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    Is Ford's Move A Cave-In To Trump Protectionist Talk, Or A Savvy Bet On Future?

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    sinister_midget
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    Is Ford's Move A Cave-In To Trump Protectionist Talk, Or A Savvy Bet On Future?

    Post  sinister_midget on Wed Jan 04, 2017 10:28 pm

    Is Ford's Move A Cave-In To Trump Protectionist Talk, Or A Savvy Bet On Future?

    That's the sort of question I've been asking myself with regard to some of these announcement.

    Ford's decision to build a factory in the U.S. instead of Mexico, saving 700 jobs, is a good thing. But is it because Ford fears what Donald Trump might do to it, or because it thinks the corporate environment will be so much better under Trump than under Obama? And, yes, the answer really matters.


    Ford's move to invest $700 million in Michigan, creating about 700 new jobs here has created quite a political stir. The new plant, slated for Flat Rock, Mich., will make cutting-edge electric and self-driving cars, which Ford has said will likely outsell traditional cars by 2032.

    That wasn't all. Last year, Ford announced a $1.6 billion investment in Mexico to shift its Ford Focus production from Michigan to Mexico. Ford now says it will make its Focus at an existing plant in Mexico while expanding its electric-car plant in Michigan.

    "We didn't cut a deal with Trump," Ford CEO Mark Fields told CNN on Tuesday. "We did it for business." Indeed, Fields noted that Trump's pledges to ease regulations and cut taxes for businesses would greatly benefit Ford and others. We agree.

    Yet it may have been coincidental, but just hours before Ford announced its move, Trump ripped General Motors for making cars in Mexico, suggesting that he would slap a tax on GM cars built there but sold here.

    "General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border," Trump tweeted early Tuesday morning. "Make in U.S.A. or pay big border tax!"

    It's fair to ask: Was Ford intimidated by this and other Trump comments?

    As we noted, the decision in late November by air-conditioning and heating giant Carrier to expand in the U.S. rather than overseas was likewise framed as a business decision, based on the likelihood of a dramatically changed economic environment of lower taxes, fewer regulations and, in general, a more-friendly attitude toward business as a whole.

    Indeed, taken together, the decisions by companies such as Carrier, SoftBank, Sprint, Ford and others since Trump won the election will create more than 55,000 jobs in the U.S. instead of somewhere else in the coming months. This could be a very positive sign — or a very negative one, depending on their reasons.

    Let's say right off that we're thrilled for those who may actually get high-paying factory jobs here in the U.S. It's not an exaggeration to say such jobs have been in extreme short supply in recent years, creating a whole class of downwardly mobile Americans who were once solidly middle class. As we noted last month, since 2014, the U.S. has seen 571,000 new waiter, hostessing and bartender jobs, while 34,000 American factory jobs have disappeared.

    Yes, automation, not factory relocations overseas, is the main cause of our loss of good-paying factory jobs. That's a stone-cold fact. But it's not the only one.

    As recent news shows, many factory jobs are indeed being relocated to other countries as a result of President Obama's policies of high taxes and heavy regulation, which have helped make the U.S. a much-less-friendly place to start a business or invest. So a sudden jump in good-paying industrial jobs for hard-pressed middle-income families is a cause for cheer in the new year.

    That said, we won't be so thrilled if these job announcements turn out to be cheap corporate PR stunts made solely to appease Donald Trump rather than corporate decisions made for sound economic reasons — namely, that Trump's promised deregulation and tax cuts will make the economy grow by dramatically reducing companies' costs here in the U.S. and increasing the returns to invested capital.

    Also very important is that this isn't just another form of crony capitalism and/or fear of protectionism.

    That makes it even more important that Trump keep his promise about cutting regulations and reducing taxes. If not, and these new jobs don't materialize, it could be tremendously demoralizing for all those blue-collar workers in the Midwest who crossed over from the Democrats to vote for Republican Trump.

    We'd hate to think the only reason companies like Ford would want to invest in the U.S. is because of threats of tariffs of as much as 35% on what they make overseas and sell here. Or out of fear they'll be singled out in one of the president-elect's famously acidic tweets.

    The lure of protectionism in the form of higher tariffs is strong, but ultimately it's a tax that all of us pay. And in the long run, no matter what you might hear otherwise, protectionism destroys jobs, it doesn't create them. Far better for all of us if Donald Trump focuses on creating long-lasting prosperity by making the U.S. once again the world's most-competitive economy, rather than threatening companies with taxes and shaming them for doing what bad government policies encourage them to do.

    Exactly. Fix the government policies, don't coerce the companies to work against common sense when a lot of the problem is the policies themselves.

    I read an article yesterday. A woman in Los Angeles runs a  clothing business. I forget the details now, but it was something her business does that larger clothiers need. There are very few such as hers in the area, and not too many more than those across the US.

    She was bemoaning the fact that California was forcing her to move out of the state and into Nevada. She flatly doesn't want to do that, but she can no longer afford to do business in California because of the minimum wage hike. It's not a small hike. It was coming in two stages. It was enough that she either had to let people go or try to pass the extra costs on. She can't do without the number of people she has, and the companies doing business with her would never absorb the extra costs she couldn't absorb herself. So her only choice is to move.

    An awful lot of businesses moved out of the US for those sorts of reasons. Some of it was compliance costs. Some of it was additional tax burdens. Some of it was due to wage laws. Some of it was because certain materials can't be used any more and the replacements are far more expensive. Some of it was government regulations about things that have nothing to do with the products themselves, but place additional burdens on the businesses. Not all of it was due to government interference, but the lion's share of the extra costs were government-imposed.

    That's the sort of thing that needs to be addressed, Not threats. Not shame. Not imposition of higher import costs when internal compliance costs are what pushed them away in the first place.

    I'm still waiting until after the inauguration, though, to make my mind up about any of this. I suspect I'm going to see things I like, and see things I think are bad. But until I actually see them I'll withhold judgment.

      Current date/time is Wed Jul 26, 2017 1:38 am