by Macy, Beth
Joe Meadors, the retired vice president, returned to the factory, by now a demolition site, in the summer of 2012. He had begun his career selling for the company’s table plant, and he wanted a commemorative brick—before the backhoes took them away.
The end of Bassett Superior Lines played right into the hands of the companies that opposed John Bassett’s petition. At the five-year sunset review hearing, held in 2010, opposing lawyers stressed that many of the companies employing blended strategies had pocketed millions in Byrd money, only to close their factories anyway.
Hypocrites, the lawyers called them. “Even as the [antidumping] order was entering into effect, Bassett and the La-Z-Boy companies were shutting down U.S. plants and turning to imports for the bulk of their supply,” John Greenwald pointed out.
JBIII had even mothballed his Elkin, North Carolina, plant a year earlier, citing the housing recession as the culprit and saying his goal was to reopen when the economy rebounded. Though he kept some Elkin employees on, shifting them to nearby warehouse operations, four hundred Elkin workers lost their jobs.
After the hypocrite card came the Vietnam card, an argument designed to point out the many unintended consequences of the 1930 Tariff Act, the maneuverings that resulted in the biggest winners being alternative foreign exporters. Slap duties on Chinese bedroom imports, critics said, and most bedroom factories will move to Vietnam. During the first ITC hearing, in 2003, the lawyers had predicted it would happen, and it had.
Greenwald and the other opposing attorneys described how dozens of Taiwanese operators had closed down their Chinese factories to avoid the duties—and then moved to Vietnam, where labor was even cheaper (eighty dollars a month per worker, compared to a hundred and seventy dollars in China) and duties didn’t apply. A furniture industry that had been booming in Indonesia before China joined the WTO was now roaring back.
But the big headline of the sunset hearing, reported everywhere from Furniture/Today to the Wall Street Journal to the Washington Post, centered on something called settlement payments. This was not originally part of Joe Dorn’s plan B, his strategy to make sure the initial low duties assessed by the Department of Commerce—which some in the coalition suspected were politically motivated, as a bow to the bankrolling Chinese—were significantly upped.
Dorn had told JBIII that the annual administrative reviews would help bring the duties in line with what his earlier research had shown: that many Chinese companies were dumping at a rate of 35 to 40 percent.
The process works like this: Every year the coalition (and any other U.S. bedroom manufacturer) can petition the Department of Commerce to investigate Chinese factories they suspect are dumping to assess what a company’s individual dumping margin should be. Commerce Department officials fly to China and delve into the records of the two or three companies believed to be the worst offenders.
The remainder of the factories on the list are assigned new duty rates calculated as an average of their dumping margins, based on their self-reported responses to questionnaires. Each company being reviewed supplies reams of data that permits Commerce to determine how much its labor, overhead, and materials actually cost. Since China is a nonmarket economy, the Commerce Department uses the Philippines as the surrogate country—initially, it used India—to value each item’s cost.
The process is complicated and convoluted. The most important thing to understand is this: Very few Chinese factories want to be on that review list, and nobody wants to be at the top of it. Most want to retain the average duty rate, assessed in 2005, of 7.24 percent, viewing it as the cost of doing business with America.
Annual audits are “unbelievably painful, tedious, time-consuming, and [the outcome] could change your rate,” one Chinese factory owner told me. “It’s your legal costs, your time, the duties you pay, how you structure your business in terms of what you sell in the U.S.… People hate uncertainty the most, and if your rate changes, that affects all of your future business. It definitely makes a huge impact.”
The alternative? Write King and Spalding a five- or six- or even seven-figure check and have your name withdrawn from the list of potential reviewees. All of which gives the keepers of the list—Dorn’s lawyers, working with Wyatt—an extraordinary amount of power in the deal.
One competing Virginia furniture executive whose company adopted imports early on (and closed all its factories) was angry about the reviews and even angrier about the settlements. “I like Wyatt, but he’s employing numbers to target Chinese furniture makers as part of the private settlement racket that the antidumping action has become,” he said.
Both the Chinese CEO and the Virginia executive agreed to be quoted only on the condition that I not print their names or the names of their companies. They like Wyatt, sure, but they are wary of the threat of higher duties, which they perceive him as controlling. They’re also troubled by the lack of transparency—even though all settlements are reported, confidentially, to the ITC.
“It would not help us going forward, and may subject us to even more work by the petitioners after highlighting this,” the Chinese executive explained in a follow-up e-mail.
To JBIII and his fellow coalition members, the settlements remain the best method—given the bureaucratic and imperfect system they’re forced to operate in—to ensure the worst dumpers get audited or reviewed. But the people testifying against the coalition at the sunset hearing didn’t see it that way.
“Clever shakedowns,” a lawyer representing the retailers called the payments.
“An extortion racket,” railed one Georgia retailer who’d opened a small hand-carved bedroom-furniture plant near Shanghai but closed it amid uncertainty over the duties. Leslie Thompson told the commission she couldn’t afford to hire legal counsel to handle her Department of Commerce review and, at the end of a lengthy process, she ended up being slapped with a 30 percent duty. She might have been exempt from subsequent reviews, as she told the ITC commissioners, but only if she could persuade Dorn’s firm to get her company off the administrative review list. She recounted a phone call between her and Dorn:
“What can you do for me?” Dorn had said, according to her testimony. Dorn said he didn’t remember the call. “I don’t fault her for not understanding the procedure; it’s very complicated,” he told me later. He also emphasized that the American court system encourages private settlements in commercial litigation.
Lawyer John Greenwald floridly compared the negotiations to the Catholic Church’s medieval practice of selling indulgences. He’s represented some of the larger Chinese factories, which he said pay as much as $500,000 to get off the list; the bigger a company, the more it pays. “To a Chinese company, it is absolutely worth seven figures, if they’re big enough, to settle” and avoid the risk of being slapped with a higher duty. “The Chinese as a whole are much happier with this system than the alternative,” Greenwald said.
In a ninety-minute interview at his Pennsylvania Avenue Washington law office, John Greenwald switched between praising John Bassett’s genuine concern for American workers and criticizing the unintended consequences his petition had provoked. He was also stymied by the ITC, which, following the sunset review hearing in 2010, voted six to zero—again—in the coalition’s favor.
Once more, Joe Dorn had the law solidly on his side, the main questions being: Are the Chinese still dumping? And would the domestic industry be injured if the dumping order went away? In another slam-dunk, Dorn proved the answer to each question was yes.
Greenwald picked up the dog-eared copy of the Uruguay Round Agreements Act sitting on his desk and read from the amended Title VII of the Tariff Act of 1930: In examining the impact of prices and volume of imports, the commission shall evaluate all relevant economic factors which have a bearing on the state of the industry.
“What I fault the commission for was not understanding what this case really did,” Greenwald told me. “It did two things. It shifted enormous production from China to othe
r places in Asia; that’s undeniable fact.
“Second, it turned into a money machine for the law firm King and Spalding.”
It also ultimately kept a handful of privately held companies from closing or moving offshore, he conceded, and one of them was John Bassett’s, which no longer imports furniture at all. “But I do not believe that anybody from the public companies [within the coalition], from La-Z-Boy to Stanley to Bassett [Furniture], cared about anything other than their stock price, and they thought this might be a short-term fix.”
The country of Vietnam should erect a statue in JBIII’s honor, Greenwald said. “I actually like John Bassett. He has a good, courtly Southern charm about him, and if you look at the cast of characters in the domestic industry, he has more integrity than most. He’s trying to save jobs, not figure out how to take his own plant to China.
“John became the bogeyman man in the industry, and it wasn’t fair. Because he genuinely cared about his workers, and he cared about the communities.
“He was trying to save what was left of American furniture. It just didn’t quite work out the way he hoped.”
Tell that to the workers in Galax, where John Bassett was on the cusp of turning into a folk hero. People approached him at gas stations and restaurants and thanked him for fighting so hard. One resident, a retired furniture worker, wrote a poem that began:
You have to admire old John Bassett.
For the town of Galax, he’s an asset…
Recognizing him in a restaurant recently, a retiree who’d once sold lumber to Bassett Furniture interrupted an interview we were having to applaud him for his efforts in Washington. Tourism officials in Galax talked about erecting the world’s largest bed. College business classes invited him to be a guest lecturer and deliver his five-point speech.
“I could kiss John Bassett,” said Naomi Hodge-Muse, the NAACP leader. “I’m just so proud there’s still one Bassett who has that understanding that you are responsible for your community, and you don’t just turn around and walk away!”
But in the furniture industry, especially among certain retailers, the uproar over the duties cemented Bassett’s status as an outlier and an outcast. As Jake Jabs put it, the Chinese factories that received the lowest duties, Lacquer Craft and Markor International, were the ones that had the money to pay the lawyers to do the paperwork for them.
“The smaller, hand-carving factories we were buying from… they got zapped with two hundred percent duties,” said Jabs, CEO of American Furniture Warehouse. “They didn’t have the attorneys, couldn’t speak English, couldn’t do the paperwork.”
City Furniture CEO Keith Koenig had a similar story about a Dongguan factory he frequented. It was run by hard-charging entrepreneurs—“cowboys,” he called them. “Little wild men!” But cowboys make bad accountants, and, when the company muffed its response to the Department of Commerce questionnaire, the factory ended up with a 198 percent duty. “They dropped bedroom furniture entirely, and now they’re supplying tons of [other furniture] to Costco,” Koenig said. More than fifty companies ended up with similar duties and found themselves scrambling to relocate or reconfigure their offerings sans made-in-China bedroom furniture, he said.
Among those who stopped exporting to the United States was the maker of Casa Mollino, a garish, hand-carved, four-poster-bed bedroom suite that Jabs liked so much he put it in his own home. Many factories started emphasizing dining and living room furniture—since the coalition covered only wooden bedroom furniture—shifting their bedroom exports to Europe and other parts of Asia. Jabs himself ordered more imports from Vietnam.
In the manufacturers’ rush to set up quickly in Vietnam, a few efforts flopped—including one Taiwanese company that built a dormitory alongside its factory. The owners hadn’t known that most Vietnamese workers weren’t migrants, as the Chinese had been, but lived close to the factories in villages with their families—a cultural faux pas that would have been anathema to Larry Moh.
“Because of this petition, you can feel the animosity against Americans in China now,” Jabs said. “And what we don’t need is the Chinese pissed off at us.”
A first-generation American with a Russian-born mother and a Polish-born dad, Jabs, eighty-three, had traveled to more than fifty countries and bought furniture from thirty of them. His take on globalization was a free-trader’s long view: He argued that under the trade-friendly policies birthed by the Marshall Plan and agreements such as GATT, the world experienced an unprecedented rise in the standard of living and an increase in world peace. “It’s hard to be an enemy with someone you’re doing business with,” he said.
While he gave John Bassett credit for reinvesting in his factory, JBIII and “all those North Carolina hillbillies just don’t realize that it’s a global world, that free trade helps people, and that isolationism hurts both the country and the consumer,” Jabs said.
Keith Koenig agreed, though as a longtime friend and golfing companion of John Bassett’s—as well as a Southerner—he’d never put it so bluntly. He used John’s own language instead: “The antidumping duties just moved the cheese from China to Vietnam, which hasn’t put John in a less competitive environment one bit. Everybody just figured out how to get around what they’ve got to do. The lawyers have benefited the most; they’ve gotten very rich,” Koenig added, referring to settlement payouts and legal fees. “And who paid that premium? Well, the American consumer did.”
Most of the economists I interviewed for this book—neoclassicists whose writings dominate the mainstream political discourse on economics today—said the same thing. Harvard’s N. Gregory Mankiw has argued that antidumping duties hurt the poor most because price increases on necessities make up a larger percentage of their spending. He cited University of Oregon economist Bruce Blonigen, who bemoaned the unintended consequences of antidumping petitions—the settlements, for instance; and the unnatural incentive a company might have to perform poorly just before joining a petition.
When I spoke to Blonigen, he implied that the benefit to John Bassett’s seven hundred workers in Galax in no way made up for the slightly higher prices American consumers now paid for bedroom furniture. Antidumping law is “a poor policy for helping these folks out,” he said. “In reality, we shouldn’t be making bedroom furniture anymore in the United States. Shouldn’t we instead be trying to educate these workers’ kids to get them into high-skilled jobs and away from what’s basically an archaic industry?”
There was no hint of sympathy for the likes of former Superior workers Minnie and Maxine. To most economists, factory work was a throwback. It was still okay to work in health care, retail, recreation, insurance, hotels, and haircuts. But it wasn’t cool anymore to actually make stuff.
Gary Hufbauer of the Peterson Institute for International Economics analyzed the antidumping disputes between the United States and China, and using figures supplied by the Department of Commerce, he calculated that the amount of duty money paid per saved factory job was $800,000.
“What happens is you take the increased dollars American consumers have to pay to Sears or Kmart or Walmart for their tires, or whatever item it is, and divide it by the number of jobs. Where does that money actually go? It typically goes to the company, not the workers.”
But the companies who actually use the Byrd money for its intended purpose—to keep their factories going—make sure that, indirectly or not, it does go to the workers: it keeps them employed. And the economists who dismiss manufacturing as too low-tech to merit a spot in the United States’ advanced economy forget that American companies have also lost much of their capability to make high-tech products. As journalist Richard McCormack pointed out in ReMaking America, in 2012, there were 1.75 billion cell phones made in the world—and not one was manufactured in the United States.
“The United States became a superpower because of its embrace of all manufacturing,” he wrote. “China has become a world power by following a similar path.”
; Few economists have bothered measuring the drag on local economies brought on by Chinese imports or the cost borne by taxpayers in terms of unemployment benefits, food stamps, and disability, but MIT professor David H. Autor is one of those few. We all get slightly cheaper goods as a result of imports, to the tune of between thirty-two and sixty-one dollars per capita, he noted in a groundbreaking 2011 paper. But the benefits of trade are shallow and widespread, while the disadvantages are concentrated and long term for those displaced.
He argued for better-designed job-training programs that would help people rejoin the labor market and acquire skills and prevent them from exiting the workforce, as so many people do in import-slammed areas. According to his calculus, in places like Martinsville, the increase in disability payments alone is a whopping thirty times greater than the increase in TAA participation.
“People get desperate. They can’t get work, but they need some source of income,” Autor told me, explaining how Social Security disability now functions as the de facto insurance program for many of the long-term jobless who suffer from hard-to-verify ailments such as back pain and mental-health disorders. “I’m in favor of assisting people to adjust. Unfortunately and unintentionally, though, our biggest program now [for helping them] is our disability program, and it’s the worst—a permanent exit from the labor force.”
As late as the beginning of 2012, there were still millions in Byrd monies that had been collected but not yet dispensed, much of it tied up in appeals. Assessed duties are appealed with such fervor that funds can sit in reserve as long as seven years before the money is paid out.