President-elect Trump continued his rhetorical assault on foreign companies who use low cost Mexico as a base to export into the U.S. economy. Today Trump called out BMW for their plans to build the 3 Series in Mexico and promised a 35% tariff on the vehicle citing a plethora of German cars on the streets of Manhattan and a dearth of Chevy’s on the streets of Berlin. It didn’t take long for a German voice to respond, led by Deputy Chancellor and Minister for the Economy, Sigmar Gabriel.
Gabriel defended BMW's Mexico plant by claiming the Mexico plant is for the “global market,” and dealt with the Chevy comment by suggesting the U.S. build better cars. Both men got a little right, and both got a little wrong in this latest sound-bite spat.
First, the final chapter of the U.S. owned and branded auto industry in the northeast was written years ago as liberals gave up any nationalist attachment to buying American to help their fellow American. In 2011, Michael Bloomberg, then Mayor, laid the final nail in the coffin for U.S. branded cars in Manhattan when he selected the foreign company Nissan to supply the new taxi for the streets of the city. It is an awful car, and more importantly an import with profits going to benefit the Japanese.
I hope Trump isn’t just coming to this realization about the size of U.S. market share controlled by foreign automakers, though if so, better late than never.
Second, GM and Ford have been producing locally in Germany for decades and have very few exports to the region. Vauxhall's (GM), or Chevy's, are on the roads of Germany, though still not yet considered perfect substitutes for a BMW or Mercedes which is why Sigmar suggested the U.S. build better cars.
Third, Sigmar Gabriel’s assertion that the BMW factory in Mexico is for the global market is spurious at best. There aren’t many people in Mexico, or Central & South America who can afford to buy BMW’s, even the low-end 3 Series. No, the plant is Mexico is meant for U.S. customers and is only sited in Mexico because the low average total cost of production and the free access to the U.S. market made possible by NAFTA.
Trump is fighting against globalization and our massive trade deficit; the ruin of the American middle class. The auto sector led the way in globalization in the late 1980’s as American and European manufacturers sought low cost suppliers and production platforms to take on the Japanese and Koreans. Buying American in the auto sector is difficult and requires a comparison of domestic content. Trump is right to start the fight to correct the imbalances that have been engendered by failed trade policy and globalization. It will be difficult and messy.
Before Sigmar gets to high and mighty about Chevy’s, he had better remember the German manufacturing sector has been the beneficiary of a weak and failing currency since 1999, the Euro, that has allowed companies like BMW and Mercedes to gain market share around the world and in particular in the U.S. The American auto sector has been under siege by foreign brands since the first oil price shock in the 1972. Since that time the U.S. owned and branded auto companies lost huge amounts of market share.
Why? Bad trade policy, Geo-politics over economics, political leaders repeatedly calling for a strong dollar, poor management in the C-suite at the Big 3, and an inferior labor force made so by a failing public K-12 education system.
I’m with Trump; Always Try to Buy American. Its starts with trade policy.
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