Protectionism Kills Jobs. As Demonstrated In Chattanooga
There is a shiny new car factory in Chattanooga, Tennessee. People enjoy working at this Volkswagen factory. The factory is airy, there is a lot of space inside and outside the factory for expansion. However, it will be a while until it will make more than the Passat. The people in Tennessee had hopes for Audi moving in here. Instead, Audi decided on going to Mexico. When the new Golf MkVII comes to America, it will be made in Mexico. There is no other car in sight for Chattanooga. Why is the factory, one of the best specimens in Volkswagen’s vast global collection, losing out on new jobs? The Chattanooga Times Free Press thinks it knows the reason: Lack of free trade agreements.
“A lack of free trade pacts between the United States and other nations may steer future VW production to Mexico rather than Tennessee, according to industry experts and others.”
Mexico has free trade agreements with 44 countries. The U.S. has 19. Most recent FTAs were spearheaded by Republican presidents. Under the Obama administration, only three FTAs were added, two insignificant (with Panama and Colombia). The significant agreement with Korea was signed by G.W. Bush in 2007, it was renegotiated by the Obama administration, a watered-down version was signed in 2010. At least 17 new unfinished FTAs, among those an agreement with the EU, and the Trans-Pacific Partnership (TPP), are treading water. Japan is not even included in the TPP, also because of shrill and often perplexing opposition by a Japan-bashing alliance between the UAW and the Detroit 3.
A lot is said about FTAs making imports cheaper. What is often forgotten is that FTAs make exports competitive. With the low dollar, America could be an export machine, and FTAs could be the motors. Why is this engine stalled? Cars shipped from Chattanooga to Hamburg (no FTA) cost 10 percent duty. Cars shipped from Puebla to Hamburg (FTA) cost none. No wonder the jobs go to Mexico. The wages are not the reason. Wages amount to approximately 10 percent of a car’s cost … the saved customs duty can finance the whole payroll. While Mexico turns into an export powerhouse, the unemployed north of the border pay higher prices, driven up by a trade war flamed by union interests.
And it’s not just Mexico… thanks to strong trade relations with the EU, Brazil is benefitting as well, gaining $4.4b in new VW investment.
America’s inability or unwillingness to secure more FTAs is killing America’s transplant auto industry, and preventing Obama from achieving his stated goal to grow jobs by doubling exports. This is particularly ironic considering that Obama has touted the bailout, the Korean FTA and a loan guarantee program as aimed at boosting America’s exports. FTAs boost exports. Protectionism kills jobs and causes inflation.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
More by Bertel Schmitt
Comments
Join the conversation
A Toyota Tundra according to Toyota has more U.S. content than a Ford F-150. I can believe it. Assembly hours required for a new car are way down--as little as 14 hours for a Ford Fiesta. There's not much incentive anymore to beat the UAW out of their $25 per hour and lose easy access to the main market in the world. We export a heckuva lot. That won't happen if we engage in protectionism. My view is colored by personal experience. I remember the "voluntary" export quotas on Japanese cars in the early 1980's. The local manufacturers pressured Japan through Washington to limit imports of sedans in the depths of the early 1980s recession. Naturally, the economy began to turn around almost as soon as the quotas went into effect. Japanese auto dealers sold out immediately at a premium to MSRP. You would purchase a car off a grease board at the car dealer, which would describe the car being shipped and its expected arrival date. American dealers had product, but it was very low quality and also overpriced. I ended up paying $7,500 for a pickup truck that a few months earlier could have been bought for $5,500. They weren't covered by the quota, but their prices were influenced by the quota. The Japanese responded. They went up market. High profit lines like Cadillac, Lincoln and Oldsmobile never recovered. Basically, it was a disaster.
Ever hear of "petro dollars"? We've coerced OPEC to trade only in dollars in exchange for military protection. Every country that tries to do otherwise, such as Iran, eventually has the shit kicked out of them. Other countries want oil. They sell us crap so they can get dollars to buy oil. It's what keeps our living standards artifically high. We, in effect, outsource our production of goods to the middle east selling oil. Unfortunately, we do so at the threat of violence, and it isn't going to last forever.