In Some States, Foreign Trade Means Jobs

Across the American industrial heartland, foreign trade often is tagged as a job killer.

But what if a U.S. state has a weak job market along with rapidly increasing exports? That would suggest at least part of the state's economy is becoming more competitive with foreign producers, not less so, and preserving and even creating good jobs in the process.

Joseph Quinlan, chief market strategist for Banc of America Capital Management, studied the economic track record of 18 American states, many of them so-called battlegrounds considered up for grabs in the coming presidential election, and found just such a pattern. As a group, the states had a compound annual average rate of growth in exports of 2.3% during the past four years, more than double the national average of 1.1%.

Even Michigan and Ohio, two states that together suffered the biggest net job losses, experienced the same pattern. Ohio's exports rose 4.6% a year, and Michigan's rose 1.5%. Without the added boost from foreign trade, Mr. Quinlan says, the bleak employment picture in such places would have been worse. He worries that protectionist sentiments will fester as the Nov. 2 election nears, particularly in light of the U.S.'s massive trade deficit, which in July stood at $50.15 billion. Workers should welcome foreign trade, rather than fear it, Mr. Quinlan says, adding, "The more integrated a state is with the global economy, the better its outlook."

Consider Ohio. It clearly has suffered from its heavy reliance on old-line industries, such as steel and plastics. Ohio's nonfarm employment fell by more than 240,000 from December 2000 to July 2004. But Ohio also has the advantage of its proximity to Canada, a big importer of U.S.-made goods, and of having a large inland port in Cleveland that also facilitates international trade.

"The parts of Ohio doing well are the ones with the more-diversified economic base," says Eric Fisher, an economist at Ohio State University who also serves as a research associate for the Federal Reserve Bank of Cleveland. For example, Columbus and its surrounding region in central Ohio have a strong mix of financial and other service- and logistics-oriented industries, as well as a large Honda Motor Co. assembly plant.

Mr. Fisher recently completed a yearlong study of why Ohio and other industrialized regions are losing manufacturing jobs. His conclusion: labor-saving technological progress is wiping out jobs not only in Ohio and the rest of the U.S., but in China and many other countries as well.

Ohio's biggest exporters also are its primary old-line industries - transportation equipment, machinery and chemicals. But in many cases, they are investing in their Ohio factories in order to remain globally competitive. In Toledo, DaimlerChrysler AG recently announced plans to pour $1.2 billion into an expansion of its sprawling Jeep production facilities. The new project has an innovative structure that involves suppliers owning vital portions of the manufacturing process. Exports from the Toledo complex rose 23% from 2000 to 2002. Vehicles are exported from Toledo to 77 countries.

The combination of a weaker dollar and the rebound of capital spending around the world has given a boost to companies such as Minster Machine Co., which already has booked as much business this year as it did in all of 2003. The company, based in Minster, Ohio, makes giant presses that shape metal for auto parts, electrical motors and appliances.

"Part of this is a hangover from people who put off purchasing in past years," says David Winch, the company's executive vice president of sales and marketing.

Minster has added 11% to its work force, which currently stands at 445, since the start of the year. But a closer look at what the company produces helps explain why job growth in the larger economy remains weak. The company's latest machines often are designed to eliminate labor, such as one type of press that creates threaded holes on metal parts while they are being stamped. In the past, that would have required a separate production step.

Of course, the other important side of this equation is imports. Industries that produce goods that compete directly with imports are inevitably hurt by an influx of foreign products. Richard DeKaser, chief economist at National City Corp. in Cleveland, says the negative impact on a state's industries from such import competition can more than offset benefits from rising exports.

Mr. DeKaser did a study last year that looked at the impact of Chinese trade on six Midwestern states, including Ohio, and concluded that the things China was buying from the U.S., such as software services and electrical equipment, tended to come from areas outside the Midwest, while the items produced in the region were those feeling more heat from Chinese competition.

"Trade is not intrinsically bad, but it does create winners and losers," Mr. DeKaser says.

One winner is Nordson Corp., a Westlake, Ohio, maker of equipment that applies adhesives, sealants and coatings in production processes. The company exports half its production and says the greatest demand is from the Far East.

Peter Hellman, Nordson's president, says he still isn't doing any major hiring. That is partly because the company didn't shed as many workers as it might have during the downturn, so it was overstaffed when business turned positive. "And you get productivity gains, even during a recession -- so we had three years of that in the bank," he says. "As you recover, you find you can do more with less."