Sandy Pensler

America needs a new industrial policy.

GM’s recent announcement to close or move more passenger car production out of the United States continues a long term trend to eliminate car production out of the United States and move it to China and Mexico. General Motors produces more vehicles in China with Chinese government owned Shanghai Automotive Company than it does in the U.S.

It has moved basically all of its auto production out of the U.S., leaving only light trucks and SUVs. Indeed, it could be argued that GM has more value in its Chinese joint ventures, which steadily generate $2 billion or more of operating profits, than it does in the U.S.

Similarly, Ford is moving its auto production out of the U.S. to China and or Mexico. FCA has also moved its passenger car volume out of the U.S. with the Dart and Chrysler 200 moving to Mexico.

The long term trends toward autonomous vehicles will likely lead to smaller transport vehicles making America’s strategic position even more problematic.

We are at crossroads.

The problem is not simply that we have higher wages than China or Mexico. Germany has high wages but they have nourished a powerful automobile industry by coupling their industry with strategic political and economic policies. The U.S. has not.

China places a 25 percent tariff on cars produced in the U.S. sold in China and requires our manufacturers to enter into joint ventures with Chinese government-controlled companies to operate in China, and it then steals our technology. We place a 2.5 percent tariff on their cars sold here.

The EU places a 10 percent tariffs on American-produced cars sold in the EU. We place a 2.5 percent tariff on European-produced cars sold here. Mexico has free trade agreements with the EU and 60 percent of the world to avoid their tariffs. The United States has free trade agreements with only 14 percent of the world.

As a result, Ford has moved production into Mexico to obtain free trade not only with the U.S. but with much of the rest of the world and avoids, for example, the tariffs with the EU.

President Donald Trump has attempted to remedy some of these discrepancies with tariffs aimed at obtaining concessions from the Chinese. His administration has negotiated a new trade agreement to replace NAFTA. These tactical moves are helpful but not sufficient.

We need a complete strategic review of trade policy. For example, a tariff based on foreign content will not solve the problem. The tariff is a tax on American consumers. While a helpful negotiating tactic, long term, tariffs result in increased costs for American consumers.

Auto laborers will become fewer in number but receive higher wages at the expense of other Americans. Auto producers will not relocate production to the United States if they believe the tariff’s consequence is higher production costs rather than higher profits.

Tariffs alone will not solve the problem. The strategic plan must consider tariff and employment structures utilized globally. It must engage unions and other constituent groups.

The traditional model of adversarial relations between management and unions must be turned to a model of collaboration.

Long term, lower wages currently reserved for new workers along with simple work rules should be offered to producers to lure them back to the U.S. to insure that they have sufficient returns to justify spending capital here. Labor rules should be established which assure this long-term collaboration.

We need a strategic plan which recognizes how other countries compete and includes collaboration among all stakeholders.

Sandy Pensler is president of Pensler Capital Corporation, based in Grosse Pointe Park.