Tuesday, February 24, 2009

Buy American...Even If It's Made in Canada

Now for something from the I'm-not-quite-sure-what-the-point-is category...

The Detroit News, which is on the verge of going out of business, reports that many Obama administration officials are just like most other Americans — they prefer foreign to domestic when it comes to cars.

Of course, figuring out what counts as an "American" car these days ain't easy. As UM-Flint's Mark J. Perry points out, several American cars, including the Buick Lacrosse and the Chevy Impala, are made by UAW workers in Canada. "What about the 2008 Honda Pilot and Honda Civics," he asks, "built in the U.S. with higher domestic content (70%) than the 2008 Dodge Ram (68%) and the Michigan-built Ford Mustang (65%)?" And don't forget about the cars that sound foreign, like the Mitsubishi Galant and the Toyota Corolla, that are often made by UAW workers in the U.S.

It's all a little confusing. Unless, like me, you've got a 1990 Camry that's paid off and a San Francisco-sized mortgage. I'm not paralyzed by choice. I'm broke.

UPDATE: An insider at one of the Big Three points out that there's a big difference between "Made in America" and "Assembled in America."

The distinction that is being made about what is "Made in America" is a subtle one. More accurate for many foreign nameplates with factories here is "Assembled in America". A significant part of the cost of a vehicle is in the assembly process (i.e. the factory workers who make $40-60K per year and use that money to buy things in their communities). An equally significant piece of the cost structure are the support functions that also help build middle class neighborhoods in Flint and Detroit. These are the engineering, purchasing, finance, and IT functions just to name a few. Thousands of these folks work for the auto companies and these jobs go away when volume drops just like the factory jobs. One of the differences between a foreign company and an American company is that these jobs - thousands of them - are here in the US - not in Japan, or China, or Korea. Some of these companies may have a design center here and there but the vast bulk of their support groups are in their home country. So saying that a Japanese car assembled at a factory here in the US is just as American as a Chevy or Ford assembled in the US is not correct. The dollars traded within our communities by employees and families of the Detroit Three far exceed those traded by factory workers of foreign nameplates.

Think about this for a minute. One day, when the volume and demand return for auto purchases again, every car company in the world will be making money. When profits are made, people get raises and maybe even bonuses. The support employees right up to the mid level managers may get a modest bonus in a good year - say $3 - 6K. They may use that money to build a new deck, put on a roof, replace the windows on their house, take a vacation - you name it - the point is they put that money back into the economy. The big guys with the bigger paychecks put more back into the economy and often donate more as well. Nearly 100% of the cultural centers in Flint and Detroit are due to the generosity from the folks who helped create great wealth from the auto industry.

So when Toyota makes money, where does that wealth go? Right back to Japan.

Where a car is assembled is not the only measure of what constitutes "Made in America" and I would argue that the wealth and support of the US economy by a foreign car assembled in the US is dwarfed by an American car company assembling a car anywhere in north America. Think about that next time you want to justify your support of the US economy by purchasing a Honda assembled in Ohio.

12 comments:

  1. I just stick with my '98 VW Jetta, which is clearly a German car, made in Mexico!

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  2. I agree with the writer. Back in 1980 when they started building a Honda plant in Ohio, my Economics professor asked us, "but where does the wealth go?"

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  3. The "insider’s" update is, sadly, incorrect on the economics of the issue. He continues to put forward the myth (debunked in the late 18th century) that economics is a zero-sum game...if I win someone else has to lose. Keeping the Big Three afloat based on the spurious conclusion that "American" jobs support the "American" economy is a sure fire way to make sure all of America follows the Big Three down the road they are currently on.

    When a Japanese, Chinese, German, or French company makes money in America, they are more apt to reinvest that money back into the marketplace here. China and Japan have, in fact, be a great source of our prosperity by investing heavily in the United States. I am sure the Insider would like to explain to the mother who is able to buy more goods at a lower cost because those goods are made in China with money lent by the Chinese to her bank, which offered her credit that Detroit needs her to give that up so someone can keep earning a union salary. Now sure, maybe some carpenter is able to build a new deck for someone. This ignores the fact, however, that bonus money would most likely be lost to higher cost of living given a lack of international trade. In other words, not only is the carpenter left unemployed but so is the worker at WalMart, the FedEx driver who moves the cargo, the longshoremen at the ports, etc etc. It is okay though because at least the union worker has his job.

    The fact of that matter is that the real test of anything in economics is what effect it has on the general welfare. By this measure, it is the inability of the Big Three to compete that is doing more harm to America. But hey, I'll let the Insider tell the workers for Toyota in America that they should, for the good of the country, give up their jobs and stop "helping" the Japanese.

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  4. Bobby, you've been reading Mark Perry too long. This argument that we have to give jobs to other countries so they can give us the money back by buying U.S. securities and allowing us to buy the cheap crap that they make only works for so long. Eventually, the bulk of the U.S. population will be working such low-paying jobs that they won't even be able to afford the cheap crap. Do you really want a country with a rich elite at the top and everyone else scrambling to save the money they make working deadend retail jobs?

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  5. kinda like the way it is right now. and in a little while, a lot of people will be scrambling for any dead end job, much less retail...

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  6. Bobby W:

    You forget the major issue: Where the company identifies itself at is where the company will give its excess money (read: profit) to.

    One thing you should know by looking at how companies operate: a company tries to minimize its costs wherever it is. In a country that it doesn't feel is its home, it won't spend any more than it feels it has to. That includes philanthropy; that also includes upper level wages (the executives will usually come from the country the company is established in), whom they use for their services (Air Japan, anyone? Air China, perhaps) and how they design stuff. It also affects whom they favor in their contracts (assuming ALL things are the same, would you prefer the Smith Parts Company or Nippondenso (yes, a real company)?).

    As for your defense of the poor rural person saving a few pennies for some foreign made product, understand that if you spend that money on an American-made and manufactured product, that money stays in America; whereas buying that few-cents cheaper Chinese product will insure that some of that money will go overseas. Cycle that buck ten times, and you'll find that said buck ends up being quite a bit smaller impact here if you spend always on Foreign products...but we've ended up funding the foreign place's economy. Especially if they believe in keeping their money in their economy. The poor person in Rural America may not be able to afford all the trinkets they get, but they'll be employed and be able to get what they need (and WITHOUT FOOD STAMPS, as Wal-Mart often suggests to its employees who struggle to get food on the table).

    In short, your position gives up longer-term benefits (the money going around and subsuming itself in the local economy) for short-term gain (another trinket). It throws away future benefits for immediate pleasures. And it implies that the more a worker earns, the more he deserves unemployment and poverty.

    (As for the American Automobile industry, it would appear that they as a whole has dug its own grave. There will probably be parties when GM and/or Chrysler are forced into chapter 7 bankruptcy.).

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  7. you might want to recheck who's living the rural areas lately, godozo. yeah, there's still a few poor folk, but a whole helluva lot more rich folk, the equestrian class, if you will.

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  8. Bobby W. Congratulations, you've adopted the Wal-Mart buy line as your economic policy "Save money, Live Better".

    I'm sorry that you think that the fact that a mother can buy inexpensive goods at Wal-Mart is somehow an economic success. That is a race to the bottom that nobody in this country, except for a few at the top of the pyramid, will win. If we think that we can get ahead in this country by mowing each other's lawns and cutting each other's hair, we're mistaken. We have to MAKE something.

    The notion of shipping cheap goods into the country and creating commerce by moving it to a store so we can buy it is absurd. You don't create wealth or establish a middle class doing that. You perpetuate exactly what the Chinese want us to be - a society of borrowers and consumers. I want to be a society of builders that generate wealth to help our country prosper.

    Let's be clear about something - China "invests in our country" or buys our bonds because we are a good investment and international regulations require that they carry certain high grades of investments and treasury bonds meet that requirement. Furthermore, they want to help keep our dollar strong so they can continue to sell us their goods. A weak dollar is as bad for them as it would be for us. So the notion of our prosperity being due to their investment is more correctly termed our "perceived prosperity".

    As for economics not being a zero sum game, that point can be argued, but not for the US auto industry. There are a limited number of auto sales in the U.S. each year (say 10 million this year) and if you buy a Toyota, you aren't going to buy a Chevy. Not many people will decide to not buy a car and ride their bike instead. So if you are going to buy a car, you will choose one, someone will win, and someone will lose. The point I was making is that decision comes at a cost and it is not merely measured by where a vehicle is assembled.

    The good, middle class jobs, exist in American companies in America and in Japanese companies in Japan. The goal of setting up assembly operations in a market is to save money - pure and simple. Letting the American companies die would mean that those middle class jobs go away and we are left with the cheaper labor jobs in the foreign plants. Not much opportunity to create wealth there.

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  9. Thank you to Godozo and Sable Pelt for responding to my comment.

    Unfortunately, both make the same mistakes. The real measure of a country's standard of living and its prosperity is found in its consumption. The more a people are able to consume, the more prosperous they are. If we can finance our consumption with money from the Chinese, it adds to our prosperity. There is nothing imagined about it.

    The argument that we are all engaged in a "race to the bottom" because stores like Wal-Mart exist is, frankly, nonsense. No one can deny that Wal-Mart has revolutionized the concept of supply chain management. They know exactly where and when products need to be. Companies such as Amazon.com and others requiring extended supply lines have all adopted similar business models. In fact, at plants in Brazil, Ford has integrated parts production and assembly under one roof (something the UAW refuses to even consider here in the US). The point is that Wal-Mart has increased productivity across the economy and is therefore responsible for a net benefit to society.

    On the often-cited point that Wal-Mart is driving down wages, I ask you this. Can you please list for me all of the times you have gone out of your way to pay more for a product in order to support the workers of a particular store? Better yet, would you shop at Wal-Mart if they had tip jars at the cash registers for the workers? People do not enjoy paying higher prices out some innate altruism. In addition, many people refuse to work at Wal-Mart for the wages offered. In your campaign to drive up wages to "support" the people working there now, what happens when the person not willing to work for $9/hr given their better education and skills hears that Wal-Mart will pay say $12/hr? The person willing for work for $9/hr now has to compete against a superior qualified person for a $12/hr job. Do you wish to suggest also that we should discriminate against the better educated to prevent them from "stealing" someone’s job? If not, you have now left the current Wal-Mart worker unemployed. I trust you will not mind taking some additional money (read taxes) out of your paycheck to help them.

    Your final point on the auto industry is the same. What gives you the power to dictate to me which cars I should buy? If Toyotas are better made, better equipped, and more reliable than similarly priced domestic automobiles, why in the world would I not buy the Toyota? The question is not where and by whom are the cars made, it is simply is this car better than that one for the same amount of money? By the way, no one responded to my point about how you intend to tell the worker for Toyota in Mississippi he is less deserving of a middle class manufacturing job than the worker for GM in Flint.

    The bottom line is this. Overall, countries do not compete against one and other economically. Individuals compete for jobs, firms compete for customers, but countries do not compete. If a worker in China can make a television cheaper so that I can spread my income across more products, it results in my having a higher standard of living.
    Yes, some people here will lose their jobs. It happens all the time. We have a dynamic economy. Think about this: "From March 2008 to June 2008, the number of job gains from opening and expanding private sector establishments was 7.3 million, and the number of job losses from closing and contracting establishments was 7.8 million" according to the Bureau of Labor Statistics. While the total number of loses was greater, the report goes on to say that certain sectors saw net job gains. By providing limited unemployment benefits, workers can transition from manufacturing to other professions. There are plenty of jobs to go around. Education is the key, not banning Chinese or Japanese products.

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  10. We have now waded deep into the morass of Republican talking points.

    Look at where the country is today after 30 years of the Republican ideas and economics that Bobby is advocating. (Yes, I'm including Bill Clinton, who was more or less a middle of the road Republican.)

    Do we really want to continue listening to this garbage that has brought us to this point as a nation?

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  11. What point exactly Funhouse? Care to supply any details?

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  12. Bobby,

    For details on the state of the economy after 30 years of trickle-down economics, free trade and the dismantling of government regulation of the financial industry, simply open the biz section of any daily newspaper or read it online. Pay close attention to items on the stock market and unemployment rate.

    Now, if I'm familiar with the Republican talking points, now is the time to explain how this is somehow mysteriously the fault of Democrats. Or, perhaps, the fault of Republicans who abandoned their conservative values. While you're at it, throw in some info on how FDR caused the Great Depression. I know you've got it in you.

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