How to help Caterpillar - hint, hint - it's not the stimulus spending bill

President Obama went to visit Caterpillar yesterday to tout how his stimulus plan would help laid off employees get their jobs back. Many of the workers who heard him were skeptical.

"It really doesn't mean anything," plant employee John Melaga said as a jubilant march blared from the loudspeakers. The company will "do whatever it takes to survive, but it might mean laying off half the workforce."

Whatever political challenges Obama faces in Washington as he tries to shepherd his economic recovery plan to passage this week, the hardest people to win over in the weeks and months to come may be on the plant floors and assembly lines and in the office buildings around the country.

Obama offered his best case for optimism, promising that the largesse of the recovery plan ready for congressional approval will help companies such as Caterpillar weather the recession. Congress is moving toward passage this weekend.

"When they finally pass our plan, I believe it will be a major step forward," the president said. "I'm not the only one who thinks so," he said, pointing out Caterpillar Inc. Chief Executive Jim Owens in the crowd.

Obama said Owens told him that once the money starts flowing, "this company will be able to rehire some of the folks who were just laid off."

The only problem is that the CEO Jim Owens directly contradicted Obama.

Asked if the stimulus package would be able to stop the 22,000 layoffs or not, Owens said, "I think realistically no. The truth is we're going to have more layoffs before we start hiring again"

"It is going to take some time before that stimulus bill" means re-hiring, he said.

Owens supports the stimulus plan, but said it would take some time to have an impact on his industry and "is a little light on the heavy construction."

Perhaps, if Obama really wants to help Caterpillar rehire laid off workers, he might rethink his and his party's opposition to the Colombian Free Trade Agreement. Caterpillar was one of the specific countries that would have benefited from that agreement.

Union leaders like to say they're looking out for the well-being of the rank and file. But by quashing the Colombia FTA, Mr. Sweeney would weaken the competitiveness of American manufacturing and put some of America's best-paying union jobs at risk. These are jobs that exist today but could well be gone if Congress rejects this market opening in South America.

Exhibit A are 8,600 jobs at two Caterpillar Inc. factories in Illinois. Caterpillar exports more to Peru and Colombia than it does to Germany, Japan or the United Kingdom. So keeping and growing market share in both countries is important to union members in both plants. Not all are union jobs but both facilities are United Auto Worker shops.

Consider exports of the off-highway truck, made in Decatur. Customers in Colombia now pay a 15% tariff – equal to $200,000 – on the import of these vehicles. If the FTA goes through, that import tariff goes to zero immediately. Conversely, if the deal dies and Colombia, which is trying to expand its world trade, strikes an agreement with another country where similar vehicles are made, U.S. exports will immediately be at a 15% price disadvantage.

Colombia also has a large mining industry, and there are more Cat D-11 bulldozers in Colombian coal mines today than in any other country in the world. Those bulldozers are made in East Peoria. Colombian customers pay a 5% duty to import Cat bulldozers, which compete against Komatsu bulldozers made in Japan. Union members might ask Mr. Sweeney why he wants to spurn an offer that would give U.S. products a 5% price edge against Japanese competition.

Caterpillar – which has a total U.S. work force of 50,545 – faces an even more imminent threat in the case of its motor graders, a piece of heavy equipment used to level the playing field, literally. A company called Champion also makes motor graders in Canada, and Colombia is also negotiating an FTA with Canada. If Canada seals a deal with Colombia while the U.S. walks away from its Colombia pact, graders made in the U.S. will cost more than those made in Canada. Once again, Mr. Sweeney's agenda makes the U.S. work force less competitive.

The AFL-CIO's rejectionism makes even less sense when you consider that 92% of Colombian goods coming to the U.S. now enter the American market duty-free under the Andean Trade Preferences Act, or ATPA. In June 2007, 365 members of Congress voted to renew the ATPA and thereby maintain open U.S. markets for Colombian products. The FTA is a chance to open Colombian markets to U.S. goods and services. Killing it is like saying that we want U.S. products going to Colombia to be heavily taxed. Even for a trade protectionist like Mr. Sweeney, that makes no sense. For American workers, it's crazy.

It sure sounds like a superior method of putting Americans to work than to hope that some of this massive spending bill will slowly increase the need for the heavy machinery that Caterpillar makes. But, of course, the Democrats are too invested in opposing free trade that they can't turn around and realize that free trade would be a better way to help those skeptical laid off workers in East Peoria.