I try to base my positions on facts and practicality rather than emotions and politics. While I believe that in addition to tariffs, there are other approaches that could help achieve trade parity with China, I fully support the tariffs that have been applied.
China has been operating outside of the commonly accepted boundaries of international trade for almost three decades, and there deserves to be a reckoning. A reckoning that standard free trade won’t bring about.
I also don’t blindly follow leadership, whether it be in a corporate or political setting. And I think that the position the current U.S. administration has taken—that tariffs on European Union and Japanese automobile imports may be necessary to our national security—is one case where independent thinking is appropriate.
First, let’s be honest. Citing national security is just a convenient excuse to justify automotive tariffs. It is the same for the tariffs the U.S. imposed on all steel and aluminum imports. In the case of Canada—which historically has had an even balance of trade with the United States—the U.S. put tariffs in place for over a year on their steel and aluminum exports. I wonder what has changed relative to “threats to our national security” that the administration now feels those tariffs on Canada are not needed.
It is pretty obvious that the basis of the United States’ current trade strategy is to use tariffs as a regular practice to gain a competitive trade advantage outside the realm of free market economics. If you don’t see it that way, be assured that our allies do. And the irony in all of this is that—unlike in the case of trade with China—the free market has been effective in leveling the playing field with automobile manufacturing. Please hear me out on this.
Foreign manufacturers are producing the vast majority of the cars they sell to our domestic market in the United States. That wasn’t the case 30 to 40 years ago.
Since then, between final assembly and components production, Honda has opened a dozen manufacturing facilities in our country. Toyota has opened up 10. To boot, both of these firms have a corporate policy of sourcing locally to their factories and have done so in the United States. For some models, over 90% of Honda’s and Toyota’s annual “buy” is sourced from suppliers located in this country. So, in addition to the thousands of Americans directly employed by these two companies, there are another three to four American workers employed by their domestic supply chains.
In addition, the following foreign automobile manufacturers also have final assembly facilities based in the United States:
- BMW—South Carolina
- Mercedes Benz—Alabama
- Hyundai—Alabama and Georgia
- Nissan—Tennessee and Mississippi
- Volvo—South Carolina
These companies opened plants in our country for business reasons; it makes economic sense to manufacture in your major markets. I don’t really know what more you could expect from the influence of free-market economics than the result detailed above.
Yet, as was reported last week, Toyota has written the President saying that it regards the administration’s tariff threat as a message that;
“Our investments are not welcomed, and the contributions from each of our employees across America are not valued.”
Is that really the message we want to send to foreign companies that have invested heavily in our country and employ substantial numbers of our citizens? Probably not.
Further, in another article last week, it was reported that over the last six months, the major automobile manufacturers have laid off in total 38,000 workers globally. That number is anticipated to increase over the coming year. Imposing tariffs on an industry already struggling will, over time, negatively impact all companies in that industry. If you doubt this, Google the Smoot-Hawley Tariff Act and see how it pushed a world that was already experiencing a major recession into a prolonged depression.
Threatening or placing tariffs on automobiles at this time is not only irresponsible, it’s unnecessary. Poke a friend in the eye with a stick—and when you need them down the road, don’t assume they will support you.
I’m not sure what end game the current administration has for trade, but from all appearances, it seems as if they would like to see all goods purchased in this country manufactured here. You can be assured that should that occur to any meaningful extent, other countries will respond in kind, which will have significantly negative impact on international trade and their supply chains. This would be a very bad development for all countries.
A final thought on this subject. First, while Toyota and Honda—in support of their U.S.-based final assembly facilities—are sourcing 90%-plus of their annual purchases in this country, what have the U.S. automobile manufacturers been doing? The answer is that a high percentage of their annual spend is with overseas sources, many located in China. If anything, U.S. automotive companies sourcing overseas are much more a threat to our national security than foreign-owned automobile manufacturers.
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 38 years of experience in industry, primarily in supply management at two large original equipment manufacturers.