Why are some companies moving business to Mexico?
WASHINGTON — Brake Parts Inc. had manufactured brake calipers at a factory in Chowchilla, a community in California’s Central Valley, for nearly 30 years, but a company executive said pressure was growing to reduce costs as competitors moved their factory work to Mexico.
About a year ago, employees got the bad news: Operations were moving to a facility in Nuevo Laredo, Mexico. By the time the factory closed in August, about 280 Brake Parts workers had lost their jobs.
President-elect Donald Trump has strongly criticized such job losses and has threatened “consequences” for companies that ship factory work out of the country — among those, possible tariffs on bringing goods back into the U.S.
He vowed never to eat Oreos again after Mondelez International Inc. announced it was moving some production to Mexico.
He slammed Rexnord Corp. for “viciously firing” workers in Indianapolis as part of a shift of operations south of the border.
And Trump personally intervened this month to pressure Carrier Corp. to reverse a decision to send hundreds of its jobs, also from Indianapolis, to Mexico.
But Randy Clausen, vice president for global human resources at Illinois-based Brake Parts, said it is difficult — and costly — for companies to fight changes taking place in the global economy.
“The workforce we had in Chowchilla was a great workforce, and it would have been a hell of a lot easier to just leave it there, I’ll tell you that,” he said.
But because of lower prices offered by competitors, Brake Parts was losing money on each pair of calipers it churned out, Clausen said. In effect, he said, it was as if the company was “taping dollar bills to every product sold at retail.”
Since the North American Free Trade Agreement between the U.S., Mexico and Canada went into effect in 1994, trade with Mexico has grown dramatically. And during that period, a small U.S. trade surplus with Mexico of about $1.7 billion in 1993 has ballooned into a large deficit — $61 billion last year.
The federal government doesn’t have figures on NAFTA’s effect on jobs. But the Economic Policy Institute think tank estimated that as of 2010, the trade imbalance with Mexico had cost the U.S. about 683,000 net jobs — about 60 percent of those in manufacturing.
“You can pay low wages. You’re not too far away. You’ve got a border that because of the free trade area you can bring goods into the United States,” said Martin Neil Baily, a senior fellow at the Brookings Institution think tank who has studied manufacturing job losses. “So given the substantial wage advantages, for many companies, it’s an attractive proposition.”
Also, some U.S. jobs have been created as companies here form part of the supply chain for Mexican factories.
During the presidential campaign, Trump vowed to reverse the loss of jobs by reworking NAFTA and other trade deals and threatening to place tariffs on goods whose production was shifted out of the country. His message resonated through Midwestern states such as Michigan, Ohio and Wisconsin, which have shouldered much of the manufacturing job losses.
Trump’s success in convincing Carrier to keep jobs in Indianapolis has focused new attention on the shift of U.S. manufacturing to Mexico. The deal, in which Trump and Carrier said about 1,100 jobs were saved, although a union official said it was 730, included about $7 million in tax incentives over 10 years.
Here’s a look at why one company, Rexnord Corp. in Indianapolis, is in the process of moving work to Mexico.
In October, Rexnord, which makes industrial bearings at an Indianapolis factory, notified the United Steelworkers Union Local 1999 that it had “tentatively decided” to move its operations there to an existing company facility in Monterrey, Mexico, according to a notice from the company posted on the union’s website.
The move “will allow Rexnord to operate in a more cost effective manner, while continuing to produce high-quality products in a competitive environment at the right price to our customers,” the notice said. Experts said improved skills by Mexican workers have allowed more precision manufacturing, such as producing bearings, to take place there.
Union President Chuck Jones said 300 workers will lose their jobs as the factory operating since the 1950s will close its doors early next year.
“We sat down with the company, and we made some proposals to try to keep the jobs here, to no avail,” Jones said.
“They said they were saving $15.5 million a year, and they said we couldn’t come up with nothing, unless we worked for $5 an hour, to keep this facility open,” he said.
Rexnord’s Indianapolis employees earn $25 an hour, along with benefits, compared to $3 an hour with no benefits for the workers in Mexico, Jones said.
“It’s going to be devastating, without a doubt,” he said of the job losses. Some employees will face home foreclosures because they “won’t be able to get jobs for the most part that will pay anything close to what they’re currently making.”
Rexnord did not respond to a request for comment.