Posted on 02/24/2003 1:38:02 PM PST by Willie Green
For education and discussion only. Not for commercial use.
VICO Technologies was going strong at the start of 2000.
The 33-year-old Sarasota manufacturer, which made computer printer parts for such big names as Canon, Epson and Hewlett-Packard, had just hit $20 million in revenues and was planning to move into a new 120,000-square-foot plant off Fruitville Road.
A year later the company was out of business, and 260 people were out of a job.
The collapse came after Hewlett-Packard canceled VICO's contract and gave the work to a Chinese manufacturer that promised to make printer parts at a lower cost -- a dramatic example of the growing threat of competition from China.
That competition is coming not only from Chinese manufacturers, but also from U.S. companies that have moved to China to take advantage of that country's seemingly endless supply of low-cost labor.
In the late 1990s, an increasing number of U.S. companies began building plants in China or contracting work out to Chinese manufacturers to gain an advantage over competitors. As their low-cost products began flooding the domestic market, other U.S. companies felt pressured to set up factories in China as well.
The trend only accelerated during the economic downturn, which created even more pressure for U.S. manufacturers to slash costs.
Exports from China to the United States consequently surged from $38.8 billion in 1994 to $101.3 billion in 2001. U.S. exports to China have not kept pace, with the U.S. annual trade deficit widening from $29.5 billion to $83.1 billion during the same period.
That's reason enough for concern. But the movement of U.S. factories to China also has contributed to the loss of 2 million U.S. manufacturing jobs since 2001, reducing employment in the sector to 16.5 million, the lowest level in 40 years.
Manufacturers in Southwest Florida and the nation have begun petitioning state and federal governments for relief.
"What we want is a level playing field," said Peter Straw, executive director of the Sarasota Manatee Manufacturing Association, or SAMA.
That would include getting the state government to lower taxes that Florida manufacturers must pay and persuading the federal government to get China to stop subsidizing its exports by holding down the value of its currency, Straw said.
Many industries suffering
Losing jobs to countries with lower labor costs is nothing new to the United States.
The domestic textile industry was decimated in the 1980s when the United States reduced tariffs with Caribbean and Central American trading partners through the Caribbean Basin Initiative.
In 1994, a wave of U.S. manufacturers moved to Mexico after the North American Free Trade Agreement removed trade barriers between North American trading partners. Mexican exports to the United States consequently surpassed U.S. exports to Mexico, shifting the balance of trade from a $1.3 billion surplus in 1994 to a $29 billion deficit in 2001.
China is proving to be an even greater lure. Even Mexican manufacturers are heading to the East.
During the 18 months from October 2000 to March 2002, Mexico's maquiladora industry, which assembles products and exports them duty-free to the United States, lost 300,000 jobs to China, according to the National Maquiladora Export Industry Council. That exodus -- 21 percent of maquiladora employment -- has caused a public outcry in Mexico.
The main reason for the movement of manufacturers to China is its lower cost of labor.
Chinese manufacturing workers make 50 cents to $1 per hour. Mexican factories pay $2 an hour. Hourly salaries in the United States are $6 or more.
But China also benefits from a growing supply of skilled workers and engineers, and the Chinese government makes it easy for manufacturers to set up shop.
"If you want to set up a factory in China, a government official will help you get that factory up in three months," said SAMA's Straw. "That official's sole mission is to make it happen. He will clear the way rather than set up obstacles."
China protects manufacturers within its borders by artificially depressing the value of its currency. That lowers the price of China's exports, while raising the price of its imports. As a result, China is able to flood world markets with inexpensive products.
Harry Bakker, chief executive of Trailmate Inc., a Manatee County company that makes adult tricycles and lawn mowers, said advantages offered to Chinese manufacturers already have caused most of his parts suppliers to relocate there.
"We don't know what we will do -- whether we will join the flood or hang in there," Bakker said. "There are so many things a small manufacturer has to adhere to in the United States. Sometimes it seems it would be better to make the stuff elsewhere."
Peterson Manufacturing, which makes tubular metal parts for the auto and appliance industries at its plant in Sarasota, recently lost a $350,000 chunk of a $600,000 contract to a Chinese manufacturer.
"We still sell $250,000 worth of our parts to our customer. But we don't know how long that will last," said Jerry Yates, Peterson's general manager. "Eventually they will find a supplier in China for that piece of business, too."
The multiplier effect
In response to the competitive threat, the Florida Manufacturers Association has commissioned a study to show the importance of the manufacturing sector to the state's economy.
"For every manufacturing job that's created in Florida, two or three jobs are created in retail and services," said Kevin Connelly, the association's vice president. "Manufacturing brings new money to a region."
Connelly expects the FMA study to be completed and presented to state legislators by mid-March to convince them of the need to reduce taxes on manufacturers and ease environmental and safety regulations that make it difficult for Florida manufacturers to compete.
FMA officials also intend to work with counterparts at the national level to try to stop China from dumping cheap products in the United States.
"There should be trade parity between the U.S. and China. If we buy $5 billion of their goods, they should buy $5 billion of ours," Connelly said.
Peter Morici, a business professor at the University of Maryland, said the best way to achieve parity would be to persuade China to let its currency trade freely. He said that would cause the price of Chinese exports to rise and the price of U.S. exports to fall, thereby helping to relieve the trade imbalance.
Morici said the United States could threaten trade sanctions if China doesn't comply.
"But the best approach would be to talk to the Chinese and let them know how their policies are impacting U.S. manufacturers and convince them of the need to change," Morici said.
The problem with getting the Bush administration to confront the Chinese government, however, is the undoubted resistance from U.S. companies in China. Those companies, who include giants like General Electric, Motorola and Procter & Gamble, would be hurt by any policy that benefits domestic manufacturers.
Trying to compete
In the meantime, manufacturers in Southwest Florida are using a variety of strategies to compete with China and other countries where labor costs are lower.
Sarasota-based Sun Hydraulics Corp., for example, is concentrating on producing high-quality, high-performance products.
The company's hydraulic valves, used for a range of products from powering machines that lift baggage into airplanes to keeping Ferris wheels spinning at amusement parks, cannot be duplicated easily in China and Mexico, Sun executives say.
"If anyone can make a product, then the low-cost manufacturer will always win," said Dick Dobbyn, Sun's chief financial officer. "We invest heavily in engineering to make better products than lower-cost producers."
Sun Hydraulics set up a manufacturing and distribution operation in China in 1998. However, it uses the operation not to tap into low-cost labor, but to sell its products to Chinese manufacturers.
Last year, Sun Hydraulics sold $500,000 worth of valves made in Sarasota and Manatee counties to Chinese customers. It imported nothing in return.
Churning out small quantities of special-order products is another way to compete with China.
Bradenton-based West Coast Castings Inc., which molds molten aluminum into parts for auto manufacturers, power plants and furniture companies, focuses on producing about 50 to 200 parts for each of its customers. Such production runs are simply too small for many overseas manufacturers to bother with.
A third way local manufacturers are meeting competitive threats is by automating production.
Hi-Stat Manufacturing, which makes heat and speed sensors for automakers, has spent $8 million since July 2000 installing robots at its Manatee County plant.
"To be successful here in Florida, you've got to control labor costs," said Ray Laurent, the general manager of the Manatee plant. "When labor becomes a minimal factor in the overall cost of production, it doesn't really matter where you produce."
However, increased automation means Hi-Stat requires a smaller work force. The company now operates with 200 fewer workers than it had three years ago.
In spite of efforts by manufacturers to continue producing on U.S. soil, the forces of competition are causing more and more of them to give up and either shut down or move their operations overseas.
The Florida Manufacturers Association estimates that the state lost 500 manufacturing companies in 2001.
"Some of those companies went out of business. Some left the state and others left the country," said Connelly of the FMA.
|
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fundamentally, we believe that the U.S. government needs to devote more resources and put in place new programs to build wider expertise about China and to protect our industrial base from eroding as a result of our economic relations with China.
-- C. Richard D’Amato, chairman
U.S.-China Security Review Commission
(How to improve U.S.-China relations )
George W. Bush is proving to be more adept at destroying America's industrial infrastructure than he is at destroying Iraq's.
And the driving force behind both steps in the process has been the same -- the search for cheaper labor, less regulation, etc.
Of course you'll be reminded that K-Mart and McDonalds are still hiring. LMAO, what a country...
"If you want to set up a factory in China, a government official will help you get that factory up in three months," said SAMA's Straw. "That official's sole mission is to make it happen. He will clear the way rather than set up obstacles."
Of course, this has nothing to do with it.
It's called comparative advantage, and is the force behind specialization of labor. It allows for the ever greater creation of wealth by finding more efficient uses for existing labor. The people trying to stymy this process can see 300 jobs 'lost' from a plant closing in one location, but they can't see the thousands or millions who benefit from lower prices, in addition to the people who 'found' the 'lost' jobs, so for them this is always a pernicious development. Their philosophical ancestor is the Luddite or the original saboteur.
In his treatise on "comparative advantage", "free" trade deity David Ricardo also asserted that the cost of labor stabilizes at the subsistance level.
"Comparative advantage" has nothing to do with "specialization of labor". It is more concerned with "optimization" of resources (such as labor) by driving them to minimum cost.
Not true.
"Luddites" were opposed to technological innovation that made production labor more efficient.
This is philosophicly different than simply undercutting wage rates with cheaper labor utilizing equivalent (or even more antiquated / labor intensive) technology.
You'll understand all of this once it is YOUR job that is exported to twenty people in China or India.
Those prices have to be pretty darn cheap for the unemployed to be able to afford them.
in addition to the people who 'found' the 'lost' jobs
They're in India or China or Mexico, not in the US.
Isn't specialization of labor optimizing the available labor pool? Isn't comparative advantage optimizing the production of goods and services by recognizing some locations have better access to the required production components (whether it's natural or labor resources)? Productivity is more pivotal than "minimum cost". If minimum cost is what mattered you could produce just 1 unit, close the shop, and your costs would be very low indeed, but it wouldn't make you much money.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.