Investigate China's local economic threat

This weekend U.S. and Asian defense officials met in Singapore to discuss Asian-Pacific military security strategy with China dominating much of the conversation.  China has been increasing its military presence in the region and the U.S. has been adding Marines in Australia and Philippines while planning to send more combat ships to the area. 

While Secretary of Defense Leon Panetta says on one hand that a peaceful relationship between our two superpowers is in everybody’s interest, China’s growing military aggressiveness is clearly a big U.S. concern.   

The question is why the Administration and Congress are worried only about a military threat?  The communist Chinese government doesn’t need to destroy our country with weapons and armed forces when it can simply own us. 

I’ve recently blogged (here and here) about my concerns on this issue.   The problem isn’t necessarily the amount of our government debt owned by China.  Typically anyone buying U.S. Treasury notes has a vested interest in our country’s success not collapse. 

But it appears that the Chinese aren’t satisfied with just making money from funding our government.  It is also making significant inroads into capturing important pieces of our business economy. 

And I’m not talking about privately-held Chinese businesses.  That would at least be the free market in operation. 

Chinese government-owned banks are now being allowed to operate in the U.S. to compete with our community banks and credit unions for commercial loans to small businesses.  Chinese government-owned construction companies are winning bidding wars with American businesses for public sector projects across our country.

Small businesses already know how hard it is to compete against big businesses.  Competing against a Chinese business with unlimited government subsidies is impossible.

Last week the Board of Directors of the South Carolina Small Business Chamber decided to launch an exploration into exactly what is the extent of China’s threat—not from warships sailing into the Port of Charleston but to our state’s small businesses and economy. 

The Federsal Reserve bows to big banks today, China tomorrow

Yesterday’s JPMorgan shareholders meeting was “pretty tense”, according to Lisa Lindsley who attended the meeting in Tampa.  Lindsley is the director of capital strategies at the American Federation of State, County and Municipal Employees pension plan. 

In a radio interview with me yesterday Lindsley said that it was obvious that the JPMorgan people clearly wanted to get the meeting over quickly.  Jamie Dimon, the CEO and chairman of the Board of JPMorgan, rushed almost unintelligibly through his prepared remarks regarding the recently acknowledged $2 billion plus loss at his company. 

The pressure on Dimon showed when he was directly asked at the meeting about his and JPMorgan’s lobbying against the Volcker Rule that might have prevented the risky trading that led to the $2 billion loss.  According to Lindsley, Dimon was quite condescending telling the person that he would send him his shareholder letters from the past few years that the commenter obviously hadn’t read or he would understand. 

On another important issue, Lindsley’s union had filed a proposal last fall for JPMorgan to have an independent board chairman.  If the shareholders agreed with the proposal, Dimon would have to give up either the chairmanship of the board or CEO position.  That proposal was voted down 60%-40%.

But in addition to these duel positions held by Dimon, he also serves as a director at the Federal Reserve of New York.  Senatorial candidate Elizabeth Warren and Vermont Senator Bernie Sanders have both called on Dimon to resign from the New York Fed.  At yesterday’s meeting one commentator addressed that issue.  He said that as a director of the Federal Reserve of New York and JPMorgan board chairman, Dimon was his own boss and his own regulator….that’s pretty sweet.

Dimon’s response was that the New York Fed is only advisory and doesn’t make policy decisions. 

But isn’t that the point.  He is advising the Fed that makes the regulations to carry out the Dodd-Frank Financial Reform Act including the Volcker rule that Dimon has lobbied against.  Clearly Dimon and his company are only interested in promoting their own profit, not what is in the best interest of the country. 

And I’m willing to bet that another bad Federal Reserve decision recently was also recommend by Dimon.  Chinese government-owned banks have been approved to do business in the U.S.  As I mentioned in my blog last Friday, China already owns much of our nation’s debt and its businesses are bidding successfully for public project works here.  Add to that China holding the loans and lines of credit to our country’s small businesses because our domestic banks won’t lend is a recipe for a perilous future for America.

So why did the Fed open the doors to China’s banks?  Because our big banks want China to give them more access to investing in Chinese banks in order to gain access to China’s consumers.  It was a tradeoff that Scott Talbott, head lobbyist for the Financial Services Roundtable, said would “benefit the U.S.” 

This isn’t about benefitting our country.  It is about benefitting the profit greed of the big banks like JPMorgan, their CEOs and shareholders.  There doesn’t appear to have been any calculation by the Fed about the other potential impacts on our economy by having the Chinese government being able to undercut our local community banks and call loans and credit lines of our small businesses whenever they want for whatever reason.  And with China now ready to become a player in U.S. banking, how soon will they be influencing other Federal Reserve decisions?

The long-term consequence of the Fed’s decision to allow China to put its nose under our private financial institutions’ tent has enormous risks for our country.  But what the hell, at least JPMorgan and its ilk can make some good short-term profits and bonuses.

The Chinese are now truly coming

Everyone knows that China holds much of our government debt.  While that might sound ominous, the reality is that China needs the U.S. economy to be successful if it wants to keep getting paid on their investment. It’s not like China can simply take over our federal government if we don’t pay them.  Our economy might be in shambles but we’d still be running it.

But while the Chinese can’t take over our government to collect on a bad debt, the same is not true for private loan defaults.

The Wall Street Journal reports that Chinese government-backed banks are coming to the U.S.  The Federal Reserve has approved three such Chinese lenders that will enter the commercial lending market.  Look for the Chinese banks to acquire some U.S. banks in this process.

While I’m all for more access to capital for small businesses, I am concerned about a rapidly growing Chinese government “private” business presence in the U.S.  Locally-owned businesses are already losing out to Chinese companies in public project bidding competitions.  With the Chinese controlling business loans and lines of credit, we are on a slippery slope to a world few of us envisioned for our future.

Cracking down on China’s unfair trade

The argument that “free” trade will create more jobs here in the U.S. stands in stark contrast to the facts.  Since the 2001 trade deal with China we’ve lost 6 million manufacturing jobs here at home.

The calls for “fair” trade are growing.  Our manufacturers find it almost impossible to compete with foreign manufacturers that freely pollute and pay only dollars per day to workers toiling in substandard  conditions.  These foreign manufacturers are often subsidized by their governments in violation of World Trade Organization rules. 

Former South Carolina Senator Fritz Hollings wrote a great opinion editorial in 2010--“Wake up, American, or lose the trade war--that is a must read to understand the importance of fighting and winning trade wars instead of retreating as the U.S. does. 

In his State of the Union address this year President Obama called for tougher trade enforcement to give our manufacturers a more level playing field to compete.   I expressed my hope that he meant what he said and that we should support him.

This week the Obama Administration’s Department of Commerce announced that new tariffs were coming for Chinese solar panels.  The story from The Hill is below. 

Let’s hope there is more of this willingness to fight for our manufacturers to come.

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The Hill
March 21, 2012

US imposes tariffs on Chinese solar imports

By Andrew Restuccia - 03/20/12 03:46 PM ET

The Commerce Department said Tuesday it will impose tariffs on Chinese solar panels imported into the United States.

In a preliminary decision, the department found China is unfairly subsidizing certain solar panels. As a result, the department ordered U.S. Customs and Border Protection to impose tariffs of 2.90 to 4.73 percent in the form of cash deposits or bonds on Chinese solar panels imported into the United States.

The finding is a major victory for a group of U.S. solar panel manufacturers that alleges China is flooding the U.S. market with underpriced solar panels and subsidizing its solar industry in a way that violates World Trade Organization rules.

The companies filed a petition with the Commerce Department and the International Trade Commission last year requesting the tariffs.

“Today’s announcement affirms what U.S. manufacturers have long known: Chinese manufacturers have received unfair and WTO-illegal subsidies,” said Steve Ostrenga, CEO of Helios Solar Works in Milwaukee, Wis., in a statement. Ostrenga is a member of the Coalition for American Solar Manufacturing, which supports imposing tariffs on Chinese solar imports.

“We appreciate the Commerce Department’s hard work in bringing these subsidies to light, and we look forward to addressing all of China’s unfair trade practices in the solar industry,” he said.

The trade case has caused a rift in the solar industry, with power generators and others who have benefited from low-price panels raising concerns that the petition will drive up costs.

But Rhone Resch, president of the Solar Energy Industries Association, a solar industry trade group, said in a statement that the tariffs will likely not have a “material impact on the U.S. market.”

SEIA, pointing to the decision, called on companies to launch “global and regional dialogues on trade and competitiveness and the role of government in encouraging development of the global solar energy industry.”

The Commerce Department said Tuesday it will make a final decision on the tariffs in June. The International Trade Commission will then need to finalize its finding that Chinese solar imports harm the U.S. solar industry before a final order can be issued. An ITC decision is expected in July.

The Commerce Department is separately weighing whether China is flooding the U.S. market with underpriced solar panels. The department will make its preliminary determination on May 17.

http://thehill.com/blogs/e2-wire/e2-wire/217091-us-imposes-tariffs-on-chinese-solar-imports

Procurement codes need small-business bulldogs

State Senator Jake Knotts of Lexington County, South Carolina, is angry. 

Recently a school district in his county gave the contract to build a new school to a big Chinese general contractor that had the low bid.  Senator Knotts shares the outrage of many of his constituents.  While a local architectural firm is being hired to draw the plans and supervise construction, only one other in-county business is being brought on board the project.  The rest of the construction services appear to be going to U.S. businesses outside the county and state.   

But the main concern for the Senator is the Chinese general contractor, and rightfully so.  We can expect to see the steel, concrete, furniture and other goods needed for the contract being imported from Chinese manufacturers.  Millions of local tax dollars will flow back to China draining much needed cash from our local, state and national economies. 

Senator Knotts, who has a reputation as a legislative bulldog, wants to change the procurement code to give locally-owned businesses an advantage in the bidding process for government construction contracts.

For many years, the South Carolina Small Business Chamber of Commerce was concerned about the State procurement code, not because of China, but because we did not feel that in-state small businesses were getting their fair share of contract work.  After many years of lobbying, in 2009 the Small Business Chamber of Commerce (co-founded by Senator Knotts), the state’s General Assembly passed legislation that increases the chances that South Carolina small businesses will receive more state government contracts for their goods and services.  However, this procurement change did not apply to construction contracts, which have traditionally been solely based on low bid.

But the problem for small-locally owned businesses in government contracts isn’t just a local and state issue.  The largest government purchaser of goods and services, the United States federal government, is also a concern.

According to the American Small Business League (ASBL) Congress passed the Small Business Act in 1953 that set a goal of awarding 23% of all federal contracts to small businesses each year.  Sounds good doesn’t it.

So what small businesses have been the beneficiaries of this Congressional effort?  ASBL looked at the data from the Federal Procurement Data System and found these “small business” federal contractors in FY 2011:

Apple-IBM-Microsoft-Chevron-Shell-Sony-Siemens-Toyota-Coca Cola-Wells Fargo-Bank of America-Citigroup-General Electric-PepsiCo-Ford Motors-Home Depot-Xerox-JP Morgan Chase-Ernst & Young-PriceWaterhouse Cooper-Raytheon-Hewlett Packard-Panasonic-CVS-Verizon-Time Warner-Boeing-Disney-Comcast-Lockheed Martin-AT&T-Rolls Royce-British Aerospace-General Dynamics

ASBL says that these big businesses get away with being counted as small business contractors by the federal government and every year they siphon off billions of tax dollars intended for real small businesses “due to fraud, abuse and loopholes”.  ASBL lays the blame for this outrage primarily on the U.S. Small Business Administration and Department of Justice, for failing to enforce procurement laws; and on outdated carve-outs for special interests.

This problem has apparently existed for years with calls for Congress to act not having much success. 

Sounds like small businesses need a bulldog in Congress on this procurement issue.  How about it, Senator Knotts???

Multinationals aren't here to help

“We don’t have an obligation to solve America’s problems.” 

Remember this quote from an Apple executive as reported by Charles Duhigg and Keith Bradsher.  It appeared in the first of a two part story that will surely win the two New York Times journalists deserved recognition for exposing Apple’s decidedly un-American manufacturing standards in China.

Remember this quote the next time you hear Apple, which is sitting on $98 billion in cash on hand, and other multinational corporations offer to help the American economy if we only lower their corporate taxes and let them bring home overseas profits with little taxation so they can hire workers. 

Remember that quote the next time Apple and their ilk lobby for more trade deals with other countries to create jobs here at home like we did with China in 2001 (we’ve lost 6 million manufacturing jobs since then). 

Remember that quote when you hear Apple and their big business elite or one of their organizations like the U.S. Chamber telling the American people that they know what is best for our country.

Remember that the real motive of Apple and other multinational corporations is not to solve America’s problems.  That’s because they are not American businesses any longer—they’re “citizens of the world” Thomas Friedman correctly points out in his column yesterday.

These multinationals have no allegiance to any country.  They have only one goal—to make as much profit for their executives and shareholders as possible by increasing production and lowering costs.  The slave-labor like conditions and slave-labor wages at Apple’s Chinese manufacturing plants are detailed in the New York Time’s stories.

Likewise, America should have no allegiance to these multinationals.  When Steven Jobs told President Obama last February that the iPhone jobs aren’t coming back to America, the President should have told him that we were going to start getting tough on trade enforcement.  No longer should we allow other countries to produce cheaper products due to little concern for their workers and environment.  “Meet our standards or pay tariffs” the President should have told Mr. Jobs. 

Almost a year after that meeting with Mr. Jobs, the President did call on tougher trade enforcement in his State of the Union.  Let’s hope he means it and give him our support.

Wake up, America, or lose the trade war

Below are some excerpts from an opinion editorial by former South Carolina U.S. Senator Ernest F. Hollings (1966-2005) that ran in today's Charleston Post and Courier. 

Never one to mince words, Mr. Hollings lays the blame for our economic condition on the "free traders".  In his opinion, resurrecting our country's manufacturing is the key to our future.

In his original piece, Mr. Hollings unfortunately and incorrectly dismisses small businesses as an economic engine.  The reality is that manufacturing is dominated by small businesses. 

In 2009 South Carolina had 5047 manufacturers of some kind with 90% having fewer than 100 employees and 84% having less than 50 employees.  What's good for manufacturing in this country is good for small business.

Excerpts from

Wake up, America, or lose the trade war
BY ERNEST F. HOLLINGS
Monday, December 27, 2010
Charleston Post and Courier

In the last 10 years we've lost a third of the nation's manufacture in the trade war to offshoring. Long before the recession, Princeton economist Alan Blinder estimated that in 10 years the country would lose 30 million to 40 million jobs to offshoring. President Obama didn't inherit just a recession. He inherited a financial collapse together with a job collapse from offshoring.

Stimulation won't do. President Bush increased the debt and stimulated the economy $5 trillion in eight years. In the same period, household debt increased or stimulated the economy another $7 trillion. The Federal Reserve stimulated the economy a trillion dollars in the remainder of 2008. By January 2009, when Obama was sworn in as President, the economy had been stimulated $13 trillion in eight years, and we were losing exactly 799,000 jobs a month. President Obama in two years has now stimulated the economy another $3 trillion and last month unemployment increased. Stimulation is spent. We're losing jobs not only from the recession but because we are not competing in the trade war.

The United States was founded in a trade war. The Mother Country forbade manufacture in the colony and required exports from the colony to be carried in the bottom of English ships. The Boston Tea Party that triggered the Revolution framed a Constitution calling for Congress to regulate trade -- not freeing trade. In fact, the forefathers agreed to regulate trade four years before they could agree on First Amendment rights. The first bill to pass the United States Congress on July 4, 1789, was a protectionist tariff. We didn't pass the income tax until 1913. We financed and built the United States into an industrial power with protectionism for the first hundred years, causing Teddy Roosevelt to exclaim in a letter: "Thank God I'm not a Free Trader."

After World War II, Japan started the present trade war by closing its domestic market, subsidizing its manufacture, selling its export at cost, and making up the profit in the closed market. Japan's thrust for market share put General Motors into bankruptcy with Toyota No. 1. I worked with business in this trade war to protect its domestic production, passing numerous trade bills, only to be vetoed by presidents of both parties because of the Cold War. But when President Clinton passed NAFTA with Mexico, offshoring began in earnest. And 10 years ago, when China entered the World Trade Organization, offshoring hemorrhaged. Now, Corporate America, instead of fighting free trade, cries "free trade," "protectionism," "don't start a trade war." Globalization is nothing more than a trade war with manufacture looking for a cheaper country to produce goods.

Wall Street, the big banks, the financial houses, the Business Roundtable, and the U.S. Chamber of Commerce are a fifth column in this trade war. They're not interested in creating jobs in the United States. They're interested in investment offshore to keep their profits up in the market. The CEOs are not interested in taking on labor worries with domestic production. They want to keep China profits flowing for their golden parachute. Consequently, they oppose getting into the trade war.

If the president enforces trade laws or Congress introduces a trade measure, coming down on their heads will be Tom Donahue of the U.S. Chamber of Commerce and the Wall Street crowd, contributing to their defeat. So business leadership, the President, the Congress, all join in a charade of "free trade," "don't start a trade war."

The best example of a president sleep-walking through the trade war is his hectoring CEOs to invest in production and jobs in-country. If you were a CEO, would you invest in-country? The first thing the banker asks is: "Can you meet the China price?" If not, even though your investment succeeds, cheaper imports from China of the same article will soon put you out of business and the loan goes bad. The harsh truth is that in globalization it is difficult to produce goods for a profit in the U.S. In globalization only the government can make it profitable to manufacture and protect Corporate America's investment.

In globalization, the task is for the president and Congress to make it profitable to produce in the U.S.