#MakeAmericaCompetitiveAgain

 

shutterstock_208443250Donald Trump hit a nerve on tariffs, American manufacturing, and competition from China. A lot of people find the arguments for free trade unpersuasive and feel they’ve been on the receiving end of a bi-partisan policy that that imposes rules on costs on Americans that lets the rest of the world (literally) profit at our expense. I don’t quite buy that narrative but — as I’d wager some of you are thinking — of course you wouldn’t, Meyer. That doesn’t mean it’s totally wrong, though, and of course I want of my fellow countrymen to have every opportunity to find remunerative, useful employment.

My problem with Trump on this matter isn’t so much his calling attention to problems, but that his solutions are bunk. More specifically, I think the kinds of tariffs he’s suggesting are going to hurt people by raising prices, will spark retaliation against our own manufacturing, and will suffer from all the pitfalls that happen when one person thinks he’s smarter than the combined wisdom of hundreds of millions. Trump may have an economics degree, but his reading seems to have stopped before Adam Smith.

Even if Trump’s ideas worked as promised, they still strike me as misinformed. First, most of the manufacturing jobs in China aren’t particularly attractive and don’t make economic sense when you factor for Americans’ productivity and education. As Kevin Williamson and others have said, if you want to build cars, airplanes, firearms, or other high-end manufactured goods, Americans are the people to go to; if you want to make flip-flops, cheap electronics, or things that should be labeled as disposables, you’ll go broke hiring people as expensive as us. Second, the 1950s were an aberration: there were far fewer industrialized nations 60 years ago, and those that existed were still digging out of the Second World War. Third — whether it’s a good thing or a bad thing — we’re living through an emergence of a service economy much like the emergence of an industrial economy that started 200 years ago.

So if tariffs aren’t the answer, what is? My sense is that — while American manufacturing will and should be more expensive than its competitors’ (because it’s higher-quality) — there’s a lot we’ve done to artificially jack that price up. For starters, there’s our absurdly expensive and mandatory healthcare system and the political uncertainty that’s likely added a lot of hidden cost to our jobs. Who wants to hire expensive Americans when you don’t know how much extra their labor will cost?

That’s likely just one part of the puzzle. What else can we do to make sure we aren’t needlessly hurting our own workforce? Over-burdensome regulation? Right-to-Work laws? As much as possible, be specific. And yes, immigration is a totally game answer.

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  1. Jamie Lockett Inactive
    Jamie Lockett
    @JamieLockett

    Tom is correct, those that lament the competitiveness of American manufacturing should focus their ire on the regulation rather than the trade side of the equation.

    • #1
  2. Could Be Anyone Member
    Could Be Anyone
    @CouldBeAnyone

    Jamie Lockett:Tom is correct, those that lament the competitiveness of American manufacturing should focus their ire on the regulation rather than the trade side of the equation.

    Nah, we here in America need Autarky. It is the way, the truth, and the light!

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  3. Manny Member
    Manny
    @Manny

    I’m not a Trump supporter, and this is the area of Trump’s positions that most alarm me.  But let’s be accurate.  I do not think he’s claiming to put on tariffs for the sake of tariffs.  He’s talking about countries that violate our free trade deals.  His position seems to be that he’s for free trade if the deal is right and if the other countries don’t violate the deal with manipulation.

    As he sees it, there are a couple of countries – not the whole world – that manipulate our free trade deal so that in effect they have put tariffs on our goods while their goods are tariff free.

    I do not know the legitimacy of his claims, but he is not claiming to put on tariffs for national revenue.  It’s retribution for unfair practices.  That’s not necessarily anti free trade.

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  4. Franz Drumlin Member
    Franz Drumlin
    @FranzDrumlin

    The very first post I posted on Ricochet asked the same question. The comments it generated did not quell my doubts. We seem to be entering uncharted waters here. New technologies increase industrial output but require fewer workers, and this is occurring at the same period in history when it is cost-effective to produce cheap goods in developing countries and containerize-ship them for sale in the developed world. Mountains of stuff on sale at Old Navy and Best Buy at very reasonable prices, but where are the jobs for American workers? The silence that follows that question is being filled by Sanders and Trump. The solutions they propose won’t work and it doesn’t take a masters in economics to understand why. But then what? I’m temperamentally inclined to listen sympathetically to Kevin D. Williamson and the whole “free economies will eventually sort out the mess” crowd but that nagging little doubt remains. Are we looking at a society where one third of the population works productively while two thirds watch cat videos on YouTube?

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  5. Franz Drumlin Member
    Franz Drumlin
    @FranzDrumlin

    Speaking of which, I had to go back and edit my comment and up popped a dialogue box which asked me to type a string of text to “verify that I’m a human.” That says something but I’m not sure what.

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  6. Manny Member
    Manny
    @Manny

    Franz Drumlin: Are we looking at a society where one third of the population works productively while two thirds watch cat videos on YouTube?

    That’s the exact argument my office neighbor at work makes.  In theory the money we save by cheaper goods abroad should create other jobs at home.  However, I haven’t seen it either.  I’m still a free trader, but I’m beginning to think there’s merit in the counter argument.  At a minimum we probably should catch our breath and pause on more free trade agreements until the economists can sort through the data of the last 20 years.  Something is amiss in our economy and I’m not sure the experts know what.

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  7. I Walton Member
    I Walton
    @IWalton

    I will address the question but first.  Read O’Grady in today’s WSJ.  She’s the most solid reporter on latin America and makes the point I’ve been trying since the first Trump debate about Trump and Latin American strong men.  Trump is old wine in old leaky bottles, his promises are well known to Latin hands.  It never ends well, indeed these kinds of politics, like Obama’s are why we still refer to Latin America as third world. It doesn’t matter to supporters of Chavez or Peron, or Rojas Pinilla, Haya de La Torre, Velasco Ibarra( who was elected 5 times to roaring crowds and finished only once.)  How can you keep electing this guy?  I asked,    “Have you heard him speak?” was the reply   How did so and so get so rich?  Answer;  He was in the last, or the second or the third, Velasco administration.  Trump supporters don’t care either.   What was the key to all of them?  I’ll help the poor,  give them the power and they’ll fix things and stop Gringo imports, or exploitative foreign investment, foster our own manufacturing, our own banks our own agriculture.

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  8. Lazy_Millennial Inactive
    Lazy_Millennial
    @LazyMillennial

    The problem isn’t that old jobs are going away, but that the market’s much slower than we’d like to match workers to new jobs. Especially when they require skills the workers don’t have, or are in locations different than the old. I posted this in another thread awhile ago, and it fits here:

    Supply-side economics. Remove barriers to getting a job: occupational licensing and educational credentialing cartels. Breaking the latter is especially important, and doing it should be balanced with vicious prosecution of the scam educational institutions (like Trump University) that promise big results then fail to deliver. This will encourage alternative education institutions that promise less but are able to deliver.

    More supply-side: attack the regulatory state. Businesses are suffering the death of a thousand cuts. Tearing apart the federal bureaucracies that regulate every aspect of business would make starting a new business or expanding an existing business much more attractive.

    On the welfare side: Kevin D. Williamson (who’s been mentioning Fishtown’s problems for a while now) has floated the idea of giving people help to move (just floated, no specifics). If we’re going to have welfare, it’s worth considering. America has had plenty of “ghost-towns” even as the country as a whole was growing. Before the internet age, we just didn’t hear much from the last folks in the ghost towns, and when we were a much smaller country, the ghost towns were also much smaller.

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  9. C. U. Douglas Thatcher
    C. U. Douglas
    @CUDouglas

    As I’ve taken from Thomas Sowell and Walter E. Williams, in general the average American worker in manufacturing is more productive than the average overseas worker. Enough so that for a long time, though the overseas worker could work cheaper, the American worker was producing significantly more that it was more profitable to stay in America.

    My Progressive/Sanders type friends would argue that employers just want to pay their workers as little as possible. That was always just a fractional truth. Employers want the most output for the least amount of cost. It’s not how little they pay their employees, but how much they profit off the end product that matters. Employees, on the other hand, want the most profit (i.e. wages and fringe benefits) they can get from their labor.

    In a free market, this becomes a mutual arrangement that profits both. But the government has intervened heavily, telling employers what they have to pay, how much they have to compensate, while regulating the end-product or service heavily. The result is that though the American worker is more productive, the profit his employer gets off the end product is constantly shrinking to take care of regulatory costs and taxes until finally the less productive worker becomes far more attractive.

    Then the government comes in and tries to regulate this transaction. If we want to make America competitive again, we need to release the government’s chokehold on industry.

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  10. BrentB67 Inactive
    BrentB67
    @BrentB67

    I think this, in a sentence sums up my feelings re Trump’s candidacy:

    My problem with Trump on this matter isn’t so much his calling attention to problems, but that his solutions are bunk.

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  11. skipsul Inactive
    skipsul
    @skipsul

    Tom Meyer, Ed.: So if tariffs aren’t the answer, what is? My sense is that — while American manufacturing will and should be more expensive than its competitors’ (because it’s higher-quality) — there’s a lot we’ve done to artificially jack that price up.

    Bingo.  Minimum wages, high construction costs on new facilities (a big one is time-cost – zoning approval, EPA meddling on site surveys, pettifogging local bureaucrats), a massive welfare structure that encourages low skill labor to seek subsidies rather than work (so that even when the minimum wages themselves are not an issue, getting people to show up becomes the issue), endless federal and state paperwork (some of it direct, some of it by proxy through your customers, who have regulatory requirements to survey and audit all suppliers), and, of course, taxes at every step of the way.

    The other issue that keeps getting lost is this:  Technology.

    I currently have 5 full time people on my shop floor to build my products.  Those 5 today, through the use of automation, produce (in real dollars) the same value that 15-20 could have done in the 80s or 90s.  Tariffs, reduced regulatory burdens, etc., will do nothing to increase the available jobs here.  But tech does change the calculus in other ways. (cont)

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  12. I Walton Member
    I Walton
    @IWalton

    Creative destruction has always been the source of anti market sentiment, but attempts to ameliorate it always lead to the allocation of privilege because the wealthy and connected dominate claims on the favors that market intervention requires.   So how do we get more creation and less destruction?  You don’t, because the risk of failure and constant market feed back is what drives  creativity and wealth creation.   These are iterative emergent systems that can’t be predicted because tens of millions of inputs into millions of prices lead to millions of adjustments and the important parts of it are in peoples heads or in the future and can’t be known.  And yet we need faster adjustment, and faster creation of human capital demanded by the changes that we can only know after the fact.  There are many ways to do this but the only ones  that can’t work are Government programs such as adjustment assistance.  Such programs can only be informed by old information that comes in the form of averages that contain almost no useful information, they are abused, become corrupt and hence become part of the problem. Unemployment insurance and welfare and our regulatory apparatus, and educational systems are all designed as if their purpose were to slow adjustment, to prepare folks to be either bureaucrats or unemployed.   Our training and education must be market driven and available for the employed as well as the unemployed and the not yet employed.

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  13. BrentB67 Inactive
    BrentB67
    @BrentB67

    I respectfully disagree with the assertion that U.S. manufacturing should be more expensive.

    We are Blessed with so many economic advantages it is hard to chronicle all of them in 250 words.

    Our workforce is the most productive on the planet and that combined with the aforementioned Blessings leads to the potential for the greatest productivity in the history of mankind.

    Additionally, exchange rates play a huge role in defining expensive. There was an interesting analysis in Barron’s this weekend that priced in Rubles oil has increased 150% in Russian terms and while their revenue is dollar denominated their costs are Ruble denominated making them among the most profitable producers in the world.

    I do agree that we are generally more suited to high end manufacturing, but that doesn’t preclude us from competing at all levels.

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  14. Misthiocracy Member
    Misthiocracy
    @Misthiocracy

    Tom Meyer, Ed.: we’re living through an emergence of a service economy much like the emergence of an industrial economy that started 200 years ago.

    My only quibble is that I find the claim that America is becoming a “service economy” is a bit overblown.

    While it’s true that the percentage of people employed in the service sector has grown at a much greater pace than the percentage of people employed in manufacturing, in terms of GDP American manufacturing is still a very big, and growing, part of the economy. The fact that automation and innovation is reducing the amount of human labour required in that sector doesn’t mean it’s no longer a huge part, or even a dominant part, of the economy.

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  15. Jamie Lockett Inactive
    Jamie Lockett
    @JamieLockett

    BrentB67:I think this, in a sentence sums up my feelings re Trump’s candidacy:

    My problem with Trump on this matter isn’t so much his calling attention to problems, but that his solutions are bunk.

    Agreed, what annoys me is that when you point out the flaw in the solution you are immediately accused of not caring about the problem.

    • #15
  16. Xennady Member
    Xennady
    @

    Manny:At a minimum we probably should catch our breath and pause on more free trade agreements until the economists can sort through the data of the last 20 years. Something is amiss in our economy and I’m not sure the experts know what.

    Except this won’t happen, because the free traders already know all the answers and what needs to be done, just like the people who voted for Smoot-Hawley.

    Just wait until the TPP is passed and Americans start getting fired and forced to pay local taxes to support the new workers who replaced them.

    I’m sure the answer for that will be more free trade, too.

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  17. skipsul Inactive
    skipsul
    @skipsul

    (cont from 11)

    Technology is portable, and it is now historically cheap, if you know how to use it.  This means that automation can now be set up anywhere you have reliable electrical power, some people you can train to run it, and transportation.  It reduces the amount of labor you need, so there are a lot of small-medium scale manufacturing facilities here in the USA that produce niche goods you likely know little about – goods that need not come from overseas to be competitive in price.

    But this is true for the rest of the world too.  Where local economies are free enough to let it in, small scale manufacturing is springing up all over the world, serving niche regional customers, and supplying goods that once would have had to have come from the USA or Europe.  In other words, high tech industry is everywhere now, so in many respects the rest of the world can “roll its own”.  Tariffs here do nothing, because we were never going to buy those goods in the first place.

    Of course this sort of work is largely unseen.  We only notice the large scale industries (cars, phones, durable goods, machinery), but these sorts of goods are only a fraction of the world economy.  So we panic when those industries downsize or fail here, and give them special favors.  The real picture is far more complicated.

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  18. skipsul Inactive
    skipsul
    @skipsul

    BrentB67:I respectfully disagree with the assertion that U.S. manufacturing should be more expensive.

    We are Blessed with so many economic advantages it is hard to chronicle all of them in 250 words.

    Our workforce is the most productive on the planet and that combined with the aforementioned Blessings leads to the potential for the greatest productivity in the history of mankind.

    Additionally, exchange rates play a huge role in defining expensive. There was an interesting analysis in Barron’s this weekend that priced in Rubles oil has increased 150% in Russian terms and while their revenue is dollar denominated their costs are Ruble denominated making them among the most profitable producers in the world.

    I do agree that we are generally more suited to high end manufacturing, but that doesn’t preclude us from competing at all levels.

    Ackshully, given falling energy prices and cheap automation (not to mention issues of quality control, reputation, and IP theft), a fair amount of commodity stuff is returning to the USA anyway.  You don’t see the “jobs” part returning because the labor is far less necessary than decades ago, but a great deal is coming back quietly.

    • #18
  19. BrentB67 Inactive
    BrentB67
    @BrentB67

    Jamie Lockett:

    BrentB67:I think this, in a sentence sums up my feelings re Trump’s candidacy:

    My problem with Trump on this matter isn’t so much his calling attention to problems, but that his solutions are bunk.

    Agreed, what annoys me is that when you point out the flaw in the solution you are immediately accused of not caring about the problem.

    Agree with your summation.

    • #19
  20. Richard Finlay Inactive
    Richard Finlay
    @RichardFinlay

    Jamie Lockett: So how do we get more creation and less destruction? You don’t

    In evolutionary terms, ‘survival of the fittest’ is less true than ‘non-survival of the unfit.’  Failure is the driver of systemic improvement.  Protecting/subsidizing specific businesses likely dooms that industry.

    Lazy_Millennial: The problem isn’t that old jobs are going away, but that the market’s much slower than we’d like to match workers to new jobs.

    One contributor to the slowness of adaptation is policy-driven resistance to it.  One of the fastest growing, even booming, industries is health care, yet we have national angst over the total cost of providing it.  Imagine what the auto industry would be like if back in the 50s national policy were to have tried to prevent it from dominating the domestic economy.  Or steel, going back further; or oil, mining, agriculture, etc.  Far from responding to demand, we are trying to deny it.  The supply side will not grow on its own.

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  21. skipsul Inactive
    skipsul
    @skipsul

    Take a look at how new automotive assembly plants are run today here in the USA.  Look at how few people Kia uses, at its assembly plant in Georgia.

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  22. skipsul Inactive
    skipsul
    @skipsul

    And here is Kia in Slovakia, for Euro markets.  I tell ya, tech is portable.  Much the same as in Georgia.

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  23. Tom Meyer, Ed. Contributor
    Tom Meyer, Ed.
    @tommeyer

    BrentB67:I respectfully disagree with the assertion that U.S. manufacturing should be more expensive […]

    I do agree that we are generally more suited to high end manufacturing, but that doesn’t preclude us from competing at all levels.

    Conceded. My point was that, as American manufacturing tends to be highly productive and skilled, it’s to be expected that it’s generally more expensive.

    Likewise, it’s not surprising that emerging economies like China and India are generally cheaper, not only because they’re less mechanized/skilled/efficient, but because the poverty there gives them a higher tolerance for bad conditions.

    • #23
  24. Richard Finlay Inactive
    Richard Finlay
    @RichardFinlay

    Tom Meyer, Ed.: the poverty there gives them a higher tolerance for bad conditions.

    … a more realistic perspective on what good conditions are.

    I had a client (in a previous existence) in rural Nebraska whose assembly workers wore heavy coats and gloves on the job in winter because the building was an uninsulated, unheated, sheet-metal pole barn.  Why didn’t they have to pay premium wages?  Because field work conditions were worse.  Just being out of the weather was luxury.

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  25. Xennady Member
    Xennady
    @

    First, most of the manufacturing jobs in China aren’t particularly attractive and don’t make economic sense when you factor for Americans’ productivity and education.

    Ninety-four million not in the labor force. And I wonder about the actual educational attainment of many Americans when I read of Ivy League students who’ve never heard of Beethoven, or grievance study majors period.

    if you want to build cars, airplanes, firearms, or other high-end manufactured goods, Americans are the people to go to

    Except for the cars built in Japan, Europe, or Mexico. And the Buicks GM is going to import in the US. Plus, China is working very hard to create its own commercial aviation industry, in part by requiring Boeing to teach them.

    But Williamson didn’t list ships. I guess they’re just low tech junk, seagoing flipflops. But once upon a time that was a major American industry, which was very important during World War II, for example.

    This one of many issues I have with free traders. If an industry still manages to exist in the US, then it is awesome and wonderful thanks to those high productivity American workers. Once it goes away it’s like it never existed or mattered, and is never spoken of again, or perhaps it becomes low-tech junk, and we don’t want those jobs anyway. I see I already mentioned the ninety-four million not in the labor force.

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  26. skipsul Inactive
    skipsul
    @skipsul

    Xennady:But Williamson didn’t list ships. I guess they’re just low tech junk, seagoing flipflops. But once upon a time that was a major American industry, which was very important during World War II, for example.

    The US shipping industry is one that was definitely regulated offshore.  It wasn’t foreign competition here, it was flat out egregious labor laws and environmental regulation to death.

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  27. skipsul Inactive
    skipsul
    @skipsul

    Xennady: This one of many issues I have with free traders. If an industry still manages to exist in the US, then it is awesome and wonderful thanks to those high productivity American workers. Once it goes away it’s like it never existed or mattered, and is never spoken of again, or perhaps it becomes low-tech junk, and we don’t want those jobs anyway. I see I already mentioned the ninety-four million not in the labor force.

    Industry here in the US is prodigious.  It just doesn’t need labor like it used to.

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  28. C. U. Douglas Thatcher
    C. U. Douglas
    @CUDouglas

    In general, this is what happens:

    In boom times, manufacturers and service industries want better employees that are in high demand, so offer higher pay and better benefits.

    In bust times, the labor marker is in low demand. Normally industries might freeze or cut pay and reduce benefits. Labor then runs to government to complain, and the government dutifully codifies the boom-time compensation. As a result, companies either outsource or don’t start.

    Meanwhile big business lauds the codification as great for everyone, because they know their small competitors can never afford these things for long.

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  29. Xennady Member
    Xennady
    @

    Second, the 1950s were an aberration: there were far fewer industrialized nations 60 years ago

    I seriously have no idea why the 1950s comes up often in these sort of discussions. It reminds me of how the left always accuses social conservatives of wanting to return to the the same era because they don’t support gay marriage.

    Anyway, I’d just like to return to the era when Ronald Reagan was able to win a 49-state landslide, or perhaps to the era before 15000 manufacturing facilities departed the United States, circa 2000.

    Free traders can lecture the public until doomsday about the awesomeness of free trade, but in my view the endless spectacle of economic activity leaving the United States for elsewhere is a grim existential problem for the present regime, which it neither acknowledges or understands.

    What “capitalism” means to younger Americans is that they get to watch that factory that paid well enough to make a living leave the country, while they are told to go deep into debt for a college education that may not get them a job either. Worse, many of the jobs that do remain are such that people believe they won’t remain long, or won’t pay enough to be worth learning.

    This is a rather large problem for the US and its economy, I think.

    The response from the American political class has been nothing but lectures.

    Hence, Trump, and Sanders.

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  30. Richard Finlay Inactive
    Richard Finlay
    @RichardFinlay

    skipsul:

    The US shipping industry is one that was definitely regulated offshore. It wasn’t foreign competition here, it was flat out egregious labor laws and environmental regulation to death.

    Also: that only US built ships could operate between US ports.  Protecting US shipyards meant they didn’t have to modernize to survive, so they didn’t do either.

    The law in question is the Merchant Marine Act of 1920.  This is a U.S. Federal statute which regulates maritime commerce in U.S. waters and between U.S. ports.  Section 27, known as the Jones Act, deals with the concept of “cabotage” (coastal shipping).  The law requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens.

    This is why you don’t see a cruise ship sailing from New Orleans to Galveston and letting off passengers (for example).   The reality today of course is that virtually all cruise ships are foreign flagged in order to avoid US taxes and occupational laws. So the entire US based cruise fleet can’t sail from one US port to another.

    Critics of the law argue that the law increases the costs of shipping good between U.S. ports.  U.S. shipbuilders are also substantially higher than vessels constructed overseas.  As a result, U.S. shipyards now build only 1 percent of the world’s large commercial vessels. cruiselawnews

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