Trump's Trade War Forces Volvo To Shift Gears In South Carolina

Apr 16, 2019
Originally published on April 17, 2019 7:53 am

Volvo is a Chinese-owned Swedish company making cars in the U.S. When it decided to set up a plant in South Carolina to build cars to ship around the world, it was following a long tradition.

With its port, Charleston, S.C., has been a shipping hub for centuries. And the state has been home to international manufacturers for decades — BMW, Michelin and Bosch are among the many global firms with footholds there.

But before the plant opened last year, President Trump transformed America's approach to trade policy.

Trump's trade war with China has stretched for more than a year, and trade tensions remain high with Europe as well. Tariffs on steel and aluminum are pinching auto suppliers in the U.S., who face higher costs for raw materials to make parts. Meanwhile, tariffs on imported parts can cut into the budgets of automakers, who rely on thousands of different components from around the world to build each vehicle.

Volvo, owned by the Chinese firm Geely, intended to export many cars from the plant near Charleston to China, but the tit-for-tat tariffs between Beijing and Washington threw a wrench into those finely tuned plans. U.S.-made Volvos aren't being sent to China after all.

"It's kind of a disappointment, but we're going to work through it," says Trey Yonce, a supervisor at the plant, as he watches line workers assemble cars. "It wasn't what we wanted to hear."

But as Yonce notes, Volvo is adapting, not cutting back.

Analysts compare imposing tariffs to squeezing on a balloon. Put pressure in one spot and the global economy will shift to work around it.

Volvo's new $1.1 billion plant in Ridgeville employs 1,500 people and is currently running at a fraction of its capacity
Camila Domonoske / NPR

Volvo's new $1.1 billion plant in Ridgeville, S.C., employs 1,500 people. It's currently running at a fraction of its capacity, manufacturing the S60, a luxury sedan. But Volvo has certainly not stopped production because of tariffs. In fact, the company is still planning to add an SUV to the plant in the next few years.

And half the cars made in the facility are still being exported — just not to China. A batch recently went to Belgium, for distribution across Europe. In coming months, Volvo says, it will ship cars to countries in the Middle East, Africa, Oceania and the Asia Pacific region — excluding China, of course.

The plant was designed to be flexible, handling gas engines, hybrids and eventually electric vehicles on the same line. Volvo has had to be flexible about where it builds cars and for which markets, too.

"We need to be able to change our manufacturing capabilities very fast," says Anders Gustafsson, Volvo Cars' vice president for the Americas and the CEO of Volvo Car USA. "We are fast, but it's not easy."

But he takes the long view.

"To run a plant or run a company, it's a long-term decision," Gustafsson says. "So you lose and you win."

Across the entire industry, automakers are stuck waiting to see how the trade conflicts will pan out, says labor and manufacturing expert Kristin Dziczek of the Center for Automotive Research.

"Essential investments are getting made," she says. "Strategic investments are waiting to find out what the rules of the game [are] going to be."

And it's not just the car industry grappling with the unpredictable nature of these trade talks.

"I think that every industry has got some skin in the game or some things that get messed up when trade becomes uncertain," she says.

Jim Newsome, the CEO of the South Carolina Ports Authority, notes that his state depends heavily on global trade. "We ought to be trying to lower tariffs, not raise tariffs," he says. "The global automotive industry could benefit from zero tariffs."

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For more than a year, the Trump administration and China have imposed tariffs on each other's goods. And trade tensions are high between the U.S. and Europe. So where does that leave a Chinese-owned Swedish company building cars in South Carolina? It's all about adapting, as NPR's Camilla Domonoske reports.

CAMILLA DOMONOSKE, BYLINE: The port in Charleston, S.C., has been a shipping hub for hundreds of years.

JIM NEWSOME: Probably proportionally, South Carolina as a state is more dependent on global trade than any other state in the country.

DOMONOSKE: Jim Newsome is the CEO of the South Carolina Ports Authority. He's run the port for nearly 10 years. He's a big believer in free trade.

NEWSOME: We ought to be trying to lower tariffs, you know, not raise tariffs. I think the world would be - global automotive industry could benefit from zero tariffs.

DOMONOSKE: BMW, Mercedes Benz and Volvo all have plants in South Carolina, employing thousands of people. Volvo's is brand new. It opened near the small town of Ridgeville last year. Volvo Cars is a Swedish company. It's owned by a Chinese firm, Geely. And a batch of cars made at this South Carolina factory was recently exported to Belgium. That was a quick shift after tariffs threw a wrench in Volvo's finely tuned plans.

TREMAINE SMALLS: And we'll be locked and loaded and ready to go.

DOMONOSKE: Tremaine Smalls has been working for Volvo for about 10 months. He's from Orangeburg, 40 miles up the interstate. Right now he's putting bypass tubes and drive shafts onto engines.

SMALLS: They've got part numbers on them - 0321. You want to make sure you verify your part number.

DOMONOSKE: These are the kind of American manufacturing jobs that protectionists want to, well, protect. But modern cars are built thanks to a global supply chain. These engines Smalls is working on, they were manufactured in Sweden. Each luxury sedan that rolls off this line is made of thousands of parts from around the world.

So tariffs on imported parts can hurt auto manufacturers in the U.S. But tariffs also hurt companies that make those parts, including American suppliers. Christine McDaniel is a research fellow at the libertarian Mercatus Center. She points to companies in South Carolina that manufacture car components.

CHRISTINE MCDANIEL: But to make those auto parts, they import steel and aluminum.

DOMONOSKE: Tariffs on those raw materials have squeezed those suppliers, and there's a lot at stake.

MCDANIEL: And in fact, there's more jobs in the supply chain than in the assembly line.

DOMONOSKE: From McDaniel's perspective, tariffs are counterproductive if your goal is to protect jobs. So suppliers and manufacturers are woven into this global system even before a car starts down the assembly line. And once it's put together...


DOMONOSKE: Half the cars made at this plant are destined for export. And the original plan was to send cars to China. Then the trade war started. And after the U.S. put tariffs on Chinese goods, China retaliated with tariffs on U.S.-made products, including these cars.

TREY YONCE: Unfortunately, we weren't able to, you know, ship to China, which is - you know, it's kind of a disappointment. But we're going to work through it.

DOMONOSKE: Trey Yonce is the supervisor of Volvo's power pack line. He's a Charleston native and a former motorcycle racer.

YONCE: It wasn't what we wanted to hear, you know, so - but like I said, we're a strong company. This plant's still going to be here. We're going to work through it and find our way, what we need to do. But yeah, it wasn't exciting news.

DOMONOSKE: Yonce is right. The tariffs haven't derailed the plant's operations. Instead of exporting to China, Volvo's sending cars to Europe, Australia, Africa and the rest of Asia instead. And Volvo is still planning to ramp up production and add an SUV to this plant. Anders Gustafsson is the CEO of Volvo Car USA. He says Volvo has had to move quickly to adapt, but he's taking the long view.

ANDERS GUSTAFSSON: To run a plant or run a company, you know, it's a long-term decision. So you lose, and you win.

DOMONOSKE: Analysts compare tariffs to squeezing a balloon. Put pressure on one spot, and the global economy will shift. It won't stop altogether. So the delicate dance continues. Car parts keep showing up at a factory in rural South Carolina, and workers keep building cars that roll onto ships and cross the ocean, going somewhere - just not to China, at least for now. Camilla Domonoske, NPR News, Ridgeville, S.C. Transcript provided by NPR, Copyright NPR.