Auto parts make a significant contribution to trade deficit
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OK, so maybe that's a contender for "Most Obvious Headline of the Year", but
unfortunately, this simply points to how true it is. In 2005, auto parts contributed over $37B to the United States'
trade deficit, which was up 20% from one year ago. On behalf of all of those in this country's auto industry, we
say "ouch!"
Disappointingly, the increasing production of vehicles in the US by "transplants" (foreign manufacturers) resulted in a spike in the number of parts purchased from Japan during the past two years. To no one's surprise, there was also a substantial increase in the dollar value of components obtained from China, Korea, and Mexico... and it would appear that we blame for that trend should be spread pretty evenly among all the OEMs that manufacture cars in the US.
Barriers to entry in foreign markets - primarily tariffs - are said to be significant contributors to this particular problem. There's certainly a huge difference between so-called "free trade" and what any sane person would consider as "fair trade" when it comes to America's trade policy with some of the countries that contribute to this gap.
[Source: Automotive News]
Reader Comments (Page 1 of 2)
Gunnar Heinrich 9:26AM (3/08/2006)
I think I can point out Blair, Berlusconi, Bush, Koizumi, Putin, but which one's Chirac?
http://www.automobilesdeluxe.blogspot.com
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Paul 9:40AM (3/08/2006)
maybe it is because the american workers and designers are not capable of producing quality parts. a car is only as good as the sum of its parts. maybe that is why american cars have improved is because the parts are not american.
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matt 10:09AM (3/08/2006)
what do you mean chirac is there
from left to right (i believe)
Putin, Chirac, shroader,blair, bush, chretien, that japanese guy hahaha
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Will Wheeler 10:27AM (3/08/2006)
Guess what? If Americans didn't buy cars with Chinese, Korean, or Mexican parts, there would be no reason to bring them here. I totally agree that our trade policies are failing, but some of the responsibility has to fall on the American consumer. If we said we are only going to buy cars that are built in America, and be willing to pay the premium, then the manufacturers would have no choice but to build and produce thier cars here.
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tony belligerent 11:30AM (3/08/2006)
Will,
Could you kindly point me in the direction of a single car that is built in America and contains parts that are also built in America?
Because, as it stands, my count is ZERO.
The American Consumer cannot be expected to buy something that doesn't exist.
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Richard Warren 11:39AM (3/08/2006)
There is always a price to be paid for "cheap"
Trade defecit
Overall Defecit
Deeper Foreign bond purchases to cover our defecit
Lost jobs
Downward economic spiral in areas affected by closings
Aftermarket body parts from other than US suppliers that don't fit but insurance companies (marketed as like and kind) yet your insurance does not go down.
Just to name a few
And Paul, once again who do you work for? I'm sure if you work for an American company they'd love to hear your comments.
The fault is ours, look in the mirror, we are a culture obsessed with price. Why? Because the squeeze is on our wages and our spending habits, from government right through to ourselves. We demand more content at the same price level.
And worse, many believe we need to adjust our wages to compete with countries that as our leader says are "Good trading partners" Uh, except it's really pretty much one way trade, otherwise there would not be a deficit.
Pauls comments are also pretty laughable, American companies provide many of the parts to the imports, Delphi, Viseton, Lear, Dana, Tower and plenty of others.
Then you have to ask yourselves, how accurate is this figure and what does it REALLY mean when you open an American box from these companies and the part says, "Made in China" Where is that extra profit going? Based on recent performance, the CEO and guys at the top it would seem
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Puff Chippy 12:05PM (3/08/2006)
RE: "maybe it is because the american workers and designers are not capable of producing quality parts. maybe that is why american cars have improved is because the parts are not american."
I wonder why so many American's (assuming Paul is an American) are so giddy about seeing the domestic automakers fail? As previously mentioned, the ramifications are far reaching and not limited to the poor schmucks bolting on car doors. It's like wishing misfortune on yourself and your own community. Maybe one day that light bulb in their head will flicker on for a brief moment and they'll realize that kicking themselves in the head hurts.
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Joey (Kev) 12:44PM (3/08/2006)
This should come as a rendez-vous with reality to all the posters here on Autoblog that say imports are built in the US so it's ok for Ford and GM to go bust.
Seems that while Toyota, Honda etc. ASSEMBLE the cars here the parts still come from Japan. And let us face the truth, design and production of parts accounts for the bulk of wealth creation in the car industry. Not being an American myself I do believe the US should urge others to keep it fair. As far as I know there are no problems of THIS kind in US-EU relations (subsidies and health-care are an issue, though). Asians sure make a good product but their trade practices is not what you would call fair in a western sense. I guess it's a cultural divide, again.
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RossL 1:08PM (3/08/2006)
Fact: No country on earth has gained more from liberalized trade and investment rules than the United States. No country, and no country's consumers, have gained more from globalization. No country's investors have gained more. I could go on ....
But, hey - if you guys want to believe that free trade and globalization are destroying the greatest economy the world has ever known, go right ahead. Turn off your brains and line up behind Sherrod Brown and his union buddies, as well as xenophobes such as Lou Dobbs and assorted other demagogues.
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Paul 1:34PM (3/08/2006)
#9
I agree, besides gm and ford deserve to fail. they have taken advantage of their customers for too long. its time for people to trust the japanese, koreans and chinese.
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Meek 1:45PM (3/08/2006)
Joey - (Kev) "Seems that while Toyota, Honda etc. ASSEMBLE the cars here the parts still come from Japan."
I've toured a few of the Japanese plants. They have stamping departments, plastic departments, welding departments and paint departments, as well as Engine Plants: not just ASSEMBLY departments. Parts do come from other plants and countries, but they just don't snap the car together here in the US. Also
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RossL 3:46PM (3/08/2006)
> its time for people to trust the japanese, koreans and chinese.
Nonsense, #10. Besides, what does trust have to do with it? Lord knows that the Japanese sure don't trust the Koreans or the Chinese, and vice versa. I'm simply saying that it makes sense to buy the best car for your own purposes, and who cares where it's made? Some people blindly adopt a "Buy American" policy, forgetting that Americans benefit hugely from global commerce. You, Paul, blindly espouse a "Buy Asian policy", which is just as ridiculous.
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Puff Chippy 4:12PM (3/08/2006)
Every decision you make has consequences, some intended, some not, that affect far more people than yourself. Like that crazy story about the butterfly that flaps it's wings and causes a hurricane half way around the globe, when you buy that Chinese made futchamacallit instead of that American made futchamacallit you set off a series of transactions that effect things on a dramatic, worldwide scale. Some are good, some are bad, but be aware of the results of your actions, both short term and long, before just deciding to do whatever selfishly appears to work out best for you today.
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Joey (Kev) 4:35PM (3/08/2006)
Without a doubt free trade is a good thing. Everybody should do what he is best at. Would America go down the closet without GM and Ford? Sure not. The US dominates the financial markets and large parts of the internet industry. One could say that the US has moved one step forward alongside Britain and perhaps the Netherlands. GM and Ford will fail if they don't make good use of their opportunities. But the fact is that IF GM and Ford were making a better product and being competitive on the American market Japan would still remain the same hard turf for them as it is now.
Free trade is great, but free and fair trade is even better.
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Richard Warren 5:36PM (3/08/2006)
#9 You need to do some more study, while I'm not anti globalization, there are many benefits if done truly free and truly fair,the situation needs to be looked at not just on "what we've been sold, what sounds good at the moment or what feels good at the moment" but what deeper study of the facts really show and your statement is very generic:
From a report developed by the United States House Ways and Means
Some sobering facts regarding the Global Economy
While there was 3% growth in the United States in 2004, 2% in Europe
a large majority of the US growth was fueled not by consumers but by some 80% of that 3% growth in the United States due to rising government expenditure particularly in the defense area.
BUT:
Since the late 80s actual real income in 9 major countries declined that includes the United States.
In 1998 the same statistics applied to 60 countries covering 1.3 billion workers
Since World War II, the global economy seems to have become a constant negative sum game where many workers find themselves loosing in real terms.
The following figures take into account total World GDP
Actual individual wage growth was 4% in the 1960 2% in the 1970s and 1% in the 90s and declining, the exception, China.
Further study shows that as we have all seen since the 90s the general tendency is toward a gradual deepening of deflation, which in its downward phase involves: (and we have seen)
under consumption/over production,
unemployment and underemployment
decliningprices,
social problems and political reactions to them.
There has also been a higher than at any time in our history, concentration of incomes and wealth to relatively few while a majority are either tagging increasingly behind, standing still or, particularly during a downward wave, getting impoverished in absolute terms.
Think about all the news weve heard about Americans saving habits and our binge consumerism and consider this: workers are also consumers: their purchasing power creates demand for the goods and services firms are selling. We also know that the propensity to consume is usually (much) higher in lower income groups than among the wealthy.
Some additional studies
http://www.un.org/esa/desa/papers/2001/esa01dp17.pdf
http://www.epinet.org/briefingpapers/147/epi_bp147.pdf#search='global%20trade%20effects%20united%20states
Is the global economy good or bad, when you study it it really depends on where you are in the cycle and what your leaers are doing to plan for the effects.
Buying imports is not in itself a horrible thing, but we all need to consider the "overall" cost in our decisions. That in the global economy is yet to be truly determined.
#14 "Would America go down the closet without GM and Ford?" No, but it would certainly have a far different face, consider the total number of employees affected, the ancilary suppliers affected, dealerships and all their employees,the overall effect on the effected communities, the cost of additional services that govenment would offer and the effect on our deficit spending. It has been proven over and over again that the dollar that someone earns flows through the local and general economy 7 times. So in answer to your question, no, but the consequences are much deeper than anyone might realize.
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Ary M 6:59PM (3/08/2006)
We always hear that the trade deficit is BAD. Ok, for $100, can anyone tell me WHY it is bad and what is a trade deficit?
I used to think the same way, but then I actually spent some time researching it and trust me it is NOT a bad thing. the deficit does not matter... one of the few things I find myself agreeing with Cheney, gak, I almost threw up saying that, but believe me, it does not matter. Research it for yourself before spewing out the same fears you hear on the news.
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Jason Boston 10:50PM (3/08/2006)
This is what I was afraid to know was happening. I hate to read this, there is no stopping the imbalance once it's out of control, like an out of balance fly wheel. You have break the entire thing down, and rebuild it.
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Glenn Laycock 12:10AM (3/09/2006)
Is everyone missing the point of the article or what.
It says that all those foreign cars made in the US and Canada, are mainly built with IMPORTED parts ... so the US in particular is running a huge trade deficite because of this.
So go ahead buy your foreign cars and foreign oil ... one day someone will have to pay the piper.
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Richard Warren 2:08PM (3/09/2006)
#16 get your check book out, actually I'll take cash.
A couple of reasons
Trade deficit = More money flowing out of the country than flowing in.
A country's ability to service its external debt in the future depends on its ability to generate foreign currency receipts, the size of its exports as a share of GDP is another important indicator of defecit sustainability.
History has shown that a country running large trade deficits may raise living standards for the current generation, only having to reduce them for the next generation.
Here is an example: Mexico ran sizeable current account deficits in the 1970s as it borrowed liberally in international markets. In the early 1980s, higher interest rates reduced its ability to fulfill its obligations to repay principal and interest on its outstanding loans. Their effective default, precipitated the third world debt crisis of the 1980s. During the 80s, as arrangements were made for an orderly, though incomplete, repayment of Mexico's loans, the country ran sizeable current account surpluses. Mexico's current account deficits in the 70s allowed it to raise its average living standards, above what would have been possible otherwise, while its current account surpluses in the 80s forced a substantial reduction in living standards.
There is a caveat for even those that believe that a trade defecit is not a bad thing. It is this:
Trade deficits, even if large or persistent, will not cause long term harm to a nation's average standard of living, if the country grows rapidly enough. Rapid economic growth is often a cure-all for problems associated with trade deficits.
It may cause additional borrowing to stimulate growth or the issuing of addinal bonds that interest is paid on.
The United States recently (the mid 1980s) turned into a debtor nation, primarily due to the fact that its merchandise trade (exports minus imports) account became negative, or imports of goods exceed exports. The US has a trade deficit in goods and a trade surplus in services (such as financial services). The largest US trade deficits are with Japan, China and members of the OPEC (Organization of petroleum exporting countries).
How does the US finance its trade deficit in the hundreds of billions? By either borrowing from the foreigners or by selling assets (real estate) to them. The US is the worlds largest borrowers of foreign funds.
A trade defecit is in itself, not bad, it depends on how deep, how long. If you study Japan, while they had trade surpluses for many years, while consumption was down, savings up and the position that has left them in for true growth in the 21st century, they also do not have to service a huge debt.
A modest trade defecit is actually not a bad thing for consumers, more choices, perhaps lower prices, but it all needs to be kept in context. It's all tied together, look at American savings rates the first time ever negative, compare what is happening with actual wage growth, actual domestic defecits.
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Paul 4:02PM (3/09/2006)
#19
but when you consider that imports are always cheaper and of high quality then the poorly designed and made american products... the trade imbalance is worth it.
i would rather the economy colapse that have to suffer through another product from the big 3.(at least the american made ones)
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