Beware The Trojan Horse

Inside those Japanese auto plants are the seeds of destruction for thousands of small U.S. companies

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It will be a most bizarre legacy of Ronald Reagan, that most nationalistic of Presidents, that he presided over one of the great losses of American sovereignty. I refer neither to a military defeat nor to a setback in the Cold War. I'm talking about the wholesale surrender of the most American of industries -- the auto industry.

To review: the monumental Reagan deficits begat the strong dollar, which begat a huge trade deficit, which begat a weak dollar. In the past two years, the Administration's campaign to bludgeon the dollar to its knees was supposed to set foreigners to buying American products. Instead, they simply set about to buy the United States itself.

Prime real estate and common stocks were the first to fall from American ownership, followed by forests, farmland, and eventually entire companies. By the end of 1986, this reverse investment in the United States had reached $1.3 trillion, a good part of it stashed away in portfolio accounts in London, Tokyo, and Geneva.

"America is selling off the family jewels to pay for a night on the town," warned Congressman John Bryant, a Texas Democrat. Picking up on the same metaphor, Peter G. Peterson, the investment banker and former Secretary of Commerce, wrote ominously about the future in a cover essay for The Atlantic magazine entitled "The Morning After." Time's cover was more straightforward: "The Selling of America." One Japanese tycoon who bought $2 billion worth of U.S. real estate in a recent 18-month spree told The Wall Street Journal that the United States now has "the charm of a developing nation." I doubt we should feel complimented.

Now comes the latest assault on American economic sovereignty, which goes by the name of direct investment -- foreign companies opening up subsidiaries and manufacturing operations here in the United States. From a scant $31 billion when Jimmy Carter took office, direct investment had reached $209 billion by the end of 1986. And much of it has come from Japanese car manufacturers that, having reached a limit on the number of automobiles they can export to the United States under existing trade agreements, now propose to finish off the domestic industry by assembling still more cars here.

It is hardly surprising that the Japanese carmakers, their growth hemmed in by "voluntary" import restrictions, would look to overseas operations as a way of increasing their share of the American market. What is remakable is that American governments -- states and counties and cities -- would fall so completely for the ploy that they are offering multi-million-dollar subsidies to the Japanese manufacturers.

Kentucky, for instance, "landed" Toyota's new $800-million assembly plant by offering $125 million in incentives. The state bought the vast tract of land that Toyota had selected and spent $25 million preparing it for construction. The Lexington Herald Leader, calculating the interest on the $92-million property-bond issue and other costs that the state hesitates to disclose, puts the value of the total incentive package at $354 million -- or more than $115,000 for each of the 3,000 jobs created, which could be something of a record.

Kentucky is by no means unique among the struggling industrial states of the Rust Belt that have joined in on this beggar-thy-neighbor act. Illinois, going after the new Diamond-Star Motor sports-car plant, a joint venture between Chrysler and Mitsubishi, ponied up subsidies and incentives of more than $150 million, or an excess of $50,000 for each of the 2,900 jobs that the plant will generate. In a similar manner, Ohio got its new Honda assembly plant, Michigan its Mazda operation, and Tennessee signed up Nissan for a car and truck factory. So dismayed was Indiana at being left behind that it went all out to bag the $500-million Subaru-Isuzu venture, which broke ground last May. The Hoosiers chipped in a cool $86 million, the largest incentive that that state had ever made to an industrial prospect.

Indeed, so completely have the Japanese got the not-very-united states dancing to their tune that a "goodies book" of state giveaways now circulates among industrial planners in Tokyo. And if written assurances are not enough, the governors are happy to deliver them in person: in the past couple of years, a majority of the 50 governors have visited Japan.

"These states are just doing what they can for their citizens," explains Charles D. Preston of the Indiana Department of Commerce, who helped to bolt together the Isuzu deal. "We sure would hate to see the automotive industry shift south, to Texas or Tennessee." He continues, "Economic development is very important to the states, and we'll do whatever we have to do to get it."

Everything, it seems, including bringing the wooden horse inside the gates of Troy. For these otherwise alluring Japanese auto plants, with their high-paying, high-visibility jobs, are the means by which an important U.S. industry will be destroyed from within. It is not only that every job added at a new Honda or Toyota plant will likely result in at least one job subtracted from an assembly line at General Motors or Ford or Chrysler -- although such is the mathematics of an American auto market that is expected to remain flat for the next four years. It is also that every job lost at the Big Three will result in two or three additional jobs lost in those thousands of smaller companies that supply these American firms with everything from the parts in their cars to the machines in their factories to the professional services contracted by their executives.

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