General Motor's announcement that it plans to make cars in China for export to
the US as part of its recovery plan must rank as one of the most provocative
and absurd corporate decisions in this oppressive season of massive corporate
bailouts.
Indeed, it is the height of absurdity for US taxpayers to shell out US$16
billion in bailout money (and counting) to GM so the company can outsource jobs
to China rather than employ Americans in Detroit. The only rational explanation
for such an in-your-face proposal is that we are being "Fritzed".
In particular, this cars-from-China proposal may merely be a cynical bargaining
ploy by GM chief executive Fritz Henderson to wring more concessions out of the
United Auto Workers union. If
this is so, Fritz ought to be run out on a jackass from Detroit - he doesn't
even warrant a car ride - and inducted right into the international CEO Hall of
Shame.
If, however, Fritz and GM are serious, this proposal is just plain stupid from
a US policy point of view. Under current anything but free-trade rules with
China, GM could export its Chinese-made cars to the US. However, any cars that
GM made in the US would be very difficult to export to the Chinese market.
It's not just that China slaps a heavy 25% tariff on American cars imported
into China. As part of its Great Wall of Protectionism, China also imposes
stiff domestic-content rules so that at least some of the US "imports" into
China must contain Chinese auto parts.
On top of these protectionist barriers, China won't even let a foreign carmaker
like GM sell into its market unless it first sets up a local partnership and
"voluntarily" turns over some of its technology. However, such implicit forced
technology transfer not only grossly violates free-trade rules established by
the World Trade Organization. The transfer of such technology effectively dooms
foreign automakers such as GM to playing a subservient role to China over the
longer term as China combines US technology with its vaunted cheap labor force.
Beyond these questions of taxpayer subsidies for outsourcing and Chinese
protectionism, there are several broader issues. One such issue is the safety
of Chinese-made vehicles - or lack thereof.
To date, China's track record on safety is an abysmal one. Thus far, American
consumers have been subjected to lead-filled toys, pet food laced with
melamine, toothpaste laced with antifreeze, Viagra dosed with strychnine,
dry-wall emitting gases more dangerous than coal dust, and a whole cornucopia
of rancid food.
In addition, Chinese cars have routinely failed crash tests. On top of this,
Chinese cars are prone to be riddled with counterfeit parts ranging from brake
pads and suspensions to windshields and spark plugs. If these counterfeit parts
don't kill you by causing a crash, they can violate your warranty.
Finally, there arises the issue as to why car manufacturing is gravitating to
China. The conventional wisdom is that its cheap labor that gives China its
edge.
In truth, much of China's competitive edge comes from anti-competitive
practices ranging from currency manipulation and massive export subsidies to
the aforementioned protectionist barriers. In addition, Chinese counterfeiting
and forced technology transfer together save Chinese companies tens of millions
of dollars in research and development expenditures and thereby convey an
additional advantage. If Chinese companies didn't enjoy these unfair advantages
- all of which are gross violations of free trade - Detroit and the American
Midwest would be far more competitive and prosperous than they currently are.
Peter Navarro is a business professor at the University of
California-Irvine, a CNBC contributor, and author of The Coming China
Wars. (www.peternavarro.com)
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