Ford also is expanding its Chinese footprint. Will Trump react?
Hey remember this?
Thank you to Ford for scrapping a new plant in Mexico and creating 700 new jobs in the U.S. This is just the beginning – much more to follow
— Donald J. Trump (@realDonaldTrump) January 4, 2017
Way back in January — before President Trump was even sworn into office — he took credit for a decision by Ford Motor Company to cancel plans to build a factory in Mexico. Instead, the automaker announced it would spend $700 million to make electric and self-driving cars in Flat Rock, Mich., creating 700 new jobs.
But nearly a year later, it looks like Ford is changing plans again. From the Wall Street Journal:
“Ford Motor Co. plans to produce a future electric car in Mexico rather than make it in the U.S., reversing plans announced in January to make its Flat Rock, Mich. Assembly plant near Detroit its main electric-vehicle production site.”
There’s more — Ford also announced this week that it will introduce at least 50 new vehicles in China by 2025, including at least 15 electrified vehicles. Ford even plans to assemble five more vehicles in China for Chinese customers, the company noted in a press release.
Let’s break down what’s happening here.
First, Michigan. Ford says that the decision to move electric vehicle production to Mexico is centered on its efforts to make that Michigan plant a hub for its driverless vehicles, which is widely seen as the future of the auto market.
The company also says doing so will create even more jobs in Michigan — 850 new openings, as opposed to 700 under the electric vehicle plan announced in January. And the company is investing more money — $900 million versus $700 million. As Michelle Krebs, an analyst with the website Autotrade, told Bloomberg: “It’s not like they’re not putting money into the U.S.”
Then there’s China. In many ways, Ford is responding to a market opportunity — there are a lot of people in China and a growing middle class, and Ford is betting that a lot of those folks are going to want to buy electric vehicles in the coming years. Given how costly and time consuming it can be to ship automobiles across the globe, it makes sense to build them in the place where you plan to sell them — that’s why many foreign car companies open U.S. plants, after all.
That doesn’t mean there aren’t big risks, however. As many tech companies have already found, American companies are often forced to hand over a lot of their intellectual property to operate in China. There are many additional hurdles as well — keep in mind that the Chinese government has a big hand in the Chinese economy.
So why would Ford still decide to manufacture in China? It appears that the company is making strategic business decisions that favor outsourcing some production. Let's get real, here: To sell in China, you also have to build in China.
What is becoming more clear is that despite President Trump’s early pleas (and threats) to American companies to keep production in the United States — and his pledge that there was “much more to follow” on manufacturing job creation — companies are still operating with a global production mindset, seeing big benefits to moving jobs overseas. The same thing happened in Indiana with Carrier and Rexnord. Trump tweeted his displeasure, only to see those companies outsource jobs anyway.
Without smart, targeted public policy to encourage more American manufacturing, companies are going to continue to make these sorts of decisions — regardless of what Trump decides to tweet.
Ford is building self-driving vehicles in the United States because this is such an emerging market and a new technology — it makes sense to have its research and development team close to vehicle production. Meanwhile, the electric vehicle market in North America remains relatively small, so that production can be sent down south.
And given the various restrictions China places on imported vehicles and the growing nature of the Chinese market, Ford decided to build at least some of its cars there.
There is a lot of speculation about whether Trump will respond to Ford’s announcement. But rather than post a tweet, he’d be better served to consider ways to grow and strengthen American manufacturing to encourage companies like Ford to increase their American manufacturing footprint.
Investing in more research and development is a start, as doing so will ensure that America maintains its edge in technological advances. Expanding workforce development is also crucial — we need to make sure that American workers have the skill set to undertake the high-tech jobs of the future.
Trump also should take a proactive approach when it comes to trade (especially with China), making good on his campaign promises to address industrial overcapacity, maintain China’s non-market economy status, take action to protect American intellectual property, and refuse to reward countries that operate state-owned enterprises with trade concessions.
The president also would be wise to finally unveil his plan to rebuild America’s infrastructure, which not only could potentially create millions of jobs but also would make the United States more competitive.
We always will encourage companies like Ford to maintain and expand their manufacturing presence in the United States, and we hope that the self-driving vehicle advancements at the Flat Rock facility will create even more factory jobs there.
But we also know that policy can play a big role in strengthening American manufacturing, and we encourage the president to get to work.