Representative Todd Tiahrt - 4th Congressional District of Kansas

| Trade Fairness |

Free and Fair Trade Opportunities will ensure American competitiveness.

Trade directly spurs the economy and creates jobs by expanding markets for American business.

We know all too well that economic and market changes brought about by trade do displace workers from specific jobs. Rather than turn to trade barriers which only slow the economy and lead to lower productivity and living standards, House Republicans are committed to preparing the American worker for the changes and ensuring higher paying, higher quality jobs by embracing free and fair trade opportunities.

Trade possibilities are endless. As President Bush said, "Look at it this way: America has got 5 percent of the world's population. That means 95 percent of potential customers are in other countries."

"Even if millions of workers in developing nations were not eager to do these [low-technology] jobs at a fraction of the wages of U.S. workers, such jobs would still be vanishing. Domestic competition would drive companies to cut costs by installing robots, computer integrated manufacturing systems or other means of replacing the work of unskilled Americans with machinery that can be programmed to do much the same thing." Robert Reich, former US Secretary of Labor

Goods and services flowing across borders foster new ideas and allow US producers to learn about the market through the failure and success of traded products. As they learn more, they are able to innovate to remain competitive. "Why America Needs to Support Free Trade," Ana Isabel Erias, The Heritage Foundation 5/24/04 p. 4

Free trade allows the US to specialize in goods and services that American workers produce more efficiently than the rest of the world. At the same time, free trade allows domestic producers to shop around the world for the least expensive inputs they can use for their production, which in turn allows them to keep their cost of production down without sacrificing quality. The Heritage Foundation

Trade facts

"Economists are often accused of not being able to agree on anything. Although we are indeed a contentious bunch, one proposition commands almost unanimous assent within the economics community. That proposition is that free trade among nations promotes economic prosperity." Federal Reserve Board Governor Ben S. Bernanke, remarks at Duke University 3/30/04

According to government statistics, US exports accounted for about 25 percent of US economic growth during the 1990s and supported an estimated 12 million jobs. Consider these facts:

Jobs in exporting plants pay wages that average up to 18 percent more than jobs in non-exporting plants.
Approximately one out of every five factory jobs in the US directly depends on trade.
American farmers export one in three acres of their crops, and exports generate nearly 25 percent of farmers' gross cash sales.
America's dynamic high-tech sector depends on exports.

Such imports as petroleum, raw materials, steel, and semiconductors are used directly by American producers to lower the cost of their final products. The lower costs in turn lead to increased sales at home and abroad, and in many cases, higher employment within the industry.
Daniel T. Griswold, Center for Trade Policy Studies, Cato Institute.

Small business and trade

The majority of Americans are employed by small business owners. Small businesses:

Provide approximately 75 percent of the net new jobs added to the economy.
Represent 99.7 percent of all employers.
Employ 50.1 percent of the private work force.

Not surprisingly, small businesses are our nation's largest exporters. Of the 113,000 firms dedicated specifically to the exporting business, 108,000 of them are small businesses. In other words, 96 percent of all firms directly involved in exports are small businesses.

Small businesses that benefit from international trade also pay higher wages and are less likely to go out of business than their non-trade counterparts. Small Business Administration

In fact, small businesses are the biggest winners when foreign markets open up and US exports increase.

Impact of trade barriers

"A retreat to economic isolationism is the wrong course to take. Isolationist policies would endanger our economic recovery; cost US workers jobs, lead to higher prices for American consumers, and put US workers and companies at a competitive disadvantage." President George W. Bush

Attempts to restrict trade through the imposition of tariffs quotas or other trade barriers are not a good solution.

We only have to look back to the Smoot Hawley tariffs for a reminder of the disastrous economic impact of protectionism.

Once economic barriers begin to emerge, a nation's wealth begins to decline. America's relative economic freedom and wealth have already begun to decline. Why America Needs to Support Free Trade," Ana Isabel Erias, The Heritage Foundation 5/24/04 p. 8

While trade barriers may temporarily slow job loss in affected industries, they do so by imposing on the overall economy costs that typically are many times greater than the benefits. In the short run, the costs of trade barriers include higher prices for consumers and higher costs (and thus reduced competitiveness) for US firms.

"Trade barriers typically provoke retaliation from trading partners as well, with potentially large costs for exporters. And history shows that in the longer run, economic isolationism and retreat from international competition lead to bloated, inefficient industries, lower productivity and lower living standards." Federal Reserve Board Governor Ben S. Bernanke, remarks at Duke University 3/30/04

Successive rounds of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) have cut the average tariff on manufactured goods worldwide by 30 percent.

The average tariff rate for OECD countries, which was 40 percent at the end of WWII is now 4 percent.

Even the pro-labor Economic Policy Institute (EPI) agrees that protectionism is not the answer: "Closing off our borders, protectionism, works both ways. Our companies need access to the global market…Also there are many foreign companies (most notably Toyota, Nestle, and Sony) who have opened plants in the United States and employed Americans who would not do so if we adopted an isolationist policy." EPI, "Shift blame for manufacturing job loss: Effect of rising trade deficit shouldn't be ignored" 4/8/04

Example of positive impact of tariff reduction

Mexico went to zero percent [tariffs] on precious jewelry in January of 2002. And first quarter this year, we actually had an 8 percent-plus balance of trade surplus of greater exports going to Mexico than were actually imported, and that's the first time. So we can compete if we're allowed to compete where we have the competitive edge, and we can compete with low labor cost, but we have to have that level playing field." Jay Jackson of Stuller, Inc. Manufacturing in America: A comprehensive strategy to address the challenges to US Manufacturers, US Department of Commerce, January 2004.

Free trade agreements

The United States is behind the competition in terms of free trade agreements - the EU has 32 FTAs while we currently only have 5. US Chamber "Jobs, Trade, Sourcing and the Future of the American Worker" April 2004, p 26

Yet, even with the relatively small number of FTAs in place, we have seen a lot of progress:

The growth in US exports accounted for one-sixth of all growth in the US economy.
Reductions in tariffs on imports into the United States represent a cut in regressive taxes. This cut offers significantly higher benefits to lower-income households than those with higher incomes.
By some estimates, NAFTA and the Uruguay Round agreements raised the average annual income of an American family of four by $1,300 to $2,000.
A further reduction in global barriers by just one-third would increase that family's annual average income by an additional $2,500 a year.
Manufacturing in America: A comprehensive strategy to address the challenges to US Manufacturers, US Department of Commerce, January 2004.

Competitiveness

Removing trade barriers will increase jobs for Americans and increase American competitiveness.

According to the 2002 US International Trade Commission report, The Economic Effects of Significant US Import Restraints, if all US trade barriers had been simultaneously eliminated in 1999, 175,000 full-time workers would have been displaced, with the textile and apparel sector incurring nearly 90 percent of that loss.

This would have represented only one one-hundredth of 1 percent of the 1999 labor force.

However, the report indicates, 192,400 full-time jobs would have been created, resulting in a net gain of nearly 17,400 jobs.

In addition, total output would have increased by $58.8 billion.

Trade imbalances in manufacturing account for 59 percent of the decline in manufacturing production since 1998.

The manufacturing sector lost more than 3 million jobs between 1998 and 2003. EPI, "Shift blame for manufacturing job loss: Effect of rising trade deficit shouldn't be ignored" 4/8/04

Technology competitiveness

"Multilateral free trade in manufactures would be of net benefit to US Advanced Technology Products (ATP) industry because trade barriers are higher abroad, particularly in East Asia." Ernest H. Preeg, "The Threatened US Competitive Lead in Advanced Technology Products" March 2004, Copyright Manufacturers Alliance/MAPI, p.iii- iv.

ATP are the building blocs of the new economy and are among the highest quality, highest paid positions because of the skill requirements.

ATP account for about one-quarter of US trade in manufactures, and a loss of international competitiveness in these products has important implications for US international commercial and national security interests.

US acceptance of a sustained large trade deficit in manufactures stands in sharp contrast with the policies of principal foreign competitors, particularly the EU, Japan, and China-Taiwan.

China

China moved up two spots to become the Unites States' seventh largest export destination, buying $22 billion in US goods.

However, at the same time, they became our third largest supplier, selling $125 billion in goods to the US

This represented 38 percent of Chinese world exports and created a U.S.-China trade deficit of $103 billion.

Much of the US deficit with China is due to China's growing competitiveness. This has made China an increasing threat, especially in textile and electrical appliance sectors.

Low-tech products the US previously imported from other Asian countries are now being imported from mainland China.

China is believed to be manipulating its currency, and not allowing it to adjust to market forces for the purpose of achieving a competitive advantage.

As a result, some analysts believe the yuan is undervalued by as much as 30 percent compared to the US dollar. This artificially lowers the Chinese cost to manufacture good and makes Chinese exports more attractive. Congressional Guide to International Trade, 2004. Manzella Trade Communications Inc.

Intellectual property

The future of US manufacturing is increasingly tied to its ability to provide innovative products embodying new and proprietary technology.

Many examples of theft of protected products such as pharmaceuticals, software, movies and even designs for new cars.

Brazil, India, South Africa, China and other competitors attempt to undermine existing protections or ignore them in order to support new domestic industries. Testimony of Thomas J. Duesterberg, PhD, President and CEO of Manufacturers Alliance/MAPI before the United States Senate Committee on Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, 12/9/03

"Malaysia's brazen software pirates are hawking the next version of Microsoft Corp's Windows operating system years before it's scheduled to be on sale." "Asian Pirates Sell Microsoft's Next Windows System," Reuters, 12/1/03

China is actively trying to undermine dominant US and European wireless and DVD technologies "China Armed with EVD in Attack on Dominant DVD, Washington Times 11/17/03 p A1

"Piracy rates in China in all areas, including copyright, trademark and patents, continue to be excessively high.

Inadequate enforcement has resulted in piracy levels in China for most copyright sectors at around or in excess of 90 percent."

Henry Levine, Deputy Assistant Secretary of Commerce, estimates that "despite China's commitments to cracking down on rampant piracy, fake cd's, DVDs and pharmaceuticals continue to flood the market, costing us an estimated $20-25 billion annually."

A Heritage Foundation paper contains the following examples of Chinese intellectual property theft

Former Secretary of Commerce Donald Evans recently cited one example of how China's lax enforcement of intellectual property rights affects American exporters. Evans explained that Wrigley's chewing gum brands have a 70 percent share in China, but that Chinese counterfeiters pirate Wrigley products, distribute them in counterfeit Wrigley trucks, drive Wrigley's distributions routes, and pay "premiums" to shop owners for accepting the counterfeit gum.

China's official, government-sanctioned theft of advanced-technology intellectual property is another regular feature of China's industrial policy.

Currency Manipulation

"We are losing manufacturing jobs in this country at an alarming rate, and a major culprit is the artificial competitive advantage Chinese companies receive from their undervalued currency. China's unfair currency manipulation is costing US manufacturers billions of dollars in lost orders. It is time for our government to hold China accountable for their illegal actions." Rep. Donald Manzullo, Chairman, House Committee on Small Business

The value of the dollar in terms of foreign currencies has risen 30 percent in the last few years.

Markets usually keep foreign exchange rates reasonably in balance, but sometimes they get badly misaligned--distorting world trade and creating huge trade imbalances. That's what's happening now because of the Treasury's "strong dollar" policy. As much as $300 billion of the $450 billion US trade deficit is due to the rise in the dollar.

The overvalued dollar has made US exports much more expensive. For example, a $10,000 US machine used to cost European buyers the equivalent of 8800 euros. But today that $10,000 machine costs European buyers 11,700 euros--one-third more.

That has put US exports into a tailspin and has mauled import-competing industries. Over 500,000 US factory jobs have been lost from the export decline, and additional hundreds of thousands have been lost because of artificially cheap imports.

The effect is exactly the same as slapping a new 30 percent tariff on "Made in U.S.A." goods. Congress and the Administration would howl with outrage at new tariffs, but have done nothing while the same damage is done by an overvalued dollar.

In fact the damage is worse. Since foreign currencies are 30 percent cheaper than they were, this makes many import prices so artificially low that competing against them is almost impossible. The US textile industry, for example, is being wiped out by the overvalued dollar.

Examples of Currency Manipulation

Japan bought an incredible $42.8 billion of US dollars in May 2003 in the most massive intervention ever in foreign exchange markets in order to prevent the yen from rising in value against the dollar. The move is testimony to how strongly market forces are saying the yen in undervalued and the dollar overvalued against it. Japan's foreign currency reserves are now $523.8 billion - close to one-quarter of all the world's currency reserves.

Korea and Taiwan also added significantly to their reserves in May 2003. Each bought more than 4.5 billion US dollars. Korea's reserves now stand at $128 billion and Taiwan's at $175 billion--huge amounts for economies of their size. In the last 12 months these two economies have increased their dollar holdings by $54 billion to keep markets from appreciating their currencies against the dollar and to maintain a trade advantage over US producers. Information from Coalition for a Sound Dollar, Monthly Asian Currency Manipulation Monitor, June 2003

Dumping

Dumping occurs when a foreign producer sells a product in the United States at a price that is below that producer's sales price in the country of origin ("home market"), or at a price that is lower than the cost of production.

The difference between the price (or cost) in the foreign market and the price in the US market is called the dumping margin. Unless the conduct falls within the legal definition of dumping as specified in US law, a foreign producer selling imports at prices below those of American products is not necessarily dumping.

Foreign governments subsidize industries when they provide financial assistance to benefit the production, manufacture or exportation of goods.

Subsidies can take many forms, such as direct cash payments, credits against taxes, and loans at terms that do not reflect market conditions.

The statute and regulations establish standards for determining when an unfair subsidy has been conferred. The amount of subsidies the foreign producer receives from the government is the basis for the subsidy rate by which the subsidy is offset, or "countervailed," through higher import duties.

If a US industry believes that it is being injured by unfair competition through dumping or subsidization of a foreign product, it may request the imposition of antidumping or countervailing duties by filing a petition with both Import Administration and the United States International Trade Commission.

The International Trade Commission determines whether the domestic industry is suffering material injury as a result of the imports of the dumped or subsidized products. The International Trade Commission considers all relevant economic factors, including the domestic industry's output, sales, market share, employment, and profits.

Import Administration investigates foreign producers and governments to determine whether dumping or subsidization has occurred and calculates the amount of dumping or subsidies.

If both Commerce and the International Trade Commission make affirmative findings of dumping and injury, Commerce instructs the US Customs Service to assess duties against imports of that product into the United States. The duties are assessed as a percentage of the value of the imports and are equivalent to the dumping and subsidy margins, described above. For example, if Commerce finds a dumping margin of 35 percent, the US Customs Service will collect a 35 percent duty on the product at the time of importation into the United States in order to offset the amount of dumping. (From US Department of Commerce)

Example of Dumping:

Twenty-seven US companies and four unions in Virginia, North Carolina, and 12 other states asserted that Chinese competitors were dumping bedroom furniture in the US They petitioned the US International Trade Commission for duties from 158 percent to 441 percent to offset the unfair practice.

The US International Trade Commission, on a 6-0 vote, said there was a reasonable indication that low-priced imports from China were harming domestic furniture makers.

The decision involves the biggest anti-dumping case ever brought against China, and it comes at a time when US job losses to foreigners have become an issue in the presidential election. The furniture industry, which is heavily concentrated in southeastern states, has been hit particularly hard by competition from abroad and blames a surge of Chinese imports for plant closings and workforce reductions that have led to 35,000 layoffs.

Commerce Department officials agreed with US furniture makers and unions who complained that their Chinese competitors have been selling at unfairly low prices. But the department indicated that it couldn't find evidence of severe dumping.

The case covers about $1.2 billion in wooden beds, armoires, dressers and other pieces that are often sold at chains such as Crate & Barrel, Rooms to Go, J.C. Penney, and Bombay Company.

In a preliminary decision, the department set "dumping margins" ranging between 5 and 24 percent for the approximately 90 Chinese firms that account for the vast majority of imported bedroom furniture from that country, with an 11 percent margin set for most of the firms. That means preliminary duties of those amounts will be imposed on most Chinese furniture imports, and the duties may be permanently set after department officials pursue further investigations of the dumping allegations, which will take a number of months. "Furniture 'Dumped,' US Rules" by Paul Blustein Washington Post June 19, 2004; Page E01