As part of his campaign, President Trump vowed to prevent US manufacturing jobs from moving to Mexico, America’s neighbor country with lower labor costs. Last December, after industrial manufacturer Rexnord Corp. announced a new investment in Mexico, President Trump tweeted, “Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!” – an example of President Trump’s attempt to shame companies into keeping jobs in the US. This tactic did not prove completely unsuccessful: last December, Carrier, a subsidiary of United Technologies, agreed to keep more than 1,000 jobs in Indiana after negotiations with state officials.
However, it is worth asking how successful President Trump’s pressure to keep jobs domestically has been exactly. Tecma Group, a consulting firm that guides companies through offshoring in Mexico, “has [in 2017] more business than ever in its three decades doing relocation.” Notably, the auto manufacturer Ford, after scraping plans to build a new plant in Mexico, decided to nonetheless offshore production of its US-marketed, small-car Focus line from the US to China. What explains this?
Mainly, human capital costs and talent appear to be behind this move. Ford’s Focus line, and “small vehicles in developed markets in general,” are challenging segments of Ford’s business facing pressure to control costs. The move to China then “reflects the harsh reality that most carmakers lose money on small cars” and that there is a never-ending incentive to reduce costs in this segment of the business. Ford CEO James Hackett himself stresses in one of this year’s earnings calls that the decision to produce the Ford Focus in China “meets the preservation of capital and it’s going to deliver significant savings.” Even after accounting for transportation costs from China to the US, making small cars in China appears to be the most cost-effective solution.
Given President Trump’s rhetoric against offshoring, did Ford make the right decision moving production to China instead of keeping it in the US? After all, Trump has threatened US carmakers such as General Motors with establishing a “big border tax” if they move production abroad.
Ford’s production move to China is a risky move, since the US government can decide to indeed impose tariffs at any time on cars produced abroad. Though the prospect of retaliation from World Trade Organization member countries might dissuade the US from hastily pursuing this option, the current US administration can nevertheless decide to impose such a tariff simply to send a strong message.
That said, Ford’s actions, though risky, are smart. Ford is not moving production to China just because of the lower labor costs there. Ford is moving production to China because it can also access talent that can work with robots and can help advance the company’s automation initiatives. Ford is keeping the production of its “larger, more profitable,” and likely more technologically complex, vehicles in the US. This is likely due to the highly-skilled talent needed for these types of vehicles. On the other hand, Ford moved the production of smaller, and likely less complex, cars to China not only because Ford can access cheap labor in China for the construction of such cars but also because it can access cheap but sufficiently skilled labor for the improvement of the automation technologies the company has implemented in the Asian country. After all, an effective strategy in an environment where protectionism is increasingly popular and pressure to control costs is high is to pursue the reduction of labor costs through automation. Ford has realized this, and it is using China as its automation innovation test center before it can implement such technologies in the US.
Word count: 796
 “Everything President Trump has tweeted (and what it was about).” Los Angeles Times, 7 May 2017, http://www.latimes.com/politics/la-pol-updates-everything-president-why-did-trump-just-tweet-about-1494200206-htmlstory.html. Accessed 15 Nov. 2017.
 Goldstein, Steve. “Opinion: Ford’s Mexico shift shows Trump’s bully pulpit has some value.” MarketWatch, 3 Jan. 2017, https://www.marketwatch.com/story/fords-mexico-shift-shows-trumps-bully-pulpit-has-some-value-2017-01-03. Accessed 15 Nov. 2017.
 “Here’s How Much Indiana Is Paying to Keep 1,000 Carrier Jobs.” Fortune, 2 Dec. 2016, http://fortune.com/2016/12/02/indiana-carrier-jobs-tax-breaks-mexico/. Accessed 15 Nov. 2017.
 Black, Thomas. “Even a NAFTA Collapse Won’t Keep Companies From Moving to Mexico.” Businessweek, 24 Oct. 2017, https://www.bloomberg.com/news/articles/2017-10-24/mexico-s-2-50-an-hour-wages-lure-jobs-south-amid-nafta-talks. Accessed 15 Nov. 2017.
 Vlasic, Bill. “Ford Chooses China, Not Mexico, to Build Its New Focus.” The New York Times, 20 Jun. 2017, https://www.nytimes.com/2017/06/20/business/ford-focus-china-production.html. Accessed 15 Nov. 2017.
 Ford Motor Company. “2016 Annual Report.” http://shareholder.ford.com/~/media/Files/F/Ford-IR-V2/annual-report/2016-annual-report.pdf. Accessed 15 Nov. 2017.
 Kiley, David. “Forget Mexico: Ford Moving Focus Production From U.S. To China, With Eye On Profitability.” Forbes, 20 Jun. 2017, https://www.forbes.com/sites/davidkiley5/2017/06/20/ford-will-move-focus-production-from-michigan-to-china/#6ad54b794ef5. Accessed 15 Nov. 2017.
 Ford Motor Company. “Q2 2017 Earnings Call.” http://shareholder.ford.com/~/media/Files/F/Ford-IR-V2/events-and-presentations/2017/07-26-2017-Q2/Q2-2017-Earning-Final-Transcript.pdf. Accessed 15 Nov. 2017.
 Vlasic, Bill and Boudette, Neal. “Even Before He Takes Office, Trump Knocks Automakers on Their Heels.” The New York Times, 3 Jan. 2017, https://www.nytimes.com/2017/01/03/business/ford-general-motors-trump.html. Accessed 15 Nov. 2017.