Team Biden’s version of “America First” echoes and continues Trump’s misunderstanding of how the modern global economy works

See Many of America’s largest firms sell, hire, and invest more overseas than in the US and have to think globally to survive by Mark Perry.

"The table above (click to enlarge) is based on financial data included in the World Investment Report, a report produced annually by the United Nations Conference on Trade and Development (UNCTAD) and just released today with data for 2020. Table 19 of the UNCTAD report lists the world’s top 100 non-financial “Multinational Enterprises” ranked by foreign assets in 2020, and the table above displays data for the 19 multi-national corporations (MNCs) in that group that are headquartered in the US. Displayed above are figures for those 19 MNCs’: a) foreign assets, b) foreign sales, and c) foreign employees, both alone and most importantly as shares of the global totals for those three items for the 19 US-based companies. Those figures with shares above 50% are displayed above in bold.

Here are some key points from the table above:

1. Many of the largest US-based MNCs have close to (or more than) two-thirds of their total sales outside the US, e.g., Intel (78.7%), Mondelez (73.2%), Coca-Cola (65.8%), Chevron (60.8%) and Apple (60.2%). Other large US MNCs generate more than 50% of their sales overseas, e.g., Alphabet (53.4%), Exxon Mobil (51.5%), General Electric (55.6%), Procter and Gamble (55.9%), and IBM (53.7%).

2. Almost all of these 19 MNCs have close to half, or more than half, of their global staffing outside the US. For example, Coca-Cola has 88.4% of its workforce outside of the US, which is a ratio of 7.6 foreign workers for every US employee. Mondelez (73.0% foreign workers), Johnson & Johnson (65.6%), and GE (67.8%) all have about two or more foreign workers per American employee.

3. Many of the US MNCs above have more than half of their corporate assets and investments in property, plant, and equipment located outside of the US, and some like Mondelez (81.6%), Johnson & Johnson (71.4%), and Chevron (69.0%) have more than two-thirds of their assets overseas. Of the top 25 (50) largest MNCs in the world ranked by foreign assets, only 4 (10) are located in the US, and of the top 100 global MNCs, 81 are located outside the US and these foreign-based rivals are engaged in intense “cut-throat” competition with US-based companies for global sales, market share, and talent.

4. Ranked by total global sales instead of by foreign assets, three US-based firms (Walmart, Amazon and Apple) are in the world’s top six largest companies and seven are in the global top 20 (add Alphabet, ExxonMobil, Microsoft and Ford).

MP: To remain competitive and profitable in an extremely competitive global marketplace, US firms have to operate as efficiently as possible, and produce their products at the lowest possible cost to survive. The long-term viability and sustainability of US MNCs force them to minimize production costs for their customers in global markets, and sometimes that requires them to shift production and jobs overseas, possibly to take advantage of lower labor costs, lower taxes, or more favorable regulations. It’s also frequently the case that expanding production and manufacturing operations overseas takes place to better serve global retail markets outside and the 95% of global consumers who reside outside of the US.

Last year, for every $1 in domestic sales, foreign sales were generated by US companies in the following amounts: Intel $3.70, Mondelez $2.70, Coca-Cola $1.90, Chevron $1.60, and Apple $1.50. It, therefore, makes perfect economic sense for those US-based MNCs to source, manufacture, and assemble a large share of their production overseas with foreign workers, since such a large majority of their sales take place in foreign markets, and not the US market.

Unfortunately, much of the political class remains blissfully unaware of the economic realities of doing business in today’s global economy as they pursue politically motivated and nationalistic “America First” policies that frequently harm American MNCs. President Trump during his term routinely pressured large MNCs like Intel, Coca-Cola, Ford, and Apple to shift production of their products to the US where labor costs and corporate taxes are higher, and where production is moved further away from the retail markets where those products will ultimately be sold. Sadly, Team Biden’s version of “America First” echoes and continues Trump’s misunderstanding of how the modern global economy works as AEI’s director of foreign and defense policy Kori Schake pointed out recently in her recent article in The Atlantic “Biden Brings More Class Warfare to Foreign Policy“:

Despite presenting his agenda as the antithesis of Donald Trump’s, President Joe Biden, like his predecessor, is managing global affairs as an extension of domestic politics and economic policy. The goal of what the Biden administration calls “foreign policy for the middle class” is to promote the interests of America’s middle-class and working people. Supporters defend this approach as a reorientation away from a post–World War II foreign policy that, in their view, privileged the rich by pushing trade agreements that allowed competition from imports and enforcing a multinational order that allowed global business to flourish at workers’ expense. Secretary of State Antony Blinken’s mea culpa earlier this year for his own previous support of open trade described the Biden administration’s approach in these terms: “We will fight for every American job and for the rights, protections, and interests of all American workers … Our trade policies will need to answer very clearly how they will grow the American middle class, create new and better jobs, and benefit all Americans, not only those for whom the economy is already working.”

This rhetoric is less strident than Trump’s “America First” approach, but how is it actually different? Both are based on a faulty industrial-age understanding of the U.S. economy, both are fundamentally mercantilist in their intention to promote more exports and discourage more imports, and both hide behind what they perceive to be an isolationist public attitude rather than shape public understanding. And both fail to recognize that, by establishing security and expanding the rule of law in ways that enable commerce to create jobs and reduce prices for all Americans, traditional postwar foreign policy was already making an enormous contribution to the middle class.

Bottom Line: It’s important to recognize that large US-based MNCs like the ones in the table above (but also hundreds of other large US multinational firms) operate in a hyper-competitive international marketplace — they produce and sell their products globally, they source inputs globally through efficient supply chains, they hire workers in competitive international labor markets, they invest in capital assets, infrastructure and real estate globally, and they compete with foreign rivals in an intensely competitive global marketplace. US-based MNCs are already exposed to constant risks and challenges, changing consumer preferences, and gales of Schumpeterian creative destruction, which force them to focus relentlessly on operational efficiencies and low production costs to survive, and they have to make decisions at the global level to compete with their foreign rivals and maintain or grow market share. Burdening American firms with additional, unnecessary, and avoidable political pressures, trade wars, tariffs, taxes on overseas production, uncertainties, and risks from protectionist, nationalist, mercantilist “America First” administrations (both Trump and now Biden) that force American firms to think domestically under political pressure rather than globally for sound economic and business reasons isn’t a formula to make America great. It’s a formula that’s guaranteed to make American companies weaker and the country poorer, and in the process eliminate, not create more jobs, for US workers, and reduce, not increase America’s greatness."