Bush Can Show He’s No ‘Wimp’ on Trade Policy
With President Bush and the U.S. TV network news shows in Japan this week for the emperor’s funeral, we’re getting a lot of comment on industrial competitiveness and trade issues--much of it disturbing.
Lee A. Iacocca, chairman of Chrysler, got a head start last week in criticizing U.S. trade policy--which, by one report, he called a “trade policy for wimps.” The focus of Iacocca’s anger was the U.S. Treasury’s decision last week to classify imported trucks as passenger vans, allowing them to come in under a much lower tariff.
The vehicles in question don’t meet U.S. safety or emissions standards for passenger vehicles; they meet only the less stringent standards for trucks--which obviously is what they really are. Yet the U.S. government yielded to European and Japanese lobbying and said that Nissan, Volkswagen and Mitsubishi vans could come in as passenger vehicles.
Since Chrysler gets much of its profit from mini-vans and Jeeps, and will be directly affected by the ruling, Iacocca was speaking his own case. But he happens also to be right. The Treasury ruling was another example of the United States acting like a sucker on auto trade.
Parts Imports Increasing
Last year the U.S. trade deficit on automotive products was $49 billion--more than one-third of the total U.S. trade deficit. Roughly $25 billion of that auto deficit was with Japan--which shipped $20.5 billion worth of cars to the United States and more than $4 billion in auto parts.
And the deficit is unlikely to shrink because auto parts imports are increasing, even though car imports--discouraged by the high yen and a glutted U.S. market--aren’t increasing. The trade problem is changing direction, explains one auto expert. As Honda, Toyota, Nissan, Mitsubishi, Mazda and Isuzu set up or expand production in the United States--a welcome event in many ways--the U.S. auto parts industry is threatened by new competition.
Japanese manufacturers all claim that at least 50% of the value of their U.S.-produced cars originates locally--but that’s a smoke screen. The 50% local content counts wages paid as well as advertising expenditures, even payments to lobbyists. Meanwhile, the windshields and spark plugs and other auto parts are brought in from Japan, establishing U.S. beachheads for Japanese parts suppliers but threatening the parts industry here.
Yet the U.S. government is too timid or dimwitted to question such things, as governments elsewhere do, says auto analyst Maryann Keller of Furman Selz Mager Dietz & Birney, a New York investment firm. To be sure the issue is complex, she adds. Often U.S. parts makers don’t measure up on quality--as U.S. cars didn’t in the past. So U.S. parts makers need to improve to get the new Japanese business as well as to hold onto their existing U.S. customers. But they may not improve unless they get a shot at the new business.
Denounced by Japanese
The challenge to parts makers is yet another instance of industry going global and changing traditional patterns.
Sometimes paradoxically so, as with Iacocca. The flamboyant Chrysler chairman is often denounced by Japanese executives for speaking one way, acting another. “Iacocca always complains but he himself doesn’t contribute much to solving the trade deficit,” observes Tetsuo Chino, head of Honda’s North American operations. “He imports cars and components from Japan and Mexico and (South) Korea.” True enough, Chrysler markets Eagle cars made by Renault of France and will distribute cars made in Canada by Korea’s Hyundai. It owns 24% of Mitsubishi Motors, with which it is setting up a production venture in Bloomington, Ill.
What’s Iacocca’s game? He’s doing what he can to keep Chrysler in the race and free from takeover. For Chrysler is not quite big enough to be independent long term. Analyst Charles Brady of Oppenheimer & Co. suggests that it might be acquired by Fiat of Italy, which needs a strong presence in North America. More likely is a closer hookup with Mitsubishi, which needs Chrysler as much as Chrysler needs it.
What both those companies lack are the worldwide scope of such as Ford and General Motors--which loom almost as large in Europe as in U.S. car markets. In Japan, Ford owns 25% of Mazda and GM owns 34% of Isuzu. Truly, in global industry, a company’s national identity is not a simple matter.
But that doesn’t stop other countries from recognizing, and fighting for, their national interests. In the mini-van case, the U.S. Treasury heard from government ministers of Britain, West Germany and Japan--with the German finance minister, ostensibly in Washington to discuss high-flown currency questions, making sure to put in a word for Volkswagen.
The U.S. government doesn’t do that as readily or skillfully for U.S. business--with the result that trade deficits are chronic and U.S. companies seem always to be set up for global target practice.
Well, U.S. car makers have met and matched world competition and so can U.S. auto parts producers. But it wouldn’t hurt if George Bush pressed Japan this week to give American parts makers more of a shot at the U.S. business of Toyota, Honda and the rest. Maybe he can show that on trade policy, he’s no wimp.
