Arkansas' Manufacturing Revival Fueled by Foreigners
WHY YOU SHOULD CARE
Because the future of manufacturing can be globalist too.
By Nick Fouriezos
The signs are all faded, the parking lot empty in the middle of a Monday, except for the weeds that seem to have their own permanent parking space. The old Sanyo TV factory that closed a decade ago is the most obvious manifestation of manufacturing’s decline here in Forrest City, where unemployment and poverty far outstrip the average across Arkansas. But that very plant now promises to serve as a harbinger of a much more optimistic future.
The decline in the Arkansas Delta began in earnest in the ’90s, with homegrown manufacturing’s post-NAFTA decline, and bottomed out with the nearly 600 jobs lost when the Sanyo plant closed in 2007 after three decades. The Great Recession only compounded the region’s misery, and although unemployment in this county has fallen to 4.4 percent, it still lags behind the rest of the state by nearly a point. Nearly a third of folks in St. Francis County live in poverty today. “We really don’t have a lot of industry. If you aren’t willing to work at McDonald’s, Burger King, Wendy’s or the hospital, we’re limited,” says Ardelia Echols, a Forrest City native and city councilor.
Everyone is really excited.
Ardelia Echols, Forrest City councilor
That may now be changing. This spring, a major Chinese textile company announced a plan to convert the former television and microwave factory into a massive yarn mill, with plans to hire as many as 800 employees and consume 200,000 tons of cotton annually — enough to swallow up the state’s entire crop. The Shandong Ruyi Technology Group has held job fairs for what will be its first American outpost, with lines that “were more than they can handle,” Echols says. “Everyone is really excited.”
The $410 million investment is one of a handful of foreign cash influxes that have made Arkansas the top state for foreign direct investment by employment growth, according to the nonprofit Organization for International Investment. More than 60 percent of that has come in the manufacturing sector, after many economists had effectively nailed the coffin on the industry. Arkansas is proactively courting these investments. In addition to the Shanghai office it’s had for a decade, the state has added offices in Berlin and Tokyo since Republican Gov. Asa Hutchinson took over in 2015. In that same time period, Hutchinson has led three trade trips to China.
The fruits have been plentiful. The Tianyuan Garment Factory is investing $20 million and 400 jobs into a new plant making Adidas apparel in Little Rock, while Sun Paper has signed a memorandum of understanding to invest $1 billion in a bioproducts mill in Arkadelphia. In the past 18 months, Arkansas went from zero major investments from Chinese companies to five, ushering in 1,500 jobs and $1.5 billion in spending. Over the past five years, Arkansas has seen 41.5 percent of its total job growth attributable to foreign direct investment.
“The message we got from China is that relationships matter,” says Mike Preston, the Hutchinson-appointed executive director of the Arkansas Economic Development Commission.
The manufacturing resurgence fits a trend sweeping the lower half of the United States, where the old centers of Midwest automation are being shifted south to states such as South Carolina, Georgia and Arkansas. President Donald Trump has ripped apart a key Asian trade agreement and campaigned on erecting more trade barriers with China — but ironically, some of his strongest states are those that rely the most on exports, from Arkansas to South Carolina and Georgia. Ports in Charleston and Savannah have stowed away hundreds of millions of dollars in dredging projects to allow for more trade, which hit record highs on their way to handling billions of dollars in exported goods. Those investments and others could be at stake if the isolationism touted by the Trump campaign trail begins to manifest itself in policy. So far in office, Trump has softened his China rhetoric as he courts its help on North Korea.
Arkansas’ attraction as a destination for international companies is understandable. It boasts an abundance of natural resources — from cotton, which will help feed the yarn mill in Forrest City and other textile manufacturers, to timber, which is oversupplied in the state and helps keep construction costs low. For a company looking for an affordable U.S. headquarters, living costs are more manageable in Arkansas. And the global presence of Walmart and Tyson Foods, based in northwest Arkansas, has helped the state burnish a brand that catches more than Chinese eyes. “We’re a state that’s benefited from NAFTA. We have a positive trade balance with Mexico,” Preston says, and while he says NAFTA should be renegotiated, “for Arkansas to survive, especially with our strong focus on agriculture and exports, we have to be a global state.”
Arkansas also offers direct tax breaks and indirect benefits. For instance, Arkansas is a right-to-work state, and such labor-weakening stances are part of the South’s growing appeal for foreign companies.
Those incentives don’t necessarily benefit ordinary Americans, argue critics. The Washington-based think tank Institute on Taxation and Economic Policy says tax breaks cost states tens of millions yet rarely make or break a business’ decision to relocate. Arkansas had the 10th-highest taxes on the poor, with 11.9 percent of taxes paid by the bottom fifth of residents, according to a 2015 ITEP analysis of state tax codes. Last year, Arkansas had the second-lowest median household income ($42,530) in the country, according to U.S. Census statistics, trailing only Mississippi ($40,910).
But faced with such stark disparity, locals don’t care where some relief comes from. “As far as jobs go, this area hasn’t seen anything like this in a long time,” says Nathan Waldrip at Armor Bank, formerly Forrest City Bank. As city councilor Echols puts it: “They throw politics aside when it comes to jobs.”