Trump Tried to Strong-Arm Ford, and It Expanded Profitable China Operations
In early January, then-President-Elect Trump bragged that he had helped put the kibosh on a plan to shift production of the Ford Focus from Michigan to Mexico. So where are they building it? In China. Ford’s decision to shift production across the Pacific proves how the marketplace actually works: Presidential strong-arm tactics cannot dilute rational economic decision-making.
Trump had attempted to grab credit for Ford’s decision not to build a $1.6 billion Focus plant in Mexico, despite the fact that Ford executives had said repeatedly that the decision had nothing to do with the President, his policies or his threats. They said their decisions are based on what’s best for the business – ultimately the investors. The move to China demonstrates that. As a company statement announcing the decision said, by finding a more cost-effective way to deliver the Focus, Ford positions itself to re-deploy the money saved into growth areas, such as SUVs, commercial vehicles, and autonomous and electrified vehicles. For example, the efficiencies and savings will help Ford invest $900 million in its Louisville plant where the company will produce a new version of the Ford Expedition and Lincoln Navigator – preserving about 1,000 jobs.
The truth is, offshore production facilitates the maintenance – and even the creation – of jobs at home. Take the jeans company based in Mauldin, S.C., that exports 85 percent of its denim duty-free to Mexico, where it is cut and sewn into their jeans, and then shipped back to the United States to be sold. That practice, made possible by NAFTA, has allowed the South Carolina plant to compete and survive – and maintain jobs for its 2,700 workers. That is the way trade works. Part of it, logically, involves job creation in Mexico or China or other countries. But in the process, it allows thousands of jobs – millions nation-wide – to survive. Mercantilists might prefer if they could cling to every job. But trying to do that would only make the overall price of the product uncompetitive. By offshoring some jobs in lower-wage countries, companies like Ford make their operations more competitive and millions of jobs more secure.
A well-thought-out and planned corporate decision to offshore production preserves far more American jobs than any politician’s threats ever have. The fact is, companies making products with a large knowledge component do not make products from top-to-bottom in any one country. In an era of increasingly sophisticated manufacturing that relies more on computers and robotics than low-wage workers, centers of innovation in highly-developed economies like the United States will exert a greater pull than before. For proof, consider GM’s announcement last September that it will cease manufacturing an automobile engine at a factory in Mexico while moving jobs to a plant in Canada, near Waterloo, Ontario, Canada’s equivalent of Silicon Valley. The decision underscores how multinationals are fine-tuning their approach to making things: Increasingly, they differentiate between labor-intensive manufacturing — like stitching denim into blue jeans – and more advanced, machine-intensive pursuits that rely on automation and software. And, given that state-of-the-art products fetch a higher price, it is presumably worth paying a premium to the relatively limited number of well-trained workers involved in their creation.
Trying to keep production of the Ford Focus in Michigan was not the first example of Trump’s attempts to substitute bluster and bullying for market economics. Last Fall, soon after the election, he used $7 million of the State of Indiana’s money to persuade Carrier to spare about 800 of its Indianapolis jobs from an impending move to Mexico. The bad news? Over the next few years many of those jobs will be made redundant by improved technologies - according to no less a source than the parent company‘s CEO. That's one of the problems when government tries to pick winners and losers. It takes little time for the wins to turn into economic losses. The lesson? If you want to preserve jobs, focus on the market fundamentals. A strong business case beats strong-arm tactics.