NAFTA's Impact on North Carolina, part 1

No end in sight to N.C. job losses

By KARIN RIVES, Staff Writer

Raleigh News and Observer, Sunday, August 18, 2002
FIRST OF THREE PARTS: Today: Globalization creates a lost generation of workers.

After 30 years in a Cabarrus County textile factory, Shirley Chapmon is out of a job. To understand why, it helps to take a trip to the Wal-Mart Supercenter in Concord just a few miles down U.S. 29 from the massive red-brick Fieldcrest Cannon Plant 1 in Kannapolis, where she was laid off in October. Stacked on the shelves are bath and kitchen towels that Fieldcrest once made in North Carolina. Now they're woven in India and Pakistan. Fieldcrest and its parent company, Pillowtex, have let go of more than 950 North Carolina workers since 1994 because of foreign competition.

In another aisle at the same store are Hamilton Beach/Proctor Silex toasters that workers in Washington, N.C., assembled until 1999. Now they're made in Mexico. The appliance company's trade-related layoffs in North Carolina: more than 1,800. Over in children's wear, the Gerber baby pajamas once sewn in Lumberton now say "Made in Guatemala." Gerber laid off 294 workers in Robeson County.

Shirley Chapmon's job is but one of many North Carolina casualties of the United States' vigorous embrace of the global market. Since 1994, the state has lost more jobs than any other state as a direct result of agreements that reduce and remove import quotas, tariffs and other barriers to free trade. Now, nine years after Congress approved the first big treaty of the free-trade era, the North American Free Trade Agreement, the pain is spreading rapidly beyond the displaced workers and their families. From the coast to the Piedmont to the mountains, dozens of communities reel from the loss of their largest employers. The state itself faces an unending budget crisis, much of it because of the slow- motion collapse of its traditional manufacturing industries.

And the bleeding is far from over. It may not be half finished. The worst carnage has occurred in the textile, clothing and furniture industries, where 140,000 jobs have been eliminated since 1994. But the damage is broader than that; any worker with a low-skilled, low-paying factory job is at risk of losing that job to an even lower-paid worker in Latin America or Asia.

Despite eight years of layoffs, 700,000 people -- or nearly one-fifth of the state's work force -- continue to earn their paychecks at factories. By some estimates, 200,000 or more of those jobs will be gone within a decade. By the U.S. Labor Department's official tally, the state has lost nearly 87,000 factory jobs as a direct result of liberalized trade since NAFTA took effect. That is a gross undercount, however. It doesn't even include all factory workers who have lost jobs to overseas competition. And it omits altogether indirect job losses, such as those at restaurants or shops near an idled plant that lose customers and shut down.

Hit hardest are the machine operators, weavers, spinners, furniture builders and assembly line workers such as Chapmon. Most earned modest but steady wages, had health insurance and -- most important -- a sense of job security. "My dad worked at Plant 1 until he retired, and several of his children worked there," Chapmon, 49, said. "Everybody thought the mill would be there forever." From the displaced workers and their families, the pain ripples out. The closing of a factory can create an instant budget emergency in a small town, which loses not only a key employer but a big taxpayer and utility customer as well.

At the state level, the layoffs help fuel the steepest drop in government revenue since the late 1940s. Losing a job transforms many taxpayers into recipients of public money. They pay less income tax or none at all. They buy less and thus pay less sales tax. Often, they lose health insurance and fall back on Medicaid.

Many of those laid off fall through a poorly stitched safety net that Congress created to help casualties of free trade, landing in bottom-wage service-sector jobs or long-term unemployment. A report in 2001 by the state Employment Security Commission found that one-third of the displaced factory workers are absorbed by the lower-paying service and retail sectors. Two years after the layoff, their median pay was just 63 percent of what it had been at the factory.

Until recently, the erosion of the state's manufacturing base went largely ignored by political and business leaders, in part because the booming economies in the Triangle and Charlotte helped mask the crisis. It has taken a recession to expose the full extent of the distress in the state's mill towns. "For a long time, the disease progressed so slowly that we didn't notice it," said state Sen. David Hoyle, a Gaston County Democrat from a family of textile workers. "There were 100 jobs lost here, 80 there, 500 there. And then the cumulative effect finally got us. We began to lose 3,000 jobs instead of 100, and then the recession came. Now we've got a huge problem."

Still, the push for ever freer trade continues. Congress' approval this month of a bill giving President Bush the authority to negotiate "fast-track" trade deals is expected to speed the process of reaching new agreements in the Americas and Asia.

Why is the support so strong throughout government and corporate America? Primarily because on Wall Street and in the corporate suites of the Fortune 500 companies, the view is all but unanimous that free trade is good for U.S. businesses. It opens up new markets; from 1994 to 2001, U.S. investment overseas rose 56 percent to $114 billion. Trade deals protect the companies' patents, trademarks and copyrights, and force them to be efficient and competitive. Business isn't the only winner, however. Consumers benefit, too.

Array of choices

Americans, rich and poor, can now find prices and choices they wouldn't have imagined a decade ago. The Pakistani-made kitchen towels at Wal-Mart cost just $5 for a pack of 24. Chinese-made Sunbeam toasters cost $6.67. Costa Rican-made jeans go for less than $10.

Then there are the exotic foods, imported furniture and fashionable clothes that many Americans now take for granted. "I remember complaining to my wife 10 years ago about how hard it was to find tropical fruit during the winter," recalls Dennis Rondinelli, a management professor at UNC-Chapel Hill and an expert on international markets. "That's just not an issue anymore."

Does free trade create more jobs than it destroys? Remarkably, no one knows. The U.S. Labor Department makes no effort to measure the gains and losses at the national or state level. No North Carolina agency keeps count either. Several private groups, most with pro-business or pro-labor agendas, produce widely varying estimates.

Eighty years ago, textile and apparel companies abandoned New England for cheaper labor in the South, leaving behind struggling towns such as Lawrence, Mass., and Woonsocket, R.I. When NAFTA took effect in 1994, many packed up again -- this time for Mexico, where wages were lower still. And now, with Asia emerging as a new haven for financially pressured manufacturers, they're moving to the other side of the world.

Katie Holly of Eden is among those who have landed on the losing side of this new global economy. Last year, she was laid off from the Rockingham County yarn plant where she had worked since 1977. Workers at the mill saw the trouble coming, trying to joke their fears away. It wouldn't be long now, they would yell over the noise of the spinning machines, before NAFTA would swallow their jobs. "When they started to let certain people go and cut some machines off," Holly said, "we knew."

Spray Cotton Mills in Eden closed for good in January 2001, leaving 144 more textile workers unemployed in a small, struggling town. NAFTA and subsequent trade deals can't solely be blamed for such job losses; companies have been investing overseas for decades to cut costs. But the agreements of the 1990s to erase barriers to free trade gave unprecedented momentum to the forces that are now reshaping the economy. The pain is distributed unevenly. In rural Yancey County, trade- related layoffs have eliminated one in every eight jobs, compared with just one in 200 jobs in urban counties such as Wake and Mecklenburg.

Adding to the deepening divide is that businesses most likely to thrive in the globalized market -- high-tech concerns, pharmaceutical companies and other New Economy outfits -- tend to be in places such as Research Triangle Park. There is little to attract them to Yancey, Beaufort and Robeson counties, where the need for good jobs is the greatest.

Holly, 60, was among the Spray Cotton Mills workers who signed up for classes at Rockingham Community College to earn a high school equivalency diploma. By doing so, she tried to take advantage of the No. 1 remedy that Congress has provided for workers displaced by trade: free tuition and extended unemployment benefits for 18 months for those who learn new skills. But after all those years on the factory floor, Holly found studying a struggle, and she dropped out. She now works part time in the kitchen of a nursing home, earning about $150 a week, roughly half what she made at the yarn plant. "That's the only job I could get," she said. "Everything else you have to have some degree for."

Holly, recently widowed, can no longer afford to eat out or buy new clothes. Evicted from a rental house after falling behind on her payments, she now lives in a motel with her daughter, Treness, 32, and two grandchildren, Christian, 8, and Charles Lea, 22 months. Still, Holly refuses to complain. Money isn't everything, she said, "and I love my job." She also has high hopes for her daughter, who is working on an associate's degree in criminal justice.

Holly's story is a familiar one to Donny Hicks, who has witnessed the fall of the state's manufacturing sector since the mid-1990s from a front-row seat as head of the Gaston County Economic Development Commission. Gaston has suffered 29 trade-related plant closings and layoffs since 1994, more than any other county in the state. At least 5,000 workers have been affected. "On a macro-level, we understand the need to have open and free trade for the overall economic health of the United States," Hicks said. "But a lot of that will come on the backs of workers in North Carolina. I think we're going to have a whole generation of workers that is lost."

Fiscal woes in Gaston

The layoffs have contributed to a fiscal squeeze that forced Gaston County to raise property taxes 11 percent last fiscal year and ponder deep spending cuts. Sales tax collections, the county's second-largest source of income, fell 4.5 percent from 1997 to 2001.

And more pain lies ahead for Gaston and other manufacturing-dependent counties; provisions of existing trade deals guarantee it. The 1994 agreement that created the World Trade Organization, for example, contained a 10-year schedule for eliminating numerous import quotas worldwide. In 2005, all import quotas for textiles and clothing will be gone, allowing China and other low-cost countries unrestricted access to the U.S. market. Apparel and textile makers refer to 2005 as "the cliff."

That same year, tariffs on many other products, including computers and other high-tech equipment, will be reduced or eliminated to foster free trade among the World Trade Organization's 144 member nations. "I don't think there's anything anybody can do to stop it," said Mark Vitner, a Wachovia Securities economist in Charlotte who projects that at least 200,000 North Carolina manufacturing jobs will be lost over the next decade. "This is not something that you can build a policy around to try to stop," he said. "The challenge for us will be to make sure retraining opportunities exist so we can redeploy these people."

Laid off in 1999 from the Hamilton Beach/Proctor Silex factory in Washington, Crystal Oden cast her lot with the New Economy. She enrolled in an information systems program at Beaufort Community College, and in May she graduated with an associate's degree. But she is finding that jobs are scarce in Beaufort County -- the unemployment rate is 9 percent -- and that computer jobs are scarcer still.

For now, Oden, 42 and the mother of two children, has settled for an accounting job at a bank. She's making just under $20,000 -- a 17 percent drop from the $24,000 she earned at Hamilton Beach and far below what she hoped to make in the field she trained for. "I was led to believe that there would always be a job for me in computers," she said. "I thought something would come open."

Beaufort County's labor pool shrank nearly 4 percent from 1997 to 2001, a period in which Wake County's work force grew by 9 percent. The county's trade-related job losses total at least 2,200, equal to nearly 12 percent of the work force. Beaufort County finances are in tatters. Sales tax collections dropped 2.5 percent, and the rate of growth in property tax collections was half that of the first half of the 1990s. The county slashed spending and depleted its cash reserve below the level required by the state. After the state Local Government Commission demanded action, the county raised property taxes 6 percent.

Tom Thompson, the county's director of economic development, likens the effect of the trade agreements to a bursting dam. 'They blew it up' "They backed water up for years and had all this pressure building up, and then suddenly someone said, 'We shouldn't have these restrictions.' But instead of opening the dam slowly, they blew it up. What that meant for Beaufort County was more than 3,000 jobs lost over a 24-month period."

The Hamilton Beach factory where Oden worked for 19 years had cut nearly 1,400 jobs by the time it moved all its operations to Saltillo, Mexico, in 1999. With the plant went $1.1 million in annual revenue to the city-owned electric utility, $65,000 in property taxes and nearly $39,000 in water and sewer revenues. City Manager R.L. Willoughby recalled his desperate plea to a visiting Hamilton Beach executive about a year before the plant closed. Because the city owned the building and all utilities that served the factory, Willoughby was prepared to offer the company a generous break on expenses. "But before we could even make the offer, that was the end of the discussion," Willoughby said. "Clark Leslie, the corporate manager, told me, 'R.L., you can give me free power and free rent, and it's still a loser because labor is so cheap in Mexico. We'll be paying more for power and more for the building in Mexico than we do now, but we'll still be saving millions of dollars every year.' "

More than 250 miles west of Washington, in the Burke County community of Valdese, Town Manager Jeffrey Morse is worrying about the $400,000 annual shortfall that's rapidly depleting his budget reserve. Two years ago, Valdese's largest water and sewer customer, the VNC dyeing and finishing plant, shut down, blaming foreign competition. Morse and his town council now face an agonizing choice: raise utility rates at least 25 percent to make up for the revenue loss -- a step they fear would drive more industries out of town -- or default on a $6 million utility debt. "It's going to be a fiscal crisis that we can't even imagine," Morse said.

Although the NAFTA agreement with Mexico and Canada often serves as the trade bogeyman for many North Carolinians, it is now being eclipsed by deals with other, larger nations and regions. With China's acceptance into the World Trade Organization and other Asian nations expanding their reach, Western manufacturers are rushing to set up shop or outsource their production in a region where wages and overhead costs are even lower than Mexico's. That trend, economists say, could be the final blow for many U.S. manufacturers.

J. Charles Saunders is a rarity in Gastonia: He owns a thriving textile company. Saunders Thread Co. has staked out a profitable market niche spinning high-tech thread from sophisticated, man-made materials such as Kevlar. The thread is used to make clothing worn by pilots, firefighters and the military, and in products such as parachutes and fiber-optic cables. But Saunders and his 45 employees are worried. Chinese competitors are learning how to make Kevlar thread, and soon they might be able to deliver it to the United States at prices Saunders cannot match. Saunders says he hopes his company can stay in business for 10 more years, but his top aide thinks four years is more realistic. "The people in my plant don't want [retraining]," Saunders said. "They want their jobs."

Economists say the Asian threat dwarfs all others. "When you bring Asia into the picture, you're talking about a collection of national economies with a total production capacity that is huge," said Gordon Hanson, a University of California-San Diego economist who focuses on how foreign trade affects local economies. "It's big enough to completely eradicate the U.S. apparel and textile industries."

Likely victims

And it won't stop there, Hanson said. Other sectors he regards as vulnerable include furniture, assembly of electronic goods, shoe production and food processing -- all significant in North Carolina. Unsettling signs are appearing in technology and some white-collar sectors, too. Software companies, call centers and banks have begun to move operations to China, India and Latin America, where overhead is low, workplace and environmental regulation is lax, and well-educated workers command less in wages than their U.S. counterparts.

At Anita's Country Kitchen in Hickory, workers crowd around Formica tables during their half-hour lunch breaks. Most are employed at one of the city's two dozen furniture factories. The conversation there turns often to the No. 1 concern in this self-proclaimed Furniture Capital of the World: How long will it last?

In the past year, furniture factories in Hickory eliminated hundreds of jobs as the recession chilled consumer spending. Those layoffs, combined with cutbacks at textile and fiber-optic plants, helped push Catawba County's unemployment rate to 9.4 percent from a low of 1.8 percent two years earlier. Some furniture plants have since increased hours and called back workers, and a few even advertise job openings. But Clint Drovie, 31, an upholsterer at the Vanguard Furniture plant, is worried. A single dad who takes home $330 a week after taxes, Drovie builds chairs on hardwood frames that used to be made in the United States and now come from Italy and Thailand. "It's putting money in my pocket and all, but it's something that has bothered me about the job," he said.

Drovie is well aware of what NAFTA has done to the local textile economy. He has also heard that furniture may be next now that China is ramping up its exports of wooden and upholstered pieces. Employees at the plant have been summoned to meetings during the past 18 months and told that quicker turnaround rates and faster shipping are needed to keep the plant competitive.

End in sight?

Drovie can't help but wonder whether it's the beginning of the end. "If the furniture industry around here dries up, it's going to hurt people," he said. "I think there has to be something done, government-wise, to keep companies from going out of the country."

This year Michael Dugan, president and chief executive officer of Henredon Furniture in Morganton, introduced his first Chinese-made furniture collection made specifically for traditional American taste. He expects production to rise in coming years. "I look at all this furniture being made overseas, clothing, cars, electronics -- and do you know whom it's made for?" Dugan said. "It's made for Americans. But how are we going to be able to pay for it if we shut all the plants down? "We're sitting here in the middle of the road, and there's not a thing we can do about it."

  • On to part 2 of NAFTA's Impact on NC