Well, that didn’t take long.
On July 22, FreightCar America announced that it would close its Roanoke operation.
On Sept. 19, the company announced it had formed a joint venture with a Mexican company to produce railcars in Castaños, Mexico.
The company said that when the new Mexican plant is operational in mid-2020 “FreightCar will have substantially repositioned its manufacturing footprint” to its “state-of-the-art” plant in Muscle Shoals, Alabama, and the new factory in Castaños, a small city in northern Mexico within easy shipping distance of the border at Laredo, Texas.
FreightCar America President and CEO Jim Meyer went on to say: “Getting ourselves repositioned and on the right cost structure are core to our ‘Back to Basics’ strategy. We are making great progress in our material and fixed cost reduction efforts, and now, with the addition of this partnership in Castaños, we will become even more competitive in certain railcar types that weren’t economically feasible previously. While we complete construction of this new facility, we remain deeply committed to Shoals as our primary manufacturing platform and will continue with our plans to make incremental investments and consolidate our Roanoke operation into Shoals.”
Technically, the Roanoke jobs are getting moved to Alabama, not Mexico, but the timing is certainly interesting. Make no mistake: When the company talks about getting “repositioned” with “the right cost structure,” what it means is that it wants to pay workers less overall — and labor costs are a lot less in Mexico.
The business website Seeking Alpha reported last year FreightCar America’s costs were high, its profits low and the company had not been able to regularly pay dividends to shareholders. Accordingly, the company has been trying to reduce costs for several years now. In 2016, it shut down an administrative office in Johnstown, Pennsylvania, and eliminated 15% of its salaried workforce company-wide. In 2017, it shut down an entire factory in Danville, Illinois, that once employed as many as 254 workers. Big picture: One way or another, FreightCar America has been eliminating American jobs — and moving some of those to Mexico. Its shareholders should be very pleased.
The remarkable thing about this is not that it’s happening but that there’s been such silence. We haven’t heard a single politician say a word. This would seem the sort of thing that President Trump would be upset about — if he weren’t so busy trying to get foreign governments to investigate a political rival. We haven’t heard from any local politicians, either — even though the 200 jobs lost at FreightCar America are more than the 130 lost at Norfolk Southern recently, and that got some attention. Of course, there’s not much any of those politicians — from Trump on down — can do about this. This is simply how the economy works, and not many people seem interested in overthrowing the free market.
Can’t we blame the North American Free Trade Agreement here? Not really. That trade deal did lower trade barriers between Mexico and the United States (and Canada, too). Keep in mind, though, that most economists conclude NAFTA led to a net increase in jobs in the U.S. The key word there is “net.” Some got lost, a few more got created. That’s bad for those on the loss side of the ledger but good for the economy overall. If we’re going to get upset about FreightCar America moving some U.S. jobs to Mexico, then we have to also keep in mind that Metalsa, a Mexican auto parts maker, has been creating jobs in the U.S. Metalsa’s expansion in the U.S. is a direct result of NAFTA. Even if the 200 FreightCar America jobs in Roanoke went directly to Mexico instead of Alabama, they’re more than balanced out by the 255 Metalsa jobs in Botetourt County. What really happened here is that Botetourt County gained jobs from Mexico; Roanoke lost jobs to Alabama— and it’s probably Danville, Illinois, that really lost jobs to Mexico. Companies have been growing and shrinking and moving around for a long, long time. The only thing really new here is now it’s a lot easier to ship products —and jobs — all around the world.
Shouldn’t an American company put a priority on American jobs? That’s a point of view expressed by economic nationalists on both the left and the right. That’s something where both Trump and Elizabeth Warren have a lot in common. The trick is how do you make that happen? Companies owe a fiduciary responsibility to their shareholders. To change that — and place a higher value on workers — requires some fundamental re-ordering of the free market system. Democrats, less committed to unfettered capitalism, might be quite fine with that. The more interesting philosophical debate is taking place on the right, where economic nationalists are starting to find themselves at odds with more traditional free market conservatives. Still, even they are at a loss for what to do. Ripping up trade deals isn’t necessarily the answer — because to save those FreightCar America jobs, you might sacrifice those Metalsa jobs in the process, and even then you might not be able to save them.
That’s because there’s another reason why FreightCar America has found its costs high and its revenue low: The company used to mostly make coal cars and coal has been declining. In 2012, 7,538 of the 8,325 cars the company made were coal cars. In 2016, only 43 of 5,559 were. As a result, the company has been trying to diversify its product line. The Roanoke facility was primarily devoted to coal cars. To that extent, the closing of the Roanoke operation can’t be blamed on Mexico, but can be blamed on the forces that are killing off coal.
We’ve said this before, but it bears repeating: People used to blame “the war on coal” on the Obama administration, but now it’s really being waged by the free market. More coal-fired plants have closed under the first two years of Trump than in all of Obama’s first term and there’s nothing that Trump can do to stop it. The free market is now moving to cheaper forms of energy – sometimes natural gas, sometimes wind and solar. Even China— the world’s biggest consumer of coal —is moving rapidly toward renewables. The real “Green New Deal” is happening in Beijing. The demise of coal may produce a cleaner planet but does have some economic consequences — negative ones in Roanoke and positive ones in Muscle Shoals, Alabama, and Castaños, Mexico.
We can either complain about this or prepare ourselves for a future that will bring even more changes.