Obama OK's First Factory In Cuba In 57 Years

Last week, in “Welcome To Obama’s Recovery: Carrier Moving 1400 Jobs To Mexico,” we showed what happens the moment hundreds of American manufacturing workers learn that their services will no longer be needed thanks to cheap labor south of the border.

Carrier - a unit of United Technologies - is closing two Indiana plants and moving them to Mexico, a move that will ultimately leave more than 2,000 people jobless. The announcement that the Carrier facility on Indianapolis' west side will be closed was met with angry jeers from a crowd gathered to hear the news and was greeted with profound dismay by city officials.

Today’s surprise announcement was without warning and incredibly disappointing,” mayor Joe Hogsett said. “While I am obviously concerned about the economic impact, my top priority is the well-being of the hardworking families affected by this decision.”

Economists called the move "highly unusual."

Actually, we said, it’s not “unusual" at all. Here's why (from The Indianapolis Star): "Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime."

Something tells us labor costs will be "slightly" lower south of the border.

On Monday we learn that US companies aren’t just sending jobs to Mexico. They’re sending them to Cuba, where, thanks to the Obama administration’s move to restore diplomatic relations with Raul Castro, US businesses can now operate factories.

Entrepreneurs Horace Clemmons and Saul Berenthal were notified last week by the Treasury Department that they will be allowed build tractors on the island at a $5-$10 million facility.

“Cuban officials already have publicly and enthusiastically endorsed the project,” AP reports, adding that “letting an American tractor company operate inside a Cuban government facility would have been unimaginable before Presidents Barack Obama and Raul Castro declared on Dec. 17, 2014, that they would restore diplomatic relations and move to normalize trade, travel and other aspects of the long-broken bilateral relationship.”

Clemmons and Saul Berenthal plan to commence production by the first quarter of 2017 with 30 Cuban employees, a number they hope will grow to 300 within five years.

"Everybody wants to go to Cuba to sell something and that's not what we're trying to do. We're looking at the problem and how do we help Cuba solve the problems that they consider are the most important problems for them to solve," Clemmons said. "It's our belief that in the long run we both win if we do things that are beneficial to both countries." Here’s a bit more from AP:

The Oggun tractor plant, named after a god in Cuba's syncretic Santeria religion, will assemble commercially available components into a durable and easy-to-maintain 25-horsepower tractor selling for less than $10,000, Clemmons and Berenthal said. The men believe they can sell hundreds of the tractors a year to Cuban farmers with financing from relatives outside the country and to non-government organizations seeking to help improve Cuban agriculture, which suffers from low productivity due mostly to excessive control of both basic supplies and prices by an inefficient, centrally planned state bureaucracy.

 

Berenthal said they are optimistic that they will also be able to export Oggun tractors to other Latin American countries, which have low or no tariffs on Cuba products, making them competitive on price. The men expect a 10-20 percent profit on each tractor.

 

For the project's first three years, Clemmons and Berenthal say they will export components from the United States for assembly in Cuba.

 

Clemmons and Berenthal will publish all the schematics of their tractors online in order to allow Cubans and other clients to more easily repair their equipment and come up with designs for other heavy equipment based on the same frame and motor that Cleber can then produce at their Mariel factory.

Berenthal is Cuban-born, so to a certain extent, this is a story about an entrepreneur that wants to give back to his birthplace and that's certainly understandable. That said, Clemmons is from Alabama and you can bet the headline “Alabama Man To Build Tractor Plant In Cuba Thanks To Obama-Castro Reconciliation” won’t go over well with Donald Trump voters.

The next question is this: how long before John Deere decides that making tractors in Cuba or Mexico might be a whole lot cheaper than building them in America's heartland? 

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