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


                                                       S. Hrg. 115-838

                        IMPACT OF TARIFFS ON THE 
                        U.S. AUTOMOTIVE INDUSTRY

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                                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                     
          
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                          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 [email protected] 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.
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    \57\ Explore data at PWC, https://www.pwc.com/us/en/industries/
technology/moneytree/explorer.html#/
%20type=history&category=&currentQ=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/.

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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 
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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\
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    \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 
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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.
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    \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\
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    \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.
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    \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\
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    \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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