The Rushford Report 2012

Made Where?

by Greg Rushford
posted on March 13, 2012

When it comes to explaining to their citizens what international trade is all about, European leaders are way ahead of their American counterparts -- so far, that they must marvel at the audacity of how it's done in America. Last month, for example, I reported on President Barack Obama's visit to Everett, Washington, where he praised Boeing's new 787 Dreamliner. The president basically boasted on Feb. 17 that the Dreamliner showed how Americans build better "stuff" than foreigners. "Boeing has suppliers in all 50 states, providing goods and services like the airplane's ground-breaking carbon fiber composite aircraft structure from Kansas, advanced jet engines from Ohio, wing components from Oklahoma, and revolutionary electrochromic windows from Alabama," he declared. American manufacturers like Boeing, Obama added, "are realizing that even when we can't make things cheaper than China, we can make things better. That's how we're going to compete globally." When they saw that, some European readers told me they wondered what Obama had been smoking.

Here's how that same Dreamliner has been described by the Swedish National Board of Trade, which has conducted ground-breaking research into the mutually beneficial relationship between imports and exports in modern international trade flows. "The production of this new midsize jet involves 43 suppliers spread over 135 sites around the world," the sagacious Stockholm economists noted in one report. "The wings are produced in Japan, the engines in the United Kingdom and the United States, the flaps and ailerons in Canada and Australia, the fuselage in Japan, Italy and the United States, the horizontal stabilizers in Italy, the landing gear in France, and the doors in Sweden and France." All in all, "a Boeing airplane is not particularly American," as "70 percent of the components are produced abroad," the sharp-eyed Swedes concluded.

Of course, Swedes don't vote in U.S. presidential elections. And last week, Obama was at it again --- vigorously explaining what international trade means to Americans in narrowly nationalistic terms. On March 9, the president visited Petersburg, Virginia, which is about 30 miles south of Richmond and the site of Rolls-Royce Crosspointe, one of Boeing's suppliers of engine components for the Dreamliner. The president praised the British manufacturer for investing in America and "creating jobs here, manufacturing components for jet engines, for planes that we're going to send all around the world." He went on to say that what Rolls-Royce was doing in the United States represented "the kind of business cycle we want to see. Not buying stuff that's made someplace else and racking up debt, but by inventing things and building things and selling them all around the world stamped with three proud words: 'Made in America.'"

Made where? While that last line drew its intended applause from the southern Virginia workers, as an explanation of economic realities it was perhaps as chauvinistic --- and flat-out wrong --- as it gets in American politics.

Here's why:


At least, when Obama spoke of how Rolls-Royce makes a commendable contribution to the U.S. economy right, he got that part right. Rolls-Royce has been manufacturing in America for more than a century, and currently employs nearly 8,000 workers in 28 states, the company reports on its website. But Obama completely missed the fundamental economic fact that those 8,000 American workers could not make their "stuff" without access to imported components. Without those imports, those jobs would fly away. .

"Fuzzy Details" of jet-engine parts

In Petersburg last week, Obama said that he had been given a tour of the Rolls-Royce plant. "And I learned a bit about how a jet engine comes together," he noted. Don't quiz me on it," the president added, drawing laughter. "I'm a bit fuzzy on some of the details."

But those fuzzy details are vital to Rolls-Royce's American operations --- and one way or the other, they all involve one word that the U.S. president loathes to utter: imports.

A review of U.S. Customs' import records turns up a short list of some of those Rolls-Royce components that have kept the company's American workers busy during the Obama presidency. While the details themselves are mind-numbing, just skimming them reveals how complex modern manufacturing has become:

There are titanium fittings from "unspecified" countries of origin that go into tubes and pipe-fittings on the Rolls-Royce AE3007 gas turbine engine. Also, fire-resistant flat braided cord from England, that ties bundles of electric cables in Rolls-Royce engines.

And consider those threaded pins and collars for jet engines, made of alloy steels, and stainless steels, from "an unknown" foreign country. There are also stainless steel oil seals, and also bolts from Great Britain, that go into gear boxes within turbofan gas turbines for commercial aircraft. Furthermore, Rolls-Royce imports thermal insulation blankets made of ceramic fiber pads --- or mineral wools --- that protect turbines from excessive heat, from unspecified countries of origin.

Continuing, Rolls-Royce's American workers need imported Double Hexagon Head Extended Washer Stainless Steel Fasteners, which are used in airplane engines. Also Stainless steel gravity tanks, from Sweden, and stainless steel oil tanks from Great Britain. And there are control rods from Great Britain, used to transmit power in electronic engines.

Still not had enough? For readers who are into mind-numbing details, there are plenty more. Socket screws, shaft liners and sleeves for thruster propulsion systems, from Finland, Sweden and Norway. Also bushings from the three Scandinavian countries, plus too many other machine screws from various countries to mention. Such parts, and many others, sustain the economic lives of Rolls-Royce's American workers.

Putting it all together

In today's global economy, determining where a Rolls-Royce airplane engine and various parts come from becomes a tad complicated. A typical case from Customs' files in 2008, illustrates the complexities. It seems that Rolls-Royce was making large turbofan gas turbine engines in England. The company then exported the turbines to the United States, where they were assembled into an airplane. "At some point in time," the engines were removed and sent to an overhaul facility in Texas, from which "certain bearings were exported to Europe for repair and overhaul," U.S. Customs officials noted. The bearings, which had been manufactured in Germany, were later exported again to the United States and put back into the Rolls-Royce engine, --- which was then put back in the airplane, which was by then considered an American product. Got it, Mr. President?

Certainly, last week in the Rolls-Royce plant in Virginia, Obama wasn't overly bothered with such complexities. "Think about how important this is," to build the Dreamliner in America, the president declared. "I mean, imagine if the plane of the future was being built someplace else."

Made in the World

Europeans, by contrast with U.S. politicians like the current occupant of the Oval Office, have been more open about acknowledging that their countries need imports to manufacture products for export. Sweden's National Board of Trade, for instance, has published a chart showing where the venerable Volvos come from. "A typical Swedish motor vehicle is only 50% Swedish," the drawing explains. There are parts from the United States, Japan, England, Canada, Argentina, and so on. Rather than being embarrassed, the Swedes smartly tell their public the obvious economic truth: Swedish exports may be "less Swedish" these days, "but more valuable for the economy." It's what economists call value-added manufacturing --- a phrase that probably hasn't been uttered much in the Oval Office as of late.

In Geneva, Pascal Lamy, the director-general of the World Trade Organization, has been trying to explain the benefits of products that are "Made in the World" for several years. In 2007, to cite just one telling example, Lamy sponsored a conference where the CEO of Swedish telecommunications giant Ericsson explained that his company's mobile phones have "900 components from 60 suppliers in 40 countries designed, shipped and assembled for end customers in 90 countries." And these days, Lamy tells anyone who will listen that labels saying "Made in Germany," or "Made in Singapore," or "Made in Mexico" often don't tell the whole story.

True? Of course. But it's a lesson that has not yet been acknowledged at the highest level of the United States government --- remember Obama's three favorite words: Made in America. As Obama boasted to the Rolls-Royce workers in Virginia, "We're going to make sure the next generation of life-changing products are invented and manufactured here in the United States of America."

"We're Americans," the president boasted. "We are inventors. We are builders. We're Thomas Edison and we're the Wright Brothers and we are Steven Jobs. That's who we are. That's what we do. We invent stuff, we build it. And pretty soon, the entire world adapts it. That's who we are."

Obama obviously has calculated that his campaign rhetoric aimed at stirring (mindless) economic nationalistic passions will work for him politically. But still, if European leaders have the confidence to explain the benefits of international trade honestly, why couldn't the president of the United States simply tell the American people the same truths? After all, those Americans who work for Rolls-Royce in places like Virginia, or for Boeing in Washington State, have no justifiable reason to gripe about the imported components that make their jobs possible.