Why jobs are going to Mexico
Despite criticism by Trump, companies are moving production lines.
WASHINGTON — Brake Parts Inc. had manufactured brake calipers at a factory in the Central Valley community of Chowchilla 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 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 Illinois 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% 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 three companies have moved, or are in the process of moving, work to Mexico.
Rexnord Corp., Indianapolis
In October, Rexnord, which makes industrial bearings at an Indianapolis factory, notified the United Steelworkers 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 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 with $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.
The day after Trump flew to Indianapolis to tout Carrier’s decision to reverse plans to move its jobs to Mexico, he criticized Rexnord.
On Twitter, Trump wrote: “Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!”
Mondelez International, Chicago
Nabisco, a subsidiary of Mondelez, had been making Oreo cookies in Chicago since 1953. But in July, the last Oreos rolled off the production lines at the factory.
Last year, the Illinois company chose its facility in Salinas, Mexico, over Chicago for a $130-million upgrade that included four new state-of-the-art manufacturing lines for the company’s top products.
That meant the 1,200person workforce in Chicago would be cut in half as “nine older, inefficient manufacturing lines” there — including those making Oreos — were shifted south of the border, the company said.
“In April of last year, we engaged with the unions and talked to them and announced we were going to be making an investment either in Chicago or in Mexico,” company spokeswoman Laurie M. Guzzinati said.
The company could save about $46 million a year by putting the new lines in Mexico because of “fixed and variable costs,” Guzzinati said.
Talks with the unions to reduce what the company said was “a significant savings gap” were unsuccessful, she said.
In recent years, the higher price of sugar in the U.S. caused by import restrictions and other federal policies to support the domestic industry have combined with cheaper Mexican labor to lead companies to move cookie production south of the border.
With layoffs coming, some Chicago employees took jobs at other Mondelez facilities, and some left for other work.
About 435 employees were laid off, with about 100 recalled over the summer, Guzzinati said.
Anthony Jackson, 40, of Chicago was among those laid off. Workers would have had to take a 60% pay cut for Mondelez to even consider choosing Chicago over Mexico for the manufacturing upgrades, he said.
“You can’t tell me that they seriously thought anyone would say OK to giving away 60% of their pay and benefits,” said Jackson, a spokesman for Local 300 of the Bakery, Confectionery, Tobacco Workers and Grain Millers union who worked at the factory for five years before being laid off in March.
Guzzinati said the Chicago factory remains open, and it churns out other cookies and crackers, including BelVita breakfast biscuits.
“Our Chicago bakery remains an important part of our manufacturing network, and we continue to make Oreo cookies in three different locations in the U.S.” Guzzinati said.
Mondelez has invested about $450 million in its U.S. factories since 2012.
But Trump, who once appeared in an Oreo commercial, slammed Mondelez’s decision.
“I’ll never eat another Oreo again. Ever. Ever!” Trump said during a 2015 campaign event in Richmond, Va.
Trump said he planned to talk to company officials about reversing the decision. Guzzinati said this month that Mondelez had not had any contact with the new administration but looked forward to working with it “to foster an environment that’s conducive to economic growth and prosperity for U.S. companies to compete fairly in a global market.”
Brake Parts Inc., Chowchilla, Calif.
When Chowchilla officials learned in September 2015 that the small Madera County city would be losing its biggest employer to the lure of lower costs in Mexico, they scrambled to try to save the jobs by offering incentives to stay.
“The pay disparity was just so large, so it needed to be some pretty good credits,” City Administrator Brian Haddix said.
After speaking with the Governor’s Office of Business and Economic Development and Pacific Gas & Electric Co., the city proposed a package worth about $325,000 over five years, including a 30% reduction in electricity rates, he said.
“It was not enough,” Haddix said.
Haddix said he understood the economic dynamics and didn’t blame Brake Parts.
“They’ve been good to our community. They’re a good company,” he said. “It just came down to the bottom line.”
Clausen, the company’s human resources executive, said all of Brake Parts’ competitors are in Mexico.
“There’s no way that U.S. workers are going to work for $3.50 or $4 an hour, and that’s the reality of the situation,” he said.
In recent years, Mexico has become an increasing force in automobile manufacturing as the workforce there has become more skilled, said Mark Muro, a senior fellow at the Brookings Institution who has studied the issue.
“There clearly is a cost differential, and more and more kinds of activity are becoming feasible there,” he said. “Mexico no longer offers cheap, unskilled work. It offers cost-effective, fairly well-skilled work.”
The company no longer does any domestic manufacturing. Of its 5,300 employees worldwide, 600 are in the U.S., Clausen said.
“In order to get to business economics that made sense or even break even,” he said, “we had to change the dynamics, and that’s the only way we could do it.
“Trump is saying we’re going to bring back jobs to the U.S. OK, that’s interesting. But what’s the plan? Because it’s not as easy as just saying that.”