(What’s Left of) Our Economy: Politico’s Failed Takedown of Trump’s Auto Jobs Policies

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automotive, Bureau of Labor Statistics, Department of Transportation, domestic content, General Motors, GM, Jobs, Lordstown, manufacturing, Ohio, tariffs, Trade, Trump, Youngstown, {What's Left of) Our Economy

Let’s all hope that Politico doesn’t start a new publication called “Economico.” Because its latest venture into economic policy reporting – yesterday’s examination of President Trump’s trade-centric approach to strengthening America’s automotive industry – had about as much in common with sound economic analysis as Beto O’Rourke’s current talking points have with the Gettysburg Address.

The headline nicely sums up the piece’s theme: “Trump facing failing strategy on auto jobs as he heads to Ohio.” And the news hook is the President’s trip today to Ohio, where the announced closure of a long-time General Motors factory in the northeastern town of Lordstown has understandably attracted national attention given Mr. Trump’s 2016 campaign promise to ensure its survival, and given the importance of Lordstown-type manufacturing workers to his political success.

But the article’s treatment of the Lordstown decision and the broader Trump auto industry record is based almost entirely on cherry-picked facts presented in such stark isolation as to produce a thoroughly misleading picture to readers.

First, the piece doesn’t say that, for all the disrupted lives already caused and sure to continue due to GM’s Lordstown decision, Reuters reported the day before that

“GM Chief Executive Officer Mary Barra has said the automaker expects to have 2,700 job openings by early 2020 at other thriving plants, enough to absorb nearly all of those displaced in plants in Maryland, Ohio and Michigan willing or able to uproot for work hundreds of miles away. GM said another 1,200 affected hourly workers are eligible for early retirement.

“Based on a plant-by-plant count provided by GM, if every worker displaced or soon to be displaced volunteers for or accepts a new job – and those eligible to retire do so – that would potentially leave up to 500 GM workers jobless, far fewer than the thousands decried by the UAW [United Auto Workers union] and Trump.”

No one should underestimate the economic and other difficulties of relocation – especially from an economically struggling area like northeastern Ohio, where homes on the market don’t exactly command primo relative prices. And GM’s claims should be closely monitored going forward. But the Politico article, and all the coverage of Lordstown, should have mentioned that, based on what’s been promised, most of the released employees won’t be left on the streets (figuratively speaking).

By contrast, the Politico reporters unquestionably swallowed the claims by GM as well as Ford about the Trump administration’s metals tariffs crippling the auto companies’ prospects. Had they asked the obvious question about how the higher metals prices compared with the auto-makers’ overall costs, they’d have discovered that the tariffs barely moved the needle on overall figures – and that the companies’ could easily have found (and still can find) other economizing options to offset them.

Nor did the authors ask the equally obvious questions about overall trends in Lordstown-area and Ohio automotive and manufacturing employment. A five-minute dive into Bureau of Labor Statistics (BLS) data would have found that, during President Trump’s first 23 data months in office, the state’s manufacturers have added more jobs (20,400) than during the final three years (36 months) of former President Obama’s administration (19,700). The Trump-era gains are especially impressive since they’ve come later in the business cycle, when expansions typically lose momentum. (These time periods are chosen since they’re the stretches of each administration closest to each other during the same business cycle.)

In addition, although the latest figures only go up to September, 2018, the two Ohio counties in which Lordstown and nearby Youngstown (another victim of the GM decision) – Trumbull and Mahoning, respectively), have fared relatively well during the Trump years as well.

Specifically, during the first 19 data months under Trump, Trumbull County lost 569 manufacturing jobs. (BLS doesn’t track automotive employment at the county level.) During the final 19 months of the Obama administration, manufacturing payrolls fell by 1,150. For Mahoning, the comparable numbers are: Trump, up 294, Obama, down 468. Those are hardly gangbuster results during the Trump years. But failure?

In automotive specifically, from the state-level perspective. President Trump’s impact looks more mixed – but hardly failed, either. During his first 23 data months in office, Ohio vehicle makers added only 800 jobs. But during Mr. Obama’s final 23 months in office, they shed 1,300. In parts, the “Obama effect” looks better – Ohio-based facilities increased their payrolls by 3,600 during his last 23 months, whereas they boosted employment by only 800 under the Trump administration so far.

Interesting, a similar mixed picture emerges on a nation-wide basis. During Mr. Obama’s last 23 data months in office, U.S. auto and light truck producers increased employment by 21,400, versus a 23,400 improvement during the first 23 Trump months. But the Obama numbers for auto parts are much better – a gain of 34,900 during his last 23 months versus an 11,900 rise for the first 23 Trump months.

At the same time, are the lagging overall Trump national numbers due entirely or even mainly to his allegedly failed trade policies? Or to the topping out of American light vehicle sales that began in the fall of 2015? The Politico authors never give readers a chance to decide.

In fact, the changing automotive cycle surely accounts for much and maybe all of the declining rate of auto industry investment during the Trump years so far, especially compared with the big numbers racked up during the Obama years. Most of that spending of course came much earlier in the auto and broader economic cycle, when the sector and the rest of the nation were rebounding (with decisive federal aid) from a near-death economic experience.

The Politico article also repeats the canard that “International trade makes it difficult to distinguish between what’s truly American and what’s truly foreign.” Actually, it’s not difficult at all. U.S. Transportation Department data annually presents the U.S./Canadian and foreign content figures for every auto and light truck model sold in America. As reported by a recent analysis of the figures:

“Detroit has the bulk of cars with high domestic content. GM, Ford and Fiat Chrysler Automobiles build 37 of the 57 U.S.-assembled cars with 60 percent or higher domestic content. Foreign-based automakers are responsible for dozens of imported cars with zero percent domestic content, according to the National Highway Traffic Safety Administration [NHTSA]. Detroit automakers have just two cars below 5 percent….”

Finally, the authors express puzzlement that despite “the threat of auto tariffs….the foreign automakers who would be targeted by the tariffs are bolstering bolstering manufacturing in the U.S. with investments in auto plants across the Midwest and South.” To which anyone not infected with Trump Derangement Syndrome would respond, “Exactly.”

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(What’s Left of) Our Economy: How BMW Just Snookered Bloomberg – and the American Public – on Trade

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assembly, Bloomberg.com, BMW, Department of Transportation, domestic content, Harald Krueger, imports, manufacturing, media, National Highway Transportation Administration, NHTSA, Trade, {What's Left of) Our Economy

Poor Harald Krueger! The CEO of German auto giant BMW has been such an important contributor to American manufacturing and therefore to the whole U.S. economy! And that awful President Trump is determined to respond by imposing tariffs that could wreck the global free trade regime (as it’s called) responsible for the company’s valuable U.S. presence.

At least that’s the message yesterday’s Bloomberg article on the subject tried to send. Here’s what it really demonstrated: First, Krueger misled Bloomberg’s reporter.  Second, the author was too lazy or ignorant to do even the most basic research that could have solved this apparent mystery.

Not that his piece was devoid of interesting information – though most of it seems to come straight from BMW press releases. Yes, the company’s Spartanburg, South Carolina factory is its largest on the planet. And I’m happy to take BMW at its word that 70 percent of its U.S.-made vehicles are exported – although some way to confirm this figure independently would be awfully nice. Equally welcome would be a way to verify that the company is America’s largest net exporter.

But these very facts should raise the obvious question: If BMW is such a thoroughly American manufacturer, why is its CEO so worried about higher prices for imports? Luckily, in this case, it couldn’t be easier to find statistics to provide the answer – even though the Bloomberg reporter either didn’t know this or didn’t care.

All he needed to do was to visit the website of the National Highway Transportation Safety Administration (NHTSA — an agency of the U.S. Department of Transportation) and look through the information presented in its annual American Automobile Labeling Act reports. The title refers to a law requiring all companies that sell passenger vehicles in the United States to tell consumers the percentage of their products that are manufactured domestically.

The system isn’t perfect. Notably, it considers parts and components and other inputs supplied from Canada as “domestic.” But it’s a lot better than nothing. Nor is this mandate brand new. It’s been on the books since late 1992.

And the conclusions it points to couldn’t be clearer: BMW doesn’t so much manufacture vehicles in the United States as screw them together – which adds relatively little to the American economy. And the vast majority of the parts etc that get screwed together in South Carolina come from abroad – mainly Germany. That is, they’re imported.

Further, the company has made precious little progress localizing its supply chains in recent years – that is, adding more U.S. content. And the highest value, most technologically advanced parts of its vehicles, the engines and transmissions, are still 100 percent produced overseas – again, mainly in Germany.

So tariffs would make all these imported parts more expensive, and force BMW either to raise its own vehicle prices and risk lower sales, swallow the price increases and accept lower profits, or move more of its supply chain stateside from its home country. Here are the specifics:

In 2011 – the first year in which NHTSA used its current reporting system – BMW sold 26 models in the United States. Three of them had U.S. and Canadian content levels in the double-digits. (They were between 20 and 30 percent.) And all three were the models that were assembled in South Carolina.

This year’s numbers show 24 BMW models sold in America. The number assembled here rose – to four. And each of them had some more “domestic” content – between 30 and 35 percent.

Just as revealing – in 2011, none of the engines and transmissions in these BMW vehicles was American-made. And as of 2017, this number remained completely unchanged.

But although it’s encouraging that corporate dissemblers like BMW’s Krueger (and gullible, incompetent journalists) can be exposed with the auto content data, it’s discouraging that no such corporate analyses based on legally mandated figures are possible outside the automotive sector. So here’s hoping (once again) that the Trump administration and Congress move promptly to impose similar (or better) content and other reporting requirements throughout American manufacturing. Otherwise, the nation and its leaders will continue flying blind when it comes to trade and globalization – and much of the economy’s future.

(What’s Left of) Our Economy: A Buy American Road to a Stronger Recovery

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Atlanta Federal Reserve Bank, Buy American, Christopher S. Murphy, Department of Transportation, domestic content, Economic Policy Institute, manufacturing, railroads, recovery, Robert Scott, Trade, Trade Deficits, University of Massachusetts, {What's Left of) Our Economy

As 2015 draws to a close, the bad news about an already dreary American economy seems to be getting worse. For example, the Atlanta Federal Reserve Bank’s system for forecasting economic growth – which has been very reliable lately – currently expects the nation’s output to expand after inflation at an annual rate of only 1.30 percent. So it’s great to be able to report that some in the policy community have been touting practical ways to strengthen the recovery – and good job creation – that don’t depend on creating ever more national debt. Their proposal: require the public sector to buy more U.S.-made goods, and especially manufactures.

Some Buy American rules are permitted by World Trade Organization rules (ditto for similar measures by other countries); therefore Washington and state and local governments are able to make sure that some of what they purchase with Americans’ tax dollars is produced in the United States, and therefore generates growth and employment at home. But as shown by new studies from the University of Massachusetts and the Economic Policy Institute, much more can and should be done.

The UMass report, published earlier this month, makes clear the enormous potential of that further growth. It found that the American public sector is the biggest single customer of goods and services in the world, with its appetite reaching $1.10 trillion in 2013. Moreover, manufactured goods represent $400 billion of that total. Since the American manufacturing sector turned out $2.2 trillion worth of products in 2013 according to the UMass researchers, government is already a huge player.

Although its findings apply to all Buy America programs, the UMass study zeroes in on those that have been in place for buses and rail cars since 1982 – precisely to revive two once-thriving industries that seemed in terminal decline. Indeed, to this day, none of the world’s major rail equipment producers are based in the United States. The study is especially valuable for its detailed examination of the Department of Transportation’s domestic content standards, which regulate how much of the makeup of a manufactured product (i.e., the share of its parts, components, and materials) needs to originate in the United States in order to be legally considered American-made.

The authors conclude that big reasons for the continued troubles of the rolling stock industry have been domestic content provisions that:

> remain too low (largely because the content of sub-components isn’t adequately taken into account, and because the rules don’t cover design and administrative activities);

>are continually compromised by too many waivers;

>and are poorly monitored and enforced.

In addition, the study makes a critical point about the inadequacy of the current “lowest price” standards that enable foreign producers to win many rail and bus contracts for the share of content they can compete for under Buy American rules. These criteria, they rightly note, greatly understate the longer-term benefits to the U.S. economy – and therefore to taxpayers – of nurturing more manufacturing production and employment at home.

As a result, even though the rules require that 60 percent of all federally purchased rail car components be made in the United States, and 100 percent of the final assembly performed domestically, the actual overall mandated U.S. content of these systems is only 40 percent. The UMass researchers estimate that even raising the effective domestic content level for rail car procurement from the current 40 percent to 60 percent would increase by nearly 29 percent the numbers of American jobs created by such spending. And of course, each dollar of that re-channeled spending would stay in the United States and add to economic growth, rather than leaking abroad.

A broader look at the effects of better Buy America policies has been taken by Robert Scott of the Economic Policy Institute. In a late November post, Scott examined the impact of legislation proposed by Connecticut Democratic Senator Christopher S. Murphy that would close major loopholes in existing federal policies and raise the required U.S. content level from 50 percent to 60 percent.

His findings: Simply closing the biggest loophole would boost domestic manufacturing output by $8.5 billion annually (based on recent federal procurement rates) and therefore generate $13.5 billion in new overall growth each year (because increases in manufacturing output have a “multiplier effect” on the rest of the economy). On the employment front, the bill could generate up to 100,000 new manufacturing jobs. And the higher level of domestic content could add to the $160 billion worth of manufactures currently purchased annually by Washington under current Buy America rules, as well as to the jobs they create.

Compared to the size of the American manufacturing sector and the larger economy, these numbers are small. But as big as they are, total federal purchases were only 6. 5 percent of U.S. gross domestic product in 2013. As I have repeatedly written, trade policy overhaul that simply keeps the deficit from rising higher would have much bigger payoffs. How much longer before the president, the Congress, and most of the current crop of presidential candidates get the message?

(What’s Left of) Our Economy: Will Full of Ignorance on Trade

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automotive, Department of Transportation, George Will, Japan, local content, Trade, Trade Deficits, {What's Left of) Our Economy

Since his haughtiness is matched only by his ineptitude on the subject, reading uber-pundit George Will on trade policy is always a treat. Just over a year ago, he confidently told viewers of Fox News Sunday that the solution to the Central American child migrants crisis was easy (if long term): just sign a free trade agreement with the region. Apparently he forgot that that’s precisely what Washington did in 2007.

This morning, Will was at it again, blasting Republican Presidential candidate Donald Trump for charging that import-dominated automotive trade flows show that America “is being killed on trade” by Japan.

“Well,” huffed Will, ” Leaving aside Japan’s strange unwillingness to purchase unwanted beef, most Japanese vehicles that pour into the United States do so from plants in the United States. The vehicles are assembled by Americans using mostly American parts.” To which any informed student of the situation can only reply, “Well.”

Have Japanese auto-makers shifted production state-side big-time? Unquestionably – though Will might have mentioned that the process began when former President Ronald Reagan imposed import quotas on automobiles in the early 1980s. But let’s “leave aside” that inconvenient truth. The latest U.S. trade data show that America this year so far is running a $27.77 billion deficit with Japan in the automotive sector, and just under $21 billion of that total is autos and light trucks. And so far it’s running slightly (1.40 percent) ahead of last year’s pace.

Moreover, despite localization that the Japanese producers have undeniably engaged in, the full year 2014 bilateral deficit was 3.59 percent higher than that a decade earlier. And the vehicles’ share of this gap during that period is up from 71.96 percent to 73.96 percent.

Equally off-base is Will’s contention that a majority of the vehicles assembled in the United States by the Japanese producers are made of “mostly American parts.” The Transportation Department’s data for 2015 show that of the 91 Japanese car and light truck models sold in the United States, only 20 boast North American content levels greater than 50 percent, and eight are right at that mark. Sixty-three of the models are less than half North American-made – and “North American” also of course includes Canadian and Mexican parts.

Will finished off this comedy of errors by insinuating that Trump is a serial liar. No one but a mind-reader can know if Will deliberately presented a false picture of U.S.-Japan automotive commerce. But his latest missive certainly extends his record as a serial incompetent on trade.

(What’s Left of) Our Economy: Auto Journalism from Fortune that’s a Lemon

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automotive, Cars.com, Department of Transportation, Detroit automakers, domestic content, Fortune, free trade, globallization, journalism, Made in America, manufacturing, NAFTA, North American Free Trade Agreement, Trade, {What's Left of) Our Economy

Memo to journalists at Fortune: If you want to run an “Aha!”-type item based on a new report or study, at least read the whole document – and report all its main findings. Because apparently no one involved in its coverage of the latest Cars.com index of American-made cars and light trucks followed this rule, its readers were denied crucial facts and context.

Here’s how Fortune led off the post in question: “The phrase ‘made in America’ has always pulled at the hearts and wallets of loyal, red-blooded consumers, and never more so than in the automotive space. But according to research released Monday, the car company that qualifies as most American is….the Toyota Camry.” 

And in case you have any doubts about the main point Fortune wanted to make, here’s what the magazine concluded after spotlighting two more “surprises” about declining domestic content in vehicles sold in the U.S. market: “Globalization is here.” If you think this it’s coincidental that this observation came on the heels of a knock-down drag-out fight in Congress on trade policy, I’ve got some turnip truck tickets to sell you.

More damning evidence that Fortune was looking for a chance to score some cheap rhetorical free trade points comes from what the magazine ignored in the Cars.com study: its observation – based on official U.S. Transportation Department data – that “Detroit has the bulk of cars with high domestic content. GM, Ford and Fiat Chrysler Automobiles build 37 of the 57 U.S.-assembled cars with 60 percent or higher domestic content. Foreign-based automakers are responsible for dozens of imported cars with zero percent domestic content, according to the National Highway Traffic Safety Administration [NHTSA]. Detroit automakers have just two cars below 5 percent….”

Moreover, had Fortune bothered to look at the latest set of government statistics and Cars.com’s observations, it would have spotted some important differences. For example, Cars.com found that “The Toyota Camry took the top spot this year, as 2014’s top vehicle,” with 75 percent of its content coming from either the United States or Canada. (NHTSA weirdly has never distinguished between the two.) But in April, Washington reported that nine models were at the 75 percent mark, and six came from the Detroit automakers.

And had Fortune gone to the source, it also might not have written that “A Chrysler hasn’t shown up [on the 75 percent list] since 2012.” The NHTSA data place the Dodge Grand Caravan in that select company.

Fortune is of course free to like free trade as much as it wishes – though an intellectually honest publication would at least mention that government decisions like the pursuit of the North American Free Trade Agreement have shaped automotive (and other manufacturing) production patterns at least as much as “globalization” – a term whose combination of sweep and vagueness inevitably implies… inevitability. But it shouldn’t be free to cherry pick findings it likes and present the slanted results as straight news.