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Published on Tuesday, June 14, 2011 by Facing South

US Trade Policy Undercuts Obama's Jobs Push

by Sue Sturgis

President Obama pledged to create new jobs during a visit yesterday to a high-tech lighting manufacturer in North Carolina, but the destruction of jobs unfolding at another lighting plant next door in Tennessee illustrates how U.S. trade policy is complicating those efforts.

Until U.S. trade policy is reformed to end incentives for shipping good manufacturing jobs to other countries, the Obama administration's efforts to create new jobs will suffer. (Official White House photo of President Obama's visit to Cree by Samantha Appleton.) Obama met with his Council on Jobs and Competitiveness in Durham, N.C. at the headquarters of Cree, a leading manufacturer of energy-efficient LED lighting. Founded in 1987 by a group of N.C. State University engineering students, Cree now employs 5,000 people worldwide, and has created over 760 full-time jobs at its Durham facility since January 2009 with help from a $39 million stimulus-related tax credit.

The president would like to replicate Cree's success on a national scale.

"I wake up every morning thinking about how everyone who wants a job is able to get a job," Obama told Monday's gathering.

But at the same time the administration is struggling to create new jobs, existing ones are being destroyed as corporations continue to migrate to cheaper labor markets.

Take the example of Philips Luminaires in Sparta, Tenn.

An award-winning plant that manufactures both LEDs and energy-efficient fluorescent lighting, the Netherlands-based Philips announced last year that it would relocate its Sparta operations to Monterray, Mexico by next June. The closure of the plant, the area's largest employer, will eliminate 275 U.S. jobs. And it's taking place despite Philips having taken $7 million in federal stimulus money and another $5 million in incentives from White County, Tenn., which already suffers from an unemployment rate of 11.6 percent -- 2 percentage points higher than the state average.

Intensifying the blow that Philips' departure will deliver to the local economy, a good chunk of the jobs that will be lost in Sparta are union jobs. Unlike Cree, Philips's Sparta plant is unionized, with 150 members of the International Brotherhood of Electrical Workers among those who are facing unemployment. The IBEW has launched a letter-writing campaign asking Philips CEO Gerard Kleisterlee to keep the Sparta plant open.

The IBEW made big concessions in hopes of keeping the Philips plant in Sparta. It accepted wage cuts to $12 an hour, higher health insurance costs, and greater automation. But that wasn't enough to stave off closure, as Labor Notes reports:

"They're a cruel bunch of people," said [Bo] McCurry, president of the 150-member Electrical Workers (IBEW) local at the plant. "We bent over backwards."

For Philips, it came down to the cost of production, with the labor for each fluorescent light unit costing $3 in Tennessee and $1 in Mexico, according to union estimates.

Robert Scott of the Economic Policy Institute (EPI) told Labor Notes that companies like Philips continue to shift production to Mexico to take advantage of the investor protections offered by the North American Free Trade Agreement (NAFTA). A recent EPI report by Scott found the U.S. trade deficit with Mexico that followed NAFTA's 1994 passage displaced almost 683,000 U.S. jobs as of 2010 -- with Tennessee among the states that suffered particularly large losses.

But as the Wall Street Journal observed on the occasion of Obama's visit to Cree, the problem is larger than just NAFTA. Pointing to Cree's declining revenues, lagging sales and recently downgraded stock, the paper quoted an investment analyst who said Cree and others would have a hard time competing unless they "can get their costs down to compete with the Chinese companies." In fact, Cree opened a manufacturing plant in China last year.

Philips' decision to relocate to Mexico, and Cree's decision to move some of its manufacturing to China, illustrate how U.S. trade policy is impeding job-creation efforts.

During his 2008 presidential campaign, Obama talked about reforming NAFTA from a trade deal focused primarily on protecting investors to one that would also promote labor rights, environmental protections, and higher incomes -- not only for U.S. residents but also for Mexicans, whose agricultural and retail sectors were devastated by the agreement.

But in February 2009 during a visit to Canada, Obama announced that the promised renegotiation of NAFTA to strengthen union and environmental protections would have to wait, saying that it was "a time where we've got to be very careful about any signals of protectionism." The administration has also joined the Clinton and Bush administrations in declining to enforce the so-called 'side agreement" to NAFTA on labor rights, to the frustration of labor leaders on both sides of the border.

And now the administration is pursuing NAFTA-like trade deals with Colombia, Panama and Korea. The latter deal sparked sharp condemnation from AFL-CIO President Richard Trumka:

The experiences of union members and working people with too many flawed trade deals like the North American Free Trade Agreement and China's accession to the World Trade Organization do not justify optimism that this deal will generate the promised new jobs. We've seen U.S. multinational companies take advantage of the investment and other corporate protections in past trade deals to shift production offshore, while maintaining access to the U.S. consumer market and undermining the jobs, wages and bargaining power of American workers. And the results have been catastrophic, with chronic and unsustainable trade deficits that sap economic growth and domestic job creation.

Until U.S. trade policy is reformed to end incentives for shipping good manufacturing jobs to other countries, the Obama administration's efforts to create new jobs will suffer -- and so will local economies and working families.

© 2011 Facing South
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