This summer, Oreo lost one of its celebrity fans. While on the campaign trail in New Hampshire, then-Republican presidential candidate Donald Trump blasted Oreo for abandoning its Chicago factory and moving its production to Mexico. Trump swore he would “never eat another Oreo again.”
All this after Mondelez International, the company that owns Oreo, announced in August 2015 that it would be moving its Oreo production line from its Chicago bakery to Mexico. While the Chicago factory would continue to produce BelVita breakfast biscuits and other products, Mondelez would eliminate 600 jobs at the plant located at 7300 South Kedzie Avenue, about half of its workforce. The company claimed that moving production would save the company roughly $46 million per year.
While on the campaign trail, Trump promised to bring manufacturing jobs back to the U.S., but that is easier said than done. Even if Mondelez were to make Oreo great again by bringing those production lines back, the outcome may not be what laid-off factory workers want.
What would it take to entice Oreo back to the city? Chicago trade attorney Michael Hodes, partner at Hodes, Keating & Pilon, says most companies leave the U.S. in search of better access to resources.
“When you look at the cost aspect of this,” he says, “in just about every case, they have better and cheaper access to raw materials and the cost of labor is a lot less [in non-U.S. countries].”
It’s difficult to know the exact costs of raw materials Mondelez is paying in Mexico, but labor alone could save the company a substantial amount of money. Mexico recently raised its minimum wage from 70.10 pesos to 73.04. That roughly translates to $4.25, much cheaper than the federal and state minimum wage.
In the past, tariffs or duties have been imposed on products coming from countries to counteract outsourcing due to low labor cost, but cookies are duty-free, says Chicago trade attorney Thomas M. Keating, also a partner at Hodes, Keating & Pilon. There still may be other ways Trump and his administration could attempt to tip trade in favor of the U.S., but Hodes and Keating warn that these options could have serious consequences.
Trump could impose a tariff on Mexico if he and his administration are able to prove that Mexico is engaging in unfair trade practices, but Keating points out that low labor costs aren’t usually considered an unfair practice.
“I would have trouble intellectually trying to say that that is true,” he says. “Could a U.S. trade representative office that has a new administration come to that conclusion? That’s quite possible.”
Julián P. Díaz, assistant professor at Loyola University Quinlan School of Business, adds that even with the help of Congress, Trump would not have the power to raise tariffs on his own.
“Increasing tariffs has to be justified,” he explains. “The World Trade Organization has to give an okay for increasing tariffs. So if the United States increases tariffs unilaterally, this is going to make our trade partners mad, and they’re going to go to the World Trade Organizations and denounce it and the World Trade Organization is going to allow our trade partners to increase tariffs on the things that we sell to them.”
The U.S. also cannot set its own standards and expect Mexico and Canada to agree to its demands, Díaz says. If the U.S. wants to make changes to North American Free Trade Agreement, which governs all trade between the three countries, then the changes must benefit all parties. Angering Canada and Mexico—the U.S.’s first and third biggest trading partners, respectively—could possibly lead to a trade war that would ultimately hurt the U.S.
“Trade agreements are always about compromise,” Díaz says.
A trade war would mean more than just higher prices for consumers. It would threaten the high-paying manufacturing jobs at places like Boeing and Caterpillar, where American-made products are exported, says Keating.
“While we might be saving cookie line jobs,” he says, “we’d lose Caterpillar and other jobs that pay substantially more.”
That’s not to say that those cookie-line and other low-skill jobs matter less, but even without a trade agreement, they would be in danger. Even if Mondelez decided to invest in its Chicago plant, its plan would eliminate 300 jobs due to advances in automation. If Oreo and other manufacturers moved back to the U.S., the new jobs created would not go to low-skill workers but to those holding four-year degrees in fields such as engineering, Díaz says.
So will Oreo ever be manufactured in a 606 ZIP code again? No administration can stop companies from outsourcing, but Hodes says it’s possible to adjust the tax code to incentivize companies to keep production in the U.S. Even so, Díaz notes that this would mean less money coming into the federal government, which would raise the deficit. In areas where the U.S. does not have an advantage over the competition, it still may not be cost effective for companies to return to the U.S.
What Keating and Díaz suggest is improving the education system so the workforce becomes more qualified. This would help displaced manufacturing workers in addition to those who’ve yet to enter the workforce.
“This will take time,” Díaz says. “You cannot educate the labor force overnight.”
4 days ago