Thank you, Mr. Chairman, Ms. Velazquez, and members of the committee. I’m pleased to have the opportunity to appear before the committee on behalf of the unions of the Industrial Union Council and the 13 million working men and women of the AFL-CIO.

The industrial unions of the AFL-CIO have banded together to respond to the deep crisis in manufacturing. We are dedicated to finding solutions to the serious challenges that face U.S. manufacturing and threaten the livelihood of millions of America’s working families. It’s important to note that about two-thirds of all workers in manufacturing represented by unions are employed by small to mid-size businesses.

For 32 straight months, manufacturing has lost jobs, the longest such stretch since the Great Depression. Since April 1998, the United States has lost 2.5 million manufacturing jobs, nearly 13 percent of the total manufacturing workforce.

Among the disturbing trends that many economists have noticed: capacity utilization in U.S. manufacturing, a measure of production activity, dropped to 74 percent late last year, its lowest level since 1983. Also, our trade deficit in goods is now $1.3 billion each day. Nearly every state in the nation has suffered manufacturing job loss, as the chart I’ve included with my testimony shows.

Unless these trends are reversed, serious damage will be done to the livelihoods of America’s working families—and to the nation’s economy. Manufacturing historically has been a major generator of good, high-skilled, well-paid jobs, including in nonmanufacturing sectors, and remains a mainstay of local and state economies throughout the nation. Manufacturing’s decline not only undermines the quality of manufacturing jobs, but also contributes to the stagnation in all workers’ wages. Moreover, the massive scale of manufacturing plant closings and job layoffs is contributing directly to the serious fiscal crises afflicting virtually every state in the nation.

America’s manufacturing workers are the most productive in the world. But they operate under enormous competitive disadvantages resulting from several factors, such as unfair trade and tax policies, an overvalued dollar, inadequate investment incentives, health care costs not borne by overseas producers, and foreign government subsidies. Unless these problems are addressed soon, American manufacturing capacity and jobs may end up permanently lagging. And our economic strength may be permanently weakened: U.S. productivity and wage gains have been largely driven by the performance of the manufacturing sector. It’s unlikely that another sector can step in to offer comparable wages, benefits, or productivity gains on as large a scale. Mr. Chairman, I will say that we won’t have a stable, broad-based economic recovery without a strong manufacturing base.

There are a few issues I’d like to focus on today: investment in manufacturing and workers, a manufacturing tax credit, trade policy, currency valuation, and health care. In addition, I want to note that I believe there are many issues on which we can work cooperatively with employers and the Congress, despite differences we may have on other policies.

Investing In Manufacturing

To encourage “high-road” strategies for industrial development, we recommend increased incentives, assistance and access to capital for small- and medium-sized manufacturers, as well as increased funding and incentives to employers for workforce training, emphasizing joint labor-management initiatives and industry skill standards. We recommend restoring funding for the MEP (manufacturing extension partnership) program to help manufacturers with training and performance needs.

Replacing the FSC

As a result of a World Trade Organization (WTO) ruling against the United States, this year the Congress is likely to consider changes to a provision of our tax law called the Foreign Sales Corporation (FSC) that had served as an incentive for U.S. exporters. We encourage Congress to replace the FSC with a broad-based manufacturing tax credit that rewards companies for keeping good jobs here and creating new ones. It’s about time our tax code included incentives to retain jobs—and not ship them abroad.

Some in the Congress and the multinational business community are proposing to replace the FSC with nearly $90 billion in tax breaks for multinational corporations that will reward companies for sending American jobs overseas. This approach appears to define “enhancing American competitiveness” as boosting the profitability of multinational corporations to produce anywhere they choose, so long as they keep an American mailbox.

America’s working families strongly oppose the offshore tax incentive plan to replace the FSC and support bipartisan efforts to craft an alternative that will grow manufacturing jobs in the United States. We are very interested in the idea of a manufacturing tax credit, which some businesses and Members of Congress have proposed.

Trade

Put simply, America’s trade policy has failed. That’s not a partisan criticism, as unfettered trade liberalization has been an imperative for all recent administrations. But a look at the results shows that something must be done on trade—and soon. Last year, the U.S. trade deficit in goods hit a record-breaking high of $485 billion. U.S. exports actually fell for the second year in a row. Our 2001 $4.5 billion trade surplus in advanced technology products turned into a $17.5 billion deficit in 2002. It is hard to see where U.S. comparative advantage lies in the new global economy that current U.S. trade policy has helped to shape.

In the last decade or so, we have signed bilateral free trade agreements with four countries: Israel, Canada, Mexico, and Jordan. In each case, these agreements were sold to the Congress and the American public as “market-opening agreements,” and in each case, our bilateral trade balance deteriorated after the implementation of the agreement.

The most dramatic instance is, of course, NAFTA, where a deficit with Mexico and Canada of $9 billion in 1993—before the implementation of NAFTA—has ballooned almost tenfold, to $87 billion in 2002. The U.S. has even managed to rack up a small trade deficit with tiny Jordan, with whom we had a surplus when we entered into a free trade agreement in 2001. Of course our largest trade deficit is with China. Since granting China Permanent Normal Trade Relations in 2000, which we were told would help us sell American goods in China, the U.S. trade deficit with China increased by almost 25 percent, hitting a staggering $103 billion last year – our single largest bilateral deficit.  

Our trade policy must first seek to do no further harm. That’s why we are distressed that at least half a dozen sets of trade negotiations are underway on agreements styled largely after NAFTA. We must refocus our policy to reduce the unsustainable U.S. trade deficit, protect U.S. trade laws that promote fair trade, and require the inclusion of enforceable workers’ rights and environmental standards—far beyond what is envisioned in the current Fast Track authority.

Currency

The overvalued dollar also has been a key factor diminishing U.S. manufacturing competitiveness and driving up the trade deficit. From January 1995 to January 2003, the dollar appreciated by 33 percent. A rise in the dollar increases the price of U.S.-produced goods relative to foreign goods, making them less attractive in domestic and world markets. This bias favors U.S. investment abroad over U.S. producers. The high dollar has discouraged investment in domestic manufacturing, reducing manufacturing investment by $37 billion in 2001.

Large manufacturers have often relocated overseas, where they could pay for inputs to production with undervalued foreign currencies while earning overvalued dollar revenues on sales to American domestic markets. At the same time, many small manufacturers, lacking the means to move overseas, have been forced to cut profits, incur losses, or close their doors. Congress should take a more active role in addressing the overvalued dollar, as well as examining foreign currency manipulation, such as that in China which pegs its currency to the dollar, but at an undervalued rate.

Health Care

The manufacturing sector is being especially hurt by the national health care crisis and exploding health care costs, which are rising up to 13 percent yearly. Companies that do the right thing and offer health benefits are harmed by competition with U.S. companies that don’t provide benefits, as well as with overseas producers who are subsidized or don’t provide benefits. Health care is the number one issue in contract negotiations today.

Manufacturing firms tend to have disproportionately more retirees whose costs are shared with a shrinking active workforce. For instance, up to $830 of the cost of each car produced by the Big Three automakers goes towards health care costs. Unless the Congress addresses health care, including retiree health care and prescription drugs, the competitive pressures will only grow stronger. This is not just about our people’s health—although that should be reason enough—it’s about the health of our economy. American manufacturers cannot compete well with countries where health care is a government service and not up to the individual company to provide it.

Conclusion

The extent to which we successfully revive our manufacturing base may determine the depth of the nation’s economic recovery and shape its future economic prosperity. It is therefore vital for Congress to acknowledge the severity of this crisis and take the necessary steps to reform the policies that are at its root.

Thank you.