Trump’s China ‘order’ would cost GM billions
If forced to leave, firm would miss growth
If President Donald Trump were able to actually order American business out of China, General Motors would take a massive hit.
Though most of its profits come from North America, the company makes 43% of its annual global vehicle sales in China.
“The number one loss to GM, if forced to leave China, is the loss of all the future growth potential,” said Jon Gabrielsen, a market analyst who advises automakers and suppliers. “Since they already sold off their European operations ... GM would essentially be almost only a North American company.”
The problem with that is that North America doesn’t have growth capacity. China, already the world’s largest auto market with a burgeoning middle class, does.
In the series of tweets Friday, Trump said China has “stolen” vasts amounts of money from the United States for decades and it must stop.
“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon.”
National security law
Saturday, responding to doubts and criticism, Trump tweeted that he has the authority to force U.S. businesses to leave China.
He cited the International Emergency Economic Powers Act of 1977, a national security law that has been used to target terrorists, criminals and outcast countries such as Iran and North Korea. Critics say it is not meant to target a major trading partner over a tariff dispute.
Leaving China would wreak havoc on GM’s globalization strategy and ding its profits. In 2018, GM China contributed $2 billion to the carmaker’s bottom line.
GM issued a statement in response to Trump’s tweet:
“We support a positive trade relationship between the U.S. and China, and urge both countries to engage and pursue sustainable trade policies. We continue to believe both countries value a vibrant auto industry and understand the interdependence between the world’s two largest automotive markets.”
The Alliance of Automobile Manufacturers had no reaction to Trump’s tweets but had issued a statement in response to China’s latest tariffs on U.S. imports:
“We believe that move is unfortunate for consumers and the entire auto sector. We think customers win when trade barriers are lowered. And we know that the auto industry can thrive when there’s a robust and competitive trading environment between two of the world’s largest economies. Automakers encourage all parties to take actions leading to a healthy trade relationship between China and the United States.”
The unthinkable
Trump has used threats to negotiate with foreign powers before. In May, Trump tweeted that he would impose escalating tariffs on Mexico “until such time as illegal migrants coming through Mexico, and into our Country, stop” seeking to pressure Mexico to block migrants fleeing Central America to seek asylum in the United States. Some American automakers could have lost billions if that tariff had happened.
“It’s highly unlikely GM exits China,” said David Whiston, equity strategist of U.S. autos for Morningstar Research Services. Most experts agreed.
Whiston said Trump invoking the 1977 national security act “would be fought in court by every major American multinational out there.”
Marina Whitman, retired professor of business administration and public policy at University of Michigan, said “there appears to be disagreement as to whether President Trump can force companies to leave China or not.”
But, she added, “I can say with some confidence that if he were to try to do that, he would be hit with a barrage of lawsuits and a lengthy legal wrangle. He’d be using that power in a way it was never used before. The result would be horrendously expensive to companies.”
Trump’s threat is more likely a negotiating tactic to get people’s attention, but, she said, “What it really does is increase companies’ uncertainty of the future … which has a negative impact on the U.S. economy.”
Indeed, GM said its business in China repatriates money to the U.S. by paying the company a dividend of about $2 billion each year. Also, many of the vehicles sold there are designed and engineered in North America, which boosts employment, a GM spokesman said.