Manufacture This

Welcome President-Elect Obama

Posted by SCapozzola on November 19th, 2008

Click here to see President-elect Obama’s remarks to AAM in April.

##

Ford, GM and Chrysler CEOs are on the Hill for the second day today, pleading their case before the lawmakers. At the today’s hearing, the company executives disclosed how much they might each apply for, if Congress approved the $25 billion loan package: $10 billion to $12 billion for GM; $7 billion to $8 billion for Ford; and $7 billion for Chrysler. The money is intended to pay employees, cover current operating costs and develop new products. There is little enthusiasm thus far for the bailout to the automakers in Congress, it’s doubtful that any measures to designate bailout funds to the Detroit Three will be enacted in the lame-duck session.

All major U.S. stock exchanges traded down by the end of the morning session. The Dow was down almost 163 points; Nasdaq down 43 points, or 2.9%; and S&P 500 was down almost 24 points, or 2.78%. Stocks declined on the new Department of Labor report that consumer prices fell 1% in October for the biggest one-month decline since the records were kept in 1947; on continuing troubles in the U.S. auto industry; and problems in the credit and banking sectors.

Just as American companies are asking for and in some cases getting financial aid from the government, Chinese companies are getting some government “help” as well: in the form of bureaucratically imposed limits on the lay-offs. Companies in two Chinese provinces, Shandong and Hubei, have been told they must seek official consent if they want to lay off more than 40 people. Because of China’s stalled economic growth, thousands of factory workers in China have already been laid-off. Maybe, a trade investment agreement with Cuba could help? Chinese Premier Hu Jintao has been touring Latin America, and he has stopped on the island of Cuba for the first time since his previous visit in 2004. President Hu agreed to continue buying nickel and sugar from Cuba and to send food aid to the island. China is now Cuba’s biggest trading partner after Venezuela, with bilateral trade at $2.3 billion in 2007.

The U.S., on the other hand, imported $321 billion worth of goods from China last year. Some of these goods, like children’s toys, pet food, and toothpaste were not safe for consumption. The F.D.A. has opened its first oversees inspection office in Beijing today. The F.D.A. offices in China will include eight officials described as “inspectors and senior technical experts in foods, medicines and medical devices,“ who will work with their Chinese counterparts to ensure the quality standards of foodstuffs and consumer goods “at the point of manufacture.” Given the astounding volume of goods that come in the U.S. from China, the ability of these 8 F.D.A. staff to really impact the quality of Chinese exports is, well…obviously limited. AAM has long advocated for the case of “Safe Trade.” The threat of dangerous imports is ubiquitous and a comprehensive approach, not just a new office—the tiniest dot on the map of the world,–to solving the problem is needed.

Posted in Uncategorized | No Comments »

Vroom, Vroom

Posted by SCapozzola on November 19th, 2008

AAM’s Scott Paul appeared on Fox News yesterday to discuss a projected bailout of the U.S. auto industry.

The New York Times quoted Robert L. Nardelli, the chairman of Chrysler, as saying that “Without immediate bridge financing support, Chrysler’s liquidity could fall below the level necessary to sustain operations.”

Ironically, the rough recession that the U.S. has entered means that thousands of imported autos are now simply sitting on the docks, waiting to reach not-very-busy car showrooms.

Sadly, Chinese automakers are feeling the strain, too, and are now seeking a bailout from Beijing.

Tight times all around.

##

Posted in Manufacturing in the U.S., AAM | No Comments »

Simple Math

Posted by SCapozzola on November 19th, 2008

Q: What cost the United States $256 billion in 2007?

A: The trade deficit with China.

Yes, indeed—U.S. consumers bought $256 billion more in goods and services from China in 2007 than the U.S. sold in return. That’s a rather big shortfall—a quarter of a trillion dollars. Of course, that’s not a one-time occurrence. In 2006, the annual U.S. deficit was only slightly less—$233 billion.

Add those two figures together and you’ve got roughly $500 billion dollars.

Curiously, China has been rapidly increasing its U.S. Treasury holdings of late, with total ownership of long-term U.S. equities, notes and bonds reaching nearly $600 billion in September 2008, according to Bloomberg News

So rapidly has the People’s Republic been buying up U.S. Treasuries that in September it surpassed Japan to become the single biggest foreign holder of U.S. Treasury securities.

In 1985, the U.S. trade deficit with China was a stunningly insignificant $6 million. Not billions, but mere millions. One might wonder how a paltry $6 million shortfall—almost a statistically perfect, balanced trading relationship—has deteriorated so rapidly in the past 23 years.

The U.S. has accumulated roughly $1.6 trillion in trade debt with China since those carefree days in the mid-Eighties. Playing with more than a trillion in lose change can be kind of fun, though, and it’s clear that China has wasted little time in buying U.S. Treasuries.

Unless the United States starts to address the subsidized practices that have allowed Chinese manufacturers to consistently undermine their American counterparts, the People’s Republic will continue to have a lot of Monopoly money to throw around.

##

Posted in Holding China Accountable, Enforcing Trade Laws | 1 Comment »

Morning News Roundup

Posted by Vriz on November 18th, 2008

“The Big Three”—Henry Paulson, Ben Bernanke and Sheila Blair,–were up on the Hill this morning, testifying before the House Committee on Financial Services. The Administration officials gave an update to the lawmakers on the current state of the U.S. credit markets and the continuing financial rescue plans. The most important thing said at the hearing was Secretary Paulson’s statement that the Bush administration decided this week to defer using much more of the $700 billion of the bailout money approved by Congress in October, leaving it to the next, Obama Administration. So, the Bush Administration is going to sit tight until January 20th. Well, some may say, the price of inaction may be high, but the price of action by this Administration may be higher.

The Bush Administration position of not spending any more government funds on bailouts puts a major break on the aspirations of the other Big Three from Detroit. Even though Senate Democrats produced a plan to extend $25 billion in emergency loans to the hemorrhaging automobile industry, chances of it going anywhere are looking slimmer every day.

In the event that the Detroit Automakers go bankrupt there will be a lot of pain to go around, and not just in Michigan. AAM has been making this very point repeatedly: when one manufacturing job disappears it takes four to five jobs in the rest of the economy with it. In the case of the auto-industry, a lot of different jobs’ figures have been thrown around. Today’s New York Times Economix blog has an interesting discussion on the validity of the various estimates. Economix concludes that: “a contraction” of the Detroit Automakers would result in direct and indirect American jobs losses of 2.5 million to 3 million in 2009.

That can not be good news for an already shrinking U.S. economy. Today’s addition to the barrage of recent bad economic news is the Labor Department’s report on the plunging U.S. Producer Prices—they declined the larger-than-forecast 2.8% in October, the most on record.

China, also being hit by the global economic crisis, has to contend with another problem: riots. Between 2,000 and 10,000 people rioted on the streets of Northwester city of Longnan, because the government there announced that they will move the municipal offices out of the area. This would lead to a loss of jobs and the decline in real-estate values, since the move was explained by the necessity to move the government workers out of the seismic zone. The riots erupted on Monday and continued into the early hours of Tuesday. The residents said that the unrest was provoked by economic distress, unchecked corruption and a lack of transparency by the local Communist Party. The PRC government has been deeply concerned about maintaining stability across China, as the economic growth rates in the country decline.

Posted in Uncategorized | 1 Comment »

Priorities

Posted by SCapozzola on November 18th, 2008

Bloomberg News’ Mark Drajem reports today that, with the economy being such a pressing issue, the incoming Obama administration will have to delay its long-touted efforts to revisit and revise NAFTA. In particular, Drajem quotes AAM Executive Director Scott Paul regarding the “active crisis” of addressing unbalanced trade with China.

Crisis indeed. The U.S. has lost more than 2.3 million jobs to China since 2001, with more than half (55.6 percent) of those jobs falling among the top half of American wage earners. Nearly a third (31 percent) of the jobs lost were among workers with a college degree, including the loss of 200,000 scientists and engineers within the manufacturing sector (a 10.7 percent drop).

As both the outgoing Bush administration and incoming Obama team grapple with rising unemployment, they’ll need to address the big elephant in the room: China.

##

Posted in Uncategorized | No Comments »

Where there’s smoke…

Posted by SCapozzola on November 17th, 2008

ManufactureThis was in Los Angeles this past weekend, and had a ringside seat for much of the devastation wrought by a series of major wildfires. Much of the Los Angeles area is currently being smothered by a blanket of bluish smoke stemming from a series of blazing brushfires. And no matter where ManufactureThis drove—in a big circle from Encino to Santa Monica to Pasadena to Burbank—a strange chocolatey smell hung in the air. It smelled somewhat fragrant, but frequently reduced us to coughing.

Seen from a passing jet plane, the California wildfires are even more intimidating. The sheer wall of smoke that rises up from the hills and eventually pours down into the valley is on a scale that must be seen in order to be believed. And the insect-like helicopters that constantly rotate in to drop their small parcels of water appear insignificant against acres-wide central plumes of rising smoke “walls.”

There’s a relevant point here, though. First, the smoke from these forest fires is bluish, and quite distinct from the typical flat, orange haze of L.A. smog. And second, this smoke is palpable and omnipresent—instantly breathable and noticeable, whether one walks out of a bookstore in Los Feliz or a Thai restaurant in Santa Monica. From the window of an airplane, one can see why: the smoke is simply everywhere.

What ManufactureThis finds so disconcerting is that this sort of tragic, once-a-year, accidental blaze is actually commonplace in Beijing and throughout Mainland China. The difference, however, is that in the People’s Republic, this sort of environmental toxicity is self-inflicted. And, it NEVER stops.

As the New York Times noted last week, the neverending brew of toxic industrial waste gases from China’s belching factories may kill as many as 340,000 people in China and India each year due to cardiovascular and respiratory diseases. That number is merely one estimate, and it neglects the sheer numbers of people elsewhere in the world, including those along the west coast of the United States, who also must inhale China’s fumes.

When confronted with palpable environmental devastation, one sees more clearly than ever that something must be done to protect what remains of the earth fragile ecosystem. And that especially includes efforts to reform China’s wanton pollution.

##

Posted in Holding China Accountable | No Comments »

Don’t Be Too Hasty

Posted by SCapozzola on November 17th, 2008

Earlier this year, President-Elect Obama addressed AAM’s Presidential Candidate Forum on Manufacturing in Pittsburgh.

Today, the Wall Street Journal noted his appearance at the AAM event and cited a quote of his from that particular day: ”trade with China will only be good for you if China itself plays by the rules.” The Journal then suggested that China is finally beginning to play fair. As proof, they cited negotiations last Thursday in which Beijing agreed to allow foreign news services to distribute business news to clients in China.

The President-elect is correct that American companies and American workers will benefit when China starts playing by the rules. But the Journal is too quick in applauding China’s acquiescence on one small issue.

In fact, one particular case of china actually honoring a commitment does not mean that they are not still cheating. Illegal currency manipulation alone continues to give Chinese producers a huge, unfair advantage over American competitors.

Until Beijing truly joins the world community in following the rules of accepted international trade, heavy scrutiny and pressure must continue to be focused on their ruling regime.

##

Posted in Holding China Accountable | No Comments »

Morning News Roundup

Posted by Vriz on November 17th, 2008

The G-20 conference called to discuss the “New World Order” over the weekend wrapped up in Washington. Of course, no New World Order emerged, but the shift in the global economic decision-making had begun. The will be more regulation of the financial markets and there will be more participants at the table in the years to come.

The G-20 Conference’ communiqué blamed the causes of the current crisis on “weak underwriting standards, unsound risk-management practices, increasingly complex and opaque financial products and consequent excessive leverage.” Participants in the conference confidentially stated that nobody pointed at the United States as the culprit, but that the U.S. officials did acknowledge that the U.S. subprime mortgage industry had engaged in practices that proved dangerous to the whole of the global economy.

The communiqué also said that, over time, the IMF and other global institutions “must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy,“ giving a nod to the developing countries’ demand for expanded participation in the elite financial institutions.

Brazilian President Luiz Inácio Lula da Silva expressed the views of the emerging economies when he stated that G-8: the United States, Britain, France, Germany, Japan, Canada, Italy, plus Russia, “doesn’t have anymore reason to exist” on its own.

The Washington Post published an interesting commentary on the G-20 Summit by Harvard’s Niall Ferguson, entitled “Team Chimerica.” He makes the point that there were twin engines that drove the world to the current crisis: American and China. He rightfully states that America’s debt bonanza has been made possible by China, as a matter of economic development strategy. “More than anything else, it has been China’s strategy of dollar reserve accumulation that has financed America’s debt habit.” This partnership between the big saver and the big spender, or Chimerica, is the key to both understanding the causes of the crisis and to reversing its course. The solution Ferguson advocated for is an agreement between U.S. and China on a gradual reduction of the Chimerican imbalance via increased U.S. exports and increased Chinese imports.

This crisis should make the Chinese government understand that the party is over. China can no longer pushing exports out to the rest of the world, as if the world had an infinite capacity to buy. As we have found out, such infinite capacity does not exist, and China should restructure its economy accordingly.

Japan slid into recession, the government data released today confirmed. Japan is the world’s second largest economy and most experts were predicting that the country will be able to avert recession with modicum growth. Asian stocks fell. And so did the U.S. stocks, on more indicators that the U.S. may soon follow Japan’s fate, even though officially we are not in a recession, yet. Manufacturing in New York contracted in November as shown by the fall of the New York Fed’s index to minus 25.4, the lowest since records began in 2001. Citigroup Inc. announced a plan to cut 50,000 jobs.

Posted in Uncategorized | No Comments »

Morning News Roundup

Posted by Vriz on November 14th, 2008

The news coming from Europe is not good. Yesterday’s reports that Europe’s biggest economy, Germany, is in a recession were followed by the announcement that the 15 Euro Zone countries are officially in a recession, too. The recovery is not expected until the second half of 2009.

The mood for the upcoming G-20 Summit in Washington will be gloomy. The 20 countries whose leaders are gathering in D.C. today for a two-day series of meetings represent 90% of the world’s economy. The Summit was called by President Bush at the urging of the French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown to have a discussion of the causes and possible cures of the financial crisis.

The Europeans want a more international approach to market regulation with curbs on executive pay and hedge funds as well as greater cross-border supervision of banks. However, President Bush is not likely to support sweeping regulatory measures. The likely outcome of the meetings: a couple of nice meals at the White House. Tackling the problems might have to wait until the new U.S. President takes office.

Oh, Freddy! The mortgage giant Freddie Mac, seized by the government two months ago, asked the Treasury for another infusion of federal funds: $13.8 billion worth, after a record quarterly loss caused its net worth to fall below zero. The third-quarter Freddy Mac net loss widened to $25.3 billion after writing down tax assets and providing for bad mortgages and securities.

The Federal Deposit Insurance Corporation (FDIC) has come out with a plan to provide relief to homeowners, by offering financial incentives to mortgage companies that would agree to significantly lower the monthly payments that individual homeowners pay on their mortgages. The plan aims to prevent 1.5 million foreclosures. The problem with the plan is how to pay for it. Agency officials estimated the cost to the government at $24.4 billion. The Treasury Secretary Paulson has apparently shot down the idea to pay for it with the funds from the $700 billion bail-out. In other words, this too may have to wait until the new Sheriff is in town.

Posted in Uncategorized | Comments Off

Welcome President-Elect Obama

Morning News Roundup

Vroom, Vroom

Simple Math

Morning News Roundup

Priorities

Where there’s smoke…

Don’t Be Too Hasty

Morning News Roundup

Morning News Roundup

Syndication

Pages

Authors

Categories

Archives

Links