Mounting Evidence of Japanese Dumping

May 12, 2009

As reported in the linked article, Nissan today has announced a $2.4 billion loss in their fourth quarter, and they forecast a larger loss for the coming year.  Yesterday it was Toyota announcing an $8.6 billion loss.  In previous weeks it was Sony.  Recently, Toyota announced that, in spite of the fact that they have lost thousands of dollars on every Prius sold in the U.S. to date, they will reduce the price by several thousand dollars more.  

The Japanese strategy for combatting unemployment is becoming quite clear – they are blatantly “dumping” products on the U.S. and European markets in order to sustain market share.  “Dumping” is the practice of selling products in foreign markets at below-cost, a practice expressly forbidden by the World Trade Organization. The reason for the losses in these Japanese companies is irrelevant, whether it’s due to the falling dollar, rising yen, volumes declining in a recession, or whatever.  It’s still dumping and it’s an unfair trade practice.

The time has come for the Obama administration to acknowledge what’s taking place and demand that Japanese companies raise prices.  Failing that, the U.S. should immediately lodge a complaint with the WTO and, if the WTO doesn’t act swiftly, the U.S. should immediately impose stiff tariffs on all Japanese products.

Hitachi Dumping Products on U.S.

January 30, 2009

Now Hitachi has joined the ranks of Toyota and Sony as Japanese companies who admit to losing money in the U.S. market. 

Hitachi Ltd (6501.T), Japan’s biggest electronics maker, warned of a record $7.8 billion annual loss, hit by slumping sales, a stronger yen and costs to restructure its sprawling operations.

Their citing a “stronger yen” as one of the key factors in their loss is an admission that they’re losing money in foreign markets – the U.S. being the biggest.  Previously, Toyota and Sony announced the same thing. 

Regardless of how you feel about “free” trade, even its  most die-hard supporters agree that “dumping,” the practice of selling products at a loss in a foreign market, is an unfair trade practice that cannot be tolerated.  It’s banned by the WTO (World Trade Organization). 

The time has come for the U.S. to crack down on this situation.  It should immediately lodge a complaint with the WTO, demanding that Japanese companies raise prices significantly.  If they do not, or if the WTO fails to act swiftly, then the U.S. would be entirely within its rights to impose tariffs on Japanese products. 

Some of you, oblivious to the fact that our trade deficit (which now totals $9.2 trillion since 1975, the year of our last trade surplus) is directly responsible for our economic collapse, are probably thinking to yourself, “this guy is nuts.”  “At times like this, we should be encouraging Japan to cut prices, not raise them.”  If so, you’re forgetting that consumers and workers are one and the same, and are only thinking of yourself as a consumer.  That’s the mental trap used so successfully by the purveyors of globalization.  They want you to think only in terms of low prices and forget about the downward pressure on wages caused by the loss of manufacturing jobs. 

If forced to raise their prices, Hitachi, Toyota, Sony and others will be faced with a choice:  surrender U.S. market share or move their manufacturing to the U.S. to avoid tariffs or the currency exchange rate issue.  If they opt for the former, someone else will surely fill the void and swoop in to build factories in the U.S., fueling a demand for labor that will drive wages higher than prices.  You have to understand that it is a strong demand for labor that drives purchasing power higher.  A weak demand for labor will erode purchasing power every time.

Toyota Fires American Workers, None in Japan

January 24, 2009

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.

Is Sony “Dumping” on the U.S.?

January 13, 2009

First it was Toyota announcing a loss.  Today it’s Sony.

Japan’s Sony Corp (6758.T) will likely suffer an annual operating loss of about $1.1 billion, its first such loss in 14 years, due to sluggish sales and a stronger yen, a person with knowledge of the matter said.

The mention of a “stronger yen” is a critical point here.  It’s a clear indication that Sony lost money in the U.S., its biggest market.  “So what?” you may be wondering.  “It’s a tough economy.  Everyone is losing money.”  That’s true, but there’s a huge difference between foreign and domestic companies.  It’s a violation of international trade rules for a company to sell products at a loss in a foreign market.  It’s a practice known as “dumping” and is expressly forbidden.  It does’t matter whether it takes place in a good economy or in a recession.  It’s still dumping. 

The U.S. should immediately insist that Sony raise its prices.  If they don’t, the U.S. should lodge a complaint with the World Trade Organization.  And if the WTO doesn’t take swift action, the U.S. would be entirely within its rights to slap tariffs on Sony products, Toyota products, Toshiba products (also expected to post a loss) and any Japanese company that is selling products at a loss in our market. 

“That wouldn’t be very nice,” you may be thinking.  “We wouldn’t want them to treat us that way.”  Think again.  That’s exactly how the Japanese treat us, and even worse.  Japan sustains a $100 billion per year trade surplus in manufactured goods with the U.S.  by refusing to buy from us as much as we buy from them.  That’s approximately 1.34 million high-paying manufacturing jobs they’ve taken from our economy. 

“But we don’t want prices raised,” you may also be thinking.  “I can’t afford things as they are now.”  You can’t afford things because the downward pressure on wages caused by the trade deficit has driven down incomes more than prices have been held in check.  If the prices of imports were raised, the profit potential needed to justify manufacturing in the U.S. would be restored.  Wages would rise faster than prices.  This would be true even if you work in a field not associated with manufacturing, as job-seekers vying for your job would be pulled out of the pool of available labor and put to work in factories. 

For decades the U.S. has blamed currency valuations for our trade deficit and Japan has been a master of manipulating the yen-dollar exchange rate in its favor.  Now the global economic melt-down has overwhelmed their ability to prop up the exchange rate, and the table has turned in our favor.  It’s time to strike and force actions that will restore a balance of trade.  It’s time to stop being played for a sucker in the global trade game. 

One final comment on a quote from the article:

The company has assumed the yen at 100 yen per dollar and 140 yen per euro, compared with the current dollar/yen level of 89 yen and euro/yen level of 119 yen. A firm yen cuts into the value of its profits and makes its products less competitive in overseas markets.

A strong yen only makes Japanese products less competitive if they adjust the dollar price higher in response to the exchange rate.  Have you seen any evidence of that?  Of course not!  If anything, they’ve been cutting prices to try to prop up sales.  That’s dumping!!

“Can a Car Company Grow in Harmony with the Environment?”

January 7, 2009
You’ve all seen the Toyota commercial that asks this question while, in what appears to be an Alaska-type wilderness, something that resembles a Toyota Prius is built from sticks and leaves and then, as the seasons pass, it crumbles and decays, leaving nothing behind.

The answer to their question is “no!” This commercial epitomizes the kind of sappy, disingenuous marketing employed by the pro-growth factions to appease the environmentalist in all of us with the notion of “sustainable development.” There is no such thing. The word “development” means taking land in its natural state and building upon it for use in some human endeavor. Now don’t get me wrong. There’s nothing wrong with “development.” There has to be development to accommodate humanity at a decent standard of living. We can exist in harmony with the environment at a certain level. But “sustainable” development to accommodate never-ending population growth is a myth.

Some time ago, the chemical company from which I retired announced plans for a new, grass-roots plant on the Texas gulf coast. In order to get it approved by the Department of Natural Resources, they worked a deal in which other pristine land would be set aside and forever protected, supposedly. This project was held up as a shining example of sustainable development. “You’ve got to be kidding me,” I said. “Just exactly how is this sustainable?” If this practice were continued, it would result in half of the remaining, undeveloped land on earth being converted to industrial use. Virtually all experts agree that the human population has already exceeded the planet’s carrying capacity. There is nothing sustainable about bulldozing more of it.

If Toyota had asked “can a car company exist in harmony with the environment,” the answer would be “yes,” at least on some scale. But growth isn’t sustainable and can’t take place “in harmony with the environment.” Give Toyota credit for building fuel-efficient vehicles like the Prius, but shame on them for using it as a ploy to justify their never-ending growth agenda.


Toyota “Dumping” Cars on U.S. Market

December 22, 2008

As the Bush administration chides the domestic auto industry and demands that they come up with a plan to be profitable by March 31st of next year, it stands idly by while Toyota “dumps” its cars on the U.S. market.  “Dumping” is the unfair trade practice of selling products at a loss in an export market.  By its own admission (see the linked article), Toyota is, in fact, operating at a loss and dumping vehicles. 

Toyota Motor Corp forecast a first-ever annual operating loss, blaming a relentless sales slide and a crippling rise in the yen in what it said was an emergency unprecedented in its 70-year history.

Toyota, the world’s biggest automaker, had been expected to issue its second profit warning in less than seven weeks after domestic rival Honda Motor Co also cut its outlook again last week, but the downward revision was bigger than predicted.

Of course, this is a new development resulting from the rapid slide in the dollar vs. the yen but, nevertheless, it puts Toyota in violation of international trade rules.  If Toyota fails to immediately raise their prices, the U.S. should file a complaint with the WTO (World Trade Organization).  If that doesn’t yield swift results, the U.S. should quickly impose tariffs on imported Toyota cars and parts.  And it should take the same action if other Japanese exporters report operating losses. 

“This is very, very, very bad,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. “There’s a chance they could fall into the red in the next business year as well.

“This is also not just a problem for Toyota. What is good for Toyota is good for the Japanese economy.”

Remember when the same was said of General Motors and the American economy?  It’s still true, regardless of what other economic segment du jour  the free trade cheerleaders offer up as our latest and greatest economic salvation.  One day it’s high tech.  The next day it’s services.  The day after that it’s health care, as though we can have a thriving economy by everyone getting sick and nursing each other back to health. 

The truth of the matter is that there is no way to gimmick an economy back to health that has been sickened by the loss of one of its key segments.  Naturally, giving away our manufacturing sector through misguided trade policy has helped the “global economy” but it has weakened our own.  For decades we have tried to prop it up by enhancing other segments – first “high tech,” then services and finally the construction segment of the economy – but it was all doomed to collapse.  An economy needs all segments to remain healthy, including manufacturing.  It’s time to reclaim that segment and it’s time for nations like Japan to stand on their own two feet instead of scavenging the economy of the U.S.

Is Toyota Guilty of “Dumping?”

December 13, 2008

The linked article reports that Toyota is likely to report a loss in their 2nd half (the October 2008 – March 2009 time frame).  This begs the question:  if Toyota is selling cars at a loss, isn’t it guilty of “dumping,” the practice defined by the World Trade Organization as selling products below cost?  Shouldn’t the U.S. immediately file a complaint with the WTO?  Shouldn’t the WTO immediately either force Toyota to raise their prices or authorize the U.S. to impose tariffs on Toyota vehicles? 

Some may protest that the domestic automakers are also operating at a loss.  True, but that doesn’t violate any international trade agreements.  No other nation can take a case against the Big Three to the WTO because no one imports American-made cars, for all intents and purposes. 

But none of this will happen.  WTO rules are for the U.S. to follow and no one else.  We’ll simply give Japan time to dump yen and buy dollars, manipulating the dollar-yen exchange rate back to where they can easily make a profit.

The “Big Three” Sinking Fast – Along with America’s Economy

July 1, 2008

If, while reading some of my more recent posts, you thought I was exaggerating the dire condition of America’s “Big Three” automakers, here’s an article that may change your mind.

The mounting trouble for U.S. automakers has cost them any chance of winning more than partial help from a foreign investor or overseas rival.

Bankers and analysts say Detroit-based automakers could still find partners for limited tie-ups but caution it could prove impossible to find a deep pocket overseas for the cash the U.S. industry could need to ride out the current downturn.

European and Asian automakers are investing in more promising markets and face their own challenges from the rise in prices for fuel and raw materials like steel, analysts say.

The “more promising markets” referenced in that last sentence are, of course, China and India. But that’s all these markets have – promise. They’ll never materialize into the kind of auto market we have in the U.S. because they are far too crowded (especially India) for their citizens to consume vehicles at anywhere near the rate of the U.S. Consequently, if we give them free access to our market, we won’t get access to equivalent markets in return. Their auto production capacity (for export) will overwhelm ours and destroy what is left of our domestic auto industry. Unfortunately for the “Big Three,” even they fail to recognize this. Like the fabled dog that looks into a calm pool and sees another dog with a bone, and drops his to snap at the illusory one, American auto manufacturers surrendered the domestic market and joined the chorus of free trade cheerleaders in the hopes of cashing in on the big, potential, imaginary auto markets of Asia. Have they made money there? Sure, but only a tiny fraction of what they used to make in the U.S., now wiped out by invading hordes of manufacturers from foreign countries who have virtually no market to offer in return for access to ours. Still, the “Big Three” remain free trade cheerleaders, chasing the pot of gold at the end of the Asian rainbow. There is no pot of gold. What they will find is bankruptcy and oblivion.

How bad is it for GM?

With a market capitalization of $6.5 billion, GM is now worth less than a third of Renault SA ($23.7 billion), the French automaker that was spurned when it sought an alliance with GM in 2006.

The leading U.S. automaker is worth just one-fifteenth of Toyota Motor Corp ($99 billion), which overtook GM this year as the global sales leader by volume.

Once seen as a bellwether for the U.S. economy, GM is also in danger of being eclipsed in value by the likes of India’s Tata Motors ($4.4 billion) and Russia’s Avtovaz ($4.6 billion), home of the Lada brand.

$6.5 billion – that’s all it would take to buy General Motors right now, one of America’s biggest corporations. That’s less money than the value of the vehicles they build in one month.

“What’s wrong with GM is it’s too big now. GM is also deep in the red and no one would want to buy it. I can’t think of ways to help it except through restructuring,” said Koji Endo, a Credit Suisse analyst in Tokyo.

Notice that Mr. Endo says nothing about Toyota, the same size as General Motors, being too big. If Mr. Endo can’t think of other ways to help GM besides restructuring, here’s a couple of ideas: 1) Change U.S. trade policy to impose population density-based tariffs on countries like Japan and Korea, and 2) Commit Japan to buying as many vehicles from the U.S. as we buy from them. I wonder if Endo didn’t think of these things or if he thought them but dared not say them.

Capital could come from a foreign sovereign fund, but Pflum said he did not expect it to happen. “The automotive sector has been volatile. It is cyclical. The issue is that in the United States it is not a growth business,” he said.

If the U.S. is such a lousy business, then why don’t Toyota, Honda, Nissan, Lexus, Infiniti, Kia, Hyundai, Mercedes, Volkswagen, Porsche, BMW and the countless others just leave? Oh, wait, I forgot. The auto markets in Japan, Korea and Germany are much worse. Their companies couldn’t survive on just their domestic markets. Luckily for them, there are suckers like the U.S. who happily give away most of their markets.

If foreign car makers step in, they will do it by buying an asset or forming a narrowly defined partnership to contain any potential risks, analysts said.

Italy’s Fiat, for example, wants to build Alfa Romeo cars in North America and has been talking with the three U.S. automakers about using one of their plants.

That could ease the burden of the excess production capacity U.S. automakers have been left with due to dwindling share in their home market and the slump in light truck sales.

You may think that this is good news that more foreign companies want to assemble cars in the U.S. Think again. Those Alfa Romeos will simply take more market share from a domestic company. Selling or renting factory space to Alfa Romeo will accomplish nothing because domestic automakers will have to shut down another factory to compensate for the market share now lost to Alfa Romeo. And Alfa Romeo won’t be designing those cars in the U.S. or procuring the parts domestically. All of that will come from Italy.

Here’s an example. Visit the Detroit area and you will see automotive parts suppliers, suppliers for parts suppliers, and so on, everywhere you go. They’re called “tier one, tier two and tier three suppliers” and so on down the line. Assembly plants are surrounded by parts manufacturers and other industries providing support.

By contrast, I recently drove past a Nissan plant in the middle of nowhere in Mississippi. It was surrounded by empty field. Not a part supplier anywhere in sight. Why? Because most of the parts are funneled in from Japan, along with all of the design and engineering.

So why assemble them in the U.S.? Because cars are mostly empty space. A whole lot more unassembled parts can be fit on a container ship and shipped much more cheaply than finished autos.

Meanwhile, India’s Mahindra & Mahindra is seen as a possible bidder for GM’s Hummer brand, which is on sale. Mahindra is keen to get a foothold in the U.S. market, where it plans to launch its Scorpio SUV next year.

Nice timing, Mahindra. I’m sure those Scorpio SUV’s will really sell like hot cakes in today’s environment. But forget about that. The real question is: isn’t Hummer the maker of vehicles for the military? Do we really want to hand over Hummer production to a country who doesn’t give a rat’s you-know-what about U.S. national security? Do we want Sergeant Smith from the motor pool to have to deal with the same crappy telephone support that American computer and software customers get?

And along with all of these new foreign companies setting up shop in the U.S. will come a new tidal wave of foreign workers, pushing aside U.S. workers in all but the lowest-paying jobs. With workers and the engineering know-how all being imported, the U.S. will finally have lost the intellectual assets and critical mass needed to sustain  or restore the manufacturing sector of our economy. It will be lost forever, rendering the U.S. incapable of ever again meeting the needs of its citizens through domestic manufacturing. We’ll be completely at the mercy of foreign corporations. Essentially, we will have ceased to exist as a country, except in name only. Foreigners will command all of industry and call all the shots. Government will be at their beck and call. You and I will be like poor tourists in our own country, watching it all happen but powerless to do anything about it.

For a long time I have pointed out that our trade deficit is financed by the sell-off of American assets and have asked what will happen when those assets are depleted. As we draw closer to that point, American assets will become ever-more worthless. At that point, their foreign owners will likely shut them down and abandon them in order to stop throwing good money after bad to keep them going. Our economy could grind to a halt and the 1930s would like boom times in comparison. With GM, one of our biggest corporations, now worth only $6.5 billion – about the value of one month’s worth of vehicle production – we may be very near that point.

There’s little time left to act. We badly need the population density-indexed tariff structure laid out in Five Short Blasts if the manufacturing sector of our economy is to have any chance of survival. Indeed, our entire economy is at risk if the last of our manufacturing capacity vanishes.