On Tuesday, President Trump met with the chief executives of Detroit’s Big Three auto manufacturers. You can vaguely sense what he was looking for from them when he tweeted:
“Will be meeting at 9:00 with top automobile executives concerning jobs in America. I want new plants to be built here for cars sold here!”
The CEOs of the auto firms said nice things about Trump afterward. But buried in the Detroit Free Press’s write-up of the meeting were these interesting paragraphs:
“In recent months, automakers have announced plans to invest billions of new dollars in the U.S. and create thousands of new jobs — developments for which Trump has, at least in part, taken credit.
“However, in nearly every case those investments were either in the planning stages for months or were made possible by changing market conditions, though Ford CEO Mark Fields has said that a belief that Trump will improve the business climate in the U.S. has also played a role in Ford’s decisions.”
Apparently, it’s even more complicated than that. Bloomberg News reports that given where the United States is in the current business cycle, the last thing auto manufacturers want to do is go on a huge domestic investment splurge:
“New assembly plants cost General Motors Co., Ford Motor Co. or Fiat Chrysler Automobiles NV about $1 billion — the sort of investment companies look to avoid making as a market peaks. And while factories boost jobs, economic gains from building them are being undercut by automation and pressure to compete with lower-wage countries including Mexico.
“ ’This is the nightmare scenario for auto companies, which are being asked to make huge capital investments right before a slowdown in sales,’ said Dan Luria, an analyst who has advised the United Auto Workers union. ’It seems like hardly the time to spend billions on new plants.’ .
“After the U.S. auto market’s 68 percent surge since 2009, sales will be roughly flat through 2020, researcher LMC Automotive said in a report last week. After setting a record with nearly 17.6 million vehicles last year, the industry will keep coming up short of that level through the end of the decade, LMC said.”
Then there’s the awkward issue of what the Big Three will do if Trump really does try to renegotiate the North American Free Trade Agreement with higher trade barriers against Mexico. Mexico is an attractive manufacturing hub in part because of lower wages but also because of its plethora of free-trade agreements with other countries. Unless and until Trump’s trade negotiators can get duty-free access to the same number of countries that Mexico can, it’s not terribly logical for auto manufacturers to relocate its plants to the United States.
Trump’s economic vision seems to be that any car bought in the United States should be made in the United States. But as a previous Detroit Free Press story noted, it’s just not economically feasible to produce, say, the Chevrolet Cruze in the United States:
“There probably wouldn’t be a Cruze hatchback if GM had to build it in the United States. The Cruze hatch is the poster child for why interconnected global manufacturing footprints make automakers stronger. Chevy sold about 184,300 Cruze sedans in America last year — all built in Lordstown, Ohio. It brought 4,500 hatchbacks in from Mexico. GM wouldn’t have invested millions of dollars for that few vehicles at its plant in Lordstown, Ohio, but it makes sense to build them in Mexico, where that body style is popular and they sell well.Without Mexican production, the 4,500 Americans who bought Cruze hatchbacks might be lost to other car brands.”
I bring all of this up because it illustrates the abject lack of knowledge that Trump and his trade/economic advisers seem to display when it comes to the automobile sector. And this is during an economic upswing.
Imagine what happens if the economy starts to run out of steam.
Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a regular contributor to PostEverything.