U.S. factory fanning trade worries of risk
‘America First’ cry a threat to firm’s bottom line
LEXINGTON, KY. — Never mind the refrain that the American factory is supposedly a dinosaur in the age of globalization.
Here in the heart of horse country, some 700 U.S. workers are designing and building premium ceiling fans. They tap local engineering prowess and export their wares around the world using a whimsical brand: Big Ass Fans. (Yes, that is really its name.)
But if the company stands as refutation to the premature obituaries for U.S. manufacturing, the people running the operation worry about a looming risk. Talk of trade hostilities from Washington could shrink the globe, potentially yielding policy that could limit U.S. exports while impeding access to crucial components of manufacturing.
The latest concern unfolds this week, as the Trump administration begins to renegotiate the North American Free Trade Agreement, redrawing the terms of commerce with Mexico and Canada.
The president has long criticized NAFTA as a lethal threat to American livelihoods, asserting that it has spurred an exodus of jobs to Mexico while opening the borders to unfairly cheap, tarifffree imports. He has vowed to bring factory jobs back to the U.S.
In outlining its goals for the NAFTA renegotiation, the Trump administration listed as a priority shrinking U.S. trade deficits with Mexico and Canada. Trade experts construed that as an intention to limit imports from those countries.
But many of the imports encouraged by NAFTA are parts and raw materials used by U.S. workers in fashioning finished wares. If Trump limits such imports, that could increase the cost of making goods at many U.S. factories. It could provoke Canada and Mexico to similarly restrict trade.
In short, Trump’s efforts to bring work back to the U.S. could eliminate some jobs that are already here.
“Altering NAFTA could fundamentally change the production of the economy — for the U.S., as well as for Mexico — and that will be very disruptive,” said Swati Dhingra, an economist at the London School of Economics. “Many of the policies being proposed could end up hurting the people who are being left behind.”
Big Ass Fans could wind up paying more for motors it imports from Mexico. It could lose sales to Canada and Mexico, now its two largest export destinations, and the destinations for more than a third of U.S. exports overall.
“If we get into a trade war, that could significantly impact our U.S. production,” said Paul Lauritzen, the company’s vice-president for manufacturing. “It just seems like the Trump guys are so focused on meeting campaign promises that they have failed to understand the reality of manufacturing and the global supply chain.”
In the world economy as depicted by Trump, a product made in Mexico and sold on U.S. shelves represents a theft. Such wares should have been forged in the U.S.
In this spirit, Trump first threatened to kill NAFTA, and later agreed to renegotiation. He has vowed to slap tariffs on a range of Chinese goods including steel. He has accused his predecessors of destroying U.S. factory jobs by assenting to a series of abominable trade deals.
A growing body of research has concluded that a surge of imported goods produced in low-wage countries — especially China — has indeed eliminated millions of U.S. jobs in recent decades. Some research has found that trade with Mexico modestly depressed wage growth during the 1990s in the most-affected blue-collar industries, among them the textile trade.
“We strongly support President Trump’s intention to reopen NAFTA, and agree that it can be updated and improved to significantly enhance U.S. textile production, exports and employment,” Auggie Tantillo, president of the National Council of Textile Organizations, an industry trade group, said in remarks in June.
Still, Tantillo argued against reinstating tariffs, while cautioning that the renegotiation must not disrupt “the high level of supply chain integration that exists today.”
Unions from the Steelworkers to the AFL-CIO have assailed NAFTA as a job killer while also accusing the Trump administration of failing to define effective goals to boost workers’ interests.
Canada and Mexico are the largest and third-largest source of imports used by U.S. companies in producing exports. In 2011, the most recent year for which government data is available, imports from those two countries yielded more than $1.6 billion worth of U.S. exports.
As Lauritzen walks through his plant on a recent afternoon, he lifts an electrical device that regulates the power supply for a new line of highly energy-efficient industrial lights. It was imported from China.
“If you wanted to source this domestically, your options would be minimal to zero,” he says.
Big Ass Fans began life in 1999 with a more staid name, the HVLS Fan Co. It specialized in enormous industrial-grade fans hung in vast spaces like factories and airplane hangars as a way to reduce use of heating and air-conditioning. The largest fans reach 24 feet in diameter and sell for upward of $8,000.
As customers began using blunt language to describe the products, the company took their declarations as its name. Its complex on the outskirts of Lexington features no end of brand-related mischief. Signs reserve a favoured parking spot for the “Wise Ass of the Month.” The company mascot is a donkey named Fanny.
Beneath the joviality is a serious engineering operation. In 2008, when the global financial system was ensnared in disaster and the company’s revenue was about $30 million a year, it invested nearly one-third of that sum in a new research and development facility. Company innovators used the facility to develop a popular feature that simulates the variable wind speeds of an ocean breeze, which provides relief from the constant blowing of a typical fan. The company started a new residential line under the Haiku brand, using a moulded hunk of stainless steel, bamboo and other luxurious materials.
By 2012, revenue had tripled to $90 million, according to the company. Last year, it reached $240 million. Big Ass Fans pays well above the state average, investing in the notion happier workers are more productive. But company overseers are feeling pressure.
Jamie Hillegonds, director of global operations, is looking for savings in the supply chain. The Trump administration presents itself as a champion of business, eager to strip away job-killing regulations. Yet she finds herself having to anticipate how the president might complicate her plans.
Her company buys motors from a Midwestern supplier known for quality and good prices. But the supplier recently shifted its production to Mexico. If the NAFTA renegotiation makes that product more expensive, she will have to adjust.
“It’s very difficult to develop a global sourcing strategy based on Trump’s day-to-day whims about what he wants to do,” Hillegonds said.