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U.S. Intelligence Estimate Launched To Assess Decline Of U.S. Manufacturing

February 12, 2011

Defence Professionals, 10 Feb 2011: Ten years after China joined the World Trade Organization, the Director of National Intelligence is launching an interagency assessment of what the rapid erosion in U.S. manufacturing capabilities means for the nation’s security. The first decade of the new millennium has proven to be a disaster for American industry, with an average of 50,000 manufacturing jobs disappearing every month for eight straight years during the Bush Administration. Some of the job losses resulted from a 30 percent gain in industrial productivity during the Bush years, but most of the losses were traceable to foreign competition, especially competition from China. 
For example, China and America began the decade each producing about the same amount of steel. By the time the decade ended, China was producing ten times as much steel as the United States. Such trends have important consequences for national security. When defense secretary Robert Gates launched a crash program to build armored trucks for U.S. troops in Iraq, it was discovered there was only one plant left in the nation producing steel tough enough to meet military needs — the old Lukens steel plant in Coatesville, Pennsylvania, which has been bought by European steel giant Arcelor Mittal. The same plant supplies high-strength steel for other military purposes such as submarine hulls, but the fact that there is only one such plant in the whole country suggests that FDR’s “arsenal of democracy” is running out of steam. After decades of pressure from subsidized foreign producers, the U.S. steel industry is only capable of meeting two-thirds of domestic demand in a normal year.

Similar trends are apparent in other manufacturing categories, from chemicals to rubber to paper to glass to pharmaceuticals. Bristol-Myers Squibb closed the last U.S. plant producing key ingredients for antibiotics in 2004, joining the migration of drug makers offshore after Chinese provincial governments targeted the business for subsidies. An executive in the drug industry was quoted in the New York Times on January 20, 2009, saying, “If China tomorrow stopped supplying pharmaceutical ingredients, the worldwide pharmaceutical industry would collapse.” China has long since surpassed America in electronics production too, which is the main reason why the U.S. has seen a widening trade gap in advanced technology every year since Beijing joined the WTO. But the loss of manufacturing capability in America is generalized across the board: even in household furniture, the share of imports in domestic sales has risen from 31 percent in 2000 to 56 percent in 2010. When Toledo boosters decided to build a museum tracing their community’s long history in the glass industry, they ended up buying specially shaped glass for the exterior from China. The new World Trade Center is using Chinese glass too.

No doubt about it, the last ten years have been a lost decade for American manufacturing. And now even the Director of National Intelligence is concerned what that may mean for the nation’s security. The launching of a National Intelligence Estimate — which was first reported in Manufacturing & Technology News on February 3 — signals that loss of manufacturing capacity and skills has reached a crisis state. Big changes in national policy will be required to reverse current trends, beginning with better enforcement of U.S. rights under trade treaties. But let’s not make this just about China’s transgressions. There are plenty of other countries that have taken advantage of America’s open-market policies to pursue mercantilist ends, from the South Koreans with their exclusionary policies on U.S. auto exports to the European countries who have given Airbus $20 billion in prohibited trade subsidies. If Washington doesn’t finally put its foot down with all these offenders, then America’s economy will never recover to what it once was.

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