What A Trump Presidency Might Mean For IBM Rochester
December 5, 2016 Alex Woodie
Big changes are expected in national policy when Donald Trump is sworn in as the 45th president of the United States on January 20, 2017. From healthcare and climate change to tariffs and international trade, Trump has promised to do things that will help to “make America great again.” But what will this mean for IBM, one of the most American of success stories, and specifically its Rochester, Minnesota, plant, home of the IBM i server?
During his historic presidential campaign, Trump insisted that middle-class Americans were getting the short end of the economic stick, and that he would find a way to turn it around. His narrative–that the passage of NAFTA at the end of the Clinton Administration two decades earlier had set off a debilitating episode of outsourcing of good-paying American jobs to Mexico, China, India, and other countries–found a receptive audience in the “Rust Belt” states of the Midwest that largely got him elected.
“. . . [O]ur country and our trade and our deals and most importantly our jobs are going to hell,” candidate Trump said in a presidential primary debate this spring, during which he proposed charging a 45 percent tariff on all imported Chinese goods as a way to get China to “follow the rules and regulations,” and to stop manipulating its currency to the detriment of American workers and consumers.
“Our politicians have aggressively pursued a policy of globalization, moving our jobs, our wealth, and our factories to Mexico and overseas,” Trump said during a campaign speech in June near Pittsburgh, Pennsylvania. “Globalization has made the financial elite who donate to politicians very wealthy. But it has left millions of our workers with nothing but poverty and heartache.”
Trump proposed a 35 percent tariff on all goods imported from Mexico as a way to address the NAFTA-induced trade imbalances and to discourage American companies from relocating factories south of the border. His tough talk targeted specific companies, including Ford Motor Company and the heating and air conditioner maker Carrier, both of which were considering moving production from American factories to Mexico, and taking large numbers of manufacturing jobs with them.
And don’t forget that Trump took a swipe directly at IBM just two days before the November 8 election. During a campaign stop in Minneapolis, Trump alluded to lost American jobs at the hands of Big Blue executives concerned more with the bottom line than the well-being of its workers. “IBM laid off 500 workers in Minneapolis and moved their jobs to India and various other countries,” Trump said.
Like many things that Trump has said, this is only partially correct. While it’s true that IBM has moved many jobs overseas, there’s no record of IBM ever eliminating 500 jobs in the state’s biggest city and shipping them to India.
But if you look about 70 miles south of Minneapolis–to the city Rochester, home of the IBM laboratory where the legendary IBM midrange platform was conceived and largely built–you can easily find 500 IBM jobs that were lost. In fact, you can find a whole lot more.
It’s very possible that Trump mistakenly confused the lost IBM jobs in Minneapolis for the many jobs that IBM killed in Rochester, the ancestral home of the AS/400 and the System3/X line that preceded it. Back in 2013, it became known that IBM was shutting down all remaining server manufacturing in Rochester and moving it to its existing plant in Guadalajara, Mexico.
While IBM continues to do research and development work in Rochester and employs management and technical support personnel there, the storied facility–which was built in 1969 and employed about 8,100 people at its peak in 1990–no longer is the place where IBM i servers are assembled. While some supercomputers are still assembled in Rochester, all Power Systems destined for customers in the Americas are now assembled in the IBM plant down in Mexico. Other IBM plants in Singapore and Shenzen, China, build Power servers intended for the European and Asian markets.
Other American manufacturers capitulated to Trump’s tough trade talk and tariff threats following the election. Ford decided against moving production of its Lincoln MKX car from Kentucky to a factory in Mexico after all, and Carrier, which is owned by defense contractor United Holdings, decided not to close its Indianapolis factory and send about 2,000 jobs to the Carrier plant in Monterrey. Instead, it will only send an additional 1,000 jobs there.
Is IBM next? Will the Trump administration follow through on its threats and actually take steps to impose a 35 percent tariff on Mexican imports? And if it does that, how would that impact the Power Systems servers that are built in Mexico? Would American companies buying IBM hardware be forced to accept such a hefty price increase? And would the pain be enough to convince IBM to bring Power Systems manufacturing back to the United States?
Nobody knows the answers to these questions. While the prospect of President Trump starting a trade war with Mexico and China is a real possibility, it’s unclear how that would impact high-value, high-tech goods like servers and storage array. IBM is already supposed to adhere to some “Made in America” provisions in contracts, so there may be legal methods around tariffs, perhaps by doing final configuration work on American soil.
While it is based in New York, IBM has always been a global company (hence the big “I” in the name). It doesn’t seem likely that IBM would embark upon a major “re-shoring” of lost American manufacturing jobs, given the investments it has made to establish major factories in India, China, and Mexico. IBM has been relentless about cutting cost, and you, dear IT Jungle reader, are a beneficiary of that, whether you like it or not.
IBM CEO Ginny Rometty offered no sign that IBM would back down from its sometimes controversial employment practices in the open letter to President-Elect Trump that Rometty wrote three weeks ago. Instead, Rometty used the letter as an opportunity to back Trump’s ideas around creating jobs for people who lack four-year college degrees. Specifically, she touted IBM efforts to expand vocational training at six-year high school programs, and training the next generation of “new collar” workers.
“Let’s work together to scale up this approach of vocational training, creating a national corps of skilled workers trained to take the ‘new collar’ IT jobs that are in demand here in America,” Rometty wrote. “. . . [W]e are creating and hiring to fill ‘new collar’ jobs–entirely new roles in areas such as cybersecurity, data science, artificial intelligence, and cognitive business.”
To be sure, Trump was thrust into office largely on the storyline of the great American manufacturing segment being decimated at the hands of greedy corporate owners in cahoots with corrupt politicians intent on plundering middle class wealth. The sight of hundreds of empty factories stretching from Pennsylvania to Minnesota, and the angry cries of millions of out-of-work factory workers, was enough to flip the election in Trump’s favor.
It doesn’t really matter that this storyline has major holes in it. For example, automation likely had as much to do with the lost American factory jobs as country-to-country wage differentials did. But that didn’t stop Trump from changing his rallying cry, and it didn’t stop his voters from listening.
Don’t expect to read tweets from Trump in the coming days about how he convinced Rometty to stop outsourcing IBM programming jobs to India, to give up on H1-B visas, or to “re-shore” the Power Systems manufacturing that is now taking place in Jalisco state. For one thing, the “Minnesota nice” hamlet of Rochester, which is routinely voted one of the best places to live in this country, is a far cry from the dilapidated, lead-poisoned mess that is Detroit. And anyway, Minnesota voted for Clinton.
Besides, there are thorny logistical problems with the idea of reshoring. With only about 2,500 workers left in Rochester, IBM did the practical thing this spring, and decided to sell two-thirds of the two-million-square-foot facility, rather than leave it vacant.
The cows have already left the barn, and they’re not coming back.