The mood of the country as reflected in the major political parties suggests a sharp turn against global free trade.
Both the Democratic and Republican parties recently drafted platforms that take note of the fact that anti-trade, protectionist rhetoric has flown well during the political primary season. The draft GOP platform condemns trade agreements that do not protect U.S. interests and lists a number of things as cause for rejection, but does not specifically mention the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP). Meanwhile, the draft Democratic platform wants trade agreements that support American jobs and it calls for updating past trade agreements that do not measure up to expectations.
Setting aside the political angle, let’s take a look at the issue of global trade policies through an automotive industry lens.
It is hard to please and protect everyone at the same time when you get into trade agreements and tariffs. In trying to correct for some international dynamics, the process inevitably ends up with the proverbial “picking winners and losers” problem. Helping one industry, or part of an industry, hurts another.
For example, the Wall Street Journal reported recently on the “double-edged sword” of U.S. steel tariffs. With the imposition of tariffs by the Commerce Department this year, steel imports have fallen, inventories have declined, and prices have risen. That is good news for U.S. steel producers and their employees. However, it is hard on their customers, the manufacturers who now have higher input costs and are competing against manufacturers in other countries who still have access to cheaper steel.
West Michigan automotive stamping companies have expressed concerns about steel import tariffs in the past, such as in 2003 when Jim Zawacki, president of GR Spring & Stamping Inc. at the time, was widely quoted in the national news media about the negative impact on parts suppliers.
This time, a letter from Steelcase to the U.S. Department of Commerce requesting an exemption is quoted in the May 31, 2016 article in the Wall Street Journal. Tariffs on a special type of Japanese steel could raise costs on a particular product line to the point that it results in the closing of a Steelcase plant in Oklahoma, according to the article.
It seems reasonable to expect that any future “punishments” or corrections that are put in place by our government to promote balanced trade would also have mixed results.
There has been some talk during the primary season about renegotiating or scrapping the North American Free Trade Agreement. NAFTA is said to have been a job killer, and it is true that the U.S. automotive industry has lost many jobs (350,000, by some estimates) in the 20-plus years since the agreement went into effect.
It could be argued that this has more to do with the rise of China as an even lower-cost manufacturing locale and source of inexpensive goods, but in any case, changing the terms of NAFTA now would be extremely disruptive of what has become a highly integrated, regional automotive industry supply chain.
Mexico has won an increasing number of the North American vehicle assembly plants not just because of low wages, but also because it boasts free trade agreements with more than 40 countries, linking it to about 70 percent of the world GDP. The U.S. has far fewer free trade agreements, covering around 20 countries with smaller economies.
For Audi, which chose Mexico over Tennessee for its latest North American plant, Mexico’s commitment to free trade meant that the high-end car maker could export worldwide without encountering duties like those that BMW must pay when it exports an SUV from its U.S. plant to Europe.
West Michigan automotive suppliers have had to deal with the realities of globalization for decades, with or without the “help” of political figures. They have increased efficiency and productivity, cut costs, maneuvered geographically, and changed their customer mix.
Many, like Shape Corp. and GHSP, have expanded their geographic footprint, following the “build where you sell” principle. Others, such as the Holland Group, have merged with or sold to foreign companies to gain that critical mass.
Generally, suppliers here have been surviving and thriving in the global automotive industry. Their philosophy is to look for opportunities to compete in large and growing markets, without tariffs and non-tariff trade barriers.
Trade agreements do require active monitoring, but they serve a useful purpose of providing structure and consistency, and those are good for open markets.
