Made in America

(I have sent this to the editor)
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President Donald Trump claims that imported autos pose a threat to national security. With a theme of “build them here,” the President has threatened to impose tariffs—as much as 25%—on imports.

Until two months ago, President Trump would have applauded me, despite my brown-skinned alien looks, because I owned vehicles that were made in America. For 14 years, I owned a Saturn Vue, which served me really well. Without a single breakdown over the nearly 310,000 miles I drove, my Saturn Vue was truly a testament to American manufacturing.

The Vue was not my first Saturn. I bought it after trading in my 11-year-old Saturn station wagon. Few ardent Trump supporters will be able to match my 25 continuous years of owning "Made-in-America" vehicles.

However, when it came time to retiring my rapidly aging Vue, I did not have an option to buy another Saturn—they are not manufactured anymore. Saturn was one of the companies that folded after the Great Recession that lasted from December 2007 to June 2009.

The Great Recession dramatically restructured the automobile industry, and General Motors ended the sales of Saturn vehicles in 2009. I, like other fiercely loyal Saturn owners, was thoroughly disheartened with GM’s decision. But, businesses dying is not anything new--it is consistent with the creative destruction that is a hallmark of the modern economic system. How many even remember Pan Am, which once dominated the skies? It is now one of the thousands of companies along with Saturn that lay buried deep in the economic graveyard.

The new car that I bought two months ago has 40% of its parts from Mexico with another 25% coming from Japan. The US and Canada also supplied parts for this car, which was assembled in Mexico. Altogether, my new Japanese car is more multinational than Japanese. In fact, if we were to go with the country that supplied the most components, and given where it was assembled, I could easily claim that I am now driving around in a Mexican car. Muy bueno!

The multinational aspect of cars is a modern manufacturing marvel. Alonso De Gortari, a scholar at Harvard University, reminds us in a recent essay of his that “the structure of world trade has changed radically over the last couple of decades with international supply chains spreading production processes across national borders.” Gortari adds that the integration of automobile production “across the three NAFTA countries is viewed as one of the most important international supply chains in North America and the world.”

Whether it is cars or smartphones or even the humble banana, we lead marvelous multinational lives irrespective of the country in which we live, through our daily economic activities. iPhones are “American” only because the company that designed it is headquartered in California. The phones are assembled in China, with components sourced from many countries around the world. And, of course, many of the employees working for Apple being immigrants to the US makes even the designing of the phone a multinational activity.

During my early years in India, the government had strict controls on the foreign goods that could be imported, which choked the national economy. After those import restrictions were removed in the early 1990s, India’s economic growth took off. Like India, the entire world has clearly understood the benefits of international trade and, yet, we in the US want to impose tariffs on imports?

As consumers, we buy goods based on our tastes and bank balance. Thus, for instance, even though apples are grown in plenty here in the US, bananas are the most widely consumed fruit here in the country. Bananas are imported from countries like Guatemala, Costa Rica, and Ecuador. We are not traitors just because we eat Guatemalan bananas instead of home-grown Honeycrisps, right?

Our lives are incredibly luxurious because of the widespread multinational economic interactions. At the same time, our behavior in the marketplace is not any kind of a litmus test on the loyalty to a country. As the owner of an imported car, I am no less an American than the American that I was as a Saturn Vue owner. I wish the President would convey to Americans that imported cars are not any threat to national security—and neither is my brown-skin nor my strange accent, even though I, too, am not “Made in America”!

The demagogue's Indira Gandhi act!

I grew up in an India that was highly suspicious of goods that were manufactured elsewhere.  Import-substituting industrialization morphed into a regime that tightly controlled what could be imported (and exported.)  Imports were taxed at high rates, in order to discourage consumption of those goods.  All these policies, in turn, led to a highly profitable smuggling industry and, of course, a highly corrupt political system as well.

In such an environment,  when the father of a classmate of mine returned from an official trip abroad, my classmate brought to school a pen that was an advertisement for Pepsi-Cola.  I thought that was a fake product--after all, the only cola that I had known about was Coca-Cola, which had been kicked out of India.

The India that I left behind thirty years ago was such an India.  Which is why the first sip of Coca-Cola, as an adult, was so delicious to me.  As conditions worsened, India was forced to rethink its closed economy.

Now, it seems like any good that is on the shelves in stores here in the US is also available in India.  From dried prunes to iPhones!  During the recent trip, when I noticed a gadget at my cousin's home, I assumed it was from the US.  "No, we now get everything here," she laughed.

I am not even a far-right, pro-market guy, and even I can see the benefits of open-borders and free trade.  Which is why I am shocked that Republicans, who are typically rah-rah cheerleaders for the market, elected to the Oval Office a demagogue who promises to end trade as we know it, with pronouncements like this:

Trump threatened to impose a 35 percent tariff — he called it a “tax” — on every car that BMW imported to the United States.

Seriously, did the anti-abortion White Christian voters hate, hate, hate Obama and Clinton that much to lick this demagogue's golden boots?

Furthermore, automobiles are not "manufactured"--they are assembled from components that are manufactured all over the world:

A tough stance on autos from Mr. Trump may not have the same impact as that of President Reagan. Since the 1980s, automakers have made fewer of their own parts, buying them instead from hundreds of parts suppliers based all over the globe. That means an American car assembled in the United States could still have large chunks that are manufactured abroad.
Chinese manufacturers dominate the market for replacement parts in the United States, often undercutting prices for parts from the automakers by half or more. Tariffs on Chinese parts would end up being paid by Americans who took their cars in for repairs.

The world--not merely India--has changed over the last thirty years!  BMW, like practically every corporation that serves the global market, is hoping that Congress will check the demagogue:

“We take the comments seriously, but it remains to be seen if and how the announcements will be implemented by the U.S. administration,” Matthias Wissmann, president of German auto industry association VDA, said in an e-mailed statement. The U.S. Congress will probably show “substantial resistance” against the duty proposals, he said.

More than anybody else, the Germans ought to know how easily demagogues become authoritarians.  They expect Republicans in Congress to stop this madman? Not these unprincipled bastards!

Yet again, reality stranger than the Onion's stuff!

The games that governments and corporations play, while we the consumers/taxpayers think we are getting a good deal! Oh well, nothing I can do but treat this news report (HT) as funnier than the Onion's news reports :-(
Excerpt:

The vans leave Turkey on cargo ships owned by Wallenius Wilhelmsen Logistics. Once they arrive in Baltimore, they are driven into a warehouse, where 65 workers from the shipping company's WWL Vehicle Services Americas Inc. convert them into commercial vehicles amid the blare of rock music and the whirring of industrial fans.

On a recent afternoon, a handful of vans passed through the warehouse unmolested as passenger wagons. But the vast majority were lined up to have windows pulled out, and they all had their rear seats removed.

In one lane, supervisor Robert Dowdy watched as two workers removed the rear side windows. They cut out the rubber seal with a special knife and popped out the glass using suction cups. The space is plugged with a metal panel that cures for 15 minutes before being tested outside for waterproofing.

At the start of that same lane, Mayso Lawrence unhooked a rear seat belt as easily as he would pop the top off a soda bottle. Using a drill, he quickly unscrewed six bolts to free the seats. Workers at the other end dump the seats into cardboard boxes, which are hoisted onto an open tractor-trailer and shipped to Ohio. Ford says the shredded seat fabric and foam become landfill cover, while the steel is processed for other uses.

"I never thought about why we take out the seats, but if that's what the customer wants, that's what we'll give them," Mr. Lawrence said.

With the seat removed, Mr. Lawrence puts in a new floor panel to cover the holes, toots the horn to signal he's finished, then gets to work on another van. The whole process takes him less than five minutes.

Rob Stevens, chief engineer for Ford's commercial vehicles, says the auto maker decided against shipping the seats back to Turkey for use in the next wave of vans for the U.S.

"We thought going through the recycling process was best," he said. "The steel is valuable."

Why such a rigmarole, you ask?

The company's wiggle room comes from the process of defining a delivery van. Customs officials check a bunch of features to determine whether a vehicle's primary purpose might be to move people instead. Since cargo doesn't need seats with seat belts or to look out the window, those items are on the list. So Ford ships all its Transit Connects with both, calls them "wagons" instead of "commercial vans." Installing and removing unneeded seats and windows costs the company hundreds of dollars per van, but the import tax falls dramatically, to 2.5 percent, saving thousands.

Kleenex time?

More on Obama's tariffs on Chinese tires

The world trade editor of Financial Times, Alan Beattie, offers an interesting perspective that adds more nuance, compared to the commentaries I have read on the tire tariff tirades:

Mr Obama has now come down on the wrong side of three big decisions on trade: happily signing a stimulus bill with Buy American provisions, abrogating an agreement allowing more Mexican trucks to operate in the US, and now granting the first ever emergency tariffs under a particular “safeguard” measure in US law. All are damaging both to trade and to the US’s international standing. All risk inflaming protectionist sentiment at a sensitive time.

But if he can use his capital to achieve universal healthcare and begin to shift the visceral dislike of trade that has gripped large parts of the American public and their representatives on Capitol Hill, it might prove worth it. He is playing with fire, which has creative but also destructive power. Just like globalisation.

Hey, that reminds me: didn't I write about the Buy American provisions in the stimulus bill? I did, I did :-)

It feels like .... 2005?

This chart, from the Financial Times, on how far, and how fast, international trade has decreased says it all

The reason?

explanation based on outsourcing: that manufactured goods comprise a bigger proportion of trade today than in the 1930s, when basic commodities had a larger share. Commerce in manufactured goods is more volatile and subject to shifts in demand than commodities, and trade in turn becomes more variable.

“The big shift in manufacturing from northern to southern countries over the past few decades ensures that falls in consumer demand in the north now show up in trade,” says Prof O’Rourke.

Either way, the implication of these explanations for the future of globalisation is moderately encouraging. If a simple fall in demand got trade into its current state, then – absent a flood of protectionist policies – a recovery in demand is likely to get it out.

So, against this background comes Obama's plan to impose tariffs on tires from China. Over to Brad DeLong--not a Republican by any means--who summarizes his response in the title of his post itself:

Barack Obama Does Something Really Stupid: Tire Tariffs