Is Trump responsible for GM plant closures in North America?

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Editor's note: Ken Moak taught economic theory, public policy and globalization at the university level for 33 years. He co-authored a book titled "China's Economic Rise and Its Global Impact" in 2015. The article reflects the author's opinions, and not necessarily the views of CGTN.

General Motors (GM) recently announced it will close five North American plants and terminate 14,000 jobs in an attempt to restructure its business operations, producing high-technology products such as driverless cars and meeting consumer preferences such as SUVs and trucks.

Two foreign branches, including one in South Korea is also on the chopping block. How many jobs that would affect is unclear, but could put South Korea and the other country further into the economic hole.

The GM decision led some analysts to believe that it might not be caused by U.S. President Donald Trump's tariffs or trade wars, but a strategic one to better prepare the company for the future. They argued that the company decides to restructure its operations when it is still in good “financial” health.

U.S. President Donald Trump speaks at the American Center for Mobility with General Motors CEO Mary Barra and other auto industry executives in Ypsilanti, Michigan, March 15, 2017. /VCG Photo

The problem with that theory is GM still sells millions of vehicles a year in North America, earning it a handsome profit, begging the question: Why close the plants now and send 14,000 workers to the unemployment line? Besides, the government is giving GM over 500 million U.S. dollars in subsidies as an incentive to expand production.

To that end, one cannot ignore the effects of Trump's tariffs on steel and aluminum and automobile parts. The company claims the tariffs increase production costs by one billion U.S. dollars. The tariffs also disrupt the global supply chain which could increase costs further.

Tit-for tat tariffs on U.S.-produced vehicles might be another driver of the GM decision. Tesla, the electric car manufacturer, for example, has to reduce prices on some of its models between 12 percent and 26 percent in the Chinese market to absorb the 40 percent tit-for-tariff tariff on U.S. cars.

In this regard, GM's plant closure is a business decision caused, at least in part, by Mr. Trump's trade wars. Trump's trade wars are having a negative impact on investment, driving both foreign and domestic investments into negative territory in the first half of 2018, according to the U.S. Bureau of Economic Statistics.

Trump's trade wars are biting deep into corporate America

Trump's trade wars with China (and other countries) are having a profound impact on corporate America, but in a negative way, explaining why the German luxury car maker BMW and U.S.-based Harley-Davidson are abandoning its U.S. operation and moving to China and elsewhere.

The fact of the matter is the business environment in the U.S. and around the world has turned on its head with the election of Donald Trump as president. His “America First” is a nationalistic policy, making it prohibitively costly for companies to produce abroad and sell goods at home. And with financial incentives, the U.S. (and perhaps foreign firms) would locate on U.S. soil.

GM workers gather for a meeting at UNIFOR Local 222 near the General Motors' assembly plant in Oshawa, Ontario, Canada November 26, 2018. /VCG Photo

However, Trump's policies seem to have the opposite effect, perhaps because businesses don't like the uncertain investment climate that they have created. Some are minimizing their risk by taking a “wait and see” attitude while others simply are “packing up and leaving.”

Either way, the trade wars do not bode well for the U.S. economy. Its stock market values and GDP growth rate are falling. Additionally, increasingly undesirable level of agricultural products inventory and poverty are rising.

Accusing enterprises of being 'unpatriotic' is unfair

Predictably the GM plant closures have earned a hostile response from U.S. politicians. Trump is reportedly to have called GM chief executive officer Mary Barra to express his “displeasure” and threatened to cancel the subsidies and with “tough measures” such if she does not change her mind.

Ohio Senator Sherrod Brown is said to have called the GM decision “corporate greed at its worst” because some of the pending plant closures are in his state.

Whether these politicians' rants are fair or justifiable depends on who one talks to. In a neo-liberal economy like the U.S., private enterprises make investment decisions based on economic and financial viability. They are in business for profits, after all. And it is profit expectations that largely determines whether or not to invest. Mr. Trump, of all people, should understand that.

U.S. multinational corporations promoted globalization and established a supply chain for a reason: increase efficiency and profits. Indeed, the decisions worked well for the U.S. economy, the supply chain made regional division of specialization possible.

Trump's 'America First' policy is inconsistent with neoliberalism

Imposing tariffs and disrupting the supply chain are contrary to neoliberalism, raising production costs and increasing consumer prices both of which discourage investment.

It could indeed be argued that Mr. Trump is instituting “economic nationalism,” the very architecture that he accused China of practicing and a major reason for his trade war against the Asian giant. In doing so, Trump actually make American firms less efficient and profitable, forcing them to either close down, downside, or relocating to other jurisdictions.

The GM plant closure decision and other firms' leaving American shores is a “wake up call” or warning that Mr. Trump's “nationalistic” policies are doing more harm than good for the global economy, including that of America.

(Cover photo: U.S. President Donald Trump answers questions from the press while departing the White House in Washington, DC., November 26, 2018. /VCG Photo)

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