Trucked-Up Politics

[October 1st, 2008]

SANTIAGO TIANGUISTENCO, Mexico—Two thousand miles from Portland, an unassuming manufacturing plant building heavy-duty trucks has become a flashpoint in the races for president and a U.S. Senate seat from Oregon.

Backed by some of America’s most powerful unions, Democrats Barack Obama and Jeff Merkley—who’s challenging Sen. Gordon Smith (R-Ore.)—say they want to protect U.S. jobs by reforming international trade deals such as the 14-year-old North American Free Trade Agreement.

And their target? Companies like Daimler Trucks North America, a multinational corporation with headquarters in Portland.

Last year, Daimler shifted some of its production of Freightliner-brand trucks to Mexico (and a second lower-cost plant in North Carolina). As a result, nearly 800 Portland-area workers lost their jobs. Merkley blames NAFTA.

“They call it ‘free trade,’ and yet there’s nothing free about it,” Merkley intones in an emotional TV ad airing statewide since Sept. 2. “How could Washington allow American jobs to be one of our country’s biggest exports?”

From Mexico, the answer to that question appears simple. It’s cheaper for some American companies to do business in Mexico.

And when it comes to manufacturing, Mexican President Felipe Calderón—who last week called on American lawmakers to maintain NAFTA in its current form—isn’t about to let NAFTA be reformed without a fight. Why should he, when those “exported” jobs have been good ones for residents of towns like Santiago Tianguistenco?

On a balmy Friday evening in July, after another shift at the Daimler plant on the outskirts of Santiago Tianguistenco, a town about 35 miles southwest of Mexico City, streams of men repeated a ritual that once came to define blue-collar towns in the United States. They packed their work clothes into their company lockers, put on their jeans and walked out to their cars.

As one man prepared to head home for dinner, his Motorola flip phone glowed with a message from his 9-year-old daughter: “Thanks, Dad, for the extra cell-phone minutes.”

The man—who asked to be identified only as Alfredo for fear of angering his bosses—has a good-paying union job. He has a nice home that he owns, a 2007 sedan, a wife and two kids.

He’s living the American dream—except he happens to live in Mexico.

At 33, Alfredo has spent nearly 10 years repairing tools at the plant making Freightliner trucks in Santiago Tianguistenco, a town of about 65,000.

And he’s making top wages for a Mexican worker without a college degree—enough that his wife doesn’t have to work and he’s never had to consider taking a second job.

Yet his top wages at the Daimler plant in Central Mexico are only about 500 pesos a day, or about $50, Alfredo says. That’s more than 10 times the minimum wage in Mexico — about 50 pesos a day or $5.

And for that reason he’s not immune to the possibility of losing his job, as Portlanders have lost theirs. “It’s not good, but that’s the industry,” he says of the competition that he sees mostly from China but also from robots.

Until 2007, some of the Freightliner trucks manufactured in Santiago Tianguistenco were made exclusively at Daimler’s Swan Island operation in Portland. Here, top wages for a worker would be more than three times what Alfredo makes—or about $182 a day.

Kim Jarmer, a spokeswoman for Daimler in Portland, says the plant in Santiago Tianguistenco predates NAFTA and “is not tied to NAFTA’s continued existence.”

But workers with Daimler in Portland disagree. They say the trade agreement definitely played a role in shifting production to Mexico, even if the latest development took place 13 years after the trade agreement’s inception.

“What they’re building now [in Mexico] is not just for the Mexican market,” says Joe Kear, business representative for Machinists District Lodge 24.

Merkley, who was endorsed by the machinists’ union but has not yet received any contributions from the group, concurs. To support his argument, he notes that the 25 percent tariffs on importation of trucks made outside of the United States disappeared after NAFTA’s implementation in 1994, drastically reducing the cost of foreign production. If NAFTA isn’t the sole reason for job movement from Portland to Mexico, it was certainly a factor, he reasons.

“The elimination of a 25 percent tariff would be significant in any corporate decision,” he says.

So are the vastly different pay scales in Portland and Santiago Tianguistenco.

In Portland, 55-year-old Gene McGlothlin has helped build Freightliner trucks for more than 30 years. Still employed in what remains of Daimler’s Swan Island operation, he now earns $22.75 an hour. He costs Daimler in two hours what it costs to pay senior Mexico workers for one whole day.

McGlothlin says he doesn’t begrudge Mexican workers their jobs. But the promise of NAFTA was that it would raise Mexican salaries to bring them in line with U.S. manufacturing salaries. Even for Alfredo’s top wages by Mexican standards, this hasn’t happened—not yet anyway.

“That’s not been the case because Mexico has just been a jumping-off point to other places, namely China,” McGlothlin says.

The argument by Democrats like Obama and Merkley for reworking international trade deals includes two key components. They say future versions of U.S. trade deals must improve labor and environmental standards so that treaties like NAFTA and the Central America Free Trade Agreement raise wages outside the United States and stiffen environmental protections south of the border.

Such changes, Merkley contends, would increase the cost of production in places like Mexico and thereby reduce the possibility of undercutting salaries and environmental protections north of the border.

“When you have a highly productive, highly skilled workforce here, the costs of going to Mexico are enormous,” Merkley says. “You keep them here unless there’s some incredible disparity in wages and environmental rules. And there’s an incredible disparity in both.… I don’t think Freightliner would have ever left what was a very strong, skilled workforce with a very good safety record here in the United States if NAFTA hadn’t been implemented.”

Nearly 15 years after its inception, NAFTA has brought modest rewards to the U.S., Mexican and Canadian economies, says Edward Alden, a senior fellow at the Council on Foreign Relations think tank in Washington, D.C. It’s fulfilled some of its promises—but fallen short on others. And experts are largely divided on the consequences. In the end, talks about changes to trade agreements like NAFTA often have more to do with politics than economics, Alden says.“NAFTA was oversold in order to push the agreement though a divided Congress,” Alden says.

Today, the divisions remain. Smith wasn’t in the Senate when Congress approved NAFTA in 1993, but he told Oregon Public Broadcasting this week that he would have voted for the agreement. John McCain was in office and voted for the trade deal along with 60 other senators, including Oregon’s former senators Republicans Bob Packwood and Mark Hatfield.

McCain has said while campaigning for president this year that he believes “those agreements should be kept.”. Spokespeople for Smith’s campaign and his U.S. Senate office declined several requests for comment.

And while Merkley and Obama advocate modifying NAFTA, for Alfredo that possibililty appears threatening. He says in Spanish, “It’s helping us.”