Rubber Manufacturing in America: Officials remain cautiously optimistic

WASHINGTON—”America's Manufacturing Sector Continues to Show Momentum.”

This was the headline of a December 2013 statement released by Gene Sperling, assistant to the president on economic policy, and indeed this has been a consistent message from the White House recently: All the relevant economic indexes show U.S. manufacturing steadily gaining ground, if not rebounding.

The Obama administration has not lacked for programs to stimulate domestic manufacturing.

The most famous of these include the multi-billion-dollar stimulus package for Detroit's Big Three auto makers; the “Cash for Clunkers” program, designed simultaneously to stimulate new auto sales and get high-polluting vehicles off the road; and the administration's Advanced Manufacturing Partnership, designed to establish public-private Manufacturing Innovation Institutes to facilitate the development of advanced manufacturing products and techniques.

How accurate is the Obama administration's message of a domestic manufacturing resurgence? It depends on whom you ask, and about which aspect of manufacturing that is being considered.

Is the Obama administration and Congress a help or a hindrance to manufacturing regaining its foothold in the U.S.? That, too, depends upon whom you're asking and what factors you consider that affect manufacturing.

There's no question that U.S. manufacturing has improved since the depths of the recession five years ago, according to Stan Johnson, international secretary-treasurer of the United Steelworkers union.

“Since that time, manufacturing and employment have stabilized and improved somewhat,” he said. “But the prospects facing manufacturing are far from being considered a renaissance.”

More than 60,000 U.S. production facilities are still closed, and U.S. manufacturing employment is down by about 5 million jobs, according to Johnson.

The U.S. bled an average of 40,000 manufacturing jobs every month between 2000 and 2009, according to Scott Paul, president of the Alliance for American Manufacturing. Since 2010, however, some 600,000 manufacturing jobs have been reinstated.

“Part of that recovery is that our economy stopped tanking,” Paul said. “People started buying tires and other products again.”

Charles A. Cannon, president of the Rubber Manufacturers Association, said that by his estimation tire manufacturers are investing $4.7 billion in expanding their U.S. capacity.

“That's pretty impressive, even if you speculate that not all the money has been spent,” Cannon said.

But Alan Tonelson, research fellow at the U.S. Business and Industry Council, said the Obama administration's trade figures don't match its optimistic rhetoric.

In a March 19 news release, Tonelson quoted U.S. Trade Representative Michael Froman in a March 12 statement on the U.S.-South Korea trade agreement: “Since the Korea agreement went into effect, U.S. exports to Korea are up for our manufactured goods.”

But Tonelson said International Trade Commission figures show U.S. exports to South Korea falling to $2.95 billion in January 2014, the latest figures available, from $3.34 billion in March 2012, the month the trade agreement went into effect.

Tonelson followed up March 27 with a release on the federal government's figures on the Gross Domestic Product in fourth-quarter and full-year 2013.

“The new data add to the overwhelming evidence that the United States will not come close to meeting President Obama's goal of doubling U.S. exports during the first quarter 2009-fourth quarter 2014 time frame,” he wrote.

Tonelson said the basic problem is that international free trade agreements make it overwhelmingly attractive for corporations to move production offshore, particularly since trading partners choose not to play by the same rules the U.S. does.

“The U.S. is forced to be a much less attractive trading partner than its new trading partners,” Tonelson said. “And it's very difficult to see how purely domestic trade proposals can offset the arbitrage effect. The scale of the programs Obama has proposed is dwarfed by the subsidies provided by countries like China.”

For tire manufacturers, however, it is never a question of domestic vs. international manufacturing, according to Cannon.

“Our eight member companies, and other tire makers around the world who may join us, are truly global businesses,” he said. “If you look at new investment, most of those decisions are made in Clermont-Ferrand, Hanover, Tokyo and Seoul.”

Tire manufacturers look for a lot of things in deciding where to locate production, including availability of labor and natural resources, local transportation systems and a stable national business environment. Local and national regulations—including taxation, trade policies and environmental and safety regulations—play an important part, according to Cannon. Currently, all these various factors combine to make the U.S. an attractive place to invest, he said.

Government—both federal and state—plays an enormous role in all the factors Cannon mentioned, and others as well.

State government policies play a greater role in manufacturing decisions than they are sometimes given credit for, according to Roy Littlefield, executive vice president of the Tire Industry Association.

“The auto industry is doing well, and so are those industries that supply it,” Littlefield said. “That's good for us and good for the states attracting the new plants.”

South Carolina is increasingly the state of choice for locating tire and auto plants, he said. That is because South Carolina Gov. Nikki Haley—the keynote speaker a few years ago at the Clemson University Tire Industry Conference—offers manufacturers a combination of favorable tax treatment and implacable hostility to labor unions.

“What Haley is saying is very appealing to manufacturers, motivating them to bring jobs into the state,” Littlefield said.

Littlefield and members of TIA found the Obama administration's three years of high tariffs against tires imported from China, beginning in September 2009, less than appealing. The tariffs disrupted supplies of lower-cost tires in the U.S. and cost jobs in the tire retailing and distribution industries, he said.

“If we support free trade, we support free trade,” he said.

On the other hand, organizations such as the USW—which petitioned Obama for the tariffs—and the AAM pointed to the tariffs as an example of an effective action in protecting U.S. manufacturing and jobs. Johnson said tariffs helped save more than 1,000 jobs in U.S. tire manufacturing and related industries.

Tonelson, however, sees U.S. trade policies generally as rewarding the offshoring of production at the expense of domestic manufacturing.

“Our productive edge has been eroding, because multinationals are so adept at offshoring,” he said. “They're good at making people produce wherever they're located. They can do it in China, Malaysia, Mexico or Brazil, and that's exactly what happened. So the U.S. has a deficit in trade.”

The RMA wants to see trade policies worldwide that are fair to all players, according to Cannon.

“There's constant tension in this area,” he said. “Global industries want a level playing field. They're always trying to end tariff and non-tariff barriers and achieve the free movement of goods in a free market.”

Global harmonization of technical standards for tires and vehicles is a key part of a truly free market, and this is a goal the RMA has worked toward for years, according to Cannon.

Officials interviewed for this story said that safety and environmental regulations believe they are a legitimate government activity and as a necessity for public and worker health.

Not surprisingly, the USW had the strongest praise for safety and environmental regulations. “Safety and environmental regulations are vital to the quality of life and safety and security of workers,” Johnson said. “America is the envy of the world in part because of the standard of living, freedom and protections our people enjoy. Safety and environmental regulations contribute to our success.”

Industry executives generally agreed with Johnson's assessment, but they felt some safety rules were more burdensome than they had reason to be.

Littlefield, for example, objected to a proposal from the Occupational Safety and Health Administration making changes to the reporting of workplace injuries. The proposed changes, he said, would make some information public that should remain confidential, and compliance would be more expensive than the agency estimates.

Paul said safety and environmental regulations always could use some fine-tuning. “Anybody could go down a list of environmental regulations and make them more effective,” he said. “That has to be applied on a case-by-case basis.”

At the same time, he said, the idea the U.S. is not competitive with other countries because of environmental regulations lacks any credibility.

“When you look at Japan and Germany, they are still doing very well in manufacturing despite strong environmental regulations,” he said.

Most if not all of the respondents agreed that a consistent overall government policy to promote domestic manufacturing would be extremely desirable.

“We really have no overall manufacturing policy in this country that recognizes the importance of the sector to our economic strength and national security,” said Holly Hart, assistant to the president at the USW. “There are piecemeal actions that are important, but there is no coordinated approach.”

Organizations such as the AAM, the USBIC and the National Association of Manufacturers have long advocated a national manufacturing policy in the U.S.

The NAM has set forth four goals for a U.S. manufacturing growth agenda:

• The U.S. should be the best place in the world for both manufacturing and attracting foreign direct investment;

• U.S. manufacturers should be the world's leading product and technology innovators;

• The U.S. should expand its access to the 95 percent of consumers that live outside the U.S.; and

• U.S. manufacturers should have access to the work force the 21st century economy demands.

Within these goals is an ambitious NAM program encompassing dozens of recommendations on taxation, trade policy, R&D, worker training and other issues vital to manufacturers.

“At the end of the day, these are the types of things that will make the U.S. more attractive internationally,” said NAM Chief Economist Chad Moutray.

For Paul, some of the absolute government must-dos for manufacturing growth include the passage of a long-term highway funding bill, a bill addressing currency manipulation by China and other countries and tax code reform.

“Manufacturing can be done anywhere, and our tax code has to recognize this,” Paul said, adding that both Democratic and Republican first recommendations on tax reform this year fell far short of what is needed. “We must have incentives to produce here and make capital investments here.”

The U.S. must strengthen its laws addressing unfair trade practices by other countries, according to Tonelson.

“Legislation to combat predatory trade practices is too piecemeal,” he said. “Subsidized exports have to be stopped through much more proactive tariffs.”

That includes tariffs against countries with a value-added tax system, according to Tonelson. “VATs, whether intended or not, act as hidden subsidies for foreign manufacturing,” he said.

Giving the go-ahead to the Keystone XL pipeline would help ensure the continuation of plentiful and reasonably priced energy in the U.S., according to Littlefield.

“If we plan this right, we could be the leading energy producer in the world in five years,” he said. “States that allow this have many well-paid jobs.”