Since U.S. trade policy is such a hot topic in this year’s presidential election, you’d expect that American leaders and voters and journalists could rely on reasonably good data for judging the claims of office-seekers and other participants. Sadly, when it comes to a crucially important globalization-related subject – the activities of multinational corporations – you’d be wrong. The following media and think tank examples show exactly what I mean.
Last week, Republican presidential candidate Donald Trump last week slammed Ford Motor Company for announcing the move of its U.S. small-car production to Mexico. This week, the firm denied his charges that it was a serial killer of American jobs, and noted that last year, it had moved big truck production from Mexico to American factories.
In the process, it made the plausible point that these sourcing decisions made eminent sense. Low-cost Mexico, Ford noted, was a great place for small-car production because these products are low-margin, Meanwhile, the higher priced United States was a perfectly fine place for building its larger, higher margin vehicles.
Of course, Trump could have countered by asking why truck production had been located in Mexico to begin with, and added that Ford had confirmed one of his previous indictment of such offshoring by stating that most of this new Mexico production would be imported back to the United States – a practice made much easier by the North American Free Trade Agreement (NAFTA).
But this debate – and so many others like it – could be easily resolved with the following information:
>The share of Ford’s total global vehicle and parts production located in the United States the year before NAFTA went into effect (1994), and the share located in Mexico.
>That Ford U.S.-Mexico division of labor today.
>The share of Ford’s Mexico vehicle and parts production sold in the Mexican market, exported to the United States, and sold to third countries pre- and post-NAFTA.
>The same export information for Ford’s U.S. production.
>The Mexican and U.S. shares of Ford’s vehicle content pre- and post-NAFTA.
>A breakdown of all these results by segment.
>A tally of Ford’s domestic exports to and imports from Mexico, and to and from the rest of the world, year-by-year since NAFTA’s signing. A breakdown detailing information for other Ford foreign production sites would be helpful, too.
That seems like pretty basic stuff. It also seems like the kind of information that’s absolutely essential for properly evaluating the impact of NAFTA – and similar trade policy decisions – on the American economy.
But Ford won’t produce it, and Washington doesn’t require such disclosure – agreeing with the company that it’s proprietary information crucial to competitive advantages and ultimate success. But as the press coverage make clear, Ford is free to release any information voluntarily, whether it illustrates the big picture or not, and does so with gusto when it portrays the company in a favorable light. Does that sound like a sound basis for policymaking to you?
The Peterson Institute for International Economics recently provided our second example of this problem. In a September 12 post, Senior Research Fellow Caroline Freund looked at the question, “Multinational Corporations: Friends or Foes of the American Worker?” and more specifically at the charge (leveled in this case by Democratic presidential candidate Hillary Clinton) that “Too many companies lobbied for trade deals so they could sell products abroad but then they instead moved abroad and sold back into the United States.”
She concludes that, although stagnating American wages are indeed a valid concern, “On balance, multinational corporations are very good for the US economy.” And in response to a question she received from a concerned citizens, she used the example of the Colgate-Palmolive Company and its Mexican-made toothpaste.
According to Freund, Colgate merits an American seal of approval because the company makes more of its profits in Latin America than in the United States; because its “future growth prospects are in emerging markets”; because the share of Colgate employees in America is roughly the same as the U.S.’ share of those profits; because low Mexican production costs generate savings for American consumers; and because research ostensibly shows that companies that boost their employment in Mexico tend to increase their American employment, too.
So Freund deserves credit for using company-specific statistics. But many crucial questions remain unanswered. In addition to the production, sourcing, employment, and trade information mentioned above (and for the entire company, not just toothpaste), it would be helpful to know if even those Colgate-specific data provided are typical of multinational companies as a whole. One reason for suspecting they’re not: Colgate makes consumer goods. Many of America’s leading offshoring firms are producers of parts and components and material for finished manufactured products.
Also, I wouldn’t be so sure about the emerging markets as Colgate’s most promising going forward – especially Latin America. The United States’ hemispheric neighbors benefited tremendously over the last decade or so from a boom in the prices of the raw materials on which their economies heavily depend. Unfortunately, few of them used the opportunity to diversify into higher value sectors that are more durable sources of prosperity. Once commodities demand began slowing, so did their growth. And in the case of the region’s giant, Brazil, along with Venezuela, the news looks like a horror story.
In addition, I’d like to know whether Colgate out so much manufacturing in Mexico before or after Latin America began taking off. Finally, as implied above, if the region goes completely into the tank, will the company move those factories to faster-growing places – including the United States, if it qualifies?
The way to fill this globalization-related information vacuum is obvious: Require such disclosures from the multinationals. The response to their concerns about divulging proprietary information is just as obvious: If all companies are required to release such business secrets, no one of them loses on net. And the penalties? Let’s just say, “Enjoy life as a global company without access to the U.S. market.”
Proposing these measures would bring an added bonus, too: Anyone or any company opposing them will stand revealed want to know less, not more, about America’s position in the world economy, and the policies that deserve responsibility.