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Oregon is a Manufacturing All-Star, And Yet

Oregon is North America’s manufacturing champion, but even the growth here of the manufacturing sector hasn’t resulted in wage gains that many workers and policymakers would like to see.

Oregon is North America’s manufacturing champion, but even the growth here of the manufacturing sector hasn’t resulted in wage gains that many workers and policymakers would like to see.

Oregon is the all-star of states when it comes to growing manufacturing’s share of GDP over the last decade or so, but that growth hasn’t translated into a commensurate increase in manufacturing wages, according to a data analysis published by Quartz.

“From 2003 to 2015, [Oregon’s] manufacturing GDP grow 180 percent, the fastest pace not only in the United States, but in virtually all of North America,” the Quartz article reported. “Yet the news for the workers themselves wasn’t so bright. While they would have expected to earn 10 percent more than the average statewide wage in 2003, that premium today has shrunk to 3 percent. In other words, manufacturing in Oregon is now barely better than the average job as a ladder of social mobility.”

The thrust of the article is to take issue with President Trump’s stated policy of promoting increased US manufacturing, renegotiating trade deals and returning displaced workers to their jobs. “It’s not only Oregon that debunks the view of manufacturing as an engine of growth,” according to the report. “Across the US, Mexico and Canada, the data we analyzed show that building more factories doesn’t lead to as many jobs as it used to, nor to higher wages, and that closing factories doesn’t necessarily lead to a loss of prosperity.”

Data assembled by the three-person Quartz reporting team indicates manufacturing has dwindled as a share of GDP in the United States, Canada and Mexico, the signatories to the North American Free Trade Agreement (NAFTA). They note Mexico has seen a recent manufacturing boomlet, but it hasn’t resulted in a sharp uptick in wages.

While the article’s authors say free trade and automation have played a role in the decline of North American manufacturing and job losses, they pin the biggest blame on industrial non-competitiveness.

“According to the McKinsey Global Institute, which has studied the US manufacturing sector’s ailments in depth, the root cause of the problem is neither robots nor free trade; it’s non-competitivenessWhile some US companies have kept up with international competition and technological change, many are losing out not only to countries with cheap labor, but also to some advanced economies such as Germany and South Korea, where many companies are more productive and profitable. Other experts see a similar problem in Canada and Mexico, too.”

The McKinsey study titled “Manufacturing the future” says, “Manufacturing's role is changing. The way it contributes to the economy shifts as nations mature. In today's advanced economies, manufacturing promotes innovation, productivity and trade more than growth and employment.”

The study adds, “Manufacturing is entering a dynamic new phase. As a new global consuming class emerges in developing nations, and innovations spark additional demand, global manufacturers will have substantial new opportunities, but in a much more uncertain environment.”

The Quartz article attributes the anomaly of higher manufacturing wages in some areas with declining manufacturing rates to developing diversified economies and training workers for those jobs. The authors cite two examples – Ontario, Canada and Arkansas.

  • Ontario has branched out from auto manufacturing to add pharmaceutical, finance, biotech and information technology business sectors. The interaction has created wage competition for jobs, whether union or not.
  • Arkansas experienced a typical drop in manufacturing as a share of state GDP, but that is being reversed as Wal-Mart has pulled in its suppliers to Bentonville, creating an economic boom in the northwest corner of the state. The authors note, “Average wages in Arkansas grew faster than in Oregon, North America’s manufacturing champion.”

US manufacturing can flourish, say the authors, by continuing to export and invest in research and development to remain competitive. The overall US economy also can realize a greater benefit from manufacturing by finding ways to loop in small businesses, especially ones with inventive approaches.

The authors highlight Alberta-based Poppy Barley, which teams with Mexican suppliers to produce made-to-order shoes. Unlike Asian shoe suppliers that produce in high volumes, Poppy Barley and its suppliers are nimbler, work with smaller production lots and can shift to better-selling models based on real-time results. Poppy Barley now works with four factories – up from one as recently as 2012 – where workers earn six times the Mexican minimum wage.

Attempting to promote US manufacturing by restricting foreign trade may have unintended adverse consequences, the reporting team warns. A better approach, they say, is to find innovative ways to engage US small businesses with creative ideas and flexible manufacturing to join multinationals in the stream of international commerce. It’s also imperative, they add, to ensure the workforce has access to the training it needs to fill the jobs in an evolving industrial world.

As Trade Talks Loom, Blood Pressures May Zoom

Negotiations to reshape the North American Free Trade Agreement will begin in about a month. Priorities in negotiations for the Trump administration drew mixed reviews on Capitol Hill, including from a GOP leader who said changes in NAFTA can’t harm existing US business activity that depends on trade with Canada and Mexico.

Negotiations to reshape the North American Free Trade Agreement will begin in about a month. Priorities in negotiations for the Trump administration drew mixed reviews on Capitol Hill, including from a GOP leader who said changes in NAFTA can’t harm existing US business activity that depends on trade with Canada and Mexico.

Oregon exports and US industrial production are increasing, according to state economists, which could raise the stakes and blood pressure for Oregon businesses and workers as the Trump administration begins negotiations on NAFTA with Canada and Mexico in about a month.

Trump administration officials outlined their priorities for NAFTA negotiations, which drew mixed and nervous reviews on Capitol Hill and among trade groups. Trump objectives include improving market access for US manufacturing, agriculture and services, adding a “digital economy chapter” and adding labor and environmental obligations.

Administrative negotiators will seek to eliminate “unfair subsidies and market-distorting practices by state-owned enterprises” and improve intellectual property, says US Trade Representative Robert Lighthizer.

Texas Republican Kevin Brady, who chairs the House Ways and Means Committee, said Trump’s objectives are “ambitious” in seeking “strong, enforceable rules that go beyond any agreement ever negotiated.” Brady also said an updated NAFTA agreement can’t remove trade benefits currently enjoyed by US businesses.

Utah Senator Orrin Hatch, who chairs the Senate Finance Committee, made an underwhelming comment that he hopes Trump’s negotiating objectives will be “further developed” as negotiations proceed.

Democrats were less subdued. Oregon Senator Ron Wyden, the ranking Democrat on Senate Finance, called the Trump priorities “hopelessly vague” in explaining how they will “benefit the United States on key topics ranging from intellectual property rights and investment, to currency manipulation and government procurement.”

Wyden also jabbed Trump’s team for including what he called “watered down versions of [Trans-Pacific Partnership] TPP proposals” that candidate Trump belittled in his presidential campaign and withdrew from when he became President.

“Before sitting down with Canada and Mexico,” Wyden said, “I expect the Administration to update this summary, shine some daylight on its negotiations and set the bar high for American workers, businesses and farmers, as it promised it would."

Michigan Democratic Congressman Sander Levin said Mexico’s low wages and a lack of workers’ rights have cost many US jobs, but he said Trump’s priorities don’t evince “that a new NAFTA will be different than the old [NAFTA].”

A number of economists said trying to negotiate a better deal based on a goal of reducing trade deficits is “misguided” and could backfire.

The complexity of trade considerations that go into negotiations was illustrated by South Bend Mayor Peter Buttigieg, who has transformed abandoned factories into a business park for technology companies in his Indiana city. In an interview today with CBS News, Buttigieg said unionized American autoworkers in his city are assembling German Mercedes Benz vehicles to sell to consumers in China.

In the May economic forecast, Oregon economists said changes to international trade agreements, not to mention a trade war, would have a larger impact on Oregon, which has an economy that depends on exports, than on many other states. Even though job growth in Oregon has cooled off, the state economy continues to expand and is already the third longest upswing since World War II.