The Danger of Trump Overplaying His Hand

When Ford Motor Co CEO Mark Fields decided to scrap his firm's planned Mexican car factory and add 700 jobs in Michigan following criticism by Donald Trump, he called the move "a vote of confidence" in Trump, but primarily a response to a decline in North American demand for small cars like those that would have been made at the Mexican plant. He said Ford would have made the same decision even if Trump had not been elected.

Maybe so, but close observers are concerned that what started as a publicity move to shame Carrier Corp. from closing its HVAC facility in Indiana and setting up operations in Mexico has become a worrisome trend. Today many U.S. companies—even mid-market firms—have operations abroad. Any CEO who is considering shifting production has to anticipate the public consequences any such move would entail.

Does Donald Trump think he can shame every CEO who is thinking of transferring operations to Mexico, or is he merely picking a select list of high-profile American companies to signal the remaining companies to rethink their outsourcing? If so, it is a clever ruse, but one that could backfire if tried too many times. For starters, the threat of a “big border tax” over Ford or GM’s car production in Mexico cannot be executed by executive order.

“Trump will need Congress to agree to such a move and that could set up a fight that would clearly distract from other more important items on his agenda.

Trump will need Congress to agree to such a move and that could set up a fight that would clearly distract from other more important items on his agenda, such as repealing and replacing Obamacare and immigration reform. Trump is shrewd enough to know that he will need to pick his battles carefully.

Stuart Pearson, an auto analyst at Exane BNP Paribas, told the Financial Times, “the question now is whether this move by Ford is a sufficient win for Trump to ease the risk to imposing tariffs on Mexican imports.” U.S. manufacturing CEOs clearly got the message that there’s a new sheriff in town.

But there is a risk that such moves could degenerate into mere bullying. It only needs one CEO to push back, claiming that honest management requires independent decision-making, and that interference from a busybody president is counterproductive. Carlos Ghosn, CEO of Renault-Nissan, a company that produces much of its U.S. bound vehicles in Mexico, already has called for Trump to make explicit his policy on production repatriation.

For example, some forms of offshoring production add to the process innovation of domestic producers. Foreclosing such moves in certain cases can actually hurt domestic employment owing to complex supply chains. If Trump is as clever as he thinks, he will back off until his plans for tax reform and repealing counterproductive regulation can be set before congress, giving business leaders a more solid reason to rethink investment decisions.


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