What’s Behind Trump’s War With Detroit

The butting of heads is less than it seems. Ford and the rest will be repaid with relaxed fuel-mileage rules.

By Holman W. Jenkins, Jr.

The 1980s called and they want their trade war back. In picking Robert Lighthizer as U.S. trade representative, Donald Trump picks a trade lawyer who was a nuts-and-bolts guy for Ronald Reagan’s offenses against free trade—a memory usually far from the minds of the Gipper’s free-market fans.

Mr. Lighthizer was present at the creation of “voluntary” restraint agreements imposed on foreign governments to limit imports of steel, textiles, forklifts, etc. The granddaddy of these VRAs, which were far from voluntary, firmly limited Japanese auto imports, acting not unlike a price-fixing cartel and costing U.S. car buyers an estimated $13 billion over five years.

The politics were not unlike today’s too. Reagan in the 1980 election made a straight-up promise to auto workers in Michigan to slow Japanese auto imports. From a sense of obligation or a desire to keep these so-called Reagan Democrats on board, he put his team to work almost from the moment he landed in office.

One senses a similar calculation going through Mr. Trump’s head. Witness his economic team of presumptive trade warriors, including not only Mr. Lighthizer but businessman Wilbur Ross and China-bashing economist Peter Navarro.

A big difference, though, is that Reagan’s auto trade war was waged against Japanese companies. Mr. Trump’s targets have mostly been Ford and GM—until he finally hit Toyota Thursday for the same sin of shifting small-car production to Mexico from the U.S.

This is not your Reaganite father’s trade war, for reasons the Reagan trade war partly contributed to.

In the 1980s, when foreigners found they could be shut out of the U.S. market, they began building auto plants here. They reproduced a phenomenon pioneered by U.S. firms when they started moving abroad in the 1950s and ’60s. Much of what is counted as trade nowadays isn’t goods made here and sold there. It consists of intracompany exchanges—transfers between affiliates of the same company. What’s more, an eye-opening 1992 study by Dennis Encarnation showed, counterintuitively, that having production affiliates abroad actually increases exports from the home country.

This is what Ford and GM mean now when they protest, apparently in vain, that Mr. Trump and his acolytes don’t know what they are doing when injecting trade-war politics into complex cross-border supply chains.

But here’s where Trumpism partakes of another American tradition: turning to the U.S. auto sector whenever a political gesture is needed. No handful of companies has been so recurrently dunned when pols want to make a point about the environment, gas prices, trade, consumer safety, etc.

This regulatory burden has been both cause and effect of the industry’s steady reliance on bailouts. And we do mean steady. Jimmy Carter rescued Chrysler with loan guarantees.

Reagan rescued Detroit with trade protection. George W. Bush cut the first check to save the auto sector in 2008. And, all along, Washington has fashioned its fuel-economy fine print and trade restrictions to protect Detroit’s pickup profits in what amounts to an ongoing bailout.

Which brings us to a more nuanced view of Mr. Trump’s tussle. Yes, he hammered Ford, GM and now Toyota for moving Focus, Cruze and Corolla production to Mexico—small cars built partly or entirely to meet onerous U.S. fuel-economy mandates.

In running up the white flag, though, Ford and GM have not unhappily noted that small-car demand is down anyway, as consumers opt for SUVs and pickups built profitably in U.S. plants.

We wouldn’t go so far as to suggest Mr. Trump knows what he’s doing. However, it’s interesting that his brickbats have been aimed at companies looking to shift U.S. small-car assembly to Mexican factories. He hasn’t, so far at least, badgered those U.S. and foreign auto companies flocking to exploit Mexico’s enviable network of free-trade agreements to export to world markets. U.S. workers benefit from supplying materials and components to these globally bound vehicles.

This butting of heads between the president-elect and Detroit may be less than it seems. Detroit has received strong signals that complying with the Trump agenda on jobs will be repaid with a relaxation of President Obama’s fuel mileage mandates.

These rules are up for review this year anyway. So the political dance going on between Donald Trump and Detroit actually has a lot of upside for Detroit. We see here also that regulatory politics, like all politics, favors something for everybody. And just maybe, we are learning how Mr. Trump’s tweeting will be incorporated in a political bargaining process that is a lot more conventional than it appears.

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