The Washington Post this week is highly critical of Trump administration efforts to “jawbone” companies into producing entirely in the U.S. For example, it leaned heavily on Carrier international when it was planning invest in Mexico, but just four months after Carrier agreed to keep some jobs in Indianapolis, it broke ground on a new manufacturing facility in China. The $95 million factory would produce compressors and light commercial systems for sale in China and the region.
By May, Carrier had informed Indiana officials that it was eliminating 632 jobs from the Indianapolis plant, prompting an angry President Trump to call Carrier to complain.
But even as the administration argued for companies to stay put, other elements of its trade policies were putting them at a disadvantage.
In 2018, President Trump imposed tariffs on Chinese products, intended to punish Beijing for pilfering foreign companies' trade secrets and intellectual property. But the import taxes also raised Carrier's production costs, so in December 2018, the company requested an exclusion from the 25 percent fee for a Chinese-made electrical motor it used in its residential gas furnaces, warning of “significant price increases for consumers.”
In May 2019, the Office of the U.S. Trade Representative denied the request, saying that Carrier had not proved that the motor was available only from China.
Still, business was good. Carrier last year recalled more than 100 workers who had been let go and morale, which had crumbled amid the outsourcing talk, rebounded.
Some of the work that left Indiana ended up in Monterrey, Mexico's manufacturing heartland, in a blue-and-white building Carrier calls Plant A. Both the U.S. and Mexican flags fly out front.
Just one of several local Carrier production sites, the facility in the working-class Santa Catarina neighborhood can be a refuge from the world beyond its walls.
When the president first attacked Carrier in 2016, workers in Mexico here got nervous about what his outburst might mean for them. But plant managers reassured them that nothing would change.
For example, one worker, Omar Mendoza, 28, told the Post he had worked for Carrier for three years as a junior quality-control specialist. He is studying English in hopes of earning a promotion.
Carrier is “above the average” for employers in Monterrey, he said. “The company treats me well and in general they give the workers many benefits, like scholarships and subsidized lunch,” he said.
The Post said that local workers in Mexico tend to shrug at U.S. anger over outsourcing, saying Mexican workers in the country's more developed areas were also vulnerable to low-wage competition, from migrants from southern Mexico or Central America. “That's the way it is,” one told the Post.
The Post said that Carrier's labor costs in Mexico are about 80 percent less than in Indiana — and show little sign of rising. From 1997 to 2016, Mexico's hourly compensation costs — salary, social insurance and labor taxes — in the manufacturing sector held steady at about one-tenth the U.S. figure, according to a Conference Board database.
That's drawn Carrier and most of its competitors, including Lenox, Trane, Rheem and York, to Mexico along with their suppliers. There is no precise estimate available for the number of U.S. jobs that have moved offshore in the free-trade era.
Up to 5 million U.S. manufacturing jobs disappeared between 1997 and 2018, according Economic Policy Institute economists. But that figure includes the effects of automation and business failures as well as trade.
The U.S. government has formally certified that 202,543 jobs have been offshored during the current administration, according to a recent Public Citizen analysis of Labor Department records that the group says represents an undercount.
The loss of U.S. jobs appears to have ebbed since the 2000s, when companies took advantage of China's entry into the World Trade Organization and the earlier creation of a unified North American trading bloc to ship millions of jobs to lower-wage venues.
Hopes of stemming the flow of U.S. jobs to Mexico now rest with labor overhauls instituted by the government of President Andres Manuel Lopez Obrador as well as the terms of Trump's replacement for the 1994 North American Free Trade Agreement.
The U.S.-Mexico-Canada Agreement (USMCA) is designed to tilt investment decisions toward the United States by requiring a set percentage of auto manufacturing to be performed by workers making an hourly wage of at least $16. The new accord also includes provisions to permit collective bargaining and to close loopholes allowing Mexican employers to profit by mistreating their workers.
Labor advocates say that the Trump administration deserves credit for making the USMCA more worker friendly, including by eliminating a dispute settlement system in NAFTA that allowed corporations to sidestep corrupt local courts, thus making Mexico more attractive as an investment venue. On paper, the Mexican overhauls would allow workers to organize unions outside the company-controlled “white” unions that exist to guarantee big employers labor peace. Even before the pandemic slowed government operations, implementation was behind schedule, according to Gladys Cisneros, Mexico program director for Solidarity Center, an AFL-CIO affiliate.
“So far, on the ground, nothing is different for Mexican workers,” Cisneros said.
Robert Lighthizer, the president's chief trade negotiator, told the House Ways and Means Committee in June that “labor enforcement in Mexico is going to be a problem.”
And Richard Trumka, the president of the AFL-CIO, said last month that the labor federation already is preparing a list of complaints. Even if the overhauls are implemented, they are unlikely to have a dramatic impact. Roughly 1 of every 7 Mexican workers belongs to a union. The agreement would increase their wages by 17%, producing only a “modest” effect on the U.S. economy, according to the International Trade Commission.
Few in the Mexican business community anticipate a major shift of jobs back to the United States. “What is already in Mexico will stay. I don't see it going back,” said Armando Tamez, chief executive of Nemak, a parts supplier to global automakers. The moribund Mexican economy also keeps a lid on wages. José Valdez, CEO of Alpek, one of the largest petrochemical producers in the Americas, said wages can increase only as fast as productivity growth. If government policy tries to force them higher, it will encourage companies to automate instead.
“Whoever tells you this is a revolution has to be a Trump supporter or a political guy,” said Valdez. “No businessman would tell you that. We don't see anything changing in reality.”
Roberto Russildi, Nuevo Leon state's secretary of economy and labor, says his sales pitch to potential investors emphasizes that “in 21 years, we've had no strikes or major problems” with organized labor.
That's one of the reasons Mexico remains attractive as a production center, according to Ernesto Velarde-Danache, a prominent attorney who handles labor relations for multinational corporations. “The reforms are forcing the existing unions to demand better pay. So little by little, things are going to improve. But I don't think it will be at a pace that will be noticeable,” he said. “I don't see Mexico in the next 25 years getting close to the U.S.”
So, we will see. Certainly, U.S. trade policy, along with other key policy efforts should be watched closely in the intense policy and budget debates now underway and expected for the coming months, Washington Insider believes.