Tags
assembly, automotive, hollowing out, manufacturing, NAFTA, offshoring, Trade, {What's Left of) Our Economy
The gap jumped out so aggressively at me when I looked over this morning’s industrial production data released by the Fed – and the possible implications are so important – that I had to post on it: The huge and rapidly growing disparity between U.S. motor vehicle production and U.S. vehicle parts production looks like compelling evidence that the booming American domestic automotive sector is changing from a genuine manufacturing operation into a hollowed-out, assembly-dominated complex. If so, chances are the types of job-creation and innovation boosts that robust automotive production used to give to the U.S. economy are waning when they’re more important than they’ve been to the nation in decades.
Not that the difference between manufacturing and assembly is always so clear cut. Boeing, for example, has turned into a major source of competitive advantage coordinating the transformation of a staggering number of parts and components into a finished aircraft. But this kind of systems integration appears to be the exception in manufacturing, not the rule. Although detailed industry-wide data are hard to find, few would argue with the claim that the parts, components, and materials account for much of the value-added and technology content of most final manufactured goods.
If so, today’s industrial production figures indicate a major dumbing-down of the automotive sector. In July, the Fed reports, motor vehicle production jumped on a monthly basis by a dramatic 10.08 percent after adjusting for inflation – its best such performance in five years. Auto parts production was up sharply during the month as well – but its 6.01 percent real increase significantly trailed that of vehicles.
Nor is this a one-time development. The Fed’s historic database shows that U.S. vehicle production after inflation has surged by just under 261 percent since the economic recovery began in mid-2009. Parts production has increased nicely as well, but by only about 102 percent so far during the recovery.
Given the steep nosedive in vehicle production during the recession, it’s tempting to attribute the difference between vehicle and parts output to a snapback effect. As the economy sank, U.S. vehicles production plummeted by more than 60 percent. Parts production fell by a “mere” 41.53 percent. But as the above numbers make clear, even accounting for its greater drop, vehicle production has made a much bigger comeback.
Now here’s a kicker: The implementation of NAFTA looks like a major inflection point. Since the trade agreement went into effect, at the beginning of 1994, U.S. vehicle production has slightly more than doubled after inflation. But real parts output has risen by only a little over half that rate.
Is a more valid comparison between equally long pre- and post-NAFTA periods? Over the ten years before the agreement’s implementation, inflation-adjusted vehicle production increased by 27.89 percent and parts production climbed by just over twice as much – 56.64 percent. During the ten years after NAFTA, these proportions reversed themselves in large measure. Real vehicle production increased by a much higher 54.11 percent, outpacing the 40.83 percent real gain in parts production.
Clearly, NAFTA hasn’t been the only influence on American automotive production over the last 20 years. It may not even be the most important trade-related influence. U.S. policy toward automotive protectionism in Japan, Germany, and Korea has remained ineffective, and American automakers now produce parts for the U.S. market (and for foreign markets) in many countries.
But NAFTA’s importance went far beyond the integration of U.S. and Mexican automotive manufacturing – though Mexico itself was unmistakably prized by the Detroit auto-makers as a major prospective production center. The agreement also heralded a fundamental transition in U.S. trade policy – which changed from an engine of U.S. export promotion (at least ostensibly) into an engine of job and production offshoring.
Supporters of these deals keep insisting that the globalized production they’re fostering will benefit Americans disproportionately, as the main industrial work lost to foreign competition will be lower-value activity, leaving U.S. workers freer to concentrate on more lucrative, more productive, more technology-intensive, higher value work. The nation’s automotive production data indicate that two decades of NAFTA-like trade deals and policies are producing exactly the opposite effect, and that worries about trade-induced domestic industrial hollowing out are all too well-founded.
