The new US car factory exposing the contradictions and perils of Trump’s trade war

"Yeah, it was all pretty much just woods around here," says a Berkeley County police officer. Then Volvo came.

The Swedish-Chinese car manufacturer last Wednesday officially opened a new assembly plant near Ridgeville, some 30 miles north of Charleston, South Carolina.

With some help from the state government, a 6,800 acre space in the tall pine forest in Berkeley County was cleared and the shiny new factory was erected.

The plant, Volvo's first manufacturing facility in the US, has created around 900 jobs so far, many of them for locals. The number of employees is due to rise to around 1,500 by the end of the year as it ramps up production of the S60 sedan; and then possibly to 4,000 if, as hoped, Volvo starts manufacturing its popular XC90 SUV there too.

The estimated $ 1.1bn (£ 831m) investment constitutes a major economic boost for the rural community of Ridgeville - and also for the state, which already boasts a major BMW assembly plant further north in Spartanburg.

"The south will one day be the ground zero for US auto manufacturing," predicts Kevin Graham, the Volvo plant's director of assembly, in a cheeky warning to the "motor city" of Detroit.

Yet Ridgeville could also be ground zero for collateral damage from Donald Trump's kamikaze trade war.

The US president fired up Twitter last Friday by going public with a new threat to impose 20 per cent tariffs on European Union cars and car part imports to the US.

Volvo imports around half of its parts for Ridgeville, including engines from Sweden and batteries from China. A 20 per cent tariff would inflict serious economic damage on the new Ridgeville plant.

But that's not all. Volvo intends to export around half of the cars it manufactures in South Carolina. If the EU or China hike tariffs in response to Trump's, this European-Chinese company could get doubly walloped.

"Good thing they built it before the threats, because they may not have come otherwise" says Frank Hefner, an economist at the College of Charleston.

Volvo's CEO Hakan Samuelsson tried to be upbeat at the factory's inauguration last week, saying he was hopeful that sense would prevail in the trade dispute and citing Trump's leftfield suggestion at the recent G7 meeting in Canada that he would ultimately be in favour of eliminating all tariffs.

Yet the underlying message from Samuelsson and his team was clear. New tariffs on auto imports could well mean the full planned investment in Ridgeville not proceeding - and that this would be bad news for jobs in places like South Carolina.

"If we go back to the 19th century when everyone wanted to protect their own market, that is definitely not good for the wealth of nations. That would really be bad - not just for Volvo," Samuelsson told The Independent. The Swedish ambassador to the US, Karin Olofsdotter, who was also at the launch, was even more direct.

"We are extremely worried when it comes to possible car tariffs - a plant like this does not need that. We are all part of global value chains and that's what creates the jobs we have today and that's how the economy works," she said.

And, looking in the direction Nikki Haley, the former South Carolina governor who has been appointed as Donald Trump's UN ambassador, who was sitting on the front row, Olofsdotter implored: "Those of you who have possibly a little influence, I really hope you can bring this message forward." Two days later Trump took to Twitter to threaten the EU with auto tariffs.

Buy American Volvos?

One of Donald Trump's preferred slogans is "America First", and he has urged households to "buy American and hire American". Hardly auspicious sentiments for a foreign car company like Volvo.

But Claire Gibbons, director of global marketing and communications at the Charleston Regional Development Alliance (CRDA), says there need be no contradiction.

"Is it less American when they're made in America, and they employ hundreds and thousands of Americans?" she asks. "BMW has been in upstate South Carolina for 30 years. We live in a global economy and I would be proud to buy a car made in my community by neighbours. The fact that it may be owned by somebody in Sweden or China is irrelevant to me."

Davd Ginn, the CRDA's director, also insists that buying Volvo can be a patriotic choice, even in Trump's America. "When Volvo announced they were going to add the XC90 to their line here, my wife and I went out and bought one. As I host guests here, they say 'this is a nice car' and I will be able to respond in about two years' time that 'it is made in Charleston'."

Volvo was bought from Ford by Hangzhou's Geely group, controlled by the tycoon Li Shufu, in 2010.

"We were in pretty rough shape," admits Lex Kerssemakers, Volvo's chief of Europe, Middle East and Africa. "We were making fewer than 400,000 cars, Ford had said we couldn't use their engines and platforms because they wanted to cut all connections with us, our models were getting old. [Geely] brought a sense of entrepreneurship. We launched new factories, new cars on new platforms, decided to go for electrified cars. Nobody ever does so many things together in the automotive industry, it's just too dangerous. We had no choice and Geely trusted us."

But though Volvo executives are willing to acknowledge their debt, others seem less keen to publicise the Chinese connection. Henry McMaster succeeded Ms Haley as South Carolina's governor last year and was the first statewide elected official to endorse Trump in 2016.

Speaking at the Volvo factory launch, he declared that "the combination of Sweden and America and South Carolina is as strong as it gets". There was no mention of China, the country that President Trump regularly accuses of "raping" the US on trade and purloining American corporate intellectual property.

On Monday Trump appeared at a rally in support of Governor McMaster, who is facing a tough primary run-off election challenge.

Pineapple town

Pineapples are everywhere in Charleston, or at least carvings of them are. They represent Charleston's trading history. In the era when the Carolinas were British colonies, sailors brought them back from their voyages and skewered the tropical fruit on fence posts to signify to neighbours that they had returned safely.

A statue of a giant pineapple squats in a fountain in the city's waterfront park. Last week, it was full of children trying to keep cool in the 35C heat and 80 per cent humidity.

In the shadow of the fountain, three Charleston municipal gardeners were taking a well-earned break from trimming the palm trees. They knew about the new Volvo plant - everyone in Charleston seemingly does.

But not the threat posed to it by Trump's tariffs.

"I've seen the [trade story] on the news, but tariffs won't affect this plant if the cars all made here will it?" one asked. They were all also surprised to learn Volvo is Chinese owned.

South Carolina, like almost all the southern states, voted overwhelmingly Republican in the 2016 presidential election.

"This is a state where if you're a walking Republican you will get the election. Now you can be a walking Republican but if you're not a Trump supporter, we're not too sure what's going to happen to you," says Professor Hefner of Charleston College.

So how do people feel when a major new local employer says the president's trade policy is dangerous? Workers at the Volvo plant clam up when talk of tariffs comes up. "That's part of politics that we don't engage in," says Mr Graham, the director of assembly.

Claire Gibbons of the CRDA explains that people tend to focus on their jobs, rather than the news. "The global implications don't necessarily trickle down immediately. Once the negotiations [on trade] happen and things are put in place, then you start to see the ramifications and the cost implications. It's too soon to know [at the moment]".

Charleston is certainly not some hollowed-out ex-steel town. And across South Carolina one does not see the "rusted-out factories scattered like tombstones across the landscape of our nation" referred to by Trump in his almost apocalyptic inaugural address last year.

"For Charleston things are booming and for South Carolina things are going well," says Professor Hefner.

The state's unemployment rate is 4 per cent, barely higher with the national average of 3.8 per cent.

Hefner says locals are not suffering economically but they still buy the zero-sum Trump logic on trade.

"The typical reason that people would vote for Trump would be non-economic issues - immigration, abortion, conservative lifestyle kinds of things," he says. "They like his conservatives views on social issues and they swallow the views on trade hook, line and sinker. But it's not because they're afraid for their jobs but because they think what he's saying is right! It seems logical."

Lessons from history

The word is that Trump himself was invited to the launch of the new Volvo factory. And why not? On one level, its existence ticks the major boxes of the Trump economic doctrine.

It is a new factory on US soil, creating new jobs. And old-fashioned manufacturing jobs at that. The decision by Volvo to invest in Ridgeville was taken before Trump launched his White House run, but that need not have stopped him at least trying to take credit.

Yet all the evidence suggests the president's tariffs would be as welcome as a slug of petroleum in a dish of traditional Charleston she-crab soup to Volvo's global operations and to Ridgeville in particular. They might well end up destroying some of the jobs in the state that have been created, or cancelling those that have been promised.

Volvo in South Carolina is a microcosm of the US economy’s vulnerability to an automotive trade war that fractures global supply chains and discourages foreign investment.

US tariffs could conceivably encourage Volvo to source more parts in the US, which is presumably what the Trump team would want. But that would not help the company if wants to export its vehicles in the midst of a global trade war. The more likely result is less US investment, not more.

EU-owned car companies  - firms including BMW, Renault, Volkswagen - account for more than a quarter of US car production, supporting an estimated 120,000 jobs. As well as in South Carolina, there are production facilities in Alabama, Mississippi and Tennessee - all Republican states.

Recent work by the Peterson Institute for International Economics, a respected Washington think tank, estimates Trump's auto tariffs could cause 195,000 US workers to lose their jobs in total over three years and that this cost could rise to 624,000 if other countries retaliate.

The plight of Volvo also demonstrates some wider ironies and contradictions of Trumpism.

Volvo was a dying brand under the ownership of the all-American auto giant Ford. It was rescued by Chinese ownership. With no Geely rescue there would have been no Volvo investment in the US. With no Volvo investment there would have been no new jobs for Trump voters in this part of rural South Carolina

Frank Hefner says South Carolina's own history demonstrates why trade barriers will only end up harming those they are supposed to protect.

"When I first moved here in 1988 the general sentiment was [concern] over textiles and apparel manufacture moving offshore. The buzzword then was to keep textiles in the state," he recalls.

"Looking backward 30 years you'd have to say thank goodness we didn't have trade barriers that stopped international trade to protect an old, outdated industry."

The global implications don't necessarily trickle down immediately. Once the negotiations on trade happen and things are put in place, then you start to see the ramifications and the cost implications

Protectionism: The lessons of history

It's 1929 and two Republican politicians, Reed Smoot of Utah and Willis Hawley of Oregon, are cosponsoring legislation to keep foreign goods out of the United States. This act of protectionism, the pair promise, will boost domestic employment and protect the living standards of the ordinary American working man.

The Smoot-Hawley Tariff is met with a thunderous wave of condemnation from the economics profession.

More than a thousand academics and practitioners petition President Herbert Hoover to veto the legislation.

But to no avail. Hoover, who campaigned on a protectionist ticket, signs the bill into law and import levies on some 20,000 items are jacked up to an average of 40 per cent. America's great industrial tariff wall goes up - and it will not fall again until after the smoke and chaos of the Second World War clears some 15 years later.

Who says history doesn't repeat itself? Skip forward 88 years and Donald Trump is being sworn in as US president in front of the same Congress building that witnessed the passage of Smoot-Hawley. "Protection will bring great prosperity," the real estate tycoon and reality TV star declares before the relatively meagre crowd on the National Mall.

Economist jaws, once again, fall in horror. A poll earlier this year shows that virtually everyone in the profession believes tariffs will be damaging rather than beneficial for the US economy. It's a conviction that spans the political spectrum. Economists who virulently disagree about over deficits, tax cuts and regulation find themselves united on this single point about the merits of free trade. But, once again, the academic consensus does no good. The massed ranks of pointy-heads are disregarded. Trump's bite is matching his bark.

First he went after China, hitting imports of robots and high-speed trains. Then, last week, he crossed a fateful threshold. The Trump administration imposed 25 per cent levies on steel from Europe, Canada and Mexico. And, in what felt like a grave insult to these historic US allies, this was justified on "national security" grounds.

Nor is this the end. Next in Trump's sites are imports of foreign cars. And after that - who knows? Meanwhile, Europe and Canada, knowing that a man like Trump will mistake patience for weakness, are already hitting back with countervailing tariffs against American goods, from blue jeans to bourbon.

Beijing seems to be halting its massive purchases of American soybeans, striking at the agricultural heartland of Trump support. And so the 1930s cycle of retaliation, economic pain, popular anger and evaporating trust seems to emerge from the darkness, like the ghost of trade wars past.

The US will cut an isolated, even reviled, presence at the G7 meeting of the leaders of top economies in Quebec this weekend. Some even question whether the multilateral framework governing global trade can survive a lurch into naked protectionism from the world's largest economy and the post-war driving force behind liberalisation and openness.

Comparatively speaking

Ever since a British thinker and politician called David Ricardo outlined a revolutionary idea of "comparative advantage" in 1817, using an example of Portuguese wine and English cloth, economists have been convinced of the theoretical merits of free trade.

Ricardo argued that productive efficiency in every nation is maximised when people focus on producing what they are best at producing and exchange the results. The intellectual revolution lay in the word "comparative". Ricardo demonstrated that any given country could drive up its prosperity, not necessarily by being a world beater in any particular category of export, but simply by focusing on its resources on what it could produce most efficiently (whether because of the natural fertility of its land, or its abundant supplies of cheap labour or its technological resources).

The theoretical implication was that every nation could benefit from trade. Ricardo thus demolished the credibility of rival theories of "autarky", the idea that a nation should consume only what it can itself produce, and "mercantilism", the theory that one nation's export represents another nation's economic loss.

Economic historians have tended to present a united front on free trade's merits in practice too. They disagree over how much economic damage Smoot-Hawley actually did on top of the monetary and fiscal policymaking blunders of the Great Depression of the early 1930s, but virtually none argue that protectionism and tariffs made things any better.

And, for the period since the Second World War, views are even more categorical. It's widely agreed that the US Marshall Plan, which lent generously to the bombed-out economies of Europe and dismantled trade barriers, helped to lay the foundation for Germany's Wirtschaftswunder (economic miracle) and France's Trente Glorieuses (30 glorious years). China's assimilation into the global economy after the death of Mao Zedong in the late 1970s, and its emergence as a global export powerhouse, has helped to yank hundreds of millions of Chinese out of destitution.

"The world trading system has been fundamental to the post-war success of the world economy which has seen large increases in incomes and, for the first time in history, an absolute fall in world poverty," states L Alan Winters of Sussex University, neatly encapsulating the contemporary consensus of the profession.

Leaning by doing

Yet there are wrinkles in this story of all-conquering trade liberalisation as a driver of prosperity. Not everything fits neatly into the parable of comparative advantage. During their rapid industrialisation phases of the second half of the 19th century, countries such as Germany and the United States erected lofty tariff walls to protect their domestic manufacturers from intense competition from the industrial superpower of the day, Great Britain.

The Cambridge economist Ha-Joon Chang notes that most of today's rich countries actually "practised significant degrees of protectionism for substantial periods" during the 19th and 20th centuries. Free trade advocates can say things might have been even better for these states, but there is little reason to conclude that protectionism held back Bismarck's Germany or Ulysses Grant's United States, at least to any significant extent.

And there are examples from the post-war era too. South Korea's industrial takeoff in the 1960s happened behind high tariff walls. Japan protected its nascent domestic car industry from foreign competition for 40 years after the Second World War. It was a similar story in Taiwan. Again, there is little evidence that protectionism did major damage to these states; their growth rates were some of the highest in human history.

Indeed, a combination of trade barriers and industrial subsidies actually seemed to help these Asian nations reach their economic potential. Protecting industries like steel manufacturing and shipbuilding, this argument goes, builds industrial capacity, which can then be the basis for other higher-value added technological development. Protectionism enables "learning by doing" for domestic managers and the bureaucrats who set policy - opportunities that would not be available in a world of totally open trade.

As Ha-Joon Chang points out, South Korea's apparent "comparative advantage" back in in the 1950s was in fishing and low-grade wig-making, not shipbuilding or consumer electronics. If South Korea had merely stuck to what it was good at 60 years ago and waited, would we today have Samsung? Would we have Toyota? Or Taiwan's Acer? Many are sceptical of any general applicability of such lessons for poor countries. And there are plenty of countervailing examples of developing states where protectionism has resulted in waste and corruption.

Yet there is a powerful weight of historical evidence that a degree of protectionism can, under certain conditions and alongside certain other policies such as export promotion, play a positive role in development.

Breaking bargains

That is not the only wrinkle. We are not merely economic animals. The Harvard economist Dani Rodrik argues that it's important to think about social fairness when it comes to trade, not just pure Ricardian efficiency effects.

Overproduction of steel in China, dumped in world markets at prices below the true cost of production for the past decade, might have meant cheaper inputs for Western manufacturing firms and thus more productive industry, extra aggregate jobs and higher incomes in rich countries. But when it undermines intangible but crucial "social bargains" between a Western government and its domestic steel workers, who risk losing their jobs because of cheap steel dumping, people quite reasonably feel aggrieved.

Similarly, if corporate offshoring occurs not because production is more efficient overseas but because companies take advantage of laxer health and safety regulations, that too can represent a breach of the broader public's sense of fairness.

It was this sense of a broken social contract that Trump's "American carnage" inaugural address touched on when he raged that "one by one, the factories shuttered and left our shores, with not even a thought about the millions upon millions of American workers left behind".

The wrong lessons

So are these wrinkles enough to salvage some respectability for Trump's protectionist crusade? Alas, no.

America is on the technological frontier. Those "learning by doing" development effects are hardly relevant for the most productive economy in the world.

The social bargain argument does make a strong case for facing up to and tackling Chinese overproduction and other forms of industrial dumping - more than many economists and politicians accept. And this blind spot among the policymaking establishment is probably one of the reasons why populists like Trump have won an audience.

Yet the fact remains that tackling this evil can only be done sustainably through multilateral organisations like the World Trade Organisation. A free for all threatens the whole system, at huge potential economic cost.

Moreover, Trump's anger over trade extends far beyond unfair dumping. He and his advisers want to keep out imports in general, under the primitive mercantilist believe that the raw size of the US's goods trade deficit represents a measure of the extent to which America is being taken advantage of by swindling foreigners. Ricardo must be turning in his grave.

Back in 1929, the industrialist Henry Ford was one of those who pleaded with President Hoover not to impose Smoot-Hawley. But, when it comes to trade, the current White House incumbent seems to have absorbed a separate and simpler view expressed by Ford many years earlier: "History is bunk."