How the American South could prevent the revival of jobs in the 'Rust Belt'

President Trump has promised to bring back industrial jobs to the US Rust Belt. But industrial growth in states filled with his own supporters, such Alabama, Mississippi, and the Carolinas, may present the biggest roadblocks for revitalizing the economy in other parts of the country.

Brynn Anderson/AP/File
A team of steel workers stand near a signed final steel beam before placing the beam atop NASA's Marshall Space Flight Center structure on April 12, 2016, in Huntsville, Ala. Industrial growth in the South could dampen President Trump's promise to revive jobs in the American Rust Belt.

In the years since the 2008 financial crisis, this southern US port city has attracted a new Airbus factory, seen its steel industry retool, and gained thousands of jobs building the Navy's new combat vessel.

Some 300 miles north in Huntsville, Ala., new businesses sprout in farm fields drawn by readily available land, low taxes, flexible labor rules and improving infrastructure.

As President Trump faces pressure to deliver on his promise to revive manufacturing in the northern "rust belt" states that put him in the White House, his biggest challenge may not be Mexico or China, but the Southern US states that form the other pillar of his political base.

States like Alabama have built a presence in the global supply chain in direct competition with the country's Midwestern industrial heartland, and even if Trump coaxes jobs back to the United States they may well head south rather than north.

Whether the Rust Belt's expectations are met will be central to 2018 US mid-term elections and likely frame the presidential race in 2020.

The Southern states are reliably Republican, but the party's ability to repeat its success in Midwestern swing states, such as Michigan, Ohio, and Wisconsin, may hinge on whether the Trump administration delivers on its economic promises.

For a decade now, nine southern states – North Carolina, South Carolina, Georgia, Tennessee, Kentucky, Alabama, Mississippi, Louisiana, and Texas – together have accounted for a larger share of the US economy than nine northern states that defined America as the 20th century's industrial superpower, according to a Reuters analysis of federal data.

The analysis compared gross domestic product, population and other factors among Northern and Midwestern states that played a key role in Trump's victory or are typically considered part of the industrial heartland, with those in the South and along the Gulf Coast that have become an emerging destination for auto and other investment.

Florida, a state whose population has boomed under an influx of retirees, many of them from the North, was excluded.

Free land and degrees

Economists and industrial site consultants say the reasons behind the trend have moved beyond lower wages and lower levels of unionization. Per capita income in the South has now almost caught up with that in the Midwest, and its skilled workforce continues to grow as college graduates move in.

"Labor? Perceived advantages. Taxes? Some of these are fairly low (tax) states. Real estate? For big projects that are going to employ three, four, five thousand people, you can find free land – zero cost land," said Darin Buelow, an industrial site specialist with Deloitte Consulting.

In the South, business executives and development officials interviewed by Reuters were less likely to call for new tariffs and trade deals than to worry about how any new regime may disrupt a system they have learned to work with.

David Fernandes, president of Toyota Motor Manufacturing Alabama, said that of the roughly 700,000 engines the factory made last year, half went to Mexico and Canada. The facility also makes engines for cars assembled at a Toyota plant in Georgetown, Ky. "Anything that hinders the opportunity to provide product to a customer is what is concerning," he said.

Plants in Kentucky and Indiana gave Toyota a US foothold in the 1980s and 1990s, but in this century the Japanese carmaker turned to Alabama, Texas, and Mississippi for expansion.

Located on former cotton fields, the company's Huntsville plant now employs more than 1,400 people and churns out about 3,000 engines a day.

Gunmaker Remington Outdoor came to Huntsville lured by $110 million in tax and other concessions. Its factory here is expected to eventually employ 2,000, and it has already begun shifting employees from elsewhere, including 100 from the town in upstate New York where the company was founded two centuries ago.

Jeremy Littlejohn moved his cloud computing start-up RISC Networks from Chicago to Asheville, N.C., in 2012 for the less hectic pace, but has found the location a selling point as he grew from 6 to 33 employees.

Many of those new workers came from out of state, contributing to North Carolina's net annual influx of about 46,000 college degree holders. That migration of educated workers is the norm among the Southern states. The rust belt by contrast saw a net outflow of more than 400,000 residents with college degrees between 2007 and 2014.

The customers are heading South, too. From 1990 to 2015, population in the nine southern and gulf states grew 43 percent, to more than 76 million, and passed that of the rust belt states in the late 1990s. Population in the rust belt grew 13 percent, to 63 million, over the same period.

When the Minnesota-based Polaris Industries Inc. began planning a new facility for its line of outdoor vehicles, "there was no Minnesota play," said Eric Blackwell, director of operations at the company's new factory outside Huntsville.

The market for Polaris' machines, popular for farm work, hunting and sport riding, was growing in the south. Open land was available, and Alabama had programs to help recruit and train a workforce expected to rise to 1,500.

Globalization hit both the north and the south hard. Between 2000 and 2010 each lost about a third of their manufacturing jobs. But employment rebounded faster and more broadly in the south.

Between 2000 and 2015, combined private sector employment in nine southern and gulf coast states still grew 13.5 percent. In the nine northern states total private sector jobs as of 2015 remained 1.3 percent below their 2000 level, according to federal data.

The transition dates back to the 1980s, when German and Japanese automakers began investing in what has become a sprawling, regional industry.

Supplier networks followed, creating even stiffer competition in an industry already changing due to passage of the North American Free Trade Agreement (NAFTA) and the growth of automaking in Mexico.

New industries, such as aerospace, followed. Boeing opened a new factory in Charleston, S.C., while decades of federal spending on space and defense programs created a pool of engineers in Alabama. A surge in energy and locally important industries like wood products added to the employment gains.

Judith Adams, vice president at the Alabama State Port Authority, speeds visitors through warehouses of wood fiber products, steel ingots and other goods ready to ship abroad. The port is spending $47 million to boost its capacity to 500,000 containers a year from 300,000. The longer-term the goal is to triple that to 1.5 million.

"The vessel sizes are getting bigger. The market is getting bigger. The cargo is here," Ms. Adams said.

When European aircraft maker Airbus scouted sites for its $600 million North American plant more than a decade ago it settled on a former Air Force base in Mobile.

As it ramps up production, local officials say 20 suppliers have already arrived in Airbus' wake, with firms like Ireland's Maas Aviation looking to put 150 people to work painting planes.

"We looked at transportation costs, labor costs, productivity, and it made sense," said Allan McArtor, chief executive of Airbus Group Inc. "We will be building single aisle airplanes (in Mobile) for a long, long time."

Reporting by Howard Schneider; Additional reporting by Jonathan Spicer in Cleveland; Editing by David Chance and Tomasz Janowski

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