Posted on 03/22/2005 11:16:18 AM PST by Toddsterpatriot
A funny thing happened on the way to dollar devaluation -- America, apparently, has become a source of cheap labor at least in currency exchange-rate terms.
According to a report from Thursday's Wall Street Journal, Japan's Nissan plant in Canton, Miss., will begin producing Quest minivans for export to -- get this -- China. Ha! And Nissan isn't even the first Japanese automaker to be producing cheap goods in the new Third World, for export abroad. Toyota and Honda are playing this game as well, producing thousands of cars in the U.S. for export to Europe, every year.
The Japanese majors -- as well as minor players like Mitsubishi (OTC BB: MMTOF - News) and Fuji Heavy Industries' (OTC BB: FUJHF - News) Subaru, both of which also expect to export from the United States -- cite various rationales for their actions. First, there's the low value of the dollar in recent months, which makes vehicles a bit more economical to produce here than used to be the case. Then there's the general belief that, after years of seeing GM , Ford , and DaimlerChrysler practically give their cars away, the near future may be a tough time to move product in the States. Better to produce some cars here and keep the plants up and running, the Japanese investors figure, than let them sit idle. And finally, there's the practical consideration that some Japanese models -- such as the Quest -- aren't even built in Japan. To sell them in China, you need to ship them from where they are built. Here.
All of this makes it harder and harder to remain a dyed-in-the-wool jingoist. I mean, do we want foreign companies to produce all their stuff abroad and export it to us? Or do we want them to buy and build assets in the United States, employ American workers, and buy auto parts here for local assembly? It seems like only last week that we were complaining about the former, yesterday about the latter, and sometime around breakfast this morning about U.S. companies sending U.S. jobs offshore. Now it's the job-stealing foreigners who are saving the day by hiring Americans to produce cars here, for sale elsewhere?
It's getting to where a Fool has to wonder whether it's even possible to "buy American" anymore. Perhaps -- just perhaps -- we should abandon the increasingly fictional notion that it can be done and just buy whoever makes the best stuff for the best price, for the sake of ourselves and our portfolios.
Fool contributor Rich Smith owns no shares of any company mentioned in this article.
The cost of labor appears low because the dollar is being artificially suppressed by foreigners who keep shipping goods to America, despite the fact that it's not economical to do so.
Interesting post.
BTW, please add me to your ping list.
Those who want to see the US remain a manufacturing power need to get on the NRST bandwagon.
re post 3; Did you forget your < /sarcasm > were you serious? Sometimes it's hard to tell.
This is how free markets work.
And it is indicative of why we need to encourage them.
You bet.
I was serious. They are dumping their goods in America at below cost, and continue to do so even though the dollar has declined. That causes the dollar to further decline, making US labor less expensive, when measured in the euro, or the yen, for example. They don't seem to have a firm grasp on how currency markets work, or how international trade works. We've really taken them for a ride over the years, and if their past behavior is any guide, they will continue to scratch their heads, not knowing why our economy works so well, and theirs does not.
The irony is that they don't really need to know how economics works. All they've got to do is let the free market do its thing, and everything will be fine. But they haven't understood that yet. They are constantly tinkering with the result of the market, trying to get an advantage by manipulating the rates, or by imposing trade quotas or tariffs, or maybe by imposing subsidies. In the end, all of those efforts are for naught, because the exchange rate simply adjusts to negate whatever they do.
If they increase tariffs by 10%, then the exchange rate will go up by 10% and they are right back where they started from. It'll take a while, and they may think they are getting away with something in the short run, but the bottom line is that it's the underlying mix of capital and labor that determines their level of prosperity--not how well they can manipulate the markets.
There was a time when American products were both inexpensive and excellent. They might still be excellent, but what happened to the inexpensive part?
The Feds made it illegal to make inexpensive goods in America!!
True, but who are the Feds besides an agent that we created and then ourselves modified to be our nanny?
Noooooo! Tariffs and duties are the only constitutional form of taxation (16th amendment aside)
[/sarcasm]
A few points:
1. America really shouldn't be in the business of manufacturing low profit-margin commodities. Lets leave that to second-tier countries like South Korea and China.
2. The trade deficit was never an issue anyways. The days of the gold standard ended a long time ago, no wealth is leaving the country.
Producing cars on two continents and shipping them both ways makes a heck of a lot of sense when you factor in the logistics of moving them from the point of manufacturing to the point of sale. If an auto manufacturer were to produce all their cars in Asia and ship a large number of them to the U.S., they would pay a higher shipping cost because the cost would have to include an empty return trip for a large ocean-going vessel.
A better scenario would be to produce a bunch of Model A vehicles in Asia, and a bunch of Model B vehicles in North America. A bunch of the Model A units from Asia would be transported for sale in North America, and a bunch of the Model B units from North America would be transported for sale in Asia on the same vessels that brought the Model A units from Asia.
Cars are low profit-margin commodities?
The trade deficit was never an issue anyways. The days of the gold standard ended a long time ago, no wealth is leaving the country.
I agree, we can always print more paper to ship overseas.
Not to the same degree as DVD players and memory chips, but they are heading in that direction.
that time was after a war when most of the world had been bombed into ashes. It took 6 to 10 years to see german industry return and it was the mid 50s when Demming went to Japan. Too many people alive in the 60s thought we where great because we shipped overseas not because the world was buying our heavy industrial products to try and rebuild.
I had another period in mind, in particular the time when the Constitution was being written and Hamilton and Jay were writing their biweekly columns, about 1787.
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