A case for global trade

Jan. 1, 2020
A recent editorial ("Trade Wall," Aftermarket Business, August 2009) by Larry Silvey, editor-in-chief of Aftermarket Business and editorial director for the Advanstar Automotive Group, takes the position that U.S. companies are selling and U.S. consu

A recent editorial (“Trade Wall,” Aftermarket Business, August 2009) by Larry Silvey, editor-in-chief of Aftermarket Business and editorial director for the Advanstar Automotive Group, takes the position that U.S. companies are selling and U.S. consumers are buying too much product made overseas, particularly in China.

And he laments the fact that much of the product sold by Wal-Mart, where most of us shop at least occasionally, is made offshore.

While it would be nice if everything we need was made in America and very reasonably priced, that is simply not the case. The reality is that we are, today, part of a global economy in which many of our products are made overseas. “Foreign” cars
like Honda and BMW are actually assembled here, and corporate ownership is, more often than we think, multi-national.

The truth of the matter is, we simply can’t produce certain items here as cost-effectively as some of our trading partners around the globe.

Why is this so? There are several reasons:

◾ Our cost structure is often not competitive on a global basis, and there is no better example than the automotive manufacturers. Wages are high, work rules restrictive and benefits such as health care insurance and pension plans put car companies at a major cost disadvantage.
It is widely reported that vehicles built in the U.S. with union labor suffer a $2,500 per car burden just for fringe benefits.
◾ Countries like China have been very successful in creating badly needed jobs by offering raw material subsidies and manufacturing tax incentives that result in substantially lower costs to manufacture. While lobbying continues through U.S. trade representatives and others within our government, this situation is unlikely to change much in the foreseeable future.

As most of you reading this are involved in the automotive parts business, we are all inclined to ask, “What is an OE part?” Given the impact on OE service parts as well as aftermarket replacement parts, we must accept that many parts in Ford, GM and Mopar boxes are made in low-cost countries. Following the lead of the OEs, most Tier 2 suppliers like Federal-Mogul, Affinia and Tenneco are sourcing parts overseas, and selling these parts to the OEs as well as in the aftermarket.

Editor Silvey’s concerns about China holding a substantial portion of U.S. bonds is not well-founded. In fact, before China’s emergence as a major U.S. investor, our bonds were being purchased by European and Middle-Eastern countries. Why? Because the U.S. was, and continues to be, the best and lowest-risk place to invest.

So what is the solution?

You can’t have a solution without defining the problem first. And, in the case of the U.S. balance of trade, we should be able to agree that it would be desirable to grow the number of good jobs both here and abroad. A rising tide lifts all ships, and a healthy and growing global economy is not a zero-sum game. A country’s prosperity does not have to come at the expense of another country’s growth.

Considering this, how should the U.S. best deal with the continued migration of automotive manufacturing jobs to other, lower-cost countries?

1. Focus our efforts to match our strengths.

U.S. engineering is world class. Consider that the Chevrolet Corvette consistently ranks first in performance and value, even when compared with the world’s finest supercars, including the likes of Porsche and Ferrari.

We lead the world in other industries as well. No other country can match our successes in aerospace technology. It took America’s Bill Gates to develop the globally-dominant Windows operating system for computers. And surely our entertainment industry is unmatched anywhere else on the planet.

2. Enhance and enrich our educational system, which is clearly deficient.

The Wall Street Journal recently reported that only 25 percent of high school graduates had received scores on the standardized ACT test that would qualify them to perform well in college.

We continue to offer secondary education programs that start at 8 a.m. and end by 3 p.m., for less than nine months out of the year. Other countries have much more intense — and successful — educational systems, as evidenced by the fact that so many of our top students are foreign-born.

This imbalance is often exacerbated by parental indifference to their children’s academic excellence, a goal that is highly prized and promoted in other cultures.

We simply must do a better job of preparing our children to compete and excel.

3. We need to do much more to promote entrepreneurship.

It is simply unacceptable that, in this country, more than 50 percent of new businesses fail within the first two years. We, and especially our government, are clearly doing too little to prepare and support businesspeople in their entrepreneurial efforts.

Why, for example, in these days of skyrocketing health insurance premiums, are small business associations and co-ops in some states forbidden by law from negotiating the same lowered group rates that are available to unions with far fewer members?

4. We should insist that our legislators implement meaningful tort reform.

The current system allows frivolous lawsuits that target virtually every party involved in not only the manufacturing, but also the distribution of products. These lawsuits often yield sometimes-astronomical awards that are disproportionate to any injuries or damages experienced and inconsistent with many parties’ involvement with, or responsibility for, the performance of a product.

We cannot allow this legal lottery to persist.

5. Our state and federal legislators can also work to enhance the protections offered by patents and copyrights extended to 15 years for innovative new products.
And both government and the now bailed-out financial community should share the stimulus wealth by funding start-up and small businesses and helping them grow into the globally dominant “Microsofts” of tomorrow.

The current situation is not ideal. It is not the best possible scenario for our economy, our workers and our entrepreneurs. But it is what it is — at least for today.
We can make better tomorrows if we are smart enough to recognize the things we cannot change and exercise the courage, creativity and conviction to change the things we can. ◽

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