Manufacture This

The blog of the Alliance for American Manufacturing

And it's only Monday!

Have you ever read a story about the trade fight between the United States and China that includes a list of complaints? Its support for state-owned enterprises (SOEs) is typically on there.

China’s economic system is one of state capitalism, which means government incentives and direction play a heavy hand in many companies’ business decisions. There are a lot of SOEs floating around China’s enormous market; they enjoy cheap loans from lenders with ties to the state, and have little concern for their bottom lines. Why should they, when there’s easy credit and a protected market of buyers bolstered by government incentive?  

But SOEs aren’t that exotic – and you don’t have to visit China to see one in action. The North American subsidiary of BYD, an ostensibly private Chinese auto manufacturer, is located in Southern California where it makes buses for the U.S. market. Its allies in Congress are currently working to get BYD access to contracts paid for with Federal Transit Administration dollars by changing language in the year-end spending bill that must pass to avoid a government shutdown. The Alliance for American Manufacturing is asking lawmakers to make sure that doesn't happen.

There’s a reason to be skeptical of such efforts: By allowing state-backed companies to establish themselves in the U.S., the financial stress on domestic manufacturers that don’t enjoy similar support greatly increases. Through a foothold in the form of a Massachusetts assembly plant, for instance, a Chinese railcar manufacturer that has received significant state support is now offering remarkably cheap bids for public transit projects in Boston, Philadelphia, Los Angeles and Chicago. That doesn’t bode well for its private American competitors, the manufacturing jobs they support, and the domestic supply chains they sit atop.

This kind of big-picture concern hasn’t stopped House Majority Leader Kevin McCarthy from trying to insert carve-outs in federal purchasing rules for BYD (which is in his district) that would leave loopholes for the SOEs of the future. And none of this speaks to the actual quality of the buses BYD wants to sell to American transit authorities.

Luckily, a report from the office of the inspector general for the city of Albuquerque, New Mexico does!

The city filed a lawsuit against BYD after it said the buses it had agreed to purchase came in behind schedule and with significant quality problems. A report from the city’s Office of Inspector General details the complaints, describing inspectors’ concerns about faulty wiring and breaking systems, and questions about where major components were actually made. Inspectors said they had reason to believe significant parts were manufactured in China, including the bus chassis, drive train, axels and motor.

Even the little things, too! From the report:

“He believed there were several components manufactured in China based upon responses he received from BYD officials to his questions regarding the assembly process status. Specifically, he said that he was told that ‘it’s on the boat’ which he interpreted as the items are being shipped from China. He said this was the response he received regarding status issues with electric lights, seating, seat belts, etc.”

They’re even importing the seat belts. Dang.

Look, BYD is an enormous company with a lot of capital behind it – capital that could keep the lights on in its factories despite customer concerns, like those from Albuquerque, about the products it manufactures. But that kind of unearned confidence is unfair to its competitors that don’t enjoy a similar safety net, and it’s not good for the health of the American manufacturing ecosystem.   

So why are American politicians trying to grant it access to taxpayer dollars? Read AAM's letter to lawmakers regarding federal funding for SOEs.