The COVID-19 pandemic has weakened demand for automobiles around the globe. After the government-mandated lockdowns began in March, U.S. automobile sales declined by more than 39 percent. Sales in Europe and China are expected to decline by up to 22 percent compared to last year. But the virus isn’t the industry’s only vulnerability. The new wave of protectionism sweeping across American politics threatens to destroy many jobs along with the innovation and cost-benefits made possible by free trade. Recent reports conducted by Autos Drive America and the American International Automobiles Dealers Association (AIADA) and the Center for Automotive Research (CAR) for the Japan Automobile Manufacturers Association highlight the critical role multinational firms play in strengthening the U.S. economy.
When a global pandemic already hamstrings automotive manufacturers, it is essential to remember that trade is mutually beneficial and not a zero-sum game. Foreign Direct Investment (FDI) by automobile manufacturers provides a plethora of benefits to American consumers and workers that include:
Nearly 2.5 million American jobs, This includes direct and indirect employment.
Competitive jolts to established domestic firms. Competition drives innovation, cuts costs, and contributes to higher productivity and efficiency.
Technology transfers. Foreign investment brings the newest automotive technology from around the world to the United States.
The evolution of ideas. Toyota created the Just In Time Manufacturing philosophy, which contributes to many American firms’ supply chain management.
More choices to satisfy consumers’ diverse preferences. Americans enjoy the option to purchase 74 models manufactured by companies like Honda, Hyundai, Toyota, Mercedes-Benz, Kia, Subaru, Fiat Chrysler Automobiles (FCA), BMW, Volvo, Volkswagen, and Nissan.
Since the enactment of the North American Free Trade Agreement (NAFTA) in 1994, more than $76 billion has been invested in the American automobile industry by foreign firms. NAFTA helped propel a 150 percent increase in those firms’ domestic production volume over the last 25 years. These investments have spurred recurring job creation from FDI, resulting in 136,000 Americans being directly employed by foreign automobile manufacturers in 2019. The direct employment opportunities from FDI also support millions of spin-off employment opportunities (jobs supported by the spending of automobile industry employees). But as economic ramifications of the pandemic and protectionist trade policies plague automobile manufacturers, many will be hard pressed to continue to invest in the U.S. Last month, Toyota reported a “50% slump in consolidated global sales.” As this trend continues, foreign firms like Toyota will look to nations who welcome their investments rather than view them as threats.
During a July 23rd Trade Subcommittee Hearing on Trade, Manufacturing, and Critical Supply Chains: Lessons from COVID-19, Rep. Stephanie Murphy (D-FL) warned that she is “concerned that some people who are already skeptical of global trade are using the [coronavirus] crisis to advance long-held protectionist goals.” These global trade skeptics ignore the interconnectedness of international economies. Protectionist policies may be designed with good intentions, but they reduce automobiles’ quality, raise prices, reduce domestic employment, stifle innovation, and trim choices for American consumers. Examples include tariffs on steel and aluminum used to produce cars in the United States and the 25 percent tariff on imported pickup trucks.
Protectionist rhetoric is enticing because it tugs on citizens’ patriotic heartstrings. However, no sentiment is more patriotic than providing the most favorable playing field possible for every entrepreneur to thrive. Taxpayers should welcome FDI from international automakers so that the American economy remains robust and durable. Future policies should focus on making the United States an attractive nation to foreign and domestic investors alike.