♠ Posted by Emmanuel in Supply Chain,Trade
at 1/05/2017 04:17:00 PM
American nagger-in-chief Doanld Trump has made a habit of criticizing any and all American firms having manufacturing activities overseas. From his nuance-free viewpoint, all such manufacturing is a net loss for the United States, especially in terms of foreigners "stealing jobs." Although there are literally hundreds of economically sensible reasons for doing so--many of which actually benefit Americans overall--the latest Trumpian idiocy takes the cake. Let us consider the ways. Rick Newman of Yahoo Finance has the lowdown...
(1) The latest target of Trump's ire is the manufacture of a small car in Mexico that is sold in very small quantities Stateside--hardly a mass exodus of carmaking activity.
The incoming president lashed General Motors (GM) on Twitter recently for making its Chevrolet Cruze subcompact in Mexico. Whoops. The Cruze sedan—which accounts for 97.6% of all US Cruze sales—is actually built in Lordstown, Ohio. The slow-selling Cruze hatchback is built in Mexico, but annual sales of just 4,400 units are virtually negligible.(2) Of the cars GM actually does sell a lot of Stateside--big cars to fit big Americans--almost all of the models with the most American content are made by General Motors:
While GM has three factories in Mexico, Trump may not be aware that it also builds some of the most “American” cars on US roads. In an annual “made in America” index calculated by American University’s Kogod School of Business, 9 of the 10 vehicles with the most American content are GM models, including the Buick Enclave, Chevy Corvette and Chevy Equinox. The Ford F-150 pickup is the only non-GM vehicle in the top 10. The Kogod rankings are meant to capture the value that accrues to the US economy from all aspects of automotive production, including not just manufacturing but also things like research and development and where the automaker’s profits are likely to be spent.(3) If GM sells so few Cruzes in the US, why does it even bother making them? Actually, more of its sales are in Europe.
The Ford news overshadowed Trump’s blunder regarding the Chevy Cruze, but Trump’s confusion on that is understandable. Automobiles are complex products that typically include components from all over the world. And most automakers sell their cars in dozens of countries, which means they have to base production decisions on a multitude of factors including consumer tastes, labor and material costs, exchange rates, transportation efficiency and where a given model is likely to sell the most. Hatchbacks aren’t popular in the United States, for example, but European drivers love them, which is part of the reason GM builds the Cruze hatch in Mexico—it can export from there to Europe with no tariffs, while the same car shipped from the United States would face a 10% levy.Given his hatred of trade deals of any kind, Trump should note that a sensible reason why the Cruze is made in Mexico is not because the United States is a large market for the model. Rather, one of its bigger markets, Europe, has an existing trade deal with Mexico allowing automobiles made there to be sold duty-free in Europe.
So Trump makes no sense on all counts:
- it is too expensive to make small-margin budget models in the US;
- the model in question, the Cruze, is not really saleable Stateside, so why make it there;
- the last I checked, GM was in business to make money rather than lose it--least of all due to intervention from government that Trump professes to abhor (at least rhetorically);
- The US loses out as a manufacturing location if others have preferential access to key export markets like Europe which it doesn't have (the US-EU TTIP is likely dead with Trump);
- in the 21st century, cars are rarely "made" in a single country but typically have different; components made and activities performed where there is a comparative advantage.
