BLOOMBERG, OCTOBER 23, 2020
Factory jobs still head offshore despite Trump promises
By Shawn Donnan for Bloomberg Businessweek
In an election year in which millions have lost their jobs to a pandemic, Amy Sabo is an exception. Her 22 years at International Automotive Components’ plant in Huron, Ohio, ended in August thanks to the sort of corporate consolidation and offshoring that have been eating at the state’s industrial core for decades, rather than the economic carnage caused by Covid-19.
That she lost her paycheck because of pre-pandemic decisions made by a company founded by U.S. Commerce Secretary Wilbur Ross and still controlled by the private equity firm bearing his name also makes her a particularly stark example of how President Donald Trump has struggled to live up to his promise to end a decades-long migration of American factories overseas.
On Oct. 31, IAC’s Huron plant will close its doors for good, its production having been transferred to factories in Mexico and other locales. The dozen employees left—including Sabo’s husband—will join the almost 300 who have lost their jobs since the plant’s closure was announced just after Christmas last year. “It was a good place to work,” says Sabo, ticking off the generous benefits, decent pay, and shop-floor camaraderie. “We were like a family.”
Trump built a political brand around “America First” trade and tax policies that were meant to repatriate U.S. jobs. From his renegotiation of the North American Free Trade Agreement to his trade war with China, the president’s stump claim is that he ended an era of offshoring and laid the foundation for an industrial renaissance. “Many plants are being built right now,” Trump said at a Sept. 7 news conference. “They’re being built in Ohio. They’re being built in South Carolina, North Carolina. They’re being built all over and expanded at a level that we’ve never seen before.”
The reality is more complicated. Whatever happens on Nov. 3, Trump is likely to end his first term having seen the U.S. economy both create and lose some 500,000 manufacturing jobs. Although the pandemic accounts for the bulk of the losses, employment in the auto industry and a few others plateaued before the outbreak and had started to contract in states such as Ohio and Michigan. As of September, U.S. manufacturing employment was down by 164,000 from January 2017, the month Trump was inaugurated.
When it comes to offshoring, the data also point to an enduring trend rather than a revolution. One can see it in the applications for Trade Adjustment Assistance, the federal program that is the best available barometer on the effects of corporate disinvestment on employment. In the first three and a half years of Trump’s presidency the U.S. Department of Labor approved 1,996 petitions covering 184,888 jobs shifted overseas. During the equivalent period of President Barack Obama’s second term, 1,811 petitions were approved covering 172,336 workers.
Stopping the outflow of factory jobs is a bipartisan priority in an election year in which swing states such as Ohio are again crucial. Former Vice President Joe Biden is proposing a tax credit for U.S. companies that bring production home and a 10% surtax on profits linked to new factories built overseas. The Democratic candidate also has pledged to tighten Buy American provisions in government procurement and wants to close loopholes in Trump’s tax reforms that he says encourage some industries to continue offshoring.
But the past four years have shown that the policy levers presidents have available don’t erase the lure of overseas markets where the consumer class is growing at a faster clip than in the U.S. and the costs of running a factory are lower. “At the end of the day it’s hard through trade agreements to push back against these much larger economic forces,” says Edward Alden, a senior fellow at the Council on Foreign Relations.
Trump’s rebranded Nafta, the U.S.-Mexico-Canada Agreement, requires automakers to use more parts made in North America and includes a provision to have at least 40% of components come from factories paying at least $16 an hour. The industry consensus is that these rules, which do not go fully into effect until 2025, may eventually prod automakers and their suppliers to channel more of their investment into U.S. plants, particularly as production of electric vehicles ramps up.
Administration officials say that’s already happening. As evidence, they cite the $2.3 billion joint venture General Motors Co. and Korea’s LG Chem Ltd. announced last year to build a battery plant in Ohio. “We clearly reversed a long trend of jobs moving away from the U.S. in this industry and are bringing new investment and jobs back,” Trump’s trade czar, Robert Lighthizer, wrote in an email to Bloomberg Businessweek. “The notion that companies are moving to Mexico now is ridiculous.”
Labor Department data tell a different story. In the first six months of 2020 alone, the agency approved 25 petitions for trade aid related to auto parts factories going overseas. Fifteen involved relocations to Mexico.
Vitro, which describes itself as North America’s biggest auto-glass maker, announced this year that it was closing plants in Evansville, Ind., and Evart, Mich., and moving production to Mexico, where it’s based. Eaton Corp., which has sparred with Trump over its decision, made almost a decade ago, to relocate its corporate headquarters to Ireland for tax reasons, has pared back payrolls at plants in Iowa, North Carolina, and Oklahoma, while adding to its workforce overseas
According to Kristin Dziczek, vice president of industry, labor, and economics at the Center for Automotive Research, Trump’s new Nafta has not provoked an investment surge. From 2013 through 2016 automakers announced investments worth $47.3 billion in the U.S., she says. From 2017 to 2019 the equivalent figure was $38.3 billion. “Investment goes along with growth in the market,” Dziczek says, and auto sales in the U.S. peaked in 2016.
Instances like IAC’s closure in Huron leave the Trump administration vulnerable to criticism of USMCA, which it sees as one of its signature economic achievements. “They tried to give it this new name and burnish it, and shine it up a bit. But it’s just Nafta 2,” says U.S. Representative Marcy Kaptur (D-Ohio), whose district includes Huron. She voted against the USMCA last year.
Ross created IAC in 2006 by rolling up several distressed parts suppliers, and WL Ross & Co., his former private equity firm, remains its dominant investor. The plant in Huron is one of at least three U.S. factories employing more than 500 people that IAC is shuttering or where the company is cutting payrolls this year, according to state and federal filings. The fate of the injection-molding facility, which turned out dashboards and other parts for the Chevrolet Cruze, was sealed in 2019 when GM announced it was shutting down the assembly line in Lordstown, Ohio, and relocating production to Mexico. Fiat Chrysler Automobiles NV’s decision in May to halt production of the Dodge Grand Caravan minivan at its plant in Windsor, Ont., was the final blow.
In written responses to questions, IAC would say only that the Huron plant was closing after 30 years because customers were ending vehicle programs. The company has been more explicit about other plants. The loss of 145 jobs in Dayton, Tenn., came because “production will be shifted to a foreign country,” IAC told the Department of Labor. In Madisonville, Ky., 111 jobs were cut because contracts “are being shifted to productions facilities in Canada and Mexico,” according to another filing.
IAC, which has its headquarters in Luxembourg, says it still sees the U.S. as a growth market. The company recently announced that it is adding a combined 182 jobs as part of an expansion of two Alabama plants. Yet it’s been more focused on chasing opportunities abroad in recent years: Just 3,300 of its 18,100 employees are based in the U.S., according to the company. In September 2017, just as Trump was ramping up his trade war with China, IAC split off part of its business into a joint venture with China’s Shanghai Shenda Co.
Ross was required to sell his interests in WL Ross when he joined Trump’s cabinet. Both his office and Atlanta-based Invesco Ltd., which now owns WL Ross, say he’s had no involvement in business decisions at IAC since then. “Secretary Ross has not had any investment in IAC directly or indirectly since his divestment in October 2017, long before the implementation of USMCA,” wrote Commerce Department spokeswoman Meghan Burris in a statement.
In the eyes of former workers at the Huron plant, the blame for its demise lies somewhere between a management team that wasn’t aggressive enough in chasing down new business and a president who didn’t live up to his promises. “I am not a Donald Trump supporter at all,” says Sherry Wilson, who started work at the IAC plant in June 1990 and oversaw the factory’s United Auto Workers chapter until she retired in June this year. “Really, what has he done for all the Americans like me?”
If this were another year, Sabo and her husband would have been busy planning their winter cruise. Now they’re trying to figure out whether they can afford the $2,800 monthly premium they’ll owe if they decide to continue their health insurance, as well as $1,100 a month to stay current on their life insurance policies.
Sabo no longer sees a future in manufacturing for herself. A booming property market has her thinking about a new career in mortgage brokering. Still, in this election the ex-auto industry worker will be giving her vote to Biden. “I have a lot of hope,” Sabo says, pointing to Biden’s role in rescuing the auto industry more than a decade ago. “He saved my job once in 2008. I’m not sure Trump would have done the work that entailed.”BOTTOM LINE – An auto parts company once owned by Commerce Secretary Wilbur Ross is among those that haven’t been deterred from shifting jobs to Mexico by Trump’s revamp of Nafta.
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