That gloomy trend may continue for a while because little has changed over the last year.
China and Canada still seem to be the countries siphoning the most work from American businesses. In the meantime, the nation’s capital hasn’t done much to change the scenario and, in fact, one action taken last year has made a tough situation even tougher.
Michigan Economic Development Corp. Vice President of Business Development Jim Donaldson told the Business Journal recently that his discussions with firms across the state pretty much revealed that manufacturers continue to feel a sharp sting from companies outside the nation’s borders.
Specifically, he said he spoke with a southeastern Michigan business owner who had just met with Sen. Carl Levin, D-Michigan, U.S. Rep. Sander Levin, D-Detroit, and David Hollister, director of Consumer and Industry Affairs. After meeting with the trio, the mold maker said he talked about the difficulty he faces in trying to compete globally.
He cited subsidies offered by foreign governments, low wages and few benefits offered by foreign firms, and overseas financial programs where a country often acts as a bank for its manufacturers as reasons why he couldn’t compete in a global market. A strong U.S. dollar, he said, also continues to give him problems.
“The same issues that were outlined two years ago when it really became clear that many companies were beginning to go overseas in droves for their tool- and-die and mold-making work hasn’t subsided. It’s still extremely strong,” said Donaldson.
“The difficult thing facing this country is to address how do we maintain a technological edge in this very important industry, if we end up losing so many companies and skilled people who just can’t find jobs within that industry,” he said. “It’s still a very difficult time for these companies.”
Canadian companies have an advantage over domestic firms in that Canada’s dollar fares well against U.S. currency, offering customers more for their money. Canada also offers its small manufacturers a lending program that finances the tooling portion of a work in progress, something not offered on this side of the border.
“The lenders in the United States today are having difficulties with the payment practices that companies now have where payments are delayed on the molds or tools and dies until the work is all completed and, in some cases, costs are amortized over the life of the tool as the parts are being made and stringing out payments over four and five years,” said Donaldson.
“It’s very difficult for a small tool shop to absorb that type of financing,” he added.
Despite the advantages Canadian firms hold, Donaldson said China still provides the toughest competition for domestic manufacturers.
“That hasn’t subsided. Their quality, their timeliness of shipment, their pricing, just everything they’re doing is making it extremely difficult,” he said.
China’s monetary policy plays a major role in the superiority its firms have in global manufacturing. China fixes the yuan at a rate of 8.2770 to the U.S. dollar. Critics of that eight-year-old policy have called it currency manipulation; an action prohibited by the World Trade Organization, and have pointed out it gives Chinese companies an unfair trading edge.
“When we push down our dollar to try to make it weaker on the international scene so our exporters are more competitive, it doesn’t matter in China because their dollar is pegged to ours — so their currency is also reduced in value,” said Donaldson.
“We’re a little more competitive with Europe, as the Euro is becoming stronger and the U.S. dollar is weaker. But not in China; it’s pegged to our currency,” he said.
China’s central bank announced last month it hasn’t any intention of changing its current monetary policy.
“Our members tell us every day, China, China, China. The manipulation of the currency is a major bone of contention,” Hank Cox, spokesman for the National Association of Manufacturers, told the Business Times.
But blame for the quandary that toolers and mold makers are caught in can be assigned to capitals other than Beijing and Ottawa. At least part of it can be doled out to Washington, D.C. According to the Tooling and Manufacturing Association (TMA), a trade organization with 1,500 members in metro Chicago, the steel tariff imposed by President Bush last year has caused small firms to see domestic steel prices rise by up to 80 percent. The association also claimed that major steel producers were arbitrarily raising prices.
Bush set off the 30-percent tariff on imported steel in March 2002 to protect the nation’s steel industry and the levy has made it more expensive for manufacturers to buy steel from Japan, Brazil and Europe. The administration could end the tariff next month when the midterm review period arrives, and TMA has urged the White House to do just that.