Foreign Investment

America first, with Germany’s help

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Source: Bloomberg, Fotolia [M]

Jim Sheak remembers the good old days when Akron, Ohio, was a major manufacturing hub. The tire company Goodyear was founded here back in 1898, giving it the nickname Rubber City. Then, one by one in the past three decades, Goodyear and companies like it reduced their presence or pulled out entirely. Akron, like many Rust Belt cities, was left with empty factories and a shrinking population.

Ironically, that’s exactly what made Akron an attractive town for Roechling, a German car supplier that opened its second North American plant here in 2012. Not only does Akron sit close to major carmakers in Detroit and Indiana, which Roechling supplies, but it came with a hungry and skilled workforce, such as Mr. Sheak, who is now a plant manager.

Companies like Roechling have been a lifeline for the city and region. “You’re not going to see plants with a thousand people anymore,” acknowledged Mr. Sheak. But Akron is counting on smaller companies like Roechling, which employs 128 people at its plant, to spur growth in the region.

That’s exactly what President Donald Trump wants, too, says David Butler, Roechling’s North American director of operations, who suggests that foreign media bias might explain the knee-jerk reaction he sometimes gets from executives at the company’s German headquarters. “Trump is an easy president to report negatively on, even when there’s something positive.”

Indeed, Mr. Trump’s entire campaign was built on a promise of bringing thousands of jobs back to Rust Belt cities like Akron. That surely includes companies like Roechling. But there is another aspect to this: How does that promise square with Mr. Trump’s “America First” rhetoric? Does Mr. Trump really want German companies to flourish in the United States?

For Rob Portman, one of Ohio’s two senators, the answer is a clear yes. It’s an aspect of what Donald Trump is trying to do that “nobody’s really talking about,” he said in an interview. The current policy shift in the United States is “not about trying to protect America” or scaring away foreign companies, said Mr. Portman, a former US trade representative. It’s about “trying to level the playing field” for American companies abroad and encouraging more firms to produce here in the process.

“If you’re a German company trying to decide if you’re going to invest more in your plant in America, or your plant in China or your plant in Japan or somewhere else, you’re now going to see the US corporate tax rate go from the highest rate in the industrialized world, from 35 percent, down to 20 percent,” he said. “This will make America a more attractive place to invest.”

“That German companies are already here is a case that needs to be made over and over again.”

Steve Sokol, American Council on Germany

The answer is not as clear-cut for the hundreds of German companies already operating in the United States. True, the corporate tax cut signed into law last month may shift investment from Germany to the US (though some German companies worry about a possible import tax linked to the reforms). But that’s not the only measure of whether a country is a good place to do business.

While many German companies say that business has continued as normal — even in some cases improved under the Trump administration — others worry they might not really be welcome anymore. A crackdown on free-trade deals such as NAFTA could make doing business harder, while many complain of trouble getting visas or delays in bringing in the occasional skilled worker from abroad.

“There’s a different wind blowing,” said Andy Stecher, a dual German-American citizen and the US head of Plasmatreat, a family-owned company from the western German city of Steinhagen that operates out of Elgin, Illinois, on the outskirts of Chicago. While business remains good, he wonders “what kind of social and political environment I’m working in.” A few months back, a Canadian technician who flies in regularly for maintenance work was suddenly stuck for hours at immigration. Border agents now seem to consider keeping foreign skilled workers out of the country as part of their jobs, he complained.

It’s not as if these companies aren’t already employing Americans. German companies provide nearly 700,000 jobs across the United States, making it the third-largest foreign employer in the United States behind Britain and Japan. In the manufacturing sector, Germany is second. Together, these companies invest about $250 billion per year in the US, which is more than double what American companies invest in Germany — something German Chancellor Angela Merkel is rather fond of repeating whenever responding to US complaints about Germany’s record-high trade surplus.

08 German companies among largest foreign employers in the US-01

The companies operating in the United States are not just the names you’ve heard of like BMW or Daimler, Siemens or Bayer, but hundreds of smaller family-owned “Mittelstand” companies that have carved out a niche role for themselves in very specific areas of the economy. Talk to the local bosses of these companies, and they’re all eager to point out their “American” nature and contributions to the local economy. That includes helping to revive those Rust Belt towns where the US election of 2016 was lost and won.

The fact that German companies are already here is “a case that needs to be made over and over again,” said Steve Sokol, head of the New York-based American Council on Germany, which works to bring US and German businesses together. “There are German companies or subsidiaries that have played a huge role in creating jobs in their communities and play an important point in giving back to those communities.”

To be fair, this engagement is not immediately under threat just because Donald Trump has focused his energies on strengthening the hand of American rivals. There’s room for both goals. And most of these German Mittelstand firms say that, putting aside the disconnect in political rhetoric coming out of Washington, or their own personal beliefs in some cases, business is actually pretty good.

German tool-maker Trumpf personifies that dilemma. The company, based near Stuttgart in Germany, opened its US headquarters in Farmington, Connecticut, back in 1969. This autumn, it opened its fifth US plant in Hoffman Estates, another rather poor suburb of Chicago. That plant cost €26 million and added 30 more jobs to the roughly 500 Trumpf already employs in the United States.

“We are a quasi-American firm,” Nicola Leibinger-Kammüler, the US head of Trumpf, who was born in Ohio, said at the new plant opening. Her formulation is on purpose, she said, as the topic “has come up again and again in connection with ‘America First’ in the last few months.” At the same time, she stresses that the decision to open a new plant was made for reasons of business, not politics. About two-fifths of the metalworking companies Trumpf supplies with machines are based in the region.

This is a common refrain when these businesses are asked about Trump’s impact: Most have timelines that go well beyond four years — especially when it comes to big things like where to locate a factory — and so make their decisions based on local demand. Politics doesn’t really come into it — at least, not yet. The risk that something bigger could be on the way — something that messes up their global supply chains — is lurking in the background. It’s called NAFTA.

“There’s a lot of uncertainty here,” said Thomas Ginschel, US head of Zentis, a privately owned confectionery manufacturer based in the small western German city of Aachen. It also has three US plants, in Chicago, Philadelphia and Gardena, California, which employ nearly one-quarter of its total global workforce of around 2,000.

Mr. Ginschel says Zentis’ US business will take a hit if NAFTA, the US-Mexico-Canada free-trade deal the Trump administration is currently renegotiating, should collapse. That’s because the products that Zentis produces in the United States require ingredients from different places: Raspberries from Canada, mangoes from Mexico, rhubarb from Poland. He would “buy American” instead, except that a crackdown by Mr. Trump on illegal immigration has also made it harder for US farmers to grow produce cheaply. In other words, buying American would make Zentis’ products more expensive.

That’s also a concern for car companies and suppliers, which rely on a complex supply chain that extends across the North American continent. Even David Butler, the otherwise optimistic North American director of Roechling, sounds worried when the subject of NAFTA comes up. “We’re not preparing for the worst, but we are planning for the worst,” he said.

Such trade fears, combined with the implications of US tax reform, are contributing to a great deal of uncertainty among German businesses. “Up to now, nobody has really mentioned to me that they’ve seen a downturn in their business,” said Mr. Sokol of the American Council on Germany, “but what this does is make America even more of a question mark than it has been over the last year.”

Christopher Cermak is an editor with Handelsblatt Global, back in Berlin after a three-month stint in the United States. Tim Rahmann and Harald Schumacher are correspondents for the German business weekly WirtschaftsWoche, a sister publication of Handelsblatt. To contact the authors: cermak@handelsblatt.com

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