The concern over rare earth minerals and manufacturers’ ability to obtain them is real. The need for these minerals is great, as they are used in the defense industry, as well as in consumer electronics and petroleum refining.    Their extraction is economically and environmentally costly, and America’s dependence upon other nations to supply these is nearly absolute.

China now produces 97% of the world’s supply and has a monopoly over these minerals.  Such dependence is bad for manufacturing and bad for America. The only real solution to this problem is for the U.S. to re-open its mines and re-start the process of extracting these resources. 

Several pieces of legislation have been introduced in Congress, as legislators realize the importance of this issue for our country and for manufacturers. Senator Lisa Murkowski (R-AK) has introduced legislation addressing the shortage of rare earth minerals and the bill has several provisions that are important for addressing this issue.  As this debate continues, it is vital that lawmakers carefully review the various proposals and take into account the factors that are important to job creators.

A thoughtful solution needs to be implemented swiftly to bring domestic mining and processing of these minerals back on line.

From AP, “US-China talks end with wide differences remaining,” reporting on the conclusion of the U.S.-China Strategic and Economic Dialogue:

After two days of talks, the two sides announced a range of modest agreements aimed at increasing sales opportunities for U.S. companies in China. But there was no breakthrough on a key U.S. demand – letting China’s currency rise in value at a faster rate against the dollar. The currency issue gained new urgency in the view of American manufacturers with release of a Chinese government report showing that China’s trade surplus with the world had surged in April.

The yuan has appreciated about 5 percent since the government unfroze the currency last June, but it remains seriously undervalued — by as much as 40 percent, by some estimates.

U.S. manufacturers expressed disappointment at the outcome of the latest talks, saying the small achievements will do little to lower a U.S. trade deficit that hit an all-time high of $273 billion last year.

“This is the Chinese year of the hare but when it comes to fixing their currency, intellectual property theft and investment protectionism, it has been the year of the tortoise,” said Frank Vargo, vice president for international affairs at the National Association of Manufacturers.

The People’s Daily, the official Communist Party organ, hailed the talks, cheering, “China, U.S. co-op in promoting transformation of economic development pattern has significance for future.” The paper also editorializes, “China-U.S. dialogue requires pragmatism.”

And from Xinhua, the official press agency of the government of the People’s Republic of China:

• “China’s investment in US to expand in future”
• “Clinton says US, China have built trust through dialogues”
• “China, US could further strengthen financial cooperation: PBOC governor”
• “Experts say stronger yuan mainly due to dollar depreciation, warn of “hot money” influx“

As the two largest economies in the world, the relationship between the United States and China is of great importance to global growth and prosperity. This week’s visit of Chinese President Hu affords the opportunity for direct high-level attention to the imbalances in that relationship and lays the basis for a new direction. 

It is critical that the relationship be characterized by both mutual respect and benefit through adherence to international trade rules.  It is also vital that the relationship be a balanced one in terms of trade and commercial opportunity.  When the final trade data for 2010 come in, the U.S. deficit in manufactured goods with China is likely to have set a new record of about $290 billion, exceeding the 2008 record of $277 billion.

The National Association of Manufacturers (NAM) has long pressed for efforts that would result in a more open and balanced economic relationship.  A key aspect is a bilateral and multilateral effort to address China’s greatly undervalued currency.  We strongly support the Administration’s engagement with Chinese leadership on this issue.  But we also call for much greater attention to China’s distortion of commercial opportunities for U.S. firms – particularly China’s set of policies designed to encourage “indigenous innovation.” 

China’s leadership has set itself a broad strategic objective of making the Chinese domestic economy more innovation-oriented and decreasing China’s reliance on foreign technology.  The leadership considers these policy imperatives as critical to China’s long-term economic development, national security and global competitiveness.  

There is nothing wrong with seeking to spur innovation and technology.  Just about every major country, including the United States, pursues that objective.  But the United States and other countries follow the global rules they have adopted and seek to promote development within those rules.  China’s policies, however, bend and break the rules.  Its policies come at the specific expense of foreign companies and competitors, essentially forcing the transfer of foreign technology to China.  (continue reading…)

Just in time for the opening of the annual U.S.-China Joint Commission on Commerce and Trade (JCCT) today in Washington, the U.S. International Trade Commission (USITC), an independent U.S. government agency, has released an important study on the theft of U.S. intellectual property in China, “China: Intellectual Property Infringement, Indigenous Innovation Policies.” (News release.)

To no one’s surprise, the Commission found that massive Intellectual Property Rights (IPR) infringement harms market opportunities in China and significantly diminishes the income for U.S. companies whose products are counterfeited and pirated in China (as well as other markets, including the United States).

Further, China is engaged in a concerted effort to promote so-called “indigenous innovation” policies designed with the sole intent of keeping U.S. and other foreign firms out of the huge Chinese government procurement market by requiring the development and purchase of Chinese products and technologies, sometimes through the forced transfer of technology as a prerequisite for foreign participation.

The National Association of Manufacturers expects that the U.S. government will use this study when U.S. trade negotiators meet with their Chinese government counterparts. This threat to American innovation must stop.
(continue reading…)

Gov. Mitch Daniels of Indiana announced this week that he will lead another Hoosier trade mission to China and Japan beginning in November. About 40 members will join the delegation, which will travel to Shanghai and Zhejiang, Indiana’s Chinese sister-state, then on to Nagoya and Tokyo in Japan.

From the news release, “Governor to travel to China and Japan“:

“Following our first trip to China last year, we’ve had several successes. The potential for more jobs from China is growing, and we’ll spend additional time there this year,” said the governor. “Of course, our trips are always built around visiting our customers in Japan, and we’ll do the same again this year.”

More than 42,000 Hoosiers are employed by more than 200 Japanese companies in the state. Those companies have investments here of more than $9.8 billion. Since last year’s trip, China-based Y.K. Furniture announced plans to establish a $24 million U.S. headquarters in Marion and lithium-ion battery maker EnerDel announced an agreement with Wanxiang, the largest auto parts producer in China, which EnerDel says will rapidly accelerate its business plan. The governor met with officials from Y.K. Furniture and Wanxiang during his 2009 trip to China. (continue reading…)

The National Association of Manufacturers (NAM) Vice President for International Economic Affairs Frank Vargo issued the following trade commentary regarding the Paris meeting of trade ministers this week to discuss the Doha Round:

The only way that a balanced Doha Round outcome that benefits all nations – including the United States, but especially including the least developed countries – can be obtained is if U.S. Trade Representative Ron Kirk and his negotiating team make it plain that the United States will settle for nothing less.  The U.S. has been the primary force for global liberalization in all previous rounds of global trade negotiations, and that role now falls to Ambassador Kirk in the Doha Round. In Paris this week, Ambassador Kirk stood firm, saying “The real question is whether India and Brazil and China are ready to assume a role and responsibility commensurate with their benefits that have been realized under global liberalization…We can talk around it, but that’s the only way this is going to happen.”  The NAM agrees, and believes this is the only way a successful Doha Round is possible.  We appreciate Ambassador Kirk’s clear and determined position, which has led to a growing number of WTO members beginning to support the U.S. view. 

Politico, “Barack Obama’s China plan looks like George W. Bush’s.” The story delivers what the headline promises.

Frank Vargo, the NAM’s vice president for international economic affairs, commented on the context of Treasury Secretary Geithner’s trip given the current state of play:

Now more than ever, the two economies need each other,” said one observer from the business community. “The administration recognizes they need to maintain the right posture.”

And with markets already skittish, signs of significant tension between the two countries would have dire consequences for the global economy, said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.

“Everybody’s looking at United States and China as really being the two principal players on the global economic scene. So if they start shouting at each other, this is bad for financial markets right now,” he said. “You’ve just got to be careful. It doesn’t mean you change your objectives.”

And from an earlier AP story, “Geithner wields little leverage in China talks“:

(continue reading…)

It was important for Treasury Secretary-designate to flatly state that China is manipulating its currency. Everyone knows China’s currency is being held at an artificially low level, and it is necessary for the United States Government to acknowledge this in order to be able to approach the problem realistically. (See New York Times and WSJ stories.)

The next step is more difficult – how to get China’s currency appreciating again. The currency appreciated 21 percent against the dollar through July 2008 and then went flat as Chinese authorities decided they were concerned about China’s slipping export performance in the slowing world economy. The fact of the matter is that China’s continued currency manipulation is hurting their own economy and making their transition away from export-led growth more difficult. Yuan appreciation can be win-win.

The Treasury Secretary-Designate is properly concerned with China’s currency and as the next step needs to work within established international means to find a solution. During the campaign, then-candidate Obama saw the importance of a change in China’s currency practices and said he would use all the diplomatic avenues available to seek such a change. Certainly the International Monetary Fund can play a stronger role than it has in the past.

Geithner’s statements showed he wants to get China’s currency moving, but without precipitating a new global financial crisis. Global financial stability and further appreciation of China’s currency can and should go hand in hand, but all this needs to be done carefully and in a way calculated to achieve both objectives and contribute to a lessening of global imbalances.

The yuan per dollar graph below shows how China’s currency was moving until July 2008, and then was held flat.

From the Washington Post, “China Unveils $586 Billion Stimulus Plan“:

In a wide-ranging plan that economists are comparing to the New Deal, the government said it would ease credit restrictions, expand social welfare services and launch an infrastructure spending program that would include the construction of new railways, roads and airports.

Launch an infrastructure spending program? The new burst of infrastructure spending — assuming it really is new — actually comes on top of an massive, multiyear outlay for roads and bridges, rail, airports and ports. From The Economist in February 2008, “Rushing on by road, rail and air“:

China’s rapid economic growth and equally rapid integration into the global economic system is putting huge strains on its infrastructure. This has led to a spate of spending on transport. Between 2001 and the end of 2005 more was spent on roads, railways and other fixed assets than was spent in the previous 50 years. According to the state media, investment will see double-digit growth every year for the rest of the decade. Between 2006 and 2010, $200 billion is expected to be invested in railways alone, four times more than in the previous five years.

At first the parallels of the new Chinese plan to proposed U.S. stimulus measures struck our fancy: See, China’s becoming more like us! But then the troubling question occurs, fleetingly: Or are we becoming more like China?

In any case, the Asian markets are happy today.

National Association of Manufacturers Executive Vice President Jay Timmons is on the road attending the Democratic National Convention in Denver and next week’s Republican National Convention in Minneapolis-St.Paul.

Timmons, a guest on this week’s “America’s Business” with Mike Hambrick, says Democratic presidential nominee Sen. Barack Obama (D-IL) made history by becoming the first African American nominated to the White House. However, Obama needs to give voters more details on his policies to help manufacturers and workers, he said.

Meanwhile, Timmons said prospective Republican presidential nominee Sen. John McCain (R-AZ) made a smart move Friday in selecting Alaska Gov. Sarah Palin as his vice presidential running mate. She could attract some of the supporters of Sen. Hillary Clinton (D-NY) to the Republican fold, he said.

“If there are those who are looking at this as an opportunity for women to provie they can lead the nation then certainly she can attract some of those former Hillary supporters,” Timmons said of Gov. Palin.

All that talk about American jobs moving overseas may be overblown. We’ll be joined by Exxel Outdoors founder and Chief Executive Officer Harry Kazazian to discuss why his company is moving sleeping bag production back to the United States from China.

America has a hard time balancing its check book. The White House recently announced the federal budget deficit will hit a record $482 billion for the year ended September 2009. Committee for a Responsible Federal Budget President Maya MacGuineas will join us to talk about what effect this massive deficit will have on our economy.

This is the Labor Day holiday weekend. That means its time to get the annual Labor Day economic report from National Association of Manufacturers Chief Economist Dave Huether. Dave will talk about how trade and exports have proven to be a bright spot in the economy.

And with fall approaching football is in the air. Mike will chat with Wilson Sporting Goods plant manager Daniel Riegle about football manufacturing and Wilson’s close ties with the NFL.

In our regular segments, Renee Giachino of American Justice Partnership gives us the latest on tort reform and commentator Hank Cox recalls “The Way It Was.” And our program will close with “The Last Word” from the National Association of Manufacturers President Gov. John Engler.

For more about “America’s Business with Mike Hambrick” and to listen to the program online, please click here. And for video highlights and more, check out http://www.americasbusiness.org.