October 14, 2011
How U.S. Surrendered Manufacturing Base to China
By _Daniel McGroarty_
(http://www.realclearworld.com/authors/?author=Daniel+McGroarty&id=1760)
Two weeks after Ford Motor Company’s CEO, Alan R. Mulally, mused publicly
about developing electric vehicles in China, a U.S. senator has proposed a
law to stop American businesses that receive federal funds from what he
terms “giving away” taxpayer-funded Intellectual Property to the Chinese.
Sen. Jim Webb (D-Va.), soon to retire from a single term in the Senate,
proposed the legislative language as an amendment to the controversial China
currency bill just approved by the upper chamber. While the Senate kept the
bill amendement-free, expect Webb to look for a new carrier in the frenzied
final months of his tenure.
As Sen. Webb recently stated on the Senate floor, absent national security
imperatives, “if a private company has developed technology on its own, and
it makes a business decision to transfer that technology ... in a place
like China ... we are obligated to respect the free marketplace. But it’s a
different case,” Webb went on, “when the American taxpayer has financed the
development of these technologies through federal funding assistance.
While Ford publicly touts that it took no federal bailout funds in the fall
of 2008 – even running television ads condemning its Michigan competitors
Chrysler and General Motors – the automaker has not been so vocal about the
$5.9 billion loan guarantee it received from the Department of Energy the
following year to upgrade to “green manufacturing” technologies at five
Ford plants in the American Midwest.
What caught Webb’s eye in Ford’s potential partnership with China was
that the car manufacturer must now share proprietary processes for electric
vehicles as the price of admission to the Chinese automotive retail market.
As the senator noted, “Federal dollars that go toward R&D funding ... are
supposed to be making American businesses competitive and generate American
jobs – not ... help develop other industries, such as those in China.”
Companies in the U.S. rarely admit they’re handing over the recipe to their
secret sauce; yet China’s “indigenous innovation” policy, which aims at
reducing dependence on foreign technology, coupled with a see-no-evil stance
toward IP piracy create conditions where trade secrets are near impossible
to protect.
Given that none of this is news to U.S. companies, why would Ford or any
other information-intensive enterprise want to manufacture in China? For
years, the attraction was lower wage rates; today, there is mounting evidence
that the wage gap is narrowing, to the point where manufacturing will begin
flowing out of China and back to the U.S.
____________________________________
So if lower labor costs are no longer the attraction, what is? The magnet
drawing American automakers to China these days isn’t metaphorical: It is
quite literally the Rare Earths magnets and other metals-based components
critical to batteries and parts necessary for mass electric vehicle
production. Just as we have seen with solar panel and wind turbine producers,
China
has the metals – and where the metals are, manufacturing will follow.
At present, China accounts for 97 percent of global Rare Earths production,
while the U.S. – once the world’s leading Rare Earths supplier – provides
less than 1 percent. It’s not that the U.S. lacks Rare Earths reserves:
Data from the U.S. Geological Survey shows China holds 36 percent of the world
’s Rare Earths reserves, while the U.S. is home to 13 percent. In fact,
until mining commenced late last year at California’s Mountain Pass mine, the
U.S. had not produced a single gram of Rare Earths since 2002. As metals
analyst Jack Lifton puts it, “China didn’t gain a monopoly in the rare
earths. The U.S. gave it to them.
Getting back into the game isn’t easy - not when the U.S. ranks dead-last
among 25 mining nations, hobbled by a ball-and-chain permitting regime that
takes 7 to 10 years to bring a new mine into production.
For American automakers who don’t have 7 to 10 years to wait for
American-mined resources, Beijing’s message is unmistakable: If you want access
to
critical metals, we strongly suggest you set up your manufacturing plants
here in China. And don’t forget to bring us your Intellectual Property on a
flash-drive.
Indeed, Ford’s move was followed just days later by Honda’s announcement
that in response to “rare earths supply concerns” it would expand its
China production of hybrid and plug-in electric car components - itself a
response to a similar move by Toyota last month to end-run rare earth export
quotas by expanding Prius production in China. In a story first broken in the
Beijing media, General Motors - beneficiary of a $50 billion infusion from
U.S. taxpayers - has joined with General Electric to develop and build
electric car charging stations in China, a move book-ended by GM’s September
deal to develop a new electric vehicle platform with its Chinese joint venture
partner.
Even if the Webb amendment does becomes law, will a few new lines in the
U.S. Code stem the flow of U.S. intellectual property in
--
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