When Japanese foreign direct investment accelerated in the US during the 1980s, Japanese firms brought their quality management to US manufacturing industries. In 1984, Toyota invested in the
General Motors assembly plant in Fremont, California, and dramatically increased productivity at the underperforming facility by more than 50 per cent, by introducing Japanese-style quality management, called
kaizen (which literally means “improvement”).
By taking half-ownership of the plant, Toyota learned how to adapt its famed
Toyota Production System to work within American regulations and with local suppliers and the union. Two years later, Toyota opened its first wholly-owned US plant in Kentucky. Today, there are some 40,000 Americans directly employed by Toyota’s 10 engineering and manufacturing plants in the US.
Chinese investment in the US has steadily increased from 2009, peaking in 2016 at US$46 billion. For the past three years, this has plummeted as
distrust grew between the US and China due to President Donald Trump’s trade war.
Trump’s xenophobic Twitter rants have stoked a fear of foreigners and foreign companies, even as foreign investment continues to create manufacturing jobs for American workers. Despite the
economic reality, foreign companies often become psychologically convenient targets of blame for populist politicians.
Foreign companies create US jobs because global value chains have developed all over the world. It is common to locate different stages of manufacturing production in different countries. Although Trump
bristled at a new Toyota assembly plant in Mexico, this would increase high-skilled parts supplying jobs in the US.
That is because global value chains connect the US and Mexico, and Mexican assembly plants use American-made parts, thanks previously to the North American Free Trade Agreement, and now to the
United States-Mexico-Canada Agreement. Toyota’s investment in Mexico will increase manufacturing jobs in both Mexico and the US.
However, China’s attempts to follow Japan’s lead with foreign investment in the US have not fared so well. The 2019 American documentary
American Factory – which
won best documentary feature at the Academy Awards – points to some problems of Chinese investment.
The documentary tracks Chinese company
Fuyao Glass after it took over an old General Motors plant – it had been the GM Moraine Assembly Plant and closed in 2008 – in Dayton, Ohio. It invested millions of dollars and employed hundreds of local workers, but ended up with
cultural clashes and workers’ complaints about company demands. Workers used to earn twice as much and had been out of work for a few years.
In comparison, Toyota sets wages for American workers at 50 per cent higher than the local average for similar work. The Toyota Production System demands a higher level of creativity from each worker – even unskilled ones – and raises American workers’ productivity.
China must advance its domestic economic reforms if it ever hopes to prosper with its US investments. It will never earn public support if a plant’s success relies on low wages and predatory pricing. China’s state capitalist system
subsidises state-owned enterprises and allows them to export at lower prices. Chinese investment might be better received if it committed to domestic economic reforms.
When a Japanese manufacturing company opens a new affiliate abroad, that company’s employment in Japan tends to increase, because a new production stage in a foreign affiliate also creates another production stage in Japan. China needs to realise that, as long as it is involved in trade based on global value chains, Chinese investment will benefit all countries connected along those chains.
Hiroki Takeuchi is Associate Professor of Political Science and director of the Sun & Star Programme on Japan and East Asia in the Tower Center at Southern Methodist University
