President-elect Donald Trump seems intent on running U.S. automakers' production-site decisions via tweet, judging by last week's events.
First, Trump knocked General Motors for producing some of its Chevrolet Cruze compacts in Mexico. Then, he claimed credit after longtime target Ford Motor Co. reversed its decision to build a $1.6 billion plant in Mexico and said it would bring 700 jobs to its underutilized Flat Rock, Mich., factory to build assorted electric vehicles and hybrids.
Trump's ability to twist arms by Twitter has won a few other postelection victories -- and, of course, it's good to see manufacturing job creation in this country.
But U.S. automakers are competing against very tough rivals in an intense, complex, global market. And global trade itself is replete with unintended consequences. In the future, there are several points that Team Trump ought to consider:
- The U.S. auto industry isn't the New England textile industry or the consumer electronics industry. The U.S. Department of Labor counts 930,100 auto and parts manufacturing jobs here.
You might argue that, with the latest UAW contract, the Detroit 3 have come to a reasonable balance of U.S. and foreign production.
That plan calls for most high-margin light trucks and crossovers to be built domestically; smaller, price-sensitive cars will mostly be built in Mexico. If it allows U.S. automakers to stay competitive in the low end of the car market, isn't that a good thing?
- About those Mexico-built cars ... if Trump really can slap a 35 percent tariff on U.S. automakers' car imports from Mexico, the market could be seriously distorted.
That's because a number of Asian and European automakers also build cars in Mexico and ship them to the U.S. The Automotive News list of North American assembly plants shows BMW, Honda, Kia, Mazda, Nissan/Infiniti, Toyota and Volkswagen/Audi producing or planning to produce vehicles in Mexico.
Trump broadened his range last week, taking a shot at Toyota.
But here's the question: Do you put a tariff on all auto imports from Mexico? If not, the Detroit 3's German, Japanese and Korean competitors would gain a big advantage.
- Cheap labor isn't the only reason Mexico attracts car plants. Mexico has been astute in setting up trade agreements with Japan, the European Union and a number of Latin American nations -- making it an appealing site for exporters.
- The U.S. exports cars, too. There is a small but growing stream of U.S.-built cars being shipped overseas. If foreign automakers' home nations retaliated to Trump's tariffs, that might, for instance, result in job losses at plants such as BMW's in Spartanburg, S.C., which ships 70 percent of its production overseas.
- There's a natural tendency to focus on assembly plants, which provide media-friendly visuals of cars rolling off the line.
But there is also a large flow of components from Mexican plants to U.S. assembly plants. A tariff on those components would raise prices of U.S.-built vehicles.
And there's the knock-on effect. If Trump put a 35 percent tariff on Mexico-built components, suppliers could shift production to China. Then what -- a tariff on China-built car parts? Can you say "trade war"?