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James Flanigan

China Trip Saves Jobs, Points to Good Policy

May 18, 2003|James Flanigan

When Don Metz saw worrisome events unfolding in his hometown, the industrial city of Rockford in northern Illinois, he went to China.

Rockford, where manufacturing employs 25% of the workforce, has lost 9,600 jobs in recent years. It suffered a big blow last month when Ingersoll Milling Machine, a company with almost $600 million in annual sales, filed for Chapter 11 bankruptcy protection, closed its three Rockford plants and laid off their 370 workers.

It's happening across the United States, where employment in manufacturing has declined for 34 straight months. "Guys are cashing out their businesses and going to the lake," says Metz, vice president of Metz Tool & Die Co., which his father founded in 1959 and which the son doesn't want to see go the way of Ingersoll.

The odds wouldn't seem to look good. In the early 1970s, more than one in four U.S. workers were employed in businesses that made things. Today it is barely one in eight. In California, home to more manufacturing industry than any other state, the employment numbers are at their lowest since World War II.

The causes of the decline have changed. The flight of labor-intensive goods-making tasks to low-wage countries isn't the only reason anymore. Lately it's been big companies' tendency to order parts from foreign countries that has cost small to medium-sized U.S. family firms a lot of business.

Then there's China, increasingly a manufacturing power for parts and finished goods alike. But as Metz and his friends in Rockford saw jobs disappear in their city of 150,000, they didn't go to their congressmen asking for tariffs against Chinese imports or any other protectionist measures. Instead, they went straight to the enemy, with their congressmen's help.

In March, Metz and a delegation of six other Illinois businesspeople visited four Chinese cities, where they met with government officials and factory managers -- and came away with $44 million in orders for large castings, precision air compressors and metal cutting and machining tools.

It wasn't a fluke but the start, they say, of a win-win business arrangement. The Americans and their Chinese hosts formed the U.S. China Small Business Assn. The idea is that the association will be the funnel for Chinese provinces to place orders for products they need and that companies in the U.S. make.

Backing the business owners is Rep. Donald A. Manzullo (R-Ill.), head of the House Small Business Committee, and House Speaker J. Dennis Hastert, who represents the O'Hare Airport area outside Chicago.

In fact, Manzullo, whose district includes Rockford, set up the trip by visiting China in January and linking up there with C.J. Kuo, a Taiwanese-born U.S. businessman who has property and other investments in China and offices in Beverly Hills. Kuo made appointments for visits in Harbin, Beijing, Luoyang and Guangzhou.

"I think we Americans can work together with China," Kuo says, pointing out that China "wants to avoid reactions in the U.S. Congress."

Sure, the Illinois venture is a small thing compared with the $103-billion U.S. trade deficit with China, not to mention its $484-billion merchandise trade deficit with the world. But the way the businesspeople from Illinois are tackling their problem reflects the Bush administration's attitude toward aiding small companies: Encourage them to accept economic reality and take advantage of it.

Consider the declining value of the U.S. dollar, something for which the Bush administration has expressed approval. The dollar has fallen 20% against the euro in the last year and 10% against the yen. And it will go lower, "to $1.22 and perhaps to $1.39 in terms of euro," predicts currency expert Laurie Cameron of the private bank division of J.P. Morgan Chase.

Such a steep decline would give small U.S. firms the ability to compete on price with Europeans, at least, and to hold on to orders from large multinationals that buy parts around the world. It might have saved Ingersoll Milling Machine, which lost a machine tool order last August when Northrop Grumman Corp. chose a lower-priced supplier in Spain. "If the dollar then had been where it is today, we might have kept the business," says Tom McDunn, who managed one of Ingersoll's plants.

From the Illinois business owners to the Bush administration's de facto policy on the dollar, an often forgotten truth should be kept in mind: U.S. manufacturers aren't weak and still matter. In Rockford, skilled mold makers at Metz Tool earn $25 to $30 an hour. The loss of those jobs would be one domino. "The middle class erodes" with the loss of manufacturing, says economist Edward Leamer of UCLA's Anderson School. "Also, as you lose the ability to make the tools and parts, you lose the know-how to make the higher-value products."

Now, after years of fighting tough odds, U.S. manufacturers have been spurred to new aggressiveness. Metz Tool is going global. It's opening mold-making operations in China and Mexico. If its big customers are going to set up shop in other countries, so will Metz.

Overseas ventures "don't create jobs here in Rockford," Metz points out. But they do help the small firm survive in today's global marketplace, which works only if it's a two-way street.

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James Flanigan can be reached at jim.flanigan@latimes.com.

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