Earlier this month, Toyota announced their first-ever annual loss in their 70-year history. (See “Toyota Dumping Cars on U.S. Market.”) The strenghtening of the yen is one of the major factors. In response to this, Toyota announced a couple of days ago that they would be laying off 1,000 workers in North America and Europe. Then today comes this announcement – that they will be cutting production in their Japan plants by 60%.
Toyota Motor Corp (7203.T) plans to reduce vehicle production in Japan by nearly 60 percent in April, a level that could force it to cut its domestic workforce amid slumping car sales, Tokyo Shimbun newspaper reported on Saturday.
Yet, in spite of this huge cut in production in Japan, not a single Toyota employee will lose their job.
Toyota, the world’s biggest automaker, is whittling down its non-permanent workforce by letting contracts expire, but executives have said they intend to leave full-time staff untouched despite unprecedented factory suspensions in Japan.
Toyota has announced plans to close all its domestic factories for a combined 14 days between January and March, reducing work to a single shift at 17 assembly lines, out of 75 globally, at different times from January and February.
What I find interesting is that, if the currency exchange rate is now a major factor in Toyota losing money, it would make sense to shift operations and production to North America and Europe, where the currency is weak, and cut operations in Japan. Yet, they are doing just the opposite.
This is a good example of what I’ve been saying about currency exchange rates – that a falling dollar will do nothing to reduce the trade deficit. Japan and other nations who are utterly dependent on sustaining a huge trade surplus with the U.S. in order to avoid high unemployment will do anything to keep production in their home country, even if it seems to make no business sense. They’ll do anything to hold onto their domestic production, including dumping, subsidizing their automakers, etc. They do this because they know that it’s a relatively cheap way to keep jobs, much cheaper than government programs and unemployment insurance. They voice support for the concepts of “free” trade and market forces but, when a global recession takes hold and it becomes every man for himself, see how quickly they retreat into taking care of their own.
You may point to the big drop in the trade deficit in November as evidence that the weakening dollar is having an effect on the trade deficit, but that’s not true. The trade deficit fell in November due to an over-all slowdown in consumer spending, and not due to any shift in consumer spending away from imported products to domestically made products.
I bring all of this up to emphasize the point that it is absolutely futile to count on outside forces – things like currency valuation and trade negotiations – to rein in our trade deficit. Decades of experience with this approach have only yielded a trade deficit that has exploded completely out of control. The only way to get the deficit under control is to take positive action in the form of tariffs to assure a balance of trade. It worked for the first 171 years of our history – from 1776 to 1947, when we signed the Global Agreement on Tariffs and Trade – and it would work again. Our trade policy for the last six decades has been an abysmal failure. It’s time to go back to what has been proven to work.