The idea of tightening trade rules to encourage more manufacturing in the United States obviously plays well with voters. Republican presidential front-runner Donald Trump, in particular, has found surprising success attacking trade deals such as the North American Free Trade Agreement while claiming, “We’re losing so much with Mexico and China,” because of U.S. trade deficits with those countries.
It makes for effective campaign rhetoric, but if Trump were ever to undo elements of NAFTA or impose punitive tariffs on Chinese products, it could cause havoc for a lot of American companies, and automakers in particular. “What’s important for our business going forward is we continue to open up our products to other markets,” Ford (F) CEO Mark Fields tells me in the video above. “Free and fair trade is really important. We have always supported every free-trade agreement since we’ve been in existence.”
Fields didn’t mention Trump by name, but Trump has singled out Ford as one company that benefits from lower manufacturing costs in Mexico. Ford has three plants in Mexico, where it builds cars such as the Fusion and Fiesta. But it’s hardly the only one. General Motors (GM) has four Mexican plants (vehicles built there include the Chevrolet Trax and Aveo), Fiat Chrysler (FCAU) has three (Dodge Journey, Fiat 500), Nissan (NSANY) has three (Versa), Honda (HMC) has two (CR-V, Fit), and Volkswagen (VOW.BE) has two (Beetle, Jetta, Golf). Manufacturers typically cluster in low-cost countries because once one company sets up shop, others must match the lower cost or end up at a competitive disadvantage.
Each of those automakers also employs thousands of Americans at U.S. plants. Most of them have factories in Canada as well. And GM this year will start importing a crossover from China, the new Buick Envision — the first mainstream vehicle from China that will be sold in U.S. showrooms.
Automakers are about as global as global companies get, since the Big 7 – GM, Ford, Fiat Chrysler, Toyota, Nissan Renault, Honda and Volkswagen – operate on every continent. Where possible, they manufacture products close to where they sell them, to cut down on transportation costs and limit vulnerabilities stemming from to exchange-rate fluctuations. But they also seek low-cost opportunities wherever they can, especially for smaller vehicles that are hardest to make a profit on.
Ford and the other U.S. automakers also support the Trans-Pacific Partnership, or TPP, a pending trade deal meant to streamline commerce between the United States and 11 other countries, while checking China’s economic power. The TPP has come under fire for the same reason Trump’s anti-trade crusade has caught on – the deal is complicated and critics fear it could kill American jobs instead of boosting the U.S. economy. The Senate may not ratify it, and even Hillary Clinton, formerly a backer of free trade, has said she opposes the TPP.
Many economists view the pivot toward protectionism as dangerous, even if concerns about the scarcity of good American jobs are real. For the auto industry, trade wars prompted by sharp hikes in U.S. tariffs on imports could upend global supply lines that took decades to put in place. Ford, for instance, exports its Explorer — which is built in Chicago — to more than 90 countries, and if the U.S. imposed new tariffs on imports from some of those countries, they would likely do the same to imports from the States. Ford would have to find a way to build the vehicle someplace where new tariffs wouldn’t apply, or give up such exports altogether.
Fields is also concerned about currency manipulation by other countries, which is sometimes done to boost exports to devaluing the local currency. That makes exports cheaper in other countries, but it also makes American products more expensive outside the United States.
Central banks in Europe and Japan have been trying to stimulate their economies by introducing negative interest rates, which reduces the value of those currencies against the dollar. “We can compete with anybody,” says Fields, “but we can’t compete with central banks.” It can be tough competing with bombastic politicians, too.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.
- Automotive Industry
- Donald Trump
- North American Free Trade Agreement