Photo credit: the American workers fighting for their jobs at Bainport.
By "tax" I mean an import tariff. By "Bain Tax" I mean an import tariff on automotive parts from China - because Bain Capital has been the most aggressive outsourcer of U.S. auto parts manufacturing jobs to China. And China has been welcoming Bain and those manufacturing jobs with unfair government subsidies, including free land, very low interest loans, and other grants. The Chinese government has set up a number if "export bases" - areas in which companies are "encouraged" to set up shop expressly to establish manufacturing plants intended primarily to produce export products. One of the largest of these export bases is Jiangsu Province. It is Jiangsu Province where the Sensata Freeport Illinois jobs are being exported to. Just last month the U.S. government filed a complaint with the World Trade Organization (WTO) alleging the Chinese government is providing unfair advantages to companies in Jiangsu Province and other export bases with government subsidies. The complaint asserts that in 2011, China spent $1 billion on grants, tax preferences, lowered interest rates and other subsidies to increase exports of auto parts in violation of fair trade rules.
The WTO may act on the complaint in a year or so. We can't wait a year or so, the Sensata workers fighting for their jobs at Bainport can't wait a year or so. Mr. President NOW is the time to announce your intention to pursue a 55% import tariff on Chinese made auto parts! Let's see how clever those Bain Capital / Sensata Technologies execs think they are in shipping those Freeport jobs to Jiangsu when they face a 55% tariff on those auto sensors when they try to import them back to the USA!
Many Kossacks are familiar with the story of Sensata Freeport. Bain Capital is the majority owner of Sensata Technologies, a manufacturer of sensors and controls for vehicles, aircraft and electric motors. Sensata has operations worldwide, with facilities in Europe, southeast Asia, China, and in the U.S. But most of its facilities are already located in China, where it has a workforce of 4,000 workers. Bain acquired a majority stake in Sensata in 2006 owning $2.6 billion worth of Sensata’s shares. In 2010 Sensata bought an operation that made automobile sensors in Freeport, Ill. At the first meeting with the plant’s 170 workers, Sensata managers announced that by the end of 2012 all the equipment and jobs would be relocated, mostly to Jiangsu Province. In other words, Sensata purchased the Freeport operation solely to use it's technology and production lines of auto sensor to bolster its existing operation in Jiangsu - where it is welcomed with very generous - and illegal - subsidies from the Chinese government.
But you may not be familiar with the tale of Asimco Technologies, an auto parts manufacturer whose plants dot eastern China, especially Jiangsu Province. Nine years ago, the company bought two camshaft factories that employed about 500 people in Michigan. By 2007 both were shut down, the workers all out of a job. Now Asimco manufactures the same camshafts in China on government-donated land. Bain Capital purchased Asimco in 2010. With Bain Capital's attitude of "Let's not kid ourselves about just how cheap offshore labor really is", you can be certain they are already planning more "strategic investment opportunities" to acquire more automotive parts manufacturing plants here in America to move their operations to China.
In one of his first major decisions on trade policy, in September 2009 President Obama imposed a tariff on tires from China. The decision is intended to bolster the ailing U.S. tire industry, in which more than 5,000 jobs had been lost over the past five years as the volume of Chinese tires in the market has tripled. The tariff imposed was 35% the first year, 30% the second, and 25% the third. That was actually less then the federal panel that makes recommendations on tariffs recommended- they recommended tariffs of 55%, 45% & 35% respectively. But then, Obama's decision to impose tariffs on tires marked a significant shift from the policy of the Bush administration, which had rejected taking action in four similar cases it reviewed. And the President needs to repeat that decision for auto parts from China to stop more Bainports from happening.
I need to make it clear I am hardly an expert on foreign trade. In Tom's liveblogfrom Bainport last Friday I posted a question asking if President Obama couldn't threaten tariffs on Chinese made auto sensors to get Sensata to reconsider closing the Freeport plant and outsourcing all the jobs. I was hoping Kossacks more knowledgeable than I could post some helpful information. While I received encouragement I didn't get any useful info, so I've been doing some research since then. This next section may give you for more information on the basis and process for the U.S. to impose tariffs on foreign made goods than you ever wanted to know, but bear with me - it's intended to let readers know my proposition for a tariff on Chinese auto parts (a Bain Tax) is based on fact and historical precedent, not just bluster.
The foundation of U.S. trade policy is the Tariff Act of 1930 – yes, the infamous Smoot-Hawley Tariff Act, often credited with deepening the Great Depression. Many of the mechanisms it established - particularly the processes it laid out for imposing trade sanctions and tariffs on other countries - remain in effect today, although the law has been updated numerous times. Any new trade-related laws passed by Congress primarily just make amendments to the 1930 law. U.S. trade law that establishes the process for the United States to take various actions to protect its interests. These actions fall into three main categories:
Title VII Actions — Antidumping or Countervailing Duties
Section 201 and Related Actions – Global and Special Safeguards
Section 301 Actions — Retaliation Against Trade Barriers
Title VII of the 1930 Tariff Act created an administrative process for responding to two types of practices that give foreign competitors an unfair advantage and threaten to harm domestic industries. The first practice involves foreign governments granting subsidies to their own producers. The second involves “dumping,” which is defined in economic terms as selling products below cost (in order to drive competitors out of business, after which one would presumably raise prices in order to reap monopoly profits). The procedure in both cases is nearly identical, as is the solution: imposing tariffs that counteract or negate the unfair advantage foreign producers might otherwise enjoy. In September 2009 the Department of Commerce imposed tariffs on imports of Chinese made steel pipes, after finding that Chinese exporters had received subsidies ranging from 11% to 31%, and proposed tariffs of the same amount. This was a Title VII action. However, the process under Titlle VII can be quite lengthy. Petitions are to the U.S. International Trade Commission (USITC), an independent federal agency which then determines whether harm has been caused to domestic producers. The U.S. Department of Commerce (DOC) then determines whether a subsidy exists or whether dumping has actually taken place. The Secretary of Commerce is of course appointed by the President and serves at his pleasure, so he will tend to reflect the President’s viewpoint on the matter. But the President is never called upon to make a decision directly.
However, another significant category under which the U.S. can take action to protect its domestic industries was added in 2001. This is known as Section 421, and it was adopted as part of the U.S. conditions for agreeing to China’s entry into the WTO and accordingly being granted most favored nation trade status. The standard of harm in Section 421 is the “material injury” standard used in Title VII cases, with some notable differences: The standard of harm to domestic production and industries is much lower. And tariffs imposed under Section 421 are directed solely against imports from China. There was no need to find any unfair trade behavior on the part of the Chinese, just that their products are flooding the U.S. marketplace and overwhelming domestically produced goods. And ultimately, unlike a Title VII action, it is the President who gets to make the final decision under Section 421. And China can't file any complaints to the WTO for any actions and tariffs under a Section 421 decision, because Section 421 was and is a condition placed on it's admission to the WTO!
President Obama's decision to place a tariff on Chinese tires in 2009 was a Section 421 decision. While there is a basis for Title VII tariffs against Sensata Chinese made sensors and other Bain owned Chinese auto part manufacturers because of the huge amount of subsidies from the Chinese government, Section 421 is the faster and simpler route to go. Faced with the prospect of up to 55% in tariffs when they try to import those sensors back to the USA I wonder if Sensata/Bain execs just might give closing Freeport a second thought?
President Obama, we need you to announce your intention to pursue tariffs against Chinese made auto parts. The American workers at Bainport fighting for their jobs, their livelihoods, and their American way of life need you to do this, and do it now! You can call it a tariff. You can call is a Section 421 action. We'll just call it The Bain Tax!
References:
The Washington Post, September 12, 2009: U.S. to Impose Tariff on Tires From China
Patrick Chovanec, Associate Professor of Practice at Tsinghua University’s School of Economics and Management in Beijing, China: A Primer on U.S. Trade Policy
The New York Times, Oct. 10 2012: As Romney Repeats Trade Message, Bain Maintains China Ties