Trump on Ford, Nabisco and Mexico

logoWSJ, Editorial

The real reasons the companies left the U.S. for Mexico.

470106406Donald Trump has promised to bring a businessman’s savvy to the White House, so it would be nice to see evidence that the GOP frontrunner understands decisions made by . . . businesses. To judge by some of his recent remarks, not so much.

Consider Nabisco and Ford, two great American corporations that, in Mr. Trump’s telling, have been hijacked by bandidos from south of the border. Mexico, he said has said, “took” the two companies, citing the move as evidence of why “I don’t mind trade wars.”

That’s one way of looking at it. Another way is that both companies made rational decisions to move some of their operations to Mexico because the tax and regulatory climate in the U.S. under President Obama has become increasingly hostile to business. Before picking destructive trade fights with the world, maybe the next President could work to make America great for doing business again.

Last summer, Deerfield, Illinois-based Mondelez, which owns Nabisco, announced that it would close nine production lines at its plant in Chicago—the largest bakery in the world—while investing in new technology at a facility in Salinas, Mexico. Mondelez made the decision after asking its unions for $46 million in concessions to match the annual savings it would achieve from shifting production to Mexico.

The unionized workers at the Chicago plant have been threatening to strike and staged a press conference Wednesday featuring an official from the Bernie Sanders campaign. Nothing like bringing in a partner who wonders if business should exist.

Operating in Chicago is particularly expensive since Illinois has among the nation’s highest corporate and property taxes—which are soaring to pay for city employee pensions—and workers’ compensation premiums. Last year Illinois lost 56 manufacturing jobs per work day while employment increased in most other Midwest states including Wisconsin (18 a day), Indiana (20), Ohio (58) and Michigan (74).

As for Ford, Mr. Trump flogged the auto maker’s $2.5 billion investment in two new engine and transmission plants in Mexico. Ford is also planning to build another plant in San Luis Potosi to churn out small cars and hybrids that are needed to meet federal fuel-economy standards. Ford and General Motors aim to double production in Mexico by 2018.

One impetus behind Detroit’s Mexico expansion is the United Auto Workers new collective-bargaining agreement, which raises hourly labor and benefit costs to $60 in 2019—about $10 more than foreign auto makers with plants in the U.S.—from the current $57 for Ford and $55 for GM. The increasing wages make it less economical to produce low-margin cars.

Foreign car manufacturers including BMW, Honda, Volkswagen, Kia, Nissan and Mazda have also recently announced new investments in Mexico. Besides lower labor costs, one reason they give is Mexico’s free-trade agreements, which allow access to 60% of world markets. Mexico has 10 free-trade agreements with 45 countries including Japan and the European Union whereas the U.S. has only 14 deals with 20 countries.

That’s an argument for the U.S. to have more trade agreements, not tear up those we have. Meantime, the formula for making the U.S. economy great again remains unchanged: lower corporate and marginal tax rates, pension and entitlement reform, right to work, the repeal of ObamaCare. Mr. Trump even says he believes in some of this. Maybe he should talk about it.

 

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