By on February 1, 2012

 

American carmakers cast worried glances on Senators and union groups that want to create a level playing field with China. Senators Debbie Stabenow and Sherrod Brown, alongside union representatives and the labor-backed Economic Policy Institute try to push “the administration to bring a possible case at the World Trade Organization or begin a U.S. Commerce Department investigation that could lead to duties on Chinese-made auto parts,” as Reuters reports.

A study by the EPI alleges that the Chinese auto parts industry has received $27.5 billion in government subsidies since 2001. The study forgets that large parts of the U.S. auto industry would not be here anymore, would it not have been bailed-out by the U.S. government.

Why are carmakers horrified by the surely well-meant suggestion? Several reasons:

  • Global parts sourcing, especially in China, has helped carmakers the world over to lower production costs. Slapping a punitive tariff on Chinese parts would raise the price of the parts, and make the car uncompetitive. First customers, then UAW members would pay the price for the folly.
  • But wouldn’t it bring jobs back to America? The experience with the tire tariff, enacted on instigation of the United Steelworkers, says otherwise: The production of cheap tires simply moved from China to Thailand. From there, the tires could be imported at a lower tariff than from China, for a while even duty-free. Not a single job was created in America with the tire tariff, but a lot of porcelain was broken.
  • As the volcano in Iceland, the tsunami in Japan, and the flood in Thailand have shown, the supply lines of the auto industry are intricate and can be easily damaged. Meddling with parts imports from China could have catastrophic effects on the U.S. car industry. By the time large swaths of the Chinese parts industry have been relocated to even cheaper parts of the world, U.S. manufacturers would be out of business, its people would be out of work.
  • Especially GM is inseparably tied to China. More than a quarter of GM’s global production is sold in China, GM’s largest single market. Ford is expanding its presence in China. Chrysler hopes to get back into China on the coattails of Fiat. These companies would be on the receiving end of retaliatory measures by the Chinese government.

It is not that the lawmakers and union officials are utterly naive. They know that most of the Chinese parts production was created if not by, then at the behest of foreign carmakers, U.S. and otherwise. Bob King, president of the United Auto Workers union, acknowledges this by urging “global corporations to refrain from a ‘race to the bottom’ to find workers that they can pay the least.”

Debbie Stabenow creates communal cringes on Detroit`s executive floors when she says:

“We need to stand up to the bully on the block. The bully on the block continues to take our lunch money and we need to stop that.”

Her solution seems to be to create empty pockets: Nobody can steal your lunch money, if you don’t have any.

Meanwhile, carmakers take cover and hope that the matter is over when the circus moves out of town in November.

GM’s Washington, DC, spokesman Greg Martin asks me to understand that he won’t say anything else than a prepared statement. It arrives a few minutes later by email.

GM’s success in China, which is now the company’s largest market, illustrates the benefits of trade and good economic relations to both countries. Because China represents tremendous growth potential for American companies, we hope that both countries continue to work through their differences constructively.

Well said. Let’s hope the prayers will find an open ear.

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29 Comments on “Tradewar Watch 21: Stabenow, Brown And King Suggest Suicide, Seriously...”


  • avatar
    Rob Finfrock

    “It is not that the lawmakers and union officials are utterly naive. They know that most of the Chinese parts production was created if not by, then at the behest of foreign carmakers, U.S. and otherwise. Bob King, president of the United Auto Workers union, acknowledges this by urging “global corporations to refrain from a ‘race to the bottom’ to find workers that they can pay the least.’”

    King’s statement is utterly naive. All things being equal, why shouldn’t corporations actively seek the cheapest workforce they can? No bleeding heart arguments, either — just cold, rational, logical thinking.

    (I guess HTML no longer works?)

    • 0 avatar
      ajla

      All things are rarely going to be equal and the cheapest workers or part isn’t always going to be the best option.

      • 0 avatar
        Rob Finfrock

        Agreed, but the parties involved are foolish to not consider the (very, very real) possibility that a cheaper workforce may indeed be able to produce parts of at least equal quality as an overpaid (UAW) labor pool can.

        I expect that kind of dogmatic ignorance from a twit like King, of course.

    • 0 avatar
      benzaholic

      Heck yeah. Money is easily more important than people.

      There’s no place in the American economic system for corporations to have anything remotely resembling a conscience or for longer term thinking about whether or not enough consumers will have enough money in 10 or 20 years to continue buying your products.

      That’s just silly.

      We all know and believe that corporations are now people, we just forgot that “people” includes an awful lot of d-bags.

      Obviously sarcastic. If you didn’t snap to that, I don’t know what to tell you.

      • 0 avatar
        Rob Finfrock

        For corporations — if not all businesses — the bottom line rules. That’s just the way the world works, and to think otherwise is shockingly naive.

        If you can’t snap to that, I don’t know what to tell you.

      • 0 avatar
        boltar

        True about consideration of the bottom line to business. But part of that calculation should include risks — risks that the foreign government does something horrible (nationalization, changes in tax policy, doing something that leads to retaliation by your own government) or that your own government does something rash (escalates a conflict with tariffs in response to perceived free trade violations). Not saying auto companies shouldn’t lobby the Feds for their own good, just that decisions about overseas manufacturing are risky.

    • 0 avatar
      PintoFan

      I believe the original term was “social responsibility,” but that was sacrificed on the high altar of corporatism and greed at least 30 years ago.

      • 0 avatar
        geeber

        Wrong. What happened 30 years ago is that the foreign companies, then based primarily in Japan and Germany, had by that point completely recovered from the devastation of World War II and were producing superior products from more modern factories.

        What you are really upset about is that companies can’t give away the store to stockholders, executives and unions instead of investing in more modern production processes to improve quality. American companies did skimp on investment from 1945-1980; hence the derelict condition of much of America’s industrial plant by the end of the 1970s.

        That worked for awhile, but once Americans had the choice to buy superior products for the same or less money, they did. American companies therefore had to restructure or die. Today we enjoy superior products that, adjusted for inflation, are often either the same cost, or LESS expensive, than their 1980 counterparts. If that’s the result of “corporate greed,” then I’ll have more of it.

        If you think that we are going to return to the days of large steel mills and automobile factories hiring thousands of barely literate high school graduates and paying nice salaries to install wheels or tighten widgets – dream on. Those days are long gone, and they were killed by customer demands for better quality, along with the better management techniques (including the Lean Production System pioneered by Toyota) and the automation that makes it possible, not Ronald Reagan, or free trade, or those mean old “Robber Barons.”

  • avatar
    icemilkcoffee

    “Suicide”? Are you kidding? A trade tariff is now considered ‘suicide’? We’ve had a (very successful) 15% pickup truck tariffs for years now. Did that lead to your ‘suicide’ scenerio? We had some draconian tariffs on imported large motorcycles back in the 80’s which saved Harley Davidson. We’ve had tariffs on japanese semiconductor which saved american companies like Intel. It’s ludicrous to think that the Holy Free Market must not be interefered with.

    • 0 avatar
      Bertel Schmitt

      If you would read why it is suicide, you would know why it is suicide.

      The chicken tax, a 25 percent tariff by the way, not 15 percent, created an uneven playing field for U.S. manufacturers of trucks. It helped U.S. manufacturers of trucks.

      The tariffs on motorcycles helped U.S. manufacturers of motorcycles.

      A tariff on Chinese parts
      – kills U.S. manufacturers of cars
      – helps foreign manufacturers of cars
      – moves production of cars elsewhere
      – moves Chinese production of parts to Vietnam,. Cambodia, Thailand, Indonesia

      Nothing gained. Much lost.

      • 0 avatar
        Pch101

        “A tariff on Chinese parts…moves Chinese production of parts to Vietnam,. Cambodia, Thailand, Indonesia”

        And that’s exactly the reason why it makes sense to saber rattle.

        The PRC signed onto the WTO, but doesn’t want to obey it whenever if it finds the rules to be inconvenient.

        You propose that everyone ignore their desire to not obey it. Why should anyone agree to that? It just sends the signal that these treaties are printed on toilet paper, with no will to enforce them. If it doesn’t get enforced now, then guess what? There will be even more breaches, when it becomes clear that the terms of the deal mean absolutely nothing.

      • 0 avatar
        Bertel Schmitt

        Go ahead, enforce it.

        As my old friend Goto’s Samurai father used to say:

        “Some people have death wish, and you must grant it to them.”

      • 0 avatar
        CriticalMass

        I take your point and tend to agree. However, unless someone can tell me where this economy is going to soak up the excess labor that has resulted from, according to some estimates, losing 60-70% of our manufacturing jobs in the last 15 years, I am rapidly coming to the conclusion that general tariffs may be called for. The only leverage we have really in this creative destruction cycle, until we can find “the next big thing (clue – it ain’t green jobs), is access to our very large market. General tariffs would overcome the “move to another country” shell game. The question in my mind becomes, has the current business model, WTO and all, run its course? The liberal trading system (that’s not a political distinction kids) that we have all long supported begins to equate in my mind to the old saw about the Bill of Rights not being a suicide pact. Believe me, I know all the bad things associated with tariffs, both the real, the imagined and the mistaken history of both good and bad. But the question remains – what to do – where are the jobs going to come from?

      • 0 avatar
        Pch101

        I’m reasonably confident that there is no “death wish” involved in doing business with the other ASEAN countries, the Mexicans and everyone else who is eager to make auto parts. That assertion is verging on the hysterical.

        As for adopting this Neville Chamberlain approach to trade agreements, there are some pretty solid political reasons to avoid acquiescing at every turn. If treaties aren’t enforced, they become meaningless, and the parties that tolerate the breaches end up looking like stooges. A world in which treaty obligations mean nothing is doomed not to be a very good or safe place.

      • 0 avatar
        PintoFan

        The U.S. auto industry (and light manufacturing in the U.S. in general) was strongest in the years when components were not sourced from China but were produced domestically. The notion that forcing the Chinese to compete using the same standards that we adhere to is going to “kill” American automakers or American industry is robber-baron drivel of the highest order. It plays all too easily into the anti-UAW, anti-American industry crowd’s line of “fairness,” when in reality they want anything but that.

      • 0 avatar
        geeber

        During those years, there was very little competition for American industry in general, or the auto industry in particular. That is why it was so strong. But it wasn’t really all that strong, as subsequent events would prove, as it hadn’t yet been tested by true competition.

  • avatar
    THE_F0nz

    This is kind of pushing something that will happen eventually.

    An increase in costs is happening in China as the people ask for better conditions and higher standards for living/working. Think the UAW is powerful? Imagine the scale if a revolution happened in China? The government will do anything to keep that from happening. Enter market manipulation. It is no secret that they manipulate their own currency and the US currency through various avenues.

    Inflation in U.S.A = detrimental to China. If Chinese goods become more expensive, entrepreneurial endeavors will pop up over here again. This won’t mean inflation, but it will mean the same nasty side effects for China.

    Taxing them will also lead to an increase in Chinese costs of selling here. They won’t be able to bash down corporate costs and piece prices enough if the taxing is substantial enough. Therefore, MORE manipulation and outsourcing to other third world countries might close the gap.

    China is terrified of inflation in the US. That huge set of loans they have given? Not worth so much anymore.

    Kind of sounds like the dollar is a financial bubble doesn’t it? If you find flaws in my logic, please feel free to critique it. I’ve just started reading financial books and my understanding is good, but not great at this point. Still learning.

  • avatar
    carbiz

    “The study forgets that large parts of the U.S. auto industry would not be here anymore, would it not have been bailed-out by the U.S. government.” Seriously? How about, “If not for 35 years of constant harassment and coordinated attack by MITI in Japan, then Korea and (soon to be) China, the American auto industry finally collapsed..?” That’s rich: blaming Detroit for the ‘bail outs’ in 2009 is like blaming a rape victim for allowing herself to get raped!
    Detroit is credited with single-handedly creating the middle class in the United States. Perhaps Washington wanted to do the same for the Germans and Japan, forking over $1.5B to Germany and $2.44B to Japan to rebuild those shattered economies (France received the same as Japan) from 1948-1953. (BTW, the U.S. economy was about $270B, depending on which source one uses so, in effect, the Japanese got roughly $134B in today’s dollars – I wonder how much of that was paid back?)
    Since the West is either not interested or too lazy to find out the bailout side of things in Asia, we will get everything we deserve, starting with the cheering gallery that would rather have the ‘right’ to buy a product designed and built overseas, rather than support the local economy here – even if that product is imported by a local, registered in America company!
    The trouble with being #1 for the past 150 years is that everyone else clamors to understand US, yet arrogance prevents us from realizing WHY they are studying us. It is no longer to emulate, but rather to defeat. The sooner we wake up to this fact, the more likely our grandchildren won’t be digging for grubs for food.

    • 0 avatar
      geeber

      Oh, please. I haven’t seen that level of histrionics since the last episode of The Bachelor.

      It was what we, in the real world, call COMPETITION, not “constant harassment and coordinated attack,” that resulted in Detroit’s meltdown.

      Unfortunately, like too many Detroit apologists, UAW members and executives, you seem to think that GM, Ford and Chrysler had some sort of divine right to claim 90+ percent of the new-car market, regardless of how much junk they shipped to customers.

      The simple fact is that, in 1970, the DOMESTICS were in a position of strength compared to the imports in North America. GM alone had almost 50 percent of the market. The domestics had a large owner body, strong brand identities (except, possibly, for Chrysler Corporation) and strong dealer networks. Over the next 35 years, they would fritter away these advantages.

      They refused to seriously address the small car market, ignored the proof that the Toyota Lean Production system resulted in superior quality AND lower costs, and allowed brand images to become muddled by giving almost every division a version of every platform to sell. The union was also stuck in a time warp.

      Sorry, but it’s not our responsibility to buy inferior products so that management, unions and Detroit apologists can continue to pretend that it’s 1965. The Japanese built better products and claimed a larger share of the market as a result. A combination of arrogance and complacency resulted in Detroit ignoring and/or underestimating that challenge.

      That wasn’t MITI’s fault. Unless MITI designed and marketed the Chevrolet Vega, Cadillac V4-6-8, Oldsmobile Diesel, Cadillac Northstar V-8 and Ford Windstar, and forced Chrysler to keep selling the K-Car long past its expiration date.

      • 0 avatar
        Pch101

        “I haven’t seen that level of histrionics since the last episode of The Bachelor.”

        I’ve never seen The Bachelor, but I can safely assume that there was more drama in his post.

        Ironically, his mindset helps to prove the point. Their own stubbornness causes them to fail. But then they are too stubborn to see that it is their own efforts that caused them to fail, which leads to further failure.

        The true legacy cost paid by the Detroit automakers was in the high cost of their self-righteous mentality. They spent far too long feeling entitled to their oligopoly to bother with earning the right to keep it.

      • 0 avatar
        geeber

        It was painful to watch the domestics repeatedly fumble their attempts to compete with the Japanese. Ford, at least, was making good progress in the 1980s, and then got lazy after initial good results. The SUV boom of the 1990s, led by the Explorer, really added to their complacency.

        I hope that their recent gains are real and lasting, and that all three companies have learned their lessons, or at least have abandoned their sense of entitlement.

  • avatar
    CliffG

    If you really want to increase the cost of imported goods and thus promote US mfr.s, cancel the US Navy. When it gets real exciting to pilot a merchant ship across pirate infested waters all over the globe, all of a sudden the transportation cost of goods goes from minor to major. Every other navy on the face of the planet is designed to CUT sea lanes, not keep them open.

    To the point: “The chicken tax, a 25 percent tariff by the way, not 15 percent, created an uneven playing field for U.S. manufacturers of trucks. It helped U.S. manufacturers of trucks.” How much did the drop in price of (non-inflation adjusted) oil from $38 bbl. to $10 bbl. have to do with helping them? It put the small pickup out of business.

    Anyway the problem with free market economics is, to borrow from Churchill’s comment on Democracy, “It is the worst system there is except for everything else.”

  • avatar
    bikegoesbaa

    Regardless of what happens in China, Mexico, or anywhere else; manufacturing as a primary employer of large numbers of people is finished.

    Why? Efficiency and automation. We no longer need huge pools of people in order to make huge quantities of stuff. Just like the crop yield per unit farmer has increased dramatically, so has the stuff yield per unit manufacturing worker.

    I was recently in a steel plant that 30 years ago employed 7,000 people. Today it has less than 500 employees, but produces more finished products than ever before.

    Those 6,500+ jobs didn’t disappear overseas, it’s not China’s fault that they’re gone. They disappeared because they’re no longer needed. This will only happen faster as technology gets better.

    Outlaw *all* imports and you still won’t see 1950’s levels of manufacturing employment unless you also mandate the use of 1950’s technology and methods.

    No matter what happens, the sort of labor-intensive old-school manufacturing that provided high paying jobs for thousands upon thousands of people and supported entire communities is O-V-E-R. Done. Gone.

    It is not coming back, ever. Plan accordingly.

  • avatar
    Lokki

    +2 and I wish I’d written it as well. The automated genie is never going back in the box. There was a recent article in the Atlantic magazine regarding this. There is an replacement parts manufacturer who still makes some parts in the US. However most of the production is automated and the “level II ” workers must be skilled in computer programming. There’s no way for an unskilled worker to advance through the ranks to the “level II” of the skilled workers based on experience (as they never learn programming on the work site) and it’s not worth the expense of gambling on a floor worker succeeding at college. Cheaper to hire the skill. In fact, the only place for unskilled/semi-skilled workers is for jobs that require better quality work than is cheaply obtained in China but aren’t big enough to justify the cost of automating manufacture.

    In a related note, a friend of mine is a consultant working on setting up a manufacturing line for medical products. The line is being set up in a (former) rust-belt manufacturing city using (formerly) unionized workers. However the company has decided that the line won’t stay here, after it’s up and debugged. That wasn’t the original plan but the workers are difficult and agitating for a return to union wages and union work rules.

    Finally, the idea that the car manufacturers -caused- the success of the economy in the 50’s, 60’s, and early 70’s is mistaking symptoms for causes. European manufacturing was pretty well destroyed between WWI, the recession, and WWII. Asia started later, and was slowed by WWII. Thus American manufacturing in many ways for many years had the field to itself. THAT period was the abberation, not the period that followed or thecurrent situation. During that glory period American companies didn’t spend on improving their steel mills and other manufacturing plants . They instead vave the money that they should have used for that purpose to investors, executives, and workers. Everybody cashed in, even though by the 70’s it was clear that the game was over. American car makers lost all sympathy from me when the Japanese makers “willingly” limited their imports, causing their prices to go up. However the Americans didn’t use their price advantage or use their breathing room to improve their (very bad at the time) quality. They just raised prices to the level of the Japanese.

  • avatar
    Terc

    If it’s true that imposing tariffs on people in one political jurisdiction in order to prevent them from trading freely with people in other political jurisdictions actually generates higher-paying jobs and more widespread prosperity for those people, then why stop at the US border?

    We should allow each of the 50 states to impose tariffs not only on goods from jurisdictions such as China and Mexico, but also on goods from jurisdictions such as California and Michigan.

    New Yorkers like myself would no longer ship dollars out of state in return for cars imported from Detroit.  We’d keep those dollars at home and also end the large trade deficit in motor vehicles that we have with them.

    And what’s true for cars will also be true for other goods and services—banking that New Yorkers import from North Carolina, chicken that’s imported from Arkansas, oranges that are imported from Florida, pharmaceuticals that are imported from New Jersey, coffee that’s imported from Hawaii, and wine that’s imported from California. The jobs necessary to produce these, and countless other, products could then be held by New Yorkers.

    • 0 avatar
      CriticalMass

      “New Yorkers like myself would no longer ship dollars out of state in return for cars imported from Detroit. We’d keep those dollars at home and also end the large trade deficit in motor vehicles that we have with them.”

      You see, the thing is I agree with you and I get your satirical point but its tangential to the real question posed in the earlier entry. And that, paraphrased is, “OK, this is where we are, the “next big thing” is not yet visible on the horizon, the liberal trading model seems to have been working against us for some time now, the economy is rather moribund and a lot of people need work (read: major political problem). What do we do? So, you be the policy maker. I once heard Warren Rudman, Sen. from NH say about some bill he was working to pass that, “it was a bad idea whose time had come”. It may not have been an original quote from him but the point is that we may be at a point where there are no “good” answers left but we still have to act. While textbook warnings against tariffs and other out of favor solutions are understood, it does not answer the policy and political question in front of us. No more ivory tower. How you gonna fix it?

      • 0 avatar
        Terc

        I am very skeptical of anyone (politician, bureaucrat or me) who claims to be interested in solving societal problems and wields the kind of power that can affect other people’s lives. I don’t think, just because we have identified a problem, that we should use government coercion to solve it. I think there should always be a presumption against using force against peaceful people.

        In principle, government’s core responsibility is to prevent Jones from benefiting by his imposing costs on Smith without Smith’s consent. In practice, sadly, government acts as Jones’s agent in securing benefits for Jones by imposing costs on Smith.

        As H.L. Mencken put it:

        “Is government, then, useful and necessary? So is a doctor. But suppose the dear
        fellow claimed the right, every time he was called in to prescribe for a bellyache
        or a ringing in the ears, to raid the family silver, use the family toothbrushes, and
        execute the droit de seigneur upon the housemaid?”

  • avatar
    CriticalMass

    More ivory tower Terc. It’s not easy to be the policy maker who we’ve charged to “do something” is it? Remember the ending question from the last post – no more ivory tower, how are you gonna fix it? So, I need to hear your solutions to the problem rather than what “shouldn’t” be done. How do you put millions of people back to work or, alternatively, find some way to fund them to not work (i.e. unemployment, welfare, etc.)? Talking in circles won’t get it done so unless there are better “good” solutions on offer, you go with the most-likely-to-have-some-positive-impact “bad” solution. What’s your better idea to solve the near to mid-term problem sir?


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