China Only Part of the Problem for US Auto Parts Makers

Phil LeBeau | @Lebeaucarnews

Published 2:04 PM ET Mon, 17 Sept 2012 CNBC.com

Brendan Smialowski | AFP | Getty Images

US President Barack Obama speaks during a campaign event at Eden Park September 17, 2012 in Cincinnati, Ohio. Obama said Monday he liked to 'walk the walk, not just talk the talk' on combating China trade abuses, in a sharp jab at his Republican foe Mitt Romney.

It was classic American political theater in Ohio. President Obama, campaigning hard to win votes in a state where one out of every eight jobs is connected in some fashion to the auto industry, chose today to announce the U.S. has filed a trade case with the World Trade Organization against China.

The Obama administration says China provides export subsidies to its auto parts manufacturers, and as a result they have an unfair cost advantage when shipping parts to the U.S. The President says this is at the heart of the struggles for U.S. auto parts industry, which has shed more than 350,000 jobs since 1999.

Is the President right? Partially.

There’s no doubt Chinese auto parts makers have cut into the business of their U.S. competitors. In the last decade, China auto parts exports have jumped more than 700%. How much is due to the Chinese having an unfair cost advantage? The U.S. says China has given its parts makers more than a billion dollars in illegal trade subsidies in just the last three years. (Read More: Romney Is Right—US Must Get Tough With China: Morici)

As the U.S. and China hash out this dispute over the year to come (yes these WTO cases drag on) there’s another part of the story few are talking about.

The auto parts industry has shed tens of thousands of jobs in the U.S. over the last decade by moving them to lower cost locations around the world. Need proof? Look at how the auto parts industry in Mexico has exploded in growth. It totaled $58 billion in 2009 and is estimated to surge to more than $80 billion this year.

What’s fueling that growth? Largely demand in the U.S. for parts made in Mexico and cars assembled in Mexico to be sold in the U.S. Not only have almost all the major automakers set up plants and ratcheted up production in Mexico, so have the parts makers. The costs are lower and it’s now become a major hub of vehicle and parts production for north and central America.

The point here is not to excuse the Chinese for dumping parts into the U.S. If they’re breaking international trade laws we should go after them. But in a campaign that is increasingly focused on jobs and who can create or save the most in critical industries, make no mistake manufacturers have sought out locations where it’s cheaper to build components. That, and the changing world of manufacturing, is also at the heart of why the upper Midwest has far fewer jobs in the auto parts industry than ten years ago.