GM Defying Trump Shows How U.S. Can Beat China

(Bloomberg Opinion) -- Politicians in Washington are terrified that state-supported, technology-swindling Chinese champions will overwhelm American industry. They shouldn't worry too much. The U.S. has its own standard-bearer in General Motors Co.

That's not sarcasm. Sure, the venerable automaker isn't the best-managed company in America. If it was, it probably wouldn't be shuttering five plants, shedding thousands of workers — and enraging Donald Trump. The U.S. president has vowed to bring manufacturing jobs back home, so he was quick to gripe that GM's Chief Executive Officer Mary Barra was closing factories in America but not in China. Trump berated the company for ingratitude (GM was bailed out during the financial crisis) and threatened to retaliate by withdrawing electric-car subsidies.

GM's decision, however, shows one of the great strengths of U.S. business: its independence from government and political interests. It's an advantage corporate America has over China Inc. that Trump would be wise to let be.

Think about it. Barra made this public call even though it ran completely counter to the political goals of the most powerful man in the country. She did so to protect the company's profits, shareholders and competitiveness, even though she could have anticipated an angry Twitter tirade from Trump. Indeed, GM stock rose almost 5 percent after Barra's announcement.

Her Chinese counterparts have no such freedom. It seems highly unlikely that a similarly prominent Chinese company — whether state-owned or private — could so publicly flout the policies of President Xi Jinping. In China, companies are still expected to serve what the Communist Party deems the national good. Often, that entails maintaining capacity, production and employment, irrespective of market conditions. 

To some workers, that may sound fantastic. But there are repercussions. China's fixation on preserving factories and jobs has created uncompetitive companies, excessive debt and poor allocation of resources. State-owned enterprises, which tend to take the lead in pushing forward the government's industrial objectives, are far less productive than private firms, but they gobble up the lion's share of bank finance. This is one reason China has built up a potentially destabilizing mountain of debt.

Unwilling to allow wasteful enterprises and factories to close, the state-run banking system has to support “zombie” companies that drain critical money from more competitive firms. All that adds up to pitiful productivity growth and a damaged banking system. By preventing the type of downsizing GM just announced, the Chinese state chooses political need over economic rationality, with dire consequences.

Trump, by railing against GM, is implying the U.S. should do the same — keep factories open and workers on the payroll because it suits the government's agenda, whether or not that makes financial sense. This in essence means turning companies like GM into the equivalent of Chinese state-owned enterprises.

Forcing U.S. companies to invest at home rather than abroad is just as misguided. Instead of viewing GM's investments in China as a betrayal, they should be seen as a triumph of American industry. GM beat out domestic champions on their home turf to build one of the most successful U.S. businesses in China. This talent for capitalizing on international opportunities is a hallmark of U.S. business.

The alternative, again, is to copy China. Beijing's bureaucrats believe Chinese CEOs should advance national goals when investing abroad, and they curtail those they deem frivolous. Property developer Dalian Wanda Group Co., for instance, ran afoul of policymakers by trying to build a Hollywood empire — a dream the government eventually squashed.

By criticizing GM, Trump is attempting to redefine the historic relationship between Washington and corporate America. In the old saying, what was good for GM was good for America. Trump is suggesting that is no longer true — that U.S. business needs to balance the demands of competitiveness with national priorities set within the White House.

That puts at risk what has truly made American industry great — its ability to pursue profit over politics. If the U.S. wishes to beat China, it shouldn't become China.

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michael Schuman, who is based in Beijing, is the author of "The Miracle: The Epic Story of Asia's Quest for Wealth" and "Confucius and the World He Created."

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