President-Elect Donald Trump scored a highly publicized victory in saving 1,100 jobs at Carrier Corp., a division of United Technologies Corp. (UTX), that were moving to Mexico. However, he cannot remove the competitive pressures and economic imperatives that are causing other U.S. corporations to proceed with their own plans to shift work abroad. While Trump was scolding Carrier during his campaign, other companies such as Cisco Systems, Rexnord and Harmon International made their own cost-saving plans to move operations to Mexico.
Meanwhile, as governor of Indiana, Vice President-Elect Mike Pence oversaw the approval of millions of dollars in incentives to keep jobs at home, according to The Indianapolis Star. But the same companies, including United Technologies and General Motors Co. (GM), still eliminated thousands of positions. As reported by Bloomberg, saving those 1,100 jobs at Carrier cost $7 million in incentives from the state of Indiana.
By the way, this isn't the first time Trump had a run-in with Carrier. In 2007, a judge handed Carrier a partial victory in Trump's lawsuit against Carrier for a malfunctioning air cooling system at Trump International Hotel, according to The Huffington Post. The suit was settled.
When it comes to competitiveness, the main economic pressure that U.S.-based manufacturers face is higher labor costs than their overseas competitors, who thus can charge lower prices to the American consumer. As reported by Bloomberg, Carrier workers in Indianapolis earn $30 per hour in salary and benefits, compared to $3 per hour in Mexico. Moving these jobs to Mexico would have produced annual cost savings of $65 million.
Milwaukee-based Rexnord Corp. (RXN) is closing a bearings plant near the Carrier factory. To save $15.5 million annually, the company is eliminating 350 jobs there and sending the work to Mexico, according to Bloomberg. A union official interviewed by the Indianapolis Star said that their average base wage (exclusive of benefits) is about $25 per hour, compared to a range of $14 to $25 at Carrier. A union proposal to cut wages by $5 to $6 per hour for newer employees was insufficient to save the plant.
In Elkhart, Indiana, audio-visual equipment maker Harman International Industries Inc. (HAR) is eliminating 125 production and warehouse jobs between now and June 2017. The jobs will move to existing facilities in California and Mexico, according to an Associated Press report. About 175 positions will remain.
Cisco Expands in Mexico
Computer networking leader Cisco Systems Inc. (CSCO) has announced plans to spend up to $4 billion through 2018 on increasing production in Mexico, per another Bloomberg report. While the company is in the midst of cutting about 5,500 jobs, or 7% of its worldwide workforce, this initiative will add 270 direct manufacturing jobs and 77 related positions in Mexico. Cisco announced these plans in September, when it considered a Trump presidency to be improbable.
Pence Incentives to Firms Sending Jobs Abroad
The Bloomberg report indicates that Carrier is still moving 1,300 other jobs to Mexico.
The Indianapolis Star also looked at Indiana Governor (and now Vice President-Elect) Mike Pence’s record on job retention. Since becoming governor in 2013, the Indiana Economic Development Corporation that he heads has awarded $24 million of incentives to ten companies that still sent jobs abroad, eliminating about 3,800 positions in Indiana, according the paper. The ten companies include, in addition to United Technologies and General Motors: auto parts makers CTS Corp. (CTS), Federal-Mogul Holdings Corp. (FDML), according to the Star.