Reviving manufacturing in the U.S. has been a cornerstone of President Trump's agenda. To this end, he has waged a public relations offensive against companies that plan to cut costs by moving jobs to Mexico and other locations abroad. Nonetheless, a number of corporations are choosing to take the political heat from Trump in order to remain competitive, the Wall Street Journal reports.
They include a broad cross-section of American manufacturing, including industrial products supplier Rexnord Corp. (RXN), heavy construction equipment maker Caterpillar Inc. (CAT), steelmaker Nucor Corp. (NUE), food service equipment maker Manitowoc Foodservice Inc. (MFS) and electronic component maker CTS Corp. (CTS).
Ironically, the chairman of Caterpillar and the CEO of Nucor serve on a panel advising the president on how to promote U.S. job growth. Called the Manufacturing Jobs Initiative, it was created by the Trump administration, the Journal reported in January.
Along with U.S. job flight, Trump has cited the wide U.S. trade deficit with its southern neighbor as another sign of Mexico's unfair trading advantage with the U.S., which is a point of wide disagreement among economists.
It’s All About Costs
The main reason U.S. companies are moving jobs to Mexico is labor costs. Converted into U.S. dollars, manufacturing wages in Mexico can be as little as 10% of the going rate at U.S. manufacturing plants, representing huge cost savings even for operations that are only moderately labor-intensive. (For more, see also: Trump’s Illusion: Why Jobs Will Flow to Mexico.)
Rexnord plans to save $30 million annually, partly from moving production to Mexico, the Journal's February 8 story says. It will close its U.S. industrial bearings factory, which employs 350 people. At the same time, CTS plans to shift production from an Indiana plant to Mexico, Taiwan and China, affecting 230 U.S. employes. Nucor is planning a plant in Mexico to supply steel for the auto industry, doing this in partnership with JFE Steel of Japan, but Nucor's plans could change if Trump imposes trade penalties.
Audio-visual equipment maker Harmon International Industries Inc. (HAR) is another U.S. manufacturer shifting jobs to Mexico to save labor costs. Meanwhile, computer networking leader Cisco Systems Inc. (CSCO) is expanding production and warehouse operations in Mexico despite trimming overall worldwide headcount. Cisco expects the long term cost savings to be so significant that it is investing $4 billion in this project.
A Win and Two Split Decisions For Trump
A number of companies have announced plans to actually boost U.S. employment, rather than move jobs abroad. For one, computer chip maker Intel Corp. (INTC) says it will invest $7 billion to upgrade a plant in Arizona that will employ 3,000 persons, according to the Journal. Intel CEO Brian Krzanich, himself a member of the Manufacturing Jobs Initiative panel, says he is encouraged by Trump's plan to make the U.S. a better place to do business.
But some companies are giving mixed signals. Ford Motor Co. (F), meanwhile, dropped plans to build a new plant in Mexico, instead promising to create 700 new jobs in the U.S., the Journal article says. However, Ford is shifting production of its Focus model to an existing Mexican plant. General Motors Co. (GM) also is moving production to Mexico while re-affirming a pre-election plan to increase hiring in the U.S. (For more, see also: Trump May Kill Jobs With Tariffs, NAFTA Exit.)