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Expert says manufacturing jobs were on the way out even without trade agreement

BY SARA PITZER
SALISBURY POST

Wake Forest University economist Gary Shoesmith says the North American Free Trade Agreement (NAFTA) isn’t the only reason the textile business has gone downhill in North Carolina.

He says even though textile jobs have declined rapidly in the Southeast, production and shipment are actually up because of automation and reorganization.

The jobs that have been lost would have been lost soon anyway as manufacturers looked for ways to cut costs and increase production, Shoesmith said. And at least it has happened at a time when the U.S. economy is strong and can offer workers other jobs.

Also, he says NAFTA has created many export opportunities for U.S. companies, accelerated automation of U.S. industry and benefited U.S. consumers with lower prices.

Shoesmith spoke recently to North Carolina economic development professionals trying to sort out the significance of global changes in manufacturing, repeating a presentation he had made in a teleconference for officials in Monterrey, Mexico.

What’s been happening to manufacturing operations in Rowan and surrounding counties fits with Shoesmith’s arguments.

In January 1999, Burlington announced it would close seven mills in North Carolina, South Carolina and Virginia, cutting 2,900 jobs, including 640 people at its Mooresville plant and 135 in Statesville.

Company officials blamed imports from Asia and the Asian economic crisis for not being able to keep those operations going. According to their explanation, the crisis in Asia kept Asians from buying U.S. goods and also kept Asian exports at unnaturally low prices in this country.

Burlington said getting rid of its older, less productive plants and opening a modern new facility in Mexico would help the company compete globally.

In a similar situation, KoSa’s Salisbury plant cut its work force by 3 percent in February and then in April announced expansion plans to modernize, increase automation and double the plant’s capacity to produce biocomponent fibers by the middle of the year 2000, without hiring any significant number of new workers.

Earlier this year, KoSa completed an expansion at its Queretaro, Mexico, production facility and installed new, state-of-the-art draw-twist technology at its Bad Hersfeld, Germany plant.

Salisbury Plant Manager Tony Branecky explained the moves as part of the company’s plan to stay competitive in the global market.

Global automotive industry

In another global move, in 1997, Draftex, a German company with plants in Germany, Spain the Czech Republic, China and France, set up a new plant in Salisbury to manufacture rubber and plastic car body seals for the North American automotive industry. In June, the company employed 307 people at the Salisbury plant. Today, company spokeswoman Joanna Stout says the number has climbed to between 900 and 1,000 employees.

The Salisbury plant currently supplies North American plants making Volkswagen Beetle and Ford and General Motors vehicles.

Shoesmith analyzes this movement of global manufacturing in his position as director of the Center for Economic Studies in the Babcock Graduate School of Management at Wake Forest University and spends much of his work time interpreting the changing economy for news reporters and economic developers.

His attention goes far beyond NAFTA, although much current debate still centers around the agreement.

Shoesmith says although workers have lost jobs in textiles in North Carolina, NAFTA has been good for the state “in the long run, even though not everyone will see it that way,” at first.

One benefit Shoesmith identifies is that NAFTA has already made clothing available at lower prices, noting that at the same time, thousands of higher paying jobs are opening up in Mexico.

What’s more, he says more free-trade agreements like NAFTA will follow, and he predicts that by the year 2005 all trade barriers will be gone.

U.S. trade with Mexico had already been liberalized in the late 1980s, Shoesmith says, and all NAFTA did was reduce the tariff rate further in 1994. The trade deficit with Mexico didn’t begin until 1995. He says the recession in Mexico at that time is a better explanation than NAFTAfor the U.S. trade deficit with Mexico.

In a telephone interview, Shoesmith said even though textile and apparel industries are “under continuing pressure,” Mexico is a growing export destination for the Southeast, especially textiles. U.S. exports to Mexico are growing faster than exports to other parts of the world.

In the Southeast, total exports to the world have grown 62 percent since 1993. In comparison, southeast total exports to Mexico have grown almost 400 percent since 1993.

And North Carolina is the largest Southeastern exporter to Mexico in dollar volume. It’s also the state that has seen the most export growth with Mexico since 1993.

By the year 2005, Shoesmith says, free trade will be common in the Western hemisphere. Protectionism might slow the change temporarily, he says, but couldn’t stop it. Manufacturing will evolve toward industries being able to compete on a worldwide scale.

Branecky said KoSa is already doing that. “We have to assume its here and face it head on, look for creative ways to compete.”

Customers worldwide

As Shoesmith explains it, companies will operate all over the world and have customers all over the world. Gradually the huge disparities in wages and prices from country to country will level out. As a country’s wages go up, so does its potential for importing American products.

Even now, manufacturing increasingly involves several countries. “Check the labels in your clothing,”Shoesmith said. Often the yarn or fabric is made in one country and the apparel sewn in another.”

The aluminum business gives us another example. Alcoa operates at 187 locations in 28 countries. The Badin plant has been in the news this year for announcing it must cut the operating costs of its smelting operations by four cents per pound in 2000 to avoid being closed down.

Dana Kessler, spokeswoman for the Badin plant, said in aluminum production, both raw materials and equipment for capital projects come from different countries, and are sold in different countries. For instance, aproduct made in the Badin plant is used to produce memory disks in Japan.

Kessler says global buying and selling has happened gradually. “It keeps growing. It’s an evolutionary growth vs. a revolutionary growth,” she said.

Asian problems galore

Fuchs Systems’ Salisbury plant is another example of how financial activity around the world affects American plants and workers. Fuchs makes electric arc furnaces and related equipment that manufacturers use to produce steel. Each furnace is designed and constructed to customer specifications.

The company laid off about 60 employees in October, bringing its work force to a little below 100 people. The circumstances that led to the layoffs began in Asia.

Bob DiCusati, vice president for finance and administration at the Salisbury plant, explained the situation that made it necessary for them to reduce their work force here. Because of the Asian economic crisis, the market for steel in that region dropped to nearly zero, he said. This means imported steel has been coming into the United States at low prices. With import prices so low, there hasn’t been much demand for American-made steel, so there has been less demand for Fuchs’ furnaces, which are used to make steel in. But, again, this is a company that already has global activity. Fuchs is headquartered in Germany and has a plant in Mexico.

And the new economic situation is changing. Fuchs’ new international management team says the Asian economy is improving and new market possibilities are opening up again. “When the market increases, the company will build up again,” Werner Auer, chairman of the board from Germany here to supervise recent changes, said.

Branecky also predicts an upswing. He expects to find new markets in Europe and South America, and “the Asia market is going to come back in a few years.”

But a market that is going to come back in a few years isn’t much consolation to a worker laid off this year in Rowan County.

Shoesmith said if he were a worker in manufacturing, he’d do the best job he could and not be surprised if he had to go for retraining, not once but several times. “It used to be you worked for one company all your life,” he said. “It’s not that way any more.”

Overall the message is positive, the economy is evolving, he says. It’s a long-term adjustment for the United States but “there is no time to waste.”

Branecky sees it much the same way. “We can compete, but it is going to be harder and harder and take more thinking to do. Creativity is what we are known for and we have to use it to our advantage.”