other employers that the
    union covers.'' \64\
    ---------------------------------------------------------------------------
        \64\ ``For Good Jobs, Look Beyond the Rust,'' New York Times, July
    23, 2017; Moving Apprenticeship Into Manufacturing's Future: Industrial
    Manufacturing Technician, COWS (University of Wisconsin--Madison),
    February 2017.

          Ending quotas that force bank workers to sell exploitive loans.
    More than 15,000 U.S. bank workers for Spain-based Santander Bank are
    trying to create the first bank workers' union in the United States
    (bank unions are widespread in other developed countries). Among
    Santander workers' goals is to end quotas that force workers to hawk
    subprime auto loans and other exploitative loans to customers--often
    people of color and neighbors in their communities--without being able
    to properly explain the terms of those loans.\65\ While there has been
    no election petition filed for Santander Bank yet, Santander workers
    have brought attention to what has been a problem for American
    consumers. By forming unions and gaining a seat at the table, financial
    services employees could help end predatory practices like those
    engaged in by Wells Fargo Bank in recent years.\66\
    ---------------------------------------------------------------------------
        \65\ ``Bank Workers Will Protest to Form Their First U.S. Union--
    and the Whole World is Watching,'' Mic.com, February 17, 2017.
        \66\ Keith Ellison, ``John Stumpf's Wells Fargo Racket Shows Why
    Bank Workers Need a Union,'' Daily Beast, September 28, 2016.
    ---------------------------------------------------------------------------

        Workers Still Want Unions But Are Being Thwarted by Aggressive
    Campaigns and Lobbying That Have Eroded Private-Sector Union Membership

    Almost half (48 percent) of workers polled said they'd vote to create a
    union in their workplace tomorrow if they got the chance.\67\ But
    workers are being deprived of that opportunity. Because unions and
    collective bargaining are effective at giving workers power, they are
    opposed by corporate interests and policymakers representing the
    highest-earning 1 percent.\68\ For decades, fierce corporate opposition
    has suppressed the freedom to form unions and bargain collectively in
    the private sector by promoting antiunion campaigns in workplaces
    seeking to unionize and by lobbying lawmakers to pass laws depriving
    private-sector unions of funds needed to operate. This activity has
    tracked the dramatic, rapid increase of corporate political activity
    that began in the mid-1970s, with a specific ``call-to-arms'' for U.S.
    corporations that quadrupled the number of corporate PACs from 1976 to
    1980.\69\ More recently, anti-union lobbyists have passed legislation
    weakening unions in states such as Indiana, Michigan, and Wisconsin
    that were once union strongholds.\70\ Outdated labor laws have failed
    to provide workers with protection from this employer onslaught against
    collective bargaining. And corporate lobbyists have blocked reforms to
    labor laws that would protect worker's collective bargaining rights
    with meaningful penalties for violations and better processes for
    organizing. Employers are exploiting loopholes, including by
    misclassifying workers as independent contractors to get around labor
    laws that protect employees.
    ---------------------------------------------------------------------------
        \67\ In 2012, 48 percent of all nonmanagerial workers surveyed by
    the AFL-CIO Workers' Rights Survey (May 2012 Hart Research Associates
    poll) said they would ``probably'' or ``definitely'' vote to form a
    labor union if an election were held tomorrow.
        \68\ In a roundtable discussion on PBS NewsHour, James Hoffa,
    president of the International Brotherhood of Teamsters, suggested that
    ``the real reason'' political leaders in states such as Indiana, Ohio,
    New Jersey, and Michigan have targeted unions is because they are ``the
    backbone of the Democratic Party . . . the ones that have the boots on
    the ground'' (``Union Leaders Discuss State of U.S. Labor as Attacks
    Rise, Membership Goes Down,'' PBS NewsHour, September 3, 2012).
        \69\ Jacob S. Hacker and Paul Pierson, Winner-Take-All Politics:
    How Washington Made the Rich Richer--and Turned Its Back on the Middle
    Class, Simon and Schuster, 2010.
        \70\ Colin Gordon, ``Right to Work (For Less): By the Numbers,''
    Dissent, May 10, 2016.

    By going after union funding, employer interests and their allied
    lawmakers can wipe out one of the crucial pillars of support for pro-
    worker candidates and causes. If unions have fewer members, or if the
    law hamstrings unions' ability to collect administrative fees from the
    workers they represent, there will be less union money spent on
    advocating for workers in general. As Gordon Lafer, associate professor
    at the Labor Education and Research Center at the University of Oregon,
    notes, ``The labor movement serves as the primary political
    counterweight to the corporate agenda on a long list of issues that are
    not per se labor-related. To the extent that unions can be removed as a
    politically meaningful force, the rest of the agenda becomes much
    easier to execute.'' \71\
    ---------------------------------------------------------------------------
        \71\ Gordon Lafer, The One Percent Solution: How Corporations Are
    Remaking America One State at a Time (Ithaca, N.Y.: Cornell University
    Press, 2017), 93.

    These strategies have been effective, as is evident in the differing
    trends in unionization between private-sector and public-sector
    workers. Until very recently, public-sector employers have been far
    less engaged in trying to block unionization efforts than their
    private-sector counterparts. Just 6.4 percent of private-sector workers
    belong to a union, down from about 35 percent in the 1950s and about 25
    percent in the early 1970s. In contrast, 34.4 percent of public-sector
    workers belong to a union, up from at or slightly above 10 percent in
    the 1950s. Overall, 10.7 percent of workers belong to a union, down
    from about 35 percent in the mid-1950s.\72\ Figure C shows the dramatic
    decline in private-sector unionization since the 1970s.
    ---------------------------------------------------------------------------
        \72\ Current membership rates are for 2016 and come from Bureau of
    Labor Statistics, ``Union Members Summary'' [economic news release],
    U.S. Department of Labor, January 26, 2017; 1950s rates come from John
    Schmitt, ``Union Membership Trends, 1948-2012,'' No Apparent Motive
    (blog), January 25, 2013; and 1950s and 1970s rates come from the data
    appendix for figures that accompanies Barry T. Hirsch, ``Sluggish
    Institutions in a Dynamic World: Can Unions and Industrial Competition
    Coexist?'', Journal of Economic Perspectives vol. 22, no. 1 (2008),
    153-76.

    [GRAPHIC] [TIFF OMITTED] T2618.013

         Employers Often Fight Unionizing Efforts With Aggression and
                 Intimidation, Using Legal and Illegal Tactics

    Not all employers oppose unions. Some unions featured in this report
    were voluntarily recognized by employers, and some led campaigns in
    which the employer provided union organizers with free access to
    employees.\73\
    ---------------------------------------------------------------------------
        \73\ Employers, where law permits, may voluntarily recognize a
    union based on a simple showing of majority support from the employees.

    But often, when private-sector workers seek to organize and bargain
    collectively, employers hire union avoidance consultants to orchestrate
    and roll out anti-union campaigns. Intense and aggressive anti-union
    campaigns--once confined to the most antiunion employers--have become
    widespread, leading to a ``coercive and punitive climate for organizing
    that goes unrestrained due to a fundamentally flawed regulatory regime
    that neither protects [workers'] rights nor provides any disincentives
    for employers to continue disregarding the law.'' \74\ While the
    National Labor Relations Act, which governs private-sector collective
    bargaining, makes it illegal for employers to intimidate, coerce, or
    fire workers involved in union-organizing campaigns, the penalties are
    insufficient to provide a serious economic disincentive for such
    behavior.\75\ And many of the tactics that are illegal on paper can be
    actively pursued because verbal, veiled threats without a paper trail
    or explicit language connecting the threat to the union effort are
    difficult to prove and thus prosecute. Finally, the Department of Labor
    is working to repeal a rule that prohibits employers from keeping the
    work of anti-union consultants a secret.\76\
    ---------------------------------------------------------------------------
        \74\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
    Employer Opposition to Organizing, Economic Policy Institute and
    American Rights at Work Education Fund, May 20, 2009.
        \75\ Penalties may consist of posting a notice, reinstating fired
    workers, giving back pay to a fired worker, or rerunning an election.
    There are no punitive damages or criminal charges. The most serious
    penalty, a bargaining order to work with the union on a first contract,
    is often ineffectual as the anti-union campaign continues.
        \76\ Marni von Wilpert, ``Comment to the U.S. Department of Labor
    Opposing the Rescission of the Persuader Rule,'' Economic Policy
    Institute, August 9, 2017.

          Three-quarters or more of private employers facing unionization
    hire union avoidance consultants to quash the union campaign, sometimes
    spending hundreds of thousands of dollars.\77\ Employer tactics may
    include one-on-one meetings with supervisors, mandatory employee
    meetings (also known as ``captive audience'' meetings), videos, and
    leaflets. Often consultants work behind the scenes to craft the message
    that management delivers. The communication strategy typically warns
    employees that the union will just charge dues and fines without
    delivering raises or other benefits; will make employees strike; will
    take years to deliver a contract; and will generally interfere in the
    employment relationship. Because employers can bar pro-union workers
    from speaking at mandatory meetings, management can make the case
    against unions without being challenged.\78\ The campaign against a
    union-organizing attempt at the lifestyle media site Thrillist is a
    classic example of the types of misleading arguments used by employers:
    that the union would come between management and employees, silence
    employees by making them talk only through union representatives, make
    promises it could not keep, and prevent employers from giving wage
    increases.\79\
    ---------------------------------------------------------------------------
        \77\ A national study of NLRB elections from 1999 to 2003 found
    that 75 percent of employers used consultants to design and coordinate
    their anti-union campaigns; see Kate Bronfenbrenner, No Holds Barred:
    The Intensification of Employer Opposition to Organizing, Economic
    Policy Institute and American Rights at Work Education Fund, May 20,
    2009. A 2002 Chicago study found that 82 percent of employers hired
    anti-union management consultants. See Chirag Mehta and Nik Theodore,
    Undermining the Right to Organize: Employer Behavior During Union
    Representation Campaigns, a report by the Center for Urban Economic
    Development at the University of Illinois at Chicago for American
    Rights at Work, December 2005. A notice of proposed rulemaking from the
    U.S. Department of Labor cited estimates ranging from 66 percent to 87
    percent, see ``Labor-Management Reporting and Disclosure Act;
    Interpretation of the `Advice' Exemption,'' Federal Register, vol. 76,
    no. 119, June 21, 2011, p. 36178.
        \78\ Marni von Wilpert, ``Union Busters Are More Prevalent Than
    They Seem, and May Soon Even Be at the NLRB,'' Working Economics Blog,
    Economic Policy Institute, May 1, 2017; Kate Bronfenbrenner, No Holds
    Barred: The Intensification of Employer Opposition to Organizing,
    Economic Policy Institute and American Rights at Work Education Fund,
    May 20, 2009; Chirag Mehta and Nik Theodore, Undermining the Right to
    Organize: Employer Behavior During Union Representation Campaigns, a
    report by the Center for Urban Economic Development at the University
    of Illinois at Chicago for American Rights at Work, December 2005.
        \79\ Hamilton Nolan, ``The Dismal Thrillist Anti-Union Campaign,''
    Concourse, March 10, 2017.

          From the 1990s to the early 2000s, the likelihood that private
    employers will use 10 or more tactics in their anti-union campaigns
    doubled, and the focus on more coercive and punitive tactics designed
    to intensely monitor and punish union activity increased.\80\
    ---------------------------------------------------------------------------
        \80\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
    Employer Opposition to Organizing, Economic Policy Institute and
    American Rights at Work Education Fund, May 20, 2009.

          One in five to one in seven union organizers or activists can
    expect to be fired as a result of their activities in a union election
    campaign.\81\ Roughly a third of employers (34 percent) fire workers
    during campaigns.\82\ By firing one or more union organizers, employers
    can disrupt the organizing campaign while intimidating other potential
    bargaining unit members into dropping the campaign or voting no in the
    representation election.
    ---------------------------------------------------------------------------
        \81\ John Schmitt and Ben Zipperer, Dropping the Ax: Illegal
    Firings During Union Election Campaigns, 1951-2007, Center for Economic
    and Policy Research, March 2009.
        \82\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
    Employer Opposition to Organizing, Economic Policy Institute and
    American Rights at Work Education Fund, May 20, 2009.

          Employers may also threaten to cut workers' hours or pay,
    suspend workers, or report workers to immigration enforcement
    authorities.\83\
    ---------------------------------------------------------------------------
        \83\ Annette Bernhardt et al., Broken Laws, Unprotected Workers:
    Violations of Labor Laws in America's Cities, National Employment Law
    Project (New York City), Center for Urban Economic Development
    (Chicago), and UCLA Institute for Research on Labor and Employment (Los
    Angeles), 2009.

          Fifty-seven percent of private employers threaten to close the
    worksite if employees unionize. Forty-seven percent threaten to cut
    wages and benefits.\84\
    ---------------------------------------------------------------------------
        \84\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
    Employer Opposition to Organizing, Economic Policy Institute and
    American Rights at Work Education Fund, May 20, 2009. Another study of
    62 union-representation campaigns launched in Chicago in 2002 found
    that 49 percent of employers threatened to close or relocate all or
    part of the business if workers elected to form a union. See Chirag
    Mehta and Nik Theodore, Undermining the Right to Organize: Employer
    Behavior During Union Representation Campaigns, a report by the Center
    for Urban Economic Development at the University of Illinois at Chicago
    for American Rights at Work, December 2005.

          Sixty-three percent of private employers interrogate workers
    about union support in mandatory one-on-one meetings between workers
    and their supervisors, and 54 percent of employers threaten workers in
    such meetings.\85\
    ---------------------------------------------------------------------------
        \85\ Kate Bronfenbrenner, No Holds Barred: The Intensification of
    Employer Opposition to Organizing, Economic Policy Institute and
    American Rights at Work Education Fund, May 20, 2009.

          Union elections are not free and fair because the law does not
    give union organizers equal access to voters. Employers may block union
    organizers from accessing the workplace while compelling voters to
    attend anti-union meetings. Unions may only access voters outside of
    work. And while, by law, employers that possess contact information
    such as email addresses for employees must provide that information to
    union organizers, proposed legislation would severely limit organizers'
    rights to access that information.\86\
    ---------------------------------------------------------------------------
        \86\ Testimony of Guerino J. Calemine III, General Counsel,
    Communications Workers of America before the U.S. House of
    Representatives Subcommittee on Health, Labor, Employment, and
    Pensions, legislative hearing on H.R. 2776, 2775, and 2723, June 14,
    2017.

          The tactics are effective. A study of private-sector union
    organizing in Chicago found that, while a majority of workers supported
    unionization, when petitions were filed to begin the workplace
    organizing effort (a majority vote is needed to elect to unionize),
    unions were victorious in only 31 percent of these campaigns, after
    workers had endured the full range of employer anti-union activity.\87\
    ---------------------------------------------------------------------------
        \87\ In the Chicago study, for nearly all of 179 petitions filed
    with the NLRB to represent previously unorganized workers at workplaces
    in the Chicago, the majority of workers supported unionization when the
    petitions were filed, but unions were victorious in only 31 percent of
    these campaigns. Chirag Mehta and Nik Theodore, Undermining the Right
    to Organize: Employer Behavior During Union Representation Campaigns, a
    report by the Center for Urban Economic Development at the University
    of Illinois at Chicago for American Rights at Work, December 2005.

          Loopholes in labor laws allow employers to endlessly delay
    contract negotiations. Two years after an election, 37 percent of newly
    formed private-sector unions still had no labor agreement.\88\
    ---------------------------------------------------------------------------
        \88\ Because the law gives employers the right to multiple levels
    of review (by an administrative law judge, then by the full NLRB, and
    then by appellate courts), delays between the union election and the
    final results can last for years. Data come from Kate Bronfenbrenner,
    No Holds Barred: The Intensification of Employer Opposition to
    Organizing, Economic Policy Institute and American Rights at Work
    Education Fund, May 20, 2009.
    ---------------------------------------------------------------------------

            Workers Reclassified as Independent Contractors Cannot
              Form Unions Because They Aren't Covered by the NLRA

    Misclassification occurs when employers classify workers who are in
    fact employees as independent contractors, which employers do to avoid
    a host of employment-
    related obligations, such as paying for unemployment insurance and
    workers' compensation and even paying a minimum wage. Workers wrongly
    classified as independent contractors are also deprived of the right to
    unionize under U.S. laws. These workers are thus unable to join
    together in a union to negotiate better terms and conditions with their
    employer. Misclassification is rampant in many industries such as food
    services and construction. The practice contributes to an economy where
    wages are flat, profits are soaring, and companies that do not arrange
    their businesses to avoid their employment responsibilities are
    disadvantaged.\89\
    ---------------------------------------------------------------------------
        \89\ David Weil, ``Lots of Employees Get Misclassified as
    Contractors. Here's Why It Matters,'' Harvard Business Review, July 5,
    2017.
    ---------------------------------------------------------------------------

     Corporate Lobbyists Push Laws--Misleadingly Called ``Right-To-Work''
                Laws--That Seek to Defund Private-Sector Unions

    Unions provide a range of tangible benefits to their members, from
    contract and benefit administration and enforcement to legal services.
    These services cost money. While states generally have no jurisdiction
    over private-sector unions, the NLRA allows states to pass ``right-to-
    work'' (RTW) laws.\90\ Contrary to their branding, these laws do
    nothing to boost workers' chances of finding a job. Rather, right-to-
    work laws simply prohibit contracts that require all workers who
    benefit from union representation to help pay for these benefits.
    Specifically, RTW laws say unions can't require nonunion members of a
    collective bargaining unit who don't pay union dues to pay ``fair share
    fees''--fees that cover the basic costs of representing employees in
    the workplace (but are not used for costs associated with union
    organizing or political activities).
    ---------------------------------------------------------------------------
        \90\ The 1947 Taft-Hartley amendments to the National Labor
    Relations Act sanctioned a state's right to pass laws that prohibit
    unions from requiring a worker to pay dues, even when the worker is
    covered by a union-negotiated collective bargaining agreement.

    Fair share fees are just that. Under federal law, no one can be forced
    to join a union as a condition of employment. However, unions are
    required to represent all members of a bargaining unit, whether or not
    they are in the union. This means that if an employer mistreats a
    worker who is not in the union, the union must pursue that worker's
    grievance just as it would a member's, even if it costs tens of
    thousands of dollars. Nonunion workers also receive the higher wages
    and benefits their union coworkers enjoy.\91\ Eliminating fair share
    fees encourages ``free-riding'': workers paying union dues see
    coworkers who are paying nothing but getting the same benefits, and
    they decide to leave the union and stop paying union dues.
    ---------------------------------------------------------------------------
        \91\ Elise Gould and Will Kimball, ``Right-to-Work'' States Still
    Have Lower Wages, Economic Policy Institute, April 22, 2015.

    RTW laws weaken unions by eroding union funding and membership (Figure
    D shows union density, as measured by shares of workers covered by
    collective bargaining, in RTW and fair share states). Proponents of RTW
    laws say they boost investment and job growth but there is no serious
    evidence of that. While causal impacts of RTW laws are hard to estimate
    with statistical precision, there is ample evidence that RTW laws hurt
    all workers--not just union members.\92\
    ---------------------------------------------------------------------------
        \92\ It is hard to isolate the decision of a state to become RTW
    from other legislative changes or to separate the RTW effect from the
    many factors, including recessions, that influence state labor market
    conditions.

          Twenty-eight states have ``right-to-work'' laws that allow
    workers in the private sector to access the benefits of union
    ---------------------------------------------------------------------------
    negotiations without sharing the costs.

          States that passed RTW a long time ago have successfully avoided
    large-scale unionization. Historically states in the Deep South and
    parts of Midwest and West passed RTW laws to weaken unions. Many
    succeeded. Especially in the Deep South, states that passed RTW laws in
    the 1940s and 1950s have low private-sector unionization rates that
    persist to this day.

          States with strong unions are now being targeted by RTW. Anti-
    union lobbyists have succeeded in bringing RTW to heavily unionized
    states such as Indiana, Michigan, and Wisconsin to weaken worker
    power.\93\
    ---------------------------------------------------------------------------
        \93\ Gordon Lafer, The Legislative Attack on American Wages and
    Labor Standards, 2011-2012, Economic Policy Institute, October 31,
    2013.

          ``National Right to Work'' legislation has been introduced in
    the House and Senate: H.R. 785 by Rep. King (R-IA) and S. 545 by Sen.
    Paul (R-KY). These companion bills would allow employees who work in a
    unionized workplace, but who decline to become union members, to refuse
    ---------------------------------------------------------------------------
    to pay a fair share fee to the union that negotiates their benefits.

          A well-funded, centralized campaign is behind RTW laws. In the
    wake of the Great Recession, RTW laws passed and proposed were
    presented as homegrown responses to state unemployment woes, but the
    similarity of the text in the laws, and the fact that states with more
    fiscal distress were not more likely to introduce such legislation,
    shows ``a political agenda funded by a network of extremely wealthy
    individuals and corporations.'' \94\
    ---------------------------------------------------------------------------
        \94\ Gordon Lafer, The Legislative Attack on American Wages and
    Labor Standards, 2011-2012, Economic Policy Institute, October 31,
    2013. According to Lafer's report, one of the most important
    organizations facilitating this work is the American Legislative
    Exchange Council (ALEC), a corporate lobbying group whose model bills
    (establishing RTW, abolishing minimum wage and prevailing wage
    statutes, etc.) are the basis for over 100 laws adopted annually. See
    also ``ALEC,'' Common Cause website (accessed August 2017).

          RTW laws lower unionization rates even in less-unionized states.
    The passage of RTW in Oklahoma decreased private-sector unionization
    rates by roughly 20 percent.\95\
    ---------------------------------------------------------------------------
        \95\ See page 10 of Ozkan Eren and Serkan Ozbeklik, ``What Do
    Right-To-Work Laws Do? Evidence From a Synthetic Control Method
    Analysis'' [author-posted version of article published in Journal of
    Policy Analysis and Management, vol. 35, no. 1 (July 15, 2015), 173-
    194].

          Wages are 3.1 percent lower in RTW states than in fair share
    states, after controlling for individual demographic and socioeconomic
    factors and state macroeconomic indicators, including cost of living.
    This translates into a $1,558 annual RTW wage penalty for a typical
    full-time, full-year worker, union or nonunion, in the public or
    private sector.\96\
    ---------------------------------------------------------------------------
        \96\ Elise Gould and Will Kimball, ``Right-to-Work'' States Still
    Have Lower Wages, Economic Policy Institute, April 22, 2015.

          Proponents of RTW laws say they boost investment and job growth
    but there is no real evidence of that. Reviewing claims of faster-than-
    average employment growth in RTW states, an EPI report found dramatic
    growth in some RTW states but steep declines in others, with the high-
    growth states skewing the average. Studies that have found positive
    employment effects of RTW laws have failed to control for a host of
    factors that would affect employment, from the education level of the
    workforce to the proximity of transportation hubs to a state's natural
    resources to a state's level of manufacturing.\97\ A 2015 study
    similarly found ``no pronounced effect of RTW laws on state
    economies.'' \98\
    ---------------------------------------------------------------------------
        \97\ The more scholars are able to hold ``all other things'' equal,
    the more it becomes clear that these laws have little or no positive
    impact on a state's job growth. The most recent and most
    methodologically rigorous studies conclude that the policy has no
    statistically significant impact whatsoever. See Gordon Lafer and
    Sylvia Allegretto, Does `Right-to-Work' Create Jobs? Answers From
    Oklahoma, Economic Policy Institute, March 16, 2011.
        \98\ After a literature review the authors conclude, ``Some studies
    find significant effects of RTW laws on various state outcomes, while
    others find no effect (see for example, Hirsch 1980, Holmes 1998,
    Farber 2005, Lafer and Allegretto 2011).'' The authors did their own
    study of Oklahoma and found no effect, at least in the short run, on
    state outcomes including employment and wages. See Ozkan Eren and
    Serkan Ozbeklik, ``What Do Right-To-Work Laws Do? Evidence From a
    Synthetic Control Method Analysis'' [author-posted version of article
    published in Journal of Policy Analysisand Management, vol. 35, no. 1
    (July 15, 2015), 1].

          Rev. Martin Luther King Jr. targeted the misleading nature of
    the ``right-to-work'' slogan in 1961 when he said the purpose of
    ``right to work'' is ``to destroy labor unions and the freedom of
    collective bargaining by which unions have improved wages and working
    conditions of everyone.'' \99\
    ---------------------------------------------------------------------------
        \99\ Nathan Newman, ``MLK Jr. Died at a Union Picket Line,'' Labor
    Blog, January 16, 2006.
    ---------------------------------------------------------------------------

          Corporate Lobbies and Allied Lawmakers Are Dismantling the
                     Rights of Public-Sector Union Workers

    When state budget deficits increased after the Great Recession,
    business-backed governors in a number of states sought to curb the
    powers of public-sector unions by arguing that government unions were
    to blame. Though these anti-union laws were presented as homegrown
    responses to specific fiscal distress in each state, the laws'
    similarities, and the fact that states with more fiscal distress were
    not more likely to introduce such legislation, suggest that lawmakers
    were enacting an agenda driven and funded by national corporate
    interests. In fact, the financial distress was caused by Wall Street's
    excessive risk-taking, not by unions.\100\ And, many of the same states
    that curbed state employee unions also enacted new tax cuts for the
    wealthy.\101\
    ---------------------------------------------------------------------------
        \100\ According to Gordon Lafer in The One Percent Solution, the
    argument that budget deficits were the result of overspending
    bureaucrats and overly generous union contracts did not fit the facts:
    there was no statistical correlation between the size of budget
    deficits and the presence or strength of labor unions. See Gordon
    Lafer, The One Percent Solution: How Corporations Are Remaking America
    One State at a Time (Ithaca, N.Y.: Cornell University Press, 2017).
        \101\ In Wisconsin, for example, half of the tax cuts enacted from
    2011 to 2014 went to the richest 20 percent of the state's population.
    See chapter 1 in Gordon Lafer, The One Percent Solution: How
    Corporations Are Remaking America One State at a Time (Ithaca, N.Y.:
    Cornell University Press, 2017).

          From 2011 to 2015, fifteen states enacted legislation severely
    limiting or even dismantling collective bargaining rights for public-
    sector unions.\102\
    ---------------------------------------------------------------------------
        \102\ Unless otherwise noted, information in these bullets comes
    from Gordon Lafer, The One Percent Solution: How Corporations Are
    Remaking America One State at a Time (Ithaca, N.Y.: Cornell University
    Press, 2017).

              Wisconsin's ``Budget Repair Bill'' (Act 10) largely
    eliminated collective bargaining rights for the state's 175,000 public
    employees. While the law does not explicitly outlaw collective
    bargaining, it prohibits public employees from negotiating about
    anything other than wages (and then only to adjust wages for
    inflation); it outlaws fair share fees; it eliminates the ability to
    pay union dues through the state payroll; and it requires unions to
    hold expensive recertification elections every year to remain in
    existence.\103\
    ---------------------------------------------------------------------------
        \103\ Ohio's law was overturned by citizen referendum and
    Minnesota's bill was vetoed by the governor. The other 13 states are
    Idaho, Illinois, Indiana, Maine, Michigan, Nebraska, New Hampshire, New
    Jersey, Nevada, Oklahoma, Pennsylvania, Tennessee, and Wisconsin.

              The share of workers in unions in Wisconsin dropped from
    15.2 percent in 2009 to 8.3 percent in 2015.\104\
    ---------------------------------------------------------------------------
        \104\ Alana Semuels, ``How to Kill the Middle Class,'' The
    Atlantic, December 7, 2016.

    [GRAPHIC] [TIFF OMITTED] T2618.014

    _______________________________________________________________________
        Union density is measured as share of workers covered by collective
    bargaining. Six states have right-to-work laws that were enacted in the
    last five years (in 2012 or later): Indiana, Kentucky, Michigan,
    Missouri, Wisconsin, and West Virginia.

        Sources: The Union Membership and Coverage Database
    (www.unionstats.com), compiled by Barry Hirsch and David Macpherson,
    and ``Right-to-Work Resources,'' National Conference of State
    Legislatures, web page accessed August 22, 2017.

              Other state laws eliminated collective bargaining rights for
    certain groups of workers (school teachers in Tennessee, municipal
    employees in Oklahoma, farmworkers and child care workers in Maine, and
    home care workers in Michigan) or restricted what public employees can
    bargain about (health care in New Jersey).

              Beyond curbs to collective bargaining are a set of state
    measures that target the power of public-sector unions by cutting
    public-
    sector wages and benefits and restricting unions' ability to collect
    dues through the public payroll.

              Anti-union laws are gateway laws to broader anti-worker
    measures. Some states that succeed in degrading public collective
    bargaining go on to pass other laws that diminish worker rights.\105\
    Wisconsin, for example, eliminated the requirement to allow workers at
    least one day off per 7-day week (that is, the requirement that workers
    get at least one weekend day per week).\106\
    ---------------------------------------------------------------------------
        \105\ In the wake of Act 10, Wisconsin enacted a broad rewrite of
    its civil service law, lengthening the probationary period for new
    employees (during which time they can be fired for any reason) and
    centralizing hiring with the Department of Administration, a highly
    politicized agency; union representatives fear the law will lead back
    to a system where political appointees have disproportionate power to
    reward friends and punish enemies. See Dan Kaufman, ``The Destruction
    of Progressive Wisconsin,'' New York Times, January 16, 2016; Jason
    Stein and Patrick Marley, ``Scott Walker Signs Civil Service
    Overhaul,'' Milwaukee Journal-Sentinel, February 12, 2016.
        \106\ The provision was passed as part of the state budget. See
    Stephanie Bloomingdale, ``Walker and GOP Just Took Away the Weekend,''
    Milwaukee Journal-Sentinel, July 13, 2015.
    ---------------------------------------------------------------------------

                Attacks on Public-Sector Collective Bargaining
                         Are Playing Out in the Courts

    In the public sector, there is a similar attack on collective
    bargaining playing out in the courts. In Abood v. Detroit Board of
    Education, 431 U.S. 209 (1977), the Supreme Court upheld the use of
    fair share fees in public-sector unions against a challenge based on
    the First Amendment. The Court held that public-sector employees who
    elect not to join the union may be charged a fee to cover the cost of
    collective bargaining and contract administration. Fair share fees may
    not be used to support union political activities. These fair share
    fees ensure that all workers represented by the union pay their fair
    share of the cost of that representation.

    In 2016, the Supreme Court heard oral argument in Friedrichs v.
    California Teachers Association, which, among other things, addressed
    whether Abood should be overruled and public-sector fair-share fee
    arrangements invalidated under the First Amendment. On March 29, 2016,
    the Supreme Court affirmed Abood by an equally divided 4-4 split.\107\
    ---------------------------------------------------------------------------
        \107\ A split decision effectively upholds the ruling of the lower
    court. 136 S.Ct. 1083 (2016).

    Pro-RTW organizations have continued to litigate challenges to public-
    sector unions' fair share fee requirements. One of those cases, Janus
    v. AFSCME, will likely be heard in the Supreme Court's upcoming
    term.\108\
    ---------------------------------------------------------------------------
        \108\ Janus v. AFSCME (7th Cir.) (Docket No. 16-3638); see Marni
    von Wilpert, Testimony for New York City Council Committee on Civil
    Service and Labor, April 19, 2017, and ``Janus v. American Federation
    of State, County, and Municipal Employees, Council 31,'' SCOTUSblog
    (last accessed August 15, 2017).
    ---------------------------------------------------------------------------

              Conclusion: Unions Are Essential to a Fair Economy
                            and a Vibrant Democracy

    Unions are a dynamic and ever-evolving institution of the American
    economy that exist to give working people a voice and leverage over
    their working conditions and the economic policy decisions that shape
    these conditions. Collective bargaining is indispensable if we want to
    achieve shared prosperity.

    But it is precisely because they are effective and necessary for shared
    prosperity that unions are under attack by employers who want to
    maintain excessive leverage over workers and by policymakers
    representing the interests of the top 1 percent. These attacks have
    succeeded in increasing the gap between the number of workers who would
    like to be represented by a union and the number who are represented by
    a union. And these threats to the freedom to join together in unions
    haven't been met with a policy response sufficient to keep the playing
    field level between organizing workers and the employers looking to
    thwart them.

    Giving workers a real voice and leverage is essential for democracy.
    While unions historically have not been able to match corporate
    political donations dollar for dollar, working people organizing
    together in unions play an equalizing role because they can motivate
    members to give their time and effort to political causes. For example,
    one study found that unions are very effective at getting people to the
    polls--especially increasing voting among those with only a high school
    education.\109\
    ---------------------------------------------------------------------------
        \109\ Jake Rosenfeld finds that unions increase voter turnout,
    especially in the private sector. Voting rates are ``5 percentage
    points higher than the rates of non-members'' (Jake Rosenfeld, What
    Unions No Longer Do [Cambridge, Mass.: Harvard University Press, 2014],
    170-171).

    As this report has shown, unions--when strong--have the capacity to
    tackle some of the biggest problems that plague our economy, from
    growing economic inequality, wage stagnation, and racial and gender
    ---------------------------------------------------------------------------
    inequities to eroding democracy and barriers to civic participation.

    And, unions also help to address current workforce trends that are
    increasing work insecurity, from the rise of part-time work and unpaid
    internships to the exploitation of student athletes to increasing
    numbers of Uber drivers and other ``gig economy'' workers.\110\ In a
    recent New York Times op-ed, Kashana Cauley cited some of these trends
    and called on her millennial peers to lead the next labor
    movement.\111\ Indeed, there is evidence that young workers are primed
    to do so: 55 percent of 18- to 29-year-old workers view unions
    favorably, compared with 46 percent of workers age 30 and older.\112\
    And young people of both political parties are more amenable to labor
    unions than their older peers.\113\ Having entered the workforce during
    the last recession, these young workers have experienced a labor market
    with lower wages, diminishing benefits, ``noncompete'' clauses that
    make it harder for even entry-level employees to move to better jobs,
    and other facets of increasing insecurity, Cauley explains.\114\
    ---------------------------------------------------------------------------
        \110\ EPI has researched unpaid internships and part-time work. See
    for example, Ross Eisenbrey, ``Unpaid Interns Fare Worse in the Job
    Market,'' Economic Policy Institute Snapshot, July 6, 2016 and Lonnie
    Golden, Still Falling Short on Hours and Pay: Part-time Work Becoming
    New Normal, Economic Policy Institute, December 5, 2016. Many news
    articles have covered the plight of student athletes, who generate
    substantial sums for their universities but earn no pay themselves. See
    for example, Taylor Branch, ``The Shame of College Sports,'' The
    Atlantic, October 2011. Uber drivers have been trying to organize in
    Seattle but the company is fighting it, requiring its customer service
    representatives to call drivers with a script arguing that it would be
    bad for them. See Alison Griswold, ``Uber Is Using Its U.S. Customer
    Service Reps to Deliver Its Anti-union Message,'' Quartz, February 20,
    2016.
        \111\ Kashana Cauley, ``Why Millennials Should Lead the Next Labor
    Movement,'' New York Times, July 13, 2017.
        \112\ ``Mixed Views of Impact of Long-Term Decline in Union
    Membership: Public Says Workers in Many Sectors Should Be Able to
    Unionize,'' Pew Research Center, April 27, 2015.
        \113\ Elizabeth Bruenig, ``Even Conservative Millennials Support
    Unions,'' New Republic, May 1, 2015.
        \114\ Kashana Cauley, ``Why Millennials Should Lead the Next Labor
    Movement,'' New York Times, July 13, 2017.

    Certainly, Americans of all ages, occupations, races, and genders have
    a vested interest in making sure our economy works for everyone. To
    promote an inclusive economy and a robust democracy, we must work
    together to rebuild our collective bargaining system.

                                Acknowledgments

    The authors would like to thank our coworkers who provided valuable
    feedback on drafts of this report and contributed data and examples,
    including Daniel Essrow, Kayla Blado, Elizabeth Rose, Monique
    Morrissey, David Cooper, Julia Wolfe, Jessica Schieder, and Samantha
    Sanders. We are also thankful to Krista Faries for her excellent copy
    editing and Margaret Poydock for laying out the report.

                                     ______

                            MANUFACTURING PROSPERITY

                A Bold Strategy for National Wealth and Security

    Sridhar Kota
    Thomas C. Mahoney

    June 2018

    Report number: MF-TR-2018-0302

                MForesight: Alliance for Manufacturing Foresight

                               www.MForesight.org

    Offshore production in advanced manufacturing has reached a critical
    point in which the strategy of ``invent here, manufacture there'' has
    become ``invent there, manufacture there.'' The United States must take
    bold steps to arrest this development and take advantage of
    transformational technologies to rebuild domestic manufacturing prowess
    for national wealth and security. These bold steps require a central
    national focal point with a comprehensive strategy, and significant and
    sustained public and private investments:

    1. Invest in translational research and manufacturing innovation.
    2. Encourage domestic pilot production and scale-up.
    3.  Empower small and medium-sized manufacturers to deploy advanced
    technologies.
    4. Grow domestic engineering and technical talent.

    Positive national impacts will justify the needed investments. The
    United States will:

    1. Regain fundamental manufacturing capabilities;
    2. Ensure a return on federal investments in R&D;
    3. Capitalize on technology changes broadly affecting manufacturing;
    4. Establish leadership in new industries of the future; and
    5.  Restore the broad-based supplier networks that are essential to
    economic and national security.

    Because of a confluence of economic and technological forces, the
    United States now has an opportunity to rebuild its manufacturing base
    and restore its global competitiveness. But another report will not
    help. Bold steps commensurate with the scale and importance of the
    objectives are absolutely necessary. Implementing these bold steps
    requires a national focal point of responsibility with a comprehensive
    strategy and significant and sustained public and private investments.
    Other countries are not standing still. The onus is on us.

                                    FOREWORD

    American manufacturing faces both daunting challenges and
    transformative opportunities. Ensuring national security, preserving
    the nation's innovation edge, sustaining jobs, and maintaining global
    manufacturing leadership will require foresight, skillful cross-sector
    thinking, and serious investments.

    In early 2018, MForesight: Alliance for Manufacturing Foresight
    conducted a series of roundtables with manufacturing experts, business
    leaders, and policymakers in cities across the United States. The
    objective was to gather perspective from multiple regions with industry
    clusters ranging from advanced technology sectors, such as electronics,
    biotechnology, and advanced materials, to large traditional, albeit
    still advanced sectors such as automotive, construction equipment, and
    food processing. Roundtables were held in Austin, Boston, Detroit,
    Indianapolis, Raleigh, San Jose, and Washington, DC. To focus the
    discussion, participants were provided with information on trends in
    trade, value added, employment, foreign direct investment, research,
    start-ups, investment, and other key indicators on the state of U.S.
    manufacturing.

    Roundtable discussions focused on several key questions:

    1.  Regaining America's Industrial Commons: What foundational
    capabilities are essential for the United States to regain a global
    leadership position and to ensure the strength of the defense supply
    chain? How can the United States strengthen its ecosystem of
    manufacturing expertise and production capacities in key sectors?

    2.  Capitalizing on national investments in research and development
    (R&D): What steps are needed to ensure that America captures the wealth
    generated from new products and processes emerging from its large
    national R&D spending? How can the United States achieve first-mover
    advantage in research-intensive advanced technology products?

    3.  Ensuring financing for hardware start-ups and scale-ups: What
    policies and programs would increase opportunities for manufacturing
    start-ups to thrive, scale their operations, and root production in
    this country?

    These questions are at the heart of the grand challenges facing U.S.
    manufacturing. Roundtable participants were asked to identify
    actionable recommendations for both public and private stakeholders
    that would meet these challenges. Their assessment of the urgency of
    the challenges and recommendations are presented in this report.
    Because so much information was gathered about multiple industries,
    research programs, and competing national strategies, this report is
    the first of several on grand challenges forthcoming from MForesight.

    Advances in production technology are changing manufacturing,
    presenting an opportunity for dramatic change that can restore national
    production for both defense and economic security. But, as more than
    100 roundtable participants agreed, another report will not restore
    U.S. manufacturing competitiveness. Bold initiatives, with full
    understanding of the multi-faceted nature of the challenges, are
    necessary. The recommendations in this report include such bold steps.

                               EXECUTIVE SUMMARY

    American manufacturing faces both daunting challenges and
    transformative opportunities. As production has moved offshore over
    recent decades, manufacturers have steadily moved research and
    development (R&D) activities offshore as well to be close to the
    factories where product and process engineering skills reside. These
    shifts have come with serious consequences. America has seen a decline
    in its ability to manufacture new advanced technology products.
    Rebuilding capacity in advanced industries is essential to achieving
    long-term prosperity, ensuring national security, and preserving the
    nation's innovation edge. Doing so will require foresight, skillful
    cross-sector thinking, and serious investments.

    New opportunities are also emerging: extensive, pervasive technological
    change in manufacturing should create a positive future for domestic
    production. The new parameters play to American strengths:

          Flexibility and adaptability;

          A large capital market;

          Superior higher education; and

          World-leading R&D.

    But recapturing industrial leadership will require recognition of the
    importance of manufacturing and a focus on launching the industries of
    the future.

    In early 2018, MForesight: Alliance for Manufacturing Foresight
    conducted a series of roundtables with manufacturing experts, business
    leaders, academic researchers, entrepreneurs, investors, and
    policymakers in cities across the United States. The objective was to
    gather perspective on the current state of U.S. manufacturing, the
    grand challenges facing U.S. manufacturing, and actions that the public
    and private sectors should take to meet those challenges. Their
    assessment of the urgency of the challenges and steps to meet them
    informed the critical next steps identified in this report.

    Grand Challenges in U.S. Manufacturing

    A simple articulation of the grand challenges that must be addressed to
    capture this prosperous future include:

            1. Rebuild the Industrial Commons

            The United States has lost fundamental production skills and
            capabilities--the Industrial Commons--in many industries.\1\
            This has meant the loss of entire industrial sectors over time,
            with noticeable impacts on the national innovation system.
            Production can provide competitive advantages that are
            difficult to replicate. Maintaining domestic manufacturing
            capabilities is essential to retaining the know-how needed to
            produce next generation technologies and to meet critical
            defense production.
    ---------------------------------------------------------------------------
        \1\ Pisano, G.P., and Shih, W.C. (2009). ``Restoring American
    competitiveness.'' Harvard Business Review (July-August). Retrieved
    from https://hbr.org/2009/07/restoring-american-competitiveness;
    Pisano, G.P., and Shih, W.C. (2012). Producing prosperity: Why America
    needs a manufacturing renaissance. Boston, Mass.: Harvard Business
    Review Press.

    ---------------------------------------------------------------------------
            2. Convert national R&D to national wealth and security

            Leading the world in R&D spending is not sufficient to ensure
            prosperity. Technologies invented here are being licensed,
            sold, or given away to manufacture overseas, which, in effect,
            is subsidizing R&D for other countries. Results of R&D should
            be strategically nurtured to create new products, including
            defense-critical technology products, that are made in America
            at commercial scale to generate wealth, jobs, and exports.

            3. Lead emerging industries

            To ensure future economic strength and defense superiority, the
            United States must have a leadership position in emerging
            industries such as autonomous vehicles, robotics, multi-
            material additive manufacturing, bio-manufacturing, energy
            storage, advanced materials, and quantum computing, to name a
            few. Dependence on foreign suppliers is creating defense
            vulnerabilities and significant long-term costs.

    Bold steps are needed to ensure that these challenges are met quickly
    and aggressively. Market forces alone are unlikely to achieve the
    needed change. They have not so far. With sustained, strategic
    investments, the United States can:

          Regain fundamental manufacturing capabilities;

          Ensure a return on federal investments in R&D;

          Capitalize on technology changes broadly affecting
    manufacturing;

          Establish leadership in new industries; and

          Restore the broad-based supplier networks that are essential to
    economic and national security.

    Restoring U.S. manufacturing leadership and, perhaps more importantly,
    restoring the nation's ability to capture wealth from the national
    innovation system with a robust manufacturing base, is a challenge to
    both the private and public sectors. Manufacturers, driven by short-
    term financial incentives, primarily focus on applied research and
    incremental product development rather than the translational research
    needed to commercialize basic research results to capture the ``next
    big thing.'' Only government can overcome this market failure to ensure
    that the United States remains globally competitive.

    Critical Nest Steps

    Addressing these grand challenges in manufacturing will require
    concerted effort from the nation's public and private sectors. Critical
    next steps include:

            1. Invest in translational research and manufacturing
            innovation

            The innovation cycle that converts R&D results--new inventions
            and discoveries--into successful commercial products may be
            working well in software, but it is subject to significant
            failures with regard to manufactured hardware. Funding for the
            translational research needed to develop operational
            prototypes, demonstrate manufacturability, and identify viable
            markets is frequently unavailable. Promising technologies
            languish in laboratories. Funding and expertise is needed to
            fill this gap. Effective investment can result in more
            prototyped and demonstrated products, reducing technical and
            market risks and boosting commercialization and production.

            2. Encourage pilot production and scale-up

            To restore domestic production and overall leadership in
            emerging industries, America needs to invest in advancing
            manufacturing technologies, increasing pilot production, and
            scaling up to viable commercial volume. In some cases--
            semiconductor packaging and pharmaceuticals are examples--new
            production technologies are creating opportunities for U.S.
            industry to regain leadership. In others, commercial scale
            production can be achieved by ensuring patient capital is
            available and demand is sufficient. Leveraging government
            procurement is an effective tool.

            3. Empower small and medium-sized manufacturers

            While these manufacturers form the backbone of industrial
            supply chains, they tend to implement new technologies slowly.
            There is a pressing need for mechanisms to accelerate the use
            of smart manufacturing technologies, increase their access to
            necessary expertise, and build better links between market
            demands for production capability and their ability to provide
            it. Mechanisms are also needed to increase small firms'
            capacity to commercialize research results, such as simple
            licensing agreements that will encourage technology transfer
            from universities.

            4. Grow domestic engineering and technical talent

            To rebuild the Industrial Commons, a combination of incentives
            could increase the number of manufacturing apprenticeship
            programs, train engineering technicians with applied
            engineering skills, and entice capable domestic graduates to
            pursue advanced degrees to overcome America's dependence on
            foreign graduate students in key scientific and engineering
            fields.

    The United States needs a broad national conversation to identify the
    necessary steps to achieve these objectives. At MForesight's
    roundtables, diverse stakeholders presented a number of promising
    ideas, including establishing a ``focal point'' office in the federal
    government for leveraging the strengths and outcomes of different
    agencies to mature Technology Readiness Levels (TRLs) and manufacturing
    research to mature Manufacturing Readiness Levels (MRLs) so that
    emerging technologies can be manufactured domestically at commercial
    scale. Other ideas included establishing university-affiliated
    Translational Research Centers, launching special competitions focused
    on manufacturing challenges, creating industry fellowships to harness
    the expertise of retired manufacturing experts, and building the
    financial resources to increase investment in hardware start-ups and
    scale-ups, among other ideas.

    Implementation Options

    These ideas should be part of a comprehensive national strategy,
    ideally implemented in a coordinated way with a single point of focus
    to orchestrate the required funding streams and to maintain strategic
    program management. The roundtable participants proposed a few
    implementation options, including creating a national innovation
    initiative, establishing a national manufacturing innovation
    foundation, and establishing a manufacturing program within each of the
    federal science and technology agencies. They fully expect the
    policymakers to convene and make decisions on how best to implement the
    critical steps identified in the previous section. A piecemeal
    approach, addressing one or two critical steps but not all, will not
    help.

    Conclusions

    1.  Manufacturing really matters for economic and national security.

    2.  Being the best in the world in scientific discoveries and
    engineering inventions is critical but not sufficient to ensure
    national prosperity.

    3.  Manufacturing and innovation are intricately linked. Reaping the
    full rewards of rapid technological advances, the nation must
    manufacture today's advanced technology products so it can innovate
    next generation products.

    Because of a confluence of economic and technological forces, the
    United States now has an opportunity to rebuild its manufacturing base
    and restore its global competitiveness. But another report will not
    help. Bold steps commensurate with the scale and importance of the
    objectives are absolutely necessary. Other countries are not standing
    still. The onus is on us.

                                  INTRODUCTION

    _______________________________________________________________________

    ``If any particular manufacture was necessary, indeed, for the defense
    of the society, it might not always be prudent to depend upon our
    neighbors for the supply.''

    Adam Smith, An Inquiry into the Nature and Causes of the Wealth of
    Nations, 1776

    Advanced technology manufacturing industries in the United States are
    in a precarious position. After decades of shifting production offshore
    to reduce labor costs, fundamental production skills and capabilities
    have been lost; domestic suppliers of essential parts and components
    are unavailable; and the ability to manufacture new advanced technology
    products is severely constrained. As production has moved offshore,
    manufacturers are moving more research and development (R&D) to be
    close to the factories where the product and process engineering skills
    reside. The implications for future technology leadership, economic
    growth, and national security are dire. Maintaining the trajectory of
    recent decades--a shrinking manufacturing base and large trade deficits
    in advanced technologies--will result in a second tier industrial
    economy, unable to maintain superiority in defense or global economic
    leadership. Signs of this ominous future are already apparent.

    Fortunately, the possibility of a competitive, prosperous future is
    also apparent. Extensive and pervasive technological change in
    manufacturing is creating an opportunity to ensure a positive future
    for domestic production. The coming decades promise a much more
    responsive, flexible, and intelligent manufacturing sector. Small
    batch, customized, local production will be both feasible and necessary
    to meet evolving consumer demand. These advanced manufacturing
    technologies are shifting the basis for competitive production in many
    industries, away from low-cost labor inputs toward effective use of
    smart, digital, flexible production. This manufacturing revolution is
    shifting priorities for skill development, capital investment,
    production location, product features, and multiple other parameters
    that were once common wisdom. The new parameters play to American
    strengths: flexibility and adaptability, a large capital market,
    superior higher education, and the world's best R&D. In fact, Deloitte
    projects that the United States will top its Global Manufacturing
    Competitiveness Index in 2020, ahead of China, largely based on
    implementation of advanced manufacturing technologies and a shift to
    higher value, more sophisticated products.\2\ But taking advantage of
    these strengths to recapture industrial leadership will require
    national recognition of the importance of manufacturing and a focus on
    building the industries of the future.
    ---------------------------------------------------------------------------
        \2\ Deloitte and U.S. Council on Competitiveness. (2016). 2016
    global manufacturing competitiveness index. Deloitte Touche Tohmatsu
    Limited. Retrieved from https://www2.deloitte.com/global/en/pages/
    manufacturing/articles/global-manufacturing-competitiveness-index.html.
    ---------------------------------------------------------------------------

    Grand Challenges in U.S. Manufacturing

    Despite the federal government investing over $140 billion in R&D year
    after year, annual U.S. trade deficits in advanced technology products
    continue to hover around $100 billion. Federal science and technology
    (S&T) agencies and American universities and national laboratories
    funded by them continue to be successful in developing promising
    scientific discoveries and inventions. However, in too many cases,
    foreign governments and investors have been taking advantage of
    promising results, building large production capacity, and exporting
    the products back here. Consumer electronics, personal computers and
    laptops, lithium-ion batteries, flat panel displays, photovoltaics,
    nanotechnology, and biomanufacturing are all examples. American
    taxpayers have funded the basic research, only to create wealth and
    jobs elsewhere. Fixing this gaping hole in the nation's innovation
    ecosystem requires that the United States make the investments being
    made by competing countries--investment in engineering and
    manufacturing processes and equipment. Science is not engineering.
    Distinct from science, engineering means not just analysis and
    discovery but synthesis and innovation aimed at turning promising,
    albeit abstract, ideas into tangible new products and processes.
    Committing additional investment funds to translate promising
    discoveries and inventions into commercial products will be an
    essential step in restoring U.S. leadership (and the trade balance) in
    advanced technologies.

    The longer the status quo continues, the more difficult and expensive
    solutions will become. Understanding the extent of the problem should
    motivate action now. A simple articulation of the grand challenges that
    must be addressed to capture a prosperous future include:

    Rebuilding the Industrial Commons: The United States has lost
    fundamental production skill and capabilities--the Industrial Commons--
    in many industries and has lost entire industrial sectors, with
    noticeable impacts on the national innovation system. Gary Pisano and
    Willy Shih, professors at Harvard, identified the importance of the
    Industrial Commons and raised an alarm about its loss in 2009(!).\3\
    Many of the industries they identified as ``at risk'' then, such as
    electronic displays and mobile handsets, have already been lost.
    ---------------------------------------------------------------------------
        \3\ Pisano, G.P., and Shih, W.C. (2009). ``Restoring American
    competitiveness.'' Harvard Business Review (July-August). Retrieved
    from https://hbr.org/2009/07/restoring-american-competitiveness;
    Pisano, G.P., and Shih, W.C. (2012). Producing prosperity: Why America
    needs a manufacturing renaissance. Boston, Mass.: Harvard Business
    Review Press.

    Gaining competitive advantage from manufacturing: Production can
    provide competitive advantages that are difficult to copy and have
    long-term sustainability. There is a difference between parts and
    assemblies that become commodities as technology advances and
    manufacturing capabilities that become devalued as a source of
    competitive advantage because Asian manufacturers, backed by
    mercantilist government policies, offer to produce for little or no
    margins. Maintaining domestic manufacturing capabilities is essential
    to retaining the know-how needed to produce next-generation
    ---------------------------------------------------------------------------
    technologies, and to retaining critical defense production.

    Converting U.S. R&D to national wealth and security: Leading the world
    in R&D spending does not ensure prosperity or national security. The
    nature of research is such that a relatively small percentage results
    in the potential for new products, processes, even entire industries.
    These promising results mustbe nurtured to commercialize them in this
    country to generate wealth, jobs, and exports. Too often, once a
    discovery is proven in the laboratory, funding dries up. New inventions
    either languish for lack of funding to develop proof-of-concept
    prototypes; cannot be manufactured domestically for lack of capital,
    skills, or production capabilities; or are made in China. Technologies
    invented here are being licensed, sold, or given away to manufacture
    overseas, which, in effect, is doing R&D for other countries. The
    United States needs both a national strategy and effective mechanisms
    to build wealth through manufacturing promising research results rather
    than allow foreign entities to cherry-pick winners.

    Capturing the gains from new manufacturing technologies: Advances in
    technologies ranging from high-performance materials to ubiquitous
    sensors, from self-correcting robots/machines to autonomous factories,
    will transform both products and processes. Maximizing the benefits
    will require rapid, broad implementation, which in turn will require
    that the necessary equipment and tools, talent and skills are available
    especially to small and medium-sized manufacturers (SMMs). Adoption of
    ``smart manufacturing'' technologies has been too slow to date.
    Resources, incentives, and support must be mobilized to move quickly,
    learn from mistakes, and sustain successes across all tiers and
    industries.

    Leading emerging industries: To ensure future economic strength and
    defense superiority, the United States must have a leadership position
    in emerging industries such as autonomous vehicles, robotics, metal-
    additive manufacturing, biomanufacturing, energy storage, advanced
    materials, and quantum computing, to name a few. Dependence on foreign
    suppliers, regardless of how much cheaper they may be, is creating
    defense vulnerabilities and long-term competitive disadvantages. Labor
    cost differentials across countries are shrinking and direct labor is
    rarely a significant share of total production costs in advanced
    industries. There is little excuse not to lead in emerging industries
    and to maintain a strong competitive position.

    Bold steps are needed to ensure that these challenges are met quickly
    and aggressively. Market forces alone will not achieve the needed
    change. In fact, market failures have made the problems worse over
    time. With sustained, strategic investments, the United States can
    regain fundamental manufacturing capabilities, ensure a return on
    federal investments in R&D, capitalize on technology changes broadly
    affecting manufacturing, establish leadership in new industries, and
    restore the broad-based supplier networks that are essential to
    economic and national security.

                         LOSING THE INDUSTRIAL COMMONS

    _______________________________________________________________________

    The Industrial Commons is the set of knowledge and practical skills,
    supply chains and production capacity, materials and equipment, and
    overall industrial ecosystems that enable manufacturing across multiple
    industries. The term was coined by Pisano and Shih in 2009 and further
    elaborated in 2012.\4\ Even before then, many studies, some dating back
    to the 1980s, have lamented the loss of U.S. manufacturing
    competitiveness. Despite remarkable advances in technology and a few
    government programs intended to strengthen domestic manufacturing, the
    situation has grown progressively worse over decades. Restoring the
    Industrial Commons is essential to restoring U.S. manufacturing
    competitiveness, but the more time passes, the more complex and
    expensive solutions have become.
    ---------------------------------------------------------------------------
        \4\ Ibid.
    ---------------------------------------------------------------------------

    Current State of U.S. Manufacturing

    A few indicators of the current state of U.S. manufacturing are
    instructive. First consider the U.S. trade balance in advanced
    industries. As Figure 1 illustrates, in 2016 the United States had a
    positive trade balance in only two advanced industries: aerospace and
    (barely) engines and turbines.\5\ Even in industries such as medical
    devices and pharmaceuticals, in which the federal government invests
    significant R&D and is the single largest customer, the nation does not
    maintain a positive trade balance. Furthermore, most domestic
    manufacturing industries use substantially more imported content than
    they did 20 years ago, as illustrated in Figure 2.\6\ Imported content
    in technology-driven innovative products has grown from 45 to 58
    percent in the past 15 years with no sign that the trend will change.
    One direct result from the growth of imports is that real value added
    in U.S. manufacturing is hardly higher now than in the mid-1990s
    (Figure 3); excluding computers and pharmaceuticals, it is barely 40
    percent higher than in 1980, over 35 years in which U.S. gross domestic
    product (GDP) grew more than 2.5 times.\7\ The United States has
    already fallen behind Japan, South Korea, Germany, and other European
    nations in manufacturing value added as a percentage of GDP and in the
    value added contributed by high-technology industries to total
    manufacturing value added.\8\
    ---------------------------------------------------------------------------
        \5\ IBISWorld. (2017). [Relevant industry reports]. Retrieved from
    IBISWorld database.
        \6\ McKinsey Global Institute. (2017). Making it in America:
    Revitalizing U.S. manufacturing. McKinsey and Company. Retrieved from
    https://www.mckinsey.com/featured-insights/americas/making-it-in-
    america-revitalizing-us-manufacturing.
        \7\ Ibid.
        \8\ ``Biting the bullet: China sets its sights on dominating
    sunrise industries.'' (2017). The Economist. Retrieved from https://
    www-economist-com.proxy.lib.umich.edu/news/finance-and-economics/
    21729442-its-record-industrial-policy-successespatchy-china-sets-its-
    sights.

    [GRAPHIC] [TIFF OMITTED] T2618.015

    [GRAPHIC] [TIFF OMITTED] T2618.016

    These statistics lend credence to what has become accepted wisdom--the
    United States is a post-industrial economy, fully globalized and
    integrated into the international production system. For many,
    manufacturing has simply followed the same path as agriculture,
    becoming a smaller proportion of GDP and providing fewer jobs, while
    national specialization moves to higher value activities. But
    manufacturing, especially but not exclusively, high-technology product
    manufacturing, is essential to national security. Manufacturing at
    scale is intricately linked to the ability to innovate next-generation
    products, yet domestic manufacturing is not the national priority it
    ---------------------------------------------------------------------------
    should be.

    On one hand, it has become common wisdom that ``manufacturing is done
    in China.'' Kai-Fu Lee, a former senior Google executive, who now runs
    a venture capital fund and accelerator in Beijing, put it this way:
    ``Innovation moves faster here.'' \9\ On the other, it is increasingly
    clear that globalization, mostly driven by U.S. manufacturers moving
    production to low-wage countries in Asia, has had significant
    detrimental effects on the U.S. economy. The loss of Industrial Commons
    means that not only are an increasing number of advanced technologies
    manufactured abroad but also that the United States cannot manufacture
    many of them. Skills have been lost, supply chains nearly eliminated.
    ---------------------------------------------------------------------------
        \9\ ``The next wave: China's audacious and inventive new generation
    of entrepreneurs.'' (2017). The Economist. Retrieved from https://www-
    economist-com.proxy.lib.umich.edu/briefing/2017/09/23/chinas-audacious-
    and-inventive-new-generation-of-entrepreneurs.

    [GRAPHIC] [TIFF OMITTED] T2618.017

    Moving Production Offshore

    Much of the initial offshoring stampede was led by consumer electronics
    in the 1960s after the invention of transistors, widespread use of
    standard shipping containers, and low-cost assembly workers in Asia
    lowered the cost and expanded the market for consumer radios and
    televisions. Offshoring accelerated significantly after China joined
    the World Trade Organization in 2001 and as the capabilities of Asian
    producers increased, leading to U.S. firms contracting design and,
    ultimately, product development. By abdicating production, U.S. firms
    lost the ability to innovate and, in many cases became nothing more
    than brand names--think Sylvania, Magnavox. By the new millennia,
    virtually all consumer electronics were designed and made in Asia,
    along with personal computers and laptops. As would be expected,
    production of almost all the components shifted to Asia, too, despite
    serious concern by both industry and government in the late 1980s and
    early 1990s over the urgency of maintaining domestic production in
    areas such as dynamic random access memory (DRAM).

    By the time new consumer electronic devices emerged, such as the iPod
    and later smart phones, domestic manufacturing was impossible because
    all the components were manufactured in Asia, despite the research to
    create these components in the first place all done here (see Figure
    4). Research funded by the Department of Defense (DoD), the National
    Science Foundation (NSF), the National Institutes of Health (NIH), the
    Department of Energy (DoE), and the National Institute of Standards and
    Technology (NIST) contributed to the breakthrough technologies of
    magnetic storage drives, lithium-ion batteries, and the liquid crystal
    display, which came together in the development of MP3 devices and
    later in iPods and iPhones. The device itself is innovative, but it
    built upon a broad platform of component technologies, each derived
    from fundamental studies in physical science, mathematics, and
    engineering.\10\
    ---------------------------------------------------------------------------
        \10\ Domestic Policy Council. (2006). American competitiveness
    initiative: Leading the world in innovation. Office of Science and
    Technology Policy. Retrieved from https://files.eric.ed.gov/fulltext/
    ED503266.pdf.

    The ramifications of this lost production base have become profound.
    For instance, the leading disruptive force in the global economy has
    been mobile communications. The United States invented cellular
    communication technology and in the early years, companies like
    Motorola manufactured phones in this country. Although Apple led the
    shift to smart phones beginning in 2007, no iPhones were ever
    manufactured here. By then, all the inputs to the iPhone--display,
    memory, communication chips, etc.--were manufactured in Asia. Even
    sophisticated application-specific integrated circuits (ASICs) were
    made in Asian, primarily Taiwanese, semiconductor foundries. Successive
    generations of iPhones have followed the same pattern, in many cases
    with Apple providing assistance to their Asian suppliers to ensure
    access to sufficient production equipment and continue to raise their
    manufacturing capabilities. The results have been stellar for Apple
    profits, share price, and iPhone consumers, but the United States has
    no foothold in actually making the single most important product
    segment of the current era.\11\ Even Android smartphones, some designed
    by Google and other American firms, are not, and cannot, be made in the
    United States.
    ---------------------------------------------------------------------------
        \11\ Half of all iPhones are assembled by Foxconn in Zhengzhou,
    China at a factory that employs 350,000 during peak production.
    Barboza, D. (2016, December 29). ``How China built `iPhone city' with
    billions in perks for Apple's partner.'' The New York Times. Retrieved
    from https://www.nytimes.com/2016/12/29/technology/apple-iphone-china-
    foxconn.html.

    Flat panel displays are another broad category of electronics that
    cannot be manufactured in this country despite their ubiquity. Again,
    the technologies that enable most flat panel displays were invented by
    U.S. companies and universities. Few, if any, factories for LCD and LED
    large diameter flat panel displays were ever opened in the United
    States.\12\ Without that production experience, U.S. companies have
    been unable to commercialize the next generation of flexible displays,
    despite significant R&D investments by the U.S. military.\13\
    ---------------------------------------------------------------------------
        \12\ There are currently two U.S.-based producers of OLED micro
    displays, Kopin in Westborough, Massachusetts and eMagin in Bellevue,
    Washington.
        \13\ The Flexible Electronics and Display Center established by the
    U.S. Army at Arizona State University in 2004 includes multiple foreign
    partners such as Sharp, Auo, and LG.

    [GRAPHIC] [TIFF OMITTED] T2618.018

    At least part of the explanation for the shift of semiconductor and
    electronic production to Asia is found in the early days of the
    semiconductor industry. At the outset, American companies such as
    Intel, AMD, Texas Instruments, and Motorola controlled the entire value
    chain, from design through manufacturing and packaging of
    semiconductors. Initially, packaging was a labor-intensive process.
    Microchips are packaged in plastic or ceramics with pins that fit into
    circuit boards. Wiring from the chip to the pins was a manual process,
    with workers using microscopes to attach the wire leads. Low-cost labor
    in Asia, initially Taiwan, Singapore, and Malaysia, was essential to
    limit overall production costs. Once packaging moved to Asia, the
    expertise in packaging technology moved near the factories, and the
    growth of Asian foundries made sense to be near the packaging experts.
    And once the total semiconductor value chain was mostly in Asia--Intel,
    GLOBALFOUNDRIES, Samsung, Micron Technologies, and NXP are among the
    exceptions with semiconductor fabrication facilities (fabs) in the
    United States--it made sense for major users of semiconductors such as
    ---------------------------------------------------------------------------
    consumer electronics and computers to locate factories in Asia, too.

    The United States is no longer where companies build new fabs. In 2011,
    of 27 high-volume fabs built worldwide, only one was in this country;
    18 were in China and 4 in Taiwan. In 2018, 20 new fab projects had been
    announced in China, with total investment exceeding $10 billion.\14\
    Meanwhile, the total numberof fabs in the United States was projected
    to decline from 123 in 2007 to 95 by 2017. Predictably, as the industry
    has moved, the supply chain has gone with it. U.S. companies continue
    to have a majority of global market sales of semiconductors according
    to the Semiconductor Industry Association, but that share includes
    fabless companies, such as Nvidia and Qualcomm, that have designs
    manufactured in Asia by semiconductor foundries such as TSMC in Taiwan,
    the market leader.
    ---------------------------------------------------------------------------
        \14\ Tseng, C., and Tracy, D. (2017). ``Fab investment surge in
    China.'' SEMI. Retrieved from http://www.semi.org/en/fabinvestment-
    surge-china-0.

    The American justification for relying on Asian electronics
    manufacturers is that these are high-cost, low-margin links in the
    value chain; U.S. firms capture the bulk of profits. While true at the
    moment, at least for some companies, this same logic began the
    offshoring of consumer electronics that led to the loss of the entire
    industry. If U.S. companies are dependent on foreign producers,
    ultimately their ability to innovate and meet rapid product cycles is
    likely to be infringed. In fact, in 2018, shortages of electronic
    components--multilayered ceramic chip capacitors, resistors,
    semiconductors, graphics cards--are growing as new markets and
    applications create surges in demand that mostly Asian manufacturers
    are unable to meet.\15\ As data capture and processing becomes
    pervasive in both products and processes, the United States will face
    ever-increasing dependence on foreign manufacturers across even more
    economic sectors. Figure 5 illustrates how this process of shifting
    production of new technologies offshore not only continues but has
    accelerated. By not manufacturing high-technology products, the nation
    loses the ability to innovate next-generation products, loses the
    opportunity to create manufacturing jobs and national wealth, and
    increases dependence on foreign sources for national security.
    ---------------------------------------------------------------------------
        \15\ McKeefry, H.L. (April 20, 2018). ``Component shortages define
    first half of 2018 . . . and beyond.'' EBN. Retrieved from https://
    www.ebnonline.com/author.asp?section_id=3219&doc_id
    =283376.

    [GRAPHIC] [TIFF OMITTED] T2618.019

    Potential Impacts on Emerging Industries

    An obvious source of concern is automobiles. Electronics are projected
    to comprise half the value of automobiles in 2030, as the sensors and
    processors needed for autonomous vehicles (AVs) multiply (Figure
    6).\16\ Software development and R&D for AVs has clearly been a
    priority for automakers. Toyota, for example, has recently opened a
    research center in Silicon Valley and started software companies in
    Japan and the United States.\17\ Ford has a Smart Mobility unit that
    has acquired start-ups in software and cloud computing, and has started
    a new ``Ford X'' incubator. Ford is also An obvious source of concern
    is automobiles. increasing spending on electric vehicles, with
    Electronics are projected to comprise half the plans to launch 40 new
    battery and hybrid value of automobiles in 2030, as the sensors models
    by 2022. Several automakers have and processors needed for autonomous
    contracted with Nvidia (fabless), historically a leader in graphics
    processing units, for the processors needed for vehicle autonomy. Based
    on existing production capacity, the bulk of these electronic devices
    may be designed and engineered in this country, but most will be made
    in Asia. An exception is lidar supplier Velodyne, which opened a new
    factory in California in 2017 to manufacture its flagship lidar
    sensors.\18\ Velodyne entered the lidar business in 2005 after
    participating in an autonomous vehicle competition by the Defense
    Advanced Research Projects Agency (DARPA). Its sensors are used in U.S.
    military vehicles.\19\
    ---------------------------------------------------------------------------
        \16\ ``Automotive electronics cost as a percentage of total car
    cost worldwide from 1950 to 2030.'' Statista (2013). Retrieved from
    https://www.statista.com/statistics/277931/automotive-electronics-cost-
    as-a-share-of-total-car-cost-worldwide/.
        \17\ Buckland, K., and Sano, N. (2018, February 5). ``Toyota's way
    changed the world's factories. now the retool.'' Automotive News
    Canada. Retrieved from http://canada.autonews.com/article/20180205/
    CANADA01/302059902/toyotas-way-changed-the-worlds-factories.-now-the-
    retool.
        \18\ Krok, A. (January 2, 2018). ``Velodyne just made self-driving
    cars a bit less expensive.'' Roadshow. Retrieved from https://
    www.cnet.com/roadshow/news/velodyne-just-made-self-driving-cars-a-bit-
    less-expensive-hopefully/.
        \19\ Mozur, P., and Perlez, J. (April 7, 2017). ``China tech
    investment flying under the radar, Pentagon warns.'' The New York
    Times. Retrieved from https://www.nytimes.com/2017/04/07/business/
    china-defense-start-ups-pentagon-technology.html.

    [GRAPHIC] [TIFF OMITTED] T2618.020

    The emergence of AVs and the shift to electric drivetrains will have
    additional impacts on U.S. manufacturing where the transportation
    sector comprises 15-20 percent of manufacturing employment. For
    instance, under the current North American Free Trade Agreement (NAFTA)
    62.5 percent of the net cost of a vehicle must originate in North
    America. Current U.S. proposals call for 75 percent of electric or AV
    nine years. Experts are skeptical that nine years will be sufficient to
    build sufficient electronics production capacity to meet that
    mandate.\20\
    ---------------------------------------------------------------------------
        \20\ Carey, N. (May 14, 2018). ``NAFTA math may not add up to more
    U.S. auto jobs.'' Reuters. Retrieved from https://www.reuters.com/
    article/us-trade-nafta-autos/nafta-math-may-not-add-up-to-more-u-s-
    auto-jobs-idUSKCN1IF0CP.

    A shift to electric vehicles may further complicate domestic content
    objectives. According to some estimates, electric drivetrains,
    including batteries, require 40 percent less manufacturing labor than
    mechanical drivetrains that require internal combustion engines,
    transmissions, exhausts, and cooling systems.\21\ Different skills will
    be needed, while at the same time, production is likely to be
    consolidated into fewer factories. Without growth in domestic
    production of batteries, motors, magnets, electrical harnesses, and
    other electric vehicle components, imports will magnify the adverse
    impact on the domestic industry.
    ---------------------------------------------------------------------------
        \21\ Frost, L., and Taylor, E. (September 11, 2017). ``Carmakers
    face electric reality as combustion engine outlook dims.'' Reuters.
    Retrieved from https://www.reuters.com/article/us-autoshow-frankfurt-
    electrics/carmakers-face-electric-reality-as-combustion-engine-outlook-
    dims-idUSKCN1BN00X.

    Production of all of these components and systems has grown rapidly in
    China because of the demand created by the government mandate to have
    20 percent of vehicles sold by 2025 to use alternative fuel.
    Historically, the United States has used defense procurement to
    accelerate industrial development. Examples include aircraft,
    computers, semiconductors, robotics, and information networks.
    Leveraging defense procurement in emerging industries would promote
    early adoption, support pilot production, and help to re-establish the
    Industrial Commons needed for subsequent commercial-scale
    ---------------------------------------------------------------------------
    manufacturing.

    None of these issues in semiconductors and electronics are new, having
    reached the highest levels of government in the past. For instance, in
    2005 the Defense Science Board (DSB) Task Force on High Performance
    Microchip Supply \22\ outlined the potential consequences of ``a
    profound restructuring'' of the electronics industry caused by offshore
    outsourcing, the rise of increasingly competitive government-subsidized
    foreign producers, and substantial declines in federal support for
    basic R&D. The Department of Defense (DoD) did not adopt DSB's
    recommendations. In 2012, the Senate Armed Services Committee released
    the results of its investigation into electronic parts intended for
    weapons systems. It found 1,800 cases of suspected counterfeit parts
    involving more than 1 million parts for use in the most important
    military systems; 84,000 suspect counterfeit electronic parts were
    supplied by one Chinese company.\23\ Additional concern was addressed
    by the Government Accountability Office (GAO) in 2015 in their review
    of trusted defense microelectronics. GAO found that access to leading-
    edge microelectronics faced challenges due to supply chain
    globalization, production costs, and market trends, and that future
    access and capabilities are uncertain.\24\ Finally, a January 2017
    report by the President's Council of Advisers on Science and Technology
    \25\ emphasized the importance of a robust domestic semiconductor
    industry for both national security and overall national innovation. It
    also identified the threat posed by aggressive Chinese industrial
    policies in this industry and the need, therefore, for the U.S.
    industry to maintain its lead through R&D and continued innovation.
    Oddly, although the report noted that the share of global fabrication
    capacity in the United States fell to about 13 percent in 2015,
    compared to 30 percent in 1990, it did not recommend any steps to
    encourage locating new fabs here. Even the best design and engineering
    of microchips is at risk without assured access to manufacturing. A few
    more reports are not going to turn the tide.
    ---------------------------------------------------------------------------
        \22\ Defense Science Board. (2005). High performance microchip
    supply. Office of the Under Secretary of Defense for Acquisition,
    Technology, and Logistics. Retrieved from https://www.acq.
    osd.mil/dsb/reports/2000s/ADA435563.pdf.
        \23\ Senate Armed Services Committee. (2012). Senate Armed Services
    Committee Releases Report on Counterfeit Electronic Parts. Retrieved
    from https://www.armed-services.senate.gov/press-releases/senate-armed-
    services-committee-releases-report-on-counterfeit-electronic-parts.
        \24\ U.S. Government Accountability Office. (2015). ``Trusted
    Defense Microelectronics: Future Access and Capabilities Are
    Uncertain.'' Retrieved from https://www.gao.gov/products/GAO-16-185T.
        \25\ President's Council of Advisors on Science and Technology.
    (2017). Ensuring Long-Term U.S. Leadership in Semiconductors. Executive
    Office of the President. Retrieved from https://
    obamawhitehouse.archives.gov/sites/default/files/microsites/ostp/PCAST/
    pcast_ensuring_long-term_us_leadership_in_semiconductors.pdf.

    U.S. manufacturing issues created by the loss of Industrial Commons are
    not limited to electronics. Foundational manufacturing capabilities
    have been significantly reduced or lost entirely as production in
    multiple industries has moved abroad. Another prime example is machine
    tools and other production equipment. The United States once had a
    large, diverse machine tool industry with thriving clusters in
    Cincinnati and elsewhere. Foreign competition intensified in the 1980s
    as producers from Germany, Japan, and S. Korea built U.S. market share.
    In 1982 imports were only 26 percent of domestic consumption, but
    reached 64 percent in 2002 and 63 percent in 2012 (Figure 7).
    Currently, only one U.S.-owned machine tool company, Haas, is among the
    top 15 in revenue. A combination of foreign companies building U.S.
    factories and changes in technology have reduced the import share to
    roughly 50 percent in recent years, but themanufacturing knowledge base
    embodied in the industry has yet to recover.\26\
    ---------------------------------------------------------------------------
        \26\ Unpublished data from The Association for Manufacturing
    Technology, based on census data.

    [GRAPHIC] [TIFF OMITTED] T2618.021

    Another foundational manufacturing capability is tool and die making.
    In 2012, the Congressional Research Service stated that the U.S. tool
    and die industry is in a precarious state, largely due to offshoring.
    As major manufacturing industries have shifted production offshore, the
    tool and die industry endured a disproportionate loss of jobs and
    companies. Between 1998 and 2012 over a third of U.S. tool, die, and
    mold makers closed and employment halved. Even then, the average age of
    a skilled toolmaker was 52, presaging a skill shortage being felt
    today.\27\ Metal additive manufacturing could have a significant impact
    in reversing the negative trends in the tool and die industry, a
    critical foundational capability that calls for a national strategy and
    significant investment.
    ---------------------------------------------------------------------------
        \27\ Canis, B. (2012). ``The tool and die industry: Contribution to
    U.S. manufacturing and federal policy considerations.'' Congressional
    Research Service. Retrieved from http://www.ntma.org/uploads/general/
    Tool-and-Die-Industry.pdf.

    Even industries in which the United States has had a global leadership
    position, such as medical devices and pharmaceuticals, are now
    dependent on Asian producers for many of their products. In
    pharmaceuticals, more than 80 percent of the active ingredients are
    imported, mostly from China and India. Generic drugs comprise more than
    85 percent of the U.S. market, but only 10 percent are manufactured
    domestically.\28\ Other medical supplies, including basics such as
    intravenous solutions, syringes, surgical masks, and respirators are
    imported and frequently in short supply.\29\ In medical devices, China
    provides about 12 percent of total U.S. imports, including orthopedics,
    defibrillators, pacemakers, and magnetic resonance imaging
    scanners.\30\
    ---------------------------------------------------------------------------
        \28\ Koons, C. (April 11, 2018). ``Why we may lose generic drugs.''
    Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2018-
    04-11/are-drug-prices-too-low.
        \29\ According to federal data, only 5 percent of the more than 230
    million surgical masks and 30 percent of the more than 20 million
    respirators bought by American health care each year are made in the
    United States. McKenna, M. (2018). ``Medicine's long, thin supply
    chain.'' Wired. Retrieved from https://www.wired.com/story/medicines-
    long-thin-supply-chain/.
        \30\ Kaplan, S., and Thomas, K. (April 6, 2018). ``Why Trump's
    tariffs could raise the cost of a hip replacement.'' The New York
    Times. Retrieved from https://www.nytimes.com/2018/04/06/health/trump-
    tariffs-china-devices-drugs.html.

    Despite multiple reports raising alarms for years, there is little
    evidence of improvement. The simple reason is profit maximization by
    the private sector and a lack of a comprehensive, long-term national
    strategy by the public sector. To a great extent, this lost Industrial
    Commons is a consequence of U.S. corporate strategy to maximize profits
    by inventing here and making there. Economic conditions and financial
    incentives made this an effective strategy, and the positive financial
    results have outweighed any doubts or concerns for long-term national
    security or economic health. U.S. government policy, reliant on the
    free market principles of comparative advantage, has largely been
    supportive of offshoring production, turning a blind eye to the
    negative impacts on defense production and the long-term detrimental
    effects on the nation's Industrial Commons. Now, the consequences of
    moving production capacity and know-how offshore has forced a new
    strategy among many U.S. manufacturers and an accepted norm among
    public officials: invent there, manufacture there. The negative and
    dangerous ramifications of this trend cannot be overstated.
    _______________________________________________________________________

                  Short Time Horizons and Shareholder Value *
    ---------------------------------------------------------------------------

        * More detail can be found in The Vanishing Corporation by Gerald
    Davis (2016) and The Shareholder Value Myth: How Putting Shareholders
    First Harms Investors, Corporations, and the Public, by Lynn Stout
    (2012).
    ---------------------------------------------------------------------------
    Despite warnings about loss of manufacturing competitiveness going back
    to the 1980s, U.S. manufacturing has continued to shrink as a share of
    GDP, has had worsening trade balance in advanced technologies, and has
    become more dependent on foreign sources for critical inputs. The
    overwhelming conclusion is that market forces, specifically financial
    market forces, drive the managers of U.S. manufacturers to make
    decisions that have proven to be harmful to national interests. These
    same forces are not evident in other advanced nations, such as Germany
    and Japan, that have maintained strong manufacturing sectors.

    Public corporations in the United States are frequently criticized for
    focusing on quarterly profits and changes to their stock price. This
    focus is partially driven by rapid turnover in stock ownership: the
    average time investors hold a stock fell from eight years in the 1960s
    to only four months by 2012. Further, senior management compensation
    typically combines salary and stock options, helping to drive decisions
    that will benefit shareholders. Ostensibly intended to maximize the
    value of the business for the owners of the business, using stock price
    as a proxy for business value drives short-term decisions. For
    manufacturers, over-emphasis on minimizing production costs results in
    offshoring of production and constant pressure on suppliers to lower
    costs; treating research as an expense to be avoided rather than a
    long-term investment reduces R&D spending; and using retained earnings
    (and tax windfalls) for stock buybacks rather than productive
    investments compromises long-term competitiveness.

    This focus on shareholder value, now considered a cornerstone of
    American capitalism, is a relatively recent phenomenon, driven by
    policy changes in the 1980s. First, prior to 1982 antitrust standards
    restricted mergers, but antitrust guidelines were relaxed so that a
    large market share of a combined entity would not guarantee that a
    merger would be blocked. Second, the U.S. Supreme Court ruled in 1982
    that state laws against hostile takeovers were unconstitutional because
    they limited interstate commerce. This change led to a rapid increase
    in hostile takeovers, from one in 1980 to more than 100 between 1984
    and 1988. Third, tax reform in 1981 encouraged defined contribution
    retirement plans--termed 401(k) plans after the section in the
    legislation--which greatly increased the number of people owning stock,
    mostly through mutual funds. In 1982, mutual funds had $135 billion in
    assets; by 2017, assets totaled nearly $19 trillion. Mutual funds are
    now the largest owners of corporate stock, sometimes holding more than
    10 percent of individual companies.

    These changes caused and, over time, reinforced shareholder value as
    the primary touchstone for managers of public corporations. Yet,
    according to Gallup, only 52 percent of Americans own stock. Foreign
    firms and U.S. private firms do not face the same pressure to maximize
    stock prices, and by many accounts, are more willing to make long-term
    investments and to consider the interests of all stakeholders when
    making management decisions. The prevalence of so-called stakeholder
    capitalism in Germany, for example, is a significant reason that the
    German manufacturing sector remains more than 20 percent of its GDP.

                        INVENT THERE, MANUFACTURE THERE

    _______________________________________________________________________

    ``Large-scale innovation has become an engine for China's economic
    development.'' Matt Tsie, GM Executive Vice President and GM China
    President, May 2017 \31\
    ---------------------------------------------------------------------------
        \31\ ``GM China science lab key to future global developments.''
    (May 23, 2017). The Newswheel. Retrieved from http://thenewswheel.com/
    gm-china-science-lab-key-to-future-global-developments/.

    The weak state of the U.S. Industrial Commons has had detrimental
    impacts on the entire national innovation ecosystem. As more production
    of advanced technologies has moved abroad, more research and product
    development has moved with it due to the close ties between product and
    process technologies. Studies have shown that manufacturers are twice
    as productive at R&D when that work is collocated with a factory. Yet,
    U.S. manufacturers continue to outsource. Since2000, more than 70,000
    manufacturing plants have closed or moved offshore, threatening the
    nation's innovation ecosystem. The ramifications can be seen not only
    in shifts in R&D spending by manufacturers, but also in the ability of
    U.S. innovators to make new products. Because the nation is dependent
    on its ability to innovate, cracks in the system bode ill for long-term
    national prosperity as high-technology manufacturing is increasingly
    offshored.

    R&D Spending by Manufacturers

    Recent years have witnessed a noticeable shift in R&D spending by U.S.
    manufacturers. Historically, manufacturing companies have been the
    largest corporate R&D spenders, driven by the need for new products,
    incorporating new technologies into existing products, and devising
    new, more efficient processes to make products. The share of R&D
    spending by manufacturers has been falling in the United States. In
    1990 manufacturers spent more than 83 percent of total private sector
    R&D spending in the country; this fell to less than 60 percent in 2002
    before recovering to 66 percent in 2015.\32\ Most of the growth in
    recent years is attributable to the pharmaceutical industry, with other
    advanced manufacturing industries either declining or stagnating
    (Figure 8). Perhaps more worrying, the focus of R&D spending, at least
    among publicly traded manufacturers, has steadily shifted toward
    development, especially incremental product development. A 2007 study
    found that just 6 percent of companies published research in scientific
    journals, down nearly two-thirds since 1980. Largely due to pressure
    from investors, corporations spend less on basic science and have
    closed broad-based corporate research labs.\33\
    ---------------------------------------------------------------------------
        \32\ ``ANBERD: business enterprise R&D broken down by industry.''
    (2017). OECD.Stat. Retrieved from http://stats.oecd.org/
    Index.aspx?DataSetCode=ANBERD_REV4.
        \33\ Matthews, C. (December 21, 2015). ``The death of American
    research and development.'' Fortune. Retrieved from http://fortune.com/
    2015/12/21/death-american-research-and-development/.

    [GRAPHIC] [TIFF OMITTED] T2618.022

    A number of factors have changed this dynamic in the United States.
    First, as more production moves offshore, the locus of both product and
    process development moves with it. There are a few exceptions, such as
    Apple, that maintain control of product design and the processes used
    by suppliers to make those designs, but in many cases, the expertise
    gained by producing builds the expertise needed for new product design
    and development. A 2009 survey of U.S. semiconductor producers
    concluded that process R&D requires proximity to manufacturing
    operations.\34\ In the aerospace industry, the trend toward increased
    outsourcing of parts and systems is seen as diminishing the long-term
    prospects for U.S. business jet manufacturers. Industry representatives
    recognize that many of the best ideas for manufacturing innovation come
    from the factory floor.\35\ Experience demonstrates in multiple
    industries that proximity to manufacturing fuels innovations in both
    products and processes.
    ---------------------------------------------------------------------------
        \34\ Dewey and LeBoeuf. (2009). Maintaining America's competitive
    edge: Government policies affecting semiconductor industry R&D and
    manufacturing activity. Semiconductor Industry Association. Retrieved
    from https://www.semiconductors.org/document_library_and_resources
    /tax/
    maintaining_america_s_competitive_edge_government_policies_affecting_sem
    iconductor_in
    dustry_r_d_and_manufacturing_activities/.
        \35\ U.S. International Trade Commission. (2012). Business jet
    aircraft industry: Structure and factors affecting competitiveness.
    Retrieved from https://www.usitc.gov/publications/332/pub4314.pdf.

    A recent survey of 369 manufacturers reveals the main benefits of
    moving R&D to China (Figure 9).\36\ Most of the top reasons are
    directly related to the strength of China's Industrial Commons.\35\
    U.S. companies have been most aggressive in moving R&D to China in the
    last decade. Figure 10 illustrates both the growth in foreign
    companies' R&D spending in China and the predominance of U.S. companies
    compared to other major countries.\35\ Over 40 percent of all foreign
    R&D investments in China are by U.S. corporations.
    ---------------------------------------------------------------------------
        \36\ ``R&D and innovation spend increasingly moving to China.''
    Consultancy.UK. (November 17, 2015). Retrieved from https://
    www.consultancy.uk/news/2944/rd-and-innovation-spend-increasingly-
    moving-to-china.

    [GRAPHIC] [TIFF OMITTED] T2618.023

    [GRAPHIC] [TIFF OMITTED] T2618.024

    It is important to note that China has an explicit policy to attract
    foreign R&D centers with economic incentives and to recruit both
    expatriate Chinese and foreign scientists. The Thousand Talents program
    was launched in China in 2008 to attract academics to return to China.
    Using appeals to patriotism, financial incentives, and better career
    prospects, China has successfully attracted expatriate scientists with
    experience in defense research. So many scientists have been recruited
    back to China from Los Alamos National Laboratory that they have a
    moniker, ``the Los Alamos club.'' \37\
    ---------------------------------------------------------------------------
        \37\ Chen, S. (March 29, 2017). ``America's hidden role in Chinese
    weapons research.'' South China Morning Post. Retrieved from http://
    www.scmp.com/news/china/diplomacy-defence/article/2082738/americas-
    hidden-role-chinese-weapons-research.

    A second factor reducing R&D investment by U.S. manufacturers is the
    growth of Chinese imports in advanced technology industries (Figure
    11). Research in 2015 found that increases in import competition from
    China tend to reduce R&D and other forward-looking investments.\38\
    ---------------------------------------------------------------------------
        \38\ Arora, A., Belenzon, S., and Patacconi, A. (2015). Killing the
    Golden Goose? The Decline of Science in Corporate R&D. NBER Working
    Paper 20902. Retrieved from http://www.nber.org/papers/w20902.

    [GRAPHIC] [TIFF OMITTED] T2618.025

    Third, management decisions to decentralize R&D, moving it to
    individual business units for the perceived advantage of being closer
    to the customer, often have the perverse effect of losing long-term
    strategic perspective. Instead of providing long-term competitive
    advantage, R&D becomes just another cost center to be minimized.\39\
    ---------------------------------------------------------------------------
        \39\ Knott, A.M. (2017). ``The real reasons companies are so
    focused on the short term.'' Harvard Business Review. Retrieved from
    https://hbr.org/2017/12/the-real-reasons-companies-are-so-focused-on-
    the-short-term.

    Finally, the availability of foreign research and engineering talent
    has grown substantially in recent years. For some companies, moving R&D
    offshore is the high-skilled equivalent of moving production offshore
    for low-cost factory labor. Controlling R&D costs is especially
    critical at a time when R&D productivity has fallen sharply. Between
    the 1960s and 2000s, research productivity fell by a factor of
    eight.\40\ As more researchers are required for a given objective, and
    the number and quality of foreign researchers increases, cost-conscious
    American firms are likely to continue to raise research spending
    abroad.
    ---------------------------------------------------------------------------
        \40\ The trend crosses multiple industries. For example, the number
    of researchers needed to double chip density in accordance with Moore's
    law is 18 times the number needed in the 1970s. Bloom, N.A., Jones,
    C.I., Van Reenen, J., and Webb, M. (2017). Are Ideas Getting Harder to
    Find? Stanford Business School Working Paper No. 3592. Retrieved from
    https://www.gsb.stanford.edu/faculty-research/working-papers/are-ideas-
    getting-harder-find.

    Recent data, as well as corporate announcements, illustrate changes in
    manufacturing R&D. The largest R&D spenders among manufacturers in 2017
    were in the computer/electronics, pharmaceutical, and automotive
    sectors. Intel, which spent nearly $13 billion on R&D, was the only
    computer/electronics firms on the list that actually manufactures in
    the United States. Others, such as Apple and Cisco, spending $10
    billion and $6.3 billion respectively on R&D, use Asian contract
    manufacturers and have no domestic production.\41\ All have significant
    research centers abroad.
    ---------------------------------------------------------------------------
        \41\ Bloomberg; ``Capital IQ.'' (2017). ``Ranking of the 20
    companies with the highest spending on research and development in 2017
    (in billion U.S. dollars).'' Statista. Retrieved from https://
    www.statista.com/statistics/265645/ranking-of-the-20-companies-with-
    the-highest-spending-on-research-and-development/.

    ---------------------------------------------------------------------------
    A few examples of major U.S. firms conducting R&D offshore include:

          Applied Materials, the world's largest supplier of semiconductor
    manufacturing equipment, built its largest research laboratory in
    Xi'an, China because researchers need to be close to the factories
    using the equipment. Government incentives to choose this location
    included a 75-year, discounted lease and 25 percent of operating costs
    paid for five years.\42\
    ---------------------------------------------------------------------------
        \42\ Bradsher, K. (March 17, 2010). ``China drawing high-tech
    research from U.S.'' The New York Times. Retrieved from https://
    www.nytimes.com/2010/03/18/business/global/18research.html.

          General Motors opened a large research center in Shanghai which
    serves as its center of global electric vehicle research because China
    is the world's largest market for electric vehicles. In 2017, China
    manufactured nearly 800,000 electric vehicles.\43\
    ---------------------------------------------------------------------------
        \43\ Stanway, D. (March 20, 2018). ``China electric car execs call
    for policy support, end to protectionism.'' Reuters. Retrieved from
    https://www.reuters.com/article/us-china-autos-electric/china-electric-
    car-execs-call-for-policy-support-end-to-protectionism-idUSKBN1GW0O0.

          Intel has a large research center in Beijing for semiconductors
    and server networks because China is the biggest market for desktop
    computers and has the most Internet users.\44\
    ---------------------------------------------------------------------------
        \44\ Swanson, A., and Bradsher, K. (April 30, 2010). ``China
    drawing H-T research from U.S.'' The New York Times. Retrieved from
    https://www.nytimes.com/2018/04/30/us/politics/trump-china-researchers-
    espionage.html.

          Apple announced two new R&D centers, in Shanghai and Suzhou, in
    2017, joining centers in Beijing and Shenzhen. Apple committed to spend
    over $500 million on research in China focused on working with local
    partners to develop new technologies. China is Apple's largest overseas
    market and home to almost all of its product manufacturing.\45\
    ---------------------------------------------------------------------------
        \45\ Gartenberg, C. (March 17, 2017). ``Apple is opening two more
    R&D centers in China.'' The Verge. Retrieved from https://
    www.theverge.com/2017/3/17/14960534/apple-research-centers-china-
    shanghai-suzhou.

    Relative decline in R&D by U.S. manufacturers, along with a greater
    emphasis on development, means that incremental innovation is the
    primary focus to make current products better, lighter, faster, and
    cheaper--all of which are essential to remain globally competitive. The
    federal government, on the other hand, invests mostly in long-term
    basic research. American corporations rarely leverage the results of
    federal research to transition nascent but promising technologies into
    successful commercial products. In some cases, federal R&D funding
    supports technologies in which there is little if any domestic
    industrial production; advanced batteries are an example. Correcting
    this disconnect in the national innovation system is essential to long-
    term competitiveness. For both defense and commercial innovations,
    federal funding of university-performed R&D is becoming more critical
    to the national innovation system. Yet weaknesses in this part of the
    national innovation system negatively impact the national wealth that
    should be captured from this large investment in R&D.

                            BREAKDOWNS IN THE U.S.
                               INNOVATION SYSTEM

    _______________________________________________________________________

    The emerging shift in strategy by U.S. multinational manufacturers from
    ``innovate here, manufacture there'' to ``innovate there, manufacture
    there'' is creating challenges for the national innovation system that
    may not be fully recognized. Relative decline in domestic R&D spending
    by manufacturers puts more emphasis on government R&D to maintain the
    pace of innovation needed for future national competitiveness.
    Unfortunately, an innovation system that relies on government funding
    of university research is not well suited to maximizing
    commercialization of products. As central as university R&D is to the
    national innovation system, relatively little government funded
    university-performed R&D is converted to national wealth through the
    production and sale of new products and application of new processes
    and methods. Technology transfer from national research laboratories is
    also weak. The system is not even structured to ensure that R&D results
    create national competitive advantage. A national strategy to nurture
    and leverage promising ideas has never been implemented, relying
    instead on market forces. From a global perspective, most R&D results
    from American universities are readily available to be commercialized
    elsewhere, but when viewed from a national perspective, the fruits of
    R&D have not sufficiently driven improvements to national wealth and
    security. Invention without production has been a consistent pattern
    for multiple mass market technologies in recent decades. For the sake
    of long-term growth and security, these shortcomings must be corrected
    at once.

    Figure 12 illustrates the ``cycle of innovation'' typical for
    manufactured products. Basic research in science and engineering is one
    source of a myriad of discoveries and inventions, some of which are
    suitable for new product introductions, some for incremental
    improvements to existing products, and, of course, some that contribute
    to basic scientific understanding. Another equally important source of
    new inventions is the necessity to meet the challenges that arise from
    manufacturing at scale. New process technologies, quality and
    inspection methods, control technologies, and new products emerge from
    the manufacturing experience, depicted by the arrow from Manufacturing
    to Discoveries and Inventions. For those discoveries and inventions
    that could become new products and technologies, additional research--
    translational research--is necessary to demonstrate proof-of-concept.
    Typically, a prototype is built that operates under constrained
    laboratory conditions with sufficient functionality to file for patent
    protection. If the proof-of-concept is promising, a more functional
    prototype is developed and the design is refined for factors such as
    manufacturability, safety, reliability, cost-effective recyclability,
    and user interface. Then the production process is engineered, tested
    and refined in pilot production, and if successful, scaled to full
    manufacture of a new product or technology. Within a manufacturing
    company, new product sales produce the profits to fund the basic
    research that maintains the cycle. Within a research entity based in an
    academic institution or a federal laboratory, other steps are involved
    to move the invention into an existing company or a start-up firm
    created to commercialize it. How this cycle of innovation applies to
    university R&D is where the leakages become obvious, illustrating the
    shortcomings in the system, as well as opportunities to fix it.

    [GRAPHIC] [TIFF OMITTED] T2618.026

    Figure 13 illustrates the same cycle of innovation, but highlights
    serious leakages in the U.S. innovation pipeline as it becomes more
    reliant on university R&D. The basic cycle is the same; however, at
    multiple steps along the way, either knowledge is lost, stagnates in
    the laboratory, or is commercialized abroad.

    [GRAPHIC] [TIFF OMITTED] T2618.027

    First, opportunity for foreign competitors to take advantage of
    research outcomes is, at the moment, a fundamental part of the system.
    Academic research, especially in science and engineering (S&E), is
    dependent on foreign graduate students, predominantly from Asia.

    In 1966, foreign students received 23 percent of S&E doctorates; in
    2015, foreign students received 56 percent of engineering doctorates,
    53 percent in mathematics and computer science, and 44 percent in
    physics.\46\ These graduate students are the hands-on researchers in
    university laboratories and therefore are most intimately familiar with
    the work, have the knowledge needed to recreate the work, and are best
    prepared to help commercialize the results.
    ---------------------------------------------------------------------------
        \46\ National Science Foundation. (2018). Science and Engineering
    Indicators 2018. Retrieved from https://www.nsf.gov/statistics/2018/
    nsb20181/.

    Nationality would not matter if these graduates remained in this
    country. International students are eligible to work in the United
    States for a year after graduating, a period called Optional Practical
    Training. Graduates in science, engineering, technology, and
    mathematics (STEM) can work for an additional two years. After that,
    they are subject to the same visa lottery system as other immigrants.
    Historically, work visas have allowed many to stay.\47\ Many have
    argued that foreign S&E graduates should receive permanent resident
    status (green cards) along with their diplomas,\48\ a reasonable
    argument considering that immigrants have accounted for roughly 25
    percent of the recent innovation activity in the U.S. economy.\49\
    ---------------------------------------------------------------------------
        \47\ The 2010 U.S. census found that 25 percent of the Bachelor's
    degree holders in STEM occupations are foreign-born, as were just under
    half of all Ph.D. holders.
        \48\ The Border Security, Economic Opportunity, and Immigration
    Modernization Act, S.744--113th Congress, proposed eliminating
    numerical limits on immigrants who had earned a doctorate degree or a
    graduate degree in science, technology, engineering, or mathematics
    with an employment offer.
        \49\ Kerr, W. (2007). `The ethnic composition of U.S. inventors.''
    Harvard Business School Working Paper 08-006. Retrieved from https://
    www.hbs.edu/faculty/Pages/item.aspx?num=20233.

    The predominance of foreign students in S&E graduate programs, and the
    growing tendency to return to their home countries, is also tied to the
    loss of the Industrial Commons in the United States and the shift of
    manufacturing R&D abroad. According to the NSF, in 2015 the job market
    for S&E doctorate recipients was the lowest since 2000, 4-13 points
    below its most recent peak in 2006.\50\ With poor job prospects, U.S.
    students avoid graduate studies and foreign students return home even
    if they would prefer to stay.
    ---------------------------------------------------------------------------
        \50\ National Science Foundation. (2015). ``What are the
    postgraduation trends? Science and Engineering Doctorates.'' Retrieved
    from https://www.nsf.gov/statistics/2017/nsf17306/report/what-are-the-
    postgraduation-trends/job-marketscience-and-engineering.cfm.

    However, foreign students are not the only source of leakage. In some
    cases, foreign institutions partner with American universities that are
    often encouraged to include foreign institutions in their research
    proposals. Engineering Research Centers (ERCs), funded by the NSF, have
    been an example, at least until recently. In other cases, foreign
    companies are members or participants in academic research centers.
    These firms may have significant presence, including manufacturing
    facilities, in the United States, and in some cases, may be essential
    participants for a center to access state of the art product and
    process technology. But they may also manufacture exclusively in their
    home countries, capturing the wealth generation and economic multiplier
    benefits at home. Nanotechnology, a national priority reflected in the
    creation of the National Nanotechnology Initiative in 2003, is a case
    in point.\51\ The Japanese firm, Canon, established a U.S. affiliate,
    Canon Nanotechnologies, to partner with the NSF ERC for
    Nanomanufacturing Systems for Mobile Computing and Mobile Energy
    Technologies Display at the University of Texas. But Canon
    Nanotechnologies only conducts R&D; the nanotechnologies Canon licensed
    from the ERC are manufactured in Japan. Similar examples occur in other
    technologies such as displays, batteries, tissue engineering, and solar
    panels.
    ---------------------------------------------------------------------------
        \51\ U.S. Government Publishing Office. (2003). 21st Century
    Nanotechnology Research and Development Act. Retrieved from https://
    www.gpo.gov/fdsys/pkg/PLAW-108publ153/content-detail.html.

    The process of funding academic research presents further opportunity
    for results to be captured by foreign companies. A typical faculty
    member receives funding from NSF and/or other federal agencies for an
    extended period of time to conduct basic research, often totaling
    several million dollars. Once a technology is proven to work even in a
    lab environment, the researcher will have difficulty maturing the
    technology further, for instance by testing prototypes in an operating
    environment, maturing manufacturing readiness or manufacturing at
    scale. After a few futile attempts to attract funding from the
    government or private sources, the researcher turns to (or is
    approached by) a foreign institute with money and facilities to
    establish a laboratory overseas. This happens quite regularly, with the
    loss of multiple promising technologies, all because the United States
    lacks strategy or a mechanism to fund nurturing and maturing of
    valuable results from the R&D that government funded in the first
    ---------------------------------------------------------------------------
    place.

    Within the innovation cycle of university R&D, commercialization is
    dependent on licensing. However, interest in licensing depends on the
    research results demonstrating commercial feasibility through a proof-
    of-concept prototype, which requires translational research. In many
    cases, funding for translational research is not readily available so
    many promising discoveries and inventions remain on the shelf or, at
    best, become side projects while the research team moves on to the next
    grant. This lack of translational research funding is another weakness
    in this innovation cycle.

    Assuming the invention is sufficiently proven to attract licensing
    interest, negotiating a license is often overly complex, time-
    consuming, and expensive. Although some universities have relatively
    simple licenses with simple fees and royalties designed for start-ups,
    established companies perceive the licensing process to be difficult
    and therefore avoid it. Consequently, to a great extent, university
    inventions are licensed to start-ups specifically created to
    commercialize the technology. The start-up culture continues to grow,
    encouraged by hugely successful examples of companies emerging from
    universities.\52\ Between 1980 and 2014, nearly 5,000 companies were
    launched from university research.\53\ By one estimate, 30 percent of
    the value of companies listed on the NASDAQ stems from university-
    based, federally funded research, primarily due to the value of the
    intellectual property generated by the research.\54\ Yet, for
    manufacturing start-ups striving to commercialize hardware products,
    the challenges are significant, especially with a goal of building a
    manufacturing business in this country (see Investment Capital for
    Hardware Start-ups).
    ---------------------------------------------------------------------------
        \52\ Google's initial public offering in 2003 returned over $330
    million to Stanford University.
        \53\ Belz, A. (2016). ``Trends in industry-university research
    relationships.'' A Vision for the Future of Center-Based,
    Multidisciplinary Engineering Research. Washington, DC: The National
    Academies Press. Retrieved from https://www.nap.edu/catalog/23645/a-
    vision-for-the-future-of-center-based-multidisciplinary-engineering-
    research.
        \54\ Ibid.

    Even when hardware start-ups receive venture funding, it typically does
    not include the funds needed to scale production, the next step in the
    innovation cycle and another source of weakness. MIT's study,
    Production in the Innovation Economy, examined 150 production related
    hardware start-ups emerging from MIT research. The study found that
    these start-ups had access to sufficient skills and financing for R&D
    and initial product demonstration, but when the time came to scale
    production to commercial levels, the need for additional capital,
    production capabilities, and lead customers pushed many of these firms
    to move production abroad, usually to China.\55\ Other studies have
    documented a slowdown in the formation of new manufacturing start-ups
    and continuing stagnation in their ability to scale production.\56\
    ---------------------------------------------------------------------------
        \55\ Reynolds, E.B., Samel, H.M., and Lawrence, J. (2014).
    ``Learning by building: Complementary assets and the migration of
    capabilities in U.S. innovative firms.'' In R.M. Locke and R.L.
    Wellhausen (eds.), Production in the Innovation Economy. Cambridge, MA:
    MIT Press.
        \56\ Bonvillian, W.B., and Singer, P.L. (2018). Advanced
    Manufacturing: The New American Innovation Policies. Cambridge, MA: MIT
    Press.

    China's network of suppliers, skills, and customers is strong,
    responsive, and easy to work with. Numerous American consultancies
    facilitate this process at every stage; Dragon Innovation in Boston and
    PCH International in San Francisco are examples. In many cases, Chinese
    investors provide the needed capital to make the move offshore, or to
    buy the U.S. startup outright. Often, these purchases provide access to
    advanced technologies that provide competitive advantage to the buyers
    ---------------------------------------------------------------------------
    that is then lost in this country.

    Part of what makes Chinese production attractive is the willingness of
    Chinese investors to accept the risk and producers to access whatever
    manufacturing processes are necessary to produce the new technology,
    even developing new processes if needed. Except in specialized cases,
    for instance when a technology is defense related, neither universities
    nor hardware start-ups have sufficient funding to increase the
    manufacturability of new technologies, the Manufacturing Readiness
    Level (MRL). Fabricating a few prototypes is not the same as
    manufacturing at scale. Basic fabrication can often be demonstrated in
    the laboratory, but determining the detailed design attributes and the
    engineering architecture needed to scale to volume manufacturing
    requires additional research. Raising the MRL from capability to
    produce in the laboratory (MRL 4) to capability to produce in a
    production representative environment with most of the specifications
    clearly defined (MRL 7) would be a boon to start-ups and other
    licensees and increase domestic alternatives to Chinese production. It
    requires significant investment in creating pilot production
    facilities, which is typically too risky and expensive for venture
    capital investors; large multinational manufacturers tend to show
    interest only after higher TRLs and MRLs are achieved; and currently
    there is no federal S&T agency that funds the necessary translational
    research or invests in maturing MRLs.

    Finally, the importance of the linkages between manufacturing and the
    research that leads to new discoveries and inventions must not be
    overlooked. The knowledge gained by manufacturing includes both
    knowledge about the production process and about the products being
    produced, both of which help to define questions to be tackled by
    research. This is the basis for the growing trend to locate research
    activities near the offshore factories reside, to be near the knowledge
    and the questions. By not manufacturing, the United States is losing
    ground in a range of industries-displays, energy storage, drones, solar
    cells, for example-that are important to national security and future
    commercial industries.

    Investment Capital for Hardware Start-ups

    The venture capital industry in the United States is the world's
    largest and most robust, well recognized for its critical role in the
    national innovation system. As important as it is, venture capital is
    rarely invested in manufacturing and, in fact, is ill-suited for
    hardware start-ups that need long-term, patient capital to ensure
    success.

    Since 2002, both the number of deals and the amount invested by venture
    capital funds in manufacturing have averaged just 0.4 percent. The
    dollars invested exceeded 1 percent of the total (barely) only twice,
    in 2008 and 2009.\57\ Figure 14 illustrates the distribution of venture
    capital investment by market sector in 2017.
    ---------------------------------------------------------------------------
        \57\ Explore data at PWC, https://www.pwc.com/us/en/industries/
    technology/moneytree/explorer.html#/
    %20type=history&category=¤tQ=Q1%202018&qRangeStart=Q1%202013&q
    RangeEnd=Q1%202018&chartType=bar

    [GRAPHIC] [TIFF OMITTED] T2618.028

    The reasons so little venture capital is invested in manufacturing
    start-ups are simple: cascading risks and time. Compared to the most
    common alternatives in software and biotechnology, manufacturing new,
    unproven products confronts risks at multiple points. Will the product
    work as intended? Can it be manufactured profitably? Are needed
    suppliers available at the right cost and delivery time? Will customers
    buy it in sufficient quantities to justify the needed capital
    investment? Obviously, many of these challenges face software and
    biotechnology start-ups, but the investments required to rapidly scale
    software are much lower than hardware.\58\ The operational costs to
    launch a software company declined by an estimated factor of 100
    between 2000 and 2010. As a result, private capital markets skewed
    strongly toward software: software attracts capital at a rate of
    roughly 7:1 compared to industrial opportunities, compared with roughly
    2:1 twenty years ago.\59\
    ---------------------------------------------------------------------------
        \58\ Bonvillian and Singer describe why VCs are drawn to software
    and biotechnology in ``Innovation Orchards:'' Helping Tech Start-Ups
    Scale, from ITIF (2017), available at https://itif.org/publications/
    2017/03/27/innovation-orchards-helping-tech-start-ups-scale.
        \59\ Belz, A. (2016). ``Trends in industry-university research
    relationships.'' A Vision for the Future of Center-Based,
    Multidisciplinary Engineering Research. Washington, DC: The National
    Academies Press. Retrieved from https://www.nap.edu/catalog/23645/a-
    vision-for-the-future-of-center-based-multidisciplinary-engineering-
    research.

    Although venture capital has a history of funding favored industries in
    waves--the current wave favors artificial intelligence start-ups--a
    review of a few recent hardware start-ups helps to explain the relative
    lack of interest. According to CB Insights, the seven largest consumer
    hardware start-ups in recent years were Jawbone, NJoy, Juicero, Fuhu,
    Pebble, Zeebo, and hello. Between them, they raised nearly $1.5
    billion. Four went bankrupt and three were purchased: Pebble sold to
    Fitbit; Fuhu, a tablet maker, sold to Mattel; and NJoy, an e-cigarette
    maker, was purchased by Homewood Capital.\60\ At least in this consumer
    hardware industry segment, success has been far from assured.
    ---------------------------------------------------------------------------
        \60\ CB Insights. (2017). ``The Top 9 Reasons Hardware Startups
    Fail.'' Retrieved from https://www.cbinsights.com/research/report/
    hardware-startups-failure-success/.

    [GRAPHIC] [TIFF OMITTED] T2618.029

    [GRAPHIC] [TIFF OMITTED] T2618.030

    The U.S. venture capital market is also becoming more international,
    with foreign-based funds capturing a growing share of the market,
    reaching nearly 25 percent of the market. Figure 15 illustrates this
    foreign participation in 2017. Foreign investment in and purchases of
    U.S. start-ups has raised concerns in some sectors.\61\ For example,
    Chinese investment in Neurala, a Boston-based artificial intelligence
    start-up with technology to make robots more perceptive, raised alarms
    in government circles, but Neurala had been unsuccessful raising
    government or private U.S. capital. Investments in other firms
    developing technologies with potential military applications, such as
    rocket engines, sensors for autonomous vehicles, and flexible
    electronics have also raised concerns among U.S. military
    officials.\62\ The aerospace industry has been particularly attractive
    to Chinese investors with multiple deals made in recent years (Figure
    16).\63\ At least partially to counter this weakness in the private
    venture capital market, state governments, universities, and non-profit
    organizations have established small angel and venture funds. Usually
    established as part of a state's economic development efforts, these
    funds have a mixed record of success, usually due to investment
    decisions based on political expediency rather than rigorous
    technological and market assessment. However, many have navigated
    sometimes conflicting objectives to achieve long-term success. Some of
    the larger public venture funds include Connecticut Innovations,
    Elevate Ventures (Indianapolis), Innovation Works (Pittsburgh), TMCx
    Innovations (Houston), TEDCO (Maryland), and Rev1 Ventures (Columbus,
    Ohio). These funds typically restrict funding to start-ups established
    in the local state or region, often as university spin-offs. Among the
    larger funds, they are more likely than private venture capitalists to
    invest in hardware, production-oriented start-ups, averaging roughly 20
    percent of their portfolios.\64\ Some examples include:
    ---------------------------------------------------------------------------
        \61\ Sprinkle, T. (2017) ``Strings Attached.'' Mechanical
    Engineering, 139(05), 32-37. http://doi.org/10.1115/1.2017-May-1.
        \62\ Mozur, P. and Perlez, J. (2017, March 22). ``China bets on
    sensitive U.S. start-ups, worrying the Pentagon.'' The New York Times.
    Retrieved from https://www.nytimes.com/2017/03/22/technology/china-
    defense-start-ups.html.
        \63\ Ohlandt, C., Morris, L., et. al. (2017). Chinese Investment in
    U.S. Aviation. Santa Monica, CA: RAND Corporation.
        \64\ Internal analysis conducted on data gathered from PitchBook,
    https://pitchbook.com/.

          The Oregon Nanoscience and Microtechnologies Institute leveraged
    Portland's historical strength in the semiconductor industry to create
    a new state-wide cluster, including gap funding (via two programs
    offering $75,000, then $250,000) to support nascent materials science
    ---------------------------------------------------------------------------
    ventures.

          The Georgia Research Alliance (GRA) has made more than $600
    million in investments, providing funding to university spin-offs in
    phases, which can include equity investments by the GRA Venture Fund of
    more than $1 million.

          The Engine, started at MIT in 2016, provides affordable
    workspaces, access to specialized equipment, efficient business
    services, and patient capital to start-ups in biotechnology, robotics,
    manufacturing, medical devices, and energy.\65\
    ---------------------------------------------------------------------------
        \65\ Matheson, R. (October 26, 2016). ``MIT launches new venture
    for world-changing entrepreneurs.'' MIT News. Retrieved from https://
    news.mit.edu/mit-announces-the-engine-for-entrepreneurs-1026.

          SC Launch, a non-profit division of the South Carolina Research
    Authority, provides grants, loans, and direct investments to start-ups,
    along with mentoring and networking. Funding is provided through a
    combination of private donations and sales of state tax credits up to
    $6 million annually. Its portfolio includes 164 companies, roughly 40
    percent of which are manufacturers.\66\
    ---------------------------------------------------------------------------
        \66\ Interview with Jill Sorensen, Director of Entrepreneurial
    Programs for SCRA.

    Incubators and accelerators, often with public funding support, are
    also an important part of the start-up landscape. Some, such as
    Greentown Labs in Boston, have targeted programs for hardware start-
    ups, working closely with the local MEP to find local manufacturers
    with production capabilities to partner with start-ups. Others have
    ties to local universities, especially engineering schools. Some
    include maker spaces, typically 3D printers but sometimes other CNC
    machine tools, that start-ups can use to perfect prototypes and address
    manufacturing issues. The support and infrastructure provided by
    incubators can help hardware start-ups make progress faster, but they
    still face issues in scaling production, which is often most easily
    ---------------------------------------------------------------------------
    done in China.

    Corporate venture capital (CVC) funds are also becoming more common
    among large manufacturing companies. More than 1,000 CVCs were active
    in 2017 with the 10 most active being Google Ventures, Intel Capital,
    Salesforce Ventures, Qualcomm Ventures, GE Ventures, and Microsoft
    Ventures. Two Chinese funds, Legend Capital and Fosun RZ Capital, and
    two South Korean funds, K Cube Ventures and Samsung Ventures, round out
    the top 10.\67\ Within specific sectors, such as autonomous vehicles,
    the CVC funds of large suppliers, including Bosch, Delphi, and Magna,
    have made investments and acquisitions in the full range of relevant
    technologies: radar, lidar, and optical sensors; artificial
    intelligence and data analysis software for autonomy; and connected
    vehicle cybersecurity.\68\
    ---------------------------------------------------------------------------
        \67\ CB Insights. (February 28, 2018). The most active corporate VC
    firms globally. Retrieved from https://www.cbinsights.com/research/
    corporate-venture-capital-active-2014/.
        \68\ Ibid.

    Even including the investments by public and corporate funds, hardware
    start-ups receive much less attention and less funding than firms in
    other sectors, especially relevant to the capital needed to scale
    production to commercial volumes. It is evident that, at least for
    hardware start-ups, the U.S. system of starting companies based on
    publicly funded research results, simply does not work. Despite
    fundraising innovations such as Kickstarter and other crowdfunding
    mechanisms, expecting hardware start-ups to raise seed, angel, and
    venture funding to perfect their product, and then raise more funds to
    fully commercialize the product with production in the United States is
    ---------------------------------------------------------------------------
    a tall order that few achieve.

    Insufficient capital is available for hardware companies; in too many
    cases, needed production expertise and capacity are not obtainable
    because of the lost Industrial Commons; and inputs such as components,
    subassemblies, and test equipment are not available domestically. To
    build production capacity in the United States, the best option often
    is to sell to larger American manufacturers, but this option is only
    available if the start-up's product or technology meets a need of a
    larger firm. Many do not. Too frequently, the easiest option is to move
    production offshore, usually to China.

    All of these breaks in the national innovation cycle mean that the
    United States is failing to capture all of the national wealth that
    should be created from what remains the world's largest national
    investment in R&D. In fact, U.S. R&D is benefiting the manufacturing
    sectors of competing nations. With a clear recognition of these
    leakages in the innovation cycle, targeted investments are necessary to
    fix the cycle, commensurate with the importance to future national
    security and economic prosperity.

                  TRANSFORMATIONAL MANUFACTURING TECHNOLOGIES

    _______________________________________________________________________

    The emergence of new technologies is creating opportunities, perhaps
    even an imperative, to rebuild U.S. manufacturing competitiveness in
    advanced technologies. Cross-cutting technologies and advanced
    materials are impacting multiple industries in ways that advantage
    domestic production. At the same time, product and process technology
    shifts in specific advanced industries, including pharmaceuticals and
    semiconductors, are creating opportunities to leapfrog existing
    standard practice. Successful firms will be capable of rapidly adapting
    their physical and intellectual infrastructures to exploit changes in
    technology as manufacturing becomes faster and more responsive to
    changing global markets. With supportive government policies and
    appropriate investments, U.S. manufacturing can regain leadership,
    rebuild the Industrial Commons, capture all the benefits from the
    nation's R&D spending, and comprehensively meet national security
    requirements.

    Smart Manufacturing

    The broadest and most impactful transformative change affecting
    manufacturing is the application of powerful computing, networking,
    sensing, data analytics, machine learning, and artificial intelligence.
    Collectively known under various monikers--Smart Manufacturing,
    Industry 4.0, Industrial Internet of Things (IIOT)--the digitalization
    of manufacturing is creating profound shifts in where and how
    production is done and participation in global value chains. Combined
    with advanced materials, nanotechnology, sustainability, rapid product
    cycles, and other market forces, future manufacturing will be vastly
    different from the mass production, cost minimization strategies that
    have driven decisions for the past three decades. Smart manufacturing
    creates the opportunity to re-establish domestic production in advanced
    industries, providing competitive advantages from increased efficiency,
    security, rapid response to customer demand, and new product features
    incorporating sustainability and resource optimization. Value will be
    derived from time to market, response to demand changes, inventory
    optimization, asset utilization, resources optimization, and quality
    improvement, rather than the simple cost minimization strategies that
    have driven offshore production. The challenge for U.S. industry will
    be to deploy the relevant technologies quickly and effectively and to
    adapt business models to take advantage of these new capabilities.

    Smart manufacturing encompasses a range of technologies implemented on
    the factory floor, in the communication networks between producers and
    consumers to integrate supply chains, and in all the logistics,
    financial, and management systems that pervade all levels of industrial
    production. A few of the critical technologies include:

    Product development: Sophisticated computer-aided engineering tools,
    including optimization, design for manufacturing, material selection
    and certification, statistical design of experiments, data analytics
    and virtual reality tools are increasingly used to design and develop
    new products to reduce product introduction failures, reduce product
    development costs and to meet custom market niches. Accelerating
    product development is the top priority, so far, for firms using 3D
    printing.\69\ Incorporating smart technology features into products
    will also be important as connectivity, self awareness, and
    interactivity become expected by consumers.
    ---------------------------------------------------------------------------
        \69\ Sculpteo. (2018). The State of 3D Printing 2017. Retrieved
    from https://www.sculpteo.com/media/ebook/State_of_3DP_2018.pdf.

    Distributed manufacturing: Contract manufacturing using Asian
    contractors has become standard operating procedure in electronics and
    other industries, and machine shops used to make parts have always been
    a major part of supply chains. However, advances in production
    technologies, such as rapid injection molding, additive manufacturing
    and CNC milling (subtractive manufacturing) are expanding opportunities
    for local production of custom parts and final products. Companies such
    as Xometry, based in Maryland, ProtoLabs, based in Minnesota, and
    Fictiv in San Francisco offer on-demand manufacturing services based on
    digital part designs uploaded by customers.\70\ Software Defined
    Manufacturing is an emerging cloud-based distributed manufacturing
    concept, supported by IBM and others, in which a part design is shared
    with a community of manufacturers who identify an optimal producer that
    can meet time and volume requirements.\71\
    ---------------------------------------------------------------------------
        \70\ https://www.xometry.com/; https://www.protolabs.com/; https://
    www.fictiv.com/.
        \71\ Breitgand, D. (2014). ``Collaborative manufacturing as a
    service in the cloud.'' IBM Research. Retrieved from https://
    www.ibm.com/blogs/research/2014/12/collaborative-manufacturing-as-a-
    service-in-the-cloud/.

    Integration of Operational Technology (OT) and Information Technology
    (IT): OT/IT integration is central to smart manufacturing. Multiple
    benefits include dramatic increases in capacity utilization, from a
    current average of roughly 60 to 85 percent and more. Sensors on
    production equipment (often retrofittable) tracking parameters such as
    temperature, vibration, and current load, combined with effective
    analysis of the resulting data, are enhancing predictive maintenance
    resulting in much higher machine uptime. For example, a Michigan
    manufacturer increased uptime 20 percent by applying sensors to monitor
    tool wear on the shop floor.\72\ New business models are also emerging
    in which equipment providers use performance-based contracting to
    guarantee uptime, enabled because of the data generated by the sensor-
    laden equipment.
    ---------------------------------------------------------------------------
        \72\ Hitch, J. (March 22, 2018). ``Adopt or Die: AI Leaves
    Manufacturing No Choice.'' Industry Week. Retrieved from http://
    www.industryweek.com/technology-and-iiot/adopt-or-die-ai-leaves-
    manufacturing-no-choice.

    Edge Computing: To take advantage of the computational power of cloud
    computing while avoiding its inherent latency, edge computing is
    emerging as a an effective means to process sensor data locally for
    real-time production control, then, when necessary, passing batch data
    to the cloud for in-depth analysis. Companies such as Saguna Networks
    specialize in edge computing. Other firms, such as Mocana \73\ and
    Rubicon Labs \74\ (both in San Francisco), specialize in secure
    communications from sensors and industrial control systems to the cloud
    to address cybersecurity issues.
    ---------------------------------------------------------------------------
        \73\ https://www.mocana.com.
        \74\ https://www.rubiconlabs.io.

    Automation and robotics: Industrial robots are experiencing rapid
    advances in capabilities due to improved sensors, manipulators, control
    systems, connectivity, and processing power. Currently, three-quarters
    of industrial robots are used in just four industries: transportation
    equipment, machinery, computers and electronics, and electrical
    equipment, appliances, and components. Roughly 80 percent are used in
    five countries: China, Germany, Japan, South Korea, and the United
    States, with China significantly ahead. Use of industrial robots has
    grown nearly 20 percent in recent years, with most of that growth in
    Asia.\75\ However, U.S. shipments of industrial robots reached a record
    high in 2017 and continued strong performance through early 2018.\76\
    One recent innovation is collaborative robots (``cobots''), easily
    reprogrammable robots that work alongside production staff without
    being enclosed in a safety cage. Rethink Robotics, headquartered in
    Boston, is a leading cobot manufacturer with easy-to-train, quickly
    deployable robots used in a wide range of applications and industries
    including packaging, machining, and inspection. Relatively inexpensive,
    one manufacturer estimates that its robots pay for themselves in less
    than 200 days.\77\
    ---------------------------------------------------------------------------
        \75\ International Federation of Robotics. (2017). World Robotics
    2017 Industrial Robots. Retrieved from https://ifr.org/free-downloads/.
        \76\ Robotic Industries Association. (February 26, 2018).
    ``Robotics, vision and motion control industries set new growth records
    in 2017.'' Robotics Online. Retrieved from https://www.
    robotics.org/content-detail.cfm/Industrial-Robotics-News/Robotics-
    Vision-and-Motion-Control-Industries-Set-New-Growth-Records-in-2017/
    content_id/7019.
        \77\ Universal Robots A/S. (July 20, 2017). ``Universal robots
    saves 9 hours of production time at Glidewell Laboratories.'' Robotics
    Online. Retrieved from https://www.robotics.org/content-detail.cfm/
    Industrial-Robotics-Case-Studies/Universal-Robots-Saves-9-Hours-of-
    Production-Time-at-Glidewell-Laboratories/content_id/6638.

    Additive manufacturing: Also known as 3D printing, additive
    manufacturing is beginning to move from models and basic prototypes to
    production of parts with complex geometries. The additive manufacturing
    industry is making strides toward mass production applications, which
    will have broad impacts on tooling costs, materials, supply chains, and
    logistics. GE Aircraft Engines, for example, has used metal additive
    manufacturing to reduce part counts and build an engine that is 15
    percent more fuel efficient. UTC Aerospace Systems is using metal
    additive manufacturing across a range of materials to reduce weight,
    part counts and lead times up to 80 percent.\78\ Adidas has partnered
    with Carbon to mass produce 3D-printed custom shoes. General Motors is
    working with Autodesk to increase the number of production ready parts
    made with additive technology. For example, a 3D-printed stainless
    steel seat bracket is 40 percent lighter and 20 percent stronger than
    its predecessor, replacing eight components and multiple suppliers with
    just one.\79\ A number of start-ups promise to increase the catalog of
    materials that can be used in additive manufacturing including a
    broader range of metals and carbon fiber composites.\80\
    ---------------------------------------------------------------------------
        \78\ Canaday, H. (May 14, 2018). ``UTC aerospace working vigorously
    on additive metal parts.'' MRO Network. Retrieved from http://www.mro-
    network.com/manufacturing-distribution/utc-aerospace-working-
    vigorously-additive-metal-parts.
        \79\ Carey, N. (May 3, 2018). ``GM bets on 3D printers for cheaper
    and lighter car parts.'' Reuters. Retrieved from https://
    www.reuters.com/article/us-general-motors-parts/gm-bets-on-3d-printers-
    for-cheaper-and-lighter-car-partsidUSKBN1I408K.
        \80\ CB Insights. (December 28, 2017). ``Corporate investments
    drive a new wave of industrial 3D printing.'' Retrieved from https://
    www.cbinsights.com/research/corporate-investment-industrial-3d-
    printing/.

    New business models are emerging, based on many of these technologies,
    that allow SMMs to access powerful tools such as modeling and
    simulation on a pay-per-use basis, lowering cost, simplifying access,
    and increasing flexibility. The computational power of the cloud
    eliminates the need for specialized and expensive hardware and
    software, thereby lowering barriers to entry for SMMs. Intelligent
    design tools are one emerging technology available through the cloud,
    in which the software detects design aspects that are not
    manufacturable and suggests alternate solutions or, in some cases, only
    creates designs that are easily manufacturable. Autodesk's Simulation
    ---------------------------------------------------------------------------
    360 is one such example.

    Other business models are also emerging that provide an opportunity to
    regain domestic production in the context of a changing manufacturing
    environment. For example, Manufacturing as a Service (MaaS) takes
    contract manufacturing steps further, relying on shared use of a
    networked manufacturing infrastructure. As more manufacturing
    infrastructure--everything from design software, production planning,
    and equipment--becomes networked, demand for more products of more
    variety can be met without owning any producing equipment. The results
    should be lower costs, greater machine utilization, more capacity, and
    more options for materials use, product features, and cost-effective
    low-volume custom production.

    Disruptive technologies in individual industries are also creating
    opportunities for the United States to establish, or re-establish,
    strong positions. In some cases, these technologies are in industries
    with important national security implications, such as semiconductors
    and pharmaceuticals.

    System-in-Package

    Semiconductor packaging moved offshore in the 1980s because it was
    labor intensive. Now fully automated, emerging packaging technologies,
    System-in-Package (SiP), are creating an opportunity to restore
    domestic packaging operations, a big step in recapturing control of the
    advanced semiconductor value chain.

    Currently Intel and GLOBALFOUNDRIES operate the most advanced
    semiconductor fabs in the United States; both ship completed silicon
    wafers to Asia for packaging. Continuing progress in reducing feature
    sizes, with the frontier now at 7 nanometers and below, integration of
    multiple functions as System-on-Chip (SoC), and three-dimensional
    integrated circuits are all defining the state of the art.\81\ SiP is a
    complementary technology to SoC in which multiple silicon chips are
    placed in a single package and connected using wire bonds or solder
    bumps to reduce the overall system size. Firms such as Apple are using
    SiPs to mix multiple components--central processors, logic, analog, and
    memory--into a single package.\82\
    ---------------------------------------------------------------------------
        \81\ Wessner, C., and Howell, T. (2018). Partnering to Grow the New
    York Regional Nano-
    Cluster, Washington, DC: Georgetown University.
        \82\ Shih, W. (2018). Can an integrated semiconductor manufacturing
    capability be restored in the United States? Unpublished manuscript.
    Harvard Business School, Cambridge, MA.

    Packaging started as a manual process, but is now largely automated. It
    continues to be located in Asia because of the experience base--the
    Industrial Commons for this activity--resides in the leading packaging
    firms that have refined processes since the 1980s. The emergence of SiP
    and continued advances in the technology creates an opportunity to re-
    establish packaging capability in the United States as existing
    packaging facilities become obsolete. With appropriate incentives, SiP
    operations could be built near U.S. existing fabs, which could then
    create advantages to establishing circuit board assembly plants nearby,
    too. By taking advantage of a discontinuous technology, SiP, much more
    of the semiconductor value chain could be rebuilt in this country with
    positive impacts on defense electronics and most other hardware sectors
    as digitalization becomes pervasive.

    Continuous Manufacturing of Pharmaceuticals

    Solid format pharmaceuticals are typically a batch production process.
    Combinations of active and inert ingredients are combined in carefully
    measured proportions, then fed into pill-forming or capsule-filling
    machines to prepare batches of final product. Many steps in this batch
    production process take time and create the possibility of mistakes.
    Multiple production lines increase the volume and variety of
    production, but also multiply the risk of quality defects. Plus,
    mixers, feeders, and other equipment must be cleaned between batches to
    avoid cross-product contamination. Batch production is relatively
    labor-intensive, which helps to explain why so much manufacturing,
    especially of generic drugs, is done in China and India.

    Continuous manufacturing (CM) methods for powder-based pharmaceuticals
    eliminates batch processing for much faster, more reliable production
    through an uninterrupted process. CM can shorten production times,
    allows for more precise production control, and reduces the likelihood
    of errors and production breakdowns. The technology can be used for an
    entire production process or for specific operations within a larger
    process. The Center for Structured Organic Particulate Systems (C-SOPS)
    at Rutgers University, in partnership with other universities and
    industry, has been a leader in the development of CM technology.\83\
    ---------------------------------------------------------------------------
        \83\ http://www.csops.org/.

    Congress recognized the potential offered by CM for drug production,
    enacting the ``21st Century Cures Act'' in 2016, which authorized
    grants to support continued development of CM. The Food and Drug
    Administration (FDA) encourages firms to adopt CM, provides technical
    assistance, and has issued guidance to industry wanting to implement CM
    and other technologies.\84\ A growing number of manufacturers,
    including Lilly, Vertex, and Janssen Pharmaceutical Companies, are
    using CM. As precision medicine and rapid response to patient needs
    become more important, CM can create competitive advantages for
    domestic production of pharmaceuticals and, in the future, other high-
    value chemicals.
    ---------------------------------------------------------------------------
        \84\ FDA. (2017). Advancement of emerging technology applications
    for pharmaceutical innovation and modernization, guidance for industry.
    Retrieved from https://www.fda.gov/downloads/Drugs/
    GuidanceComplianceRegulatoryInformation/Guidances/UCM478821.pdf.

    These are just a sample of the technologies already in use or emerging
    that will have profound effects on where, how, and how much
    manufacturing takes place. The United States has an opportunity to take
    a leadership role, especially since many of these technologies rely on
    U.S. strengths in design, software, and networking. But capturing the
    competitive advantages requires broad-based dissemination and
    implementation of the enabling technologies. Although there is strong
    evidence that implementation of smart technologies exceeds expectations
    for efficiency gains and return on investment, relatively few
    manufacturers have made serious inroads to implementation. Lack of
    knowledge, fear, skill availability, and focus on the daily pressures
    ---------------------------------------------------------------------------
    to meet production targets prevent SMEs from moving more rapidly.

    Leadership in smart manufacturing should be considered a national
    priority and should be addressed with targeted programs and policies
    that will accelerate implementation. These would include mobilizing
    expertise; providing financial resources to buy technology;
    accelerating development of needed standards; and identifying a clear
    glide path for technology implementation appropriate for different
    firms in different industries of different sizes. Federal, state, and
    local governments have a role, along with trade associations and other
    industry groups. Some are already making strong contributions.
    Automation Alley in the Detroit region is one example.\85\
    ---------------------------------------------------------------------------
        \85\ https://www.automationalley.com/.

    Because smart manufacturing will eventually be pervasive and essential
    to both national economic strength and national defense, it is
    important that the enabling technologies be produced domestically,
    including not only design but also manufacturing. Sensors, controllers,
    networking, and the other hardware requirements for data analysis and
    machine intelligence are too important to rely on foreign sources. From
    a security perspective the same principles currently being applied to
    drones and telecommunications equipment from Chinese providers ZTE and
    Huawei should be applied to smart manufacturing. From a competitiveness
    perspective, these smart manufacturing technologies will evolve and the
    most effective way to ensure both continuous improvement and first
    mover advantages in technology implementation will be to manufacture
    ---------------------------------------------------------------------------
    the enabling electronics domestically.

    U.S. manufacturing needs to get in front of the wave of change created
    by disruptive technologies. Markets are changing as consumers want
    instant gratification. Intelligent technology is pervading whole
    sectors: autonomous vehicles, drones, distributed energy and
    intelligent grids, and all areas of defense production, to name a few.
    The United States has been ahead in performing the research that
    creates the technologies that enables all of these changes, but has not
    maintained production capabilities to capture global markets, value
    added, and wealth creation. This failure has impacted the long-term
    health of the economy and national security. By increasing the pipeline
    of new products, investing in the necessary manufacturing capabilities
    to make those new products, and incentivizing broad-based
    implementation of smart manufacturing technologies, the United States
    can recapture its manufacturing leadership.

                               BOLD STRATEGY AND
                              CRITICAL NEXT STEPS

    _______________________________________________________________________

    U.S. manufacturing is on the cusp of a new era. In contrast to recent
    decades in which the focus has been on globalization, cost reduction,
    and lean production, the coming decades promise a much more responsive,
    flexible, and intelligent manufacturing sector. Advances in a myriad of
    technologies ranging from high-performance materials to ubiquitous
    sensors, from self-correcting robots to autonomous factories, will
    transform both products and processes. The United States is well-placed
    to take advantage of the opportunities created by these technological
    advances, building on strengths in research at world-class
    universities, software development, systems integration, creativity,
    and innovation. But taking advantage and recapturing industrial
    leadership will require national recognition of the importance of
    manufacturing and a focus on building the industries of the future.

    Unlike many competing nations, the United States does not have a
    national manufacturing strategy. Countries such as Germany, South
    Korea, Japan, and China have manufacturing strategies with long-term
    R&D programs, investments in infrastructure, and national goals for
    specific industries. The details vary, but common themes include
    maintaining a strong industrial research infrastructure and vocational
    education system, and building sustained competitive advantage in
    important export industries. Public-private partnerships are usually
    important mechanisms. Although the United States has many government
    programs, at both the state and federal levels, they are neither
    coordinated nor funded to translate basic research into U.S.-based
    manufacturing, do not include meaningful metrics, and tend to devolve
    to short-term problem solving rather than long-term strategy. Most
    federal S&T agencies do not invest in manufacturing research to advance
    process technologies and innovations in manufacturing machines and
    equipment.

    Instead, the U.S. approach relies on market-based decisions, which for
    most large manufacturers, have been based on cost reduction and
    quarterly earnings. Over time, the result of myriad decisions has
    resulted in a ``hollowing out'' of U.S. industry as production was
    moved offshore. U.S. manufacturers first moved to reduce labor costs,
    then to build production in growing foreign markets, and then to take
    advantage of skills and supplier capabilities that are often in short
    supply here. The long-term negative ramifications of this shift of
    production abroad are now apparent, creating a number of ``grand
    challenges'' that must be addressed to restore U.S. manufacturing,
    especially in advanced technologies critical to national security and
    prosperity. These manufacturing grand challenges include:

    1. Rebuild the Industrial Commons
    The United States has lost fundamental production skill and
    capabilities--the Industrial Commons--in many industries and has lost
    entire industrial sectors, with noticeable impacts on the national
    innovation system and growing adverse effects on the defense industrial
    base.\86\ Production can provide competitiveadvantages that are
    difficult to copy and have long-term sustainability. Maintaining
    domestic manufacturing capabilities is essential to retaining the know-
    how needed to produce next generation technologies, and to retaining
    critical defense production.
    ---------------------------------------------------------------------------
        \86\ For recent examples, see Mehta, A. (May 22, 2018). ``America's
    industrial base is at risk, and the military may feel the
    consequences.'' Defense News. Retrieved from https://www.
    defensenews.com/pentagon/2018/05/22/americas-industrial-base-is-at-
    risk-and-the-military-may-feel-the-consequences/.

    2. Convert national R&D to national wealth and security
    Leading the world in R&D spending is not sufficient to ensure
    prosperity. Technologies invented here are being licensed, sold, or
    given away to manufacture overseas, which, in effect, is subsidizing
    R&D for other countries. The results of R&D must create new products,
    including defense critical technology products, that can be made in
    America at commercial scale to generate wealth, jobs, and exports.

    3. Lead emerging industries
    To ensure future economic strength and defense superiority, the United
    States must have a leadership position in emerging industries such as
    autonomous vehicles, robotics, metal-additive manufacturing,
    biomanufacturing, energy storage, advanced materials, and quantum
    computing, to name a few. Dependence on foreign suppliers, regardless
    of how much cheaper they may be, is creating defense vulnerabilities
    and long-term competitive disadvantages.

    Bold steps are needed to ensure that these challenges are met quickly
    and vigorously. Market forces alone are unlikely to achieve the needed
    change. They have not so far. With sustained, strategic investments,
    the United States can regain fundamental manufacturing capabilities,
    ensure a return on federal investments in R&D, capitalize on technology
    changes broadly affecting manufacturing, establish leadership in new
    industries, and restore the broad-based supplier networks that are
    essential to economic and national security.

    Restoring U.S. manufacturing leadership and, perhaps more importantly,
    restoring the nation's ability to capture wealth from the national
    innovation system with a robust manufacturing base, is a challenge to
    both the private and public sectors. Manufacturers, driven by short-
    term financial incentives, primarily focus on the current product
    development through incremental innovation while abandoning the long-
    term translational R&D needed to mature basic research results into a
    ``next big thing.''

    Only government can overcome this market failure and enable the United
    States to remain globally competitive.

    The nation must be aggressive in meeting the grand challenges and
    pursuing the opportunities created by rapid technological change, for
    the sake of wealth creation and national security. Rebuilding the
    Industrial Commons, performing the translational research necessary to
    fully commercialize basic research results, and incentivizing the
    widespread adoption of smart manufacturing and other advanced
    technologies are all areas in which the role of government is
    paramount. A few new programs will not suffice; they haven't in the
    past. Bold new initiatives with long-term commitment will make the
    difference.

    Paramount for government is to make investments in manufacturing
    research, process technologies and innovation, and systems engineering.
    The impact will be:

          Wealth is created from public R&D;\87\
    ---------------------------------------------------------------------------
        \87\ The goal is to advance both Technology Readiness Levels (TRLs)
    and Manufacturing Readiness Levels (MRLs).

          Domestic industry, especially SMMs, implements advanced
    ---------------------------------------------------------------------------
    technologies faster than foreign competitors;

          Defense production capabilities are maintained and foreign
    dependence minimized; and

          The skills and knowledge needed at all levels of industry and
    the national research enterprise are readily available.

                              Critical Next Steps

    The United States needs a broad national conversation to identify the
    necessary steps to achieve these objectives. MForesight hosted a series
    of roundtables in early 2018 to begin this conversation, attended by
    diverse stakeholders from business, government, and academia. These
    discussions generated a number of promising ideas to address the grand
    challenges that were identified at the roundtables. A summary of
    actionable next steps that the nation needs to take to overcome the
    grand challenges follows.

    Invest in Translational R&D and Manufacturing Innovation

    Restoring the ability to generate wealth from the billions invested in
    R&D should be a national priority. The innovation cycle that converts
    R&D results--new inventions and discoveries--into successful commercial
    products is working well in software, but has multiple breakdowns for
    manufactured hardware. Funding for the translational research needed to
    develop operational prototypes, demonstrate manufacturability, and
    identify viable markets is frequently unavailable, so promising
    technologies languish in laboratories. Funding and expertise is needed
    to address the needs and ensure domestic production. This gap is so
    significant and the potential results so important that roundtable
    participants suggested creating Translational Research Centers (TRCs).
    TRCs would typically be independent non-profit corporations affiliated
    with a single or group of universities with strong industrial
    involvement. They would combine funding with expertise in product
    development, engineering, production, marketing, and other business
    functions needed to identify and nurture promising research results
    into commercial products and processes manufactured in this country.
    TRCs would provide skills that academic researchers usually do not
    have, help to lower the risk of commercialization and thereby attract
    private investment, and create a stronger pipeline from academic R&D to
    new products with positive impacts on national security and economic
    prosperity. Appendix A provides additional details on the TRC concept.

    Mechanisms are also needed to ensure that needed advances in
    manufacturing technologies are developed and implemented domestically.
    Advancing the Manufacturing Readiness Level of a technology is often an
    essential step in reducing technical risk and attracting the private
    investment needed for full-scale manufacturing. In some cases, new
    manufacturing processes are necessary; in others, known processes can
    be used to demonstrate manufacturability, quality, and cost
    effectiveness. Several Manufacturing USA institutes are developing
    technologies for production of power electronics, functional fabrics,
    flexible electronics, and other critical technologies. Similar
    opportunities will continue to emerge from NSF-funded Engineering
    Research Centers, national laboratories, and even private companies
    working in areas such as autonomous vehicle sensors and control
    systems, advanced energy storage, and 5G equipment. In all cases,
    investments in applied engineering and manufacturing process research,
    coordinated with the translational research done at the TRCs would
    increase the likelihood of creating long-term competitive advantages
    that are difficult to copy.

    One approach to advancing MRLs proposed by the roundtable participants
    would be to establish additional Manufacturing USA institutes. Existing
    Manufacturing USA institutes are mostly focused on specific
    technologies, such as flexible electronics, robotics, and bio-
    pharmaceuticals. Additional institutes would be useful to rebuild
    foundational manufacturing know-how while, at the same time, advancing
    capabilities in platform manufacturing technologies for multi-industry
    applications. Areas to be addressed would include metal forming,
    joining methods and technologies, laser processing, and process
    technologies for cost-effective low-volume manufacturing, to name a
    few. These institutes would focus on continuous improvement of widely
    used manufacturing processes, and work closely with domestic equipment
    makers to speed technology dissemination to commercial industry.

    Another approach would be to launch special competitions. Competitions
    have proven to be an effective method for generating creative solutions
    to technical challenges. Competitions have been used by government
    agencies such as DARPA, non-profits such as XPRIZE, and private
    manufacturers such as General Motors to generate creative ideas from a
    broad audience. The goal would be to engage researchers to focus on
    manufacturing challenges in order to create and establish unique
    manufacturing capabilities that will provide U.S. producers with
    competitive advantages in multiple industries. One approach would be to
    assemble a group of experts who would identify a number of
    ``moonshots''--important, long-term national objectives requiring
    advances in manufacturing technology and product innovation.

    Encourage Pilot Production and Scale-up

    To restore domestic production and overall leadership in emerging
    industries, America needs to invest in advancing manufacturing
    technologies, increasing pilot production, and scaling up to viable
    commercial volume. The necessary investment is largely the
    responsibility of the private sector, which means that national
    policies at all levels of government must remain conducive to
    profitable domestic production. Without addressing specific economic
    policies, which was beyond the scope of the roundtable discussions,
    participants did identify opportunities to take advantage of emerging
    technology developments to regain domestic production capacity. For
    example:

          Semiconductor packaging has long been done offshore, a legacy of
    the labor requirements of packaging processes. Packaging is now
    automated with little labor content. Furthermore, new technologies in
    which multiple chips are packaged together as System-in-Package (SiP)
    have created an opportunity to re-
    establish packaging in the United States. Government procurement from
    domestic sources would speed that development.

          Pharmaceutical production is on the verge of dramatic change
    with the emergence of continuous manufacturing methods for powder-based
    pharmaceuticals. The technology provides a mechanism to ensure cost-
    competitive domestic production of pharmaceuticals.\88\
    ---------------------------------------------------------------------------
        \88\ Koons, C. (April 11, 2018). ``Why we may lose generic drugs.''
    Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2018-
    04-11/are-drug-prices-too-low.

    In these and similar cases, government, especially defense, procurement
    contracts have proven to be an effective tool. Because it is important
    to create demand, not just supply, for advanced technologies
    manufactured in this country, the United States should leverage
    government procurement to create lead markets for new products and
    technologies. The federal government has a history of building strong
    national industries through a combination of R&D and procurement
    contracts. Aviation and the Internet are obvious examples. Government
    purchase orders are an effective tool for companies to raise needed
    capital, both investments and loans, to initiate pilot or scale
    production domestically. Assured markets of sufficient scale are
    essential to successful product launches and will incentivize private
    investment necessary to create needed manufacturing technologies and
    ---------------------------------------------------------------------------
    production facilities.

    Although procurement contracts are an effective tool, they are not a
    universal solution. New mechanisms are needed to ensure that domestic
    resources are available to scale production here, rather than
    contracting manufacturing to Asian producers, especially for high-
    value, high-technology products. An opportunity exists to form
    geographically dispersed manufacturing investment funds. These funds
    could be organized as public-private partnerships, or build on existing
    state government funds, to ensure that hardware start-ups have a
    reliable source of investment capital and can scale production in this
    country. The lessons learned from existing state-level programs should
    be applied to ensure effective use of the resources.

    Empower Small and Medium-Sized Manufacturers

    Small and medium-sized manufacturers are the backbone of U.S.
    manufacturing.\89\ SMMs are important anchors in their communities and
    critical to systems integrators. Most do not entertain offshoring
    strategies, yet increasingly compete with Asian producers. If U.S.
    manufacturing is to regain international competitiveness and take
    advantage of the opportunities presented by smart manufacturing
    technologies, SMMs will need to implement those technologies broadly
    and effectively. Roundtable participants recognized that multiple
    federal and state programs provide support of various types to SMMs,
    but they also suggested that more could be done to accelerate their
    adoption of smart manufacturing technologies, and to ensure that SMMs
    have access to technical skills and expertise they will need to be
    effective in the future. Suggestions to do that include:
    ---------------------------------------------------------------------------
        \89\ SMMs have 500 employees or less and comprise over 98% of U.S.
    manufacturing firms and over 89% of establishments. United States
    Census Bureau. (2018). 2015 SUSB Annual Data Tables by Establishment
    Industry. Retrieved from https://www.census.gov/data/tables/2015/econ/
    susb/2015-susb-annual.html.

    A. Provide loan guarantees and technical assistance to accelerate the
    pace of modernization of SMMs including capital equipment and
    implementation of smart manufacturing technologies. In partnership with
    states and existing federal programs, such as those at the Small
    Business Administration, this program would incentivize the purchase of
    domestically manufactured equipment and technologies to help rebuild
    the domestic machine tool industry, and to ensure that critical
    advanced manufacturing equipment and components are made and deployed
    domestically.\90\
    ---------------------------------------------------------------------------
        \90\ Such a program could incentivize foreign manufacturing
    equipment companies to create or increase U.S. production capacity.

    B. Fund nation-wide educational and informational programs to ensure
    that SMMs are aware of government procurement opportunities, emerging
    domestic and export market opportunities, new technologies, and the
    capabilities of foreign competitors to facilitate better matching of
    domestic demand with domestic production. Working in collaboration with
    the Manufacturing Extension Partnership, such programs could accelerate
    the re-emergence of diverse, geographically distributed industrial
    ---------------------------------------------------------------------------
    ecosystems.

    C. Create a program of industry fellowships to pay recent engineering
    and management retirees to work with the next generation of
    manufacturing start-ups, as well as business incubators and technology
    accelerators. Recent retirees are an underused resource, and in some
    cases, they are moving abroad to coach foreign competitors. A viable
    domestic alternative to capture such expertise before it is lost is
    essential to rebuilding the manufacturing knowledge base.

    D. Develop simple technology licensing agreements to facilitate and
    encourage technology transfer and joint technology development between
    universities and industry, especially SMMs. Licensing technologies from
    universities can be overly complex and expensive, limiting the number
    of potential licensees. Useful models have been developed by some
    universities, which should be propagated nation-wide.

    Grow Domestic Engineering and Technical Talent

    Especially, though not exclusively, in academic R&D, the nation is
    dependent on foreign nationals in many scientific and engineering
    fields. In 2015, foreign students received 56 percent of engineering
    doctorates, 53 percent in mathematics and computer science, and 44
    percent in physics.\91\ Many factors affect domestic and foreign
    students' decisions to pursue graduate degrees, including available
    financial support, strength of the job market, and calculations of
    future earning power. The United States is fortunate to attract foreign
    students in large numbers, but would be remiss in continuing to depend
    on them, especially because foreign students are increasingly returning
    to their home countries upon graduation.
    ---------------------------------------------------------------------------
        \91\ National Science Foundation. (2018). Science and Engineering
    Indicators 2018. Retrieved from https://www.nsf.gov/statistics/2018/
    nsb20181/.

    Other skills essential to restoring the nation's Industrial Commons and
    to effective implementation of smart manufacturing technologies require
    technical training, both broad-based and specialized. Accessing needed
    skills is frequently listed as the top challenge facing manufacturers
    in most industries today. Many community colleges have developed
    training programs targeting specific manufacturing skill requirements,
    ---------------------------------------------------------------------------
    often in concert with local manufacturers, but more needs to be done.

    Because human resource issues are so complex, the roundtable
    participants did not attempt to suggest comprehensive solutions, but
    they did identify a few initiatives that could improve the current
    situation in engineering and technical talent. For instance,
    recognizing the current dependence on foreign students in many graduate
    programs in STEM fields, roundtable participants suggested steps to
    increase the supply of domestic graduate students. One way would be to
    significantly increase the availability of graduate fellowships for
    qualified domestic students. This simple, cost-effective step would
    help to limit inadvertent transfer of R&D results offshore, rebuild the
    supply of researchers available to domestic industry, and, importantly,
    increase the number of highly trained scientists and engineers who can
    work in defense industries.

    Roundtable discussions also addressed the need for a strong pipeline of
    technical talent available to SMMs. To cope with a growing wave of
    retirees and a shortage of young people with appropriate skills, an
    increasing number of manufacturing companies are creating apprentice
    programs and working with local technical schools to create custom
    training programs, often with employment guaranteed to successful
    graduates. Yet potential students usually are not aware of them. A
    useful step would be to create a national registry of apprenticeship
    and other industrial training programs with the ability to match
    available programs with high school and college students and veterans
    seeking opportunities with SMMs, along with funding support for
    trainees. A national registry of such programs would better match
    student interest with employment opportunities and contribute to
    restoring the Industrial Commons.

    To complement apprenticeship programs, roundtable participants also
    identified the need for a renewed national focus on educating
    engineering technicians with emphasis on applied engineering skills. A
    frequent complaint among manufacturers is that engineering graduates
    have insufficient practical skills to make an immediate contribution to
    factory operations, while still having significant salary expectations.
    Mobilizing the broad higher education community to educate more
    engineering technicians would meet a growing need and likely attract
    more students and veterans to applied engineering. This program could
    be a three-year polytechnic degree, could provide scholarships to
    pursue cooperative education programs at SMMs, could be a collaboration
    between trade schools and engineering colleges, or could be other
    creative paths that supplement a traditional undergraduate engineering
    curriculum.

                           IMPLEMENTATION STRATEGIES

    _______________________________________________________________________

    All of these suggestions emerging from MForesight's roundtables address
    clearly defined components of the grand challenges facing U.S.
    manufacturing. Ideally, the United States will, at some point in the
    future, create a national manufacturing strategy as international
    competitor nations have done. These ideas should be part of such a
    strategy, ideally implemented in a coordinated way with a single point
    of focus to orchestrate the required funding streams and to maintain
    strategic program management.

    Currently, multiple offices and agencies at both the federal and state
    levels of government, as well as a few private non-profit organizations
    and public-private partnerships, support technology development, but
    there is no single point of focus to provide national strategic
    direction, or to provide the cross-cutting focus on manufacturing and
    systems engineering needed to bridge the hardware innovation gap.
    Manufacturing cuts across multiple disciplines and technologies so it
    is therefore all the more compelling to have a single focal point for
    engineering and manufacturing research and innovation. The needed point
    of focus could take one of several possible forms--a publicly funded
    non-profit organization, a federal-state-industry partnership, or a
    federal office or agency. Its mission would be to fill the existing
    gaps in the national innovation cycle by providing funding for
    translational research to advance TRLs and MRLs, to help rebuild the
    Industrial Commons through strategic investments in workforce
    development, and to support hardware start-ups with investments, loans,
    expertise, and networking to encourage production scale-up this
    country.

    Manufacturing really matters. Research and invention alone are not
    enough to ensure national prosperity. To reap the full rewards of rapid
    technological advances, the nation must be able to manufacture
    products. Because of a confluence of economic and technological forces,
    the United States now has an opportunity to rebuild its manufacturing
    base and restore its global competitiveness. But another report won't
    help. Bold steps commensurate with the scale and importance of the
    objectives are absolutely necessary. The roundtable participants
    proposed a few implementation options, including creating a national
    innovation initiative, establishing a national manufacturing innovation
    foundation, and establishing a manufacturing program within each of the
    federal S&T agencies. They fully expect policymakers to convene and
    make decisions on how best to implement the critical steps identified
    in the previous section. A piecemeal approach, addressing one or two
    critical steps but not all, will not help. Other nations are not
    standing still. The onus is on us.

                   Appendix A: Translational Research Centers

    One of the ideas discussed in depth at MForesight's manufacturing
    roundtables is to create a number of Translational Research Centers
    (TRCs). These would be designed to address market failures, fill gaps
    in the innovation ecosystem, ensure superior defense technology and
    capacity, and regain a vibrant, competitive industrial base.

    Mission

    Translational Research Centers will provide funding for product
    development to fill the gap between academic researchers with a
    potential hardware product or manufacturing process technology and
    domestic production. Employing professional engineers and managers
    experienced in new product introductions, the TRC will guide and fund
    research needed to translate laboratory results to testable beta
    prototypes and facilitate connections with domestic manufacturers to
    scale domestic production. Filling this gap will reduce the technical
    and market risk, attract private sector investment, retain and scale
    commercial production in the United States, and thereby multiply and
    accelerate the economic benefits from federal investments in academic
    research. TRCs serve as a means to translate promising technologies
    resulting from basic research conducted at affiliated universities into
    (hardware) products or processes for scaled production in the United
    States.

    Background

          Federal R&D obligations in 2016 were $140 billion. Federal R&D
    spending at universities was nearly $40 billion. Of that, approximately
    $18 billion was spent on life sciences by NIH, and roughly $12 billion
    was spent on engineering research across all agencies. In 2016 alone,
    universities spent nearly $550 million on equipment for engineering
    research.\92\
    ---------------------------------------------------------------------------
        \92\ National Science Foundation. (2018). Science and Engineering
    Indicators 2018. Retrieved from https://www.nsf.gov/statistics/2018/
    nsb20181/.

          Almost no government funding is currently available for the
    translational research needed to create viable hardware prototypes or
    to scale production, leaving many discoveries and inventions
    languishing in the laboratory or, increasingly, commercialized outside
    ---------------------------------------------------------------------------
    the United States.

          Venture capitalists invest very little in hardware
    commercialization.

          A small federal investment in translational research would
    ensure greater domestic economic impact from R&D funding, dramatically
    increasing the return to federal R&D spending.

    Existing Commercialization Process

          Commercializing results of university research is dependent on
    licensing, but results are rarely developed sufficiently to demonstrate
    the value to a potential licensee.

          University spin-off companies, start-ups established to
    commercialize university research, frequently lack rigorous product
    development skills and have difficulty raising sufficient capital to
    mature hardware technologies as well as to develop (or contract) needed
    manufacturing processes.

          Venture capitalists (VCs) limit investments in hardware start-
    ups because the risk profile is multifaceted and hardware overall is
    more risky, time-consuming, and expensive than software. VCs invest
    less than 5 percent in hardware start-ups. Some states and universities
    have created small VC funds for university start-ups, but even these
    favor information technology and healthcare startups.

          The result is that potentially promising research results do not
    receive additional effort to create commercial hardware products
    because funds are not available. The national wealth that could be
    created from research by introducing new products and technologies is
    foregone or captured by foreign competitors. Simply creating knowledge
    without a means to create national wealth from that knowledge is not
    sustainable.

    Translational Research Centers

          TRCs would fill a gap in the current innovation ecosystem by
    funding translational research and facilitating scale-up needed to spur
    commercialization of the most promising results from academic R&D. TRCs
    would fund experienced product development teams working with start-ups
    to develop commercially viable hardware prototypes, perform validation
    testing to demonstrate the value proposition, and work with U.S.
    manufacturers, typically small and medium-sized manufacturers, to
    identify a path to full-scale production in the United States.

          TRCs would work with a single university or multiple regional
    universities to identify promising hardware technologies emerging from
    research results.

          TRCs could take multiple possible legal forms. Although TRCs are
    affiliated with universities, they should be independent from
    universities, although they could be part of university research
    corporations. Most likely, they would be independent non-profit
    corporations. Each TRC would establish relationships with affiliated
    universities to allow sharing of license fees and royalties from
    successful products and/or processes.

          Regardless of legal form, the overhead rate on federal funds
    would be limited to a maximum of 15 percent.

          The TRC would employ professional engineering and management
    staff to serve as systems engineers, project managers, market
    researchers, and private sector liaisons. Experienced product
    development teams would apply rigorous processes to specify, design,
    build and test hardware products/processes in the context of
    anticipated use cases to ensure timely results and high levels of
    domestic commercialization.

          Any technologies funded through TRCs would be subject to
    simplified licensing agreements to encourage licensing by SMMs.
    Licensing of resulting products must be restricted to U.S. production
    facilities only.

          Commercial production or use of resulting process technologies
    would be strictly limited to the United States to increase domestic
    manufacturing output and exports.

    Funding

          An initial pilot program would fund 10 TRCs around the country,
    selected based on competitive proposals.

          Each TRC would be funded at up to $10 million annually, for an
    initial 3-year award. The amount of funding provided would be
    commensurate with the associated universities' federal research
    funding, up to 3 percent of basic research funds.

          Continued or increased funding would depend on performance as
    determined by an assessment scorecard.

    Assessment Scorecard

    The intent of this initiative is to mature promising results from the
    basic research conducted at affiliated universities. TRCs, in
    collaboration with their affiliated universities, are at liberty to
    choose the technology projects to be pursued. The results reported in
    the scorecard will be used to assess the effectiveness of the
    affiliated university in transitioning promising research into
    domestically scalable products/processes in the marketplace. Each TRC
    will be scored based on a series of leading and lagging metrics
    indicative of positive impact on the U.S. economy. Metrics would
    include:

          Number of private-sector jobs created (maximum score = 20)

          Amount of private-sector investment (does not include state or
    federal funds or university funds; does not include ``commitments'')
    (maximum score = 20)

          Number of start-ups successfully scaling profitable production
    (maximum score = 10)

          Number of U.S.-based SMMs engaged in the production, technology
    transfer, and/or development process (maximum score = 10)

          Number of technologies exceeding Technology Readiness Levels
    (TRL) 6 and Manufacturing Readiness Level (MRL) 5, according to
    standard TRL and MRL assessments used by the Department of Defense
    (maximum score = 10)

    Continued funding would be based on the annual score achieved:

          Award amount may be increased with a score above 55.

          Continued funding for 2 years after the initial 3 year award
    requires a score above 40.

          Funding would terminate at the end of the fifth year if the
    score is below 45.

          Funding would be extended at the end of the fifth year for an
    additional 3 years if the score is at least 55.

          The TRC scorecard will be used in the evaluation of all future
    proposals submitted by the participating universities.

    Proposal Evaluation Criteria

    The initial ten TRCs should be selected based on a Request for
    Proposals. Multiple legal structures, formal relationships with
    universities, industry and technology foci, non-federal funding sources
    and partnerships, and other characteristics should be encouraged to
    maximize the lessons from the pilot program, though the same assessment
    scorecard must be used for all TRCs. The initial ten TRCs should focus
    on universities, though subsequent centers could work with other
    recipients of federal R&D funding such as non-profit research
    institutions and national laboratories. Achieving the desired impact--
    real, measurable economic benefit to the United States--will be the
    ultimate determinant of success. Proposal evaluation criteria should be
    based on the likelihood that proposers can achieve that goal.

                      Appendix B: Roundtable Participants

    Boston, MA (January 18, 2018)

     1.  Dean Bartles, Director of the John Olson Advanced Manufacturing
    Center--University of New Hampshire

     2.  Bill Bonvillian, Lecturer--MIT

     3.  Sam Feller, Founder--Awkward Engineer

     4.  John Hart, Associate Professor--MIT

     5.  Christian Hoepfner, Executive Director--Fraunhofer USA Center for
    Sustainable Energy Systems CSE

     6.  Micaelah Morrill, Director of the Manufacturing Initiative and
    Acting Executive Director--Greentown Labs

     7.  Ira Moskowitz, Director of Advanced Manufacturing Programs--
    Massachusetts Technology Collaborative

     8.  Venky Narayanamurti, Benjamin Peirce Professor of Technology and
    Public Policy at the Harvard School of Engineering and Applied
    Sciences--Harvard University

     9.  Dave Rapaport, Head of Research and Collaboration Management US--
    Siemens Corporate Technology

    10.  Liz Reynolds, Executive Director MIT Industrial Performance Center

    11.  Peter Russo, Director of Growth and Innovation--MassMEP

    12.  Matt Sweitzer, Manufacturing Fellow--Greentown Labs

    13.  Jim Watkins, Professor of Polymer Science and Engineering--
    University of Massachusetts, Amherst and Director--Center for
    Hierarchical Manufacturing

    14.  Johanna Wolfson, Principal--PRIME Impact Fund

    Washington, DC (January 22, 2018)

     1.  Rob Atkinson, President--Information Technology and Innovation
    Foundation

     2.  Norman Augustine, CEO (Ret.)--Lockheed Martin & Former Under
    Secretary of the Army

     3.  Kurt Bettenhausen, Senior Vice President--Siemens Corporate
    Technology USA

     4.  Robyn Boerstling, Vice President, Infrastructure, Innovation and
    Human Resources Policy--National Association of Manufacturers

     5.  Walter Copan, Under Secretary of Commerce for Standards and
    Technology and NIST Director--NIST

     6.  Ron Hira, Professor of Public Policy--Howard University & Research
    Associate--Economic Policy Institute

     7.  Paul Kern, Senior Counselor--Cohen Group

     8.  Mark Mills, Senior Fellow--Manhattan Institute

     9.  Shirish Pareek, CEO--Hydraulex Global

    10.  Willy Shih, Robert and Jane Cizik Professor of Management Practice
    in Business Administration--Harvard Business School

    11.  Jeff Wilcox, Vice President for Engineering and Program
    Operations--Lockheed Martin

    12.  Chad Moutray, Chief Economist--National Association of
    Manufacturers

    13.  Andrew Bicos, ASME Legislative Fellow--Office of U.S. Congressman
    Reed

    14.  Pramod Khargonekar, Vice Chancellor for Research and Distinguished
    Professor of Electrical Engineering and Computer Science--University of
    California, Irvine

    15.  Mike Russo, Director and Corporate Lead of U.S. Government
    Affairs--GLOBALFOUNDRIES

    Austin, TX (February 23, 2018)

     1.  Joe Beaman, Professor and Earnest F. Gloyna Regents Chair in
    Engineering--University of Texas at Austin

     2.  Roger Bonnecaze, William and Bettye Nowlin Chair in Chemical
    Engineering and Co-Director of NASCENT--University of Texas at Austin

     3.  Larry Dunn, Assistant Director of Industry and Innovation Programs
    at NASCENT--University of Texas at Austin

     4.  Brian Korgel, Professor, Edward S. Hyman Endowed Chair in
    Engineering--University of Texas at Austin and Director of Industry/
    University Cooperative Research Center on Next Generation Photovoltaics

     5.  Dwayne LaBrake, President and Chief Executive Officer--Canon
    Nanotechnologies

     6.  Ed Latson, Executive Director--ARMA--Austin Regional Manufacturers
    Association

     7.  Ken Pfeiffer, Vice President of Engineering--Superconductor
    Technologies Inc.

     8.  Bill Rafferty, Manager of Process Improvement Engineering--
    Southwest Research Institute and South Central Regional Director--Texas
    Manufacturing Assistance Center (TMAC)

     9.  John Randall, President--Zyvex Labs, Dallas

    10.  S.V. Sreenivasan, Professor and Co-Director of the NASCENT
    Center--University of Texas at Austin

    11.  Krishna Srinivasan, Founding General Partner--LiveOak Ventures

    12.  Bill Stueve, President--Atonometrics

    13.  Sarah Holloway, District Field Director--Office of Congressman
    Michael T. McCaul (TX-10)

    San Jose, CA (March 8, 2018)

     1.  Bob Brakeman, Independent Consultant

     2.  Megan Brewster, Vice President of Advanced Manufacturing--Launch
    Forth

     3.  Glenn Daehn, Fontana Professor of Materials Science Engineering
    and Director for Manufacturing, Institute for Materials Research--The
    Ohio State University

     4.  Cyril Ebersweiler, General Partner, SOSV and Managing Director,
    HAX

     5.  Mauricio Futran, Vice President, Process Science and Advanced
    Analytics--Johnson & Johnson

     6.  Jim Myrick, Entrepreneur in Residence--Flextronics

     7.  Shirish Pareek, CEO--Hydraulex Global

     8.  David Parrillo, Global Research and Development Director for
    DowDuPont Packaging and Specialty Plastics--The Dow Chemical Company

     9.  Sean Randolph, Senior Director--Bay Area Council Economic
    Institute

    10.  Greg Reichow, Partner--Eclipse Ventures

    11.  Mike Russo, Director and Corporate Lead of U.S. Government
    Affairs--GLOBALFOUNDRIES

    12.  Randy Schiestl, Vice President, R&D, Global Technology and
    Services--Boston Scientific Corporation

    13.  Diego Tamburini, Principal Industry Lead for Azure Manufacturing--
    Microsoft

    14.  Malcolm Thompson, Executive Director--NextFlex

    15.  David Vasko, Director of Advanced Technology--Rockwell Automation

    16.  David Wahl, Senior Vice President and General Manager--Jabil

    Raleigh, NC (March 14, 2018)

     1.  Paul Cohen, Woolard Distinguished Professor, Fitts Department of
    Industrial and Systems Engineering--North Carolina State University

     2.  Steve Ellis, CEO--Automated Solutions

     3.  John Hardin, Executive Director--North Carolina Board of Science,
    Technology and Innovation

     4.  Nick Justice, Executive Director--PowerAmerica Institute

     5.  Russell King, Foscue Distinguished Professor and Co-Director of
    the Center for Additive Manufacturing and Logistics--North Carolina
    State University

     6.  John Loyack, Vice President of Global Business Services--Economic
    Development Partnership of North Carolina

     7.  Mike Mazzola, Director of the Energy Production and Infrastructure
    Center--University of North Carolina at Charlotte

     8.  Steve McManus, Innovation Manager--RTI

     9.  Phil Mintz, Executive Director--NC State Industry Expansion
    Solutions and Director--North Carolina MEP

    10.  Zack Oliver, Economist--RTI

    11.  Scott Smith, Professor and Department Chair, Mechanical
    Engineering and Engineering Science--University of North Carolina at
    Charlotte

    12.  Binil Starly, Associate Professor, Industrial and Systems
    Engineering--North Carolina State University

    13.  Bob Wilhelm, Vice Chancellor for Research and Economic
    Development--University of North Carolina at Charlotte

    14.  Fiona Baxter, Associate Executive Director--NC State Industry
    Expansion Solutions

    Indianapolis, IN (March 21, 2018)

     1.  Keith Belton, Director of the Manufacturing Policy Initiative--
    Indiana University Bloomington

     2.  Andrew Berger, Senior Vice President of Governmental Affairs--
    Indiana Manufacturers Association

     3.  Matt Conrad, Executive Director, Indiana Automotive Council--
    Conexus Indiana

     4.  Claudia Cummings, Vice President, Strategic Development--Conexus
    Indiana

     5.  Jennifer Hagan-Dier, Manufacturing Extension Partnership Director,
    Center for Industrial Services--University of Tennessee

     6.  Ned Hill, Professor of Public Administration and City and Regional
    Planning--The Ohio State University

     7.  Steve Jones, Professor of Finance, Kelly School of Business--IUPUI

     8.  Razi Nalim, Associate Dean for Research, School of Engineering and
    Technology--IUPUI

     9.  Clayton Nicholas, Industry Research Development Specialist, School
    of Engineering and Technology--IUPUI

    10.  Ray Niehaus, Managing Director of Innovation and Technology--Mid-
    America Science Park

    11.  Dave Roberts, Chief Innovation Officer--Indiana Economic
    Development Corporation

    12.  Dave Snow, Director--Indiana MEP

    13.  Stan Woszczynski, Vice President, Chief Manufacturing Officer--
    Cummins, Inc.

    14.  James Ruble, Advanced Composites Outreach Consultant, Center for
    Industrial Services--University of Tennessee

    15.  Tim Frazier, Executive Director of Advanced Engineering--Cummins,
    Inc., Dearborn, MI (March 29, 2018)

    Dearborn, MI (March 29, 2018)

     1.  Carla Bailo, President and CEO--Center for Automotive Research

     2.  Timothy Bartik, Senior Economist--Upjohn Institute

     3.  Mike Coast, President--Michigan Manufacturing Technology Center

     4.  Chris Conrardy, Executive Director--LIFT and Chief Technology
    Officer and Vice President for Strategic Initiatives--EWI

     5.  Chuck Hadden, President and CEO, Michigan Manufacturers
    Association

     6.  Fred Keller, Founder and Chair, Cascade Engineering

     7.  Tom Kelly, Executive Director and CEO, Automation Alley

     8.  Jeff Krause, Executive Director and CEO, SME

     9.  Andrew McColm, Managing Director, Venture Creation--Spartan
    Innovations

    10.  Mark Montone, Director of Sales and Marketing North America--Lacks
    Trim Systems LLC

    11.  David Ollila, President and Chief Innovation Officer--Skypoint
    Ventures

    12.  Kirk Roys, Director of Global Technical Services--Steelcase

    13.  Ryan Sekol, Senior Researcher, Manufacturing Systems Research--
    General Motors Global Research and Development

    14.  Kelly Sexton, Associate Vice President for Research--Technology
    Transfer and Innovation Partnerships--University of Michigan

    15.  Dan Slane, Owner--The Slane Company

    16.  Alan Taub, Chief Technical Officer--LIFT

    Other Contributors

     1.  Christie Wong-Barrett, CEO, MacArthur Corp.

     2.  Glenn Daehn, Mars G. Fontana Prof. of Metallurgical Engineering,
    The Ohio State University

     3.  Khershed Cooper, Program Director, Nanomanufacturing, National
    Science Foundation

     4.  Charles L. Cooney, Robert T. Haslam (1911) Professor of Chemical
    Engineering, Emeritus, and Faculty Director, Emeritus, Deshpande Center
    for Technological Innovation, MIT

     5.  Lawrence D. Burns, Vice President (retired), R&D, General Motors

     6.  Pat McGibbon, Vice President, Association for Manufacturing
    Technology

     7.  Kirsten Rieth, Senior Innovation Advisor, RTI

     8.  Madhav Acharya, Technology-to-Market Advisor, ARPA-E

     9.  Charles Zukoski. Provost, University at Buffalo

    10.  Sue Babinec, Senior Commercialization Advisor, ARPA-E, Dept. of
    Energy

                                     ______

                     National Employment Law Project (NELP)

    Manufacturing Low Pay: Declining Wages in the Jobs That Built America's
                                  Middle Class

    Catherine Ruckelshaus and Sarah Leberstein

    November 2014
    _______________________________________________________________________

                               Executive Summary

    _______________________________________________________________________

    Americans perceive manufacturing jobs as ``good jobs.''

    > Nine out of ten Americans believe that a strong manufacturing base is
    very important to our country's standard of living, according to a poll
    conducted by the consulting firm Deloitte for the Manufacturing
    Institute. When asked what type of facility they would support to bring
    jobs to their community, a manufacturing plant was at the top of the
    list.

    Manufacturing wages now rank in the bottom half of all jobs in the
    United States.

    > While in the past, manufacturing workers earned a wage significantly
    higher than the U.S. average, by 2013 the average factory worker made
    7.7 percent below the median wage for all occupations.

    The perception that manufacturing jobs are highly paid disguises how
    many workers are stuck at the bottom.

    > Today, more than 600,000 manufacturing workers make just $9.60 per
    hour or less. More than 1.5 million manufacturing workers--one out of
    every four--make $11.91 or less.

    Manufacturing wages are not even keeping up with inflation.

    > Real wages for manufacturing workers declined by 4.4 percent from
    2003 to 2013--almost three times faster than for workers as a whole.

    In the largest segment of the manufacturing base--automotive--wages
    have declined even faster.

    > Real wages for auto parts workers, who now account for three of every
    four autoworker jobs, fell by nearly 14 percent from 2003 to 2013--
    three times faster than for manufacturing as a whole, and nine times
    faster than the decline for all occupations.
    > The growth in the number of auto parts jobs is cause for concern,
    because the typical parts worker makes one-third less than the typical
    auto assembly worker, and puts downward pressure on the higher assembly
    wages.

    There has been a resurgence in the number of auto industry jobs since
    the economic crisis peaked in 2009.

    > The auto industry has added nearly 350,000 jobs and invested $38
    billion in U.S. facilities since 2009, which indicates a long-term
    commitment to building vehicles here. As long as vehicles are assembled
    in the United States, the economic benefits of a just-in-time
    manufacturing base ensures that jobs at many parts suppliers are also
    likely to remain in the country, even if wages rise.

    New jobs created in the auto sector are worse than the ones we lost.

    > In 5 of the 10 ``Auto Alley'' states--Michigan, Indiana, Ohio, South
    Carolina, and Tennessee--new hires at auto parts plants are paid
    roughly one-quarter less than the other auto parts workers in the
    state.
    > In 6 of the 10 Auto Alley states--Alabama, Mississippi, Indiana,
    Ohio, Michigan, and Illinois--auto parts workers saw real monthly
    earnings decline between 2001 and 2013. Alabama saw the steepest
    decline--24 percent--over that period.

    Heavy reliance on temporary workers hides even bigger declines in
    manufacturing wages.

    > About 14 percent of auto parts workers are employed by staffing
    agencies today. Wages for these workers are lower than for direct-hire
    parts workers and are not included in the official industry-specific
    wage data cited above.
    > Estimates based on U.S. Census Bureau data, however, indicate that
    auto parts workers placed by staffing agencies make, on average, 29
    percent less than those employed directly by auto parts manufacturers.

                                  Introduction

    _______________________________________________________________________

    Politicians, economists, and other promoters tout increased investment
    by manufacturers, the benefits of direct and ``value added'' industry
    cluster jobs flowing from manufacturing plants, and the overall
    economic boost that manufacturing jobs bring to local economies. This
    narrative creates a sometimes-intense competition among states for
    manufacturers in the form of subsidies and tax breaks for the perceived
    benefits. And while the manufacturing sector has been resurging in the
    last few years, growing by 4.3 percent between 2010 and 2012, the jobs
    that are returning are not the ones that were lost: wages are lower,
    the jobs are increasingly temporary, and the promised benefits have yet
    to be realized.

    This report will trace some of the drivers of this anemic rebound in
    manufacturing and its largest sector, auto manufacturing. ``Onshoring''
    of jobs by manufacturers is on the rise in the United States; jobs are
    rebounding here due to a combination of a wage convergence between
    domestic and international jobs and aggressive supports from U.S.
    states. At the same time, the decline in relative wages in the
    manufacturing sector is striking: in the last decades, wages in the
    sector have fallen behind private-sector pay, so that wages for
    production workers in manufacturing are now more than 4.0 percent less
    than the private-sector average, and they continue to decline.

    While the manufacturing sector has grown in recent years, wages are
    lower, the jobs are increasingly temporary, and promised benefits have
    yet to be realized.

    Auto manufacturing trends track those of manufacturing overall; the
    sector is enjoying a rebound in jobs since the auto crisis, but the
    replacement jobs pay substantially lower wages. While part of the
    reason for lower average auto wages is due to the relative increase in
    workers in parts plants that pay less than the assembly plants, the
    replacement jobs are also increasingly placed via staffing and
    temporary agencies that pay lower wages. The report uses state data
    from the ``Auto Alley'' states--Alabama, Georgia, Illinois, Indiana,
    Kentucky, Michigan, Mississippi, Ohio, South Carolina, and Tennessee--
    to provide more refined information regarding lower earnings and wages
    in auto jobs.

    Workers profoundly feel these shifts. Phillip Hicks explained to The
    Washington Post that his only option for a job at a Toyota plant in
    Georgetown, Kentucky was through the staffing agency Manpower, Inc.
    Manpower assured Hicks that he would be able to switch to Toyota
    payroll after a year or two, promising a doubling of his salary from
    $12.60 to $24.20 an hour and gaining benefits.\1\ But after four years,
    Hicks was still waiting for a permanent employee position, unable to
    afford health benefits for his family or take more than three days off
    per year without risking his job, because of a punitive leave policy
    that only applied to ``temps.'' \2\
    ---------------------------------------------------------------------------
        \1\ Jonathan Weisman, ``Permanent Job Proves an Elusive Dream,''
    Washington Post, October 11, 2004, 1-2, http://www.washingtonpost.com/
    wp-dyn/articles/A22773-2004Oct10.html.
        \2\ Id.

    If these wage trends continue, manufacturing and auto jobs will not
    deliver on the promise of creating livable jobs with positive economic
    revivals in communities and for families.

                      1. Communities are racing to create
                         ``good jobs in manufacturing''

    _______________________________________________________________________

    Government policymakers and state and local economic development
    agencies see manufacturing jobs as important to economic growth because
    they create a ripple effect, generating additional jobs in other
    manufacturers that supply a plant, as well as in restaurants and
    retail, transportation and logistics, and white-collar professional
    services that support the plant. Manufacturing jobs are thus highly
    sought after by our federal and state policymakers, lauded as
    ``advanced industries'' that generate investments, create a high number
    of direct and indirect jobs, enhance worker skills, and generate
    additional economic activity in related industries.\3\
    ---------------------------------------------------------------------------
        \3\ See Economic Development Partnership of Alabama, Alabama
    Industry Profile: Automotive Industry, 2007, https://
    aama.memberclicks.net/assets/docs/auto_profile.pdf; Georgia Power
    Community and Economic Development, Automotive Manufacturing in
    Georgia, 2014; Ohio Department of Development, The Ohio Motor Vehicle
    Industry, February 2011; Darla Moore School of Business, The Economic
    Impact of South Carolina's Automotive Cluster (Columbia, South
    Carolina: University of South Carolina, January 2011); Brookings
    Advanced Industries Series, Drive! Moving Tennessee's Automotive Sector
    Up the Value Chain (Washington, DC: Brookings Institution Metropolitan
    Policy Program, 2013).

    In addition, the general public perceives that manufacturing jobs can
    uplift the economy by delivering good jobs and generating additional
    employment in related support industries. Recent poll results show that
    respondents think that manufacturing is the most important job sector,
    in terms of strengthening the economy.\4\ During election seasons in
    particular, many public-office-seekers resolve to create and promote
    manufacturing jobs, scheduling photo-ops in front of manufacturing
    plants with workers and business owners. And our public policymakers
    promote manufacturers as saviors for still-struggling local economies,
    luring them with subsidies and state welcome mats.\5\
    ---------------------------------------------------------------------------
        \4\ See Deloitte Manufacturing Institute, Leadership Wanted: U.S.
    Public Opinions on Manufacturing (2012 Annual Index), 9; George Heaton
    et al., Manufacturing Issues in the 2012 United States Presidential
    Campaign (Technology Policy International, June 30, 2012); Toplines
    polling data commissioned by the Alliance for American Manufacturing
    (Steelworkers), http://americanmanufacturing.org/.
        \5\ See id., note 1.

    Recent poll results show that respondents think that manufacturing is
    ---------------------------------------------------------------------------
    the most important job sector, in terms of strengthening the economy.

    Thanks to global market forces and aggressive courting and subsidies by
    the federal government and states, some manufacturing jobs are
    rebounding, but the quality of too many of the returning jobs is low
    and fails to live up to workers' and the overall public's expectations.

    The perceived importance of manufacturing jobs leads to state
    competition and generous subsidies. States and towns compete fiercely
    to lure manufacturing plants with generous subsidies that strain public
    budgets. These large public subsidies are premised, and largely
    supported locally, on the expectation that companies will create good
    manufacturing jobs that boost the local economy, both through jobs at
    the plant itself as well as those that arise in the network of
    suppliers that serve it and beyond. Yet, subsidies that taxpayers were
    asked to support have not always delivered the good jobs that employers
    promised and the states expected.

    Subsidies that taxpayers were asked to support have not always
    delivered the good jobs that employers promised and states expected.

    Subsidy programs have included a broad array of supports, including
    corporate income tax credits (for job creation, capital investment,
    research and development), cash grants, low-cost or forgivable loans,
    enterprise zones, reimbursement for workers' training expenses, and
    other types of company-specific state assistance.\6\ Companies may also
    receive property tax abatements, whose cost is borne by local taxpayers
    and comes at the potential expense of other goods and services.\7\ But
    many subsidy programs come with few meaningful conditions: many require
    little if any job creation; fewer than half provide any kind of wage
    standard for the workers in subsidized companies; and fewer than a
    quarter require any level of health coverage.\8\ Moreover, subsidy
    programs aimed at creating new jobs tend to attach wage and benefits
    standards only to full-time, permanent positions, and have not
    consistently applied those standards to part-time and temporary workers
    or contractors within the subsidized company.\9\
    ---------------------------------------------------------------------------
        \6\ Philip Mattera, et al., Money for Something: Job Creation and
    Job Quality Standards in State Economic Development Subsidy Programs
    (Washington, DC: Good Jobs First, December 2011), http://
    www.goodjobsfirst.org/sites/default/files/docs/pdf/
    moneyforsomething.pdf.
        \7\ Id.
        \8\ Id.
        \9\ Id. at 19.

    Dozens of large manufacturing companies have come to expect states to
    undertake worker-training responsibilities in exchange for creating
    jobs, even when the companies have the financial capabilities to train
    workers themselves.\10\ If the training is too narrowly focused on a
    low-wage temporary job, the state's investment may have no lasting
    benefit to workers, who are not any more prepared to get a better-
    paying and higher-skilled job.\11\
    ---------------------------------------------------------------------------
        \10\ Motoko Rich, ``Private Sector Gets Job Skills; Public Gets
    Bill,'' New York Times, January 7, 2012, at http://www.nytimes.com/
    2012/01/08/business/states-pay-to-train-workers-to-companies-
    benefit.html?pagewanted=all.
        \11\ Id.

    The costs to local and state budgets are staggering. Notable deals have
    ---------------------------------------------------------------------------
    included the following:

          A nearly $1.3-billion package to Nissan to build a Canton,
    Mississippi plant in 2001, including a controversial 25-year state tax
    rebate for jobs that, in many cases, start at just $12 per hour;
          A $1-billion subsidy package for ThyssenKrupp to build a steel
    plant in Mobile, Alabama;\12\
    ---------------------------------------------------------------------------
        \12\ ``Alabama's Largest Incentives Packages in Last 20 Years,''
    Business Alabama, http://www.businessalabama.com/Incentives.pdf (based
    on data from Good Jobs First).
    ---------------------------------------------------------------------------
          A 2007 package deal for Alcoa worth $5.6 billion, giving a 30-
    year discounted electricity deal for an aluminum plant;
          A $3.2-billion deal in tax breaks and other subsidies for
    Boeing's aircraft manufacturing facilities in 2003;\13\ and
    ---------------------------------------------------------------------------
        \13\ Philip Mattera, Kasia Tarczynska, and Greg LeRoy, Megadeals:
    The Largest Economic Development Subsidy Packages Ever Awarded by State
    and Local Governments in the United States (Washington, DC: Good Jobs
    First, June 2013), http://www.goodjobsfirst.org/sites/default/files/
    docs/pdf/megadeals_report.pdf.
    ---------------------------------------------------------------------------
          A 2006 deal with Kia Motors brokered by Georgia Governor Sonny
    Perdue, worth $410 million and estimated to cost about $160,000 for
    each of the projected direct jobs at the plant.\14\
    ---------------------------------------------------------------------------
        \14\ ``Case Study of Foreign Auto Assembly Plants,'' Good Jobs
    First, accessed October 20, 2014, http://www.goodjobsfirst.org/
    corporate-subsidy-watch/foreign-auto-plants.

    Taxpayers may find that they have been essentially asked to subsidize a
    ---------------------------------------------------------------------------
    large company whose promise of good jobs never materializes.

    These generous packages may not ultimately make a difference, however,
    in a manufacturer's decision about whether and where to locate new
    plants. States have provided generous subsidies to foreign auto
    companies that, research suggests, would have begun operations in the
    United States regardless of the supports, in order to strengthen their
    market share and counteract the effects of import controls.\15\ By the
    1990s, foreign auto-makers were expanding their operations in the
    United States, especially in southern ``right to work'' states, to take
    advantage of what had now become relatively cheap U.S. labor and to
    avoid rising shipping costs.\16\ Companies also may accept subsidies
    even as they choose sites for their proximity to markets, as Toyota did
    in 2003 when it chose to locate a new assembly plant in San Antonio,
    passing up more generous subsidies to build in other locations because
    of the new site's access to the large Texas market for pick-up trucks
    to be built at the plant.\17\ Taxpayers may find that they have
    essentially been asked to subsidize a large company whose promise of
    good jobs never materializes.
    ---------------------------------------------------------------------------
        \15\ Id.
        \16\ Id.
        \17\ Id.
    ---------------------------------------------------------------------------

                   2. ``Onshoring'' has sparked a resurgence
                             of U.S. manufacturing

    _______________________________________________________________________

    Manufacturing in the U.S. is on the rebound. Between 2010 and 2012, the
    sector grew by 4.3 percent.\18\ While the share of employment in
    manufacturing has shrunk rapidly in the decades since the Second World
    War, falling from over 40 percent of private non-farm employment in
    1945 to just over 10 percent in 2013, there is a core of manufacturing
    work (including auto and computers) that is bouncing back and is likely
    to remain in the United States. Foreign and domestic manufacturers are
    making major investments in the U.S. market, including BMW's
    Spartanburg, South Carolina plant, which is in the midst of a $900
    million expansion.\19\ From a trough of 11.5 million jobs in 2010,
    manufacturing jobs grew to just over 12 million in 2013.\20\ Five
    million workers work in the United States for foreign firms, and one-
    third of them work in manufacturing jobs.\21\
    ---------------------------------------------------------------------------
        \18\ David Wessel and James Hagerty, ``Remade in the USA: Flat
    Wages Help Fuel Rebound in Manufacturing,'' The Wall Street Journal,
    May 29, 2012.
        \19\ ``BMW Manufacturing News Center.'' BMW US Factory BMW Expands
    Export Operation From South Carolina Comments. N.p., n.d., Web.
    November 10, 2014.
        \20\ Calculations by the authors (Bureau of Labor Statistics).
        \21\ James Fallows, ``Made in America, Again,'' The Atlantic,
    October 2014, 22-23.

    Chinese, Japanese, and U.S. manufacturers are establishing plants in
    ---------------------------------------------------------------------------
    the South in particular, where labor standards are weaker.

    Onshoring by manufacturers is one cause of the domestic resurgence of
    manufacturing jobs; they are rebounding here because wages are lower
    than they used to be.\22\ Chinese, Japanese, and U.S. manufacturers are
    establishing plants in the South in particular, where labor standards
    are weaker.\23\ The Boston Consulting Group's 2012 survey found that 37
    percent of the nation's largest manufacturers are considering bringing
    some production back to the United States from China.\24\ The wage
    differential between Chinese and U.S. workers is projected to shrink to
    $7 an hour by 2015, down from $17 an hour in 2006.\25\ Many
    manufacturers have returned to the United States due to their just-in-
    time production cycles, the increasing costs of shipping and moving
    heavier and bulkier component parts like auto interiors, proximity to
    demand and to energy sources or natural resources, and the existence of
    innovation and R&D capacities.
    ---------------------------------------------------------------------------
        \22\ According to the Boston Consulting Group, companies find the
    United States attractive because of its low labor costs relative to
    Europe and Japan. Brad Plumer, ``Is U.S. Manufacturing Making a
    Comeback--or Is It Just Hype?,'' Washington Post Wonkblog, May 1, 2013.
        \23\ Id.
        \24\ Id.; Id.; ``BMW Manufacturing News Center.'' BMW US Factory
    BMW Expands Export Operation From South Carolina Comments. N.p., n.d.,
    Web. November 10, 2014.
        \25\ Plumer, ``Is U.S. Manufacturing Making a Comeback?''

    ---------------------------------------------------------------------------
    A few examples:

          General Electric moved its electric water heater production from
    Mexico to Louisville, Kentucky, and hired workers at $13 an hour.\26\
    ---------------------------------------------------------------------------
        \26\ Wessel and Hagerty, ``Remade in the USA.''
    ---------------------------------------------------------------------------
          Lenovo, the Beijing computer maker, opened a manufacturing plant
    in Whitsett, North Carolina in 2013,\27\ due to rising wages in China
    and the ability to offset rising logistics and transportation costs by
    relocating to the United States near a large customer base.
    ---------------------------------------------------------------------------
        \27\ Plumer, ``Is U.S. Manufacturing Making a Comeback?''
    ---------------------------------------------------------------------------
          Ford, GM, and Caterpillar also moved some operations back to the
    United States for similar reasons.\28\
    ---------------------------------------------------------------------------
        \28\ Id. GM is moving the Cadillac SRX, the brand's best seller, to
    Spring Hill, TN. ``Cadillac SRX Production Moving to TN, Next-Gen
    Equinox Going to Mexico,'' AutoBlog, accessed November 5, 2014, http://
    www.autoblog.com/2014/08/29/cadillac-srx-spring-hill-chevy-equinox-
    mexico/.
    ---------------------------------------------------------------------------
          Ikea opened a furniture factory in Danville, Virginia in 2008.
          Airbus is building a new factory in Mobile, Alabama.\29\
    ---------------------------------------------------------------------------
        \29\ Id.

    Production and labor costs are no longer that different between
    international and U.S.-based facilities. There has been a ``wage
    convergence'' across U.S. locations,\30\ and international wages have
    risen while transportation and supply-chain costs have gone up.\31\ The
    gap in wages across states is narrowing: the median wage in Georgia,
    now the lowest among the ``Auto Alley'' states, is just 19.8 percent
    lower than the median in Michigan, the highest wage on the list. While
    this gap is not trivial and could be due to differences in composition
    of jobs, it may not be enough to compel a firm to move a facility for
    savings of this magnitude.
    ---------------------------------------------------------------------------
        \30\ Calculations by the authors (Occupational Employment
    Statistics mean and median wages by state).
        \31\ Brookings Institute, Drive!, at v, 24.

    While the number of returning jobs is not yet making a dent in the six
    million manufacturing jobs lost between 2000 and 2009, according to the
    Bureau of Labor Statistics, the returning jobs bring hope to local
    economies.\32\
    ---------------------------------------------------------------------------
        \32\ Id.
    ---------------------------------------------------------------------------

                     3. Manufacturing wages are in decline

    _______________________________________________________________________

    The decline in relative wages in the manufacturing sector is striking.
    In most of the post-war period, manufacturing paid somewhat higher
    wages than other industries. But this is no longer the case.

    As will be shown below, these reported average wages are artificially
    high due to a failure of government data to account for the lower wages
    in staffing and temporary agency--placed jobs in manufacturing. Most of
    the jobs gained since 2009 have been non-union, a key wage impact for
    these jobs.\33\ Note that the decline in average wages in the sector
    corresponds with the resumption of its growth--the United States lost
    manufacturing jobs for decades, accelerating between 2000 and 2009.
    When manufacturers began growing again, the jobs they added have tended
    to pay less.
    ---------------------------------------------------------------------------
        \33\ Plumer, ``Is U.S. Manufacturing Making a Comeback?''

    If recent trends continue for the next decade, hourly wages for
    production workers in manufacturing will be almost 9.0 percent less
    ---------------------------------------------------------------------------
    than for the private sector as a whole.

        The existence of some high-wage manufacturing workers disguises
    just how many manufacturing workers there are at the bottom of the
    economy. Table 1, below, shows hourly wage cutoff points for each
    percentile (10, 25, median, 75, 90).

                               Table 1. Manufacturing Production Wages by Percentile, 2013
    ----------------------------------------------------------------------------------------------------------------
                                                            Wage at     Wage at                 Wage at     Wage at
         Total  Employment in Occupation       Mean Wage     10th        25th       Median       75th        90th
                                                          Percentile  Percentile     Wage     Percentile  Percentile
    ----------------------------------------------------------------------------------------------------------------
    6,163,470                                     $17.11       $9.60      $11.91      $15.66      $20.76      $27.17
    ----------------------------------------------------------------------------------------------------------------
    Source: Bureau of Labor Statistics, Occupational Employment Statistics, data for NAICS Sector 31-33, All
      Production Occupations (51-0000), May 2013, available at http://www.bls.gov/oes/.

    Returning jobs are simply not paying as much as those that were lost in
    the recession. Some examples:

          General Electric is producing electric water heaters in
    Louisville, Kentucky, where workers are making $13 an hour.
          Remington Outdoor Co.--the gun manufacturer--is hiring
    production workers for its new Alabama manufacturing facility at $11.50
    an hour. The project is eventually expected to employ 2,000 people.\34\
    ---------------------------------------------------------------------------
        \34\ ``How to Apply for a Production Job at New $110M Remington Gun
    Plant in Huntsville,'' Al.com, http://www.al.com/business/index.ssf/
    2014/06/remington_huntsville_jobs_guns.html.
    ---------------------------------------------------------------------------
          Texas Power Systems, which supplies engines to the Caterpillar
    plant in Seguin, Texas, hires workers through a staffing agency for
    $10.50 an hour. Workers get a raise to $10.75 if they are hired on as
    direct employees.\35\
    ---------------------------------------------------------------------------
        \35\ Sanford Nowlin, ``Caterpillar Supplier Eyes More Hiring, Ading
    Third Production Line,'' San Antonio Business Journal, October 28,
    2011, http://www.bizjournals.com/sanantonio/print-edition/2011/10/28/
    caterpillar-supplier-eyes-more-hiring.html?page=all.
    ---------------------------------------------------------------------------
          A Vaughan-Basset Furniture plant in Galax, Virginia pays its
    recent hires $9 an hour.\36\
    ---------------------------------------------------------------------------
        \36\ Id.

    Manufacturing wages have fallen behind the rest of the private sector.
    The longest view we have on wages is the Census Bureau's Current
    Population Survey (CPS), which relies on household surveys to track
    wage data over many years. As shown in Figures 1 and 2, from 1976 to
    2006, the median wage for manufacturing workers was higher than for
    private-sector workers as a whole. That changed in 2007, and has
    continued to decline since.\37\
    ---------------------------------------------------------------------------
        \37\ U.S. Census Bureau, Current Population Survey.

        [GRAPHIC] [TIFF OMITTED] T2618.031

    Other data sources, such as the Bureau of Labor Statistics'
    Occupational Employment Statistics (OES), allow us to look more closely
    at both industry (``manufacturing'' or ``motor vehicle assembly'') and
    occupation (``all production workers''). The OES data, which collects
    data from businesses rather than individual workers, shows the median
    wage for manufacturing workers is 7.7 percent lower than for all
    workers (public and private sector).\38\ When manufacturing workers are
    compared to all goods-producing workers (which includes other blue-
    collar production occupations such as construction, logging, and
    mining), we can see the median wage for manufacturing is 3.6 percent
    below the average for the goods-producing sector as a whole.\39\
    ---------------------------------------------------------------------------
        \38\ U.S. Bureau of Labor Statistics, Occupational Employment
    Statistics, NAICS Sectors 31-33, All Production Occupations (SOC Code
    51-000) compared to All Private and Public Sector Workers (SOC Code 00-
    0000).
        \39\ U.S. Bureau of Labor Statistics, Economic News Release,
    ``Table B-3: Average Hourly and Weekly Earnings of All Employees on
    Private Nonfarm Payrolls by Industry Sector, Seasonally Adjusted,''
    available at http://www.bls.gov/news.release/empsit.t19.htm. Based on
    OES Establishment data. Note that these medians include all occupation
    codes, not just production occupations, so that median wages are
    significantly higher.

    In 2007, the wage gap reported in the CPS data was fairly modest--
    $19.57 per hour for all private-sector workers, compared with $19.40 an
    hour for manufacturing workers. (Note that the CPS data include a
    somewhat broader group of occupations than the BLS data, so median
    wages tend to be higher than they would be for production workers
    alone.) But by 2013, the gap had widened considerably, to 85 cents an
    hour. If these recent trends continue for the next decade, hourly wages
    for manufacturing workers will be almost 9.0 percent less than for the
    ---------------------------------------------------------------------------
    private sector as a whole. See Figure 1, above.

    In previous decades, the path of wages in manufacturing generally
    followed the pattern of employment. As Figure 2 above shows, in the
    late 1940s and early 1950s, the average hourly wage for production
    workers in the manufacturing sector was close to 10 percent higher than
    the average for the private sector as a whole. The gap peaked in 1985,
    with wages for manufacturing workers 7.6 percent higher than the
    average for the private sector as a whole. Manufacturing wages then
    began to fall relative to the private sector as a whole, dropping below
    the private-sector average in 2007 and continuing to edge downward in
    subsequent years. (Note: The sharp drop shown in 1964 is associated
    with a break in the series; it does not reflect anything that happened
    in the economy in that year. )

    This downward trajectory of manufacturing wages relative to all
    private-sector employment cannot be overlooked. If the wage trends
    continue, manufacturing jobs will not deliver on the promise of
    creating livable jobs with positive economic revivals in communities
    and families.

                          Table 2. Changes in Real Wages, All Manufacturing Workers, 2003-2013
    ----------------------------------------------------------------------------------------------------------------
                              Total
                            Employment                 Wage at      Wage at                   Wage at      Wage at
             Year               in       Mean Wage       10th         25th     Median Wage      75th         90th
                            Occupation                Percentile   Percentile                Percentile   Percentile
    ----------------------------------------------------------------------------------------------------------------
    2003                     7,456,360       $18.04       $10.15       $12.57       $16.38       $22.11       $29.38
    ----------------------------------------------------------------------------------------------------------------
    2013                     6,163,470       $17.11        $9.60       $11.91       $15.66       $20.76       $27.17
    ----------------------------------------------------------------------------------------------------------------
    Change                                    -5.2%        -5.4%        -5.3%        -4.4%        -4.7%        -6.1%
    ----------------------------------------------------------------------------------------------------------------
    Source: Calculations by the authors. (Bureau of Labor Statistics, Occupational Employment Statistics, data for
      NAICS Sector 31-33, All Production Occupations (51-0000), May 2003 and May 2013, available at http://
      www.bls.gov/oes/.)

    Manufacturing wages are not even keeping up with inflation. Wages in
    manufacturing are not keeping up with inflation.\40\ As shown in Table
    2, the median wage for all manufacturing workers in the United States
    is $15.66 per hour. In real terms, however, since 2003, the inflation-
    adjusted median hourly wage for manufacturing workers has declined by
    nearly $1.00 an hour, from $16.38 to $15.66 (in 2013 dollars). That
    amounts to a drop of over 4 percent. For a manufacturing worker who
    works 40 hours a week, 52 weeks per year, that translates to a drop in
    income of about $2,000 a year.
    ---------------------------------------------------------------------------
        \40\ Wessel and Hagerty, ``Remade in the USA.''

    The public assumes that manufacturing jobs are highly paid, but the
    reality is that millions of manufacturing workers are at the bottom of
    ---------------------------------------------------------------------------
    the wage scale.

    Looking closer, the data reveal that there have been similar declines
    in real wages across all income categories.

    The hidden reality of low-wage manufacturing workers. When people say
    they support bringing manufacturing jobs to their community, they are
    probably thinking of those positions at the higher end of the wage
    scale. Fortunately, there are still some of those high-wage
    manufacturing jobs left. They disguise the fact that millions of
    manufacturing workers are at the bottom of the wage spectrum, however.

    The Bureau of Labor Statistics' Occupational Employment Statistics
    (OES) data report wages by percentiles, which provides more detail
    about what is happening to workers than what is apparent through the
    reported averages. The 10th percentile, for example, means that 10
    percent of workers make at or below that wage rate. The 25th percentile
    means one-quarter of workers make at or below that wage rate, and so
    on. The OES data reports that in 2013, there were approximately 6.2
    million production workers in manufacturing. More than 600,000 of those
    workers make just $9.60 or less, and more than 1.5 million of those
    workers make $11.91 or less.\41\ See Figure 3, below.
    ---------------------------------------------------------------------------
        \41\ Bureau of Labor Statistics, Occupational Employment
    Statistics, NAICS Code 31-33 (Manufacturing), Production Occupations
    (Occupation Code 51-0000), available at http://www.bls.gov/oes/,
    accessed October 2014.

    [GRAPHIC] [TIFF OMITTED] T2618.032

             4. Case Study: The changing nature of automotive work

    _______________________________________________________________________

    Motor vehicle manufacturing and supply is a significant sector in our
    economy, and is the largest manufacturing sector.\42\ Employment in the
    auto sector has followed the same general downward path as
    manufacturing as a whole, although the sector's jobs have rebounded
    since 2009. At the start of the 1950s, autoworkers accounted for more
    than 2.0 percent of private-sector employment. This share has dropped
    to just 0.7 percent in the last decade. But, auto has added over
    340,000 jobs since the 2009 fallout, according to the U.S. Treasury,
    making it one of the few sectors in this recovery that is relatively
    healthy.\43\ By taking a closer look at this group of manufacturing
    workers--especially workers in the parts sector, who tend to be paid
    less--we can gain some insight into some of the factors that are
    driving down wages across the manufacturing sector.
    ---------------------------------------------------------------------------
        \42\ Thomas Klier and James Rubenstein, Who Really Made Your Car?
    Restructuring and Geographic Change in the Auto Industry (Kalamazoo,
    MI: W.E. Upjohn Institute for Employment Research, 2008).
        \43\ U.S. Department of the Treasury, ``TARP Programs: Auto
    Industry,'' last modified October 14, 2014, http://www.treasury.gov/
    initiatives/financial-stability/TARP-Programs/automotive-programs/
    Pages/default.aspx.

    Thus, the definition of what an auto job is has changed over the years,
    with significant consequences for the wages of workers in this sector.
    In addition to the drop in its share of total employment, there has
    also been a substantial change in the employment mix in the sector,
    changing the way the industry operates and altering the quality of the
    average job. Throughout the 1960s, when wages were at their peak, the
    share of autoworkers employed in auto assembly plants had been close to
    50 percent, when wages were at their peak in the industry. It began to
    decline slightly in the early 1970s, but was still almost 46 percent in
    ---------------------------------------------------------------------------
    the mid-1980s.

    Today, 72% of autoworkers are employed in the auto parts sector, where
    wages are much lower. Parts suppliers increasingly rely on staffing
    firms for labor.

    Between 1980 and 1990, the mix shifted dramatically. In 1980, 49
    percent of autoworkers were in the supplier sector, and by 1990, it had
    climbed to 69 percent. Growth in the supplier or parts sector since
    1990 has been comparatively marginal. In 2013, according to Current
    Employment Survey data, there were 147,400 auto assembly production
    workers and 384,500 production workers employed by auto parts
    suppliers. In other words, today 72 percent of autoworkers--nearly
    three out of every four--are in the parts sector. That number is
    significant because, according to data from the Bureau of Labor
    Statistics, the median wage for workers in the auto parts sector is
    one-third less (36 percent) than for a worker in a final vehicle
    assembly plant.\44\ Further, auto suppliers--like many other
    manufacturers--are increasingly turning to staffing and temp firms to
    supply their labor. The industry has been a multi-tiered one for
    decades, and the sometimes-elaborate supply chain matrix has grown more
    complex in recent years. Auto suppliers have begun to outsource their
    labor supply to staffing and temporary firms, as described below,
    creating yet another level of contracted work in the industry and
    lowering wages even further. As shown below, the reported median wage
    in auto parts manufacturing is around $15 an hour, but this is inflated
    because of some still relatively higher-
    paying jobs in union shops or higher-skilled positions in the industry,
    and because jobs placed by staffing or temporary firms that pay less
    are measured separately.
    ---------------------------------------------------------------------------
        \44\ Bureau of Labor Statistics, Occupational Employment
    Statistics.

    The U.S. auto industry is seeing an impressive rebound. As the economy
    collapsed and auto production in the United States bottomed out in
    2009, every automaker--foreign and domestic--scaled back production and
    laid off workers.\45\ Since then, U.S. auto production has rebounded,
    from a low of 5.7 million vehicles in 2009 to 11.1 million vehicles in
    2013.\46\ This rebound is reflected both in the number of jobs in the
    U.S. auto industry and the amount of investment that automakers have
    made in their U.S. production plants. Foreign and domestic companies
    have added 350,000 new jobs at their U.S. auto assembly and parts
    plants since the auto crisis in 2009. They have made $38 billion in
    capital investment since 2009.\47\ This suggests a commitment by U.S.
    and foreign producers to keep jobs in the United States.
    ---------------------------------------------------------------------------
        \45\ Drew Speier, ``Toyota Layoffs Shock Workers,'' WFIE News-14
    (Evansville, IN), available at http://www.14news.com/story/6435509/
    toyota-layoffs-shock-workers, accessed November 10, 2014; Jeffrey
    Collins, ``Layoffs Ahead for S.C. Temp Workers at BMW,'' Charlotte
    Observer, October 18, 2008, available at http://
    www.charlotteobserver.com/2008/10/18/261224_layoffs-ahead-for-sc-temp-
    workers.html#.VGEgfTTF9yw, accessed November 10, 2014; Ralph Kisiel,
    ``Honda Axes Factory Temps as Output Falls,'' Automotive News, March 9,
    2009, available at http://www.autonews.com/article/20090309/OEM01/
    303099843/honda-axes-factory-temps-as-output-falls, November 10, 2014;
    ``Mercedes Layoffs Not Sign of Healing Economy,'' Tuscaloosa News,
    September 17, 2009, available at http://www.tuscaloosanews.com/article/
    20090917/NEWS/909169969, accessed November 10, 2014; Ian Rowley,
    ``After Huge Loss, Nissan Plans More Layoffs,'' Bloomberg Business
    Week, February 9, 2009, available at http://www.businessweek.com/
    globalbiz/content/feb2009/gb2009029_103868.htm, accessed November 10,
    2014; Michael Harley, ``Hyundai to Slow Production of Santa Fe,
    Sonata,'' Autoblog.com, October 19, 2008, available at http://
    www.autoblog.com/2008/10/19/hyundai-to-slow-production-of-santa-fe-
    sonata/, accessed November 10, 2014.
        \46\ Calculations by the authors (``United States Vehicle
    Production by Manufacturer,'' WardsAuto, available at
    www.WardsAuto.com, accessed October 26, 2014).
        \47\ State of the U.S. Automotive Industry: Investment, Innovation,
    Jobs, and America's Economic Competitiveness (Washington, DC: American
    Automotive Policy Council, June 2014), http://
    www.americanautocouncil.org/sites/default/files/
    State_Of_The_US_Automotive_Industry
    _2014.pdf.

    New jobs and more investment are good news. Major investments in U.S.
    factories makes it more likely that these jobs will stay in the United
    States, and as long as automakers are assembling cars here, there are
    economic incentives for them to maintain a significant network of parts
    plants here as well, given the demands of just-in-time production, high
    shipping costs for certain types of parts, and the desire to reduce or
    eliminate the costs of warehousing and inventory of parts. While the
    manufacturing of certain automotive components--such as airbags, wiring
    harnesses, seatbelts, and audio systems--have largely moved outside of
    the United States, there are economic incentives for many other parts
    to be produced domestically, near the assembly plants they supply.
    These include parts of the car that are too heavy or bulky to ship, as
    well as parts built essentially to order in just-in-time plants where
    ---------------------------------------------------------------------------
    inventory is measured in hours, not days or weeks.

    But the quality of automotive jobs is declining. Historically, average
    pay in the auto industry far outpaced other private-sector jobs. In the
    1950s and 1960s, the
    industry-wide average wage was roughly 30 percent higher than the
    average for the private sector as a whole. It then rose relative to the
    private-sector average in the 1970s, peaking in the mid-1980s at more
    than 150 percent of the average private-sector wage.

    But by many measures--because of the declines in the relative pay in
    the parts sector and also the decline in the share of workers employed
    in auto assembly plants--average pay for autoworkers is now comparable
    to pay in the rest of the private sector.

    As Table 3 below shows, between 2003 and 2013, the real (inflation-
    adjusted) wage for auto parts workers fell by 13.7 percent. Auto parts
    workers toward the top of the pay scale--the ``good manufacturing
    jobs'' that communities work so hard to retract and retain--saw the
    most dramatic decline. The wage at the 75th percentile--presumably, the
    most skilled and experienced employees--plummeted by 29 percent. In
    auto assembly, real wages fell by 21 percent during that same period.

                  Table 3. Changes in Real Wages, Motor Vehicle Parts Manufacturing Workers, 2003-2013
    ----------------------------------------------------------------------------------------------------------------
                                       Wage at 10th    Wage at 25th                    Wage at 75th    Wage at 90th
                  Year                  Percentile      Percentile      Median Wage     Percentile      Percentile
    ----------------------------------------------------------------------------------------------------------------
    2003                                      $11.61          $14.26          $18.35          $28.41          $36.54
    ----------------------------------------------------------------------------------------------------------------
    2013                                      $10.38          $12.63          $15.83          $20.17          $27.13
    ----------------------------------------------------------------------------------------------------------------
    Change                                    -10.6%          -11.4%          -13.7%          -29.0%          -25.8%
    ----------------------------------------------------------------------------------------------------------------
    Source: Calculations by the authors. (Bureau of Labor Statistics, Occupational Employment Statistics, data for
      NAICS Code 3363, All Production Occupations (51-0000), May 2003 and May 2013, available at http://www.bls.gov/
      oes/.)

    The median wage for auto parts workers is $15.83 an hour, still 17
    cents an hour above the median for all manufacturing workers. One out
    of ten auto parts workers makes less than $10.38 an hour, and
    approximately one out of every four makes less than $12.63--just
    slightly above the average for all manufacturing workers.

    As Table 4 shows, median wages for autoworkers are falling
    significantly faster than for manufacturing workers as a whole. Median
    wages for auto parts workers, for example, fell three times faster than
    wages for manufacturing workers as a whole, and nine times faster than
    the average for all occupations. Motor vehicle manufacturing fell
    nearly five times faster than the average for all manufacturing
    workers.\48\ Because auto companies factor in labor costs when they
    decide whether to do work in-house or contract with a supplier, lower
    wages in the supplier sector can drag down wages at the final assembly
    plants as well.
    ---------------------------------------------------------------------------
        \48\ Bureau of Labor Statistics, Occupational Employment
    Statistics, including data for All Occupations (SOC Code 00-000) and
    production workers (SOC Code 51-000) for all manufacturing workers
    (NAICS 31-33), Motor Vehicle Manufacturing (NAICS 3361), and Motor
    Vehicle Parts Manufacturing (NAICS 3363), http://www.bls.gov/oes/,
    accessed October 2014.

              Table 4. Comparison of Real Wages, 2003-2013, Manufacturing POccupations vs. All Occupations
    ----------------------------------------------------------------------------------------------------------------
                                                                       All          Motor Vehicle         Parts
                      Year                     All Occupations    Manufacturing     Manufacturing     Manufacturing
    ----------------------------------------------------------------------------------------------------------------
    2003                                                $17.13            $16.38            $31.45            $18.35
    ----------------------------------------------------------------------------------------------------------------
    2004                                                $17.06            $16.16            $31.09            $18.26
    ----------------------------------------------------------------------------------------------------------------
    2005                                                $16.88            $15.90            $28.38            $17.74
    ----------------------------------------------------------------------------------------------------------------
    2006                                                $16.88            $15.76            $28.37            $17.43
    ----------------------------------------------------------------------------------------------------------------
    2007                                                $16.97            $15.73            $29.09            $16.99
    ----------------------------------------------------------------------------------------------------------------
    2008                                                $16.85            $15.65            $29.37            $16.49
    ----------------------------------------------------------------------------------------------------------------
    2009                                                $17.32            $16.10            $29.62            $16.74
    ----------------------------------------------------------------------------------------------------------------
    2010                                                $17.38            $16.10            $27.93            $16.69
    ----------------------------------------------------------------------------------------------------------------
    2011                                                $17.16            $15.88            $26.11            $16.53
    ----------------------------------------------------------------------------------------------------------------
    2012                                                $16.95            $15.74            $25.21            $16.14
    ----------------------------------------------------------------------------------------------------------------
    2013                                                $16.87            $15.66            $24.83            $15.83
    ----------------------------------------------------------------------------------------------------------------
    % Change                                            -1.52%            -4.40%           -21.05%           -13.73%
    ----------------------------------------------------------------------------------------------------------------
    Source: Calculations by the authors. (Bureau of Labor Statistics, Occupational Employment Statistics, All
      Production Occupations (51-0000) for NAICS Sector 31-33 and NAICS Codes 3361 and 3363, and All Occupations (00-
      0000), May 2003 and May 2013, available at http://www.bls.gov/oes/.)

    The auto jobs being created are worse than the ones lost. The wage
    trends in the automotive sector track the trends in overall
    manufacturing: the replacement jobs following the auto crisis and
    recession are not on a par with those that were lost.

    Alabama: Auto Jobs on the Rise, But Paychecks Decline

    Alabama refers to itself as the ``center of the Southeast's auto
    industry,'' \49\ and with good reason. Before 1997, when Mercedes
    opened the first auto assembly plant in the state, the Alabama
    automotive industry was nearly non-existent. Then, Honda opened a plant
    in Alabama in 2001, followed by Hyundai in 2005.\50\ Kia built its
    plant in West Point, Georgia, on the Alabama border, in 2010.\51\
    Toyota has also made engines in Huntsville, Alabama, since 2003.\52\
    Today, there are 12,800 workers employed at auto assembly plants in the
    state, and another 20,700 at parts suppliers.
    ---------------------------------------------------------------------------
        \49\ Economic Development Partnership of Alabama, Alabama
    Department of Commerce, ``Alabama Automotive Industry Profile,'' 2,
    accessed October 11, 2014, http://www.
    madeinalabama.com/assets/2013/01/automotive-industry-profile.pdf.
        \50\ ``Automotive Hub of the South,'' Amazing Alabama, Alabama
    Power Corp., accessed October 11, 2014, http://www.amazingalabama.com/
    key-industry-targets-automotive.html.
        \51\ Kia Motor Manufacturing Georgia, ``Our History,'' accessed
    October 11, 2014, http://www.kmmgusa.com/about-kmmg/our-history.
        \52\ ``Toyota Marks Milestone 3-Millionth Alabama-Made Engine,''
    (Alabama Department of Commerce, February 18, 2014) http://
    www.madeinalabama.com/2014/02/milestone-3-millionth-alabama-made-
    engine/.

    Since 2001, the number of auto parts workers in Alabama has grown by 64
    percent. But while the number of auto jobs in Alabama has been on the
    rise, paychecks have been on the decline. From 2001 to 2013, real
    (inflation-adjusted) monthly earnings for Alabama auto parts workers
    have declined by 42 percent-more than any other major auto-producing
    state. The average Alabama auto parts worker took home $1,593 less in
    2013 than he or she did in 2001.\53\
    ---------------------------------------------------------------------------
        \53\ U.S. Census Bureau, Quarterly Workforce Indicators, NAICS Code
    3363 (Motor Vehicle Parts Manufacturing), available at http://
    ledextract.ces.census.gov/. Calculations by the authors.

    What may be contributing to these falling wages, even as the Alabama
    auto industry thrives? There are several likely factors:\54\
    ---------------------------------------------------------------------------
        \54\ U.S. Census Bureau, Quarterly Workforce Indicators, NAICS Code
    3363 (Motor Vehicle Parts Manufacturing), available at http://
    ledextract.ces.census.gov/. Calculations by the authors.

          New hires are taking home about $600 less per month than the
    typical auto parts worker in the state--17 percent below the statewide
    average. The significant number of new hires in Alabama--both in terms
    of new auto parts jobs coming to the state, and the significant
    turnover in existing jobs-contribute to pulling down the average wage
    ---------------------------------------------------------------------------
    for autoworkers overall.

          In the period from 2001 to 2013, the number of young auto parts
    workers (aged 19 to 34) nearly tripled--a growth rate twice as fast as
    the Alabama auto parts industry as a whole.

          Young workers tend to make less than older workers. In Alabama,
    the monthly incomes of auto parts workers under 22 are two-thirds of
    the state average wage for that sector. Workers aged 22 to 24 make
    three-quarters of the average.

          Meanwhile, older workers have seen their wages go backwards.
    Alabama auto parts workers 45 and older saw real wages decline by 50
    percent or more from 2001 and 2013. Workers aged 35 to 44 saw real
    wages shrink by one-third over that same period.

    In addition to the evidence cited above, state-level data on the auto
    industry taken from the Census Bureau's Quarterly Workforce
    Indicators--which measures quarterly earnings, not hourly wages--can
    shed some additional light on trends affecting workers. Auto
    manufacturing is concentrated in a relatively small number of states,
    known as the ``Auto Alley''--mainly Michigan, Ohio, Indiana, Illinois,
    Kentucky, Tennessee, Mississippi, South Carolina, Alabama, and Georgia.

    Median wages for autoworkers are falling significantly faster than for
    manufacturing workers as a whole.

    For auto parts workers, just one state--Mississippi--has new hires
    collecting monthly earnings similar to the statewide average for parts
    workers. In every other state, new-hire wages are dramatically lower.
    See Table 5. In 5 of the 10 states, monthly incomes for new hires are
    around one-quarter less than the state average.

      Table 5. Monthly Earnings, Motor Vehicle Parts Manufacturing Workers,
                            New Hires vs. All Workers
    ------------------------------------------------------------------------
                                                               % Difference
                             State                            for New Hires
    ------------------------------------------------------------------------
    Michigan                                                            -28%
    ------------------------------------------------------------------------
    Indiana                                                             -27%
    ------------------------------------------------------------------------
    Ohio                                                                -25%
    ------------------------------------------------------------------------
    South Carolina                                                      -24%
    ------------------------------------------------------------------------
    Tennessee                                                           -23%
    ------------------------------------------------------------------------
    Kentucky                                                            -18%
    ------------------------------------------------------------------------
    Alabama                                                             -17%
    ------------------------------------------------------------------------
    Illinois                                                            -16%
    ------------------------------------------------------------------------
    Georgia                                                              -7%
    ------------------------------------------------------------------------
    Mississippi                                                          1%
    ------------------------------------------------------------------------
    Source: Calculations by the authors (U.S. Census Bureau, Longitudinal
      Employer-Household Dynamics, Quarterly Workforce Indicators, 2013,
      NAICS Code 3363, available at http://lehd.ces.census.gov/.)

    Real monthly earnings are declining for all autoworkers, not just new
    hires. In a majority of Auto Alley states, parts workers have seen real
    (inflation-adjusted) monthly earnings decline from 2001 to 2013. See
    Table 6, bottom right. Kentucky and Georgia--the two states with the
    lowest monthly earnings in 2001--saw increases, along with South
    Carolina. In Alabama, which saw the largest decline in monthly earnings
    at 24 percent, a worker's monthly paycheck was $1,200 less in 2013 than
    in 2001.

       Table 6. Change In Monthly Earnings, 2001-2013, Motor Vehicle Parts
                              Manufacturing Workers
    ------------------------------------------------------------------------
                                                             % Difference in
                                                                 Monthly
                             State                           Earnings, 2003-
                                                                   2013
    ------------------------------------------------------------------------
    Alabama                                                           -24.0%
    ------------------------------------------------------------------------
    Mississippi                                                       -13.6%
    ------------------------------------------------------------------------
    Indiana                                                           -12.1%
    ------------------------------------------------------------------------
    Ohio                                                               -9.4%
    ------------------------------------------------------------------------
    Michigan                                                           -3.3%
    ------------------------------------------------------------------------
    Illinois                                                           -1.6%
    ------------------------------------------------------------------------
    Georgia                                                             3.8%
    ------------------------------------------------------------------------
    Kentucky                                                            7.9%
    ------------------------------------------------------------------------
    Tennessee                                                           8.0%
    ------------------------------------------------------------------------
    South Carolina                                                    13.3%
    ------------------------------------------------------------------------
    Source: Calculations by the authors. (U.S. Census Bureau, Longitudinal
      Employer-Household Dynamics, Quarterly Workforce Indicators, 2001 and
      2013, NAICS Code 3363, available at http://lehd.ces.census.gov/.)

    5. Heavy reliance on staffing agencies obscures much deeper problems in
                                 manufacturing

    _______________________________________________________________________

    Often lost in the official numbers on employment fluctuations and wage
    trends is a closely related but not well-tracked trend that has
    reshaped manufacturing jobs over the past two decades: domestic
    outsourcing. Workers looking for a manufacturing job, and especially
    one in an auto plant today, increasingly find that the only open
    positions are placed by staffing agencies that pay lower wages and
    provide fewer benefits as compared with direct hires, and that offer
    limited opportunities to secure a permanent-employee position.
    Government data fail to include staffing agency workers in the official
    counts for manufacturing workers and fail to factor their wages into
    industry averages, however, making it difficult to track this trend
    with precision. Yet existing data sources offer ample evidence of this
    dramatic trend in manufacturing and the extent to which it has degraded
    jobs; these sources are substantiated by anecdotal evidence from
    workers and from the many towns where manufacturing plants have
    blossomed with the support of generous subsidies but have failed to
    provide family-supporting jobs.

    Manufacturing firms are increasingly turning to staffing and temporary
    agencies to hire their workers. In the two decades from 1989 to 2009,
    two emergent labor market trends reshaped the nature of manufacturing
    jobs.\55\ First, manufacturers looked to the staffing services industry
    to source their production workers, creating a shift in the types of
    jobs that staffing companies placed: that is, increasingly ``blue
    collar'' and other manual labor, rather than the office-based clerical
    jobs that defined the staffing industry in earlier years. The number of
    staffing agency workers assigned to manufacturing grew by about one
    million from 1989 to 2000, from about 419,000 workers to almost 1.4
    million, and data suggests that this trend continues.\56\ In 1990, 42
    percent of staffing agency jobs were office and administrative support
    work, while only 28 percent were blue-collar positions.\57\ This
    balance had reversed by 2006, with blue-collar workers accounting for
    44 percent of staffing agency jobs.\58\ Industrial and factory staffing
    now form the single largest source of revenue for the staffing
    industry.\59\
    ---------------------------------------------------------------------------
        \55\ Matthew Dey, Susan N. Houseman, and Anne E. Polivka,
    Manufacturers' Outsourcing to Staffing Services, 65 Indus. and Lab.
    Rel. Rev. 533 (Ithaca, NY: Cornell University ILR School, June 2012),
    http://digitalcommons.ilr.cornell.edu/cgi/
    viewcontent.cgi?article=2126&context=ilr
    review.
        \56\ Id. at 548-49.
        \57\ Id. at 543.
        \58\ Id.
        \59\ Rebecca Smith and Claire McKenna, Temped Out: How the Domestic
    Outsourcing of Blue-Collar Jobs Hurts America's Workers (New York, NY:
    National Employment Law Project and National Staffing Workers Alliance,
    2014), 4, http://www.nelp.org/page/-/Reports/Temped-Out.pdf?nocdn=1,
    citing Jeremy Edwards, IBISWorld Industry Report 56132, Office Staffing
    and Temp Agencies in the U.S. (2014).

    Second, manufacturing employers began to rely more heavily on staffing
    services to fill core production and low-skilled manual occupations as
    opposed to only for peripheral functions, such as janitorial.\60\ In
    1989, less than 1 percent of all production workers were employed by
    staffing agencies, but by 2000, that fraction had risen to 6.1
    percent.\61\ This upward trend was mirrored in other manual
    occupations: 6.4 percent of all helpers, laborers, and hand material
    movers in 1989 were employed by staffing agencies, rising to 15.6
    percent by 2000.\62\ In 1989, there were approximately 43 direct-hire
    workers for every one staffing agency worker in manufacturing, but by
    2000, researchers estimate that this ratio had dropped to 12 to 1.\63\
    And data suggest that the trend has continued, with the staffing agency
    sector adding 9.2 percent, or 1.3 million workers, to direct-hire
    manufacturing in 2006, the last year this data is available, as
    compared with 2.3 percent in 1989 and 8.2 percent in 2000. Staffing
    agencies made an even more dramatic addition to low-skilled manual
    occupations in 2006, where for every 100 low-skilled manual laborers
    directly hired by manufacturing employers, there were another 35 low-
    skilled manual laborers hired by staffing agencies.\64\
    ---------------------------------------------------------------------------
        \60\ Dey, Manufacturers' Outsourcing at 534.
        \61\ Id. at 547.
        \62\ Id. at 547-48.
        \63\ Id. at 549.
        \64\ Id. at 557.

    Outsourcing dramatically affects job-growth and wage-level numbers.
    Taking into account the rise of outsourcing dramatically alters
    measures of manufacturing employment and of labor productivity.\65\
    While measured manufacturing employment declined by 4.1 percent from
    1989 to 2000, if staffing agency workers (who usually work alongside
    and under the same supervision as direct-hire employees) were counted,
    manufacturing employment would have actually risen by 1.3 percent.\66\
    Factoring in manufacturers' use of staffing agency workers does not
    erase the long declines in manufacturing employment since 2000, but it
    does show that an increasing share of manufacturing work is being done
    by staffing agency workers.\67\
    ---------------------------------------------------------------------------
        \65\ Id. at 534.
        \66\ Id. at 557.
        \67\ Id.

    For instance, the growth of outsourcing and the related decline in
    wages is apparent in the NAICS data on the occupation of Team
    Assemblers--essentially, assembly line workers--which represents the
    largest category of production workers in manufacturing. Since 2002,
    the number of temporary Team Assemblers across all industries has grown
    from 57,520 (5.0 percent of all team assemblers) in 2002, to 176,590
    (16.7 percent) in 2013.\68\ Over the same time period, the total number
    of Team Assemblers, across all industries, shrunk 7.1 percent.\69\ See
    Figure 4. This means temporary workers are playing an increasing part
    of a continuously shrinking manufacturing pie.\70\
    ---------------------------------------------------------------------------
        \68\ Unpublished Census Bureau data, on file with authors.
        \69\ Id.
        \70\ Bureau of Labor Statistics, Occupational Employment Statistics
    data sets. Retrieved on June 23, 2014 from http://www.bls.gov/oes/
    tables.htm.

    [GRAPHIC] [TIFF OMITTED] T2618.033

    Unpublished Census Bureau data suggests this economy-wide distribution
    of temporary Team Assemblers is mimicked within the auto parts sector.
    The Quarterly Survey of Plant Capacity records, but does not publish,
    the number of staffing agency workers assigned to manufacturing. For
    the first two quarters of 2014, this data show that auto parts
    manufacturers used staffing agencies to supply 13.5 to 14.5 percent of
    their workforce.\71\ Assuming that the currently reported 318,020 \72\
    auto parts production workers only represent 85.5 percent of workers on
    the shop floor, an additional 53,933 staffing agency workers (and
    17,623 agency-employed Team Assemblers) are unaccounted for in official
    industry figures. This is significant, because the median wage of Team
    Assemblers working through staffing agencies is 29 percent lower than
    Team Assemblers directly hired in the auto parts industry.\73\
    ---------------------------------------------------------------------------
        \71\ U.S. Census Bureau (2014), Quarterly Survey of Plant Capacity,
    unpublished data.
        \72\ Bureau of Labor Statistics (May, 2013), Occupational
    Employment Statistics, retrieved October 22, 2014 from http://
    www.bls.gov/oes/tables.htm.
        \73\ Id.

    The growth of agency-employed production workers and their below-
    industry-standard wages may help explain in part the fall in auto parts
    production wages over the past decade. Between 2003 and 2013, real
    (inflation-adjusted) wages for Team Assemblers in the auto parts
    industry fell $1.47 an hour (9.2 percent), while real wages for all
    auto part production workers fell $2.77 an hour (15 percent). The
    degradation we see in the industry therefore looks closely connected to
    the increased outsourcing of jobs to temporary staffing agencies. See
    ---------------------------------------------------------------------------
    Table 7, below.

                                        Table 7. Team Assembler Wages by Industry
    ----------------------------------------------------------------------------------------------------------------
                                                            Wage at     Wage at                 Wage at     Wage at
                    Industry                   Mean Wage     10th        25th       Median       75th        90th
                                                          Percentile  Percentile     Wage     Percentile  Percentile
    ----------------------------------------------------------------------------------------------------------------
    Auto Parts                                    $15.56      $10.21      $12.17      $14.54      $17.72      $23.14
    ----------------------------------------------------------------------------------------------------------------
    Temp Agencies                                 $11.36       $8.12       $8.87      $10.33      $12.67     $16.79
    ----------------------------------------------------------------------------------------------------------------
    Source: Bureau of Labor Statistics, Occupational Employment Statistics, data for NAICS Codes 3363 and 5631, Team
      Assemblers (51-2092), May 2013, available at http://www.bls.gov/oes/.

    Anecdotal reports show that more auto plants are hiring via staffing
    and temporary agencies, with poorer working conditions. Numerous press
    stories profile workers with few options as the factories in their
    towns replaced the employees laid off during the recession with
    staffing agency workers, and as foreign auto manufacturers that
    established plants in the South starting in the 1990s are relying
    heavily on staffing agencies to provide labor. Some companies abruptly
    converted their existing employees to ``temporary'' employment.
    Employees at A&E Services, a small auto parts manufacturer in Chicago,
    for example, learned that their firm would ``no longer hold general
    labor employees on its payroll'' and that they would have to agree to
    work through a temporary staffing agency if they wanted to keep their
    jobs.\74\
    ---------------------------------------------------------------------------
        \74\ Weisman, ``Permanent Job Proves an Elusive Dream,'' 1-2.

    Workers feel these shifts deeply. In addition to the Philip Hicks story
    mentioned above in the introduction, Betty McCray found herself in a
    similar situation when she took a job at a Nissan Auto plant in Smyrna,
    Tennessee, preparing parts for the assembly line.\75\ Although she
    works alongside permanent Nissan employees, as a staffing agency
    worker, she is paid less, gets no personal days, and has to bring in a
    doctor's note in order to get a sick day.\76\
    ---------------------------------------------------------------------------
        \75\ Sarah Jaffe, ``Forever Temp?'', In These Times, January 6,
    2014, http://inthesetimes.com/article/15972/
    permatemps_in_manufacturing.
        \76\ Id.

    The growth of the fiercely competitive auto parts supply sector and its
    heavy use of outsourcing can also have serious implications for
    workers' health and safety. Under intense pressure by auto companies to
    maximize output while constraining labor costs, suppliers and their
    contractors may choose to ignore safety precautions in an attempt to
    cut the bottom line.\77\ Workers hired for temporary agency positions
    are unlikely to speak up and are much less likely to be able to seek
    support in a union, which have historically monitored safety conditions
    at the major auto company plants that are their base.\78\ This dynamic,
    combined with lax occupational safety and health standards and
    enforcement, and the prevalence of dangerous chemicals in auto seating
    and other parts supply, has proven hazardous for workers, who have
    developed sinus infections, chronic coughs, bronchitis, shortness of
    breath and asthma.\79\
    ---------------------------------------------------------------------------
        \77\ Seth Freed Wessler, ``What's Making These Selma, Alabama Auto
    Parts Workers So Sick'', NBC News, In Plain Sight, July 14, 2014,
    http://www.nbcnews.com/feature/in-plain-sight/whats-making-these-selma-
    alabama-auto-parts-workers-so-sick-n150136.
        \78\ Id. at 4.
        \79\ Id.

                                   Conclusion

    _______________________________________________________________________

    Jobs in manufacturing and auto, important growth-generating industries,
    are not as good as they once were. New hires in auto earn less than $10
    an hour. What will these jobs look like in 10 years if these trends
    continue? The ramifications for the workers, the communities that are
    hosting these jobs, and the U.S. economy are far-reaching, and include
    increasing inequality as middle-class jobs do not return, drains on
    taxpayers as local and federal subsidies fail to alter manufacturers'
    behavior and fail to deliver quality jobs, and a lack of accountability
    for businesses that seek only to enhance profits at the expense of
    working families and local communities.

    The promise of manufacturing and auto, its largest component industry,
    is not lost, however. The government can resurrect the collection of
    credible data on temporary and staffing jobs again to better understand
    the impact those structures have on jobs and communities, and public
    entities providing subsidies should track results and hold recipients
    of hard-earned taxpayer dollars to account for the quality of the jobs
    created. This information will allow policymakers, manufacturers and
    the public to invest in good jobs that will sustain our communities for
    the decades to come.

                                     ______

               Questions Submitted for the Record to Josh Nassar
                     Questions Submitted by Hon. Ron Wyden
        Question. During the hearing, you noted the range of policies that
    affect companies' decisions to manufacture in the United States, as
    well as U.S. competitiveness with respect to key technologies such as
    electric vehicles. Sales of electric vehicles are expected to continue
    to grow at a rapid pace, with one Bloomberg report projecting that by
    2040, 55 percent of new car sales globally will be electric and 33
    percent of cars on the road will be powered by batteries.

        With respect to tariffs, how might a targeted tariff affect U.S.
    competitiveness in producing electric vehicles?

        Answer. Today, most of the production footprint for tomorrow's
    advance automotive technology is being developed overseas. If this
    trend continues, as the United States migrates from internal combustion
    engines to electric vehicles (EVs), the roughly 95,000 U.S. jobs in
    engine and transmission manufacturing will not be backfilled with EV
    component manufacturing jobs.

        Lithium-ion batteries are the most valuable component in EVs. With
    the growth of demand from EVs, global lithium-ion battery production
    capacity is expected to grow by 73 percent between 2017 and 2021 \1\
    and lithium-ion batteries could become a $40 billion market by 2025.
    This has sparked a race to develop the production capacity to meet
    growing battery demand and it is this race that will determine the
    geography of much of the EV value chain. The United States is currently
    falling behind its Asian and European counterparts.
    ---------------------------------------------------------------------------
        \1\ https://about.bnef.com/electric-vehicle-outlook/#toc-download.

        Chinese and EU governments are directly supporting this fledgling
    industry, with the EU recently announcing billions of euros in co-
    funding for lithium-ion battery factories.\2\ It is projected that by
    2021, 56 percent of battery manufacturing capacity will be located in
    China and another 19 percent will be in Europe. The United States will
    only have 14 percent of global battery production capacity and this
    production will be highly dependent on the success of one plant, the
    Tesla-Panasonic Gigafactory in Nevada.\3\ Three of the five top battery
    companies will be based in China, along with LG Chem in South Korea and
    Tesla-Panasonic in the United States.\4\
    ---------------------------------------------------------------------------
        \2\ https://www.ft.com/content/097ff758-cec3-11e8-a9f2-
    7574db66bcd5.
        \3\ https://www.ft.com/video/0bdc9c56-021a-4f02-b508-e26a0170b903.
        \4\ https://www.ft.com/video/0bdc9c56-021a-4f02-b508-e26a0170b903,
    0:40.

        The EV value chain is not just battery mega-factories--it is an
    entire supply chain of associated battery and EV components that will
    determine which countries will benefit from the shift to EVs. To take
    just one example, battery separators are a component that prevents
    short-circuits by creating a barrier between the anode and cathode
    materials in a lithium-ion battery. The battery separator market is
    projected to be worth $2.7 billion by 2025, its growth driven by EV
    battery demand.\5\ Nearly all the global manufacturing capacity for
    battery separators is in China, Japan, and South Korea.\6\
    ---------------------------------------------------------------------------
        \5\ https://ec.europa.eu/jrc/sites/jrcsh/files/jrc105010_161214_li-
    ion_battery_value_chain_jrc
    105010.pdf, p. 21.
        \6\ https://data.bloomberglp.com/bnef/sites/14/2017/07/BNEF-
    Lithium-ion-battery-costs-and-market.pdf, page 6

        Additionally, EVs and autonomous vehicles (AVs) of the future will
    be heavily reliant on semiconductors. It is estimated that an EV/AV
    will have over a thousand dollars' worth of semiconductors. This
    increase in semiconductor usage comes at a time when U.S. semiconductor
    manufacturing has been in decline. The total number of U.S. fabs has
    decreased from 123 in 2007 to 95 today,\7\ while the industry employs
    100,000 less production workers than it did at the turn of the
    century.\8\ Currently, U.S. manufacturers account for only 13 percent
    of the global semiconductor supply. This is because the United States
    is no longer attracting new fabs. In 2011, of 27 high-volume fabs built
    worldwide, only one was in the United States; 18 were in China and 4 in
    Taiwan. In 2018, 20 new fab projects had been announced in China, with
    total investment exceeding $10 billion.\9\
    ---------------------------------------------------------------------------
        \7\ http://mforesight.org/download/7817/.
        \8\ BLS, Quarterly Census of Employment and Wages (QCEW) for NAICS
    334413, http://www.bls.gov/cew/.
        \9\ http://mforesight.org/download/7817/.

        Foreign governments have shown that properly crafted tariffs and
    industrial policies can encourage domestic electric vehicle and
    ---------------------------------------------------------------------------
    component R&D and manufacturing.

        In particular, taking into consideration overall value, associated
    R&D, and national security interests, the United States should consider
    targeted tariffs on the following:

              Lithium-ion batteries;
              Electric motors;
              E-axles;
              Battery safety and thermal control systems;
              Semiconductors;
              Lidar; and
              Automotive CPUs.

        Anchoring this manufacturing footprint and know-how in the U.S.
    will pay dividends into the future, offering export opportunities and
    maintaining the United States' technological competitive edge. However,
    we recognize tariffs alone may not create the needed investment. Any
    tariff should be coupled with an industrial policy that supports R&D
    and encourages the fledgling EV/AV market, through direct investment,
    government procurement, regulation and incentives. If the EV
    manufacturing footprint takes root outside the United States, it will
    be extremely difficult for the United States to recapture that work in
    the future. To date, no major manufacturing sector that has been
    offshored has ever been reshored to the United States. The capital
    intensity and long manufacturing lead times in auto, makes the
    possibility of reshoring the EV market once it has left, all the less
    likely.

        Question. How do other administration policies, including tax
    policies and policies with respect to fuel economy standards, affect
    the U.S. industry and U.S. manufacturing of automotive goods such as
    electric vehicles?

        Answer. Under the Tax Cuts and Jobs Act (TCJA) (Pub. L. 115-97),
    the new, official corporate tax rate is 21 percent.\10\ But U.S.
    multinational corporations pay at most only half that rate on their
    offshore profits as they do on their earnings here at home, since they
    can deduct half of their offshore profits from taxation. The new law
    also gives U.S. corporations an annual deduction on their offshore
    profits worth 10 percent of their offshore tangible assets, such as
    factories. For example, a company with $100 million worth of tangible
    offshore assets pays no U.S. taxes on the first $10 million of foreign
    profits they report. Many companies will likely end up paying no U.S.
    taxes on foreign earned profits. This law created new incentives for
    U.S. corporations to move real investments offshore, along with the
    manufacturing jobs that go with them. These incentives will become
    greater over time.
    ---------------------------------------------------------------------------
        \10\ https://www.cbpp.org/research/federal-tax/new-tax-law-is-
    fundamentally-flawed-and-will-require-basic-restructuring.

        TCJA also repealed the Domestic Production Activities Deduction.
    This deduction was a tax incentive for keeping manufacturing jobs in
    the United States. Its repeal further encourages offshoring. The more
    investments they offshore, the less they pay in taxes. Companies also
    received a massive tax break in the form of a repatriation holiday. In
    2004, companies primarily used increased revenue for stock buybacks
    after Congress allowed a one-time tax holiday for repatriated foreign
    ---------------------------------------------------------------------------
    earnings.

        History is repeating itself. Once again, companies are taking
    billions in windfall profits and putting them toward dividends or
    buying back their own stocks, which benefits shareholders. America's
    biggest companies are not generally using their tax cuts on creating
    new jobs, but instead are using them for stock buybacks. Some of the
    biggest stock buyback announcements so far in 2018 include: Apple--$100
    billion; Cisco--$25 billion; Wells Fargo--$22.6 billion; Pepsi--$15
    billion; AbbVie--$10 billion; Amgen--$10 billion; Google parent
    Alphabet--$8.6 billion; Visa--$7.5 billion; and eBay--$6 billion.\11\
    According for Americans for Tax Fairness, the total amount of stock
    buybacks authorized by companies since TCJA was enacted is over $786
    billion.
    ---------------------------------------------------------------------------
        \11\ http://time.com/money/5267940/companies-spending-trump-tax-
    cuts-stock-buybacks/.

        Companies who benefit from tax breaks to build and maintain
    factories face practically no consequences for pocketing savings and
    closing shop in the United States. We need claw back provisions in the
    ---------------------------------------------------------------------------
    law to stop this long-standing abuse of tax payer funds.

        The tax code is full of perverse incentives for outsourcing. For
    example, the cost of moving personnel and components of a company to a
    new location qualifies for a tax deduction. Congress should address the
    misguided policies enacted under TCJA and prior laws to encourage U.S.
    companies to maintain and create auto manufacturing jobs in the United
    States. The Bring Jobs Home Act sponsored by Senator Stabenow would
    only keep this deduction in place for U.S. companies that bring jobs
    and business activity back home, while this tax benefit would be
    eliminated for companies that ship jobs overseas. Companies should not
    be able to deduct costs for closing factories. That is totally
    unacceptable. The Bring Jobs Home Act should be passed into law.

        Manufacturing workers and domestic manufacturing face serious
    headwinds. The causes are many from bad trade deals that lower wages
    and destroy good paying U.S. jobs, perverse tax provisions that
    incentivize businesses to move jobs overseas, and employers who do not
    recognize workers' right to collectively bargain. Extensive damage has
    already been done and workers are paying the price for policy failures
    and neglect by our elected leaders over many decades.

        To be clear, Corporate Average Fuel Economy standards (CAFE) and
    Greenhouse Gas (GHG) standards are not the problem. Nevertheless, the
    National Highway Traffic Safety Administration (NHTSA) and the
    Environmental Protection Agency (EPA) are proposing to amend existing
    CAFE and GHG emissions standards for passenger cars and light trucks
    and establish new standards, covering model years 2021 through 2026.
    The UAW does not support the preferred alternative in the SAFE Vehicles
    Proposed Rule, which would freeze emissions standards at Model Year
    2020 because freezing emissions standards is bad for the U.S. economy,
    the domestic auto industry, our members, and the communities that rely
    on union manufacturing jobs. It would set back efforts to address air
    pollution and climate change crisis. We cannot afford to ignore this
    global crisis that threatens our shared future.

        We are also concerned that proposed rule threatens to disrupt the
    ``One National Program,'' creating uncertainty for the industry and
    discouraging investment. It also risks allowing the U.S. auto industry
    to fall behind on advanced vehicle technology and sustainable
    innovation, just as other nations are promoting increased efficiency
    and lower emissions.

        As we know, fuel efficiency is the auto industry's future. From
    electric vehicles to full-sized pickups, fuel efficiency is improving
    across the industry, including in vehicles made by UAW members. We
    support the development of Electric Vehicles and are concerned that a
    significant portion will not be built in the United States. As
    referenced earlier, most of the production footprint of tomorrow's
    advance automotive technology is overseas and the sales of electric
    vehicles are expected to continue to grow at a rapid pace.

        Countries around the globe continue to promote greater efficiency
    and lower emissions. The greener vehicles of the future are going to be
    made somewhere and other countries are preparing for these new
    technologies. If we ignore these realities, we could see the U.S. auto
    industry fall behind on advanced technology, hurting the American
    economy and American workers. The final regulations must incentivize
    continuing investment in and production of advanced technology
    components and vehicles in the United States.

        Question. In your testimony you noted that wages in the U.S.
    automotive industry have fallen even though productivity has
    substantially improved.

        In your view, why have wages in the U.S. auto industry not kept
    pace with greater productivity?

        Answer. A variety of factors have contributed to wage stagnation in
    the U.S. auto industry even though worker productivity has increased
    substantially throughout the decades. Bad trade deals, inadequate
    investment in worker training and education, and weak labor laws have
    all contributed to wage stagnation in the U.S. auto industry.

        The United States lost 5 million manufacturing jobs between 2000
    and 2014. Per the Economic Policy Institute's (EPI) Manufacturing Job
    Loss: Trade, Not Productivity, Is the Culprit,\12\ trade and recession
    were primarily responsible for the decline in employment, with
    technological advances and other factors also playing a part. Between
    2000 and 2007, 3.6 million jobs were lost to trade deficits, mostly in
    manufacturing. The Bureau of Labor Statistics data supports EPI's
    argument. Wages have fallen even though productivity has substantially
    improved. Labor unit costs fell between 2000 and 2014 from 121.8 to
    94.9 for auto assembly and parts from roughly 121 to 86. Productivity
    increased dramatically over the same period.
    ---------------------------------------------------------------------------
        \12\ https://www.epi.org/publication/manufacturing-job-loss-trade-
    not-productivity-is-the-culprit/.

        Wages have fallen even though productivity has substantially
    improved. The average factory worker makes less than the median wage
    for all occupations. Real wages in manufacturing fell between 2003 and
    2013 at a faster rate than for workers overall.\13\ According to the
    Bureau of Labor Statistics, one fourth of manufacturing jobs make less
    than $13.07 per hour.\14\ U.S. autoworkers wages have been suppressed
    and bad trade agreements have contributed to this troubling reality.
    ---------------------------------------------------------------------------
        \13\ ``Ruckelshaus, Catherine, and Leberstein, Sarah,
    ``Manufacturing Low Pay: Declining Wages in the Jobs that Built
    America's Middle Class,'' November 2014.
        \14\ https://www.bls.gov/iag/tgs/iag31-33.htm.

        The United States imported $187 billion in car parts in 2014
    (Mexico's imports constitute the largest share). Imported parts
    amounted to $12,135 of foreign content for every light vehicle built in
    America. As the flood intensified, wages declined and jobs moved to
    Mexico. Adjusted for inflation, car part production workers' average
    hourly wages declined by 23 percent in the past decade. Between 2000
    ---------------------------------------------------------------------------
    and 2014, employment in U.S. parts suppliers declined 36 percent.

        Of course, workers are also consumers so the economic impact of
    lower wages and lost jobs impacts businesses and lowers tax revenue for
    schools and other public services. NAFTA, like other flawed trade
    deals, has had a lasting negative impact.

        Poor labor standards in foreign nations have a real economic impact
    on the United States as companies relocate to take advantage of workers
    who lack basic rights and are underpaid. Workers in Mexico are often
    put in harm's way for exercising their most basic rights. Most make
    less than $3 an hour (not including benefits) despite booming profits
    and record growth for the industry. Manufacturers in the United States
    routinely threaten to move operations overseas.

        Question. What is the impact of temporary or contract positions in
    the auto industry on wages?

        Answer. The growing use of temp work drives down wages, benefits
    and job security in the auto industry and undermines good, middle class
    jobs.

        The number of workers in temporary or contract positions are on the
    rise in various industries including automotive. As auto-industry
    contract work is shifting from administrative to blue-collar jobs,
    employing perma-temps, defined as the use of temps for extended periods
    of time with no path to full-time employment, is becoming all too
    common. Jobs in transportation and material moving and production now
    account for 42 percent of the temp industry. Furthermore, perma-temps
    earn 22 percent less than private-sector workers and work with little
    to no benefits.\15\ The median worker in the staffing industry earns
    $12.40 an hour, compared to an hourly wage of $15.84 by all private
    sector workers, regardless of industry.\16\
    ---------------------------------------------------------------------------
        \15\ Smith, Rebecca, and McKenna, Claire, ``Temped Out: How
    Domestic Outsourcing of Blue Collar Jobs Harms America's Workers,''
    National Employment Law Project, September 2, 2014.
        \16\ Ibid.

        For example, Nissan North America has a history of relying on long
    term temps and has engaged in anti-union campaign to prevent workers'
    right to collectively bargain in many U.S. plants. Of Nissan's 45
    production facilities in the Americas, Europe, Asia, Australia, and
    Africa, only three are non-union, and all three are located in the
    ---------------------------------------------------------------------------
    United States (Smyrna, TN; Decherd, TN; Canton, MS).

        Nissan's Canton, Mississippi assembly plant opened in May 2003,
    aided by $1.3 billion in subsidies from Mississippi's State and local
    taxpayers over the term of the subsidy program. By 2016 the Canton
    plant was producing over 360,000 vehicles with an estimated production
    and maintenance workforce, of 5,300--approximately 80 percent of whom
    were African-American. Of these, 3,700 were direct Nissan employees and
    an estimated 1,600 workers were supplied by the Kelly and Minact
    temporary employment agencies. These temporary employees received lower
    pay and benefits compared to regular employees. A year after production
    began, workers contacted the United Auto Workers for help in
    establishing collective bargaining representation. Nissan fiercely
    engaged in anti-union activities including one on one meetings with
    workers, threatening termination for union activities, and threatening
    plant closures if employees chose the union as their representative.
    Nissan is hardly the only company utilizing long term temps.

        It is important to emphasize that it is very difficult for
    temporary workers to join a union. Since they are not full-time
    employees and are hired through staffing agencies, it is unclear who
    they are bargaining with. At the same time, full time workers feel
    vulnerable to the notion that they could be replaced by temporary
    workers. The National Labor Relations Board (``NLRB'') expanded its
    definition of ``joint employer'' in 2015 to include companies that
    share some direct or indirect control over other companies' employees.
    Anti-worker forces are working to weaken this standard and eliminate
    employer liability for businesses in staffing, franchise, and other
    contractual relationships.

        Question. What policies would you propose to increase wages and
    improve working conditions for U.S. autoworkers?

        Answer. Congress must strengthen U.S. labor law and insist on
    stronger enforcement of current law.

        The right to collectively bargain strengthens the economic security
    of workers. On average, a worker covered by a union contract earns 13.2
    percent more in wages than a peer with similar education, occupation,
    and experience in a nonunionized workplace in the same sector.\17\
    Unionized workers are more likely to have health-care benefits, access
    to paid leave, employer provided pension plans and safer working
    conditions compared to their non-union counterparts. Over the last
    several decades, wages have stagnated, and union membership has
    declined, largely as a result of employers using unfair labor
    practices, refusing to negotiate contracts, pushing mandatory
    arbitration and imposing non-compete clauses that restrict the ability
    of nearly 1 in 5 workers to change jobs. Strengthening our labor laws
    and increasing penalties against employers who do not recognize
    worker's legal right to have a voice on the job will strengthen the
    middle class and reduce income inequality. There are several labor
    bills pending in Congress that would improve our labor laws and protect
    the rights of working families, including the Workers' Freedom to
    Negotiate Act, the WAGE Act, Workplace Democracy Act, Public Service
    Freedom to Negotiate Act, and the Public Safety Employer-Employee
    Cooperation Act. Congress should pass these and other pro worker bills.
    We need to increase remedies against employers who violate workers'
    rights and create a mandatory mediation and arbitration process to
    ensure corporations and newly formed unions reach a first contract.
    ---------------------------------------------------------------------------
        \17\ Economic Policy Institute. ``How Today's Union's Help Working
    People.'' https://www.
    epi.org/publication/how-todays-unions-help-working-people-giving-
    workers-the-power-to-improve-their-jobs-and-unrig-the-economy/.

        As noted above, Nissan is hardly the only bad actor on worker's
    rights. Volkswagen (VW) has refused to recognize workers right to
    collectively bargain even though workers voted in support of union
    representation. On December 4, 2015, skilled-trades employees at
    Volkswagen's plant in Chattanooga, Tennessee vote overwhelmingly--71
    percent--to designate UAW Local 42 as their bargaining representative.
    The NLRB certified the results of the election. However, to this day,
    VW refuses to come to the bargaining table with workers. VW is not
    alone. In far too many circumstances, employees' rights to bargain
    collectively are violated even after the union wins the NLRB election.
    The NLRA's intent is to facilitate the creation of a first contract
    which determines wages, hours, and employment conditions. Employers,
    however, often impede the creation of a contract through delay tactics
    ---------------------------------------------------------------------------
    and unwillingness to bargain in good faith.

        Delay tactics and surface bargaining are illegal under the NLRA,
    but the law lacks meaningful deterrents to force employers to bargain
    in good faith with their employees. As a result, in 52 percent of
    organizing campaigns, workers lack a collective bargaining agreement a
    full year after demonstrating majority support for union
    representation.\18\ Even 2 years after an election, 37 percent of newly
    formed unions still had no labor agreement.\19\ According to a study by
    MIT, under the current law 44 percent of workers who form a new union
    never reach a first contract.\20\
    ---------------------------------------------------------------------------
        \18\ Bronfenbrenner, Kate, ``Fact Sheet: NO HOLDS BARRED The
    Intensification of Employer Opposition to Organizing,'' Economic Policy
    Institute, May 20, 2009, available at: http://www.epi.org/page/-/pdf/
    bp235-fact-sheet.pdf.
        \19\ Ibid.
        \20\ Ferguson, John-Paul, ``The Eyes of the Needles: A Sequential
    Model of Union Organizing Drives, 1999-2004,'' Industrial and Labor
    Relations Review, Vol. 62, No. 1, Cornell University, October 2008,
    available at: http://republicans.edlabor.house.gov/UploadedFiles/
    4.30.10_
    ferguson.pdf.

        Furthermore, we do not have clear and transparent data on the
    number of temporary workers in the auto industry. At least thirty
    percent of workers in auto industry are temporary workers and it could
    be as high as fifty percent. It is important that we get accurate data
    on the number of temp workers employed in the auto industry and take
    steps to hold employers accountable and strengthen labor protections
    and wages for workers. Congress should mandate better reporting of the
    use of temps and require that government contracts disclose such
    information. Furthermore, efforts to undo the Obama-era NLRB decision
    expanding joint employer liability for businesses in staffing,
    ---------------------------------------------------------------------------
    franchise, and other contractual relationships should be opposed.

        As we renegotiate NAFTA, we need to make sure Mexico fixes its
    labor laws and ends protection contracts prior to entering into any new
    agreement. Mexico has made false promises in the past; it is important
    that they make and implement the changes so workers can join real
    unions. We also need stronger enforcement mechanisms that impose
    economic penalties on companies for worker rights abuses. Dispute
    settlement has failed workers for decades and we fear it will continue
    to do so.

        In March 2017, Congress blocked an Obama-era regulation that
    required employers to maintain accurate records of workplace injuries
    and illnesses for 5 years or face financial penalties. Now the
    requirement to avoid penalties is only 6 months. This policy hampers
    the U.S. Occupational Safety and Health Administration's (OSHA) efforts
    to properly gauge health and safety conditions at worksites across the
    country. Due to this rollback, OSHA will only be able to issue
    citations during the 6-month period following a record-keeping
    violation. The revised lookback period does not give investigators
    enough time to identify willful or recurring problems and it also gives
    employers license to employers to keep fraudulent records and to
    violate the law with impunity. To improve the working conditions and
    protect the health and safety of auto workers, Congress should
    reinstate the 5-year lookback period and increase penalties for
    companies that violate the law.

                    Questions Submitted by Hon. Rob Portman
        Question. At the hearing, it appears there was a general consensus
    about the value of making autos in the United States.

        Please describe what you believe is the best approach to improve
    vehicle and part production in America? What policies should be
    instituted, reformed, or discontinued in order to achieve this goal?

        Answer. Advancing policies that strengthen the middle class, create
    good-paying jobs providing benefits and retirement security in the
    United States, and reduce income inequality will improve vehicle and
    part production in America. A holistic approach would go a long way
    towards meeting these objectives. Equitable tax policies, robust worker
    training programs, and enhanced labor rights are needed to strengthen
    our domestic auto industry.

        For instance, there is an ongoing skills labor shortage in the
    automotive industry. Over the next decade nearly 3\1/2\ million
    manufacturing jobs will likely need to be filled. The skills gap is
    expected to result in 2 million of those jobs going unfilled. According
    to research carried out by the Automotive Industry Action Group in
    collaboration with Deloitte,\21\ more than half of OEMs and suppliers
    believe they will face a high level of difficulty in hiring workers who
    possess the skills and talent to fill these jobs.
    ---------------------------------------------------------------------------
        \21\ http://www.themanufacturinginstitute.org//media/
    827DBC76533942679A15EF7067A704
    CD.ashx.

        One way to improve vehicle and part production in America is to
    invest in apprenticeship programs and employment and training
    opportunities to that ensure that workers have the necessary skills to
    be hired for high wage, high skill occupations in the auto
    manufacturing industry and that employers have a readily available pool
    ---------------------------------------------------------------------------
    of workers to hire from.

        Some of the policies that should be instituted include:
              Incentivizing companies to invest apprenticeship programs.
              Community colleges should reinstitute technical courses that
            are needed by students enrolled in apprenticeship programs to
            fulfill related technical instruction (RTI) requirements. An
            infusion of resources should be devoted to community colleges
            to redevelop course materials and establish the curriculum
            necessary to educate newer generations of apprenticeships.
              Increase affordability and access to community colleges.
              Provide middle school and high school students with
            information on vocational training and increase access to
            career and technical education. Better-informed school guidance
            counselors who can help steer students toward careers in
            machinery, robotics, information technology and other emerging
            fields are also key.
              More effective public outreach by employers to target
            unemployed or underemployed workers who might have been
            displaced by automation or who have given up looking for work.

        A program that should be continued but has come under attack is the
    Advanced Technology Vehicles Manufacturing (ATVM) for domestic
    manufacturing and the U.S. auto industry.

        The ATVM program provides direct interest-bearing loans to
    automakers and parts suppliers to construct new U.S. factories or
    retrofit existing factories to produce vehicles and parts that increase
    fuel efficiency. Ford Motor Company received a $5.9 billion loan during
    the height of the auto crisis.

        The Department of Energy (DOE) administers the program and they
    have not issued a new loan in many years. This is a missed opportunity.
    ATVM should be strengthened to support auto manufacturing and increase
    our competitiveness for the 21st-century global economy.

        Congress should reverse the misguided policies under the Tax Cuts
    and Jobs Act (TCJA). Unfair and unequitable tax policies have the dual
    effect of incentivizing companies to ship jobs overseas and eroding
    domestic auto manufacturing jobs. Simultaneously, billionaires and
    multinational companies receive enormous tax breaks while working
    families fall further behind. Increasing deficits and decreasing
    revenues puts pressure on critical safety net programs such as housing,
    health care, nutrition and education--all programs that working
    families, seniors, and children depend on.

        Question. Last week witnesses offered a variety of viewpoints about
    the way the United States should conduct its trade policy. They used
    terms like ``free trade'' and ``integrated approach'' to describe the
    preferred approach for U.S. trade policy.

        What does your preferred approach to U.S. trade policy look like?
    Do you believe there are ever situations in which tariffs should be
    levied? If so, what are those situations? Are there other public
    policies that should interface with trade policy, and what are they?

        Answer. The UAW believes U.S. trade policy should work in tandem
    with a broader domestic industrial policy. We advocate for an
    industrial policy which invests in American workers and communities,
    and positions the United States to be a leader in manufacturing and
    innovation. Trade agreements must support this cause by leveling the
    playing field and requiring fair trade. Trade agreements must result in
    stronger wages for workers, worker and environmental protections for
    all countries involved, and strong and effective enforcement
    mechanisms.

        This may require targeted and nuanced tariffs or quotas, because
    not all trade imbalances are created equal. Countries that suppress
    workers and wages will need different policy prescriptions than
    countries that practice currency manipulation or forced technology
    transfers. Further, we recognize not all trade imbalances have the same
    impact. For example, Canada's $16.7 billion finished automobile deficit
    is nearly offset by our $14.7 billion surplus in automotive bodies and
    parts.

        Even if the United States does find the right balance, decades of
    disinvestment and offshoring of U.S. jobs by multinational corporations
    has weakened our economic security as a Nation and has inflicted great
    harm on American workers and communities. Massive job losses have had
    ripple effects through our communities--idling able-bodied workers,
    tearing apart families and communities, and diminishing tax revenues.

        This production shift has begun to unravel America's global
    technological advantage. For decades, Federal and State governments,
    universities and research institutions, and private companies in the
    U.S. supported cutting edge research and development, with the shared
    understanding that technologies developed in American labs would drive
    the economy and provide good jobs to American workers. This successful
    partnership is under attack and our public and private sectors must
    work together in a proactive fashion if we are going to remain a global
    technological leader.

        Any effort to reset America's trade policy must be accompanied by a
    strong industrial policy focused on education, workforce development,
    research and development, support for advanced manufacturing and
    technologies, building a 21st-century infrastructure, and creating
    penalties for companies that turn their back on American workers. A
    properly crafted industrial policy will create new industries, as well
    as re-shore old ones. This will improve living standards, reduce
    poverty, mitigate our environmental impact, and vastly improve
    Americans' quality of life.

        To ensure American workers and companies are ready to compete will
    require:

              Workers' voice on the job--Advanced manufacturing will
            require a highly skilled workforce. To optimize their utility,
            these workers need a voice on the job. This will ensure the
            United States will have a well-trained, well-paid, stable
            workforce ready to face tomorrow's challenges. To this end, the
            United States must reform its labor laws to make it easier for
            workers to join unions. Recent decisions by anti-worker judges
            and NLRB stand to further weaken our middle class and harm auto
            workers.
              Quality education--An educated citizenry is not only
            paramount to a functioning democracy, but is an engine of
            growth in the economy. Education is a public good that pays
            back dividends in quality of life, civic engagement and
            productivity. The United States needs to reinvest in the
            American worker:
                  Investing in K-12 education--Decades of
            disinvestment in public education has hobbled these
            institutions. Buildings are outdated, teachers are underpaid,
            classrooms are packed, and curriculum has been cut. This
            systematic attack on public education, has left us ill-prepared
            for the work of tomorrow, which will require additional skills
            and creative thinking. Public schools need reinvestment, to
            again make sure that all students have access to rigorous
            academics, the arts and vocational training.
                  Worker training--Advanced manufacturing is
            going to require a skilled workforce. The skilled trades and
            German manufacturing sector have shown that investing in
            workers through course work and on the job training leads to
            highly skilled workers, who can produce high-valued products at
            high wages. The Federal Government should do much more to
            incentivize joint union/employer apprenticeships to retrain
            todays manufacturing workers for the jobs of tomorrow.
                  Student loan debt relief--The looming costs
            of a college education present huge challenges. Over the past
            10 years, the average price for tuition and fees at 4-year
            private colleges and universities has jumped to $35,830 a year,
            up more than $7,000, according to statistics from the College
            Board.\22\ Student loan debt is now the second highest consumer
            debt category, behind only mortgage debt, and higher than both
            credit cards and auto loans. The Federal Government should pass
            student loan debt relief programs that focus on keeping student
            loan interest rates low, refinancing of Federal student loans
            and getting rid of taxes on student loan forgiveness.
    ---------------------------------------------------------------------------
        \22\ https://trends.collegeboard.org/college-pricing/figures-
    tables/tuition-fees-room-board-over-time.
    ---------------------------------------------------------------------------
              Stimulate demand for next generation products.
                  Leveraging government procurements to create
            lead markets for new products and technologies. Government
            purchase orders are an effective tool for companies to raise
            needed capital, both investments and loans, to initiate pilot
            or scale production domestically.
                  Using regulation and incentives to create
            domestic market.
              Provide loan guarantees and technical assistance to help
            manufacturers retain and onshore work. This can modernize our
            plants with either new capital equipment and/or implementing
            smart manufacturing technologies. In partnership with states
            and existing Federal programs, this program would incentivize
            the purchase of domestically manufactured equipment and
            technologies to help rebuild the domestic machine tool
            industry, and to ensure that critical advanced manufacturing
            equipment and components are made and deployed domestically.
              Funding research and development to spread wealth throughout
            the economy--From the Internet to autonomous vehicles,
            government-supported research has spurred major technological
            leaps in our society. The government should continue to invest
            in the development of new cutting-edge products. The fruits of
            this research should be spread throughout the economy--from new
            exciting products, to well-paying jobs. To this end the
            government should recoup more of its research costs through
            royalties on products that become a commercial success. These
            monies would be used to reinvest in America's universities and
            publicly supported labs, allowing researchers in these
            institutions to earn wages and benefits. Finally, new products
            born from this research should be manufactured in the United
            States.
              Infrastructure investment to create an economy that works
            for everyone--The United States is in desperate need of
            infrastructure investment. This does not just mean repairing
            old roads, but updating our water systems, electrical grid,
            mass transit, high-speed Internet, roads, bridges, and high-
            speed rail. These improvements will put millions of Americans
            to work in good-paying jobs, reduce our environmental impact,
            improve Americans' health and quality of life, as well as make
            the United States an attractive place to invest. When used
            strategically, infrastructure projects can not only improve
            society, but also eliminate the social and economic costs of
            unemployment.
              Taxes--Fair and equitable tax policies play an important
            role in strengthening auto manufacturing jobs and incentives
            companies to keep jobs in the United States instead of moving
            them abroad. The UAW believes that we need to stop enacting
            budgetary and tax policies that favor the wealthy over working
            families and create dangerous incentives for companies to lower
            wages and move jobs overseas. For example, the Tax Cuts and
            Jobs Act (TCJA) (Pub. L. 115-97) gave massive tax breaks to
            corporations and billionaires, encouraged companies to
            outsource U.S. jobs, and weakened the Affordable Care Act by
            eliminating the individual mandate tax penalty. Only 4.4
            percent of workers have been promised wage increases or one-
            time bonuses related to TCJA, and a mere 116 of 5.9 million
            employers have announced new investments related to the tax
            cuts.\23\ The money has instead gone to shareholders and CEOs
            via stock buybacks. According to Americans for Tax Fairness,
            Since the tax cuts were passed, more than 400 corporations have
            announced stock buybacks of $750 billion--106 times more than
            what corporations have promised workers in pay hikes. Buybacks
            mostly benefit the wealthy, who own most corporate stock.
    ---------------------------------------------------------------------------
        \23\ https://americansfortaxfairness.org/trump-gop-tax-cuts-not-
    improving-economy/.

        Harley-Davidson is a prime textbook case of how the tax law is
    being used in the real world to disadvantage U.S. workers. Following
    the big tax-rate cut, Harley-
    Davidson closed a Kansas City plant costing 800 local jobs, rewarded
    shareholders with $700 billion in stock buybacks, and opened a new
    facility in Thailand. This pattern will repeat itself time and time
    again unless these harmful anti-worker incentives are changed by
    ---------------------------------------------------------------------------
    Congress and the President.

        The corporate tax code reforms are permanent and will lead to well
    over $1.5 trillion in lost revenue over 10 years. In contrast, tax cuts
    for working families will expire within a decade, leading to tens of
    millions of lower and middle-income families paying more in taxes. In
    fact, millions of middle-class and working-poor Americans will pay more
    in taxes long before the expiration of those tax cuts because of the
    elimination of deductions working families have relied upon to keep
    more of their money.

        TCJA also dismantles an essential component of the Affordable Care
    Act by eliminating penalties in 2019 for people that decide to not buy
    health insurance despite having the means to afford it. With fewer
    healthy people in the exchanges, rates will rise and be less
    sustainable. The Blue Cross Blue Shield Association forecasts premiums
    increasing by an average of roughly 13 percent annually. According to
    Blue Cross/Blue Shield, this provision will result in 13 million more
    people being uninsured. Other analysis predicts even higher premium
    increases. Per the Tax Policy Center, the average tax cut for the top 1
    percent of taxpayers is $51,000, whereas the bottom 20 percent averages
    $60. That 10-percent premium increase alone will wipe-out a $60 tax
    cut. To make matters worse, America's 10 biggest prescription-drug
    corporations are among the biggest winners from the TCJA, yet they are
    not offering pricing relief to millions who cannot afford essential
    prescription drugs.

        TCJA is also projected to add $1.9 trillion to the deficit over the
    next decade, endangering critical safety net programs and essential
    investments for our future. The law jeopardizes funding for Medicare,
    Medicaid, Social Security, education, infrastructure, and food and
    rental assistance that working people and retirees depend on. In fact,
    the tax cuts for the top 1 percent alone cost more than providing food
    stamps to vulnerable populations. According to estimates from the
    Institute on Taxation and Economic Policy, the richest 1 percent of
    households, those with incomes higher than $607,090, stand to receive a
    total tax cut of more than $84 billion in 2019 alone. To put this
    number in perspective, in 2019, the total cost of nutrition assistance
    benefits paid through the Supplemental Nutrition Assistance Program
    (SNAP) is expected to be $58 billion which will help 39 million
    individuals access food benefits.

        A range of fair and equitable tax policies could be implemented to
    strengthen the economic security of workers and encourage companies to
    maintain and create good, manufacturing auto jobs in the United States.
    We need to eliminate tax breaks and subsidies that allow some
    corporations to pay very limited amounts of taxes, or avoid paying
    taxes altogether, while encouraging multinational corporations to shift
    profits and jobs offshore. Corporations' share of Federal taxes has
    declined dramatically over the years; therefore, any corporate tax
    reform should require the corporate sector to contribute more in
    Federal income-tax revenue than it does now, not less. We also need to
    reform our tax code, so it raises adequate revenues to meet critical
    needs in a fiscally responsible manner. This requires that wealthy
    Americans--the richest 2 percent--and corporations pay their fair share
    of taxes.

          ATVM--referenced in question 1.

        Question. At its root, any section 232 investigation requires a
    national security basis. I am cognizant that you may not consider
    yourself a national security expert, but you are an auto expert.

        Do you believe there is any national security basis--whether
    limited or broad in scope--for import restrictions on autos and auto
    parts? If so, describe that national security basis.

        Answer. We need a more comprehensive trade policy to ensure that we
    have the industry capacity to not only produce enough for projected
    national defense requirements, but to also ensure that the U.S. is
    maintaining the skills and technological advancements as well as its
    ability to bolster the economy by maintaining competition with foreign
    markets on specific domestic industries.

        As the 232 statute recognizes, economic stability is needed to have
    strong national security.

        Section 232 investigations consider:

              Domestic production needed for projected national defense
            requirements;
              Domestic industry's capacity to meet those requirements;
              Related human and material resources;
              The importation of goods in terms of their quantities and
            use;
              The close relation of national economic welfare to U.S.
            national security;
              Loss of skills or investment, substantial unemployment, and
            decrease in government revenue; and
              The impact of foreign competition on specific domestic
            industries and the impact of displacement of any domestic
            products by excessive imports.

        Based on the results of the investigation, targeted measures to
    boost domestic manufacturing and strengthen our economic and national
    security for this and future generations may be needed.

                                     ______

        Prepared Statement of Rick Schostek, Executive Vice President,
                       Honda North America, Incorporated
        Chairman Hatch, Ranking Member Wyden, and members of the committee,
    thank you for the opportunity to testify today before the Senate
    Finance Committee. My name is Rick Schostek, an executive vice
    president of Honda North America. Based on the more than 3 decades in
    which I have worked directly with all five of Honda's U.S. auto plants,
    located in Ohio, Alabama, and Indiana, I am here today with a very
    personal perspective on the impact of tariffs on automobile
    manufacturing in the United States.

        While I am here on behalf of Honda, I share the concerns about the
    potential impact of 232 auto tariffs with all sectors of the auto
    industry, including domestic and international automakers, suppliers,
    dealers and the aftermarket service and repair industry. The automotive
    industry is thriving as evidenced by our record-years of production,
    sales, and exports of U.S.-produced vehicles. The industry is not
    seeking protection, and certainly not seeking additional tariffs, which
    will harm manufacturing in the U.S., our workers and, most importantly,
    U.S. consumers.

        Mr. Chairman, next year will mark two key milestones in our history
    in the United States--the 60th anniversary of Honda's business in
    America and the 40th anniversary of the first product we built in
    America. What's important is not these anniversaries, but what they
    represent, which is our pioneering vision to establish production
    operations in America and the U.S. policy environment that encouraged
    such investment.

        Until 1982, when we began building the Honda Accord in Ohio, every
    vehicle we sold in the U.S. was built in Japan. Since then, we've
    produced more than 25 million vehicles in America, including 1.2
    million vehicles last year alone--that is 1.5 times more vehicles than
    we produced in Japan. Last year, of the 1.65 million vehicles we sold
    in the U.S., 66 percent were made in our U.S. plants, 20 percent came
    from Canada, 7 percent from Mexico, 4 percent from England, and 3
    percent from Japan.

        This remarkable transformation is guided by a simple and long-held
    Honda commitment to build our products close to the customer. This
    approach led Honda to begin production in Ohio in 1979--the first
    Japanese automaker to build products in America. That said, what made
    it possible to manufacture those products here were national policies
    that welcomed our investment, and State and local governments that have
    supported it as Honda has continued to expand our investment in
    America--now totaling over $20 billion.

        In 1987, the year I joined Honda, we began a far-reaching plan that
    led to a second auto plant, a new R&D center to develop products here,
    a focused effort to increase parts purchases in America and to export
    vehicles from America to overseas markets. Step by step, we have
    continued to expand our operations based on this strategy, to the point
    where we now have a workforce of 31,000 Americans--72 percent working
    in manufacturing roles. Last year, we purchased more than $41 billion
    in parts, supplies, and services from more than 12,000 U.S. companies
    in 32 States. And our U.S.-made products were exported to 89 countries.

        The beneficiaries of this investment are American workers, American
    consumers, American communities, and the American economy.

        Honda also produces engines, transmissions, and other high-value
    components in the U.S. that go into our automobiles. In our plants in
    Ohio and Alabama, we build engines starting with the aluminum ingot
    used to make the engine block. At other Honda plants in Georgia and
    Ohio, we build high-tech transmissions using very precise and advanced
    technologies. We also have begun to assemble the hybrid battery and
    electric motor in two of our Ohio plants as we invest to make
    electrified vehicles right here in America. Moreover, we have entered
    into a joint venture with General Motors to manufacture advanced fuel
    cell stacks in Michigan.

        Beyond manufacturing, our U.S. associates are engaged in research
    and development, actually creating all-new vehicles from scratch here
    in America. The latest example is our all-new 2019 Acura RDX,
    introduced this summer, that was designed in our Acura Design Studio in
    Los Angeles, CA and engineered by our U.S. R&D team in Raymond, OH,
    adjacent to our East Liberty Plant where the RDX is built. This is just
    the latest example of our robust U.S. R&D presence, which has developed
    over 30 car and light truck models.

        Our 40-year history of building products in America means Honda is
    well beyond so-called assembly operations. From concept to design,
    development to production and everything in between, we are creating
    and building our products here in the United States.

        Although this hearing is focused on the impact of tariffs on the
    auto industry, it is relevant to mention that in addition to
    automobiles, we manufacture and develop power equipment as well as jet
    engines and the HondaJet in North Carolina; ATVs and Side-by-Side
    vehicles in South Carolina. Some of these products are also being
    affected by U.S. trade actions and the corresponding retaliation.

        But even with this deep commitment to produce products close to our
    customers, local production has to make business sense. There must be
    available land, infrastructure and suppliers to support the operation
    of a factory on a daily basis. And the U.S. has been a great place to
    develop and build our vehicles and many other products.

        Needless to say, the most important requirement is a qualified,
    competent and energetic workforce. And we certainly have that, and
    Honda has invested in local schools, 2-year colleges, and universities
    to address our growing need for a 21st-
    century manufacturing workforce.

        However, there are two other critical factors I would like to
    highlight today. These are (1) stability and (2) maintaining a
    welcoming business environment that supports manufacturing.

        Let me take these one at a time, starting with stability. Today's
    cars and trucks contain literally thousands of individual parts. The
    process of developing a new vehicle takes up to 6 years, and just to
    put that in perspective, that's the same length of time as the term of
    office for a United States Senator.

        Why does this matter? Components for these vehicles are carefully
    designed to meet the needs of our customers and government regulations
    for things like safety and fuel economy, a process that takes several
    years, working in close collaboration with our suppliers. The labor and
    material content of each component is also carefully managed to
    maximize performance while minimizing cost to ensure that the ultimate
    price of the vehicle will meet the needs of our customers.

        This is where unanticipated disruptions like new taxes in the form
    of tariffs come in. These taxes represent an unplanned addition to the
    cost and process of building a vehicle that wasn't factored into the
    business plans of manufacturers and suppliers that began years earlier.
    Thus, these added costs will either be passed on to our customers or
    borne by manufacturers, which then diverts money intended for other
    critical purposes, including investment in future technologies, or
    capital improvements to our operations that secure jobs, provide
    compensation for our workforce, and fulfill our social responsibility
    to the community.

        Moreover, once a vehicle has been introduced, manufacturers cannot
    readily change suppliers to mitigate the added cost of tariffs, since
    business agreements with suppliers generally cover several years of
    production. Further, it takes time for a manufacturer to qualify a part
    from an alternative supplier as well as ascertain their ability to
    supply that part in the quantity and schedule required.

        The key point is that tariffs, no matter how short-lived, are
    enormously disruptive to the stability of a business and reduce the
    value business can provide to customers and contribute to society.

        The second factor is the importance of a business environment that
    welcomes manufacturing through various measures. Most States and
    localities welcome new business because they value the investment,
    employment and growth opportunities that manufacturing brings to their
    communities. Moreover, we have had confidence to build products in the
    United States. The U.S. also has long worked to ensure access to a
    global marketplace that provides the ability to procure components and
    materials of the highest quality and at competitive prices. This
    environment is critical to the continued success of our operations.

        Our country has long been an advocate for open markets and reduced
    barriers to trade because it makes globally competitive production
    feasible on these shores, ensures the introduction of the world's most
    advanced technologies and brings the best, reasonably priced products
    to our Nation's consumers.

        Nearly 60 years ago, it was this environment that motivated our
    founder, Soichiro Honda, to choose the U.S. as the first market for his
    company to establish an overseas subsidiary. As of today, 10
    international auto companies have joined the traditional Detroit
    companies and are producing vehicles in the U.S., thus creating a
    robust U.S. auto manufacturing industry that produced nearly 11 million
    vehicles last year; international automakers' production is almost half
    of that.

        Equally important, are the exports of cars and trucks made in the
    U.S. Honda started exporting vehicles from America in 1987. In fact, 30
    years ago, we began exporting Accords made in Ohio back to Japan.
    Senator Wyden, you may remember this. On March 7, 1988, as a young
    Representative, you were at the Port of Portland in Oregon, where the
    first shipment of Accord Coupes was loaded onto a ship bound for
    customers in Japan. Our business touches so many aspects of American
    commerce.

        In the ensuing years, Honda has exported more than 1 million
    vehicles overseas from 13 U.S. ports, ranging from Seattle out west to
    Miami and Baltimore on the east coast. With more than 95 percent of the
    world's consumers outside the U.S., export markets are a critical
    component to the growth of manufacturing and to the U.S. economy. And
    automakers producing in the U.S., including Honda, exported nearly 2
    million vehicles last year.

        However, America is now experiencing a fundamental change in the
    philosophy of open markets. Already, the tax on materials and
    components coming into our country is bringing an array of
    unanticipated harmful effects that would only be magnified by tariffs
    on automobiles and auto parts. For example, more than 90 percent of the
    steel used to produce our vehicles here is sourced in America. So,
    while we're paying relatively little in the way of tariffs on steel,
    the price of domestic steel has increased as a result of the tariff,
    saddling us with hundreds of millions of dollars in new, unplanned
    cost.

        The Commerce Department is currently investigating whether imports
    of autos and auto parts are a threat to national security, potentially
    subjecting the products to additional tariffs. Few things would be more
    disruptive to American manufacturing than the additional tariffs of as
    high as 25 percent that have been proposed.

        Our vehicles built in America tend to have relatively high U.S.
    content. In fact, we had four vehicles in the top ten of the ``2018
    American Made Index'' \1\ created by Cars.com. Nevertheless, the
    reality is that every vehicle built in this country--regardless of
    manufacturer--is produced using both domestic and globally sourced
    parts. So, even for a vehicle built in a U.S. factory, the cost to
    manufacture will increase as a direct result of these tariffs, and the
    increases could be substantial. As already mentioned, of the vehicles
    we sell in the U.S., 20 percent are built in Canada and 7 percent in
    Mexico. These vehicles have significant U.S. content. Treating them as
    foreign products with a 25-percent tariff will have an enormous impact
    on vehicle prices and sales, and thereby have a direct impact on the
    operations of U.S. suppliers and their employees.
    ---------------------------------------------------------------------------
        \1\ https://www.cars.com/articles/carscom-2018-american-made-index-
    whats-the-most-american-car-1420700348632/.

        These affected jobs are not just in States with auto plants but
    wherever there are parts makers, auto dealers and service outlets, and
    other businesses that serve the industry. In other words, tariffs
    impact every State in America. Moreover, the tariff has been estimated
    to increase the price of a new vehicle in the range of $1,400 to $7,000
    per vehicle.\2\ As the price of a new vehicle grows beyond the reach of
    more Americans, the price of used vehicles will rise, as will the cost
    of service parts. These tariffs will ripple across all aspects of the
    auto industry and the broader economy.
    ---------------------------------------------------------------------------
        \2\ https://piie.com/system/files/documents/pb18-16.pdf.

        Mr. Chairman, over the past 19 months, the auto industry has been
    confronted with significant challenges associated with the new
    direction in trade policy. Already, the steel and aluminum tariffs have
    increased the cost of manufacturing across all sectors of the American
    economy. And NAFTA, which has been the foundation of making North
    America a manufacturing titan, is being renegotiated. While the
    agreement needs modernizing, it has been successful in spurring
    investment and manufacturing in the U.S.; production by international
    automakers increased by 3 million vehicles since the agreement took
    ---------------------------------------------------------------------------
    effect.

        Now we face the addition of new auto and auto parts tariffs.
    Coupled with pending changes to NAFTA, the cumulative impact would be
    unprecedented, especially at a time when automobile sales in the U.S.
    have begun to plateau and the auto industry is facing fundamental
    changes that require investment in a number of new technologies.

        Adding a further economic challenge in the form of a new tax on
    automobiles and auto parts will only threaten the great jobs that
    currently exist for tens of thousands of Americans and increase the
    cost of vehicles for millions of U.S. consumers. To be certain,
    barriers to trade should be removed everywhere, but imposing tariffs
    here will put American workers, American consumers, American
    communities, and the American economy at risk. For this reason, Honda
    has joined every automaker doing business in the U.S. in opposing new
    tariffs on automobiles and auto parts.

        Mr. Chairman, thank you for the opportunity to testify, and I am
    happy to take your questions.

                                     ______

                     Prepared Statement of Hon. Ron Wyden,
                           a U.S. Senator From Oregon
        The President has made it a practice to get up in front of cameras,
    tout new trade deals, and reap splashy headlines, but those
    announcements are consistently hollow and the results underwhelming.

        I'll start with this week's announcement about the U.S.-Korea Trade
    Agreement. The administration touts it as a massive overhaul of a trade
    deal that they claim had previously cost hundreds of thousands of
    American jobs. But if you search for the significant changes--concrete
    wins that will deliver red, white, and blue jobs on the scale the
    President talks about--you're going to come to the conclusion that
    there's no ``there'' there.

        A recent Bloomberg News article summed it up clearly: ``Trade
    analysts say changes to the South Korea agreement were largely
    cosmetic. . . .'' There's no evidence that the renegotiation will
    actually result in an increase in the number of American-made cars sold
    in South Korea. In at least one case, the changes aren't even
    cosmetic--they're nonexistent. Earlier this year, the White House even
    went on record announcing a deal with Korea on currency manipulation,
    but it's nowhere to be found in the final text or anywhere else.

        So when it comes to South Korea, the Trump administration over-
    hyped and under-delivered. That's the administration's entire record on
    trade in microcosm.

        In recent months, the President has threatened to impose sweeping
    tariffs on automobiles. Now, if the administration comes up with a
    coherent strategy that would result in more high-paying jobs here at
    home and greater access for
    American-made cars in markets overseas, I sure want to know about. But
    where things currently stand, it looks like this could just be more
    haphazard bluster.

        Furthermore, the President's threats to impose auto tariffs are
    already doing harm here at home--stifling investment, likely costing
    jobs in the long run, and raising costs for American consumers. In one
    case, Ford announced that it decided not to sell a particular model of
    car in the U.S. because of the looming threat of tariffs. So that's the
    start of Americans having fewer choices when they're visiting
    showrooms.

        The President believes he has the authority to impose auto tariffs
    because the Congress gave it to him. So I want to put the
    administration on notice. Under the Constitution, it's the Congress
    that's in charge of trade and tariffs. In the absence of real strategy
    and tangible wins on trade, perhaps it's time for the Congress to think
    about reclaiming that authority.

        I want to thank our witnesses for being here today. This is an
    important opportunity for the Finance Committee to draw a distinction
    between two different approaches to trade and autos. The approach I'd
    prefer is one based on concrete, well-planned strategies that will
    create auto manufacturing jobs and deliver for American workers. But in
    my view, what the administration is delivering now is more chaos. Its
    trade policy dictated by early-morning tweets and bluster, and it may
    end up costing jobs and doing more harm than good.

                                     ______

                                 Communications

                                  ----------

                     Association of Global Automakers, Inc.

                          1050 K Street, NW, Suite 650

                              Washington, DC 20001

                                TEL 202.650.5555

                              globalautomakers.org

                                      and
                                Here for America
    These comments are submitted in connection with the above-captioned
    hearing on behalf of the Association of Global Automakers\1\ (Global
    Automakers) and the Here for America companies.\2\
    ---------------------------------------------------------------------------
        \1\ 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.
        \2\ 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.

    To begin, we greatly appreciate the Committee's focus on tariffs and
    their impact on the U.S. automotive industry. The U.S. auto industry
    supports the jobs of 10 million Americans, is a critical part of the
    United States economy, and is directly impacted by tariffs already in
    place as well as those contemplated by the Department of Commerce's
    ---------------------------------------------------------------------------
    ongoing 232 investigation of auto and auto parts trade.

    While the Committee has already heard directly from Rick Schostek,
    Executive Vice President of Honda North America, Inc., one of our
    member companies, and other witnesses, this statement seeks to amplify
    and expand on remarks made by these witnesses during the September 26
    hearing.

    As many members of this Committee are aware, the U.S. automotive
    industry has changed dramatically during the past 50 years. Today, the
    U.S. auto industry comprises fourteen companies that build cars and
    trucks in the United States. A fifteenth is scheduled to begin
    production in 2021. Thirteen of these fifteen automobile manufacturers
    are headquartered outside of the U.S., and all support a value chain of
    U.S. businesses 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.

    In our view trade has strengthened, not weakened, the U.S. automotive
    sector. Foreign competition and investment have in fact resulted in
    more U.S. producers and greater competition, benefiting U.S. consumers
    and strengthening the U.S. industry overall. Imports of vehicles and
    parts have been an important element contributing to this success.
    These imports bolster the economic health of the U.S. industry, not
    threaten it.

    Impact of Tariffs on U.S. Auto Industry Today

    The U.S. automobile industry today faces tremendous uncertainly due to
    the risk of 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.\3\, \4\ The price of steel has gone up almost 50
    percent since tariffs were announced and the 50-percent price increase
    is more than twice the amount of the tariffs that were imposed.
    ---------------------------------------------------------------------------
        \3\ https://www.reuters.com/article/us-usa-trade-steel/u-s-
    commerce-dept-probing-steel-profiteering-after-tariffs-idUSKBN1JG22W.
        \4\ https://www.wsj.com/articles/steel-aluminum-prices-rise-on-u-s-
    tariffs-1527792759.

    Rising input costs directly impact the cos,, of production for U.S.
    automakers. Toyota, which sources 90% 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.\5\
    ---------------------------------------------------------------------------
        \5\ 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 5th that: ``So successful have
    tariffs been in pushing up American steel that foreign metal is
    ---------------------------------------------------------------------------
    becoming more appealing.''

    Additionally, 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 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 we believe
    Congress must ask whether this authority is being used for the purposes
    intended.

    In our view, there is 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.

    Several studies indicate that passenger vehicle prices would rise very
    significantly, with an estimated increase of over $6,000 on a $30,000
    vehicle as a representative example.\6\ Because tariffs are effectively
    taxes on American consumers, this action would have a devastating
    impact on American households. As noted by Chairman Hatch on June 20th,
    automobiles are the second biggest purchase most American families
    make, many require a car to get to their jobs, and roughly 10 percent
    of the median U.S. household income of $59,000 would be erased by
    additional $6,000 price increase.\7\
    ---------------------------------------------------------------------------
        \6\ See ``Policy Brief: An Accident Waiting to Happen? The
    Estimated Impacts of Tariffs on Motor Vehicles and Parts,'' Trade
    Partnership Worldwide, LLC/The Trade Partnership,'' May 29, 2018,
    http://tradepartnership.com/reports/an-accident-waiting-to-happen-the-
    estimated-impacts-of-tariffs-on-motor-vehicles-and-parts/ (concluding
    that the price of an imported $30,000 car would rise by $6,400);
    ``Trump's Car Tax Would Boost Average New Car and Truck Prices by
    $1,262 to $5,809,'' National Taxpayers Union Foundation, May 30, 2018,
    https://www.ntu.org/foundation/detail/trumps-car-tax-would-boost-
    average-new-car-and-truck-prices-by-1262-to-5809 (concluding that the
    average price of imported cars would increase by $4,205 per vehicle and
    the average price of U.S.-assembled vehicles by an average of at least
    $1,262 per vehicle, and that duties on imported pickup trucks would
    increase by $5,089 per vehicle). We recognize that the recently
    concluded United States-Mexico-Canada Agreement (replacing the NAFTA)
    includes side-letters that exclude a certain number of vehicles
    produced in the North American region from 232 tariffs. This agreement
    has not yet been implemented however, and it seems prudent to use data
    that reflect the broad impact of 232 tariffs until such time as
    circumstances change.
        \7\ Opening statement of Chairman Orrin Hatch, hearing on ``Current
    and Proposed Tariff Actions Administered by the Department of
    Commerce,'' United States Senate Committee on Finance, June 20, 2018,
    https://www.finance.senate.gov/imo/media/doc/6.20.18%20Hatch%20
    Opening%20Statement%20at%20Hearing%20on%20232%20Trade%20Actions.pdf.

    And Americans would lose their jobs. The cost to U.S. employment from
    the import duties alone would be 195,000 jobs, with U.S. auto and auto
    parts industries shedding 1.9 percent of their labor force, according
    to the Peterson Institute for International Economics.\8\ Both imports
    and exports would be reduced, according to the study, with U.S.
    production falling 1.5 percent. These job losses would increase
    significantly in the very likely event that our trading partners were
    to impose the same tariffs on U.S. exports of these goods. In that
    scenario, U.S. production would fall 4 percent, and 624,000 Americans
    would lose their jobs. The impact on exports would exceed that on
    imports.
    ---------------------------------------------------------------------------
        \8\ ``Trump's Proposed Auto Tariffs Would Throw U.S. Automakers and
    Workers Under the Bus,'' Peterson Institute for International
    Economics, May 31, 2018, https://piie.com/blogs/trade-investment-
    policy-watch/trumps-proposed-auto-tariffs-would-throw-us-automakers-
    and#_
    ftn1.

    These losses would be a severe blow to the automotive sector, including
    automakers, parts suppliers, and dealerships throughout the country. To
    the extent this Section 232 investigation is premised on the
    proposition that the economic health of the sector can be equated with
    U.S. national security, any duties imposed as a result of this
    investigation would achieve the directly opposite effect of its stated
    purpose. And by damaging the sector and driving up the prices of one of
    the most significant purchases most U.S. consumers make, the duties
    would have much broader effects on the U.S. economy, wiping out many if
    not all of the economic benefits of last year's tax cuts.\9\
    ---------------------------------------------------------------------------
        \9\ The Tax Foundation has concluded that the duties would be
    equivalent to a $73 billion tax increase, offsetting half the benefits
    of the tax cuts for lower-income Americans. See ``Automobile Tariffs
    Would Offset Half the TCJA Gains for Low-income Households,'' The Tax
    Foundation, June 4, 2018, https://taxfoundation.org/automobile-tariffs-
    2018/?utm_source=Corporate&utm
    _campaign=599962eac5-
    EMAIL_CAMPAIGN_2018_06_04_07_52_COPY_Ol&utm_medium=email
    &utm_term=0_94e6588ff2-599962eac5-
    429121933&mc_cid=599962eac5&mc_eid=6afd4735f6.

    Investments by International Automakers Have Strengthened the U.S.
    ---------------------------------------------------------------------------
    Automobile Industry

    International automakers have together invested $75 billion in the
    United States and directly employ 130,000 Americans at nearly 500
    facilities. Together, these companies create jobs for 1.29 million
    Americans including people employed in design, research and
    development, manufacturing, sales, finance, and dealership operations
    as well as other businesses. International automakers produced nearly
    half of all cars, SUVs, vans and light trucks made in America last year
    and accounted for nearly half of vehicle exports in 2016, exporting 17
    percent of that production to 140 countries and territories.

    The investment of international automakers in America has been
    substantial and translates into real benefits for communities. In Ohio,
    Honda operates five manufacturing facilities and accounts for 54% of
    the vehicles made in the state.\10\ In Missouri, international
    automakers last year invested $742 million and generated over 28,000
    jobs.\11\ We estimate that without their contributions, Missouri's
    unemployment rate would be 4.4% rather than 3.5%, which is where the
    rate stands today.\12\
    ---------------------------------------------------------------------------
        \10\ https://www.globalautomakers.org/State_Datasheets/
    2018GA_HFA_OH.pdf.
        \11\ https://www.globalautomakers.org/State_Datasheets/
    2018GA_HFA_MO.pdf.
        \12\ https://www.globalautomakers.org/State_Datasheets/
    2018GA_HFA_MO.pdf.

    In Georgia, Kia has invested $1.6 billion in their first U.S.
    manufacturing facility located in West Point. They directly employ
    2,700 people at the facility and indirectly support another 14,000 jobs
    through their regional suppliers.\13\ A similar story can be told in
    South Carolina, where BMW opened its Greer facility in 1994. Since
    then, BMW has invested $9.3 billion in the Upstate region and directly
    employs 10,000 people. In addition, Volvo Cars recently began
    production of their S60 model in their $1.1 billion North American
    facility located in Ridgeville, South Carolina. These are just a few
    examples. In 2017 alone, international automakers announced plans to
    invest of $10.2 billion in their U.S. facilities. And in the longer
    view, between 2009-2017, automakers invested over $87 billion in the
    United States accounting for 73% of all investments made in North
    America during that time.\14\
    ---------------------------------------------------------------------------
        \13\ https://www.kmmgusa.com/about-kmmg/our-company/.
        \14\ https://www.cargroup.org/car-book-of-deals-2017-annual-
    review/.

    These investments underscore the health and vitality of the automobile
    industry in America. They were made because these companies are
    committed to the U.S. market and because the United States is a highly
    competitive place to build cars. The decades-long U.S. commitment to
    open trade and investment policies is a bedrock that allowed
    competition to flourish. That commitment also allowed the U.S.
    automobile industry and its workers to grow their U.S. production for
    both American consumers and to customers abroad. Last year alone,
    international automakers exported 950,000 vehicles from the U.S. to 130
    countries and territories across the globe.\15\ 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.
    ---------------------------------------------------------------------------
        \15\ https://www.globalautomakers.org/economic-impact/national-
    impact.
    ---------------------------------------------------------------------------

    Conclusion

    When America does trade the right way, by tearing down those barriers
    and expanding access to more markets around the world, 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 see increased costs and
    prices, depressed demand, and limited consumer choice. Beyond that,
    tariffs discourage new investment in the United States, and threatens
    opportunity. We hope that Congress will continue to be vigilant in its
    oversight role to ensure that the U.S. automobile industry continues to
    thrive in the years ahead.

                                     ______

                            Multi Parts Supply (MPS)

                              1649 Park Lane South

                               Jupiter, FL 33458

                               P: +1-561-748-1515

                               F: +1-561-748-1514

                            https://multiparts.net/

                  Statement Submitted by Brian Cohn, President

    Chairman Hatch and Members of the Committee, Multi Parts Supply USA
    (Multi Parts) is a family-owned company that sells into the automotive
    aftermarket. Multi Parts supplies both to manufacturers and national
    packagers, which in turn sell to major aftermarket retailers and
    regional warehouse distributors.

    You will find a full list of Multi Parts imports impacted by the List 1
    and List 3 tariffs at the end of this document. These products include
    such items as brake parts, fuel pumps and regulators, timing
    components, and water pumps. Multi Parts' products are not glamorous,
    but they are essential to American consumers. Multi Parts' products are
    used by everyday people that need an affordable option to keep their
    cars on the road, running safely and reliably--whether they choose to
    fix their own vehicles or have them serviced at independent repair
    shops. Not only do we help U.S. consumers extend the life of one of
    their most valuable assets, we help make that vehicle an economically
    viable option for second, third, and even fourth owners.

    To serve the U.S. market, Multi Parts maintains two purpose-built
    facilities in China and the United States. The two facilities work hand
    in hand: the facility in Florida performs research and development and
    product qualification, while the wholly-owned facility in China
    assembles, tests custom packages, and ships the products to the United
    States for distribution. These two facilities are both essential to
    allow Multi Parts to service the aftermarket needs of its customers.

    Each of the factors the USTR has stated it is considering supports
    excluding the types of products imported by Multi Parts:

          First, Multi Parts has never seen any Chinese pressure to share
    its intellectual property or been forced to enter into any joint
    ventures. The replacement automotive parts sold by Multi Parts are
    simply not the high-tech goods China has identified in its ``Made in
    China 2025'' plan. However, it has taken Multi Parts many years and,
    what is for us, a tremendous amount of investment to develop and
    qualify the thousands upon thousands of unique products we must supply
    to cover the myriad combinations of vehicle makes, models, years and
    options in each product category we supply. For example, we do not sell
    ``a'' brake hose assembly; we have developed thousands of different
    assemblies, each with a different combination of end fittings and
    brackets to fit everything from a 1962 Ford Falcon to a 2016 Toyota
    Corolla. Attempting to duplicate this meticulously built supply chain
    to produce this kind of broad-range, low-volume production at the level
    of quality required for safety critical applications would be
    exceedingly difficult if not impossible.

          Second, the tariffs on Multi Parts imports would cause
    disproportionate economic harm to U.S. interests. Multi Parts partners
    with numerous manufacturers and distributors, which will also suffer
    from the onerous 25 percent tariffs proposed on Multi Parts imports
    from China.

          Third, the tariffs would most certainly harm small and medium-
    sized businesses--Multi Parts being a prime example. Multi Parts is a
    family company that considers every individual team member as part of
    that family. Multi Parts is very proud of the business it has created
    and most especially of the good-paying jobs with full benefits which it
    provides in areas such as engineering, marketing, sales, and
    management. These tariffs put all those jobs at risk.

          Finally, the burden of the Section 301 tariffs on Multi Parts'
    products will be passed on to the ultimate vehicle owners. For low- and
    middle-income consumers, stretching out the value of their automobiles
    is vital and high-priced dealership parts and services are simply not
    an option. The replacement and aftermarket parts sold by Multi Parts
    are a safety-net for these consumers, helping them prolong the life of
    the car that allows them to get to work, run their errands, drop off
    their children and live the treasured American life of mobility. The
    Section 301 tariffs on our aftermarket products threaten every single
    American's ability to keep his or her car running safely and reliably.

    The impact of these tariffs on Multi Parts, and on our customers, would
    be catastrophic. We at Multi Parts ARE sympathetic to the goals of the
    USTR in seeking to remedy any Chinese intellectual property abuses. But
    Multi Parts and its customers--as well as the ordinary Americans who
    rely on these products--are just innocent bystanders in this
    international trade war with China. So, we had asked the USTR to seek
    to minimize the collateral damage on a family-owned company like Multi
    Parts and the low- and middle-income customers who rely on us to
    provide reliable, safe, and economical aftermarket parts for their
    automobiles. Unfortunately, none of the tariff lines listed below were
    removed from the announced tariffs and, barring approval of exemption
    requests or action by congress, we will face the full and onerous
    impact of these tariffs.

    As promised above, here is the list of Multi Parts imports impacted by
    the Lists 1 and 3 tariffs:

    ------------------------------------------------------------------------
      Section 301 Lists 1 & 3 Products of Concern       HTSUS Code 8 Digit
    ------------------------------------------------------------------------
    Gas Cap Tether                                                4007.00.00
    ------------------------------------------------------------------------
    Charge Air Cooler/Intercooler Boots/PCV Hoses/                4009.31.00
     Turbo Hose Kits
    ------------------------------------------------------------------------
    Brake Hose Assembly                                           4009.32.00
    ------------------------------------------------------------------------
    Fuel Pump Lock Ring                                           4016.93.10
    ------------------------------------------------------------------------
    Diesel Particulate Filter                                     6909.12.00
    ------------------------------------------------------------------------
    Diesel Particulate Filter                                     6909.19.50
    ------------------------------------------------------------------------
    Cam Phaser Gears                                              8409.91.50
    ------------------------------------------------------------------------
    Brake Wheel Cylinder/Clutch Slave Cylinder                    8412.21.00
    ------------------------------------------------------------------------
    Fuel Pump Module; Water Pumps                                 8413.30.90
    ------------------------------------------------------------------------
    Brake Master Cylinder, Clutch Master Cylinder,                8413.50.00
     Hydraulic Clutch Cylinder Assembly
    ------------------------------------------------------------------------
    Fuel Pump Strainer/Filter                                     8421.23.00
    ------------------------------------------------------------------------
    Diesel Emission Fluid Heater                                  8421.99.00
    ------------------------------------------------------------------------
    Variable Valve Timing Solenoid                                8481.20.00
    ------------------------------------------------------------------------
    Fuel Limit Vent Valves/Diesel After Treatment                 8481.80.90
     Injectors; Diesel Fuel Regulators/Gasoline
     Fuel Pressure Regulators/EGR Valves
    ------------------------------------------------------------------------
    HID Ballasts                                                  8504.10.00
    ------------------------------------------------------------------------
    HID Ballasts                                                  8512.20.20
    ------------------------------------------------------------------------
    Interior Bulbs                                                8512.20.20
    ------------------------------------------------------------------------
    Brake Hose Assembly                                           8708.30.50
    ------------------------------------------------------------------------
    Knuckle Assemblies                                            8708.80.65
    ------------------------------------------------------------------------
    Clutch Actuating Components                                   8708.93.75
    ------------------------------------------------------------------------
    Hydraulic Timing Tensioner                                    8708.99.81
    ------------------------------------------------------------------------

                                     ______

              National Association of Foreign-Trade Zones (NAFTZ)

                            National Press Building

                        529 14th Street, NW, Suite 1071

                              Washington, DC 20045

                                  202-331-1950

                                October 10, 2018

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Building
    Washington, DC 20510-6200

    Re:  Senate Finance Committee hearing on ``Impact of Tariffs on the
    U.S. Automotive Industry'' (September 26, 2018)

    The National Association of Foreign-Trade Zones (NAFTZ) submits the
    following comments to the U.S. Senate Committee on Finance for
    inclusion in the record for the committee's hearing on September 26,
    2018 to consider the impact of tariffs on the U.S. automotive sector.

    1. Background

    NAFTZ is the voice of the U.S. Foreign-Trade Zones (FTZ) Program and
    its stakeholders--communities, companies, and service providers in the
    United States that use and rely on the FTZ program. The program was
    established by Congress in 1934 to help ``level the playing field'' for
    U.S.-based companies facing competition from firms in foreign countries
    exporting to the United States. Manufacturing, distribution, intermodal
    activities and re-exports may be conducted in FTZs that could otherwise
    take place abroad and reduce U.S. participation in global commerce.

    Since manufacturing was first allowed in FTZs by an amendment to the
    Foreign-Trade Zones Act in 1950, the program has been a critical tool
    for promoting tariff policy that benefits manufacturing in the United
    States, which constantly competes with overseas production. FTZ
    participation helps U.S.-based firms improve their global
    competitiveness, maintain U.S.-based activity and jobs, encourage
    production closer to end-user markets, and boost exports through lower
    effective-duty rates and special customs-entry procedures that improve
    cash flow and production efficiency.

    As a result, the FTZ program provides valuable incentives that help
    U.S. communities recruit and/or retain companies to manufacture/operate
    in their locations, and ultimately, remain in the United States, rather
    than moving to a foreign country.

    As intended by the FTZ Act, American communities receive the principal
    benefits of the FTZ program, which include three pillars of economic
    development:

          Business Retention: The FTZ program grants communities the
    opportunity to help their local companies to lower operational costs,
    remain competitive in their particular industry, and continue
    operations in the United States.
          Business Recruitment: The FTZ program is an effective foreign-
    direct investment tool that communities use to recruit foreign
    companies interested in establishing a physical presence in the United
    States and thereby contributing to the U.S. economy.
          Increased Regional Employment: Operating in an FTZ environment
    affords companies the opportunity to remain competitive, expand
    operations, and, most importantly, hire highly-skilled American
    workers.

    The FTZ Act achieves its economic development objectives through the
    cost reduction mechanisms offered through the FTZ program, which
    include:

          Duty Deferral--Companies using FTZs may delay payment of customs
    duties until goods move out of the zone and enter U.S. commerce.
          Duty Elimination--Companies using FTZs may export goods from a
    zone to a foreign country without paying U.S. duties, thereby
    simplifying the company's cash flow management.\1\
    ---------------------------------------------------------------------------
        \1\ The sole exception to this benefit is exports of manufactured
    goods from a U.S. FTZ to NAFTA partner countries (Canada and Mexico),
    which, as NAFTZ has pointed out, is an unfair restriction and should be
    removed.
    ---------------------------------------------------------------------------
          Duty Reduction--Companies approved for production in an FTZ may
    pay duty at either the rate applied to the foreign inputs used in
    production or the rate for the finished product (``inverted tariff''),
    thereby reducing U.S. duty to the level automatically enjoyed by
    foreign manufacturers. U.S. customs policy should not discourage U.S.-
    based manufacturing, which the U.S. FTZ program helps avoid by ensuring
    production is not lost to overseas competitors due to U.S. duties.
    These manufacturing benefits have resulted in numerous investments in
    U.S. facilities and creation of American jobs in automobile and parts
    production for more than four decades.

    Congress provided all these FTZ benefits to bolster the global
    competitiveness of U.S.-based operations. FTZs account for a
    significant portion of total U.S. trade. In 2016, the last year for
    which complete data are available, exports from facilities operating
    under FTZ procedures totaled $76 billion, or 5.2 percent of all U.S.
    goods exported. Imports into FTZs totaled $225.3 billion, or 10.2
    percent of total goods imported into the United States. Over 420,000
    American workers are employed at FTZ operations in all fifty states and
    Puerto Rico, accounting for nearly 4 percent of manufacturing
    employment in the United States.\2\
    ---------------------------------------------------------------------------
        \2\ BLS statistics for total U.S. manufacturing employment, https:/
    /data.bls.gov/timeseries/CES3000000001.

    ---------------------------------------------------------------------------
    2. General Comments

    While many industries (including electronics, pharmaceuticals,
    petroleum, chemicals, machinery, ships/boats, and food/beverages) use
    the U.S. FTZ program, the automobile and auto parts industries are
    among the largest and most important users and are a major FTZ
    manufacturing and export success story. FTZs have been instrumental in
    creating and preserving many thousands of American manufacturing jobs
    in these industries and reviving state and local economies throughout
    the United States.

    A good example is BMW, which manufactures automobiles in a foreign-
    trade zone in Spartanburg, South Carolina (FTZ 38). Before the arrival
    of BMW, the Greenville/Spartanburg economy was largely dependent on the
    textile industry--hard hit by years of plant closures and job losses.
    Spartanburg was able to leverage the FTZ program to persuade BMW to
    invest $3.7 billion to construct the largest final-
    assembly auto plant in the world employing 9,000 South Carolinians.
    Based on the overwhelming success of this operation, the company
    announced in June 2017 a plan to invest an additional $600 million in
    this plant, which will add another 1,000 jobs, and boost production up
    to 450,000 vehicles a year. BMW is also one of this country's largest
    exporters of U.S.-made automobiles. BMW and the auto-parts suppliers it
    has drawn into FTZ 38 have been instrumental in turning Upcountry South
    Carolina from another decaying textile community into a modem
    manufacturing and exporting powerhouse and a region that understands
    through direct experience the importance of global supply and value
    chains, foreign direct investment, and open markets to the U.S. economy
    and jobs.

    We have seen similar manufacturing success stories in the automotive
    sector play out in U.S. FTZs across the country--with Honda in
    Cincinnati, Ohio (FTZ 46); Hyundai in Montgomery Alabama (FTZ 222);
    Mercedes-Benz in Birmingham, Alabama (FTZ 98); Nissan in Smyrna,
    Tennessee (FTZ 78) and Canton, Mississippi (FTZ 158); Subaru in
    Indianapolis, Indiana (FTZ 72); Tesla in San Jose, California (FTZ 18);
    Toyota in Georgetown, Kentucky (FTZ 29), Huntsville, Alabama (FTZ 83),
    and Charlestown, West Virginia (FTZ 229); and Volkswagen in
    Chattanooga, Tennessee (FTZ 134). In these examples, we repeatedly see
    a direct correlation between a manufacturer's announced expansion of
    its zone operations, the subsequent grant of expanded production
    authority in the zone, and increased production and employment. This
    has ancillary benefits as finished production is shipped for export out
    of ports like Jacksonville, New York/New Jersey, Charleston, and
    Baltimore. Without the FTZ program, much of this production and
    economic activity would have stayed in or relocated to other countries.

    3. Tariffs and the U.S. Automotive Sector

    U.S. tariff policy has been a key reason why the FTZ program is of such
    importance to the U.S. automotive sector. Automobile manufacturers in
    the United States face a classic inverted tariff situation where the
    2.5 percent duty on the final product (automobiles) is lower than the
    average 5 percent duty on the inputs (auto parts). The FTZ program is
    specifically designed to address this situation through the duty-
    reduction benefit described above. Without this benefit, imports,
    subject to the lower duty on the finished automobile, would have a
    distinct tariff advantage over U.S. auto production, which is assessed
    the higher duty on imported parts.

    However, the tariff picture is very different with respect to the
    application to products manufactured in a U.S. FTZ, including autos and
    auto parts, for additional tariffs imposed under a trade remedy,
    including antidumping/countervailing duties, Sections 201 and 301 of
    the Trade Act of 1974, and Section 232 of the Trade Expansion Act of
    1962. To safeguard the FTZ Program's consistency with U.S. trade law
    and policy, Congress developed a built-in legal and regulatory
    mechanism to ensure that FTZ manufacturers are subject to the same
    obligations and treatment as U.S. manufacturers outside a zone with
    respect to additional duties or quotas imposed under a trade remedy.
    One of the most important of these safeguards is the requirement that
    certain imported inputs subject to a trade-remedy action be admitted
    into a zone in what is called ``Privileged Foreign (PF) status.'' PF
    status is the legal mechanism to ensure trade remedies duties are
    assessed and collected on subject imported inputs at the time a final
    product manufactured from those components in an FTZ in the United
    States is withdrawn from a zone and entered into U.S. commerce.

    Thus, FTZ automotive manufacturers, like the U.S. automotive sector as
    a whole, have been impacted by the various trade-remedies actions
    imposed this year by the Administration--Section 232 on steel and
    aluminum duties under Section 232 of the Trade Expansion Act of 1962;
    Section 301 of the Trade Act of 1974 on imports from China; and the
    potential imposition of Section 232 duties on vehicles and parts.
    However, FTZ automotive manufacturers are also being impacted in some
    unique ways solely by virtue of having their manufacturing operations
    inside, rather than outside a zone.
                a. Section 232 Duties on Steel and Aluminum
    Like the U.S. automobile industry as a whole, the Section 232 tariffs
    on steel and aluminum have substantially raised the price of a key
    input in automobile production and thus the overall production costs
    for FTZ automobile manufacturers. These costs are not borne by
    competing producers in foreign countries. The result is to diminish the
    global competitiveness of U.S. made vehicles vis-a-vis imported
    automobiles, a situation the U.S. FTZ program was specifically designed
    to mitigate.
                b. Section 301 Duties on Imports From China
    The expanding number of products from China subject to duties under
    Section 301 has created a unique problem for FTZ manufacturers,
    including those in the automotive sector, regarding how those duties
    are being applied to FTZ-manufactured products.

    Final products manufactured and substantially transformed in a U.S. FTZ
    are legally products of the United States, just as if they had been
    produced in a U.S. factory outside a zone. As such, they should not be
    considered or treated as foreign products imported into the United
    States for purposes of applying trade remedies. While U.S.
    manufacturers outside a zone typically make entry and pay applicable
    duties on their imported inputs upon arrival at a U.S. port, the FTZ
    program allows U.S. manufacturers inside a zone to delay making entry
    and paying duty on those imported inputs until the final product is
    withdrawn from a zone for U.S. consumption and to not pay Customs
    duties on exports.

    However, to obtain statistical data on imported inputs used in zone
    manufacturing, the U.S. Census Bureau guidance directs FTZ
    manufacturers to report on Customs-entry documentation the country of
    origin of the foreign-status inputs with the greatest aggregate value
    in a zone-manufactured product. This guidance inadvertently results in
    a U.S.-origin, zone-manufactured product potentially being erroneously
    treated as foreign origin on entry documentation for purposes of
    application of trade remedies.

    Specifically, if a product made in a U.S. FTZ falls under the HTS
    classification of a product subject to the trade remedy and the inputs
    with the greatest aggregate value are from a country subject to the
    trade remedy, the trade-remedy duties will be applied to the FTZ-
    manufactured, U.S.-origin product against the value of all the
    incorporated foreign-status inputs at the time of Customs entry,
    including inputs from countries other than China.

    Therefore, while a U.S. manufacturer outside a zone pays trade-remedy
    duties only on imported inputs that are subject products from a subject
    country, a U.S. FTZ manufacturer is penalized by having the trade
    remedy-duties also assessed on the entire value of all foreign-status
    inputs in the zone-manufactured product, resulting in the effective
    assessment of the trade-remedy duties on imported inputs that are not
    themselves specifically subject to the trade remedy.

    To prevent this erroneous treatment in the Section 232 actions on steel
    and aluminum, CBP, as the enforcement agency acting under policy
    direction from the Administration, and the Commerce Department asked
    the White House to include Proclamation language exempting from Section
    232 tariffs any product manufactured and substantially transformed in a
    U.S. FTZ (comprising NPF status input value only), while also
    clarifying that all imported inputs specifically subject to the Section
    232 action be safeguarded by requiring admission to the zone in PF
    status and retaining that status even if used to manufacture a
    different, substantially-transformed product in an FTZ. President Trump
    agreed to the requested language and signed the proclamation. As a
    result, the Section 232 duties are being correctly and appropriately
    applied to U.S. FTZ manufacturers in accordance with trade policy.

    We have been informed that CBP's reported request to USTR for similar
    language in the Section 301 actions was rejected for unknown reasons.
    As a result, CBP finds itself with conflicting directives on the
    application of trade remedy duties to FTZ-manufactured products in the
    Section 232 actions as compared to the Section 301 actions. CBP has
    indicated to the NAFTZ that it cannot act on its own to resolve this
    discrepancy absent clarification from the Administration through USTR.

    Unfortunately, inaction by USTR to resolve this problem has resulted in
    a significant disincentive to use the FTZ program as Section 301 duties
    are effectively being assessed on foreign-status inputs that are
    neither Chinese origin nor on the Section 301 list of subject products.
    These duties are not being assessed on products manufactured in the
    U.S. outside a zone.\3\
    ---------------------------------------------------------------------------
        \3\ Although not impacting the automotive sector, a similar problem
    exists with respect to duties imposed earlier this year on washing
    machines/parts and solar cells/panels under Section 201 of the Trade
    Act of 1974.

    As a result, zone manufactures are faced with the following dilemma:
    (1) incur millions of dollars in erroneously and inappropriately
    applied additional duties under Section 201 and 301 on products that
    are not subject to those trade actions; (2) incur millions of dollars
    in additional duties and costs by abandoning the FTZ Program and the
    Commerce Department's grant of inverted tariff benefits that help
    manufacturers keep production in the United States and eliminate
    incentives to import the finished product from foreign countries, or
    (3) move production to a foreign country, import the finished product
    into the U.S., and forego the value-added activities, inputs, and
    economic benefits associated with U.S.-based manufacturing in an FTZ.
                c. Section 232 Duties on Motor Vehicles and Parts
    At its core, the focus of Section 232 as a trade restrictive measure is
    on national security, meaning production for defense and defense
    readiness. Restricting imports of motor vehicles, auto parts or any
    other product is an extremely serious step that requires an imminent
    ``threat'' to national security. The plain wording of Section 232
    demonstrated that Congress did not intend or authorize the President to
    use this provision to impose trade restrictions based on economic
    considerations not related to national security.

    Therefore, it would seem that an affirmative national-security
    determination in this investigation on imports of automobiles or auto
    parts can only rest on a finding that (1) the autos and parts
    industries each face an imminent crisis so profound as to imperil their
    continued existence and ability to supply vehicles or parts to the U.S.
    military; and (2) the United States faces an imminent national-security
    threat, including the risk of a trade embargo, that would necessitate
    ensuring domestic demand could be satisfied solely by the U.S. auto and
    auto-parts industries without any imports. We believe there is no
    credible evidence to support either conclusion.

    Just looking at General Motors, the company remains the largest
    producer of automobiles manufactured in the United States, with a
    market share in 2017 of 17.6 percent and revenue of $146 billion. GM
    recently experienced one of the largest stock surges in its history
    based on its pioneering work in electric cars and artificial
    intelligence for autonomous vehicles. Over the past six years, its
    stock price has more than doubled from $19 a share to nearly $44 a
    share. These are hardly the signs of a company in dire peril. Like all
    industries, the automobile sector has faced a variety of challenges
    over the past 50 years, including from imports. But evidence shows it
    has emerged more globally-competitive with record sales and profits as
    the U.S. economy has recovered from the 2008 financial crisis.

    There are several other troubling aspects to possible imposition of
    Section 232 duties on imported vehicles and parts. Imposing stringent
    market access restrictions in the name of national security against
    foreign exports and investment in the automotive sector would mean
    significant government market intervention in and control of the
    industry, with the government artificially inflating prices for
    vehicles and parts through hidden taxes on consumers. The result leaves
    the government, rather than the market, in the position of dictating to
    American consumers what they will be allowed to buy, in what quantity,
    and at what price. As we know from basic
    supply-and-demand economics, we can expect significantly higher costs
    to U.S. consumers for finished automobiles as a result.\4\ Higher auto
    prices could erase any tax savings American families gained from last
    year's tax bill and depress the U.S. auto market.
    ---------------------------------------------------------------------------
        \4\ A recent study by the Trade Partnership estimated the cost of
    foreign vehicles would rise from an average of $30,000 to $36,400 per
    vehicle--a 21-percent increase. Dr. Joseph Francois, Laura Baughman, et
    al., ``An Accident Waiting to Happen? The Estimated Impacts of Tariffs
    on Motor Vehicles and Parts,'' The Trade Partnership (May 29, 2018), p.
    2.

    This situation also allows the government, rather than market forces,
    to pick winners and losers among U.S. companies and industries. With
    the automotive sector part of a global supply and value chain, trade
    measures hitting inputs (i.e., auto parts) in addition to finished
    vehicles will significantly increase the cost of manufacturing
    automobiles in the United States. This could cripple the ability of the
    U.S.-based auto industry, including the many companies using FTZs, to
    remain globally competitive vis-a-vis foreign manufacturers unburdened
    by these additional expenses, create strong disincentives to
    manufacture in the United States, and significantly reduce sales of
    U.S.-made automobiles in important export markets. The number of jobs
    lost in other industries as a direct consequence of these tariffs has
    been calculated at 250,000 resulting in a net loss of 158,000 American
    jobs when accounting for estimated employment gains in the auto and
    parts sectors. These figures do not include those jobs adversely
    impacted by expected retaliation by other countries against American
    products.\5\
    ---------------------------------------------------------------------------
        \5\ Id.

    The Administration's unprecedented and expansive interpretation of its
    national-
    security authority under Section 232 for purposes other than those
    Congress and WTO member countries intended, will have two other very
    negative consequences. First, it sets an alarming precedent by
    effectively ceding to the President unfettered authority to impose
    tariffs and other trade restrictions on any product, against any
    country, in any amount, at any time, and for an indefinite period, free
    from Congressional authority and oversight or scrutiny by the U.S.
    courts and the World Trade Organization, merely by citing the words
    ``national security.'' This was not Congress' intention when it passed
    Section 232 as part of the Trade Expansion Act of 1962, turns Section
    232 into the exception that swallowed the rule, and exposes the U.S.
    government to legal challenge in the courts and the WTO that it runs a
    ---------------------------------------------------------------------------
    considerable risk of losing.

    The prospect of these disturbing consequences raises a more profound
    concern--that unconstrained use of Section 232 would inflict serious
    and potentially lethal damage to the rules-based global trading system
    the United States created and built over the past 75 years and which
    has been instrumental in fostering economic cooperation and prosperity
    around the world.

    Specifically, such action undermines the principles of non-
    discrimination, national treatment, and bound tariffs, which are
    pillars of the global-trading system; invites retaliation against U.S.
    exports; provides a precedent and road-map for other countries to
    impose unwarranted market-access restrictions against U.S. goods and
    services in the name of ``national security''; and risks a return to
    the law of the jungle in trade relations that existed during passage of
    the infamous Smoot-Hawley tariffs before World War II and the needless
    damage they inflicted on the U.S. and global economies.

    To be successful and globally competitive in the 21st-century economy,
    our companies need and rely on a coherent and predictable set of
    international rules. Therefore, we have urged the Department of
    Commerce and the White House to consider these points carefully before
    taking any further action under Section 232. We cannot endorse, nor can
    our country afford, wanton, reckless, or arbitrary use of Section 232
    for reasons unrelated to genuine national security concerns and
    threats.

    In conclusion, we do not believe there is a justifiable national-
    security basis to impose any trade measures under Section 232 on
    imported motor vehicles and parts.

    Respectfully submitted,

    Erik Autor
    President
    National Association of Foreign-Trade Zones

                                     ______

                     National Pork Producers Council (NPPC)

                                122 C Street, NW

                              Washington, DC 20001

    The National Pork Producers Council (NPPC) is a national association
    representing a federation of 42 state producer organizations and the
    federal and global interests of the U.S. pork industry. The U.S. pork
    sector is a major value-added enterprise in the agricultural economy
    and a significant contributor to the overall U.S. economy.

    Recognizing that the purpose of this hearing is to examine the impact
    of tariffs on the automotive industry, NPPC wishes to draw attention to
    the fact that Section 232 national security tariffs on autos and auto
    parts, if implemented, likely would result in retaliation by affected
    trading partners. The estimates of the trade affected by Section 232
    tariffs are mind boggling. Retaliation of such magnitude would be
    extremely harmful to many sectors of the U.S. economy and, in
    particular, would be financially catastrophic for America's 60,000 pork
    producers, who have the dubious distinction of already being on three
    retaliation lists.

    For the reasons cited below, we wish to express our continued
    opposition to the tariffs that have been imposed to date and to any new
    tariffs that may be under consideration, whether by the United States
    or by our trading partners.

    The United States over the past 10 years, on average, has been the No.
    1 exporter of pork in the world, and it is the world's lowest cost
    producer. In any given year, the U.S. pork industry ships pork and pork
    products to more than 100 nations. Those exports contribute
    significantly to the bottom line of all U.S. pork producers, adding
    more than $53 to the value of each hog marketed in 2017, when $6.5
    billion of U.S. pork was exported.

    That export value is 11.3 times greater than it was in 1993, the year
    before the NAFTA went into force and when the United States began
    aggressively opening foreign markets through bilateral and regional
    trade agreements. The export growth in the U.S. pork industry can be
    attributed almost entirely to the market access benefits achieved in
    those trade agreements. We now export more pork to the 20 countries
    with which the United States has free trade agreements than to all
    other nations combined.

    The USDA's Economic Research Service calculates that every $1 billion
    in additional U.S. agricultural exports generates 8,010 new jobs across
    our economy. However, for livestock exports the job multiplier is
    calculated at 11,812 jobs per billion dollars. Measured in these terms,
    U.S. pork exports since the United States began negotiating free trade
    agreements are estimated to have generated at least 76,000 additional
    U.S. jobs.

    In short, our industry has benefited enormously from reduced foreign
    tariffs. And, not surprisingly, we lose badly when tariffs are imposed
    or hiked on our exports.

    In the past 10 months, our industry has been subjected to the following
    new barriers.
    U.S. Section 232 (National Security) Tariffs on Steel and Aluminum
    China retaliated against U.S. pork on April 2 with a 25-percent tariff
    on top of existing tariffs. Prior to this retaliation, China had been
    the third largest export market for U.S. pork. We exported $1.1 billion
    of pork and pork products to China in 2017. The 25-percent duty is
    having a devastating impact on U.S. pork exports and gives competing
    countries an enormous price advantage over our products. To compound
    the harm, the tariff was subsequently increased to 50 percent, as
    described below.

    Mexico retaliated against U.S. pork on June 5 with a 10-percent tariff
    and increased that retaliation to 20 percent on July 5. Mexico is our
    largest volume export market. Our industry has worked very hard over
    the years to expand this market. These tariffs are causing severe
    financial pain to our industry, hurting sales in Mexico, and have
    placed a critical market we have worked diligently to develop at
    serious risk.

    Japan, our top value export market, also has been hit by U.S. Section
    232 tariffs. To date, Japan has refrained from retaliation. A new U.S.
    tariff on Japanese automobiles would likely deal a devastating blow to
    pork and other U.S. farm exports.
    U.S. Section 301 (Unfair Trade Practices on Intellectual Property)
            Tariffs on Goods From China
    In response to U.S. tariffs on $34 billion in Chinese products, on July
    6, China retaliated against an equivalent value of U.S. exports. U.S.
    pork was hit with an additional 25-percent tariff, on top of the 25-
    percent tariff imposed on April 2 under Section 232. This, combined
    with China's normal MFN tariff, has resulted in an overall tax of 70
    percent for some pork categories. The cumulative effect of these
    actions has moved the United States from being the most price
    competitive supplier of pork to China to the least price-competitive
    among all countries. Our exports to China are plummeting.
    U.S. Section 232 (National Security) Tariffs on Automobiles
    The Trump administration has proposed applying tariffs on imported
    automobiles for the purpose of protecting national security, and the
    Department of Commerce has already sought public comment on that
    suggestion. Tariffs on autos would potentially affect imports from
    Japan, Canada, Mexico, South Korea and at least four current members of
    the European Union--Germany, Italy, Sweden and the United Kingdom--not
    to mention other EU members that supply parts to those countries. All
    of these are customers for U.S. pork. Japan, Mexico, Canada and South
    Korea are four of our top five markets. (China is No. 3.) As in the
    case of Japan, mentioned previously, the imposition of a tariff on
    automobiles on the basis of national security concerns would no doubt
    provoke retaliation against U.S. pork and farm exports by most, if not
    all, of those countries.

    Finally, it is important to stress that the impact of tariffs has an
    adverse effect on farmers and ranchers, as well as on all American
    consumers, by raising prices and costs of production. For farmers, this
    means prices will go up directly or indirectly (for example by the
    increased cost of steel to domestic manufacturers) on inputs such as
    tractors, machinery, animal health drugs and other inputs. For many
    farmers and ranchers, this will prove too much to cope with on top of
    the impact from lost export sales.

                                     ______

                          Sea Link International, Inc.

                              13151 66th Street N

                                Largo, FL 33773

                           Ph: 727-523-8660 Ext. 133

                               Fax: 727-523-8661

                               Cell: 727-424-2318

    October 8, 2018

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Building
    Washington, DC 20510-6200

    Chairman Hatch and Members of the Committee, Sea Link International is
    headquartered in Largo, Florida. Sea Link specializes in Automotive
    Lighting research, development and component part manufacturing. Core
    competency includes, Plastic Injection Molding, AL/Mg Die Casting,
    Thixo-molding, Stamping, painting, metallization and assembly. Sea Link
    currently employs 42 direct employees in Florida, Michigan and
    California. These U.S. jobs are upper-level engineering, project
    management, logistics, warehousing, accounting and sales positions with
    an average annual income of $100,000/year or more.

    Sea Link imports various products from its two, wholly-owned
    manufacturing facilities located in the Shanghai area. Sea Link employs
    multiple expatriates in its two Chinese facilities. The facilities from
    which Sea Link imports its products are not run or owned by the Chinese
    Government or related interests. The products imported by Sea Link are
    not implicated in the ``Made in China 2025'' initiative.

    While the products Sea Link manufactures in and imports from China are
    possibly available from U.S. or third-countries, to abandon its Chinese
    operations would create an economic hardship that might ultimately lead
    to operational failure and closure of Sea Link's U.S. operations. Sea
    Link has invested large sums of money in its Chinese facilities, with
    financial assistance from U.S. financial institutions.

    To locate sources of the products Sea Link imports from China today, or
    to move its current manufacturing operations out of China, would be
    very cumbersome and expensive, if not impossible given the OEM
    Automotive Industries regulatory and quality requirements. The level of
    capital investment and increased costs necessary to make those changes
    would cause Sea Link to be unable to compete in the current
    marketplace. With the national unemployment rate in the U.S. at roughly
    3.9%, the volume of the labor force that would be necessary to handle
    this manufacturing is virtually unavailable, and those available are
    not willing to enter this level of employment. Factories in the U.S.
    are running at about 80% of the labor force needed to operate
    efficiently. Another area of concern is that the capability to
    manufacture and maintain the tooling necessary to produce the products
    Sea Links imports is not available in the U.S. to the same degree and
    capacity as in China. These factors would strain the ability of Sea
    Link to meet the Quality, Cost and Delivery demands of its customers,
    to the point of jeopardizing its U.S. operations altogether.

    Sea Link imports products impacted by both the List 1 and List 3
    tariffs. These products include such items as Industrial Valves, Bulb
    Shields, Heat Shields, Heat Sinks, Brackets, Reflectors, Fog Lamps and
    other types of Signal Lighting. Each of the factors the USTR has stated
    it is considering supports excluding the types of products imported by
    Sea Link:

          Sea Link has not received any pressure from the Chinese
    Government or other related entities to share its intellectual property
    or been forced to enter into any joint ventures. The OEM and other
    parts imported by Sea Link are not the type of products that China has
    identified in its ``Made in China 2025'' initiative. Sea Link has
    invested many years and a large amount of capital to produce the myriad
    of products necessary for the many categories of Industrial and
    automobile platforms in which its products are used. As mentioned
    above, attempting to duplicate this intricate supply chain to produce
    these products at the level of quality its customers require would be
    very cumbersome and expensive, if not impossible.

          The tariffs on the products that Sea Link imports would cause
    disproportionate economic harm to U.S. interests. Sea Link and its
    customers, including many suppliers of parts to various OEMs, will all
    suffer economic harm from the tariffs proposed on the products in List
    1 and List 3 that Sea Link imports from China.

          The tariffs will harm many small and medium-sized businesses
    like Sea Link. Again, as mentioned above, most of the jobs provided by
    Sea Link are mid- to upper-level positions with full benefits which we
    provide in areas such as engineering, project management, logistical,
    and warehousing services. These tariffs put all those jobs at risk.

          These Section 301 tariffs place a burden on the products Sea
    Link imports that will need to be absorbed or passed on to the ultimate
    consumer. If company's like Sea Link are unable to absorb the increased
    costs, and our customers--including the end-user consumers--are
    unwilling to pay the higher prices, the economic impact will be
    disastrous to the individuals we employ (both in the US and the
    expatriates in China), the communities in which they live and work, all
    the way up through the US economy as a whole.

    Sea Link is sympathetic to the goals of the USTR in seeking a remedy
    for Chinese abuses regarding U.S. intellectual property. However, the
    collateral damage inflicted by these tariffs is just too high of a
    price to pay in this international trade war with China. We hope that a
    more measured approach in remedies imposed is within our reach going
    forward.

    Seth Weisberg
    Vice President--N.A. Operations
    Sea Link International, Inc.

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