Guess Who Isn't Buying AmericanBy
By now, the "Buy American" message has been drummed into the nation's consumers. Remember Monsanto Chemical Co.'s January offer to employees? The company said it would give $1,000 to workers who bought cars assembled in the U.S., Canada, or Mexico. Just this month, the mayor of Flint, Mich., said he would bar foreign-made cars from parking in the city hall garage.
Just the same, the Commerce Dept. reported on Oct. 15 that the U.S. merchandise trade deficit widened from $7.3 billion in July to $9 billion in August--the worst gap in nearly two years. Here's the surprise: On the import side, the culprit isn't necessarily consumers picking up German coffee makers or made-in-Taiwan tennis rackets. These days, American business increasingly is behind the widening trade gap.
LONG LIST. The numbers tell the story. While nonauto imports of consumer goods fell by 2.2% in August, imports of capital goods rose for the third consecutive month, gaining 1.5%, Commerce says. And in the second quarter, the most recent period tallied, business imports totaled $242.6 billion, a 38% increase, says DRI/McGraw-Hill. That jump was nearly twice the growth rate of auto and other consumer goods imports (charts).
The companies behind these numbers are legion. Black & Decker Corp., for instance, has fought hard to win back a market that U.S. companies had largely lost to Asian competitors. Yet when the toolmaker had to buy four $100,000 computer-controlled lathes this year, it bought them in Japan. Now the company is mulling whether to buy new gear-cutting machines from a supplier in Rochester, N.Y., or one in Germany.
Or consider Hughes Aircraft Co., a mainstay of the U.S. defense industry. Hughes, a General Motors Corp. unit, recently won a $31 million contract to supply sonar systems for U.S. Navy helicopters. A key part of the system will be imported from France: Thomson-CSF already makes the mechanism for the British navy. Boeing Co., too, is relying more on foreign parts. While they accounted for less than 4% of its 747 jumbo jet, Boeing will import about 20% of the airframe for its new 777.
The rise in imports could hardly come at a worse time for America's manufacturing economy, struggling to escape recession's grip. Indeed, DRI/McGraw-Hill reckons imports may have cut 1% off America's gross domestic product this year.
There may yet be one positive long-lasting residue from the trend. Robert Lawrence, professor of international economics at Harvard University, says rising capital-goods imports may be a sign of a cyclical recovery. "We like to blame foreigners for our problems, but this may be a signal that U.S. companies are investing more," he says. "It's inevitable that as the economy recovers the trade deficit will rise."
NO OPTIONS. What's behind Corporate America's offshore spending spree? Some executives say it's a matter of quality. In 1989, when Ortho Biotech, a subsidiary of Johnson & Johnson, wanted to outfit a new plant in Puerto Rico, it went to Finland for a water-purification system. The biotech company says it could have purchased the equipment in the U.S. but says the Finnish system was better. "We try to buy American," says President Dennis N. Longstreet. "We buy outside the country really when the quality is clearly superior."
Other companies say they don't have the luxury of choice: that goods they need simply aren't made domestically anymore. Black & Decker, for instance, says that's the case with the lathes it wanted and points out that 70% of the equipment it buys is made in the U.S.
And Silicon Valley's computer executives long have complained that they can't get U.S.-made liquid-crystal displays for their portable computers--although their offshore buying is what shut the domestic business down in the first place. One result of this vicious cycle: Sales of LCDs to U.S. companies this year are expected to jump 95%, to $222 million, from $114 million in 1990. The computer makers may gain a second chance: On Oct. 21, Motorola Inc. said it has formed a joint venture with In Focus Systems Inc., a tiny U.S. screenmaker, to produce screens in America.
But many U.S. companies go shopping overseas simply to cut costs. When Arco Chemical Co. went looking for the 40-foot-in-diameter steel containers it needed for a new $500 million production plant near Houston, it rejected costlier U.S.-made products in favor of those made in Japan by Sumitomo Heavy Industries Ltd. "We'll bid competitively anywhere to get this equipment," says Donald P. Mykytiuk, Arco's director of project management.
Besides, picking up an import here and there can make exporting a whole lot easier. Hughes, which allied with Germany's Siemens Plessey Systems and Norway's NFT to win a $452 million radar contract from the U.S. Army this year, is maintaining the alliance in hopes of winning surface-to-air missile contracts in both partners' countries.
Like other ill winds, this one does blow some good. This year, despite a weak market for autos, imports of car parts from Japan, Mexico, and Canada remained at a high $10.5 billion, according to the University of Michigan. But the rise in auto-parts imports means an uptick in U.S. production of vehicles that might have been made overseas.
PICKUP PICKUP. Something, in other words, beats nothing. Take the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont, Calif., the GM-Toyota joint venture. Last year, NUMMI began assembling Toyota-branded pickup trucks. In the second half of this year, production will total 45,000 trucks, up from only 3,000 in 1991, according to Ward's Automotive Reports. For each of the trucks built there, NUMMI will import an engine, transmission, and other parts from Japan. On the other hand, NUMMI invested about $350 million in the U.S. plant and hired about 850 workers.
To some U.S. companies, that's not much of a silver lining. Universal Instruments Corp., a Binghamton (N.Y.) maker of equipment for attaching electronic components to circuit boards, says it can barely compete with its offshore rivals. Universal's president, Gerhard D. Meese, says his company is fighting as many as 50 foreign rivals.
To stay competitive, Meese has made three trips to Japan in search of ways to improve his product. A new machine, he says, has kept most customers and has prevented rivals from eating into his $230 million in annual sales. "But if you look at our market share," he says, "there has definitely been some erosion." If it continues, Meese's U.S. customers may one day complain that they don't have the option of buying at home.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.