How U.S. Surrendered Manufacturing Base to China

By Daniel McGroarty

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.

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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.

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Daniel McGroarty, principal of Carmot Strategic Group, an issues management firm in Washington, D.C., served in senior positions in the White House and at the Department of Defense.

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