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Michigan should support the Trans-Pacific Partnership
As a kid from Ada, you can imagine the satisfaction I get finding myself introducing clients to project managers and other interested parties in embassies from around the globe — Africa, Asia, Europe, South and Central America.
It is fascinating to experience the differences in negotiating tactics and how the many cultures form the discussions.
It is our belief that it really is no different than working with individuals on Capitol Hill. There is the typical blocking, tackling and flanking. At the end of the day, honesty and a good product will win. But that’s when discussing products.
Negotiating policy is another thing altogether.
Here’s a shocker. There is a “huge” volume of misinformation and obfuscation surrounding a proposed trade agreement being discussed inside the beltway.
Opportunities to grow Michigan’s exports were bolstered when negotiations on the Trans-Pacific Partnership concluded in September.
The TPP is a 12-nation free trade agreement that will eliminate tariffs and reduce regulatory burdens on American exports to a number of the world’s most important markets, including Japan. Congress could vote to ratify the agreement soon.
Tariffs on American automotive exports to TPP nations currently run as high as 70 percent. When it becomes effective, the TPP will immediately eliminate the tariffs on 75 percent of U.S. car, truck and part exports to member nations.
The remaining tariffs will phase out in the years to follow. This means Michigan-made autos and parts will be more competitive in rapidly growing markets like Vietnam and Malaysia. Continued investment in Michigan plants will be encouraged by maintaining U.S. tariffs on Japanese car imports for 25 years.
The opportunities the TPP presents are not without risks, however. The agreement features a new “rule of origin” for autos. The rule sets what percentage of a car’s or part’s value must be manufactured in a TPP-member nation in order to receive the agreement’s benefits. The rule of origin for motor vehicles in the TPP is only 45 percent. And for some automotive parts, the rule is as low as 35 percent.
That means that up to 55 percent of the value of a car or truck assembled in Michigan can come from foreign parts and still qualify for TPP benefits. For certain components, such as radiators, up to 65 percent of its value can be of overseas origin.
Manufacturers of cars and trucks will surely take advantage of the incentives offered to them by the TPP to grow their profit margins by looking overseas and incorporating more parts sourced from low-cost foreign markets. And that presents a challenge to parts suppliers in Michigan.
It will be increasingly difficult for Michigan parts manufacturers to compete with cheap auto components produced in countries with no minimum wage, nonexistent environmental standards and governments that manipulate their currencies.
To prevent a wave of cheap foreign parts from eroding the local supply base and eliminating jobs, Michigan auto parts makers must lead with their strengths. They will need to enhance the already high quality of their offerings, improve their remarkable manufacturing efficiency, further leverage the talents of their highly skilled workers, and continue to produce new and compelling innovations.
By focusing on the many tangible advantages they offer versus low-cost foreign challengers, auto parts manufacturers in Michigan can continue to compete and grow.
Each new free trade agreement has presented Michigan auto manufacturers with opportunities and challenges.
And every time the industry has thrived. The Trans-Pacific Partnership should be no different. By emphasizing these points, the car, truck and parts manufacturers in Michigan can continue to grow their exports and provide even more jobs.
Michael Ralsky is vice president for International Policy, and Steve Carey, a native of Ada, is president of Potomac Strategic Development in Washington, D.C.