{"id":26814,"date":"2017-11-15T22:55:11","date_gmt":"2017-11-16T03:55:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/can-protectionism-save-auto-jobs-in-the-us\/"},"modified":"2017-11-15T22:57:52","modified_gmt":"2017-11-16T03:57:52","slug":"can-protectionism-save-auto-jobs-in-the-us","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/can-protectionism-save-auto-jobs-in-the-us\/","title":{"rendered":"Can Protectionism Save Auto Jobs in the US?"},"content":{"rendered":"

As part of his campaign, President Trump vowed to prevent US manufacturing jobs from moving to Mexico, America\u2019s neighbor country with lower labor costs. Last December, after industrial manufacturer Rexnord Corp. announced a new investment in Mexico, President Trump tweeted, \u201cRexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!\u201d[1]<\/a> \u2013 an example of President Trump\u2019s attempt to shame companies into keeping jobs in the US.[2]<\/a> This tactic did not prove completely unsuccessful: last December, Carrier, a subsidiary of United Technologies, agreed to keep more than 1,000 jobs in Indiana after negotiations with state officials.[3]<\/a><\/p>\n

However, it is worth asking how successful President Trump\u2019s pressure to keep jobs domestically has been exactly. Tecma Group, a consulting firm that guides companies through offshoring in Mexico, \u201chas [in 2017] more business than ever in its three decades doing relocation.\u201d[4]<\/a> Notably, the auto manufacturer Ford, after scraping plans to build a new plant in Mexico, decided to nonetheless offshore production of its US-marketed, small-car Focus line from the US to China.[5]<\/a> What explains this?<\/p>\n

Mainly, human capital costs and talent appear to be behind this move. Ford\u2019s Focus line, and \u201csmall vehicles in developed markets in general,\u201d[6]<\/a> are challenging segments of Ford\u2019s business facing pressure to control costs. The move to China then \u201creflects the harsh reality that most carmakers lose money on small cars\u201d[7]<\/a> and that there is a never-ending incentive to reduce costs in this segment of the business. Ford CEO James Hackett himself stresses in one of this year\u2019s earnings calls that the decision to produce the Ford Focus in China \u201cmeets the preservation of capital and it\u2019s going to deliver significant savings.\u201d[8]<\/a> Even after accounting for transportation costs from China to the US, making small cars in China appears to be the most cost-effective solution.<\/p>\n

Given President Trump\u2019s rhetoric against offshoring, did Ford make the right decision moving production to China instead of keeping it in the US? After all, Trump has threatened US carmakers such as General Motors with establishing a \u201cbig border tax\u201d if they move production abroad.[9]<\/a><\/p>\n

Ford\u2019s production move to China is a risky move, since the US government can decide to indeed impose tariffs at any time on cars produced abroad. Though the prospect of retaliation from World Trade Organization member countries might dissuade the US from hastily pursuing this option, the current US administration can nevertheless decide to impose such a tariff simply to send a strong message.<\/p>\n

That said, Ford\u2019s actions, though risky, are smart. Ford is not moving production to China just because of the lower labor costs there. Ford is moving production to China because it can also access talent that can work with robots and can help advance the company\u2019s automation initiatives. Ford is keeping the production of its \u201clarger, more profitable,\u201d and likely more technologically complex, vehicles in the US. This is likely due to the highly-skilled talent needed for these types of vehicles. On the other hand, Ford moved the production of smaller, and likely less complex, cars to China not only because Ford can access cheap labor in China for the construction of such cars but also because it can access cheap but sufficiently skilled labor for the improvement of the automation technologies the company has implemented in the Asian country. After all, an effective strategy in an environment where protectionism is increasingly popular and pressure to control costs is high is to pursue the reduction of labor costs through automation. Ford has realized this, and it is using China as its automation innovation test center before it can implement such technologies in the US.<\/p>\n

Word count: 796<\/p>\n

[1]<\/a> \u201cEverything President Trump has tweeted (and what it was about).\u201d Los Angeles Times<\/em>, 7 May 2017, http:\/\/www.latimes.com\/politics\/la-pol-updates-everything-president-why-did-trump-just-tweet-about-1494200206-htmlstory.html. Accessed 15 Nov. 2017.<\/p>\n

[2]<\/a> Goldstein, Steve. \u201cOpinion: Ford\u2019s Mexico shift shows Trump\u2019s bully pulpit has some value.\u201d MarketWatch<\/em>, 3 Jan. 2017, https:\/\/www.marketwatch.com\/story\/fords-mexico-shift-shows-trumps-bully-pulpit-has-some-value-2017-01-03. Accessed 15 Nov. 2017.<\/p>\n

[3]<\/a> \u201cHere\u2019s How Much Indiana Is Paying to Keep 1,000 Carrier Jobs.\u201d Fortune<\/em>, 2 Dec. 2016, http:\/\/fortune.com\/2016\/12\/02\/indiana-carrier-jobs-tax-breaks-mexico\/. Accessed 15 Nov. 2017.<\/p>\n

[4]<\/a> Black, Thomas. \u201cEven a NAFTA Collapse Won\u2019t Keep Companies From Moving to Mexico.\u201d Businessweek<\/em>, 24 Oct. 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-24\/mexico-s-2-50-an-hour-wages-lure-jobs-south-amid-nafta-talks. Accessed 15 Nov. 2017.<\/p>\n

[5]<\/a> Vlasic, Bill. \u201cFord Chooses China, Not Mexico, to Build Its New Focus.\u201d The New York Times<\/em>, 20 Jun. 2017, https:\/\/www.nytimes.com\/2017\/06\/20\/business\/ford-focus-china-production.html. Accessed 15 Nov. 2017.<\/p>\n

[6]<\/a> Ford Motor Company. \u201c2016 Annual Report.\u201d http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/annual-report\/2016-annual-report.pdf. Accessed 15 Nov. 2017.<\/p>\n

[7]<\/a> Kiley, David. \u201cForget Mexico: Ford Moving Focus Production From U.S. To China, With Eye On Profitability.\u201d Forbes<\/em>, 20 Jun. 2017, https:\/\/www.forbes.com\/sites\/davidkiley5\/2017\/06\/20\/ford-will-move-focus-production-from-michigan-to-china\/#6ad54b794ef5. Accessed 15 Nov. 2017.<\/p>\n

[8]<\/a> Ford Motor Company. \u201cQ2 2017 Earnings Call.\u201d http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/07-26-2017-Q2\/Q2-2017-Earning-Final-Transcript.pdf. Accessed 15 Nov. 2017.<\/p>\n

[9]<\/a> Vlasic, Bill and Boudette, Neal. \u201cEven Before He Takes Office, Trump Knocks Automakers on Their Heels.\u201d The New York Times<\/em>, 3 Jan. 2017, https:\/\/www.nytimes.com\/2017\/01\/03\/business\/ford-general-motors-trump.html. Accessed 15 Nov. 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

Did Ford make the right decision moving production from the US to China?<\/p>\n","protected":false},"author":10120,"featured_media":26815,"comment_status":"open","ping_status":"closed","template":"","categories":[471,116,3715,154,1658,3239,3240,17],"class_list":["post-26814","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-automation","category-automotive","category-automotive-supply-chain","category-china","category-ford","category-isolationism","category-protectionism","category-supply-chain","hck-taxonomy-organization-ford-motor-company","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":"\nCan Protectionism Save Auto Jobs in the US? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/can-protectionism-save-auto-jobs-in-the-us\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Can Protectionism Save Auto Jobs in the US? 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