GOP presidential candidate Mitt Romney has been roundly criticized for insinuating that Chrysler planned to reopen a Jeep plant in China at the expense of U.S. workers in Ohio, but his comments and the reaction they provoked underscore the complex gray areas of international trade and globalization.
Romney said on the campaign trail in Ohio last week and in TV ads that Chrysler was planning shift production out of the state, later softening the message to say the company was sold to Italians who plan to make Jeeps in China. Chrysler CEO Sergio Marchionne, in an email to employees, later felt “obliged to unambiguously restate our position: Jeep production will not be moved from the United States to China.”
The accusation flared anew Thursday when real estate mogul Donald Trump took to Twitter to criticize President Barack Obama’s rescue of Chrysler in 2009, saying, “He bails out Chrysler and now Chrysler wants to send all Jeep manufacturing to China – and will!” Chrysler’s vice president of design, Ralph Gilles, responded on Twitter, saying Trump was “full of shit!” In a later tweet, he said, “I apologize for my language, but lies are just that, lies.”
Even if Chrysler doesn’t shift U.S. production, Romney’s controversial TV ads call attention to the nuance of corporate decision-making and the question of why cars are made where they are. Why aren’t Jeeps made here and exported to China, rather than manufactured there in a plant that’s been idle since 2009?
“It would be nice to export there. It would be better for the U.S. economy to export from the United States rather than producing in China. But I think you have to deal with the reality,” said Clyde Prestowitz, a former trade negotiator in the Reagan administration who achieved global notoriety in the 1980s for his fierce criticism of trade practices by Japan in the auto sector.
Japan, China and Brazil are among the nations that effectively force foreign car manufacturers to produce in their countries by raising the costs of exporting to them and erecting barriers that provide home-field advantage.
“Brazil and China and Japan and (South) Korea, these guys are all mercantilists. They don’t believe in consumption, they believe in production. And they focus on getting production in the country,” said Prestowitz, author of the recent book “Three Billion New Capitalists,” about the economic rise of China and India. “In a perfect world, the production and trade would follow true comparative advantage. In a perfect world the automakers would say, geez, the U.S. really is the place with the most benefit. Let’s move production to the United States.”
Still, Prestowitz said Romney’s comments on Chrysler were “egregious” and “beyond the pale and he really needs to be slapped (down).”
Companies expanding in China, which include most Fortune 100 firms, do so with their eye on the future. China is the world’s second largest economy , its most populated nation, and while its standard of living lags the United States and Europe, China is closing the gap with surprising speed.
Importantly, China is already the world’s largest car market, said Rebecca Lindland, director of research for IHS Automotive, a leading industry research group.
“People need to recognize and understand that when Chrysler elects to build a product in China, it’s for the long-term benefit of the balance sheet, and the financial health of the company overall, because China is the world’s largest auto market and will remain so for the foreseeable future,” said Lindland. “When we look at virtually any metric that we can measure a company by, there is almost never a downside when you localize production. And the idea that you are somehow taking a job from any American is just not really accurate when it comes to automotive.”
When General Motors or Ford or Chrysler makes a profit in China, it all adds to the sum of the carmaker’s global profits, and supports future expansion at home and abroad as well as the stock price for millions of Americans who own shares of the automakers through their retirement funds.
On Wednesday, GM announced that its profits slipped 13 percent from July through September because of European and U.S. woes. But GM noted that strong operating profits from China helped cushion the blow. China sales resulted in a $689 million operating profit, almost twice the $376 million in the same three months of 2011, but just a bit more than a third of GM’s $1.8 billion operating profit in North America
There are obvious efficiencies gained by manufacturing in China for China, said Lindland.
“It allows you to hedge against currency fluctuations. It allows you to customize, if you will, the vehicles for the local market. It provides multiple opportunities for a manufacturer,” she said. “I was frustrated by the comment from Romney. It was surprising given his history as a very successful businessman to somehow imply that production of a vehicle in China was hurting the U.S. – especially when you look at Jeep, which is capacity restrained right now.”
That means Jeep isn’t producing enough vehicles in the United States to match demand, Lindland added, noting that exporting Jeeps to China is probably not a smart option right now. Ironically, Jeep was introduced in China in 1984 by the American Motors Corp., a company once run by Romney’s father, George, which was bought by Chrysler in March 1987.
For the very same reasons that GM makes cars in China, almost every major global car company produces in the United States. Eleven foreign companies have made 3.52 million cars in the United States this year through the end of October, according to data provided by WardsAuto Group, a leading auto sector media group. Honda and Toyota far outpaced the rest, but luxury carmakers Mercedes Benz and BMW are stepping up their game with production in Tuscaloosa, Ala., and Spartanburg, S.C., respectively.
Through the end of October, U.S. light vehicle sales – including cars and light trucks – totaled just under 12 million. Just over half of those vehicles, about 6.6 million, were imported into the United States, and about 4.3 million of those were cars, according to the website Motorintelligence.com.
China doesn’t rank among the top destinations for exported U.S. vehicles. In 2011, Canada ranked first for receiving U.S. vehicle exports, followed by Germany, Japan, South Korea and Mexico, according to the U.S. International Trade Administration. What little trade in autos there is with China follows a familiar pattern: China’s car exports were valued at more than twice as much as U.S. vehicles shipped there, said the ITA.
If imported autos are unwelcome in Ohio and Rust Belt states, it’s a different story on the West Coast, where auto imports create thousands of jobs at U.S. ports.
At the Port of Tacoma in Washington state, vehicles and vehicle parts ranked as the top import in 2011, valued at $5 billion. By contrast, vehicles and vehicle parts ranked ninth among all exports through the port, at $293 million. The port expects to handle about 150,000 imported autos this year. China and Hong Kong ranked as Washington state’s top trading partners in both imports and exports last year, according to data compiled by the Port of Tacoma.
A report released last month showed that 40 percent of all jobs in the state are now linked to international trade, mainly because of the state’s close ties to China.