Tags
auto boom, auto parts, automotive, bailouts, Buy American, Cash for Clunkers, Detroit automakers, George W. Bush, imports, manufacturing, manufacturing renaissance, next-generation vehicles, Obama, trade policy, transplants, wages, World Trade Organization, WTO, {What's Left of) Our Economy
I’m happy to recommend two cheers for the Wall Street Journal reporters who have just told us that the ballyhooed boom enjoyed by the American automobile industry since the U.S. economic recovery technically began in mid-2009 has been marked by vehicles increasingly stuffed with foreign parts (which has held down potential production increases) and largely, as a result, by falling wages.
These reporters would deserve three cheers, however, if they’d written on the inevitability of these woefully subpar results when it counted, and especially about what needlessly sabotaged the domestic industry’s prospects from the get-go. The best timing, of course, would have been at the height of the financial crisis, when the Bush and Obama administrations both blew the opportunity to re-invent the nation’s crippled domestically owned auto sector as an industry capable of contributing to a real renaissance in manufacturing and a much healthier, production-based recovery. And the industry’s emerging underperformance is rooted in offbase U.S. trade policies.
As I wrote back then, and later told Congress, neither president promoted auto rescue strategies dedicated to maximizing automotive output and employment. Rather, they deferred to World Trade Organization rules that prohibit member governments from discriminating in favor of domestically owned companies and factories in their economic policy making (but that are overwhelmingly honored in the breach outside the United States).
The result: Both Presidents Bush and Obama refused to condition their bailout of the Big Three Detroit automakers on requirements that vehicle production at home be prioritized, and that the use of U.S.-made parts be greatly increased. Just as perverse was the impact on initiatives aimed at spurring the production of “next generation vehicles” that would curb oil use. They were structured in ways that made import-heavy foreign auto transplant operations eligible for subsidies. The Obama administration, therefore, had few options other than focusing on improving Detroit’s “competitiveness” by cutting its wage and pension costs.
The counterproductive results were visible by late 2009. As I documented, for fear of WTO-authorized retaliation, the “Cash for Clunkers” law intended to aid the industry by stimulating auto buying provided taxpayer subsidies for the purchase of imported as well as domestic vehicles. As a result, more foreign auto production (of parts as well as vehicles) was fostered than American production.
Today’s Journal piece does usefully update the foregone gains and damage done by Washington’s timid and shortsighted trade policies. U.S. auto parts imports hit a new record last year. The share of domestic content in American-made vehicles has never been lower. (This statistic, moreover, bizarrely includes Canadian parts.) U.S. automotive employment remains nearly 32 percent below its recorded (1999) peak – slightly more than total manufacturing employment during this period. Real wages during the current economic recovery are way off throughout the sector, and entry-level pay at at least some parts companies down to Wal-Mart levels.
Imagine, however, the effect had Journal journalists – as well as so many others – been paying attention when these trends were unfolding, and focused on the (at least debatable) government decisions behind them, rather than drinking so much of the Kool-Aid of manufacturing and automotive renaissances.
RealityChek 