Should Ford Lead the Defense of Globalization?
Can Ford defend Globalization and international trade in the face of rising American isolationism?
The Rise of Trump
Over the last four decades, the world has benefited immensely from globalization and free trade. Hundreds of millions of people have been brought out of poverty, standards of living have increased, and billions of dollars of shareholder value has been created [1]. Unfortunately, the rising tide has not lifted every ship. In mature economies, such as the United States, some workers have been displaced, and the economic benefits of increased trade have not been distributed equally. This disruption, while acknowledged by political elites, was often dismissed by the knowledge that the overall American economy was enlarged [2].
This apathy from elites created a feeling of isolation among the American worker precisely when they were the most vulnerable to the economic shock of global trade integration. Feelings of isolation turned to anger as middle-class American’s increasingly viewed trade as a zero-sum game where they were the loser [3]. During the 2016 United States presidential campaign, Donald Trump gave voice to this anxiety and promised to lead the nation in a new direction, stating that America will “no longer surrender this county or its people to the false song of globalism” [4].
Ford Takes a Beating
As one of the largest automotive manufactures in the United States, Ford Motor Company holds an iconic place in the American psyche. It is viewed as a primary driver of the industrialized boom that built the middle class, but its increasing reliance on a global supply chain made it a target for the rising antitrade movement. Ford was frequently the focus of Donald Trump’s wrath throughout the 2016 presidential campaign and bore the brunt of his threats to restrict trade [5]. These threats gained credibility after Trumps surprise election win, and Ford responded by announcing the cancellation of a new $1.7B Ford Focus plant in Mexico and the addition of 700 jobs in the United States [6]. In addition, the CFO of Ford, Robert Shank, stated in an interview in early 2017 that Ford was “expecting changes in trade and increasing its focus on manufacturing in the united states” [7].
Investment Turns East
These events appear to be proof that the isolationist, America-first policies advocated by the Trump administration were having their desired effect. Ford was ascending to the new order and manufacturing was returning from abroad. Unfortunately, Ford’s actions did not reflect economic reality. In an embarrassing turnaround, Ford announced that Focus production would be shifted to China, achieving $1B in cost saving. This was followed by a $700M joint venture in China to manufacture electric vehicles [8]. To the average American worker, these actions are a betrayal. Ford was highlighting manufacturing in the United States when politically expedient only to shift investment overseas when the storm had passed.
Defending Globalization
This type of corporate double talk is not just dishonest; it is bad business for Ford. Instead of placating the anti-globalist with meaningless PR, Ford must lead the defense of the free trade policies that are key to its competitiveness. As stated by Matt Blunt, president of the American Automotive Policy Council, “forcing American manufacturers to pay higher tariffs on imported goods would probably encourage companies to shift automobile production outside of the United States” [9]. This is because the American auto industry needs to compete in a global marketplace. German manufacturers have access to low-cost labor from Eastern Europe and Japanese automakers utilize supply chains that stretch into China and Southeast Asia [10]. In fact, it would benefit the average American autoworker if trade restrictions were loosened. This would allow Ford to access lower cost parts and raw materials, enabling them to manufacture in the United States, instead of shifting production to China [11].
It is necessary then for Ford to lead the public fight for trade. By hiding in the shadows, they are allowing the isolationists to drive a narrative that will eventually leave Ford facing the wrath of an uncompetitive and unemployed American worker. To support this position, Ford must go beyond advocating for competitive benefits of free trade; they need to convince their workforce that their jobs depend on globalization. This means educating America on how Ford’s foreign supply chain enables jobs in the united states instead of portraying the placement of manufacturing jobs as a digital decision between America and foreign competition.
Question for the Future
Ford could consider shifts in its relationship with workers to help build a pro-trade coalition. One option would be to implement Germany’s workers council model as a method to make American workers partners, committed to competitiveness, productivity, and profitability [12]. As noted by the Heritage Foundation, this has been shown to make the Germany manufacturing sector more resilient than American, especially in turbulent times like the 2008 financial crisis, resulting in fewer layoffs and a more robust recovery [13].
(800 Words)
- Warsh, K. and S. Davis, “The retreat of Globalization,” Wall Street Journal, (Oct. 15, 2012)
- Ibid.
- The Economist, “The new nationalism,” (Nov. 19, 2016)
- Ibid.
- Vlasic, B. And N Boudette, “Even Before He Takes Office, Trump Knocks Automakers on Their Heels,” New York Times, (Jan. 3, 2017)
- Donnan, Shawn, “It is crunch time for Donald Trump on trade,” Financial Times (Aug. 13, 2017)
- Vlasic, B. And N Boudette, “Even Before He Takes Office, Trump Knocks Automakers on Their Heels,” New York Times, (Jan. 3, 2017)
- Donnan, Shawn, “It is crunch time for Donald Trump on trade,” Financial Times (Aug. 13, 2017)
- Swanson, A. and N. Kitroefe, “ ‘Army’ of Lobbyists Hits Capitol Hill to Preserve Nafta,” New York Times (Oct. 24, 2017)
- Donnan, Shawn, “It is crunch time for Donald Trump on trade,” Financial Times (Aug. 13, 2017)
- Whelan, Robbie, “U.S Pushes Stiffer Rules for Nafta Car Makers.” Wall Street Journal, (Nov. 10, 2017)
- Behrens, Martin, “STILL MARRIED AFTER ALL THESE YEARS? UNION ORGANIZING AND THE ROLE OF WORKS COUNCILS IN GERMAN INDUSTRIAL RELATIONS,” Industrial and Labor Relations Review 62 (April 2009): 3.
- Morgan, D. Boccia, R. Bourne, D. Howden, A. Alesina, M. Melchiorre, V. de Rugy, D. Rohac and M. Marin, “Europe’s Fiscal Crisis Revealed: An In-Depth Analysis of Spending, Austerity, and Growth,” The Heritage Foundation No. 147, 2014, p. 60.
As you point out, it is clear to us now that the American manufacturing worker does not appreciate the benefits of free trade and globalization on his/her life. In fact, back in 2014 Pew study found that ~50% of Americans think that trade destroys jobs and lowers wages, compared to ~20% that hold that belief in other countries. Even more extreme- ~80% of Americans indicated protection of American jobs was a foreign policy priority, a level comparable to that prioritizing protection from terrorist attacks.
However, I’m not convinced that your proposal of companies educating their workforces on the value of globalization will work. Unfortunately this is fundamentally opposed to the labor ecosystem here in the United States, where companies and employees have only a temporal relationship, and neither owe the other any long-term commitment. The fundamental problem here in the US is not a lack of education on the benefits of globalization, but rather than those benefits are actually lacking.
As described by the New York Times leading up to the 2016 election, ” An outsize share of the winnings have been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs and suffered from joblessness and deepening economic anxiety.”
The Brookings Institute marks a similar trend, “Displaced American workers face a much more difficult and prolonged period of job transition than we had previously thought. Workers encounter long spells of unemployment, wage losses, and a lack of opportunities in depressed communities” and solutions like the Trade Adjustment Assistance program have been woefully inadequate in addressing this disparity.
Until Ford, or other US manufacturers, are actually committed to their workers, either through a long-term differentiated strategy, or via government intervention in employment practices, it will be difficult for a coalition such as you’ve described above to play out, as it would be yet another hollow promise to a community of highly disillusioned citizens.
http://www.pewresearch.org/fact-tank/2014/09/17/americans-have-dim-view-of-trades-impact-on-jobs-and-wages/
http://www.nytimes.com/2016/09/29/business/economy/more-wealth-more-jobs-but-not-for-everyone-what-fuels-the-backlash-on-trade.html
https://www.brookings.edu/blog/order-from-chaos/2017/08/28/globalization-on-the-cheap-why-the-u-s-lost-its-way-on-trade/
I agree it’s premature to jump into the narrative that globalization is laying off uncompetitive workers in the US before doing cost comparison analysis in a particular industry. Besides cost analysis, it’s also worth considering the demand side. If US auto manufacturers shift its production domestically (assume that the cost would increase), as other auto players in Germany and Japan are still embracing globalization, their cost advantage could translate to price advantage against US automakers.
Another reason that isolationism seems shortsighted to me is that as technologies advance and digitalization revolutionize the supply chain, there will be less need generically for low-skilled labors. Robots and machines are replacing human beings in lots of production processes. Besides standardized products being produced on those big platforms, on the other hand, customers are having more and more customized needs for various forms of products. Instead of involving in the anti-trade war which could worsen US’ international relationships, probably investigating more into how to re-empower low-skilled workers to capture the new consumer trend is more sustainable.
Thanks for writing this thoughtful piece. I agree that Ford is in a tough spot, being repeatedly called out by Trump but still needing to source globally to stay cost competitive. However, Ford is far from the only company to face this pressure from the President (even within the auto industry) [1] and virtually all large US manufacturing companies benefit from globalization in ways that might upset domestic employees, and this is a conflict that’s been brewing for decades. Thus I have a hard time agreeing that Ford can “lead the public fight for trade.”
I think it will be more productive for Ford to use its resources to collaborate with the government and other corporations to come up with innovative solutions to combat the negative effects of globalization. For example, some portion of the savings from moving factories abroad could be reinvested in local communities or in retraining employees to work in more technical positions that they plan to keep in the U.S. long-term. Ford itself is becoming more of a tech company [2] – investing in its manufacturing employees so that they can stick with the company through its transition will bring positive externalities on multiple fronts.
[1] http://fortune.com/2017/01/03/donald-trump-companies-jobs-america/
[2] https://www.wsj.com/articles/ford-acquires-majority-ownership-of-self-driving-car-startup-argo-ai-1486756594
Great article – definitely made me think!
I agree with MY that it is unlikely that Ford can “lead the public fight for trade.” For starters, they don’t have a brand of trust when it comes to this topic at the moment. Their decision to move production to China after saying they would forego a plant in Mexico has eroded trust and the political capital of Ford in the US. Additionally, it doesn’t seem that the president is open to hearing dissenting views so advocating for changes in policy at the highest levels of government will be tought.
Given this, Ford is left with two options in my opinion: 1) focus on their internal operations and start preparing themselves to abide by upcoming isiolationist policies and 2) consider an education campaign as suggested in the article. My big question with option 2 though is how effective can Ford really be in this regard. They are an automotive company, not a political organization. It seems a bit unrealistic to think that they can invest the time and resources to change the hearts and minds if disenfranchised Americans. As depressing as this sounds, I think Ford should focus on preparing themselves for the new economic and political realities.
Sam – this is an issue greater than the auto industry that we all should be paying attention to, in my opinion. I think you highlight a two-faced approach to protectionism by US-based multi-nationals (acquiescing to Trump publicly while disagreeing with him behind closed doors) that is dangerous to the competitiveness of these companies and the prices their customers will ultimately bear for products. To your question – I think making employees “partners” whose interests are aligned with the profitability of their employer is a creative solution here that could work to bring those employees to the defense of globalism, instead of serving as the public “victims” protectionist politicians use as a political toy.
Thank you for the insightful article. I agree with all of the points above, especially MY’s idea about collaborating with the government to address the negative effects of globalization. From my perspective, I also wonder how the competition is thinking about these considerations, since the focus really seems to be on the US Auto industry as a whole. If other manufacturers concede to the growing isolationism by reducing investments abroad, will that win them favor in the market relative to Ford? And is there potential for foreign automakers who have significant operations in the US to ramp up production and show that they can support the US labor force as well? It will be very interesting to see how this economic and political climate evolves.
I think that we need a broader view to understand companies’ behavior and their motives in this case. Ford, along with other major players in the car industry, was repeatedly cited by Trump in his campaign, and thus it was forced to do something. We can fairly assume that these companies were not that happy to finish in the middle of such a divisive debate.
I agree that Ford definitely benefits from free trade, but I think it is not alone in this “battle”. I would rather try to build a group of automaker leaders (like GM, FCA, Toyoya) that lobby internationally to promote the advantages of free trade for everyone. I think that car workers might not be responsive to an initiative promoting free trade, given the discontent caused by the shutdown of many US plants in the last decade, which was perceived as a result of increased competition from low-cost countries.
Right now companies are trying to stay in the middle of the two opponents, hoping that isolationism will be a transient phenomenon. Also, car companies might benefit from other aspects of Trump’s politics, such as the promises of low regulations and taxes. However, if isolationism will continue as a trend, they will be forced to take a stand, and it is in their best interest to advocate free trade for the good of their business, if not for the good of the economy in general.
Thank you for this post! I recall all of the press around Ford’s jobs moving from Mexico to the U.S. It was a great PR piece at a damn good time in American Politics. Unfortunately, I have heard little to no mention of Ford’s move to China. This is concerning because the public is being told one-side of a complex story. Your articulation on how easing the global trade agreements will make U.S. firms more competitive runs antithetical to the beliefs of the average workforce, I believe. Yet, I do agree. In this sense, Ford has an obligation, for the sake of its own company, to educate and bring to light the true impacts of isolationism.