{"id":22848,"date":"2017-11-14T21:34:32","date_gmt":"2017-11-15T02:34:32","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/made-in-america-ford-motor-companys-battles-with-isolationism\/"},"modified":"2017-11-14T21:34:32","modified_gmt":"2017-11-15T02:34:32","slug":"made-in-america-ford-motor-companys-battles-with-isolationism","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/made-in-america-ford-motor-companys-battles-with-isolationism\/","title":{"rendered":"Made in America? Ford Motor Company\u2019s Battles with Isolationism"},"content":{"rendered":"<p>When the United States entered the North American Free Trade Agreement in 1994, it was coming off several consecutive years of trade surplus with Mexico. In the ensuing 23 years, the United States turned into a net importer from Mexico and racked up a trade deficit of $64B in 2016 [1]. Vehicles and automotive parts accounted for more than 100% of that deficit ($74B) and had a deficit nearly three times as large as the next most unbalanced category (electronic parts, $25B) [2]. As a result, President Donald Trump has repeatedly targeted NAFTA as the scourge of American manufacturing. In April 2016, much to Mr. Trump\u2019s chagrin, Ford Motor Company announced that they would invest $1.6B in a new manufacturing plant in Mexico [3]. Trump\u2019s aggravated response suggested life for Ford may not be so simple; Ford\u2019s supply chain was the newest target in the global isolationist battles.<\/p>\n<p><iframe loading=\"lazy\" title=\"Trump: Ford Moving Small-Car Division Is a Disgrace\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/qbq1JkHm3F8?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p><strong>NAFTA Impact on Automotive Industry\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/strong><\/p>\n<p>The US Congress passed NAFTA in 1993 with bipartisan support. The agreement liberalized trade between the United States, Mexico, and Canada and provided American car companies with access to cheaper Mexican labor, leading to the boom of <em>Maquiladoras<\/em> in Mexico. For example, Ford assembles nearly all of its smaller cars in Mexico while keeping assembly of the higher margin trucks in the United States [4]. The current trade agreement includes a content provision that requires 62.5% or more of an automobile\u2019s components to be manufactured in North America in order to avoid tariffs [5]. As a result, North American supply chains have become markedly more integrated. Before NAFTA, US content in Mexican-made cars was roughly 5%; today it is around 40% [6].<\/p>\n<p>The three countries have entered into negotiations to \u201cmodernize\u201d NAFTA with the United States\u2019 number one stated goal of reducing America\u2019s trade deficit [7]. United States Trade Representative Robert Lighthizer, armed with his copy of \u201cThe Art of the Deal,\u201d has suggested increasing the content provision to 85% and introducing a new clause requiring 50% of the vehicle to be made in the United States [8]. Mexican and Canadian officials consider this unpalatable, but the uncertainty impacts long-term capital expenditure decisions that Ford makes today. In efforts to preserve American jobs, American officials may be increasing the cost to Ford of operating in North America, and therefore destroying more of the jobs they are trying to bring back.<\/p>\n<p><strong>Your Move, Ford<\/strong><\/p>\n<p>So how has Ford responded to its consistent Twitter-lashing? In January 2017, they announced that they would no longer build the new plant in Mexico but would focus on expanding existing Mexican capacity [9]. The news delighted \u201cMade in the USA\u201d stalwarts, but Ford more quietly announced in June that it would shift production of lighter vehicles to China in 2019. The Alliance for Automobile Manufacturers, the largest lobbying body for the US automotive industry, said that \u201crather than attempt to comply with such stringent regulatory requirements, it will make more economic sense for companies to shift production to low-cost countries, like China, and simply pay the 2.5% tariff to import the product into the US\u201d [10].<\/p>\n<p>But what happens if Donald Trump follows through on his bluster towards China? The administration\u2019s stated goal is to have American car companies produce their cars in the US, but will they sacrifice Ford\u2019s global competitiveness for political points?<\/p>\n<p>The irony is that all of the headache over where to build plants may be a moot point as Ford transitions into autonomous technology. A recent New York Times Magazine article titled \u201cCan Ford Turn Itself Into a Tech Company?\u201d highlighted new CEO Jim Hackett\u2019s target of releasing a fully autonomous vehicle by 2021 [11]. The longer-term future of the company appears to be in places like Pittsburgh and San Francisco and not so much in its scattered global plants.<\/p>\n<p><strong>Where To Go?<\/strong><\/p>\n<p>Despite its longer-term high-tech ambitions, Ford must still confront today\u2019s nationalist movements and determine where to invest its $7B+ per year of capital investment [12]. Ford\u2019s management must assume that the risks to producing in North America will continue. Both United States political parties are led by individuals who champion anti-free trade rhetoric. Andres Manuel Lopez Obrador, a populist leftist who has been critical of Mexico\u2019s free-market policies, is a contender in next year\u2019s presidential election [13]. Political movements across Europe and Asia share the same sentiment and suggest that Ford should optimize for political security rather than current favorable conditions.<\/p>\n<p>Ford should be outspoken in its opposition to NAFTA overhauls and articulate the effects that political uncertainty has on employment. Otherwise, efforts to retain US manufacturing jobs may cause an iconic American company to spend more time abroad. At least until the autonomous future arrives, Ford will be stuck playing dodgeball with isolationism.<\/p>\n<p>[789 words]<\/p>\n<p>&nbsp;<\/p>\n<p>[1] &#8220;Trade in Goods with Mexico,&#8221; (United States Census),\u00a0<a href=\"https:\/\/www.census.gov\/foreign-trade\/balance\/c2010.html\">https:\/\/www.census.gov\/foreign-trade\/balance\/c2010.html<\/a>, accessed November 2017.<\/p>\n<p>[2] Patrick Gillespie, &#8220;Remove car imports, and US-Mexico trade deficit disappears,&#8221; CNNMoney, January 9, 2017,\u00a0<a href=\"http:\/\/money.cnn.com\/2017\/01\/09\/news\/economy\/us-mexico-trump-cars-imports-trade-deficit\/index.html\">http:\/\/money.cnn.com\/2017\/01\/09\/news\/economy\/us-mexico-trump-cars-imports-trade-deficit\/index.html,<\/a> accessed November 2017.<\/p>\n<p>[3] &#8220;Ford will move smaller car production to Mexico,&#8221; CBSNews, April 5, 2016,\u00a0<a href=\"https:\/\/www.cbsnews.com\/news\/ford-will-move-small-car-production-to-mexico\/\">https:\/\/www.cbsnews.com\/news\/ford-will-move-small-car-production-to-mexico\/<\/a>, accessed November 2017.<\/p>\n<p>[4] Michael Martinez, &#8220;Ford&#8217;s Hinrichs on how to improve NAFTA,&#8221; May 1, 2017,\u00a0<a href=\"http:\/\/www.autonews.com\/article\/20170501\/OEM11\/305019958\/fords-hinrichs-on-how-to-improve-nafta)\">http:\/\/www.autonews.com\/article\/20170501\/OEM11\/305019958\/fords-hinrichs-on-how-to-improve-nafta<\/a>, accessed November 2017.<\/p>\n<p>[5] <a href=\"http:\/\/www.latimes.com\/business\/la-fi-nafta-rules-origin-20170228-story.html\">http:\/\/www.latimes.com\/business\/la-fi-nafta-rules-origin-20170228-story.html<\/a><\/p>\n<p>[6] Shannon O&#8217;Neill, &#8220;If NAFTA ends, Ford&#8217;s move to China will be just the start,&#8221; June 22, 2017, http:\/\/americasquarterly.org\/content\/if-nafta-ends-fords-move-china-will-be-just-start, accessed<\/p>\n<p>[7] Summary of Objectives for the NAFTA Renegotiation, (Office of the United States Trade Representative),\u00a0<a href=\"https:\/\/ustr.gov\/sites\/default\/files\/files\/Press\/Releases\/NAFTAObjectives.pdf\">https:\/\/ustr.gov\/sites\/default\/files\/files\/Press\/Releases\/NAFTAObjectives.pdf<\/a>, accessed November 2017.<\/p>\n<p>[8] Keith Laing, &#8220;Automakers defending NAFTA, widening rift with Trump,&#8221; The Detroit News, October 24, 2017,\u00a0<a href=\"http:\/\/www.detroitnews.com\/story\/business\/autos\/2017\/10\/24\/auto-industry-bands-together-bid-save-nafta\/106958722\/\">http:\/\/www.detroitnews.com\/story\/business\/autos\/2017\/10\/24\/auto-industry-bands-together-bid-save-nafta\/106958722\/<\/a>, accessed November 2017.<\/p>\n<p>[9] Paul A. Eisenstein, &#8220;Ford Cancels Mexican Plant but Is Still Moving Small Car Production,&#8221; NBCNews, January 3, 2017,\u00a0<a href=\"https:\/\/www.nbcnews.com\/business\/autos\/ford-cancels-mexican-plant-still-moving-small-car-production-n702761\">https:\/\/www.nbcnews.com\/business\/autos\/ford-cancels-mexican-plant-still-moving-small-car-production-n702761<\/a>, accessed November 2017.<\/p>\n<p>[10] Robbie Whelan, &#8220;US Pushes Stiffer Content Rules for NAFTA Car Makers,&#8221; Fox Business, November 9, 2017,\u00a0<a href=\"http:\/\/www.foxbusiness.com\/features\/2017\/11\/09\/u-s-pushes-stiffer-content-rules-for-nafta-car-makers.html\">http:\/\/www.foxbusiness.com\/features\/2017\/11\/09\/u-s-pushes-stiffer-content-rules-for-nafta-car-makers.html<\/a>, accessed November 2017.<\/p>\n<p>[11] Kevin Roose, &#8220;Can Ford Turn Itself Into a Tech Company?,&#8221; New York Times Magazine, November 9, 2017,\u00a0<a href=\"https:\/\/www.nytimes.com\/interactive\/2017\/11\/09\/magazine\/tech-design-autonomous-future-cars-detroit-ford.html?rref=collection%2Fsectioncollection%2Fmagazine\">https:\/\/www.nytimes.com\/interactive\/2017\/11\/09\/magazine\/tech-design-autonomous-future-cars-detroit-ford.html?rref=collection%2Fsectioncollection%2Fmagazine,<\/a> accessed November 2017.<\/p>\n<p>[12] &#8220;Trump&#8217;s NAFTA autos goals to collide with industry as talks start,&#8221; CNBC, August 14, 2017,\u00a0<a href=\"https:\/\/www.cnbc.com\/2017\/08\/14\/trumps-nafta-autos-goals-to-collide-with-industry-as-talks-start.html\">https:\/\/www.cnbc.com\/2017\/08\/14\/trumps-nafta-autos-goals-to-collide-with-industry-as-talks-start.html<\/a>, accessed November 2017.<\/p>\n<p>[13] Santiago Perez, &#8220;Mexican Presidential Candidate Calls For NAFTA Talks To Be Suspended,&#8221; Wall Street Journal, August 30, 2017,\u00a0<a href=\"https:\/\/www.wsj.com\/articles\/mexican-presidential-candidate-calls-for-nafta-talks-to-be-suspended-1504137175\">https:\/\/www.wsj.com\/articles\/mexican-presidential-candidate-calls-for-nafta-talks-to-be-suspended-1504137175<\/a>, accessed November 2017.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A look at the impact of nationalist and isolationist movements on Ford&#8217;s capital investment decisions. <\/p>\n","protected":false},"author":9824,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-22848","hck-submission","type-hck-submission","status-publish","hentry","hck-taxonomy-organization-ford-motor","hck-taxonomy-industry-auto","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Made in America? 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