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Following Up: Lousy U.S. Auto-Making Productivity and Those GM Layoffs

27 Tuesday Nov 2018

Posted by Alan Tonelson in Following Up

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automotive, Bureau of Labor Statistics, Detroit automakers, General Motors, GM, Jobs, layoffs, motor vehicles, NAFTA, North American Free Trade Agreement, offshoring, productivity, total factor productivity, Trade, Trump, yoFollowing Up

Yesterday, I posted some data – with a special focus on major victim state Ohio and major victim region Youngstown – providing some badly needed perspective on General Motors newly announced manufacturing jobs layoffs in the United States (along with Canada and other unspecified locations). Today I’d like to follow up with some statistics that shed more light on GM’s decision – and the strengths and weaknesses of the American domestic automobile industry.

There’s no doubt that, as widely noted, many trends and developments are responsible for the new job cuts – which are highly unlikely to be restricted to GM alone. Some of the biggest include changing product mixes (away from smaller vehicles and toward larger vehicles), new technologies (for electric vehicles and self-driving vehicles), and the inevitable waning of the latest “automotive cycle” – that is, a slowdown in auto sales that has been entirely predictable following the sector’s strong recovery from a terrifying downturn during the last recession.

But one industry trend that’s been sorely neglected – and that surely bears heavily on the “Detroit 3” auto companies’ failure to continue producing smaller vehicles profitably at their domestic factories (the plants targeted for closure) – concerns its productivity performance. In a word, it’s been lousy – which supports last week’s post presenting evidence that U.S. metals-using industries like automotive have been using crutches like (foreign government-subsidized and therefore artificially) cheap raw materials, along with massive job and production offshoring, to juice their profits rather than efficiency-enhancing improvements resulting from creating new technologies, investing in new machinery, devising better management techniques, or some combination of these measures.

That post last week featured data showing that the American transportation equipment sector (which of course includes auto manufacturing) has performed relatively well during the current U.S. economic recovery and the previous expansion – though the rate of growth decelerated over that time span. These periods were examined because they were marked by a tremendous increase in American imports of steel over-produced and dumped into the United States by foreign producers, which pushed steel prices way down for reasons having nothing to do with free trade or free markets.

But more detailed statistics make clear that the automotive sector per se lately has fared worse when it comes to total factor productivity – the broadest of two measures of productivity tracked by the Bureau of Labor Statistics, and the productivity measure I examined last week.

During the 2001-2007 American expansion, total factor productivity in the motor vehicles sector actually grew faster than that for transportation equipment overall – 22.70 percent versus 13.38 percent. But from the 2009 start of the current recovery through 2016 (the latest available data), vehicle makers’ total factor productivity advanced by only 2.53 percent – that is, much more slowly than the 9.67 percent improvement registered by transportation equipment overall.

In fact, since achieving a huge (15 percent) snapback in total factor productivity during the recovery’s first year following a deep (12.29 percent) nosedive during the recession, vehicle-makers’ total factor productivity fell by 10.94 percent through 2016. As a result, its total factor productivity hasn’t improved on net since 1989.

Also interesting: Since the U.S. ratification of the North American Free Trade Agreement (NAFTA) in 1993 created a bright green light for automotive production and job offshoring, total factor productivity in American motor vehicle-making is up by only 9.20 percent. That’s a considerably slower rate of progress than for manufacturing overall (20.13 percent), even though automotive trade has figured so heavily in U.S. trade flows with fellow NAFTA signatories Mexico and Canada so far.

I don’t mean to minimize the challenges all automotive manufacturers face given the multi-dimensional crossroads that seems to be arriving rapidly for the sector. What should be glaringly obvious, though, is that they’re unlikely to be met adequately – including producing smaller vehicles profitably, especially if and when oil prices start rising again – with a productivity performance that barely qualifies as second-rate.    

(What’s Left of) Our Economy: Just the Facts on Trump, GM, and Ohio Automotive Jobs

26 Monday Nov 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

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automotive, General Motors, GM, Jobs, manufacturing, Ohio, Trump, Youngstown, {What's Left of) Our Economy

No one should beat around the bush: General Motors’ announcement today of big job cuts in its U.S. and other worldwide automotive manufacturing operations was bad news for the U.S. economy and for American industry generally. And even if this “right-sizing” ultimately winds up positive for the nation as well as the company, there’s also no denying that it’s bad news for President Trump and his status as a champion of domestic manufacturing and its workers. He himself made that clear when he told reporters, “I’m not happy about it.”

But what about politicians like Rep. Tim Ryan, the Democrat who represents the northeast Ohio Congressional district where GM’s cuts will fall heavily in Youngstown – and who has been an advocate of Trump-like trade policies his entire career in Congress? (Full disclosure:  I’m a fan and worked with him closely on these issues in the mid-2000s.) On the one hand, in the wake of the news, it’s easy to understand why he called the President “asleep at the switch.” It’s even easier to understand the pot shot he took at Mr. Trump’s performance at a July, 2017 rally in Youngstown, where he told his audience that its long lost jobs are “all coming back. Don’t move. Don’t sell your house.”

Nonetheless, when it comes to the Youngstown area, and the rest of Ohio, the data (aka, the facts) say “Not so fast.”

The U.S. government doesn’t track the changes in automotive employment experienced by the Youngstown area specifically. But it does monitor the region’s overall manufacturing employment trends, as well as factory and automotive employment throughout Ohio. The most relevant developments lately?

First, during the twenty months of the Trump presidency (starting in February, 2017 – Mr. Trump’s first month in the Oval Office – and ending with the latest available numbers, from this October), manufacturing employment in Youngstown fell by 200 – from 26,900 to 26,700. That’s a decrease of 0.74 percent – and of course, thanks to GM, those numbers will be rising.

But during the twenty previous months, Youngstown area manufacturing employment sank by 13.78 percent – or 4,300 jobs (from 31,200 to 26,900). So if politicians deserve much of the blame for these results, then those preceding Mr. Trump’s tenure seem to have been comatose.

The Trump record looks worse when it comes to overall automotive employment in Ohio. Since his first month in office, payrolls in vehicles and parts combined are off 2.20 percent, falling from 95,200 to 93,100. During the twenty previous months, they dipped only by 0.73 percent – from 95,900 to 95,200.

Even so, there are big differences between vehicles and parts. For the former – which will take an especially big hit in Ohio from GM going forward – jobs have dropped by 7.61 percent, from 19,700 to 18,200 on Mr. Trump’s watch. But during the previous twenty months, they tumbled by 12.83 percent (from 22,600 to 19,700).

In Ohio auto parts manufacturing, employment under President Trump has decreased by 6,000, or 0.79 percent. But over the twenty month stretch before he entered office, they actually rose by 2,200, or three percent (from 73,300 to 75,500).

The Trump reputation as manufacturing champion seems better when Ohio’s overall manufacturing jobs trends are examined. During his administration, factory employment has risen by 2.68 percent (from 683,900 to 702,200). But during the twenty months before his current job began, it declined by 0.48 percent – from 687,200 to 683,900.

No should believe that these figures tell the whole story, or even most of it. In particular, they leave out the ups and downs of the overall national economic cycle, and of the automotive cycle – not to mention the technological and structural changes sweeping over the automotive industry. But for those who insist on viewing these matters in partisan political terms, and/or as solely or mainly the result of presidential performance, the data here make this much clear:  If President Trump has yet to meet his own standard as author of a major American manufacturing employment revival, and to keep his promises to Youngstown  voters in particular, he won’t be hard pressed to top his predecessor on this score.

(What’s Left of) Our Economy: Trump Tariffs Evoke Summers Snake Oil

10 Tuesday Apr 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

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Al Gore, China, Clinton administration, current account surplus, Emergency Committee for American Trade, exports, FDI, Financial Times, forced technology transfer, foreign direct investment, General Motors, intellectual property theft, Larry Summers, Obama administration, offshoring lobby, tariffs, Trade Deficits, Trump, {What's Left of) Our Economy

Larry Summers doesn’t like President Trump’s China trade policies – that’s not news. After all, he served in senior economic policy posts both in the Clinton administration, which proudly championed expanded trade with China and laid the groundwork for the PRC’s entry into the World Trade Organization, and in the Obama administration, which less proudly but nonetheless effectively coddled much of the Chinese trade predation (including intellectual property theft) that even most globalization cheerleaders now admit is a major problem.

Newsier are two arguments Summers made yesterday in the Financial Times that indicate how dishonest years of justification of the China trade policies by globalist U.S. administrations have been, and how clueless they remain.

The dishonesty entails Summers’ dismissive treatment of China’s intellectual property “extraction” (as he calls what is usually and rightly recognized as “extortion”) from U.S. and other foreign companies that are forced by Chinese policy into joint venture partnerships with Chinese entities. According to Summers, this form of theft is no big deal for Americans because these episodes

“typically involve cases where the company in question produces for China in China and so have little impact on US employment. In many cases a substantial number of the company’s shareholders are foreign and it pays taxes to many governments. It is more than a little ironic that an administration that condemns outsourcing should make standing up for those who move production to China so central a priority.”

As should be clear to anyone who has followed U.S. trade policy toward China and other offshoring-friendly countries, that’s a heckuva way to describe the outbound American investment that’s been encouraged by the trade deals and related policy decisions enthusiastically supported by Summers and his White House bosses.

For especially during the Clinton years, when so many of these policies were put in place, the construction of American-owned factories, labs, and similar facilities in China was depicted not as activity that would substitute for American exports, or for U.S.-based production (in the form of goods shipped from these factories to the U.S. market), but as activity that would benefit the domestic American economy and its workers by supercharging U.S. exports – which would comprise much of the content of these foreign-made products.

Here’s a typical example from a 1998 report by the (Offshoring Lobby-funded) Emergency Committee for American Trade:

“American companies with global operations ship the large majority — between 60 percent and 75 percent — of total U.S. exports. Their foreign affiliates are important recipients of these exports; their share has increased to over 40 percent today.”

And let’s not forget one of the showcase examples of such Clinton-era investments – General Motors’ 1997 agreement with a Shanghai-run entity to produce autos in China. GM gushed that the joint venture would generate billions in American auto parts exports to China, and the importance attached by the Clinton administration to such deals was made clear by the decision to send Vice President Gore to the PRC to attend the signing ceremony. (Neither GM Chairman John Smith nor Gore mentioned that the agreement’s provisions mandated that the factory achieve 80 percent Chinese content levels within five years.)

Now, according to Summers, these joint ventures don’t significantly benefit the American domestic economy at all. Of course, there’s still the matter of how this Chinese tech theft – including from world-leading U.S. companies in cutting edge industries – will affect America’s innovation and technology futures. But these critical issues don’t seem to be on Summers’ screen.

The author’s cluelessness is evident from his insistence that

“it is wrong to say nothing has been achieved through negotiation with China. Only a few years ago, China’s current account surplus was the largest relative to GDP among significant countries….Today China’s global surpluses are far below past US negotiating targets of a few years ago….”

Here’s the (glaringly obvious) problem. During the current economic recovery, China’s total trade surplus with the United States (including its services deficit) jumped by 75 percent – from $219.47 billion in 2009 to $385 billion in 2016 (the last year for which such figures are available). Can a piece from Summers expressing his astonishment that so many U.S. voters opted in 2016 for a candidate promising to look after “America First” be far behind?

(What’s Left of) Our Economy: Martin Wolf Whiffs on the Trump Tariffs

08 Thursday Mar 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

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allies, aluminum, EU, European Union, Financial Times, General Motors, Martin Wolf, Mary Barra, national security, steel, tariffs, Trade, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

I hate to go after the Financial Times‘ Martin Wolf, because he’s definitely one of the world’s smartest and most responsible economics commentators. Unfortunately, his March 6 column on the Trump tariffs fell so far short of his standards – and in fact simply parrots so much wrongheaded and/or simplistic trade-related conventional wisdom – that a response is essential. Let’s take his main arguments seriatim.

Wolf is apparently upset that the tariffs are “explicitly intended to last a long time.” But what could make more sense? If the aim is to spur more American steel and aluminum output, which requires major capital investments that need time to pay off, short-term tariffs, or tariffs with a publicized termination date, are bound to fall way short of their mark. The former will naturally scare off investors that simply have the requisite time horizon; the latter will additionally tell potential capital sources and foreign steel and aluminum exporters exactly when they can resume dumping subsidized product.

Wolf believes that the tariffs will so raise the costs of steel- and aluminum-using U.S.-made products that these industries and their workforces, which vastly outnumber those of the metals-makers, will suffer major losses of global competitiveness. In making this claim, he both overlooks the relatively small steel and aluminum content of many of these products, and oddly dismisses any possibility that these businesses will find ways to offset any notable input price increases with greater efficiencies elsewhere in their operations.

I say “odd” because that’s exactly what conventional economics tells us will happen – at least with companies determined to stay in their respective businesses. It’s one main reason why productivity growth exists at all. It’s also at the least significant that no less than General Motors Chair and CEO Mary Barra has stated that that’s exactly what her company will do: “We would look to find offsets and efficiencies to offset that [higher steel prices] and not have to pass it on to the customer.”

Wolf worries about the spread of what he admits are trade actions confined to steel and aluminum because so many American trade partners will retaliate. I was waiting for him – as a major supporter of free trade – preemptively to scold these countries for not realizing that theory holds that the best way to respond to tariffs is by compensating losers, not by retaliating. But it doesn’t appear to think that this venerable maxim applies outside the United States.

Wolf predicts that this retaliation will take the form of World Trade Organization  (WTO) challenges and safeguards “to forestall diversion of imports on to their markets.” But because the global steel market is a single integrated market (like so many other markets in this era of extensive globalization), such country-specific measures will fail to prevent diversion as completely as have similar past U.S. Measures. That’s probably why the European Union, for example, has hinted that it won’t wait for the WTO Good Housekeeping Seal for any retaliation. Which of course would be illegal according to WTO rules.

Wolf regurgitates the argument that the sweep of the Trump tariffs will hit “friends and allies” – belying the claim that they’re based on national security considerations. As I’ve noted, though, many of these supposed friends and allies have long been directly or indirectly helping make sure that an outsized share of Chinese-spurred global overcapacity in steel and aluminum winds up being sent to the United States. With allies like these….

Wolf expresses bewilderment that the United States would seek protection for its steel and aluminum industries because output in both has been “stable” since roughly 1990. But in the business world, that’s a euphemism for “no growth since roughly 1990.” Does that scream “competitiveness” to you? Moreover, Wolf overlooks the loss of global and U.S. market share for both sectors – not normally a sign of companies or industries with bright or even viable futures. (See here for the steel data and here for the aluminum figures.)

Wolf uses tariffs as his main measure of whether, as many trade policy critics argue, the United States really is the world’s least protectionist major economy. But nowhere in his article does the term “non-tariff barriers” appear – a shocking omission given their prevalence and strong growth as global negotiations have reduced tariff rates worldwide.

Finally, Wolf alludes to the canard that America’s national savings rate is overwhelmingly responsible for its bloated trade deficits. In fact, the relationship between the trade and broader current account balances on the one hand, and the savings rate on the other is a mathematical identity. As such, it says nothing whatever about causation – which could easily flow the other way.

It’s understandable that Wolf doesn’t like the Trump tariffs per se – I’ve been critical of them in some respects myself. But the scornful tone of his article, and its utter failure even to consider obvious rejoinders (much less address them) indicates that something deeper is at work here: One of our most thoughtful and knowledgeable economics analyst has come down with a bad case of Trump Derangement Syndrome.

(What’s Left of) Our Economy: Flint’s Water Crisis is Also a De-industrialization Story

28 Thursday Jan 2016

Posted by Alan Tonelson in (What's Left of) Our Economy

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automotive, Detroit, Flint, General Motors, healthcare services, Jobs, manufacturing, Mexico, municipal finance, poverty, Rust Belt, services, taxes, third world, wages, water pollution, {What's Left of) Our Economy

When I began reading about the water crisis in Flint, Michigan, my first thoughts were of the Mexican factory towns near the U.S. border, where rapid and unregulated industrialization driven by manufacturing for the American market had produced pollution nightmares – including dangerously poisoned drinking water.

The shameful situation in Flint has many causes, but one that’s been neglected has been a development that makes the city a depressing mirror image of much of northern Mexico – rapid de-industrialization, stemming from the plight of the U.S. automobile industry, that has robbed Flint of the ability to pay for the kinds of public services Americans for decades have come to expect in a financially sustainable way.

According to Flint’s auditors, the city has long provided its citizens with “ a full range of services, including police and fire protection, the construction and maintenance of streets and other infrastructures, recreational activities and cultural events, water and sewer services, and sanitation/garbage pickup services.” The water crisis has made sadly clear that this standard agenda was in fact unaffordable for Flint. But the gap between the city’s first-world ambitions and resources that are markedly below that level has been evident for years from its chronic budget deficits and its heavy reliance on state and federal aid.

The earliest Flint budget figures on-line are from 2002, and show a $7.4 million deficit on $457.7 million in expenses and $445.3 million in receipts. Only 10.13 percent of those receipts came from combined income and property taxes. More than three fourths of the city’s take was generated by the Hurley Medical Center’s revenues. Last year’s figures make the city’s finances and tax base look stronger. The city ran a $568 million surplus on spending of $147.3 million and revenues of $147.9 million. And taxes represented 22.85 percent of those total receipts.

Those overall numbers, however, should tell you that something’s a little fishy. In fact, in 2011, the hospital was in effect taken off the municipal budget – despite its profitability. For that last year it was on those books, Flint’s government spent $567.3 million and took in $523.2 million, for a $44.1 million shortfall that was much larger proportionately than 2002’s. And taxes were a mere 6.15 percent of city revenue.

Even more disturbing, that 2015 Flint budget also removed all of 2014’s $24 million worth of sewer expenses and some $23 million of that year’s $44.2 million in water expenses. So even these necessities had revealed themselves as completely beyond Flint’s means.

Why is Flint is such a fix? Bad government is surely a big part of the answer. But so is dramatic economic deterioration. As has been widely noted, the city’s population is disproportionately poor and African American. But it’s also crucial to understand that over the last decade alone, Flint has steadily lost much of the material wherewithal that any municipality needs to be functional by recent American standards. Let’s start with the broadest economic indicators and then examine the trends in greater detail.

It’s tough for any country or community to succeed without economic growth, and Flint is a long-time laggard. According to Commerce Department figures (available at this interactive data base), from 2001 (the year before those earliest on-line financial reports date from) through 2014, Flint’s economy actually shrank in inflation-adjusted terms – by 8.67 percent. By contrast, America’s urban areas as a whole grew by 24.30 percent.

Census Bureau data show that the city’s population actually dropped more steeply from – 124,943 in 2000 to just over 99,000 in 2014. So in theory, there was more wealth to share in Flint. But in practice, it hasn’t worked out that way. Between 2000 and the Census Bureau’s estimated 2010-2014 average, median household income in the city fell by nearly 12 percent – and that’s before adjusting for inflation. No doubt a veritable and ongoing employment depression deserves much blame. During this period, the number of employed Flint residents cratered by 37.63 percent – from 45,885 to 28,618. And the poverty rate surged from 26.4 percent to 41.6 percent. That’s nearly triple the national rate in 2014 (14.8 percent).

Leading the way down in Flint has been manufacturing. Its real output (as also shown in that Commerce data base) plunged by 29.10 percent during this period, compared with 26.67 percent real manufacturing growth for all of the nation’s metropolitan economies. As a result, this sector shrank from more than 22 percent of the city’s economy after inflation to just over 17 percent. In U.S. metro areas as a whole, manufacturing stayed at somewhat over 11 percent of real gross product.

Flint’s manufacturing’s woes, in turn, overwhelmingly stem from the troubles of the American automobile industry. Flint is nothing less than the birthplace of General Motors, and has long been known as “Vehicle City.” Back in 1978, GM employed more than 80,000 Flint-area residents. Production figures are harder to come by – the Commerce Department doesn’t break out automotive output for Flint for most years precisely because it has been so GM-dominated, and therefore publishing the numbers would release proprietary data. But as of 2013, the automotive sector is recorded as representing nearly 71 percent of the Flint metropolitan area’s inflation-adjusted manufacturing production.

The GM employment footprint, however, had shrunk to some 8,000 by 2006, and as this time-line makes clear, the company has closed down many more and larger facilities in the area since the 1980s than its opened or expanded. Just as important, the rest of Flint’s economy didn’t fill in nearly enough of the resulting gap.

The entire private sector service providing complex in the city grew in real terms by only 5.71 percent – versus 30.31 percent for American metro areas as a whole. Flint’s hospital apparently couldn’t the city’s economy, either. In Flint, health care services expanded their output by only 16.76 percent after inflation between 2001 and 2014 – much less than half the nation-wide rate in cities (42 percent). And where services growth in Flint was strong – as in the information sector – it remained far too small to make a major difference.

Flint’s de-industrialization of course changed the city’s job mix, too – and not for the better. In 2000, according Census figures, manufacturing accounted for 23.2 percent of the jobs held by city residents. During the 2010-2014 period, this share sank to 14.1 percent. The rest of Flint’s major employing sectors fared much better relatively speaking – especially, it seems, the healthcare industry. Its supersector – what I’ve called the government-subsidized private sector – boosted its share of Flint employment from 23.5 percent to 27.9 percent during this period. But Flint’s biggest job loser – manufacturing – pays better than average wages. Except for that subsidized private sector, most of Flint’s biggest job winners pay below average wages.

As a result of the growth and job-related setbacks, Flint’s tax base shriveled. And the damage was hardly limited to individual taxpayers. According to the city’s 2015 financial report, “Property values within the City are believed to have hit the bottom, declining from $1.804 billion in 2002 to $1.192 in 2011 and further declining to $969.13 million in 2012.” Only “slight increases are projected over the next few years.”

Because de-industrialization isn’t responsible for all of Flint’s predicament, it’s way too early to say that the city is doomed to third world status. Other so-called Rust Belt municipalities have fared considerably better, no doubt in part because they weren’t so heavily invested in a single industry like Flint – and its much larger, also wheezing neighbor, Detroit. But because of manufacturing’s matchless record of creating middle class jobs for working class Americans, and because so many former manufacturing centers continue to struggle, expect de-industrialization’s impact to keep threatening Flint’s ability to deliver first world-level services, and its claim to first world status, for years to come.

Making News: Podcast of Last Night’s John Batchelor Show Appearance on the Chinese-Made Buicks GM Will Soon Sell in the U.S.

10 Thursday Dec 2015

Posted by Alan Tonelson in Making News

≈ 1 Comment

Tags

autos, Buick, China, General Motors, GM, Gordon Chang, imports, Making News, manufacturing, offshoring, Peter Navarro, The John Batchelor Show, Trade

I’m pleased to present the podcast of my appearance last night on John Batchelor’s nationally syndicated radio show. Click on this link; this specific segment starts at about the 12-minute mark.

I hope you agree that John, co-host Gordon Chang, and co-guest Peter Navarro were in rare form – and that we made clear why it’s important that General Motors will soon be supplying the American auto market from factories it co-owns in China.

(What’s Left of) Our Economy: GM’s China Buick Sourcing Casts Shadow on Obama’s Pacific Trade Credibility

13 Friday Nov 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

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Al Gore, automotive, Buick, Canada, General Motors, imports, Jobs, Labor Force Participation Rate, manufacturing, Mexico, North American Free Trade Agreement, Obama, offshoring, rules of origin, TPP, Trade, Trans-Pacific Partnership, wages, {What's Left of) Our Economy

In his sales pitch for his new Pacific Rim trade agreement, President Obama repeatedly has tried to establish his street cred to a skeptical Congress and many even more skeptical Americans by acknowledging past trade policy failures. “I’m the first person,” he typically insists, “who will say that past trade agreements haven’t lived up to their promise.”

This record of unjustified hype has taken on new importance this week with The Wall Street Journal’s report that General Motors is planning to import into the United States Buicks it’s currently making in China – and with a Chinese government-owned partner. The Buick news, which GM has not denied, represents an example of a trade promise that was not only flagrantly broken, but that was patently false from the get go.

When it was announced in 1997, GM’s Buick factory in China – owned in tandem with the Shanghai Automotive Industry Company – was set to be the largest foreign joint venture in the country. And the clear message sent by the Detroit automaker and by President Clinton’s administration was that it vividly confirmed their claims that the expansion in U.S.-China trade they championed and lobbied for was a slam dunk, win-win proposition for America’s domestic economy, including its workers.

At a lavish signing ceremony presided over by no less than Vice President Al Gore and Chinese Premier Li Peng, then GM Chairman John Smith promised, “This joint venture will support U.S. jobs by generating almost (U.S.) $1.6 billion in exports for the United States over the next five years” – presumably of parts and auto manufacturing equipment. What he failed to mention is that Chinese law at that time required the factory to achieve 80 percent Chinese content in its vehicles five years after start up. Indeed, the law required new factories to incorporate 40 percent local content at the onset of operations. Nor did GM announce that it was procuring non-Chinese parts for the Shanghai factory from Japan and South Korea, as well as parts from the United States.

Now GM has decided to supply the U.S. market with these vehicles – largely because sales in ballyhooed China market have slowed. The company, which of course, was bailed out by the U.S. government during the financial crisis, has invested in significant new domestic American production. But although its U.S. employment is up from recent crisis-era bottoms, it remains low compared with historic levels. Moreover, despite improvement this year, automotive wages during the current American economic recovery have fallen much faster in real terms (by 4.66 percent) than manufacturing wages overall (0.19 percent).

So if GM decided to build these Buicks in the United States, demand for auto workers would rise much faster, along with wages. This development could even finally help push America’s labor force participation rate up from multi-decade lows.

But those domestic gains seem further away than ever, because GM’s China Buick decision looks certain to mark simply the beginning of this latest chapter of American manufacturing’s long-running offshoring story. According to The Wall Street Journal, it “signals the beginning of a strategic production shift for the Detroit auto giant and a bold experiment that will be closely followed by other auto companies that have said they would eventually consider such a move.”

Moreover, Mr. Obama’s Pacific Rim trade deal is certain to make supplying the American automotive market from abroad more attractive than ever. For among its many provisions granting duty-free treatment for products made largely outside the new free trade zone (e.g, from China) are measures that loosen requirements set by the North American Free Trade Agreement that freely traded automotive products consist mainly of content from the United States, Canada, and Mexico.

In other words, President Obama keeps telling Americans that he’s part of the solution to the harm they and their economy have suffered from recent free trade agreements and related policies. But the GM Buick decision reminds vividly that his record is a big part of the problem.

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  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

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Current Thoughts on Trade

Terence P. Stewart

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Alastair Winter

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Smaulgld

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