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State of the Union? Too Many Jobs Moving to China

Gilbert B. Kaplan: Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce – Posted: January 24, 2011 10:05 AM


As President Obama prepares his State of the Union message, focusing on jobs, he should squarely face up to the problem of U. S. companies moving manufacturing jobs to China. All of the friendly handshakes with President Hu have not changed that.

Just a week ago, Evergreen Solar, a leading U. S. solar panel producer, announced that it was closing its Massachusetts plant, laying off at least 800 workers, and moving its manufacturing to China.

It’s a disheartening phenomenon, and by no means an isolated development. Even before the Evergreen Solar move, I heard the story of another U.S. solar company that was offered a low interest loan of well over $40 million by the U.S. government to build a plant here. The company was told it would take more than a year for the Department of Commerce to process the paperwork and provide the funds. By way of competition, the Chinese government offered hundreds of millions of dollars of interest-free funding, as well as free land, to build the plant in China, both to be delivered immediately. Where do you think the company will build its new plant?

We are losing in the global manufacturing job race and we shouldn’t be. For those who think the reason is simple — lower wages elsewhere — they are simply wrong. Very few products we still make in the U. S., or could make, have a labor cost greater than 10% of the overall cost of production. As such, the cost of paying a reasonable wage in the United States, as opposed to less than a dollar an hour in China, is easily off set by additional shipping costs from these far away locations.

The real reason manufacturers are locating off-shore is subsidies granted by the Chinese government to lure these plants abroad. Evergreen Solar admitted as much.

There is not a simple solution to this problem. But there are a series of steps that can make an enormous difference. The first thing the President should announce in the State of the Union is the creation of a subsidies trade strike force, that would begin a series of trade cases against the subsidies China and other trade competitors are using to undercut our manufacturers. What are these subsidies and what difference would it make? Some of the biggest are grants, low-interest loans, undervalued currency, and free land given to lure manufacturing industries away from the U. S. If these practices are not curtailed, we will not have much manufacturing left in the U. S. by the end of this decade. There will be no reason to put any factories here.

Secondly, the President should announce a new cabinet position, a Secretary of Manufacturing, whose job it is to stand and fight whenever this kind of story appears. The new Secretary needs to have the economic resources to match the Chinese incentives, dollar-for-renminbi, and the power of our trade laws to limit the flexibility of U. S. executives who do not stand up for the U. S. Perhaps he should say he would stop imports of goods back into the U. S. from plants that have deserted our shores. He should also have the ability to enforce Export Control laws, which limit the export of key American technology. The sad truth is that without a Secretary of Manufacturing in this country, there is no one in the U. S. government responsible for this flight of U. S. manufacturers abroad. Responsibilities for different parts of the problem — such as trade enforcement, providing federal grants and loans, and monitoring plant closings — is diffused across scores of sub-cabinet officials, none of whom have the power to change the game, or the responsibility for losing it.

Finally, we need to change the cultural and political message we are delivering to companies that elect to move their plants to China. Let’s face it, this is un-American. It hurts the 800 soon to be laid-off employees in Massachusetts, and the wider phenomenon has hurt millions of unemployed manufacturing workers all across this country. U. S. companies and their executives once again need to make a commitment to American jobs. And U. S. leaders need to speak up against companies that move their plants abroad. I have not seen any statements criticizing Evergreen Solar for its move from elected officials. One might think they don’t care.

Who lost Evergreen Solar to China? There is not one person who caused this loss. But the President and the new Congress should stand up and take joint responsibility. And then they should enact the changes necessary to make sure it doesn’t happen again.

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