Canadian media are reporting that General Motors plans to shut down operation in Oshawa, Canada. This is quite possibly an outcome that portends the sign of things to come…
CANADA – Numerous sources have told CTV Toronto that General Motors is planning to close all operations in Oshawa, Ont., affecting thousands of high-paying jobs.
The announcement is expected to be made on Monday, in the city of about 159,000 people located roughly 60 kilometres east of Toronto. Sources said they believe the Oshawa closures are part of a global restructuring. (read more)
GM holds considerable risk exposure within the current state of international trade and economics as it relates to the auto industry. As a result of the ongoing U.S-China trade confrontation, GM holds risk as a result of heavy investment in China. Add to that exposure the very significant financial impacts about to start for heavy manufacturing operations inside countries aligned with the Paris Climate Treaty, and the risk increases.
Specifically for auto-manufacturers the regulatory costs are unique. If a manufacturer is depended on the U.S. market as a destination for their products, and the company has existing manufacturing within the U.S, the cost differential means they will likely have to absorb any climate change (regulatory/tax) cost in addition to the looming Trump tariffs.
The best financial play is to drop some of the risk and focus on execution of a business model within the market that is of primary value; that’s the USA. I would surmise those cost analytics are part of the dynamic at work.
Additionally, last week there was a quiet report of the White House inviting the major EU (mostly German) auto companies for a meeting. [SEE HERE] The German auto companies cannot negotiate trade terms on behalf of the EU; however, their unrecoverable investments in Mexico are surely leverage Trump will use to push their influence over Angela Merkel.
(Reuters) […] The White House has extended an invitation to German carmakers through the U.S. Embassy in Berlin for a meeting with Economic Adviser Larry Kudlow and Secretary of Commerce Wilbur Ross, said one of the sources.
It was not immediately clear if the U.S. ambassador to Germany, Richard Grenell, or President Donald Trump would take part.
U.S. officials have grown impatient with the lack of progress on trade issues after a meeting between Trump and European Commission President Jean-Claude Juncker in July. (read more)
In Germany, whoever and whatever the auto-sector supports – that’s where the political alignment goes.
So there is a three-way economic strategy at play. First, on policy – the Paris treaty means all heavy manufacturers within aligned countries will drive up costs. Secondly, on economics – access to the U.S. market is being leveraged by President Trump via Steel/Aluminum and auto tariffs. And less obviously, thirdly – a very real possibility of economic/financial punishment underpinning Trump policy as a result of political antagonism via NAFTA (Canada) and Brexit (EU).
I cannot emphasize enough how strategic President Trump is toward the subtle impacts of his MAGAnomic ‘America-First’ policies.
President Donald Trump is stunningly unique. MAGAnomic policy influences behavior through the application of leverage. However, rather than focus on an attempt to forcibly shift the market through politics, Trump attains his desired balance objective by focusing MAGA policy in a stunningly unique way, he focuses on shifting the landscape underneath the decision.
To help explain the dynamic, I’ve created this graphic:
Traditional politicians have always directed their policy efforts at the political side of the economy. [ie. make, enforce or eliminate a regulation to change the decision-making of those who are in control of the market.] However, within that approach the cause and effect takes time.
President Trump, works with a sense of urgency in all things. He doesn’t like to wait for policies to take effect; instead he goes deeper into the dynamic and focuses on the root of the issue – in this economic example, trade is the economic fulcrum.
MAGAnomics is all about moving the fulcrum to achieve the desired result. In the goal of gaining manufacturing investment, Trump’s sense of urgency, creates policies that in turn create a similar immediacy. [ie. capital expenditures can only be written off if the capital expense is invested within a short window]. As a consequence there is a larger benefit to the investor if the action is taken quickly. [See FoxConn Wisconsin etc.]
Investment is fast, rapid and generates ancillary benefits at greater speed. Hence, manufacturing employment accelerating faster than any time over the past 30 years. In the current example, what do you think will happen in GM’s USA operations with the withdrawal from Canada? More speed in U.S. manufacturing base hiring. That urgency means rapidly higher wages (longer shifts and overtime), in short, more pay.
President Trump doesn’t try to guide the mouse through the maze to the intended destination. Instead he just moves the location of the cheese and the mouse travel changes accordingly. This approach dramatically shifts the speed of goal attainment.
This approach is partly what defines the unique speed of Trump.