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Tonelson: Trump is Right as Rain on NAFTA and Offshoring

These comments from Fiat Chrysler's CEO would suggest so.
Alan Tonelson is Founder of the new blog RealityChek – www.alantonelson.wordpress.com – which covers a wide range of domestic and international policy issues along with political and social trends. For 18 years before leaving to launch RealityChek, Tonelson followed the impact of globalization on the U.S. economy, domestic manufacturing, and U.S. national security for the U.S. Business and Industry Council.  This national business organization represents nearly 2,000 domestic American companies, most of them small and medium-sized manufacturers. Tonelson has been called by The New Republic “the most influential economist spreading the nationalist gospel.” His book on globalization and the U.S. economy, The Race to the Bottom, was published by Westview Press in 2000 and issued in paperback in 2002.  His articles and reviews have appeared in Foreign Affairs, The Atlantic, Harper’s, FOREIGN POLICY, The New Republic, The National Interest,  The Harvard Business Review, and most major national dailies, including The New York Times, The Washington Post, The Wall Street Journal, and USAToday, as well as on major business news websites like BloombergView, Fortune.com, and Marketwatch.com.  In addition, Tonelson comments regularly on economic and national security issues on Bloomberg TV, CNBC, CNN, C-SPAN, Fox Business Network, and other broadcast and print news outlets. Tonelson has testified before several Congressional committees, as well as the U.S. Trade Deficit Review Commission, the U.S.-China Economic and Security Review Commission, and the Maine Fair Trade Commission.  He has also lectured at the National Defense University, the State Department’s Foreign Service Institute, the David Sarnoff Research Center; at the Philadelphia, Kansas City, Indianapolis, Hampton Roads (Va.), Cleveland, Honolulu, and Alaska World Affairs Councils; the Providence (R.I.), Boise (Idaho), Louisville (Ky.), and Birmingham (Ala.) Committees on Foreign Relations; the Pacific Council on International Policy and the Japan-America Society; and at numerous other government, academic, business, and labor fora in the United States, Europe, Japan, and China. A former Fellow at the Economic Strategy Institute and Associate Editor of FOREIGN POLICY, Tonelson holds a B.A. with highest honors from Princeton University.              
Alan Tonelson is Founder of the new blog RealityChek – www.alantonelson.wordpress.com – which covers a wide range of domestic and international policy issues along with political and social trends. For 18 years before leaving to launch RealityChek, Tonelson followed the impact of globalization on the U.S. economy, domestic manufacturing, and U.S. national security for the U.S. Business and Industry Council.  This national business organization represents nearly 2,000 domestic American companies, most of them small and medium-sized manufacturers. Tonelson has been called by The New Republic “the most influential economist spreading the nationalist gospel.” His book on globalization and the U.S. economy, The Race to the Bottom, was published by Westview Press in 2000 and issued in paperback in 2002.  His articles and reviews have appeared in Foreign Affairs, The Atlantic, Harper’s, FOREIGN POLICY, The New Republic, The National Interest,  The Harvard Business Review, and most major national dailies, including The New York Times, The Washington Post, The Wall Street Journal, and USAToday, as well as on major business news websites like BloombergView, Fortune.com, and Marketwatch.com.  In addition, Tonelson comments regularly on economic and national security issues on Bloomberg TV, CNBC, CNN, C-SPAN, Fox Business Network, and other broadcast and print news outlets. Tonelson has testified before several Congressional committees, as well as the U.S. Trade Deficit Review Commission, the U.S.-China Economic and Security Review Commission, and the Maine Fair Trade Commission.  He has also lectured at the National Defense University, the State Department’s Foreign Service Institute, the David Sarnoff Research Center; at the Philadelphia, Kansas City, Indianapolis, Hampton Roads (Va.), Cleveland, Honolulu, and Alaska World Affairs Councils; the Providence (R.I.), Boise (Idaho), Louisville (Ky.), and Birmingham (Ala.) Committees on Foreign Relations; the Pacific Council on International Policy and the Japan-America Society; and at numerous other government, academic, business, and labor fora in the United States, Europe, Japan, and China. A former Fellow at the Economic Strategy Institute and Associate Editor of FOREIGN POLICY, Tonelson holds a B.A. with highest honors from Princeton University.              

Image via Katherine Johnson/Flickr CC

Could America’s globalization cheerleaders finally admit that the debate over U.S. manufacturing trade with and investment in developing countries like Mexico is now over and done – including whether President-elect Trump has a handle on it? And that supporters of current American globalization policies like the North American Free Trade Agreement (NAFTA), including many Trump critics, have been completely wrong?

The cheerleaders’ position has long been summarized by the phrase “emerging markets” – claiming that third world giants like Mexico have been valued by American businesses overwhelmingly as exciting new consumers for their products. More recently, in the wake of Mr. Trump’s attacks on massive auto investment in Mexico, NAFTA and globalization defenders have claimed that these new factories have been built not mainly to “export back to the United States, as the President-elect argues. Instead, according to Stephen Gold of the Manufacturers Alliance for Productivity and Innovation – quoted uncritically by Washington Post columnist Robert Samuelson in a piece about the President-elect’s NAFTA statements and actions – “Our members locate abroad, because that’s where the growing markets are. Companies need to be close to their customers.”

These claims were first debunked by no less than former President Bill Clinton, who admitted back in 1997 that NAFTA had been “about factories moving there to sell back to here.” But granted, that was back in 1997. Maybe something has changed?

According to no less than Sergio Marchionne, chief executive of Fiat Chrysler, not even close. As he just stated, if Mr. Trump imposes high enough tariffs on the vehicles it makes in Mexico for export to the United States, “it will make production of anything in Mexico uneconomical and we would have to withdraw.”

Marchionne continued, “The reality is the Mexican auto industry has been tooled up to try and deal with the US market,” Mr Marchionne said. “If the US market were not to be there, then the reasons for its existence are on the line.”

Moreover, the data – which have finally started to appear prominently in public – reinforce Marchionne’s claim. Every vehicle producer operating in Mexico exports the overwhelming share of its output – for Fiat Chrysler, it was 94 percent in 2014. And last year, some 77 percent of the cars exported by these companies from Mexico were sold in the United States.

These statistics also thoroughly debunk another explanation made – more recently – for corporate auto investment in Mexico. That it’s lured south of the border because Mexico has so many trade agreements with countries aside from the United States. In fact, these deals have been described as achievements that make Mexico a more attractive vehicle export platform than the United States itself. But apparently, the companies themselves haven’t gotten the word.

Finally, it’s crucial to point out that the automotive industry in Mexico isn’t just any old industry, or any old export industry. It comprises fully six percent of the country’s gross domestic product and 18 percent of its manufacturing production – making it the country’s second largest economic sector (after food processing). And P.S. – it’s the country’s biggest generator of foreign reserves, topping even oil.

Of course, many legitimate questions surround the issues of Mr. Trump’s trade policy plans and his ambition to reshore big chunks of manufacturing. But there can be no legitimate questions left regarding his contention that U.S. tariffs would devastate the paramount incentive businesses have been receiving since NAFTA went into effect to set up operations in Mexico. Anyone doubting that nearly all have been targeted at the U.S. market must either be unable to read – or unwilling.

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