What Ford’s China de­ci­sion tells us about eco­nomics

The Denver Post - - NEWS - This editorial was writ­ten by The Wash­ing­ton Post.

As a can­di­date for the White House, Don­ald Trump blasted the Ford Mo­tor Com­pany for plan­ning to shift pro­duc­tion of its lead­ing com­pact car, the Fo­cus, to Mexico. He even went so far as to threaten a huge tar­iff on any and all U.S. cars formerly pro­duced in this coun­try that might be ex­ported from Mexico back into the United States. Af­ter Trump’s elec­tion, Ford seemed to cave by an­nounc­ing it would not be build­ing the cars in Mexico af­ter all.

So what are we to make of the sur­pris­ing facts that Ford now plans to make the Fo­cus in Pres­i­dent Trump’s other trade neme­sis — China — and that the Trump ad­min­is­tra­tion’s re­sponse is, es­sen­tially, “What­ever”? Ford’s move just “shows how flex­i­ble multi­na­tional com­pa­nies are in terms of geog­ra­phy,” Com­merce Sec­re­tary Wil­bur Ross ob­served. You don’t say!

Les­son one: Eco­nomic re­al­ity is stub­born. Gas prices are plung­ing. Ergo, the Amer­i­can con­sumer can af­ford to in­dulge a pref­er­ence for larger ve­hi­cles, to the detri­ment of smaller, fuel-ef­fi­cient mod­els such as the Fo­cus, U.S. sales of which fell 31 per­cent be­tween 2012 and 2016. As­sem­bling these slow-sell­ing ve­hi­cles in high-wage Amer­i­can fac­to­ries is not profitable; even non-union Ja­panese and Korean car­mak­ers are de-em­pha­siz­ing small-car pro­duc­tion in the United States, in fa­vor of SUVs and crossovers. Trump’s co­er­cion was bound to fail, and while it’s not ideal to see any pro­duc­tion shift over­seas, ku­dos to Ford for call­ing Trump’s dic­ta­to­rial bluff — es­pe­cially be­cause the com­pany plans not to lay off work­ers but to re­de­ploy them pro­duc­ing pick­ups and SUVs in Michi­gan.

A sec­ond les­son, though, is that govern­ment sub­sidy can’t over­come fun­da­men­tal mar­ket dy­nam­ics ei­ther. Ford was the re­cip­i­ent of a $5.9 bil­lion low-in­ter­est loan from the En­ergy Depart­ment, au­tho­rized un­der a bi­par­ti­san pro­gram signed into law by Pres­i­dent Ge­orge W. Bush in 2007 but fund- ed by the Obama ad­min­is­tra­tion in 2009, the pur­pose of which was to help Ford pro­duce the next gen­er­a­tion of fuel-ef­fi­cient ve­hi­cles in the United States.

“We have an his­toric op­por­tu­nity to help en­sure that the next gen­er­a­tion of fuel-ef­fi­cient cars and trucks are made in Amer­ica,” Pres­i­dent Barack Obama said. A de­clared pur­pose of the huge loan was to con­vert two truck fac­to­ries to car pro­duc­tion. The loan did, in­deed, help Ford raise the fuel ef­fi­ciency of its best-sell­ing F-150 pickup (which it might have done any­way to meet stricter fed­eral stan­dards). But as Ford’s re­cent moves demon­strate, the dream of hot-sell­ing gas sip­pers, made in the U.S.A., has ap­par­ently died, a vic­tim of low gas prices and high U.S. pro­duc­tion costs.

Is it too much to hope that the fed­eral govern­ment will stop pur­port­ing to mi­cro­man­age spe­cific busi­ness-lo­ca­tion de­ci­sions us­ing ei­ther threats or bribes? The right ap­proach is to en­hance busi­ness con­di­tions gen­er­ally — es­pe­cially through cor­po­rate tax re­form — so that the United States re­mains com­pet­i­tive with all the other places in the world where cap­i­tal may freely lo­cate. Ross seemed to con­cede this, not­ing that af­ter Ford’s move, Ger­man and Ja­panese au­tomak­ers will be at­tracted to this coun­try by Trump’s “re­forms.”

So we’re won­der­ing: What was the point of all that pro­tec­tion­ist fuss?

Scott Ol­son, Getty Images

Ford plans to move pro­duc­tion of the Fo­cus from its Wayne, Mich., fa­cil­ity to China in­stead of Mexico as orig­i­nally planned.

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