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THE Source Articles from

WALL STREET JOURNAL. CLASSROOM EDITION

Chapter 17 International Trade This article from the April2004 Wall Street Journal Classroom Edition offers a broader view of a long-running trend in global trade: the movement of manufacturing jobs to other countries. In "Two-Way Street," Journal staff reporters Joel Millman and Norihiko Shirouzu explain that while many manufacturing jobs are indeed streaming out of the U.S., some foreign companies are eagerly creating new manufac- turing jobs in the U.S.

Before reading the article, you may want ro look up the following terms: proxim- ity, incentives, rhetoric, value chain.

uBut free trade works both

ways, and just as U.S.

companies look overseas

for workers, a lot of foreign

companies have been

expanding their operations

in the U.S. and creating new

jobs for Americans. The

attractions for them are better

business conditions, proxim-

ity to the ever-expanding U.S.

consumer market, and the

promise of incentives that

many U.S. communities offer

to attract new investment.''

Free trade has hammered a lot of U.S. towns, making it easier for companies to send manu-facturing jobs south of the border or overseas, and idling hundreds of American factories and tens of thousands of workers.

But free trade works both ways, and just as U.S. compa- nies look overseas for workers, a lot of foreign companies have been expanding their opera- tions in the U.S. and creating new jobs for Americans. The attractions for them are better business conditions, proximity to the ever-expanding U.S. consumer market, and the promise of incentives that many U.S. communities offer to attract new investment.

In 1999, for example, Gruma, Mexico's largest pro- ducer of corn flour and tor- tillas, wanted to extend its sa les territory in the eastern U.S. The manufacturer found that the quickest way was to buy a rival, Barnes Foods, ven- dor of the regional Pepito brand in Goldsboro, N .C .. After closing the $12 million

transaction, Gruma found something else: a com- munity eager to offer incentives to persuade the

Mexican company to invest millions more.

Within a year, Gruma delighted Goldsboro by agree- ing to buy an empty warehouse the city owned outside rown. The building had sat for four years, after officials spent more than $1 million trying to mar- ket it as parr of an industrial park. By promising to invest $13 million locally, and add 100 jobs to Barnes's payroll, Gruma got $200,000 chopped off the building's sale price and another $200,000 in grants to defray infrastructure costs. Gruma also received job-cre- ation tax credits to offset almost $200,000 annually from its state corporate income tax. Ultimately, the Mexican company well exceeded the n urn ber of new hires it promised, tripling its Golds- boro work force to nearly 200.

"T his is the second wave of Nafta kicking in," says Todd Malan, director of the Organization for International

42 Chapter 17 Source Articles from The Wall Street Journal Classroom Edition

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Source Articles from The Wall Street Journal Classroom Edition

Investment, which represents foreign companies with U.S. subsidiaries . The North American Free Trade Agreement "enabled Mexico to invest abroad, and that investment is creating thousands of jobs for U.S. workers."

Among some other recent deals: San Luis/Rassini, a Mexican maker of automotive springs, negotiated incentives from Ohio officials ro open a plant near Toledo, a city that

has been hit hard by cutbacks in the U.S. auto industry. Mex- ican brewer Grupo Modelo received an incentive package that brought an $84 million

barley-malting plant to Idaho Falls, Idaho. Mexican steel- maker Imsa parmered with the city of Moscow, Tenn. (popula- tion 422) ro purchase land in a local industrial park. The move brought 113 jobs and made Imsa the biggest employer in Moscow.

Eugenio Clariond, chair- man of Imsa, says that aside from community incentives, Mexican businesses are attracted to the U.S. because business conditions are better here-chiefly because of more abundant energy and less corruption.

Through 2001, the most recent year for which figures are available, Mexican compa- nies created 145,000 jobs in the U.S. While that doesn't begin to offset the number of jobs that have left the U.S., it is a sma!J part of a bigger group: foreign businesses all over the world creating jobs in America. According to Mr. Malan's organization, U.S. subsidiaries of foreign companies employed 6.4 million people in 2001, up from 5.1 million in 1996 and 4.9 million in 1991.

The investments from Mexico are a fairly recent outgrowth of Nafta, which took effect in the early 1990s. But other foreign companies have been mov- ing jobs to the U.S. for more than two decades, many into the nation's manufacturing heartland.

The most notable are Asian and European auto makers and parts producers. Japan's Honda Motor began producing motorcycles near Columbus, Ohio, 25 years ago, and then cars in 1982. Today, in Ohio alone, Honda employs 13,000 factory workers and another 1,000 people in higher-skill positions devoted to developing vehicles like the Honda Pilot

sport-utility vehicle and the Honda Element for the U.S. marker. Nationwide, Honda's U.S. work force, including sales and marketing staff in Torrance, Calif., and workers at another car plant in Alabama, has swelled to 24,000.

A number of other auto companies, including Ger- many's BMW and Mercedes- Benz, soon foJiowed suit. Most of them initially shifted pro- duction to the U.S. to soothe trade tensions with the U.S. and the Detroit auto makers, which had complained about widening trade imbalances in autos. But over time, those for- eign auto makers realized it also made good business sense ro be closer to consumers in the world's wealthiest nation and biggest auto market. They have since been beefing up the ir marker-research and product-development centers in the U.S., creating hundreds of thousands of white-collar jobs in the process.

Hiroshi Okuda, chairman of Toyota Motor, likes to say

that America, with the sophistication of irs con- sumers and irs population expected to continue expanding through 2030, is a much surer bet than any market in the world, including China.

Indeed, Toyota has fast become one of the biggest foreign employers in the U.S. auro sector. In the beginning, it tiptoed into the U.S., setting up a jointly operated assembly plant in Fremont, Calif. with General Motors in 1984. But two decades later, the No. 1 Japanese auto maker has two more plants, in Kentucky and Indiana, which it operates on its

Through 2001, the most recent year for which figures

are available, Mexican com-

panies created 145,000 jobs in the U.S. While that doesn't

begin to offset the number of

jobs that have left the U.S., it

is a small part of a bigger

group: foreign businesses all

over the world creating jobs

in America. According to Mr.

Malan's organization, U.S.

subsidiaries of foreign com-

panies employed 6.4 million

people in 2001, up from

5.1 million in 1996 and 4.9

million in 1991.

Chapter 17 Source Articles from The Wall Street Journal Classroom Edition 43

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Source Articles from The Wall Street Journal Classroom Edition

own, and is building a pickup- truck plant in San Antonio, Texas. Altogether it employs 31,000 U.S. workers, 8,700 of whom work for the company's sales and financial services units in California . Mean- while, the company's technical center in Ann Arbor, Mich., which currently employs 500 to 600 engineers, is planning to increase that number to as many as 1,000 over the next

"Top manufacturers all over

the world are getting good at

slicing up the value chain~

placing each task where it

offers the greatest return.

And sometimes~ that~s right

here in the U.S.~~

few years to beef up its product development-capabilities.

For companies moving tO the U.S., election-year rhetoric about jobs leaving ignores a broader truth: Top manufac- turers all over the world are getting good at slicing up the value chain, placing each task where it offers the greatest return. And sometimes, that's right here in the U.S.

QUESTIONS FOR DISCUSSION

44

1. How has the North American Free Trade Agreement affected the flow of manufacturing jobs in and out of the U.S.?

2. What factors attract foreign businesses to the U.S.?

3. Drawing Conclusions How do the jobs that are flowing into the U.S. compare with the ones that are flowing out?

Chapter 17 Source Articles from The Wall Street Journal Classroom Edition

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4. Question 1:
5. Question 2:
6. Question 3: