The New York Times - USA (2020-07-22)

B6 N THE NEW YORK TIMES BUSINESSWEDNESDAY, JULY 22, 2020

VIRUS FALLOUT | COMPANIES

facturing jobs flatlined last year and fell sharply with the pandemic. As of June, there were nearly 300,000 fewer factory jobs in the United States than there were when Mr. Trump was inau- gurated. For all the president’s criti- cisms of global supply chains, the economic incentive to outsource still prevails. While his trade pol- icy has made doing business abroad, particularly in China, more uncertain and costly, higher wages in the United States and the lure of foreign markets mean that most global businesses are choos- ing to remain global. Most firms that shifted out of China to avoid the crossfire of the trade war moved to other low-cost countries, like Vietnam and Mexico. Other companies say China is a growth market they cannot afford to lose. And while the pandemic has prompted a broader reassess- ment of the risks of global supply chains, it has also brought about the deepest economic contraction in generations, battering companies’ finances and forcing them to cut back on workers. Executives are deeply uncertain what demand for their products will look like in the coming months and years — hardly the environment to encourage big investments in new American factories. The furniture maker La-Z-Boy is one example. The company shifted its production out of China to Vietnam last year to bypass Mr. Trump’s tariffs on $360 billion worth of Chinese goods, according to tracking by Panjiva, a research firm. But on a June 24 earnings call, Kurt L. Darrow, La-Z-Boy’s chief executive, announced that the economic effects of the pandemic would force the company to make steep cuts to its work force, including in the United States. “While we were pleased to have brought back some 6,000 fur- loughed workers, we made the decision to permanently close our Newton, Miss., La-Z-Boy branded manufacturing facility and reduce our global work force by approxi- mately 10 percent,” he said. There could still be a more sig- nificant reordering of global factory activity on the horizon. The trade war and the pandemic have shaken the confidence of executives and investors; led to short- ages of toilet paper, meat, laptops and kettle bells; and exposed frail- ties in many companies’ business

models. As factories struggle to reopen with components still in short supply, some company executives are questioning the just-in-time supply chains they use to whisk products around the globe, rather than keeping warehouses stocked — and particularly how much they rely on factories in China, where production moved en masse in previous decades. Emily J. Blanchard, a professor at the Tuck School of Business at Dartmouth College who studies global value chains, said many firms were not thinking “in such broad and apocalyptic terms” be- fore the pandemic. “Covid has generated this new imagination of worst-case scenar- ios,” Professor Blanchard said. Under the pressure of the trade war, some multinational companies have opened new facilities in the United States, including Williams Sonoma and Stanley Black & Decker. Taiwan Semicon- ductor Manufacturing Company announced in May that it would set up a facility in Arizona, pend- ing funding. Makers of masks and protective gear, like Honeywell and 3M, are expanding American production during the pandemic. Politicians in both parties are offering proposals to encourage more manufacturing in the United States, such as more funding for

industries like semiconductors and pharmaceutical production. The Trump administration’s newly created U.S. International Development Finance Corpora- tion may offer tens of billions of dollars to help reshore manufacturing of protective equipment and generic drugs. The administration is also considering other tax incentives and “reshoring subsidies,” potentially as part of the next stimulus package, to try to lure factories home. But there is little data to support claims by administration officials that their trade and tax policies have already encouraged signifi- cant reshoring of manufacturing or created a “blue-collar boom.” U.S. factory output declined throughout 2019, as Mr. Trump’s trade war intensified, and it has

dropped further this year, suggesting there is no boom in new American factories. Since peaking in mid-2019, corporate investment has declined for three consecutive quarters. Total foreign direct investment in manufacturing was nearly one-third lower in the first three years of Mr. Trump’s tenure than it was in the final three years of President Barack Obama’s. Mr. Trump ostensibly fought his trade war on behalf of American manufacturing. But economists say it has actually been a drag on most U.S. factories, by increasing prices for components and incit- ing foreign retaliation. It has also coincided with a plunge in Chi- nese investment in the United States to $5 billion in 2019, the low- est level since 2009, according to Rhodium Group, a research firm. Some Trump officials and their supporters blame a broader global economic malaise that has dragged down factories world- wide. They point to the fact that imports fell last year, and now account for a slightly smaller share of the goods consumed by Ameri- cans, as a sign of their success. Calculations by the Coalition for a Prosperous America, a trade group that supports the administration’s policies, indicate that 30.6 percent of the manufactured goods Americans consumed in 2019 were imported, down slightly from 31.2 percent in the previous year. For much of the last two decades, the trend went in the opposite direction. There are good reasons for some companies to leave China. Wages are rising, whittling away

at one incentive to manufacture there. And deep fissures between the United States and China have opened in areas like security and technology, which could lead to more aggressive action by either side, regardless of who wins the presidential race in November. Still, more companies leaving China does not necessarily mean a win for U.S. workers. Like La-Z- Boy, many companies that are moving some facilities out of China — including Samsung, Has- bro, Apple, Nintendo and GoPro — are relocating to countries with even lower wages. While U.S. trade with China fell sharply last year, imports from Vietnam, Tai- wan and Mexico swelled. For many companies, making their supply chains more resilient has meant spreading out production around the world, not concen- trating it in the United States, said Chris Rogers, a global trade and logistics analyst at Panjiva. “If you want to hedge your risks, you need to stay global,” he said. Michael W. Upchurch, the chief financial officer of Kansas City Southern, which runs railroads through Mexico and the United States, said in an earnings call this year that more companies were eyeing Mexico for new facilities because of the tariffs on China and Mexico’s relatively low wages and proximity to American customers. Building new factories would take time, he said, “but over the next few years, we would cer- tainly expect to see benefit.” For other companies, China still beckons. Purveyors of consumer prod-

ucts, fast food and automobiles continue to expand in China, which is home to a rapidly growing consumer market and the world’s greatest concentration of factories. Some firms have strug- gled to find factory space or skilled workers outside of China. Data from Rhodium Group show that U.S. foreign direct investment in China continued to rise in 2019, despite the trade war. In May, the U.S. engineering giant Honeywell opened a headquarters in Wuhan, the original epicenter of the coronavirus out- break. Tesla has announced plans to expand its Shanghai factory, while Popeyes Louisiana Kitchen, Walmart and Costco are planning new stores in China. Some executives insist that, contrary to popular belief, their investments in China allow them to employ more workers in the United States. Milliken & Company, a textile maker with headquarters in South Carolina that employs 8,000 people, still performs the bulk of its manufacturing in the United States. But it has opened factories in China in recent years to serve that market, enabling it to hire more people back home, said Halsey M. Cook Jr., the company’s chief executive. “I think you’d hear the same thing” from other major multinational companies, Mr. Cook said, like John Deere. “Global supply chains are complicated. When you’ve seen one, you’ve seen one.”

Mr. Trump toured a Honeywell mask factory in Phoenix in May. Honeywell is expanding American production.

DOUG MILLS/THE NEW YORK TIMES

No ‘Blue-Collar Boom’

As a Pandemic Rages

FROM FIRST BUSINESS PAGE

Jeanna Smialek contributed report- ing.

Economic incentives

for global supply

chains persist.

political efforts that are antithet- ical to their public stances. They financed state attorneys general seeking to undo the Affordable Care Act, which has provided health insurance for millions of Americans during the pandemic; they provided funds that backed local legislators who tried to roll back L.G.B.T.Q. rights; and they gave money that supported candidates challenging federal climate change initiatives. Uniquely, public companies are the biggest benefactors of key political committees supporting the campaigns, donating more than individuals or other groups. The analysis of donations by the Center for Political Account- ability, a nonpartisan organiza- tion that tracks political disclo- sures, reveals many of the con- tradictions: Walmart is among the companies that donated money to the Republican Attor- neys General Association, which supported a group of state attorneys general including Ken Pax- ton of Texas, who was narrowly re-elected in 2018 and is now leading a group of Republican- run states in a Supreme Court case that seeks to overturn key aspects of the Affordable Care Act. AT&T, which says its policies prohibiting discrimination against employees based on sexual orientation date back to the 1970s, provided funds to the same group, which helped elect

Pat McCrory in North Carolina in

Mr. McCrory, the former
governor, signed the “bathroom
bill,” which required transgender
people to use public bathrooms
corresponding to the gender
listed on their birth certificates
(and was later overturned).
Microsoft, which says it sup-
ports sustainability, provided
money to the Republican Gover-
nors Association, which funneled
money to help elect Tom Corbett
in Pennsylvania in 2010, who
reduced emissions standards for
the oil and gas industry.
These corporate donations to
state-level political groups go to
associations known as “527s,”
named after a section of the tax
code. The 527 designation allows
companies to channel money to
candidates without giving to
specific individuals. The dona-
tions, which come from corporate
treasury departments — not via
company political action commit-
tees — can be tracked by follow-
ing the money paid to a 527 and
examining how it is distributed.
The numbers tell the story: Of
the $1.3 billion raised over the
past decade by the Democratic
and Republican governors asso-
ciations, state legislative cam-
paign committees and attorneys
general associations, 46 percent
— or nearly $600 million — came
from public companies and their
trade associations, far more than
the 22 percent share from indi-
viduals and 16 percent from
private companies, according to
the Center for Political Account-
ability. Two-thirds of the corpo-
rate and trade association

money, around $390 million, went to Republican-affiliated groups. Companies argue that they donate to organizations associ- ated with both parties, that their contributions are not endorsements of particular politicians or policies, and that they have no control over how their money is used by the groups. All of that is true, but these same companies’ stances on particular social and environmental matters put them largely at odds with Republican lawmakers and leaders in state houses around the country. Of course, for companies that are as outspoken about lower taxes or lighter regulation as they are about climate change, then their donations to Democratic groups could also be seen as working against their interests. A spokesman for Walmart

said, “We support elected officials on both sides of the aisle to ensure our company can continue to save our customers time and money while operating in the very best business environment possible.” Its donations to 527 groups are intended to “bring together policymakers to solve problems at the state level” and are not endorsements of any particular politician. Indeed, companies are motivated to make such political donations because it potentially buys them access — and they hope, favor — with politicians who can directly affect their businesses. They may want to bend a politician’s ear on a tax treatment, government contract or regulatory action. During the pandemic, having a direct line to the governor’s office has been critical in how some businesses have sought to influence reopen- ing plans. Or a company could face a legal challenge. Facebook, which has given to both Republican and Democratic state attorneys general associations, is facing an- titrust investigations by 47 states as well as the Department of Justice. Donations to 527 groups may give companies leverage with intended legislators, but since companies have no say how their money is spent by these organizations, a share of their donations may also go to figures that donors wouldn’t choose to support in isolation. A spokesman

for Microsoft said, “We don’t have a role in decisions these groups make to provide financial support to individual candidates for public office.” Today, as employees and the public expect more of corporations beyond maximizing profits, it is untenable for a company to espouse a public position while giving money to political figures, even indirectly, who seek to undermine it. Some corporate giving is seemingly more hypocritical: Companies like Google, AT&T, Sony, and Target — which say they support Black Lives Matter — have PACs that directly donated to the election campaign of Senator Kelly Loeffler of Geor- gia, who says she is “adamantly” opposed to the group, as Judd Legum and Tesnim Zekeria of the outlet Popular Information reported. Bruce Freed, the president of the Center for Political Account- ability, said that “companies aren’t paying attention — they give to these groups and that’s essentially where their due dili- gence stops.” The data shows that some of the biggest companies in the nation have funded “severe restrictions on or prohi- bitions of abortions, the rolling back of L.G.B.T.Q. rights, the filing of lawsuits challenging federal climate change initiatives, and gerrymandering, some of it racially motivated,” all while publicly supporting the opposite, he adds. In truth, the donations — often under seven figures — are small in relation to the spending power of companies like Microsoft or Walmart. But this money can have an outsize influence on state-level politics, especially when pooled among many companies. The result is the election of politicians who can change the rules for everyone in a state, including on the issues about which companies say they care about. At minimum, this risks undermining the time, effort and money that companies devote to the environment, working condi- tions or other causes. Even worse, it raises questions about how genuinely those companies value the issues they say they do.

Corporations Hurt Social Causes With Their Political Donations

FROM FIRST BUSINESS PAGE

Vice President Mike Pence at a Walmart warehouse in Gordonsville, Va.

ANNA MONEYMAKER/THE NEW YORK TIMES

APPAREL
Men’s Wearhouse Owner Plans
Layoffs and Store Closings

Tailored Brands, the owner of
Men’s Wearhouse and the JoS. A.
Bank chain, announced plans on
Tuesday to eliminate 20 percent of
its corporate positions and close
up to 500 of its retail stores, citing
business disruptions resulting
from the coronavirus pandemic.
“While today’s announcement
is a difficult one, we are confident
these are the right next steps to
protect our business and position
us to more effectively compete in
today’s environment,” Dinesh
Lathi, the company’s president
and chief executive, said in a
statement.
The apparel industry has been
particularly hard hit by the pan-
demic, prompting bankruptcy fil-
ings from retailers like Neiman
Marcus, J. Crew and J.C. Penney.
Stores largely shut their doors
during the lockdowns, leading to
unpaid rents and staff furloughs.
With millions of Americans un-
employed or working from home,
and a pause on proms and wed-
dings, demand has plummeted for
Tailored Brands’ core product:
men’s suits. The company re-
ported that net sales had fallen by
60.4 percent in the first quarter of
the year, which ended May 2, com-
pared with the same period last
year.
Tailored Brands also an-
nounced changes in leadership on
Tuesday. Jack Calandra, execu-
tive vice president and chief finan-
cial officer, will leave the company
as of July 31. Mr. Lathi and Holly
Etlin, a managing director at Alix-
Partners who has been appointed
to the newly created role of chief
restructuring officer, will jointly
take over Mr. Calandra’s responsi-
bilities.

RETAIL

Walmart Will Give Employees
The Day Off on Thanksgiving

Walmart said on Tuesday that it
would not open on Thanksgiving
Day, pushing back the traditional
start of the holiday shopping sea-
son as a show of appreciation for
its workers.
“We know it’s been a trying
year, and you’ve stepped up,” John
Furner, the head of Walmart’s U.S.
operations said in a memo to em-
ployees. “We want you to enjoy
the day at home with your loved
ones.”
That large retailers like Wal-
mart have opened their doors on
Thanksgiving has been a sore
spot for labor groups, who have
said that additional shopping day
comes at the expense of employ-
ees and their families.
A Walmart spokeswoman said
the retailer had been open on
Thanksgiving since “the 1980s.”
The company, which is the
world’s largest retailer, said it
made the decision to close on the
holiday after one of its employees
wrote a letter suggesting it.
Walmart has experienced a
surge in demand during the pan-
demic, ranging from groceries to
bicycles and electronics. The com-
pany has also been growing its e-
commerce business, as more of its
customers shop online.

FOOD
Coca-Cola’s Revenue Plummets
As Many Shoppers Stay Home

The beverage giant Coca-Cola re-
ported a big drop in revenue and
profit in the second quarter as
many consumers remained at
home during the coronavirus pan-
demic.
Revenue fell 28 percent in the
quarter to $7.2 billion, while net in-
come dropped 33 percent to $1.759
billion, the company said in an
earnings report. Executives said,
however, that they believed the
second quarter was likely to be
the most challenging of the year.
Coca-Cola attributed much of
the declines in the quarter to con-
tinued weakness in its away-from-
home channels, such as restau-
rants and theaters, which either
remained largely closed or had
limited capacity in the quarter
globally. That segment of the mar-
ket makes up about half of Coca-
Cola’s total revenue.
But executives said they
started to see improvements in
the away-from-home segments as
lockdowns around the world be-
gan to ease.

Virus Briefing

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The New York Times - USA (2020-07-22)

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