U.S. President-elect Donald Trump’s tweet criticizing Toyota Motor Corp.’s plan to build a new car plant in Mexico for exports to the North American market — threatening a heavy border tax if the top Japanese automaker goes ahead with the plan — is an unacceptable act of intervention in private-sector business activities by a person who has yet to take office but whose words carry much weight because they possibly indicate the policies of the incoming administration of the United States. Not only should Toyota stand firm but the Japanese government needs to make its opposition clear to any moves that distort the rules of business and free trade.
Trump’s criticism of Toyota’s plan may not be surprising given his “America first” campaign rhetoric and his pledge to bring back what he sees as manufacturing jobs lost overseas due to free trade agreements involving the U.S. He has vowed to review and renegotiate the North America Free Trade Agreement — under which major automakers, including Japanese firms, produce cars in Mexico, where production costs and wages are lower, and ship them to the U.S. market tariff-free — and threatened to impose heavy tariffs on imports from Mexico and China. He promised to pull the U.S. out of the Trans-Pacific Partnership pact that Washington concluded with 11 Pacific Rim trading partners as soon as he takes office on Jan. 20.
His earlier tweets lashing out against U.S. automakers has led Ford Motor Co. to cancel its plan to build a new plant in Mexico. He has added similar pressures on companies in other industries as well, with similar effects. Trump’s Twitter attack on Toyota was apparently a response to a statement by President Akio Toyoda saying that the firm did not intend to change its plan announced in 2015 to invest $1 billion into building a plant in Guanajuato, central Mexico, where it will produce up to 200,000 Corolla cars a year starting in 2019.
If Trump indeed wants to pursue his protectionist agenda, he needs to change trade rules to which the U.S. has legally committed after he takes office — instead of naming individual companies and trying to bully them into doing business under the terms he dictates — and be accountable for the consequences of his actions.
The shock that Trump’s tweet has sent through Japan’s business community is understandable. The auto industry in particular views the U.S. as its mainstay market, and has invested in Mexico, along with large numbers of auto parts suppliers, as a key base of exports to the U.S. due to the tariff advantage under NAFTA as well as low manpower cost. In fiscal 2015, four Japanese automakers — Toyota, Nissan, Honda and Mazda — produced a total of 1.35 million vehicles. While most firms appear to be weighing the president-elect’s words cautiously, the message might be enough to discourage some investments in the planning stage.
If Trump had intended to accuse Toyota of moving jobs out of the U.S., he is mistaken. The Mexico plant is a fresh investment that will not shift production out of its U.S. operations. The automaker has responded to the criticism by emphasizing its contribution to the U.S. economy — that it has invested $22 billion in the U.S. over the past 60 years, building 10 plants and 1,500 dealerships that employ 136,000 workers and shipped more than 160,000 vehicles overseas from the U.S. in 2015. It announced plans Monday to invest $10 billion, or some ¥1.16 trillion, in the U.S. over the next five years. But that isn’t the point — businesses should not be maneuvered under government pressure into giving up or changing business plans based on rational economic decisions.
The problem is that Trump’s intervention in business decisions on their investments, including the launch of new plants in Mexico or elsewhere, may draw cheers from interested parties but will not necessarily increase U.S. jobs over the long term. Changes to business plans based on rational management decisions due to pressures from those in power may undermine the productivity and competitiveness of U.S. industries, possibly leading to a reduction of jobs. Disregard of established rules of business and trade by the administration in power will render U.S. government policies less predictable, which may discourage companies worldwide from investing in the U.S. due to uncertainties over doing business there.
The president-elect does not seem to understand the reality of the world’s manufacturing business — in which the operations of companies are tightly connected through supply networks across national borders. U.S. automakers producing cars in Mexico, for example, rely on imports of parts and components from the U.S., thereby contributing to U.S. exports. It is wrong to single out their operations in Mexico.
If indeed Trump’s administration pushes his protectionist agenda forward, possibly imposing heavy tariffs on imports from America’s trading partners, a wave of retaliatory actions might spread protectionism across the globe, leaving no country unaffected, including the U.S. itself. The president-elect’s recent tweets are enough to cast worries about economic policies of the incoming U.S. administration. The Japanese government must not sit idle but say what it needs to say when the U.S. threatens to deviate from the path of free trade.