By on January 24, 2017

Trabant 601deluxe Universal, Modell 1970, By Deluxe602 at de.wikipedia (Original text : S.M.) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], from Wikimedia Commons

“Like any good capitalist, I firmly believe that automakers need competition to produce their best and most innovative work.” That’s what my colleague and occasional pal Stef Schrader on Jalopnik wrote yesterday, in a column titled Protectionism Is Only Good If You Love Really Terrible Cars. I doubt neither Stef’s sincerity nor her diligence; she hits all the traditional marks in her piece, from Allegro to Trabant, and she does it with style.

I am not a good capitalist. Not any longer.

For most of my life, I was; I’ve been mostly self-employed since I was 19, and I’ve never asked for help from anybody save for three weeks’ worth of unemployment payments in 1995. I always looked at life as a battle that went to the strongest, and I never felt inadequate in the face of the challenge.

Once I became a father, however, I started wondering about my son’s prospects, and the prospects of his contemporaries. What if they didn’t have the strength, or the luck, that I’ve had? Should they be just tossed aside by the global economy, discarded forever just because they couldn’t win a race to the bottom with seven billion other desperate souls?

If the former president of the Miami University Entrepreneurial Society (yes, guilty as charged) can read Adbusters and start worrying about factory conditions around the globe, perhaps that means everything out there is up for grabs. And it’s worth asking the question: Could a new round of protectionist policies, intelligently conceived and applied, change our lives as drivers, consumers, and workers — for the better?

I want to start the discussion by dispensing with the phrase protectionist and replacing it with the word fair, because the truth is the United States has rarely had a fair trade relationship with other countries; either it’s been predatory, as was often the case with Latin American nation-states, or it’s been willfully ignorant of reality.

Let’s start with one of Stef’s prime arguments: the idea the Japanese conquered the American market by building better cars. While I won’t bother to argue the 1978 Malibu was a better car than the Accord, it’s fair to say Honda had several nontrivial competitive advantages besides product superiority. Japan had steel that was better and cheaper, courtesy of the MacArthur Restoration (yes, I’m making that pun). It had a young workforce willing to accept lower wages because the country was still in a hole, economically speaking. And, of course, it had the advantage of building the cars in yen and selling them in dollars.

Finally, consider history worked to Japan’s advantage in a way virtually nobody could have predicted or planned for. Without the OPEC crisis, the Accord would have been the same kind of small-batch curiosity the Toyopet was two decades prior. It’s easy to say you should always plan for high fuel prices, but that was precisely the strategy that destroyed General Motors’ market position in full-sized vehicles during the ’80s.

In short, while it’s tempting to see the ’70s auto market as a battle between hard-working, humble, engineering-focused Japanese automatons and spoiled-brat Grosse Pointe dipshits whose sole goals in life revolved around retiring early and owning a boat, the facts of the situation don’t support that narrative.

Many Americans apply the same willful blindness to China today that they did to Japan 40 years ago. We don’t have anything like a level playing field with China. American manufacturers have to contend with everything from OSHA to the unions to the habitat of the speckled owl-bird-fish, but the Chinese are free to do what they like to their people and their environment before sending us products priced in a centrally controlled currency.

Time and again we’re fed that same stupid canard that it’s manufacturing efficiency, not foreign competition, taking our jobs — but if that’s really the case, why doesn’t everything in Wal-Mart have a label that says “Made in the USA by a supremely efficient machine”?

We’re also told those jobs, and those industries, can “never come back” — as if the disappearance of our manufacturing base to China was an act of God and not the clearly predictable outcome of a series of policies designed to ensure a particular outcome, which can be easily reversed.

When the above fictions don’t satisfy the true progressives and the populists, we’re then told the outright racist fiction that American workers can’t compete with the Chinese or the Germans or the Japanese. To which I can only say: level the playing field and let’s see. What if our laws required imported goods to meet the same environmental, material, and human-rights standards that American manufacturers have to meet?

Obviously, we can’t force China to clean up their wastewater disposal or protect their wildlife or even keep children out of their factories. And that is why we need tariffs — to level the playing field between American firms who have to obey our laws and overseas firms that do not. It’s not “protectionism.” I assure you that America was just as capable of making cheap stuff back in 1890 as China is now. But we decided the environmental and workplace safety conditions of that time — to say nothing of the way food was prepared — weren’t acceptable. So what kind of racist scumbag do you have to be to say Chinese workers and children and animals don’t deserve the same protection?

So this is my suggestion for President Trump: Level the playing field. If GM wants to build Buicks in China, let ’em. But if they want to sell those Buicks here, then the burden of proof should be on GM to show they were built to equal standards of environmental protection and workplace safety. If not, then there has to be a tariff.

The same thing should be true for Mexico and any other nation where it applies. You can build your cheap cars in Mexico, but you should be prepared for a tariff to reflect the fact that you engage in labor arbitrage.

To Mr. Trump’s credit, he already realizes the purpose of tariffs is not to protect American companies; what does “American” mean in that context anyway? Ford is global, Chrysler is owned by the Europeans, and General Motors has demonstrated a despicable willingness to send its losses to the American taxpayer while sending its profits, and its investments, to China.

Will the prices of cars rise? It’s likely. But the social good of increased manufacturing employment greatly outweighs the inconvenience of paying 10-percent more for your Malibu because it’s chock-full of imported Chinese electronics. If you’re willing to pay 20-percent more to have a “DENALI” or “XLE” badge on the outside of your car, then you’re capable of paying that same tariff to ensure fairness for the American worker.

Furthermore, it’s already been shown multinational corporations can relocate production to the United States just as easily as they sent it to Mexico or China. It’s already happening. Billions of dollars’ worth of facilities and job opportunities are coming back home, simply because our government has finally demonstrated you have to play by some sort of rules if you want to sell to the American market.

But what about corporate profits? Who gives a shit? As one anonymous but perceptive writer pointed out a few months ago,

Who cares if productivity numbers tick down, or if our already somnambulant GDP sinks a bit further into its pillow? Nearly all the gains of the last 20 years have accrued to the junta anyway. It would, at this point, be better for the nation to divide up more equitably a slightly smaller pie than to add one extra slice—only to ensure that it and eight of the other nine go first to the government and its rentiers, and the rest to the same four industries and 200 families.

That’s fairness at its most basic, understandable, and reasonable.

Finally, I’ll address Stef’s primary issue with tariffs: that they result in crappy cars. It’s debatable as to how true that is; the perceptive student of history will recall that Japan was, and continues to be, a protected market for a variety of reasons, including both economic incentives and openly racist consumer behavior. (Our former E-I-C will no doubt disagree, of course; he always said that Japan was a totally free market and it was just random chance that no American manufacturer ever managed to get a foothold there.)

But even if you stipulate it was protectionism that resulted in the Allegro, the Granada, and the Trabant, that is an old lesson. China has taught us a newer lesson that supersedes it: where production goes, everything else will follow. Assembly labor is not some fungible process to be sent anywhere in the world while the “real work” stays firmly in the host country. To the contrary, it is the magnet that pulls an economy along, and that is why China can now design everything from its own laptops to its own fighter jets.

Let’s put that magnet back in the United States. Let’s bring the jobs and the opportunities back home. Let’s strike a blow for the environment, for human rights, for the dignity of your neighbors both next door and across the train tracks. Let’s do the right thing. Let’s forego being good capitalists and try being good people instead.

Thank you for reading.

[Image: By Deluxe602 at de.wikipedia(Original text : S.M.) [GFDL or CC-BY-SA-3.0], from Wikimedia Commons]

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166 Comments on “No Fixed Abode: The Perks (And Perils) Of Protectionist Policies...”


  • avatar
    jmo

    ” I’ve never asked for help from anybody save for three weeks’ worth of unemployment payments in 1995.”

    Haven’t you had a few auto and health insurance claims? How is that different than making an unemployment insurance claim? You paid for it – why not make a claim?

  • avatar
    VW4motion

    I to have an unfortunate vision of Trump straddling that Miley Cyrus wrecking ball. Some will enjoy this vision and some will not. Mostly the free-trade conservative Republican’s will not like that vision. And the Bernie Sanders will love it.

  • avatar
    FormerFF

    There’s a big difference between a punitive tariff that prevents imports, and a modest one that makes up for the difference in environmental and labor policies between countries.

    I would assume no tariff is needed on European and Japanese cars.

  • avatar
    kosmo

    Thoughtful article. Certainly some room for debate, but golf clapping, Jack!

  • avatar
    Matt Foley

    What a strange turn of events when conservatives are for protectionism and traditional liberals/progressives are for free global trade.

    (“Traditional liberals/progressives” are not to be confused with the idiots smashing and burning things. They don’t appear to be for anything at all.)

  • avatar
    mshenzi

    Really interesting argument here. “Free Trade = Good, period” has been a watchword of America’s democratic right-to-Republican-center-right for a long, long time; the long shadow of Milton Friedman (and the longer shadow of Adam Smith). Critiques of it started at the populist margins on both sides (Pat Buchanan, the Seattle WTO protesters), and got dismissed by the Free Marketeers who were sure they knew better (Cato Institute, everyone associated with the ’90s-’00s Washington Consensus, nearly every column in The Economist, the Clinton administration and mainstream Republicans). But doubts kept building in more and more ‘respectable’ circles, converging from both directions: Stiglitz from the World Bank, former Reagan administration trade official Clyde Prestowitz, etc.

    And so here we are, at an outlook on Globalization that, in its broadest outlines, Trump supporters and Sanders supporters agree upon, and which is suddenly no longer easily dismissed by anyone: The Global Free Market King is Dead, Long Live the Fair Trade King. Peter Navarro, your time in the spotlight is here: http://www.economist.com/news/briefing/21715017-there-are-reasons-be-worried-about-head-donald-trumps-new-national-trade-council-peter

    Interesting, interesting times.

  • avatar
    WallMeerkat

    British Leyland was the result of protectionism in the UK, building half hearted just-good-enough cars, at least the days when some plant wasn’t on strike.

    Applying the same to the US could lead to a new Malaise era.

    • 0 avatar
      JimZ

      I don’t think the US domestics would have that luxury. so many of the foreign brands’ best products are built in this country.

    • 0 avatar

      Let’s not forget that the majority of these flubs — Britain’s shoddily built vehicles included — happened mostly while governments had control over the companies producing those vehicles. British Leyland was more-or-less nationalized in the ’70s. I can’t see a Trump government effectively taking control of GM, Ford, and FCA.

      • 0 avatar
        Astigmatism

        Could you see him strong-arming them into building factories and models in certain places rather than other places? Buying from certain suppliers rather than other suppliers? Hiring certain classes of employees rather than other classes of employees?

        Then what’s the difference?

      • 0 avatar
        JimZ

        and they took that bailout/nationalization as a license to continue pumping out garbage.

      • 0 avatar
        ect

        Mark, the British Leyland story is a complex one. I’m no fan of government enterprise, but it must be said that the company was already in bankruptcy when the UK government effectively took it over, and that its bankruptcy was the result of many years of bad management.

        It is also untrue to describe BL as the product of protectionism. The BMC-Leyland merger was conceived in the notion that combining two sick companies would somehow produce one very strong company – which is a fallacy. Not for the first time, nor the last, did we see that the result is usually just one sick company – just larger.

        BL did wrap itself in the flag in order to beg for state aid at different points in its existence, but that’s also a very common story.

        It’s interesting to compare BL with Rolls-Royce, which was also nationalized when in went bankrupt in the early ’70s, after the failure of a very large engine project. That company came back strong.

  • avatar

    Trump’s stance may help initially… But calculated can a company like GM be to collect government funding to stay afloat, then proudly announce that Buicks that are coming to the U.S. will be made in China? What does that say? Americans are good enough to purchase GM cars, not fabricate them? How are the unemployed going to pay for them? However, it doesn’t do anything about the fact that Detroit is not competitive on export markets. The Germans are right that this is why you don’t see any ‘Made in America’ cars in Germany, and plenty vice versa. As a matter of fact, protectionism might even add to the non-competitiveness of American car makers, that are not at the forefront already when it comes to innovation, green technology, styling, fit & finish and branding. “Buy American” sounds good, but it may come down to Americans buying substandard, gas guzzling cars (since Trump thinks that Climate Change is bogus), that nobody wants in the rest of the world. Irony is that the one U.S. car maker that is successful on export markets, Tesla, may be forced to go elsewhere.

    PS: can somebody tell Trump that BMW (Spartanburg) is the biggest car exporter from the continental USA?

  • avatar
    FreedMike

    The focus here is too narrow. Yes, when it comes to *cars*, and things like big-ticket, durable goods, American workers are as good as any in the world, and they may even be better.

    But the loss of industrial jobs didn’t just come from the auto industry. I’ll illustrate that with my own family history.

    My dad sold women’s clothing from the early 1960’s until the late 1980s. His early career was at a company called Bobbie Brooks, which you might remember if you’re old enough. It was a medium-priced clothing line.

    At the beginning of dad’s career, 99% of Bobbie Brooks clothing was made in textile factories here in the States, mostly in small cities, and rural areas. There were hundreds, thousands of these factories, employing low-skill workers. Now, apparel wasn’t the only industry that worked like this – there were untold thousands of companies making a huge array of inexpensive consumer goods. These were industrial jobs. They employed millions of people. For the record, we’re talking about the lower middle class – blue collar workers making a marginal but decent living. Today, these would be the same folks working at Wal-Mart, in essence.

    And by the 1980’s, almost all of these factories had moved overseas. The jobs went with them. These jobs are most definitely not coming back, tariffs or not. Why? Because an American can sew together jeans as well as anyone in the world, but he can’t do it for $.50 an hour. Require that these jobs come back, and all the sudden a pair of jeans costs a LOT more money to American consumers. Yes, there might be benefits to quality, and yes, that’ll raise some boats, but the most likely consequence I see is a steep and immediate drop in jean sales. That’ll hurt the same lower middle class people who we wanted to “protect” with tariffs in the first place.

    So, what’s the solution? It’s twofold.

    First, develop new technologies and products that leverage our ability to build high quality durable goods. Alt energy is one possibility.

    Second, do what conservatives aren’t gonna be happy about, and take better care of the working poor. That means a welfare state of some kind. The extent of that is debatable, but the alternative is an American version of what you see in places like India.

    But tariffs on big ticket items? Meh. Requiring goods built overseas to be built to American “values”? I’m not sure how you do that without imposing regulations on factories overseas, and that notion seems like a non-starter to me.

    • 0 avatar
      Arthur Dailey

      One issue is just how much actual labour goes into each pair of jeans.

      We have calculate the actual labour cost difference of assembling a car in the USA or Canada versus Mexico as less than $300 per vehicle.

      That is a huge cost when calculated as a year’s worth of production. But as Jack has postulated $300 extra for their vehicle, per consumer is not too much to ask for a new vehicle purchase. Particularly if the end result is a return of ‘good’ jobs resulting in more taxes being paid, more consumer spending, less unemployed and an overall better standard of living.

      As for jeans, even if it adds $3.00 per pair, would that severely impact your purchases or standard of living?

      • 0 avatar
        FreedMike

        “As for jeans, even if it adds $3.00 per pair, would that severely impact your purchases or standard of living?”

        No, but then again, I’m not teetering on the edge economically like lots of people are. And I’m not just talking about them being able to afford a new pair of jeans. They people depend on jobs from low-margin places like Wal-Mart. Hurt their margins – which $3.00 extra per jean would DEFINITELY do – and those people lose out two ways.

        And then there’s inflation, which hurts everyone from top to bottom.

      • 0 avatar
        mike978

        Arthur makes some very good points – the cost of labour for some products (including cars) is a small % so any increase in labour costs is minimized in the final price increase. No-one is putting of buying new jeans for $3 (in the western world).

        • 0 avatar
          gtemnykh

          For what it’s worth, when I lived in the bad part of town, there was this phenomenon of guys selling 30 packs of socks and packs of white T shirts for cheap on street corners and in abandoned lots. I looked into it a bit, apparently just using socks a single time and chucking them (same with the t shirts) is something a certain sub-segment of the population in those areas does. They don’t have a washer/dryer in their house, and they can’t be bothered to spend time at the laundromat.

          Utterly confusing to a guy such as myself who bought a cheap used washer/dryer set and wears socks and shirts until they have holes in them.

      • 0 avatar
        mikedt

        Kind of like how Pappa Johns said they couldn’t afford to give their employees health coverage and then somebody figured out health care would add 25-35 cents per pizza. Would anybody really gripe about 35 cents so the person behind the counter could have health care?

    • 0 avatar
      ajla

      “That means a welfare state of some kind.”

      You’d have to run the numbers but practically speaking what’s the difference between subsidizing domestic production versus having a permanent welfare state for the working poor?

      • 0 avatar
        FreedMike

        “You’d have to run the numbers but practically speaking what’s the difference between subsidizing domestic production versus having a permanent welfare state for the working poor?”

        Good question and I’m not qualified to answer it.

        But in the absence of some kind of economic turnaround for the lower classes, there’s going to have to be some kind of enhanced quality of life for them. Otherwise…watch out.

    • 0 avatar
      JimZ

      http://www.youtube.com/watch?v=VdLf4fihP78

      whether you like John Oliver or not, he hits on most of those points here.

    • 0 avatar
      Big Al from Oz

      Welfare should only be available to the consumer.

      All protection should be for the consumer, ie, some public infrastructure, education, health, consumer regulations( incld emissions). The rest should be based on what the consumer wants or needs using a free market model. This creates true competition delivering the best possible outcomes to the consumer.

      When the consumer is protected and happy the free market will bebefit.

    • 0 avatar
      delow48

      I can attest to a similar story. My family had run an independent hardware store in the small North Carolina town I grew up in. We had a couple of large textile mills that provided thousands of jobs, and a good customer base for our store.

      Once all this “free-trade” was put into place the town was quickly destroyed. Parts of the mills began closing. More people out of work. Eventually all of the mills shut down, as did our store. Now the town is virtually non-existent, with very few young people. No jobs for that middle to lower-middle class outside of the main industry….the hospital for all the elderly that are left. Heck, they even blew up the factories so there is a couple mile long swath of nothing in the town.

      • 0 avatar
        Big Al from Oz

        delow48,
        What you describe is sad.

        The reality is throughout history humans have migrated to where opportunity exists.

        Those who are adaptable survive, sort of similar to Charles Darwin’s “Evolution of the Species”. If you don’t adapt someone will fill the void or opportunity you have given them.

        Everything must be earnt. If the mill ceases to earn (be competitive) it must cease as it will be a burden on others. It is unfair an selfish to consider yourself above others who are adapting and successful.

      • 0 avatar
        FreedMike

        @delow:

        “Once all this “free-trade” was put into place the town was quickly destroyed.”

        What I find most appalling is that this all was easy to foresee. After WWII, this country was basically the last economic power standing. Germany and Japan had been bombed to a fare-thee-well, Britain and France were shadows of their former selves. The Soviet Union was focused inward economically. If stuff was being made, it was being made here.

        But it was inevitable that our former competitors would rebuild, and it was also inevitable that the anti-colonialist movement would mean former colonies like China, India and others would begin to industrialize themselves.

        But no one in this country had enough forward political vision to figure out what to do with all those folks in your hometown once the s**t hit the fan. People just rode the wave until they couldn’t anymore. And now we see the results.

        • 0 avatar
          delow48

          Yes, I agree in part that the failure to adapt is a big driver. But there are many other factors such as the unfair economic climate that exists. As shown above there is no easy way to deal with the government regulation here, unions, high wages etc. when little to none of the same exists in other countries. Yes, the town was not able to move to other industry, but this will be our ever increasing fate as the jobs for the lesser educated disappear. If you think the riots of today are bad, just consider if the millions stuck in the unemployment line or the part time job decide to riot.

  • avatar
    heavy handle

    I would argue that Japanese cars were getting significantly better with each generation throughout the 1970s and 1980s, and the Big 3 were selling restyled versions of 1950s machinery.

    It had nothing to do with the strength of the Yen. That theory was shot-down the last time the US tried “getting tough” on auto trade. All it did was increase the amount Americans were willing to pay for Japanese brands, due to limited supply.

    The real problem with US manufacturing is that nobody outside of the US and Canada wants to buy US-made Big 3 cars. They love US-made Mercs and BMWs and, to a certain extent, VWs, but the US brands just don’t sell anything they want to buy.

    Increasing taxes (which is what tariffs are) won’t help that.

    The other problem is that the US auto market is at its peak, so there’s no reason to build new factories. Demand can be serviced without creating any new jobs.

    • 0 avatar
      Arthur Dailey

      Part of that is true. Vehicles made for the North American market are considered to be too large or too complicated for most other markets.

      In the UK the Mondeo is considered to be a large vehicle. In North America its Contour offshoot was considered too small to be a serious competitor.

      Engines here are generally larger. As Clarkson is fond of saying ‘how can Americans get so few horsepower per displacement size’. We travel more often and longer distances therefore have a preference for larger, lower revving, longer lasting engines.

      North American pick-up trucks and full size SUV’s are just too big for most other markets.

      And the options that we cannot live without are considered outlandish in much of the world. There they drive cars with manual transmissions.

      • 0 avatar
        RobertRyan

        @Arthur Dailey
        Partly right. Larger cars MAYBE considered too big for some countries, too complicated no.
        US Pickups and Pickups in general, are not part of the mindset of Europeans, so that cuts that very large market out.Full Size SUV’s have the disadvantage of being very poor Off Road a requirement elsewhere.
        No, Automatics are pretty much standard now for most countries Things you cannot live without are pretty much the same things others want outside NA

      • 0 avatar
        Big Al from Oz

        Arthur,
        What the US drives is largely influenced by regulatory controls (government influence) and affluence.

        The US like Australia and Canada have sprawling cities developed since the onset of the industrial revolution. We more or less had technology allowing for sprawling cities, unlike dense EU and Asian countries. Hence we drive large vehicles.

        Add to this the ravages of two World Wars destroying their economies.

        So for a Century now Canada, Australia and the US have made trillions from the misfortune of others, we rebuilt the World after WWII. Now others have caught up along with new competitors.

        This now has upset many in Australia, US and Canada. Geopolitical events of the past are unlikely to occur again for a long time. If and when they do it is highly probable we will not profit again.

        We must face up to the fact for us to survive as we had we need to compete more.

        We don’t have the influence to dictate economic terms, we just don’t hold the balance of power. We do regionally (more and more) ie, Trumps efforts in NAFTA at the expense of the Pacific.

  • avatar
    psarhjinian

    The part of free trade that no one talks about is a) it doesn’t say that you can’t tax income, and b) it also should, but usually doesn’t, imply that freedom of movement should also be possible.*

    There’s a reason for this: the benefactors of free trade don’t really want governments taxing their trade-derived income, and they sure as hell don’t want cheap labour immigrating to cash-cow nations. ”

    You don’t need protectionism; you do need the level the playing field, though. You could do it by returning tax rates to what they were under liberal paragons like Eisenhower or Nixon, and you could allow unskilled labour to immigrate, again like we did under Eisenhower or Nixon. Curiously, taxing rich people fairly and allowing people to immigrate and get good jobs seemed to coincide with serious prosperity, didn’t it?

    What we’re going to do, though, is tax rich people even less and raise barriers on immigration. We’ve been doing that for years and curiously, just amazingly, income inequality has been getting worse.

    * It would also be nice for “free trade” to mean free trade for everyone, and not just very wealthy people. You want to being a million t-shirts over from Bangladesh? Fine, then I should be able to buy a DVD or book from there, too. Oh, wait, I’m sorry, so IP laws should somehow be exempt from trade liberalization? And that would be why? Right, right, because rich people.

    • 0 avatar
      stuki

      Taxing activity, whether “income” or “consumption” will never be anything more than a license to snoop, rat and creating a massively efficiency robbing spy apparatus to hamper and leech off of what could otherwise be perfectly natural human interaction.

      Pragmatically, the enforcement may have been less detrimental back in the industrial mass production era, but now it is nothing but a subsidy for lobbyists, tax lawyers and tax feeders.

      Fund government with a simple to administer import tariff, and a straight up land tax. 10% each perhaps. Then get the heck out of the way and let people do as they please, without having to include consideration for a bunch of assorted leech armies in every little decision they make.

      Then, as you say, trade freely in EVERYTHING: DVDs, Drugs, medical services, guns for sure.

      But also legal services, to the point where if you are not indicted for a crime, you get freely decide whether you want to play courthouse with some ambulance chaser or not.

      And construction. Build what you want when you want where you want. Then sit back and enjoy an entire population living large almost for free, on account of capitalism’s inherent bias towards a generalized form of winners’ curse. That in and of itself would save a working family more money than any idiocy Trump could ever dream up.

      And finally, money. Print what you want when you want. Then everyone can print as many dollars as they feel like. Just like Yellen. That’s the kind of equality that would really make America Great Again. Not the petty privilege jockeying and Caudillo grandstanding Trump seems to look to Chavez for inspiration for.

  • avatar
    Arthur Dailey

    Jack, Your comments mirror what union leaders have been saying for decades.

    Will you be joining the Occupy Movement next?

    Free trade with dictatorships, 3rd world nations or nations that do not have the ‘rule of law’ only weakens our own country and adds to the coffers of international investors and global corporations.

    • 0 avatar
      Jack Baruth

      I made a (very small, under a hundred bucks) donation to Occupy at the beginning.

      I thought at the time, and continue to believe, that a financial transactions tax would go a long way towards fixing our debt problem.

      • 0 avatar

        My current theory is we need a rent seeking tax. That would be a very low tax on capital until it hits a preset point. So say investment income of 5% annual return would be taxed at 4-5% but after an annual return of 7% (progressive taxing here) would be taxed at an outrageous high rate like 45%. The idea being to keep capital moving instead of creating capital out of vapor through market manipulations etc.

      • 0 avatar
        dal20402

        We don’t have a debt problem (our debt-to-GDP is quite manageable and currently shrinking), but we do have a rent-seeking problem in the financial markets that a tiny transaction tax would solve almost perfectly.

        Unfortunately, the guys who are good at pulling market levers are also pretty good at pulling congressional levers, so there’s not a chance of it happening.

      • 0 avatar

        Would you apply that financial transactions tax to the stock and other investment purchases made by the “millionaires next door”, the many millions of Americans with investment accounts, or would you just apply it to transactions between financial institutions like banks and brokers?

        • 0 avatar
          dal20402

          It would be so tiny that the millions of Americans with investment accounts (including both millionaires and those with $1k scraped together), even those who trade more often than average, wouldn’t notice it.

          It would only be meaningful to the investment firms that are using high-speed trading to capture tiny fluctuations over fractions of seconds (at the expense of all those other investors), trading hundreds or even thousands of times a day.

          Think in terms of thousandths of a percent and you’re on the right track. If I buy $5000 of stock, I pay maybe a penny.

      • 0 avatar
        300zx_guy

        just curious what you mean by a financial transactions tax. Transactions that result in profit are already taxed. What would your proposal be?

        • 0 avatar
          dal20402

          A financial transactions tax is a tax (very small in most proposals) that’s levied at the time of the transaction and has nothing to do with whether the transaction makes money or not. In most proposals, the individual consumer wouldn’t even be aware of it because it is so tiny and would be handled by the broker. The idea is to make ultra-high-speed algorithmic trading, which imposes a “tax” on everyone who’s not capable of engaging in it, less attractive while not changing much of anything for normal investors.

  • avatar
    Dirty Dingus McGee

    I can see company’s moving here already. We have quoted work for 2 Mexican based company’s, that are now planning U.S. facility’s, in the last 4 weeks. In addition to U.S. based company’s expanding here, instead of elsewhere. I’m flying to Milwaukee Thursday night to look at bidding an expansion at a large U.S. based company. As a rough guess, I would say that they are looking at $90-100 million in total cost. Likely over 175 jobs, based on the equipment they are talking about.Will that be a big boost for the economy there? No, but it’s a start.

    • 0 avatar
      JimZ

      the real question is are we going to put our money where our mouths are as a society and pick the more expensive US-made option? I don’t wager we will. We’ll scream and demand companies move back here and then continue to buy the Chinese stuff because it’s “so much cheaper.”

  • avatar

    Glad to see a thoughtful counterpoint! I think it’s ultimately going to come down to the severity of what’s enacted as to whether we’re going to see automakers continue to churn out very good cars as they have been in the past few years, or a second coming of the Malaise Era.

    Level, fair trade practices would be welcome, and I share the same concerns over environmental and labor protections in non-U.S. factories. However, too much of a swing in the other direction may harm the same people who found hope in much of the economic promises Trump & Co. made. The folks buying cheap, small cars that are harder to justify building with U.S. labor costs usually aren’t high rollers, and should parts also become more expensive, oof. That could be the difference between some of our most vulnerable citizens being able to fix a car and stay mobile, and not.

    Either way, here’s hoping whatever comes down the line is smart and reasonable.

  • avatar
    deanst

    The theory behind establishing a tariff to compensate for lax environmental standards, etc. makes a lot of sense, but at the end of the day the Chinese will have access to the same production equipment, be able to work just as productively, and be willing to work for a lot less. This James goldsmith interview on Charlie rose is quite informative and prescient:

    https://m.youtube.com/watch?v=wwmOkaKh3-s

    Also, While the Japanese had a lot of help from other factors, there really can be no denying that their manufacturing abilities were unparalleled In the 70’s.

    For what’s it’s worth, the manufacturing output of the U.S. is at or near an all time high in absolute terms. And even if successful, bringing back production will largely bring back more automation and few jobs.

    While I have lots of sympathy for the idea of more domestic manufacturing, it does strike me that the same type of arguments were made when agricultural workers fell from about half the economy to less than 2%.

    • 0 avatar
      heavy handle

      Jack’s whole article is based on the premise that Mexican, Canadian, German, British, Korean, and Japanese car factories are somehow environmentally worse than factories on US soil. It’s built on a shaky foundation, to say the least.

      The farming parallel is obvious, as are several other. Where has the local blacksmith gone? What about cobblers? Scribes?

      • 0 avatar
        Jack Baruth

        There’s a difference between blacksmithing disappearing and having all the blacksmiths move to China, isn’t there?

        • 0 avatar
          heavy handle

          Blacksmithing is a fine, honorable occupation, but it’s no longer a pillar of the local economy. We don’t need to have one in every town or neighborhood.

          The glory days of blacksmithing in China were during the cultural revolution. I’m sure nobody wants to go back to that.

          • 0 avatar
            Jack Baruth

            That’s what I’m saying. You are willfully conflating the obsolescence of a trade (blacksmihing) with outsourcing of labor that is still very much required and current.

          • 0 avatar
            heavy handle

            Factory labor is no longer required in the same numbers as it was pre-war, and even pre-1980. Productivity has made massive gains.

            Besides, it’s hard to argue that auto manufacturing jobs moved from the US to China. Only a handful of Chinese-made cars are sold in the US. I wouldn’t be surprised if Americans purchased more Spanish cars than Chinese in 2017. Almost all Chinese-made cars remain in China.

        • 0 avatar
          Zykotec

          American Auto industry killed the American blacksmith. Most people today can’t even maintain a horse at all…

          • 0 avatar
            Arthur Dailey

            @heavy, It is not Chinese manufactured cars (yet) it is Chinese manufactured parts and Chinese steel in cars assembled in Mexico, Thailand, etc that are the issue.

  • avatar
    White Shadow

    “…But what about corporate profits? Who gives a shit?”

    Shareholders. That’s Business 101 and the failure in this piece.

    • 0 avatar

      I think that’s the basic premise the shareholders have been given to much pull. One of the economists (Jensen) who pushed that idea heavily in the 70’s to the 90’s did an interview in the spring where he said he over spoke on the importance of the shareholder and it has likely distorted business.

      • 0 avatar
        White Shadow

        As someone who has worked in corporate America for many years now, I can tell you that most every decision is made with shareholder value in mind.

        Hell, I should go back to fixing cars. You know, part of the Service Economy!

      • 0 avatar
        dal20402

        The shareholder is the owner, though. It’s ultimately the shareholders’ decision how to run the business.

        I’d argue that the fault isn’t with the business leaders, but the shareholders themselves. They’ve taken much too narrow a view of the purposes of their businesses, and become intolerant of decisions made for any purpose other than short-term share price increases.

        Think about how the best individual business owner you’ve ever met runs his business. He makes decisions that hurt his short-term profit ALL THE TIME. He pays bonuses even though without them his employees would still be there, because he wants employee loyalty when times get tough later. He mortgages production assets to build a new facility that won’t contribute to the bottom line for several years. He gives a huge chunk of net profits to community causes. That’s all behavior which is beneficial to the community, and it’s all behavior the shareholders should endorse. But most of the time they don’t.

  • avatar
    mike1dog

    If this was what Trump really meant, I could see that. Yesterday, however, he said in a meeting with Musk and Mark Fields from Ford that he wanted to cut U.S. regulations by seventy-five percent. Not sure how a percentage is workable on regulations, but you talk about a race to the bottom, this is it. He doesn’t want to make the Chinese pay a tariff for the difference between what their regulations and ours are, he wants to make our regulations the same as China’s. I’m pretty sure he wouldn’t be successful, but this is a guy who says Americans make too much money, so I guess minimum wage cuts here we come.

  • avatar
    319583076

    Most people have an incredibly superficial understanding of economics and government policy because they’re not willing to work any harder than reading a newspaper or website.

    In order to have intelligent opinions about economic models and trade, you have to have a full calculus sequence including differential equations. Real economic analysis includes difference equations as well. If you don’t know the difference between the two without consulting a reference, your opinion on economic policy is invariably uninformed.

    So, Jack, tell us about your quantitative analysis and perhaps which economic model or models you support and why said models are superior to the alternatives.

    • 0 avatar
      Jack Baruth

      Most people have an incredibly superficial understanding of opinion pieces because they’re not willing to work any harder than using a calculator or obtaining a viewpoint from their peers.

      In order to have intelligent opinions about rhetoric and polemic, you have to have a complete background in post-Structuralism including a complete acquaintance with the bulk of classical philosophy. Real opinion-piece analysis includes awareness of Kierkegaard and Barth as well. If you don’t know the difference between the two without consulting a reference, your opinion on opinion pieces is invariably uninformed.

      So, random person on the Internet, tell us about your alternatively-informed deconstructive reading and perhaps which version of the Pelagian heresies you support and why said beliefs are superior to the alternatives.

      • 0 avatar
        3XC

        Ooh kill em.

      • 0 avatar
        319583076

        Shifting the burden of proof with a liberal helping of ad hominem.

        It’s nice to know where we stand.

        • 0 avatar
          Arthur Dailey

          http://www.economicsforeveryone.ca

          A complete website with easy to understand explanations and a link to the textbook authored by the website’s host, Jim Stanford, a fully qualified economist with a master’s degree in economics from Cambridge University and a doctorate from the New School for Social Research in New York.

          And in keeping with the TTAC theme, Jim was the chief economist for the Canadian Auto Workers (CAW). And he is a big rock and roll fan and overall great guy, regardless of your’s or his politics.

      • 0 avatar
        Von

        I see what you did there Jack.

        But a couple of points. Random person wasn’t the one that wrote an economics article while his primary qualification on the subject was automotive journalism. So he expressed his skepticism, perhaps not in the nicest way possible.

        And while I no doubt you are well read and educated, pulling works unrelated to economics from your reading list to attack random person as unqualified is a bit of a whiff. I would wager that many well qualified economists are not as well read as you in some subjects while better in others, and yet their opinion would still be considered well informed.

        Bottom line, the B&B is not 100% B&B 100% of the time. Nobody expects you to be perfect, but it’d be nice if the esteemed writers such as yourself stayed above the petty stuff.

        • 0 avatar
          DirtRoads

          Hmm I dunno, I didn’t see an ad hominem. Just a request for credentials.

          By the way, random person, is that your SSN? I think I saw it on a bank loan application.

  • avatar
    philadlj

    “Time and again we’re fed that same stupid canard that it’s manufacturing efficiency, not foreign competition, taking our jobs”

    But it’s both, isn’t it?

    Robots are cheaper than American workers.
    Foreign workers are cheaper than American workers.

    Both are friends of the shareholders, who seek the greatest return from the smallest investment.

    Yes, technically you can “bring back jobs” by ditching the robots, firing the foreign labor, and hiring Americans.

    But to those corporations and investors, automation and cheap foreign labor are “progress”, because they benefit their bottom line.

    Asking them to go backwards to a time when they paid American humans more in salary and benefits to do the same job is a hard sell.

    Let me talk about The Matrix Reloaded for a sec.

    The Architect (creator of The Matrix) warned Neo that if he didn’t go through a certain door the Matrix would crash, which combined with the assault on the rebel city Zion would cause the extinction of the human race.

    Neo thought the machines “needed” humans, but the Architect countered that “there are forms of survival we are prepared to accept”, implying it would be hard to live without humans, but it would be better than letting the humans win.

    Let’s say Trump is Neo. The corporations are the Machines.

    “I am a New Weapon of the People, who can bend and break the established rules to make life hell for those who aren’t operating in the interests of those People,” says Trump.

    “So?” say the corporations. “That doesn’t we’ll all bend to your will. We’ll just…figure something else out.” And that’s why his policies will fail. The collective intrinsic insular self-interest of corporations will either be unwilling or unable to buy in fully.

    You can take their automation and cheap foreign labor when you pry them from their cold, dead hands, some will say. When they die, others will rise in their place. Without full buy-in of the paradigm Trump has put forward, there’s insufficient will to make his changes stick.

    I’m not saying it’s not a nice idea to put Americans back to work making things. I’m saying even the president doesn’t have the power to bring enough of the corporate world to heel to fight back the winds of “progress.” Not American companies, and certainly not global companies.

    “America First” simply is not compatible to “Shareholder First.” It might be nice if it was, but it isn’t.

  • avatar
    lot9

    We have not had FAIR Trade since the Reagan years..After all, NAFTA started in his administration.
    The party of the wealthy does ideal of Free trade is free to the other countries, and USA pays the tab. Like we do in ALL our Drugs Prices.
    Guys, the country is run by the wealthy and it is a Rich Club and the American citizens are Not MEMBERS… they are just picking up the tab and paying the cost of it all.
    I say lets put the tariffs in effect if that what it takes to level the playing field.

  • avatar
    PenguinBoy

    As someone who was involved in multiple factory closings in North America and Europe over a period of about 20 years, I agree with everything Jack has written here.

    Also, since the recently scuttled TPP apparently included robust protection for intellectual property rights*, I don’t see why trade agreements can’t include harmonized environmental and labour laws as well.
    ________
    *arguably another form of protectionism.

    • 0 avatar
      Arthur Dailey

      Because the ‘rule of law’ is in place. I have to cope with this environment on a daily basis. We manufacture in Canada and export most of our production to the USA. We compete with a number of Chinese manufacturers.

      Since their is no tariff on their goods, some organizations and/or jurisdictions have introduced other means to control Chinese imports. For example our products must meet CARB standards to be sold in California. Voluntary standards include ISO accreditation for environmental management and social responsibility.

  • avatar
    VoGo

    I would argue that economics is a lot like brain surgery: it’s not for amateurs.

    Jack, you write really interesting stuff about cars. But just because you are an editor at TTAC and have full editorial rights, doesn’t mean you shouldn’t stick to your knitting.

    • 0 avatar
      Jack Baruth

      Ridiculous.

      Brain surgery is usually successful. Furthermore, it’s based on established logical and scientific procedures.

      All economics above the micro level isn’t brain surgery; it’s phrenology, an attempt to observe unrelated phenomena and draw imperfect conclusions.

      If anybody truly understood nation-state-level economics the way we understand the human brain — which is to say, imperfectly but with a reasonable certainty as to many of the basics — we’d have skipped 2008, the Japanese banking crisis, the Greek collapse, and so on, and so forth.

      I don’t know if you’ve noticed, but every “lever” in this economy is set to full panic recovery mode and has been for a long time.

      • 0 avatar

        Paraphrasing George Bernard Shaw:

        If all the world’s economists were laid end to end, they’d still all point in different directions.

      • 0 avatar
        markf

        Boom. Beta Sean owned again, I look forward to him coming back for more.

        Yes, we are going on 10 years of ZIRP and the economy still stinks. Economist no basically nothing. As the “great” Paul Krugman said after the election:

        “It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?” Krugman said in his post. “If the question is when markets will recover, a first-pass answer is never.”

        Always wrong but never in doubt…..

      • 0 avatar
        dal20402

        “I don’t know if you’ve noticed, but every “lever” in this economy is set to full panic recovery mode and has been for a long time.”

        We haven’t had anything resembling “full panic recovery mode” since World War II. For the last decade, we’ve counterbalanced loose monetary policy with very tight fiscal policy. “Full panic recovery mode” in 2009 and 2010, when we arguably needed it, would have included:

        – An increase in short-term spending of as much as could possibly be spent without large-scale fraud, probably on the order of 10% of GDP annually
        – A major national public works program operated directly by the government and designed transparently as an employment program, funded by the above spending
        – An emergency suspension of a variety of safety and environmental rules as needed to get the funding moving faster
        – An increase in government pensions and disability payments

        There are lots of good and not-so-good reasons we didn’t do this, but without it we certainly weren’t pulling every lever.

        • 0 avatar
          Jack Baruth

          Fair enough.

          Let me rephrase.

          We have pulled every lever that was consistent with the stated policy and political leanings of the Administration.

          Should we have done another WPA? Hell yes. We should do one NOW. But that’s not likely under any administration but a Sanders one.

          • 0 avatar
            PrincipalDan

            Should we have done another WPA? Hell yes.

            There’s something Jack and I agree on. I grew up in an elementary school built by the WPA, drove around a county where there were many steel span bridges that had been built by them.

            That was a program where nearly 60 years after it ended I was still benefiting from it.

          • 0 avatar
            dal20402

            I would bet money that the just-departed Administration would have been happy to do another WPA program if it thought such a program had had a chance in he!! of getting through Congress. Most of the people in it, with the notable exception of the current Chicago mayor, did want a stimulus of at least twice the size we ultimately got.

            It didn’t have a chance, even in the first two years, so the Administration wisely spent its political capital on other things.

        • 0 avatar
          JimZ

          Europe f**ked this up as badly as we did. when the economy hits the skids, “austerity measures” are the worst thing you can do. Ideally, when the economy is rolling the government should be setting stuff aside. then when a downturn hits, they have money to spend.

          unfortunately, when the economy has been rolling we’ve decided we’d rather find wars^H^H^H^H”stuff” to blow it on instead of setting aside a “rainy day fund.”

      • 0 avatar
        delow48

        I agree fully. With what 95 million able people not in the workforce and 115 million now on the public dole….we are in for a very rough time in the future. The awful way we refused to take our medicine in 2006-2010 has led to this. And you are right, most signs are pointing to panic.

    • 0 avatar

      While an amateur might not be able to perform brain surgery, as long as she wasn’t stupid, she could easily understand the procwesses involved.

      Surgeons are technicians. A couple that I know are both transplant cardiologists, managing the care of patients already in heart failure. They think of themselves as the patients’ doctors and regard the surgeons as their plumbers. Of course, it’s nice to have smart and capable plumbers.

      I find the mindset of “boy, that person is so smart and clever except when they disagree with me” almost amusing. Whether it’s your boss or some random anonymous internet expert, they want you to be stupid when they’re wrong.

  • avatar
    Big Al from Oz

    Jack has painted an inaccurate picture of how the US operated over 100 years ago. Sweat shops abound, just look at the clothe trade in NYC or the life of a farmer in the mid west, let alone in the South.

    The Europeans like many Americans now over Chinese goods whined and cried over cheap US goods heading across the Atlantic.

    These US goods were cheaper for a reason, and it had little to do with how superior the US was.

    You can talk about safety and other standards the US has now, but it took a Century for the US to get there.

    Free trade is good for all. It increases the wealth of others, thus improving the odds of making more yourself and improve competition making all have access to a better life. The US can’t monopolise standard of living of others. Whining and crying, implementing restrictive trade will only harm the US. The US will become less of a force with diminishing leadership and influence.

    That stroke of the pen by Donny Slump with the TTP will leave the US will a huge loss. The Chinese now have a great opportunity to fill the void and tilt the balance of power in the Pacific region.

    He who controls trade, controls. The Chinese appear to be succeeding. The US could, but the many in the US have adopted the traditional Euro stance of protectionism/arrogance.

    Jack read up and stop being emotive and nostalgic. Use facts or join a union.

  • avatar
    dwford

    Agreed. Free trade is great for the less developed country and all the people who didn’t lose their jobs in the process. For what real gain? Maybe in some macro view free trade works, but zoom in and look at all the people hurt by it. What do we tell them? “Well, it is better for everyone else, sorry you got the short stick.”

  • avatar
    S2k Chris

    I think the difference these days is that Trump is agnostic about brand and country of origin. It used to be that we wanted to protect the Big 3 and fight off the Japanese, and I agree, doing that doesn’t drive the Big 3 to put their best product foot forward.

    Trump’s thing isn’t Us vs. Them in terms of brand or brand’s country of origin, I don’t think he cares. What he seems to care about is are the cars sold in the US made in the US, and from that perspective, Honda vs. Toyota vs GM vs BMW vs Ford vs MB doesn’t seem to matter. It seems more fair to say “if you want to sell cars in the US, build them here” no matter who you’re talking about (domestic vs. foreign automaker); if a Mexican-made Ford or VW is going to be hit with the same tariff coming over the border, I’m not sure how that stifles competition and leads to worse American products.

    • 0 avatar
      gtemnykh

      Camry is domestically assembled with 78% domestically sourced parts. Fusion is (now) Mexican assembled with 49% domestically sourced parts. I’m pretty sure the latest Malibu is domestically assembled, but I wouldn’t hold out much hope for the domestic content to be much over 50%. Interesting to track these numbers over the next X years.

  • avatar
    Zykotec

    There is so much that can be said about the downfall of the American auto industry. One can argue that Fords descision to try to fight Chevrolet on speed and style in the late 20’s instead of continuing to improve on perfection was a miss.

    One could say that dumping their cars cheaply in the 50’s to kill off those who actually could make compact cars, doomed them from ever again making easy money on cars.

    Or that the insane excess of the late 50’s cars meeting a recession head on (and Chryslers decision to go from a quality manufacturer to making stylish fast cars) almost killed them.

    Or that GM shot themselves in the foot in the early 60’s by giving people the Chevy II as an alternative to GM’s brilliant semi-compact lineup.
    Or that GM’s decision to finally simplify production by essentially making their lineup the from top to bottom the same car, with different pricing was an oversight.

    Or the fact that they all got lazy and never had a bright idea or used a cent on actual progress between 1965 and 1985. hurt them a bit.

    With the release of the ‘Grosser’ Merc, Cadillac and Imperial were no longer the top Luxury cars in the world. And no logical mind had any idea how to make a car that was as awful as the Beetle to give it any actual competition (I still think everyone who bought one new did it just out of spite)
    so in the 60’s the Europens suddenle had a foot inside.
    No matter why the Japanese cars were better in the 70’s the American cars were still bloody awful.

    I do love American Iron from the 70’s, but as a curiosity, as their complete and blatant disregard for absolutely everything apart from looking good on pictures really make them stand out here in Europe.

    They were movie props. Brilliant movie props maybe, but still shallow useless infficient lumps of mass produced kitsch.
    They were something you love to see at a cars show 40 years later, but not something any conscious educated person would spend their own money on and expect to use every day.

    Americans can build cars though. As can the British. My Swindon built CRV is assembled perfectly, as is probably any Ohio built Accord coupe.

    The only thing the American manufacturers can do ‘better’ (some of that is subjective though) than the others right now, are trucks built for the American market. Partly because these are still built from the same process that once made all American cars ‘great’, and partly because no one else has really given a serious effort at beating them yet.

    Will protectionism make American cars awful again?
    I’m not sure. All of the ‘big three’ now do a lot of their development overseas. It will be hard to put tariffs on ideas and designs even if they have to do all the manufacturing in the US. There will possibly be less compact cars to choose from, but no one wants them anyway.
    If Trump can actually change the emissions regulations, manufacturers may want to build more cars instead of trucks, leading them to actually try to build normal cars again.

    • 0 avatar
      Big Al from Oz

      The problem the US auto industry has now is the problem with the nation overall.

      Cultural paradigms is hard to change, especially at a national level.

      Many in the US (not all) has a belief it is superior and can never fail. This belief has been around for a damn long time.

      The world today is completely different geopolitically and economically than a Century ago when the US moved into top gear. The US dominated in all aspects of human development. Since the 70s others and I will add many others have caught up. All of this is not the doing of the US. Proportionally the US delivered more. But the US represented over 50% of the globally economy after WWII to now under 20%.

      This means 80% of the world is better of than the US and in many cases outperforming the US in areas of social, economic, health, education, etc. For the US to become great again these areas areas should be the centre of focus.

      Finger pointing with false facts (blaming Chinese, Mexicanc, etc) and denying the root cause of the woes afflicting the US will damage the country.

      So the US traditionally but mass consumer cars, when it was able to compete, it still wants to build mass consumer cars on a “millionairss” income. It hust ain’t going to end well, unless you drive down the standard of living like your competituon, or a better way us found to produce vehicles.

    • 0 avatar

      “The only thing the American manufacturers can do ‘better’ (some of that is subjective though) than the others right now, are trucks built for the American market. Partly because these are still built from the same process that once made all American cars ‘great’, and partly because no one else has really given a serious effort at beating them yet.”

      While Nissan’s effort with the Titan has been a bit half-assed, Toyota put their full corporate weight and billions of dollars into the Tundra project. Still, Toyota understood that brand loyalty in the American pickup truck market is very strong. They understood that about 6% of that market, though, has no brand loyalty because those are mostly businesses, large and small, who tend to buy whatever is the most recently updated truck. Dollars and cents decisions about the best bang for the buck. That’s one reason why the American mfgs put so much focus on the needs of tradesmen when they do their pickups.

      A decade or so later, the Tundra has 6% market share.

      • 0 avatar
        Zykotec

        Well, OK, they met their goal, and offcourse brand loalty is another huge factor that I should have mentioned.
        Instead I cleverly hid it under the ‘subjective’ line to give myself a safety net in case my lack of research was noticed :)

        I admit I do not know anything about how comparable the Tundra is when it comes to configurations or weight/tow ratings etc.
        But I feel the typical truck customer may not be the typical ‘import’ buyer in the first place.

        • 0 avatar
          Big Al from Oz

          Ronnie,
          I should of added if you were correct the US would not required the chicken tax. This is not a hard concept. Protective barriers equate to a deficiency.

      • 0 avatar
        Big Al from Oz

        Ronnie,
        Bullsh!t.

        Trucks are built in the US under massive protection.

        As is proven, Germany, Brazil, Japan and Australia can design and produce more competitive and comparable pickups.

  • avatar
    bunkie

    Smoot, meet Hawley…

  • avatar
    notwhoithink

    I gotta say, Jack, what you’ve put here makes a lot of sense…as far as it goes. But my question revolves around “What if our laws required imported goods to meet the same environmental, material, and human-rights standards that American manufacturers have to meet?” We have a POTUS and Congress who appear to be hell-bent on gutting large portions of those laws and the agencies that enforce them. Hell, in his meetings with the auto execs and other business leaders he has flat out offered the quid pro quo of “Bring manufacturing back to the states and we’ll cut all sorts of regulations that you don’t like, but try to import goods manufactured elsewhere and we’ll make you pay tariffs!” What good is it to say that Chinese goods will be taxed for not meeting our environmental and workplace standards when they’re trying to make our standards more like those of the Chinese?

  • avatar
    White Shadow

    Look, the bottom line is that we (the U.S.) are no longer a manufacturing economy and we need to move on instead of fighting a losing battle to manufacture goods that can be made elsewhere for far less money. Focus on Services, as the Service Economy is already here and is the best way to sustained growth for the short term. And then the robots take over. Sorry, had to throw that in there as the wild card.

    • 0 avatar
      bunkie

      “Look, the bottom line is that we (the U.S.) are no longer a manufacturing economy”

      As of 2013, China held 23.2% of world manufacturing with the U.S. second at 17.2% and Japan was third at 7.8% and Germany was fourth at 6.3%.

      It is true that China is, rapidly, leaving the rest of the world behind, but the U.S. is in a solid second place.

      • 0 avatar
        White Shadow

        Look at the trend though. Even if those percentages are correct, I’m quite sure that the U.S. has continued to be on a manufacturing decline for many years now and that’s not going to change. In my opinion, it’s a losing battle to attempt to use tariffs as a means to “level the playing field” with third-world countries that have a competitive advantage in the cost of manufacturing (read: wages) that we simply cannot compete. So what’s the answer? Move away from manufacturing into something else. Something great, as Trump says. Manufacturing isn’t the answer anymore. All developing countries will inevitably face the same scenario, as their cost of labor will gradually increase to the point that their economies will shift as well.

  • avatar
    sportyaccordy

    Lol. Couple of points.

    1. What happened to Bark’s Bites from yesterday? I know I didn’t dream of that self-inflicted thrashing :D

    2. You make some salient points, but are also in a vacuum of reality. Trump doesn’t give a crap about human rights or the environment…. he is going to make America competitive with China alright, by ditching all regulations and playing with the currency like China. And you know who’s gonna benefit? The same folks who always have- the billionaires and the like who he flooded the swamp with.

    3. Automation and technology are most definitely killing jobs at a higher rate than “Gyna”. Foxconn replaced 60K workers in China with robots just last May and they are hardly alone. And what manufacturing is coming back to the US isn’t bringing jobs with it… why would it when computers and robots can do the work better than any human can?

    Yesterday your bro got out of pocket and was rightfully torn to shreds by the B&B hyenas…. why are you making the same mistake? Trump has only been in office for 2 days and his supporters are already in a full on panic, because not so deep down you know just like the rest of us that Trump is full of crap…. but your sense of patriotic shame and nostalgia won’t let you admit it.

    Your son is a smart kid…. if you don’t want him to be thrown about by the tides of trade and vanishing manufacturing labor, continue to make his education a priority, and teach him how to work and what the value of a dollar is. There’s absolutely no reason your son should ever have to work a completely disposable job.

    And for the love of all things TTAC can you guys please spare us your triggered political aneurisms…. it’s right in the URL… The Truth About Cars…. not The Apoplectic Defense Of Trumps Honor

    • 0 avatar
      mshenzi

      Yesterday I wrote to Mark Stevenson complaining about Bark’s piece and planning to take a break from the site because of it. (His response to the situation changed my mind). Today, I read Jack’s piece, and if you scroll back to the top you’ll see it struck me very differently. Maybe someone on this site is a bona fide economist, but I don’t think that they’re the only people properly qualified to ask challenging questions about a big economic issues. Jack’s piece reads to me like something that opens up a real discussion, not something that shuts real discussion down by tossing turds. The comments on this piece reflect that difference– a huge amount of what’s going on down here in comment land has been really compelling reading.

  • avatar
    Shane Rimmer

    The fundamental flaw in this argument is that outsourcing is just a stop-gap measure on the way to automation. If it costs less to manufacture something overseas than it does to automate a factory, then they’ll build it overseas. They’ll keep moving production to new areas that offer cheaper production until they can’t. Then, they’ll bite the bullet and invest on automation.

    The unfortunate reality for far more of us than would like to believe it is that our jobs can be done by a machine or a worker somewhere else in the world for cheaper and, in the case of a machine, faster with less errors. I am about as anti-Trump as one can get, but I’m very glad he killed TPP as that would have opened the floodgates for outsourcing a lot of white color jobs that are considered “safe”.

    In my opinion, smart tariffs would amount to little more than a brief and tiny reversal of the march toward automation.

  • avatar
    bullnuke

    A level playing field for all is a great idea. An import “tax” on off-shore sourced products/materials to balance the cost of US-produced products/materials is a way to establish a balance. “Buy American” is a noble cause. Supporting the jobs of your neighbors by purchasing items made in your home country is a worthy objective. Just be aware that in supporting your neighbor’s job, he will expect to make a “living wage” to be able to afford a nice brick ranch-style house with a nice bass boat in the carport and a summer cabin on the lake. The cost of this good old American “living wage” would be passed on to the consumer and would likewise increase prices to compensate (the greedy capitalist monsters owning businesses would not eat the increased cost as we all well know – nor should they). What would/will the inevitable upward movement of pricing for goods, as well as vehicles, do to the overall economy? Will O’Cedar-Vining restart binding brooms in Ohio where workers formerly made $7.50/hr with workers now making $15/hr – $18/hr making a $9.95 broom cost $18 or $20? Upward price pressure will cause working folks now earning a reasonable wage to seek even higher wages to compensate. That Ford Fusion that you have your eye on with a negotiated price of $29.8k could change to around $37k after the haggle with the playing field level and balanced with newly-sourced “Made In the USA” parts. I’m not saying yea or nay on the subject and I don’t really believe that we will be heading back to Chevy Citation or Ford Grenada times as result of import “taxation”.

  • avatar
    IHateCars

    I’m still trying to find an actual car review….there must be one here somewhere, right?

  • avatar
    Pch101

    Protectionism can be used on occasion to good effect. But relying upon it as a broad policy just denies reality and makes the country uncompetitive.

    People who come from dying industries need to be retrained and, in many cases, relocated. Those who can’t be retrained should be assisted with WPA-style programs and other support.

    Japan is on the decline and in a permanent recession because of its efforts to maintain a trade surplus and to keep people out. In other words, Japan is Trumpism in action; it serves as a cautionary tale of what not to do.

    The move away from TPP simply reduces US influence in the Pacific Rim and creates an opportunity for China to fill the gap left by the US. This isn’t a benign move, as it weakens the country by shifting power to an opponent. So we’re already off to a bad start.

  • avatar
    orenwolf

    Firstly, Jack – thank you for a well-written, thought-provoking article.

    I think there’s a lot of insight here, especially after comments from the US administration this morning that NAFTA reworks are primarily targeted at Mexico because the administration believes trade policy with Canada is already “fair”. That dovetails nicely with your comments above.

    The gist of the discussion the last few days seems to be “Taxation on the import of foreign goods”, which of course has issues *right now* because so many of those goods are inexpensive and are the purchasing option of many a wal-mart shopper *because* they are (likely unfairly) inexpensive. This means that in the short term at a minimum, the most vulnerable of classes, those without extra disposable income, would see a cost increase from these policies. that would seriously suck for them without a plan to deal with the increase in cost-of-living, and I honestly hope any policy takes this into account.

    As for fair-trade? I already practice this policy personally – trying to avoid purchasing known-poverty goods (think imported exotic foods or coffee) from foreign countries unless they’re certified as providing a living wage. It’s being a good global citizen and helps to push back against the “cheapest at any cost” mantra, but is *only* possible with disposable income to begin with.

    Now, to your point specifically: Somewhere like Japan, which undoubtedly has labour costs and environmental protections similar to North America, would likely quickly be exempt (well, effectively exempt) from a “fair-trade” tariff because of it, and so I don’t believe that will happen – the administration seems to want US goods built in the US, and as you’ve discussed, Honda has (and Toyota to a lesser extent) moved a lot of production domestic already. Companies like Mazda, Subaru and Mitsubishi are going to be utterly destroyed in the US by that policy – they can’t quickly adapt, may not be able to afford a JDM and North America production run of their smaller inventory, and certainly can’t survive a 35% or whatever tarriff. Your plan would save those markets. I feel that the ultimate plan from the administration will see us losing a lot of these smaller players (which as a Mazda owner is personally sad).

    The other problem is, of course, someone like China could *say* they are meeting the environmental protections we have, but how do you prove it? Take their word for it?

    For my money, I think *intent* is going to matter here. If you want to produce items for import in the US, and you intend to sell more than X of a model here, then production has to either be here, or *intend* to be here with a sound plan to do so, and if that production is *not* here, at minimum it needs to adhere to North American standards.

    That sort of policy would let someone like Mazda bring the next Mazda 3 / CX 3/5 production to North America while giving them a pass on things like the Mazda 5 or miata or other low-volume cars, while continuing on the noble goal of local, fair production.

    Though one has to ask, what about content? Are we ok with them shipping sleds over here and just doing final assembly here? Because there’s a lot of foreign content in them products..

    • 0 avatar
      Big Al from Oz

      The direction that the Trump regime appears to be heading in is mainly regional, not global.

      The US will and always had a stranglehold within NAFTA.

      The Canadian’s are worried about Trump and his policies. Their concern is will Trump try and influence the direction Canada wants to head in globally?

      I do hope for the benefit of all Americans Trump doesn’t isolate the US too much at the expense of the standard of living.

      Remember, what the US offers can be had elsewhere, ie, pickups for example with its import busting 25% tax.

  • avatar
    dal20402

    This is how you do politics on a car site. Although I disagree strongly with the conclusion, this is as thoughtful and well-argued as yesterday’s post was knee-jerk and inflammatory.

    I actually agree that the big issue with free trade in general is the ability of countries to arbitrage lower environmental and labor standards. But I don’t think imposing tariffs, alone, can be a solution. I’d rather use a carrot than a stick, because carrots have a much stronger history of improving standards around the world. We live on one planet, and the goal should be to spread first-world environmental and labor practices, not just to cut ourselves off from and try to ignore places without them. Carrots are how we got Europe, Japan, and South Korea to have environmental and labor standards that are broadly comparable with those in the US (yes, I know there are important detail differences).

    Negotiate free trade agreements that incorporate the promise of truly free trade if certain environmental and labor standards are met. It’s worked before and it can work again. Even with places like China and India. China in particular has a lot of bureaucratic and even popular pressure pushing toward first-world standards, and we can help it along.

    • 0 avatar
      bullnuke

      This would probably be the best idea. Play by our rules in your country or the product cannot be imported for sale in the USA. IIRC there have been issues with importing “sweat shop” products other that automobiles in the past (clothing and cell phones to name a couple) where pressure was put on manufacturers of those products by consumer groups with some effect. Probably would entail higher prices but somewhat less than a 35% tariff.

    • 0 avatar
      Big Al from Oz

      But, who determines the standards?

      The US is foolish if it tries to artficially maintain employment in areas where it isn’t competitive.

      This will keep low cost producers as low cost. Even China is finding it awkward to compete in manufacturing as costs rise in China. Chinese jobs are off shoring at an alarming rate. Trump’s position is 20 years behind on China.

      Trump is using populist bullsh!t to promote himself and this will harm the US.

      For the US to succeed it must increase the cost of manufacture in competing nations, not the opposite. This means assisting in their wealth creation.

    • 0 avatar
      Scoutdude

      “This is how you do politics on a car site. Although I disagree strongly with the conclusion, this is as thoughtful and well-argued as yesterday’s post was knee-jerk and inflammatory.”

      Well put. Yesterday’s article was text book click bait trolling while this article presents the view in a clear and concise manner. Yesterday’s article was designed to start a fire and fan the flames in the comment section, to increase those clicks any way possible, while today’s article is far more likely to generate the clicks as part of a thoughtful discussion.

    • 0 avatar
      dkleinh

      I am now reading that the POTUS has just instituted a media blackout against the EPA and a ban on them awarding new contracts or grants…

  • avatar
    scott25

    As usual I don’t have anything insightful or intelligent to add, but I wanted to comment to agree with others and say this is how an article on a political subject should be done. Insightful, intelligent, and without any unneccessary controversy or trolling. Vintage Jack.

  • avatar
    mmdpg

    US company CEO’s have been sending factories, call centers, service centers overseas for years to make an extra .02 per unit to increase profits and increase their bonuses. They could care less if there are any working Americans, they get theirs and that’s what matters to them. The social contract between employers and employees was broken years ago.

  • avatar
    PrincipalDan

    Thanks for the education guys. Lots to think about.

    Personally I have read “Wealth of Nations” and am familiar with Keynes basic premises. But the B&B have provided much to mull over.

  • avatar
    stingray65

    The problem facing humanity is that well over half the global population has an IQ of less than 100. Low IQ people simply can’t do anything more sophisticated than simple manual labor tasks such as picking fruit or assembly line work, no matter how much education and training you might throw at them. Such workers can’t provide enough value to their employers to offset their increasing cost in countries that mandate high minimum wages, costly health insurance requirements, and strict environmental and worker safety regulations, which means the simple jobs they are capable of doing get shipped to cheaper places with less onerous mandates or get automated. If a high cost country tries to stop the export of manufacturing jobs to less costly places or attempts to prevent automation, the profits of the manufacturers is reduced, which means smaller dividends to the widows, orphans, and pension plans that rely on those dividends to survive, and less money to invest in new products. The lack of new products means the high cost manufacturer gets eaten alive by foreign manufacturers with lower costs and higher profits. Attempts to block the import of cheap/better foreign products means only much more expensive domestic products are unaffordable to low IQ/value workers who may or may not have a job anymore. Lack of corporate profits means less tax revenue to pay for welfare benefits, infrastructure and education “investments”, and fewer opportunities for high value/IQ workers that would otherwise create the next Apple, Google, or Tesla. Low IQ citizens demand more “free stuff” from broke governments, who then raise taxes on the high IQ value creators, who increasingly get tired of paying for all the lazy freeloaders and therefore encourages them to hide their income or migrate to low tax locations. Eventually the system collapses and no one lives happily ever after.

  • avatar
    carlisimo

    This editorial feels a little incomplete without a look at Italy’s policies and what happened to Fiat. From what I remember, they were forced to compete when the EU opened up the Italian market and their products were found wanting. It nearly killed them. They stepped up their game and survived. And yes, they did start manufacturing in Eastern Europe – so it’s not completely a story against the dangers of protectionism but it does illustrate the risks.

    The hard part is figuring out what it takes to level the playing field. Go any further than that and you end up weakening local companies.

  • avatar
    Luke

    I enjoyed this article and I agree that there is a gigantic gulf between free trade and fair trade. I don’t know what the right answer is, but I do know from my job in the medical products industry just how burdensome doing business in China can be, and have often wondered why we have accepted the ridiculous mercantilism and other troubling aspects of that particular planned economy.

    Everything about obtaining regulatory approval, importing, distributing, and selling the products I make to the Chinese is obscenely difficult, bureaucratic, and opaque. It was set up to maximally advantage local companies, drive local employment, capture knowledge and intellectual property, and discourage the entry of Western firms. They don’t outright say that they don’t want outside companies to enter the market but rather make the regulations, requirements, and process we must follow incredibly complicated and burdensome. They also require captive corporations and entities to be set up locally subject to their laws.

    I could go on and on and on, but suffice to say that some of the things they make us do would make even the most ardent capitalist free-trader shudder and think twice. The overall experience is that the process may be “free” from a simple tariff or tax standpoint, but it’s not at all fair or at all free given all the work it takes to actually be there and enter commerce.

    For the record, I also think a financial transaction tax or rent-seeking tax (or both) would be a great idea. A system where the proceeds are directed towards training and education for marginalized workers, to support entrepreneurship or innovation, or something else of the sort seems entirely sensible .

    • 0 avatar
      Big Al from Oz

      In the TTP the US wants to maintain the protection of uts overly expensive health, pharma and medical industry.

      Maybe the existing US model needs to be restructured to compete. For the US to have fair trade also means the US must alter how it does business at times and vice versa.

  • avatar
    DevilsRotary86

    I gave this some thought over lunch. OK, fine, we implement tariffs to “level the playing field” and implement “fair” trade. I can get that. But what about when other countries put tariffs on us to level the playing field? It’s not like our poop doesn’t stink. In particular, what if European countries start to put tariffs on our goods to compensate for a lack of cost to US companies in regards to carbon emissions control, whether real or perceived?

    • 0 avatar
      Snooder

      The sensible reply to that is that the Europeans already have import taxes and tariffs.

      The truth is, Jack’s suggestion and proposals are not crazy. Most people would would be generally ok with a slight bit of increase in taxes to offset the benefit of going overseas, along with maybe some carrots in terms of tax breaks to pull foreign manufacturing back in.

      That is a damn sight away from the populist Trump rhetoric though. It’s the difference between “well, maybe we need to work on securing securing the southern border more” and “We’ll build a wall and make Mexico pay for it”.

      • 0 avatar
        Kendahl

        “Build a wall and make Mexico pay for it” is campaign hyperbole. What could be done, as a practical program, is to extend e-verify from optional screening for employment to mandatory screening for the things without which day-to-day life is untenable. Examples are obtaining housing, buying automobiles, enrolling in school, opening a bank account, obtaining a credit card, seeking medical treatment for anything less than a life-threatening emergency. I doubt that Americans would accept that kind of “show me your papers” environment.

        • 0 avatar
          dal20402

          “I doubt that Americans would accept that kind of “show me your papers” environment.”

          I also doubt that the Supreme Court would find it consistent with the Fourth Amendment. I think only two Justices, Alito and Thomas, would be likely to view it favorably.

        • 0 avatar
          JimZ

          “I doubt that Americans would accept that kind of “show me your papers” environment.”

          They were all for it in Arizona.

  • avatar
    Yurpean

    Congratulations Jack, you have come full circle and have eloquently voiced the left’s criticism of offshoring:
    It’s an attack on environmental and labor regulations by moving production to countries that have no worker and environmental protections.

    I’ll bet any sum that a few years ago you defended free trade and used your considerable writing skills to shut down the same arguments you are bringing up today.

  • avatar
    DirtRoads

    Hey Jack, you meant 1980, not 1890, amirite?

  • avatar
    BiturboS4

    Pretty telling that Jack links to “the Flight 93 Election” (a good piece) not on its original publishing forum (http://www.claremont.org/crb/basicpage/the-flight-93-election/), but instead on a nakedly white-supremacist website. What gives?

    • 0 avatar
      Jack Baruth

      What gives is that Claremont published a truncated version of the piece that omitted the paragraph in question. Nothing more sinister than that.

      For the record, I’m not a white supremacist. My relatives served in the Wehrmacht, not the SS. My son is Jewish by birth. The only Jew who ever tried to ruin my life…

      …wait for it…

      …was my first wife! Thank you! Try the veal!

      • 0 avatar
        BiturboS4

        Except I recognized the column from your excerpted paragraph, which does appear in the Claremont version, linked above.

        For the record, I don’t believe you’re a white supremacist either, and I don’t believe that bigotry/racism is a useful lens for understanding your politics or Trump’s. But even linking to that website at all is suspect.

  • avatar
    brandeselitch

    I have appreciated Jack’s writing skills for some time now, but I never thought Jack could top the writing prowess evidenced in his obituary for David E. Davis. However,this does the trick. I also never thought I would find a convincing case for a level playing field versus so-called “free trade,” but Jack has caused me to think twice about this for the first time in a long time. This article should get widespread circulation in the mainstream press, not just to car guys like us. It is an important piece of work and original thinking.

  • avatar
    manu06

    It’s interesting that people believe outsourcing lowers prices for American consumers.
    If you run a business, wouldn’t you charge what the market will bear regardless of
    labor costs ? A tariff may simply reduce company profit if the consumer is unwilling
    to pay an increased price. Sucks for the shareholder but at least a Tariff may slow
    or reverse the offshoring trend and as a taxpayer and worker, I’m pleased.

    • 0 avatar
      Big Al from Oz

      Not really.

      If you screwaround in business with a competitor who is also your customer, they’ll go and buy elsewhere.

      Example, if the US imposes trade restrictions on countries there are other countries ready to have their business.

      The US needs to trade with as many countries as it does now to maintain your current standard of living. Reducing this reduces your standard of living with a double edge sword. More expensive and US sourced goods and dervices with a corresponding decline in exports reducing income.

  • avatar
    jalop1991

    “Assembly labor is not some fungible process to be sent anywhere in the world while the “real work” stays firmly in the host country.”

    This. This right here.

    Economic strength comes from the CREATION OF WEALTH. GDP comes from the creation of wealth. From creation of things, from raw materials to finished goods. Mine the ore, make the steel, engineer the piece, shape and assemble the steel, sell the finished good. From the earth, create wealth. And do it all inside the country.

    Treating this creation of wealth as an incidental that can be outsourced has created the current American economy where we have static wealth, and we simply move it around–eventually from the lower classes to the upper classes. Where we have barely employed gig workers schlepping hot wings in their Uber cars to lazy Americans.

  • avatar
    Yurpean

    One thing that never gets brought up in these discussions around tariffs, labor costs, unionization, etc is how the German carmakers have no problems posting outrageous profits while having a well paid, unionized, and well-benefitted workforce and being subjected to draconic regulations, taxation, and environmental laws.

    • 0 avatar
      VoGo

      Great point, Yurpean,
      As I recall, BMW is the industry standard in terms of profitability. So many Americans have locked themselves into a mindset that believes that to make a profit, you have to offshore work, underpay employees, dump on the environment, endanger workers and avoid taxes. When in fact the opposite is so often true, but only if you have compelling product.

      But it’s a lot easier to destroy your workforce, community and shareholders than it is to innovate and make something customers will happily pay a premium for.

    • 0 avatar
      JustPassinThru

      1) The German auto workforce, like Germany itself, is relatively small. They have enjoyed a cachet in the auto world since VW impressed the world with affordable quality, and Daimler-Benz with impeccable design. They’re riding on their past successes.

      2) The German nation’s overhead is much, much less. NATO provides virtually all of their military defense. That’s a considerable advantage.

      3) The German autoworker is well paid, but that wasn’t always the case. At the time of the British occupation of Wolfsburg, Germans were assembling KdF-Wagens for rations.

      The true prosperity of Germany didn’t come to be until the 1970s. My German grandmother was back in the Old Country in 1966, and was shocked at the lack of reconstruction. This was WEST Germany.

      • 0 avatar
        VoGo

        JPT,
        Interesting thoughts, but none of them disprove what Yurpean and I wrote. Specifically:

        1. Germany has the #4 economy in the world, and is integrated into Europe, which is essentially equal to US.

        2. Germany may spend less than the US does on defense, but it also doesn’t blow trillions of dollars on fools errand WMD hunts. And remember, West Germany paid an enormous toll in taking over East Germany and bringing it up to developed world standards in less than 2 decades.

        3. Wages in post-war Germany 70 years ago and your mother’s experience 50 years ago just don’t seem relevant.

    • 0 avatar
      DeadWeight

      German auto production has also been outsourced, with the approval of Germany’s very robust labor leaders, by the way (German law requires heavy representation of labor on actual automakers’ board of directors), either with name-brand plants being built in places such as Czech Republic, Poland, Turkey, Croatia-Serbia, Algeria, etc., or through the use of subcontractor complete builders such as Magna.

      Germany is essentially outsourcing lower-skill level jobs (e.g. front clip assembly), and retaining higher-skill, far more technically demanding, higher’wage ones.

      Of course, this arrangement will flex and break as automation technology continually improves and supplants more low’ medium and even high-skilled tasks now done by humans.

      Fanuc is on a a major roll.

    • 0 avatar
      Pch101

      Germany uses its company car policies to indirectly subsidize its domestic auto industry and their leadership in the luxury car market.

      Volkswagen is partially government owned.

      It’s not that simple.

  • avatar
    JustPassinThru

    The point of this article is, I guess, Jack is going to join the hordes demanding protective tariffs.

    I would have expected better of him. Because EVERY time they’re tried, they have immense cost; they lead to stagnation of product and exploding prices.

    Smoot-Hawley was one such. The jingoistic tariffs of the Hooverites, ignited a worldwide trade war that plunged the entire industrial West into depression. Out of economic chaos comes WAR. Always.

    In comparing a 1978 Malibu to an Accord of the same year, Jack credits “better steel.” What, did it come from God? NO. Japan MADE better steel.

    While Japan was making better steel, Bethlehem and Republic Steel and Jones & Laughlin and the other major steel companies of the time, were surrendering to the unions. And they knew, that those princely wage packages were unsustainable.

    And it came to be. Capital improvements just weren’t made. As long as there were customers, the old equipment, the old mills, the old ways…pumped out steel that wasn’t as good. Then not-nearly as good. Then not acceptable nor matching the cost of Asian and Indian steel.

    And then, the company bled white by scam managers after extortionist union leaders demanded fantasy contracts…then, Bethelehem and LTV and the others, closed UP.

    That’s how an industry can die. There was no call to lock the doors in the 1970s; but the labor and environmental costs made for overhead that didn’t justify investment. So, like a contractor who doesn’t buy new equipment…they just resigned themselves to a bankruptcy some time in the future.

    Tariffs address none of this.

    The Japanese competition DRAGGED America forward. The UK refused to be dragged forward; and their once-great motor industry is now all but gone…a few plants owned by foreigners, one of them making a retro-legacy model. Designed elsewhere.

    That is what we’ll see, once we go through the coming Greater Depression. What’s left of our manufacturing plants will be subsidiary factories owned by foreign nationals.

    • 0 avatar
      Jack Baruth

      Japan had better steel because most of their industrial base was bombed into rubble by the United States then rebuilt, with US assistance, after the war.

      • 0 avatar
        ect

        Jack, this is a very simplistic statement. In general terms, Japanese industrial rebuilding/expansion was carried out by Japanese companies and financed by Japanese banks. When you speak of “US assistance”, what do you have in mind?

      • 0 avatar
        JustPassinThru

        Our own steel plants were state-of-the-art – for 1946.

        And were updated to the late 1950s.

        Japan introduced a number of advances, such as continuous casting – I’m not a steelworker, I don’t understand the fine points of it. But Japan kept on investing, and American companies, looking at their paper-thin profit margins and the sudden might of the EPA…they stopped.

        Ford tried to sell the River Rouge steel plant to Japanese investors in the early 1980s. The survey crew looked at it, and said, “all it needs is…” and described an entire replacing of the furnace line. The heart of the plant.

        The Japanese didn’t buy. Cheaper for them to erect a new plant, here or Japan or Thailand, than to rebuild Henry Ford’s 1940s technology.

        The problem was, low profits, from high labor costs, kept management from investing, until investment itself was too expensive. Nothing to do but run it until there’s NO profit, and then lock up.

        Which is what happened.

  • avatar
    SteveRenwick

    Jack,

    That is the second time in two weeks that I’ve read one of your political pieces, all ready to go, “Pshaw,” and instead thought at the end, “Well, he does have a point.” Thank you.

  • avatar
    raph

    “and that is why China can now design everything from its own laptops to its own fighter jets.”

    Flat-out IP theft aside, China smartly played on the greed of companies that wanted to get a foothold in thier burgeoning economy IIRC by stipulating that they had to share technology with a partner early on.

    Plus at least in the auto sector they were well placed to aquire companies during the melt down. Volvo being an obvious example and Some parts of GM another ( Delphi’s suspension division and the MR dampener technology in particular )

    • 0 avatar
      DeadWeight

      Combine Chinese law/requirements that any corporation wishing to produce goods and/or sell those manufactured goods in China must have a Chinese Joint Venture Partner (typically a SOE, or State Owned Enterprise; very efficient, as the technology transfers flows directly to the Chinese Government) with a total disregard of intellectual property rights or any way to reasonably enforce IP rights/prevent outright theft, and we find ourselves in the situation we see today.

      But hey, it’s great for quarterly profits (until it isn’t), and the top layer of executives at the Western nation company that entered into such an arrangement did extraordinarily well (historically well) since their pay is tied directly to stock share prices and metrics such as cost-cutting.

  • avatar
    turf3

    For the first time I have seen someone challenge in print the spurious argument that all the manufacturing jobs have left because of automation.

    1) If that were true, the middle of the US would be filled with active, working, highly automated factories. Instead it is filled with closed, inactive factories.

    2) If that were true, then there would be no reason to move factories to China or Mexico, because the difference in direct labor costs wouldn’t matter.

    3) Job losses from automation occur slowly and a few at a time, so the people affected and the surrounding areas can adapt. No one suddenly automates a factory and fires a couple thousand people all at once due to the automation. However, for the past 30 years companies have been closing factories and firing everyone to move the work to China or Mexico. Compare the difficulty of a laid-off worker, displaced by automation, finding a new job when 50 people that year were laid off due to automation – versus when 1500 suddenly unemployed people were thrown into a local labor market.

    4) Even a highly automated factory still requires tools, dies, fixtures, all of which are provided by local tool and die shops; requires maintenance men, quality control people, etc. The total follow-on effect from gradual automation in a factory is far less severe than that from closing the factory outright.

    5) It is well known that the Chinese contract manufacturers are not automating their processes. No reason to, they just throw more cheap labor at it.

    Would you rather have a nation of well paid people buying more expensive goods, or a nation of poorly paid people buying cheap goods? Which is more sustainable in the long term? Which looks more like Tijuana and which looks more like Switzerland? Where would you rather live?

    • 0 avatar
      DeadWeight

      Manufacturing jobs account for 8% of the U.S. Workforce, as a combined result of outsourcing AND automation.

      Today’s even modestly modern assembly and fabrication plants/facilities (in the automotive stream of commerce) probably produce 300% to 500% more of what they make with 1/3 to 1/4 the human employees versus what was possible in the 1970s.

      In a decade, do not be surprised if those numbers are 700% to 1,000% more with 1/5 to 1/8.

      And the loss of manufacturing jobs on the factory floor will not be offset by manufacturing jobs that produce the parts that support the automated equipment, as if you dive into the life duty cycles of automated equipment, it’s pretty amazing how durable they are, how long they last, with minimal maintenance or downtime.

    • 0 avatar
      ect

      turf3, BLS data (as previously noted) shows that US manufacturing out, in constant dollars, has virtually doubled since NAFTA was signed, and has maintained its share of total US GDP. In the same period, direct manufacturing employment has declined by about 1/3 but the number of jobs in the economy has risen significant;y.

      Other developed countries have seen a similar trend – this is not a situation unique to the US.

      Developing/developed countries typically shed unskilled and low-skill jobs while adding higher-skilled jobs. This is economic evolution, based on technology, and its how developed countries maintain their competitive edge.

      BTW, US trade in manufactured goods within NAFTA is roughly balanced – a small surplus in 2014, a small deficit in 2015. In both years, in surplus with Canada, deficit with Mexico. US imports of manufactured goods from Mexico are about 20% higher than exports, so it’s hardly a huge gap.

  • avatar
    turf3

    Oh, one other point – how do we expect to build important military equipment when we have no rolling element bearing industry, no video display industry, and only a minimal steel industry and only a minimal integrated circuit industry?

    I would hate to see what happens if we ever get into a shooting war with China. Where will we get our bearings from?

    • 0 avatar
      BiturboS4

      On exactly this point, check out the book “Ghost Fleet” (https://www.amazon.com/Ghost-Fleet-Novel-Next-World/dp/054470505X) by P. W. Singer and August Cole. It’s a fictionalized account along the lines of “Red Storm Rising” of how a hypothetical near-future war with China might play out. It is based upon extensive research and actual technology, and the authors have a deep background in the technical and military issues at stake.

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