An Urban's Rural View

More than 70 House Democrats have urged President Donald Trump to keep Chinese cars -- and carmakers -- out of the U.S. market. (https://debbiedingell.house.gov/…)

"As you prepare for your upcoming summit with the President of the People's Republic of China, any effort to lower barriers for Chinese automobiles or otherwise facilitate their entry into the U.S. market would pose a direct threat to American manufacturing, workers, and national security," the c

Congressmen said in a letter to the president.

Among their demands: Maintain high tariffs on Chinese cars and ban Chinese companies from manufacturing cars in the U.S. The representatives said 5% of Gross Domestic Product and 10 million jobs are at stake.

The congressmen criticize the government subsidies and exploitative labor practices that have enabled Chinese companies to make such inexpensive cars. They have a point; China has done many of these things and they're among the reasons the Chinese can undersell foreign competitors.

If the U.S. started importing Chinese cars in a big way, domestic carmakers would be at risk of going under. But why prevent the Chinese from manufacturing cars in the U.S.? Having to hire American factory workers at American wage rates would seriously dent their cost advantage. They would be forced to compete on quality rather than price.

Granted, the Chinese can make good cars. Consumer Reports took a look at the four made-in-China cars already available in the U.S. and found that at least one of them, the Buick Envision, "is one of the better small SUVs in its class." (https://www.consumerreports.org/…)General Motors says it is moving production of the vehicle to the U.S. in 2028. The three others are the Lincoln Nautilus, Volvo S90 and Polestar 2.

The Chinese are especially big in electric vehicles; their EVs have buyers in many overseas markets swooning. The Chinese models tend to have longer battery range and better digital platforms and infotainment systems. Ford's chief executive calls the Chinese "the 700-pound gorilla in the EV industry."

The Chinese companies compete so fiercely in their own market that their quality will likely keep rising. Only makers of the highest-quality cars will survive.

It might be good for U.S. carmakers to have to compete with the Chinese if the competition was on quality rather than price.

When Japanese car companies started manufacturing in the U.S. 40 years ago, they were manufacturing better cars in smarter ways than the Americans. Detroit was forced to up its game -- and did. American car quality rose. The same would likely happen now if the Chinese were allowed in.

If the goal is to protect U.S. jobs and manufacturing, then, there's a better way than banning Chinese manufacturing: Ensure that the competition is only on quality.

One way to do that would be to take a leaf from China's foreign investment-policy book. Until recently, China imposed conditions on foreign direct investors. To set up manufacturing operations, they had to accept a Chinese joint-venture partner. The partnerships were set up in ways that made technology transfer inevitable.

Uncle Sam could put one or more conditions on Chinese manufacturing. Here are some possibilities:

-- A U.S. carmaker is a joint-venture partner with a 50% stake in the operation. (GM has a joint-venture partner for the Envision in Shanghai.)

-- The joint venture employs American workers at American compensation rates and employs American managers.

-- The Chinese cars made in the U.S. contain a high percentage of U.S. content.

-- At least initially, the high tariffs stand. The Chinese cars sold in the U.S. are made in the U.S.

If the president judges that American auto jobs and manufacturing need protection from Chinese manufacturing in the U.S., he could impose one or more of these conditions.

If, instead, the Congressmen convince Trump to hermetically seal the U.S. from all Chinese cars, the result could be a widening quality gap between Chinese and American cars. Being forced to compete with the Chinese in the American market would give U.S. automakers an incentive to match China's best quality.

The president could present a come-in-with-conditions policy to Xi Jinping as a win-win. The Chinese are allowed access to the U.S. car market, something they want. The U.S. gets continued protection for American jobs and manufacturing. U.S. consumers get better cars.

Should farmers care? Trump hopes to come back from Beijing with assurances that the Chinese will buy lots of American soybeans. He's much more likely to win those assurances with this modest proposal than by just saying no to Chinese cars.

Urban Lehner can be reached at urbanize@gmail.com

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