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The 2006 Elections: Who Gets Your Vote?

Oct. 11, 2006
Trade and energy issues take center stage for manufacturers in the 2006 midterm election.

Richard and Audrey Herzberg have some tough choices to make when they vote in the 2006 midterm election. Traditionally the Herzbergs have supported Republican candidates, but the owners of Reliable Metalcraft Corp. -- a $1.5 million Mishawaka, Ind.-based maker of precision metal parts -- are feeling a little conflicted this year.

The company has lost more than $500,000 in sales since 2001 to Chinese firms, according to Audrey Herzberg, vice president and general manager. That's left the husband-and-wife team wondering which candidates have their best interests in mind. "My husband and I have been supporters of the Republican party, but as my husband says, 'We don't know who our friends are now,'" she laments.

The Herzbergs are located in what some might call ground zero for manufacturing. The Great Lakes region accounts for 37.5% of the 3 million U.S. manufacturing jobs lost between 2000 and 2005, according to The Brookings Institution.

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That leaves the Rust Belt states as key battlegrounds for control of the House of Representatives and the Senate. The status of many pending trade, energy, regulatory and other bills that concern manufacturers may depend on whether Democrats gain the six seats they need to control the Senate and the 15 seats they need to regain control of the House.

For the leaders at the National Association of Manufacturers, the choices are clear. Senators running for re-election who have shown some of the strongest support for NAM include Mike DeWine (R-Ohio), Rick Santorum (R-Pa.), James Talent (R-Mo.) and Jon Kyl (R-Ariz.), says Jay Timmons, NAM's senior vice president of policy and government relations.

Audrey Herzberg, vice president and general manager of Reliable Metalcraft Corp., wonders which candidates are on her company's side.The AFL-CIO is backing labor-friendly candidates, including DeWine challenger Rep. Sherrod Brown (D-Ohio). The union also has launched a $40 million mobilization effort -- its largest-ever during a midterm election -- to push its agenda during the campaign season. Some of the major issues the labor organization is focusing on are trade, health care and long-term retirement, according to Bob Baugh, director of the AFL-CIO Industrial Union Council.

"We're at the end of a period here where over 3 million jobs were lost, but that signifies something even more dangerous for the country -- a trade deficit that continues to grow and is absolutely unsustainable," says Baugh.

The Trade-Offs

Indeed, trade is a major concern for most U.S. manufacturers. The 2006 IndustryWeek/Manufacturing Performance Institute Census of Manufacturers shows 64% of 761 firms responding believe the government should do more to protect U.S. manufacturing plants against foreign competition.

"China has been chiseling on the system," says Peter Morici, an economics professor at the University of Maryland's Robert H. Smith School of Business. "They have been maintaining an artificially undervalued currency and subsidizing their exports, which is one of the reasons we're down 3 million jobs in manufacturing."

Nevertheless, large multinational companies have supported Republican-backed free-market policies. In a March speech at the National Manufacturing Week conference, Caterpillar Inc. CEO Jim Owens said trade sanctions on China could throw the worldwide economy into a recession. Caterpillar operates 13 China-based facilities.

At the same time, domestic manufacturers large and small believe something needs to be done to level the playing field. "There are some very perverse things that occur with a trade policy that forces manufacturing to environmentally irresponsible areas of the globe," says Bob Johns, director of marketing and government affairs at Charlotte, N.C.-based steel maker Nucor Corp. Nucor supports proposed legislation that would address Chinese currency manipulation, including the Hunter-Ryan and Schumer-Graham bills, which the NAM board opposes.

Losing Energy

Adding to Reliable Metalcraft's woes are rising energy costs, says Audrey Herzberg. Last winter, Reliable Metalcraft paid "thousands of dollars a month" to heat its 20,000-square-foot facility, she says. NAM estimates that inflation-adjusted manufacturing wages are down 1.7% as a result of an 80% increase in consumer energy prices.

Trade Laws On The Table

The growing trade gap with China has prompted Congress to consider new trade policies. Key proposals include:

Reps. Duncan Hunter (R-Calif.) and Tim Ryan (D-Ohio)

Define currency manipulation as an illegal trade subsidy and give manufacturers the right to petition the federal government for duties on Chinese imports to offset these subsidies.

Sens. Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.)

On Sept. 28 the two senators dropped legislation that would have imposed a 27.5% duty on Chinese imports if China doesn't revalue its currency. They will work with Sens. Grassley and Baucus on a new bill.

Sens. Charles Grassley (R-Iowa) and Max Baucus (D-Mont.)

Requires that the U.S. Treasury Department involve the International Monetary Fund to revalue any currency that harms the U.S. economy. Punitive actions include designation as non-market economy for countries seeking market-economy status and the denial of loans to the offending country.

Reps. Phil English (R-Pa.) and Bill Thomas (R-Calif.)

Allow U.S. companies to seek duties on imports that are being subsidized by non-market economies such as China. The bill would also create a system of comprehensive monitoring of Chinese compliance with its trade obligations.The Bush administration passed the Energy Policy Act of 2005 last year, but NAM is calling for a more extensive plan. Part of this includes expanding natural gas fields in the Gulf of Mexico and drilling for oil in Alaska's Arctic National Wildlife Refuge. Some movement on this issue already has been made. On Aug. 1, the Senate passed a bill opening 8.3 million acres in the Gulf of Mexico Outer Continental Shelf for oil and gas development. The House passed a more far-reaching bill in June to end a 25-year-old moratorium on oil and gas drilling within 50 miles of U.S. coastlines, which Senate Democrats and GOP moderates have vowed to block.

The American Iron and Steel Institute favors both bills. "It's a major issue for manufacturing as a whole, and rising costs have had a negative impact on the steel industry, so this continues to be a high priority for us," says Jennifer Diggins, director of government relations for AISI.

Still, it's unlikely that these new domestic energy sources will provide substantial relief for manufacturers, say some analysts. "That could ease the burden in the short term but they certainly are not long-term solutions," says Bo Carlsson, professor of industrial economics at Case Western Reserve University in Cleveland. "I don't think we should even talk about a self-sufficiency in energy. I don't think that's even possible."

An Era of Regulations

The strongest opposition to the proposed energy bills is coming from environmentalists who want to impose more regulations to reduce pollution. Manufacturers say increased environmental regulations will only hurt companies already squeezed by high energy costs and stringent federal emissions standards. "The economy right now is strong, but it can't take a huge impact of additional regulations at this time," says NAM's Timmons.

U.S. steel companies believe the government should pay more attention to greenhouse gas emissions from Chinese steel manufacturers. "If you want to reduce emissions from steel-making worldwide, make more steel in the United States, and that's exactly the opposite of what's happened," says Tom Sneeringer, director of federal governmental affairs for Pittsburgh-based United States Steel Corp. Nucor's Johns agrees, pointing out that greenhouse gas emissions from Chinese steel companies are eight times higher than that of U.S. steel makers.

Even so, more federal and state regulations appear to be on the way. The Environmental Protection Agency has proposed a reduction in the amount of fine particulate matter that can be released within a 24-hour period, and in August California Gov. Arnold Schwarzenegger (running for re-election against Democratic challenger Phil Angelides) signed legislation that would reduce greenhouse gas emissions in the state to 1990 levels by 2020.

The result for California manufacturers could be a costly one, says Jack Stewart, president of the California Manufacturers and Technology Association. That's because California manufacturers already have implemented expensive technology to cope with the state's high energy costs. "So what that means is companies that cannot bring it down any more, I presume, will have to start reducing their production levels," he says.

And in the heat of global competition, the last thing any U.S. manufacturer wants to hear from politicians is another reason to decrease output.

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