Border Tax Threat Not Real Influence of Business Expansion to US

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President Donald Trump promised to bring businesses and jobs to the United States. Samsung Co. Ltd., LG Electronics, and several automotive manufacturers heard and answered his call, according to him.

Trump has discussed the enforcement of an import tax on companies outside the U.S. that produce products for American customers. He seems to believe this threat prompted Samsung, and rival LG, to expand production to the U.S.

Samsung and LG Expanding to US

The Korean company is talking to five states about building a manufacturing plant for household products. Samsung will create 500 new jobs to the U.S. and invest $300 million in the project.

According to Samsung, their planning is still ongoing and nothing has been solidified. The Korean company wants to be sure it is making the best decision for the growth of the business. Discussions began the fall of 2016.

LG Electronics plans to spend $250 million on an appliance manufacturing facility outside Clarksville, Tennessee. It will be 829,000 square feet and offer 600 full-time jobs, in 2019. The facility will manufacture washing machines and can be easily expanded to manufacture other appliances, including industrial washing machines.

Businesses Trump Claims Influence

The president wants to impose a 35 percent border tax on businesses that have left the country, taking jobs abroad, and are importing products. Trump sent out a tweet, in February 2017, thanking and welcoming Samsung and LG, with open arms, to the American job force. Hence, claiming credit for the business expansion.

Other companies appear to be following suit. Intel, supposedly due to the border tax, announced in February that it will be investing $7 billion to build a factory in Arizona.

Amazon started opening more distribution centers across the country. These additional centers will offer 100,000 more full-time jobs.

On Jan. 18, Trump tweeted the claim that Ford, GM, and Lockheed Martin were returning to the U.S., bringing back jobs and capitol. He touted that it is because of him. However, according to Fact Checkers, these moves were in progress before the new president was elected. These businesses are driven by the market to expand to the U.S.

The CEOs of Lockheed Martin, Ford, and GM met with Trump and stated they are encouraged by his business and tax policies. The regulations he intends to enforce will help businesses grow and thrive.

Trump’s Targeted Business Tweets

During his presidential campaign, Trump targeted Ford for a $2.4 billion expansion to Mexico. The automotive company was threatened with the 35 percent import tax, if facilities were not moved from Mexico to the U.S. Therefore, when Ford announced it would build a large plant in Ohio, Trump took the credit stating the move was in response to his Twitter threats.

On Jan. 3, Trump tweeted an attack to GM, “Make in U.S.A. or pay big border tax!” The automobile manufacturer stated that the Chevrolet Cruze sedans, sold in the U.S., are made in Ohio, not Mexico as another tweet claimed. There were 16,400 sold in 2016, only 1600 of them were the Mexican-made, smaller Cruze hatchbacks.

Trump Twitter blasted Lockheed Martin. On Dec, he tweeted:

Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!

Ford Response

On Jan. 3, 2017, Ford announced it would not build another plant in Mexico. Instead, the company will invest $4.5 billion in the U.S., over a five-year period, to build electric cars. The business will spend $700 million to build a new plant in Michigan.

Ford chose to cancel plans to build another plant in Mexico because the demand for smaller cars in North America is declining. Therefore, the automobile manufacturer is responding to the increasing demand for electric cars, which is expected to continue over the next 15 years.

The new Michigan facility will provide an additional 700 jobs into the country. Since 2002, Ford has created 28,000 jobs and invested $12 billion in the U.S.

These are market-based decisions, not based on Trump’s Twitter bullying. CEO Mark Fields agreed that the president’s business policies are attractive, but the decisions were made before he was elected. Fields stated that plans would not have changed, had someone else been elected.

businessBusiness With GM

GM announced, on Jan. 17, 2017, it will invest $1 billion into U.S. manufacturing, bringing/retaining 1500 jobs. Pick-up truck axle production is moving from Mexico to Michigan, creating 450 new jobs. Additionally, the company will be in-sourcing 6000 IT jobs that were previously outsourced.

Trump tweeted a thank you to GM, once again taking credit for the business expansion. However, the manufacturer stated it has made investments in the U.S. since 2009, totaling more than $21 billion.

In a press release, GM stated, over the last four years the company has focused on efficiency. The business created 25,000 jobs in the U.S., and $3 billion in yearly wages and employee benefits. GM cut over 15,000 jobs from outside the country and is in-sourcing 90 percent of its IT positions.

GM will grow under Trump’s business policies and regulations, nevertheless, the decision to invest and expand in the U.S. was made before the election. Once again, market-based decisions are best for the business. Tweet-based bullying tactics did not impact the GM expansion plan.

Lockheed Martin Contract

CEO Marilyn Hewson met with Trump on Jan.13, 2017. During that meeting, she informed Trump the company was working on a contract that will significantly reduce the price of building the next 90 F-35s. This deal will involve 1800 new jobs at the Fort Worth manufacturing plant.

The New York Times reported that the next government contract, for the F-35, would be for 90 planes. The Obama administration put the agreement in place. Therefore, the Times asked, “How can Trump take credit for the increase from 57 fighter jets?” The production increase means more jobs, and the price of the F-35 was decreasing before the election.

Business Reality-Check

The move to the U.S. was not a surprise to anyone involved in the automotive industry, according to Michelle Krebs, a senior analyst for Autotrader. These businesses have considered their investments for months, even years. Some, came out of the negotiations with the autoworkers’ union in 2015.
Krebs stated:

It takes roughly four years to develop a new product. These decisions were not made in the last couple months. These companies don’t make billion-dollar decisions a month out.

The messaging is all that has changed. Automobile businesses want to avoid the tweet storms from Trump.

Managing director of Automotive Futures group, at the University of Michigan Transportation Research Institute, Bruce Belzowski believes that manufacturers and Trump appear to be using each other to gain media attention. According to Belzowski:

He’s a pretty good PR machine for them. And for Trump, it gives the inflated impression that he is affecting significant change.

Since January 2009, automotive businesses have announced $116.5 billion in investments, according to Kristin Dziczek, an analyst at the Center for Automotive Research in Ann Arbor. Seventy-three percent of that money has come to the U.S.

By Jeanette Smith

Sources:

Reuters: Samsung to expand in U.S., shift some manufacturing from Mexico: WSJ
Reuters: LG Electronics to build $250 million home appliance plant in U.S.
CNBC: Samsung’s planned major investment in US production reportedly influenced by Trump election
CNN Money: Samsung looks to expand U.S. manufacturing
Factcheck.org: Trump: Jobs Returning ‘Because of Me’

Featured Image Courtesy of Elvert Barnes’ Flickr Page – Creative Commons License
Top Image Courtesy of Gage Skidmore’s Flickr Page – Creative Commons License
Inline Image Courtesy of ChevroletCruze’s Flickr Page – Creative Commons License

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