Commentary: The Administration's Blue-Collar Blues

The candidate stood before a group of Ohio construction workers and dished out red-meat rhetoric for Labor Day. "There's a problem with the manufacturing sector," he said. "We've lost thousands of jobs...manufacturing must do better." Democrat Dick Gephardt down at the union hall? Nope. It was George W. Bush, who has presided over the biggest loss of manufacturing jobs since Herbert Hoover.

If the President is sounding themes of the populist Left these days, there's good reason. He's feeling the heat from a huge loss of jobs. Since Bush took office, 2.5 million U.S. factory jobs -- 16% of the total -- have been lost. Although such jobs have been vanishing for years, "this is clearly the worst we've seen," says William A. Strauss, a senior economist at the Federal Reserve Bank of Chicago.

The manufacturing morass is setting off a political scramble that stretches from that muddy construction site in Richfield, Ohio, all the way to Beijing. That's where Bush dispatched Treasury Secretary John W. Snow for currency talks designed to mollify U.S. execs and blue-collar voters angered at the loss of manufacturing jobs to China.

Critics say China, by pegging the yuan to the dollar at an artificially low rate, is flooding the U.S. with cheap goods. While Administration officials believe the threat is exaggerated, they don't want to appear complacent. "We have to recognize the domestic political story line," says a top Bush aide. "We have to address it." Snow left Beijing on Sept. 3 without a deal but expressed optimism that the currency will eventually be allowed to float. Asian economists say the gambit was doomed. "No [Chinese] leaders want to be seen as giving in to foreign pressure," says Citigroup's Yiping Huang in Hong Kong.

Bush is hoping for more tangible results at home. He will soon name a new Commerce Dept. manufacturing czar, and on Sept. 15, Commerce Secretary Donald L. Evans is slated to unfurl a "Manufacturing Initiative" in Detroit. The package recycles Bush proposals such as legal reform and energy legislation. But it also includes a push for tougher enforcement of trade pacts, including an assault on dumping and export subsidies. BusinessWeek has learned that Evans will propose making it easier for U.S. businesses to file antidumping and subsidy cases by requiring less proof of damage before a complaint can be filed. "We need to be more proactive in looking at allegations [of cheating]...instead of waiting until an injury happens," says Commerce Under Secretary for International Trade Grant D. Aldonas.

Still, economists say few of these measures are likely to have much impact on the systemic decline in factory jobs. Rising productivity means manufacturers can maintain their share of gross domestic product -- about 16% -- with fewer workers. And even if China were to float its currency, it likely would do no better than slow the export of jobs to China.

Manufacturing's woes present a big political challenge for Bush because the downturn is concentrated in the battleground states of Pennsylvania, Ohio, Michigan, Minnesota, Wisconsin, Missouri, and West Virginia. The dramatic decline in textile jobs also threatens Bush's solid grip on Georgia and North Carolina. "He has done absolutely nothing to live up to the promises he made to the manufacturing sector, particularly to the textile industry," says Willis C. (Billy) Moore III, executive vice-president and CFO of textile manufacturer Unifi (UFI ) Inc. in Greensboro, N.C. "He would not get my vote next time."

Bush's Democratic rivals sense an opening. While their approaches vary widely, all favor far more activist federal policies. Senator Joseph I. Lieberman (D-Conn.) would use the tax code to reward manufacturers based on the share of their production that remains in the U.S. Former Vermont Governor Howard Dean would reopen trade pacts to force environmental and labor concessions, and Gephardt wants an international minimum wage that could raise the cost of foreign goods.

While most execs remain big fans of Bushonomics, many fret about manufacturing's plight. "If we don't do something relatively quickly, we aren't going to have a whole lot of domestic manufacturing left," says John P. Hiler, president of Hiler Industries Inc., a LaPorte (Ind.) metal-casting company. That's why politicians of all stripes will extol their industrial strategies from here to Election Day -- even as U.S. factory jobs continue their downward spiral.

By Richard S. Dunham

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