Midwest icon John Deere is the latest company to demonstrate the downside of “free trade” and tax credits.
John Deere, established in 1837, is an iconic brand and a symbol of the American heartland. This is especially true in Iowa. John Deere machinery can be seen in fields, yards, and construction sites across the state, and their famous leaping deer logo is in itself a ubiquitous fashion choice. Quite simply, Deere often is seen as a representation of rural America.
But John Deere is also a major corporation and in anticipation of a potential decline in the agricultural economy, the company has recently announced layoffs. The impact of these layoffs will be felt by many Iowa families who depended on those jobs for their livelihood. Layoffs in the face of industrial headwinds are unfortunate, but understandable.
However, Iowans may find those layoffs particularly troublesome given the news that Deere is planning to build a manufacturing facility in Mexico and will be shipping Iowa-based jobs south of the border. On top of that, John Deere, is a major beneficiary of Iowa’s Research and Activities tax credit. In fact, in 2023 Deere was the state’s largest recipient of the tax credit, with Iowa taxpayers awarding Deere and Company over $15 million and Deere Construction and Forestry over $4 million. Reviewing data for more than a decade shows that Deere has consistently received generous taxpayer subsidies in Iowa.
The outsourcing of Iowa jobs rubs salt in the wound, especially for those workers who have been laid off and for Iowa taxpayers who help subsidize John Deere’s billions in profits. Even as they prepare for a potential slowdown in the agricultural economy, the corporation is doing well; Deere earned over $10 billion in profits last year.
The outsourcing of jobs by John Deere and other corporations is nothing new and it has become all too common. Deere’s justification for the new plant centers on not only rising manufacturing costs, but also a changing business model, and “operational efficiencies.” Labor is another issue that factors into the decision.
Lower wage costs are attractive for corporations and a prime reason many companies have decided to setup their manufacturing base outside the United States. Wages in the United States, whether for workers or managers, are much higher than in Mexico.
“Despite new rules in the USMCA (United States Mexico Canada Agreement) that are trying to ‘level the playing field’ between workers in Mexico and the U.S., pay rates in Mexico, cost of living, and a dollar valued at 18 to 1 all make Mexico attractive,” stated Kenneth Rapoza, who serves as an industry analyst with the Coalition for a Prosperous America.
Further, Rapoza argues that “with geopolitical headwinds increasing in China, Mexico is set to gain and American companies like John Deere can easily move there and have duty-free access to the U.S. Deere factories in northern Mexico are not any further from many U.S. customers as a Deere factory in Iowa. In effect, with the USMCA, Mexico is the 51st state.”
Iowans have every right to be angry at the news of John Deere layoffs, especially when their tax dollars help subsidize a corporation that then outsources their production capabilities. Keeping jobs in Iowa will require policies that encourage businesses to remain here. This means lowering tax rates for all instead of tax credit handouts, restructuring trade agreements, and reducing the regulatory burden.
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