Rust Belt  manufacturing has seen ups and downs on Trump’s watch | Purple States

By: - February 21, 2020 7:09 am

LORDSTOWN, OH – NOVEMBER 26: An exterior view of the GM Lordstown Plant on November 26, 2018 in Lordstown, Ohio. GM said it would end production at five North American plants including Lordstown, and cut 15 percent of its salaried workforce. The GM Lordstown Plant assembles the Chevy Cruz. (Photo by Jeff Swensen/Getty Images)

In 2016, Donald Trump ran on “bringing back” manufacturing jobs to Rust Belt states such as Pennsylvania, which was one factor in his surprise wins in Pennsylvania, Wisconsin and Michigan (and less surprising victory in neighboring Ohio). 

Purple State - PA“The heart of the [economic] slowdown has really been in manufacturing. The global manufacturing sector is in a recession right now, but the U.S. is doing a little better than everyone else,” Aditya Bhave, vice president and global economist for Bank of America Merrill Lynch Global Research, said during a Business Leaders for Michigan event in Detroit in November. 

But Pennsylvania’s outlook is murky. Big Steel promised investment outside Pittsburgh, only to turn around six months later to place its bets outside the Keystone state. 

And while job numbers in manufacturing overall look good, they hide a “workforce crisis,” according to the state’s chief industry advocate. 

Much of the uncertainty comes from the trade and tariff policies from the Trump administration — a policy pitch that helped him win voters throughout old blue-collar Democratic strongholds in the Rust Belt. 

Last month, Trump signed the United States-Mexico-Canada Agreement (USMCA), which received overwhelming bipartisan support in Congress. He referenced the deal at a rally in Hershey, PA in December.

In his State of the Union address earlier this month, Trump touted the USMCA, saying that it would help with “bringing back our manufacturing jobs, expanding American agriculture, protecting intellectual property, and ensuring that more cars are proudly stamped with four beautiful words: made in the USA.”

Despite widespread legislative support, manufacturing experts note that the USMCA is largely a replacement of the dated North American Free Trade Agreement (NAFTA).

With Canada and Mexico accounting for 33 percent of US exports, according to federal data, “that treaty just ratified should begin to help normalizing” the flow of goods and buoy manufacturers, said David Taylor, president of the Pennsylvania Manufactruer’s Association, an industry lobbying group and trade association.

Also, trade tensions between the United States and China appear to be cooling, as both Trump and Chinese President Xi Jinping recently reaffirmed their support for the first phase of a new trade agreement, Reuters reported.

The Pennsylvania impact

Pennsylvania’s manufacturing industry has seen ups and downs, but its role in the state’s economy is still large.  

According to the the National Association of Manufacturers, an industry trade group, manufacturing output was worth $93.75 billion. That’s almost 12 percent of the commonwealth’s GDP.

The Bureau of Labor Statistics lists 575,000 manufacturing jobs in Pennsylvania. Those workers bring home a weekly paycheck of $1,199, or roughly $62,348 over the course of a year.

Overall, this makes Pennsylvania the sixth-biggest state for manufacturing jobs, with only fellow Rust Belt states Ohio and Michigan ahead.

But Taylor said those employment numbers could be even higher.

“There are 6,000 open manufacturing positions where our employers are having great difficulty in finding qualifying employees,” Taylor said.

At times over Trump’s first term, Pennsylvania’s most symbolic industry, steel, looked to be on the upswing. 

Last year, U.S. Steel promised to invest $1 billion into three steelmaking facilities south of Pittsburgh — including the 145-year-old Edgar Thomson Steel Works in Braddock, Pa., outside Pittsburgh.

The investment would make the plant more efficient as well as reduce pollution, the company said.

“This is a truly transformational investment for U.S. Steel. We are combining our integrated steelmaking process with industry-leading endless casting and rolling to reinvest in steelmaking and secure the future for a new generation of steelworkers in western Pennsylvania and the Mon Valley,” David Burritt, the company’s president and CEO, said in a May 2019 press release.

The decision came as the industry was riding high on tariff-juiced steel prices. Since, prices have fallen, shrinking revenues. 

U.S. Steel finished 2019 in the red, and also announced that it was slowing down its previously announced investment in Pennsylvania. 

Instead, it was purchasing an under-construction mill in Arkansas that turns scrap metal into usable steel.

“We’re actually pivoting to the future and focusing on the company we want to become,” Burritt said at the time, according to the Pittsburgh Post-Gazette.

The scene in Ohio

At the start of 2019, Ohio manufacturers held 706,800 jobs, according to preliminary numbers from the Bureau of Labor Statistics. By the end of the year, preliminary numbers say the state had 701,500 jobs in the industry.

Jamie Karl, of the Ohio Manufacturing Association, said there has been growth overall, and the industry within the state has increased since Trump took office.

“Over the last year, we have fluctuated, and I would attribute that in part to the tariffs,” Karl said.

In the context of a decade, the state’s industry changes are only slight. In Dec. 2009, Ohio reported 613,600 manufacturing jobs. In the month before Trump was inaugurated, the state held 687,600 jobs.

Karl said Ohio seems to be unique in the country as far as manufacturing growth.

“I don’t think there’s this story of maintaining manufacturing jobs in other states,” Karl said.

Still, projections by the Ohio Department of Job and Family Services say the industry will lose 40,000 jobs by 2026, a nearly 6 percent loss. The biggest projected losses are in rubber product manufacturing (23 percent), printing and related support activities (18.2 percent), and glass manufacturing (16.7 percent). Iron and steel mills and industrial machinery manufacturing are close behind, with projected losses of between 15 percent and 16 percent.

In Michigan

Data from the U.S. Bureau of Labor Statistics shows that through last October, Michigan was down about 10,000 manufacturing jobs since Trump took office in January 2017.

Recent months in Michigan, however, have seen ups and downs for the manufacturing industry, as steel companies have idled due to “current market conditions,” all while the Big 3 automakers in Detroit have launched multibillion-dollar investment efforts here.

The USMCA’s largest impact is “ending a period of great uncertainty” for manufacturers,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research (CAR) in Ann Arbor. 

“On the margin, it will move some production to higher-wage regions of North America to Canada and the United States,” Dziczek said. “There’s some job impacts to that, but because we’re not going from no agreement to free trade, the effects are pretty marginal.”

Manufacturing makes up 19 percent of the state’s gross domestic product (GDP), accounting for more than $96 billion in revenue, and more than 14 percent of the state’s workforce are employed in the manufacturing sector, according to figures from the National Association of Manufacturers, a Washington, D.C.-based trade group. 

While economists say that 2019 presented challenges and uncertainty for manufacturers and a whole host of other industries, there’s some evidence that things could be on the upswing. 

A November forecast report by the University of Michigan’s Research Seminar in Quantitative Economics said that 2019 “provided a tough test for Michigan’s economy.” 

“We believe that after slogging through much of 2019,” the report reads, “Michigan will return to moderate, but sustained expansion in 2020 and 2021,” the report said.

The forecast predicts the state added 23,300 payroll jobs in 2019 and will add another 54,900 new jobs in 2020 and 2021. 

Meanwhile, the Big 3 automakers — Ford, Fiat-Chrysler and General Motors — have all been on a tear in the last year, with multi-billion dollar investments around metro Detroit as they attempt to keep up with the demand for profitable trucks and SUVs and prepare for a driverless future. 

But while large Tier 1 automakers continue to weather the storm, albeit with generally lower earnings, many of their suppliers are feeling an even stronger pinch and it’s having a direct impact on the lives of working Michigan residents. 

In late December, just before Christmas, U.S. Steel announced that the company plans to “indefinitely idle” its facility in River Rouge, southwest of Detroit. 

U.S. Steel CEO David Burritt cited “market conditions” in a statement announcing the idling of the Great Lakes Works operation. 

“In order to further accelerate our strategy of creating a world-competitive ‘best of both’ U.S. Steel, we must make deliberate but difficult operational decisions. In this case, current market conditions and the long-term outlook for Great Lakes Works made it imperative that we act now, allowing us to better align our resources to deliver cost or capability differentiation across our footprint,” Burritt said. 

“Transitioning production currently at Great Lakes Works to Gary Works will enable increased efficiency in the use of our assets, improve our ability to meet our customers’ needs for sustainable steel solutions and will help our company get to our future state faster.” 

The move by U.S. Steel drew the condemnation from such Michigan lawmakers as state Sen. Stephanie Chang, a Detroit Democrat, who represents the River Rouge area, and appeared to place the blame squarely at the feet of the Trump administration’s policies. 

“I am disappointed to hear the United States Steel Corporation’s announcement to indefinitely idle their River Rouge facility,” Chang said in a statement. “It is unfortunate that our hardworking men and women are again paying the price for Washington’s detrimental policies that have led to the market conditions U.S. Steel and so many others have been facing.”

What’s up in Wisconsin?

In Wisconsin, manufacturing accounted for $63.3 billion in output in 2018 (the most recent year for which figures are available), just under 19 percent of the state’s GDP, according to the National Association of Manufacturers. The sector employs about 16 percent of Wisconsin’s non-farm workforce.

Conflicting measurements complicate assessing how well manufacturing jobs are actually doing, though. Federal government reports don’t even agree on whether the state is starting to lose ground or continuing to expand.

Based on  monthly projections from the Bureau of Labor Statistics, Wisconsin had about 473,400 manufacturing jobs in December 2019, a 1% drop from a year earlier.

But Dennis Winters, chief economist at the Wisconsin Department of Workforce Development, says those numbers appear to be off target. The monthly reports, he says, come from surveys that throughout 2019 have “underestimated the Wisconsin manufacturing sector.”

More accurate quarterly reports, based directly on payroll records, have so far outpaced the monthly projections, showing an increase for the first six months of 2019. He expects the state’s third-quarter 2019 report, due by the end of February, to continue that upward trend.

National data also suggests a better picture. For five straight months from August through December 2019, the national factory index from The Institute of Supply Management (ISM) consistently fell below 50, a sign of contraction in manufacturing. Then, in January 2020, it jumped to 50.9, indicating an expansion.

Bolstered by that news, “I don’t see a turndown here anytime soon,” Winters says. “I think we weathered the storm and the angst that was there certainly due to the last half of last year.”

In its latest twice-yearly survey of business executives, which was released in January, Wisconsin Manufacturers and Commerce reported that 50 percent said tariffs were hurting their businesses, up from 47% in mid-2019.

“The trade disputes that have gone on over the past three yers have definitely not been helpful to Wisconsin,” says economist Menzie David Chinn of the University of Wisconsin. “Whatever protection we’ve put in is for industries that we don’t produce.”

For example, Wisconsin isn’t a major producer of steel or aluminum, but for manufacturers using those as raw materials, tariffs that Trump imposed in the summer of 2019 of 25 percent on foreign steel and 10 percent on foreign aluminum kicked up supply costs.

Even so, 79 percent of the executives surveyed for WMC said they supported tariffs “as a negotiating tactic to force nations like China to play fair,” the business lobby reported. 

Some affected companies that were importing  affected materials and components from China and other countries where the U.S. has imposed tariffs have also made adjustments, seeking out new sources, says Winters of the state DWD. 

“A lot of that supply chain has already been reconfigured,” Winters says. “What were significant and rapid changes early on have, to a significant extent, been smoothed out.”

The WMC survey was conducted before Trump signed the Congressionally-ratified USMCA, replacing the North American Free Trade Agreement, and before he and Chinese Vice Premier Liu He put their signatures on the first phase of a new bilateral trade agreement that averted threatened tariffs and promised to open new markets for U.S. goods.

Presidential politics 

Naturally, the role of manufacturing in the U.S. economy, and particularly in swing states like Pennsylvania, is an issue the myriad Democratic presidential candidates have sought to use as key components of their platforms.

Former Vice President Joe Biden has a lengthy bullet-point plan to “revitalize manufacturing across the country” posted on his website. So does U.S. Sen. Elizabeth Warren, D-Mass. Other major Democratic presidential hopefuls including U.S. Sen. Bernie Sanders, I-Vt., former South Bend, Ind., Mayor Pete Buttigieg and U.S. Sen. Amy Klobuchar, D-Minn., also have manufacturing proposals in less detail.

Other major candidates appeared to have elements of policy proposals aimed at the revitalization of U.S. manufacturing. 

For Taylor, of particular importance for Pennsylvania is the candidates’ stance on fracking, or hydraulic fracturing, the process that’s used to extract natural gas from rock. 

The natural gas industry, and Taylor, have been pitching a vast manufacturing future stemming from natural gas production. It’s embodied in a still-under construction petrochemical plant in Beaver County, west of Pittsburgh, which turns fracked ethane gas into plastic. 

A second, similar tax credit proposal is causing a political fracas in Harrisburg this month.

“That petrochemical manufacturing that is waiting to be born, it is going to be bigger in its economic impact then drilling,” Taylor said.

But for any candidate who wants to help manufacturing, Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Michigan had a small bit of advice.

“And settle down with the tariffs a bit,” she said.

This story was written by Stephen Caruso and Nick Manes, the former associate editor of the Michigan Advance. Susan Tebben of the Ohio Capital Journal and Erik Gunn of the Wisconsin Examiner, contributed reporting.

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.