The Atlanta Journal-Constitution
Trade battles could bruise NW Georgia
If tough talk leads to action, region could be hurt.
DALTON, GA. — Beneath the “Buy American” roadside signs, a globalist heart beats in this corner of northwest Georgia.
In the late 1980s, factories began eagerly hiring Mexican immigrants to help fuel a boom in the so-called Carpet Capital of the World. Automation and the 2008 recession pared a lot of jobs. But now plants of all sizes are back at it, producing about half the world’s carpet as well as hard-surface flooring, a new signature product.
Other shops churn out everything from auto parts
and appliances to goods made from chemicals, metal, wood and rubber. A sense of recovery is in the air.
Global investments flow in. Domestic sales and exports flow out. And just as many factories here turned to immigrants for manpower, they’ve also grown accus- tomed to foreign sources of materials — from Asia, Europe, Latin America — to make flooring and other goods.
“If I want to make something with quality,” and an import helps, “I’m going to get it. I have to. I want to make money,” said veteran flooring worker Eduardo Osegueda, part of a migration that’s brought the world into Dalton, a city of 34,000 along I-75.
While most flooring made here is sold domestically, carpet can also end up in vehicles, ships and aircraft bound for export. The Dalton area also directly exports more carpeting than anywhere else in the
United States, primarily to Canada and Mexico. Global trade helps grease the wheels of the economy here.
And therein lies the irony. Because this is Trump country. In a five-county region around Dalton, three-fourths of voters cast ballots for the president. Yet if Trump follows through on promises to get tougher with our trading partners, some economists believe Northwest Georgia wouldn’t be a beneficiary, but a victim.
As a candidate Trump stoked populist passions by vilifying other countries, especially Mexico and China, for “stealing our jobs.” He vowed to both boost U.S. exports and “bring back millions of jobs” to the States.
Since taking office he’s started the process to renegotiate the North American Free Trade Agreement and slapped countries with targeted tariffs.
But if Trump squeezes Mexico and China as hard as he’s threatened, northwest Georgia would suffer some of the worst job losses in the nation, from manufacturing to retail, according to an analysis by the Peterson Institute for International Economics, a nonpartisan Washington, D.C., think tank.
Five of the 12 counties with the largest percentages of private-sector job losses, the institute’s modeling found, would be in northwest Georgia: Catoosa, Gordon, Murray, Walker and Whitfield.
Murray, population 39,315, would be the No. 1 loser nationally, with a job loss of 18.3 percent in a trade war lasting more than a year. Whitfield, which includes Dalton, would be No. 2 with a 12 percent slide.
“We’re not talking Great Depression, but something as severe as anything experienced since,” study co-author Marcus Noland, an economist and Peterson vice president, said.
Peterson’s research didn’t reverberate much beyond wonkish Washington upon initial release last fall, but the forecast holds new currency now. Trump has started to hit countries with punishing tariffs — so far, narrow in scope — while his administration continues to formulate trade specifics.
As a candidate, Trump made specific threats to hit Mexico and China with 35 and 45 percent import tariffs across the board. Trump argued that would drive up import prices, forcing U.S. companies to bring back factory work, and compel Mexico and China to acquiesce to trade reforms.
Peterson’s researchers argue it’s “fully plausible” China and Mexico would put reciprocal tariffs on U.S. products. A trade war would ensue, and if it persists more than a year, the institute’s model showed 29 American counties would suffer job losses of 7 percent or more — and 20 states would suffer job declines of more than 4 percent.
Even absent dramatic tariffs, the Peterson findings suggest other broad protectionist trade proposals now in Washington come with risks.
Republican House leaders, for example, are proposing a so-called border adjustment tax on imports from all countries. Businesses are split on the proposal. Supporters contend the border tax could offset lost revenue from corporate tax cuts the GOP wants. House leaders also want to eliminate taxes on exports, arguing businesses will use the savings to create U.S. jobs.
Trump hasn’t endorsed the border tax, but he hasn’t ruled it out. And tariffs remain on the table.
“We’re getting killed. We’re losing all of our jobs. We’re losing everything,” Trump said before the election. “Trade war? ... Who the hell cares if there’s a trade war?”
The Peterson Institute — funded by business giants that include Aetna and Dow Chemical — generally produces pro-free trade research.
White House Trade Director Peter Navarro, during the election campaign, labeled Peterson economists “the pimps of globalization.”
The White House did not respond to requests to interview Navarro. The former economics professor is known for hardline skepticism of the current global trade system. In March, he conceded before the National Association of Business Economists that a trade shake-up would come with “difficulties and bottlenecks and labor issues.”
“But that doesn’t mean we shouldn’t try,” he said.
‘Smart decisions’
In Dalton, workers like Jaime Rangel have a stake in the outcome.
“It’s going to be wait-and-see with President Trump,” said Rangel, 25, who until recently drove a forklift at carpet and tile maker Beaulieu. He’s now pursuing a degree in finance and economics at Dalton State University and hopes Trump makes “smart decisions.”
“The entry-level jobs, we don’t really know a lot about international trade,” Rangel said. “People might see a headline on Univision or CNN.”
But people remember the recession. “It was a terrible time for our community,” he said. “My parents lost their house.”
The origins of manufacturing here date to the late 1800s, when a Dalton seamstress’ bedspreads morphed into mass production of carpets.
Today, the big players include:
Mohawk Industries, a Fortune 500 company that bills itself as the biggest flooring company in the world. Mohawk reported a record $9 billion in sales last year, 35 percent outside the United States. In addition to its facilities here, Mohawk has operations scattered from Mexico and Brazil to Russia and Malaysia that can directly serve those markets. In its 2016 annual report, Mohawk said foreign sales and operations are subject to risks of “foreign tariffs and other trade barriers.”
Shaw Industries, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc., has annual sales of $4 billion. In 2013, it opened a carpet factory in China to serve Asia and said it would use U.S. yarn. Shaw opened a plant south of Dalton in 2016 that could eventually employ 500 making carpet squares, and it converted a carpet plant in Catoosa County to create luxury vinyl flooring tile, a hot category.
— Just across the Dalton Bypass from Mohawk is Engineered Floors, a newcomer founded by Robert Shaw, former head of Shaw Industries. The company has built massive factories in the area and acquired other U.S. hard flooring companies.
Mohawk, Shaw and Engineered Floors turned down requests to discuss proposed trade policies that could disrupt the flow of imports they use, especially for hard flooring.
Joe Yarbrough, president of the Dalton-based Carpet and Rug Institute, a trade association that includes the big local players, said he only speaks for the carpet industry — not the hard-flooring side of the business. He downplayed carpet factories’ need for imports because most essential material is locally supplied. Exports are important, he also said, but pale in comparison to domestic sales.
Yarbrough listened to a summary of Peterson’s findings.
“Well, I can’t predict the future,” he said.
No one wants to lose business, including exports, he said. But manufacturers are more excited about tax cuts and deregulation prospects than any other Trump trade promises. Tax cuts, he said, would be more of a “positive way to give relief than a 20 percent border tax.”
Bust and boom
Recent history here is a tale of bust and boom. Between June 2011 and 2012, more than 4,600 jobs evaporated in Murray and Whitfield counties, leaving them with a combined 12 percent unemployment rate. The plunge was the greatest 12-month decline in jobs in any U.S. metro area at that time.
As the national economy improved, innovation and billions in corporate investment have added back thousands of jobs. A United Arab Emirates firm, Mattex, invested $60 million in Murray County to open a factory to produce backing for carpets and artificial turf. The state of Georgia has been luring businesses to the state with tax breaks and relatively low labor costs.
As of December 2016, the five counties reported jobless rates of between 4.5 percent and 7 percent, far below the spikes of just six years ago.
But based on Peterson’s findings, a trade war with partners the size of Mexico and China could push Northwest Georgia back into an economic abyss.
Northwest Georgia manufacturing would get hit from a fall in demand for carpeting and other goods that go into construction, auto production and other goods. A decline in export markets and imports would hurt earnings and production costs. In addition, rising prices for cheap imported consumer goods would hit retailers — think Walmart and BestBuy — and restaurants, food and beverage stores and even hospitals as fewer residents would be able to buy products and services.
“Most Americans don’t work in jobs that they would associate with international trade, much less exports,” said Noland, co-author of the Peterson report, “so most Americans probably don’t think they have a dog in this fight. The thing that was most surprising to us was just how untrue that was.”
Rural areas anchored by industries sensitive to trade — as Northwest Georgia is — would also suffer disproportionately because they’re less capable of absorbing laid off workers.
In the five counties, Peterson’s model predicted that textile plants from yarn to rugs and other manufacturing would lose jobs. But trucking, warehousing and other services that employ fewer people than factories would lose just as large a percentage of jobs, or even more by proportion.
Dalton State College economics professor Robert Culp agreed that a trade war “could be very detrimental to our economy.” But he questions whether Trump is serious about the threat of tariffs.
“It could be just a negotiating point, right?” Culp offered. “That’s what Trump is famous for, right? The ‘Art of the Deal?’ I hope that’s what he’s trying to do here.”
Despite the globalized local economy, candidate Trump’s promises to tackle trade deals made sense to Matthew Barnes at the Chilewich textile factory near Chatsworth. About 75 workers use vinyl to weave chic modern placemats, floor and wall coverings, tote bags and ottomans. Much of the material used is purchased in the United States, Barnes said.
“I think that definitely you have to have good relationships with the other countries,” said Barnes, who manages daily operations at the plant. “But to get those relationships, we let them walk all over us — sometimes. And you’ve got to put your foot down every once in a while.”
Ready for shipping
Inside the Chilewich plant, boxes of textiles ready for shipping line shelves. Barnes is pleased that over a dozen years Chilewich’s sales have soared — even through the recession — and that the company exports about 30 percent of its products, mostly to Europe but also to Mexico and other foreign destinations.
“We have distributors all over the world,” Barnes said. “One of the things I’ve heard about our customers is that they love that this stuff is manufactured in the U.S.”
New York City-based co-owners Joe Sultan and his wife Sandy Chilewich, however, were skeptical of Trump’s pitches for strengthening manufacturing and are worried about Congress’ proposed trade policies.
Sultan believes the United States needs to bolster manufacturing. But punishing tariffs against trade partners or border taxes strikes him as perilous.
“I don’t think they understand how complex this can be,” Sultan said of import tax proponents.
In Dalton, Swiss immigrants Andreas Bruhwiler and his wife, Daniela, run Alrol of America, which makes metal rollers coated in rubber that are used in manufacturing of carpet and other products.
Bruhwiler doesn’t export products directly very often. But he knows some Alrol rollers end up in machinery in China, Mexico, Canada and other countries. Bruhwiler was reluctant to comment on Trump trade policies because he considers himself a guest in the U.S., but he did say, “I think a free-and-open market is important not only for our reasons, but for our economy in the United States.”
It’s hard to calculate precisely the kinds of imports flowing into Dalton and surrounding counties. The U.S. Department of Commerce doesn’t track such detail. But by its own count, Georgia is the 11th-largest exporting and 7th-largest importing state nationwide. Canada, Mexico and China receive the most Georgia exports, while China, Germany and Mexico lead importers to the state.
To keep up with hard flooring demand, some of the big Northwest Georgia firms are investing in new plants to produce essential materials at home. Still, they import a lot, said Reginald Tucker, managing editor of Floor Covering News, a trade publication. Planks of popular wood-like, ceramic and luxury vinyl flooring often contain multiple foreign components, he said.
“It’s akin to automobile manufacturing,” Tucker said. “Even the large manufacturers import some of their raw materials. It’s just easier to do than to build a whole new plant.”
All of that could be subject to new taxes or tariffs at the border, increasing costs.
The United States can’t grow prized exotic wood, cork or enough bamboo, Tucker said. And it’s common for U.S. factories to create finished planks out of layers purchased from suppliers on other continents.
Northwest Georgia companies have a history of brisk importation of special materials. In May, for instance, Mohawk Industries received, among other shipments, more than 169,000 pounds of vinyl floor tile from China, 108,000 pounds of “hickory engineered flooring” from Vietnam, and more than 100,000 pounds of glazed ceramic tiles from Ecuador, according to Panjiva, a company that tracks global trade.
The possibility of disrupting this business doesn’t instill panic yet in Dalton.
“That’s a legitimate worry,” said Jenna King, a student at Dalton State, after listening to a summary of the Peterson report. She worked in local mills after high school and is now studying human resources management.
“But the American people always have ways to bounce back, whether it’s with carpet or technologies. I believe in our government. I think they would be able to do what’s best for the people.”