Are Trade Barriers Why Toyota Succeeds?

Buzz Hargrove, president of the Canadian Auto Workers Union, delivered a passionate speech to the Automotive News World Congress last week, arguing that trade barriers are the primary cause of the auto industry problems in North America.

            While Hargrove presented some impressive facts and made some valid points, I don’t agree with his overall conclusion. I believe he chooses to ignore key realities.

            The facts: North America, and the U.S. in particular, have the most open automotive market in the world. Car imports in other countries are a tiny fraction of the percentage they are here, primarily because other governments restrict imports. Exports account for a significant percentage of sales for Japanese and European automakers, much more so than for U.S. automakers.

            “The way to level the playing field is by putting in place some clear rules,” Hargrove said. “There needs to be market access in exchange for market access – the one-way street has to end.”

            No argument from me on that point. I’m all in favor of eliminating barriers to free trade.

            But Hargrove goes further, arguing that trade and other barriers are what Japanese success is all about.

            “Japan’s success has not arisen from a low-wage strategy, or even a low-cost strategy, but from the aggressive use of trade, currency manipulation and exploiting a uniquely open market in North America,” he claimed.

            Really? So it has nothing to do with the Japanese producing high-quality products that customers want to buy?

            Hargrove said American automakers are constructing plants in China to build the same kinds of cars being made at plants here that are being closed due to lack of demand. His clear implication was that the automakers would be exporting the cars from here to China, rather than building plants there, if the exports were permitted.

            But is he right? The one thing Hargrove did NOT talk about is that shipping cars across the ocean takes a lot of time and costs a lot of money. Even if GM and Ford had an unlimited ability to export cars to China, I doubt it would make much difference. They would still be building Chinese plants. You gain a great deal in time and money by making cars near your customers. That’s why Toyota keeps building plants in the U.S.

            Currently, Toyota’s North American plants produce about 60 percent of its vehicles that are sold here, with the rest imported. While Toyota will be building more American plants in the years ahead, it is unlikely imports will disappear. In fact, I’m not even sure the ratio will change much.

            I don’t know all the reasons for that. Undoubtedly, one is that Toyota simply can’t build plants fast enough to keep up with growing American demand for its vehicles. It could also be that Toyota wants to keep producing a sizable number of cars in Japan for export, since producing exports is a significant part of what those Japanese plants do.

            However, my key contention is that eliminating trade barriers and currency manipulations wouldn’t do much to reverse the erosion of market share and the decline of operations of the U.S. automakers in North America. The market here is mature and no longer growing rapidly. And more to the point, the landscape has changed permanently because, for too many years, the U.S. companies failed to respond to the superior design, superior quality and superior operating systems and strategies of their Japanese competitors.

            I support Hargrove’s call for a more level global marketplace, and I hope he continues his efforts to make it a reality. But he needs to be more realistic about what can be achieved.