How China policy squeezes companies anchored in U.S.

McClatchy NewspapersNovember 11, 2010 

ROME, N.Y. — As lawmakers squabble over how to create jobs and what to do about China's undervalued currency, Rome is burning.

Rome, New York, that is.

Here, a legendary copper rolling mill's fight for survival underscores what's at stake in the battle over China policy and a free-trade philosophy that's been championed by both political parties.

A weathered copper bell made by the famed midnight rider Paul Revere sits in front of the offices of Revere Copper Products Inc., a company whose origins date back to 1801. Paul Revere supplied the copper sheets used to protect the U.S.S. Constitution.

Today, Revere employs about 350 workers, who for three shifts a day in a cavernous plant make architectural copper products and huge rolls of copper that are purchased by other manufacturers for a wide range of electrical and industrial uses.

Chairman Brian O'Shaughnessy bought the company in a leveraged buyout in 1989, and at the time it had 800 workers in two plants. Shifts in global trading patterns and soaring energy costs forced him to close a sister plant in New Bedford, Mass., in 2007. Today, he watches incredulously as lawmakers seek to threaten China with "tough" legislation that stands little chance of passage in Congress.

Meanwhile, his customers keep moving abroad, primarily to China.

"Since the year 2000, we have seen more than 30 percent of the facilities we ship product to in the United States shut down, or move offshore. Most of them initially moved to Mexico, but they have since moved to China," he said in an interview that began in front of a giant mural of Paul Revere in the town of Rome. "When that happens, we have fewer manufacturing companies to ship product to in this country, so the competition for that smaller industrial base that we ship to is pretty fierce."

By fierce, he means costs have to come down, way down. And they have to stay there. The plant demands savings from its suppliers, ranging from accountants to providers of pallets. At the plant, wages have been flat for two years, and employees contribute more to their own health care.

"This is typical of the United States. This is typical of Rochester and Michigan and Ohio, and even North and South Carolina, where industry used to move to. They've faced the same pressures," O'Shaugnessy said. "And so those pressures mean that real wages have not increased in this country in 10 years, and this is directly related back to international trade."

For the handful of remaining U.S. copper mills, China's currency and related trade policies are having a cascading effect across the supply chain.

"What happens is the international trade policies in China are designed so that brass product stays in China, and goes to manufacturing companies that then ship a final product over here. So we're seeing the impact from China's imports not at our production level as much as our customers are facing that competition," O'Shaughnessy said. "We're seeing a loss of our customer base rather than direct competition to supply our customers. And if you think about it, it is an intelligent thing for China to do to benefit its work force, because it wants to produce value-added product there."

A decade ago, he said, U.S. copper mills supplied domestic makers of locksets for doors. That's gone completely overseas. Now the fear is that China's push into the automotive sector may hit the same way.

"We're not concerned about China sending in components and sub-assemblies into the United States. We're concerned that as they ship cars in, we will lose that transportation market," O'Shaughnessy said.

Republicans and Democrats, he said, both fail to recognize that global competition is no longer between companies. Rather, U.S. companies compete against countries that align their trade policies to capture markets.

"The United States faces the lack of a national and international trading strategy, or economic policy . . . we as a nation don't have an entity that competes with other nations, and I think this harkens back to a reluctance to get into national economic policy or strategies because of the concern that it has the taint of some kind of government control and government assistance," he said.

The free-trade debate gets bogged down in political labels, which O'Shaughnessy thinks misses the broader point.

"So you have got 'socialists' fighting the 'capitalists,' and neither side realizes the mercantilists are kicking their ass. Both of them, it doesn't matter whether you are on this side or that side, if you are dealing with a mercantilist society, and that's what we're fighting in China," he said.

Mercantilism was practiced by the great European powers centuries ago, and involved protecting domestic industry while trying to dominate global trade to secure wealth and power. Critics of U.S. policy toward China, and before that policy toward Japan, argue that the U.S. should take steps to favor its own industries more.

It's not an easy task, however, because it implies a serious break from past practice.

Germany and Japan, for example, have largely government financed national health care. China has had virtually no social safety net, and citizens save like mad in the event that they fall ill. In the U.S., health care has been financed, since World War II, largely through private employers.

As the recent struggle to pass modest changes to the U.S. health care system showed, changing the status quo is enormously difficult. And the status quo puts U.S. companies such as Revere Copper at a competitive disadvantage, even before currency manipulation and illegal government subsidies are factored in.

Many Americans might be surprised how few government resources are actually dedicated toward understanding the competitive threat from China.

"I think that understanding China's economic policies and understanding what the proper U.S. response should be is a very big and complicated question. There is a lot of information that needs to be gathered and thought about carefully," said Timothy P. Stratford, a partner at the international law firm of Covington & Burling.

Stratford was General Motors' chief lawyer in China until 2005, when he became the assistant U.S. trade representative for China affairs, formulating trade policy for the Bush administration. He thinks more government resources must be devoted to understanding China's rise and its implications.

"And we don't have enough resources that are devoted to that. We don't have enough people who can read Chinese documents, we don't have enough trained economists that are thinking about Chinese policies and trying to assess what the impact is on the United States, and without a broad sense of that, I don't think we're able to respond as effectively as we could," he said in a recent interview in Washington.

"I think we can identify what the problems are, but I don't think we really have the best tools for responding."

Republicans have been less inclined to confront China, and their legislative strength makes it unlikely that a more reciprocal approach to China trade is coming anytime soon. The Obama administration too has treaded carefully, pointing out the huge export promise China offers U.S. growers and exporters.

That doesn't convince Scott Paul, the head of the Alliance for American Manufacturing, comprised of manufacturers such as Revere Copper that produce in the U.S. and don't have foreign operations.

The after-Revolution life of Paul Revere

"The underlying dynamics don't change. History shows us that the way to stop mercantilism is to ensure that there are consequences," he said.

ON THE WEB

Autor's MIT study

Blinder's offshoring paper

MIT presentation of printing offshoring

Problems face Rome, NY's Revere Copper

The after-Revolution life of Paul Revere

Hard times in white-collar Rochester

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