EXPORTING JOBS: HOW BEST TO STANCH THE FLOW? In autos, domestic content points the way
Price, Lee
How Best to Stanch the Flow? Many of America's smokestack industries are crumbling. As they collapse, communities and, indeed, entire regions are being devastated by unemployment. In the debate...
...It does not blame foreigners for the troubles of an American industry...
...U.S.-based multinational corporations want the Government to help secure more favorable treatment for their foreign operations...
...Congress is now considering a measure to counter "targeting," a term for foreign nations' industrial policies...
...But critics maintain domestic content could backfire if other nations respond by locking out American-made exports...
...But just as the swelling toll of the Vietnam war made it necessary to rethink America's international posture, today's mounting economic casualties compel us to reassess our adherence to free-trade ideals...
...The market share for imported vehicles will rise from the current 25 per cent to 35 or 40 per cent, while the value of imported parts used in U.S.-assembled cars will jump from 5 per cent to at least 20 per cent...
...economic strength, the Government solidified its commitment to the principle of free trade...
...The free-trade school, which dominated trade policy in the years following World War II, has begun to lose ground as well...
...Thus, even when competition with U.S...
...His views are not necessarily those of his union...
...To make sense of our alternatives, we can identify six schools of thought, with free trade and protectionist isolationism forming the two poles...
...Traditionally, most manufactured exports have been designed for the local market and then sold abroad, perhaps with modifications...
...Some members of the industrial-policy school, such as Felix Rohatyn, call for establishment of a strong governmental agency of "tough bankers" to aid strategic companies with infusions of public funds...
...production and jobs...
...Manufacturers that sell 100,001 units would be required to use 10 per cent domestic content, and the ratio would increase to a maximum of 90 per cent for companies that sell 900,000 or more cars...
...In a mercantilist vein, they argue that the United States can export its way out of any trade problem: With more Government subsidies, relaxation of antitrust regulations, and better use of political influence abroad, exports would rise substantially and absorb workers displaced from ailing import industries...
...U.S.-based companies producing goods abroad for sale to Americans often enjoy oligopoly power by controlling distribution channels...
...Is free trade actually possible in today's circumstances...
...They continue to exploit this market position even as they replace domestically produced goods with imports—of shoes, semifinished steel, autos, and electrical products, to name a few...
...According to this school, when governments respond to trade problems, they do more harm than good...
...The legislation's focus on the domestic production of multinational corporations explains why it has attracted support from organized labor...
...In that world, "comparative advantage" in manufactures becomes a matter of labor costs, and free trade becomes a recipe for unemployment...
...economy and limited U.S...
...Foreign apparel firms, for example, do not play the kind of critical competitive role in the United States that Volkswagen and Toyota do...
...Progressives, torn between their traditional support for free trade and their desire to impose controls on business, must recognize that unrestrained imports give multinational corporations the power to whipsaw American labor...
...Is domestic-content legislation a dangerous new form ofprotectionism, or is it an essential device to impose social controls on corporate investment...
...Supporters of the act believed faster domestic growth could be achieved by moving the economy toward self-sufficiency...
...Instead of trying to insulate the United States from foreign practices, backers of reciprocity argue that the Government should threaten economic retaliation—and occasionally invoke sanctions—to force other nations to change their policies...
...industry...
...Bieber says the legislation would "maintain competition and quality in the marketplace while assuring that consumer dollars will be reinvested in U.S...
...We must discard the traditional but naive dichotomy of "free trade versus protectionism...
...Apparently, The Progressive and other critics want the UAW to carry the banner of free trade while holding firm for the traditional pattern of wage and benefit gains...
...The benefits are skewed, however, and the costs of pursuing unrestrained free trade are growing...
...Although imports are not the primary cause of today's unemployment in the auto industry, we should not passively accept their unchecked ascendancy and the continuing decline of our industry...
...First, the companies can find relief without having to put up with Government prying into the conduct of their business...
...United Auto Workers' President Owen Bieber called the 219-to-199 vote "an important victory for America's working people" and pledged to redouble union lobbying efforts for Senate enactment of the measure...
...In Ricardo's examples, trade consisted of exchanging wool and wine, commodities heavily dependent on geography and climate...
...As a trade measure, domestic content is suited to the oligopolistic and multinational nature of the auto industry...
...On Page 27, Michael Urquhart and Michael Parker take a contrary position...
...industries seems to be based on quality rather than price, part of the reason may be found in the lower labor cost structure of the Japanese economy...
...And some have expressed concern that it might fuel racism against foreign workers, particularly Japanese...
...The dualism of the Japanese economy gives its advanced manufacturing sector a decided advantage...
...Current credit policies are undoubtedly undermining the health of American industry, but banker-dominated institutions have traditionally served the interests of banks at the expense of workers: The International Monetary Fund, the Federal Reserve Bank, and New York's Municipal Assistance Corporation come to mind...
...And statistical evidence shows that most workers displaced from import-competing industries cannot find employment or are relegated to low-paying jobs in the service sector...
...In autos, domestic content points the way BY LEE PRICE Americans are reluctantly coming to realize that the world of the 1980s differs radically from the world of the years immediately following World War II...
...In that bygone era of overwhelming U.S...
...A company could import as much as it wants—if sufficient offsetting exports were generated...
...Advocates of industrial policy acknowledge that international diplomacy will have to resolve conflicts between national policies...
...By taking the macho stance, championing unrestrained trade and railing against "unfair" foreign economic policies, the Administration guarantees only the profits and power of the multinational corporations...
...Racist leaflets, speeches, and actions witnessed in some auto manufacturing communities have their roots in economic conditions that predate the domestic-content campaign, reflecting the fact that auto employment dropped by a third while imports from Japan climbed almost a third between 1978 and 1982...
...Trade is also expanding because multinational corporations are moving to areas where labor is cheaper...
...This argument is seriously flawed...
...Industries troubled by imports—textiles, apparel, and steel, for example—like the fair-trade approach for two reasons...
...The Progressive itself provided an example of outmoded thinking on this subject...
...The auto industry directly or indirectly employs more than two million workers and is a leading producer and purchaser of advanced technology...
...House of Representatives approved the so-called domestic-content bill, which would require foreign auto makers to use specified minimums of American labor and American-made parts in vehicles sold in this country...
...In the debate over how to shore up the faltering industries, one recurrent theme is the need to cope with the pressure exerted by foreign competition against manufacturers of such basics as steel and automobiles...
...trade are disappearing...
...Independent projections indicate that another quarter of the industry will be lost by 1990...
...Finally, the industrial-policy school stresses the need to restructure industries faced with overwhelming international competition...
...investment and purchases so that foreign enterprises can maintain their market presence...
...companies' failure to anticipate the shift in 1979 toward fuel-efficient vehicles...
...the multinationals' control over trade and concomitant leverage against workers...
...Our economy as a whole benefits from trade and, increasingly, from technology developed abroad...
...The proposal calls for a four-year phase-in of U.S...
...The schools shape our perception of whether a trade problem exists, how domestic legislation should be enforced or amended, and what international agreements are appropriate...
...A year and a half ago, it published an editorial denouncing the UAW for its support of domestic-content legislation and for granting concessions to General Motors and Ford ("Sanctions and Misplaced Spite," Comment, August 1982...
...A similar plan may not work for other industries...
...Japan has a few prominent manufacturing sectors—auto, steel, electronics—in which its technology is second to none...
...exports would raise the value of the dollar, which, in turn, would bring an offsetting increase in U.S...
...imports...
...The Japanese share of the markets in Germany, France, Italy, and Britain has been held to less than half the 23 per cent share it reached in the United States last year...
...Exporting companies favor still another approach, export promotion...
...And steel companies, unlike the auto makers, usually do not produce outside their major markets...
...A new set of principles to guide our international economic policy is needed...
...manufacturing sector were made over in that mold, they suggest, it could export enough to finance the import of more traditional or standardized products...
...Other industrial policy advocates, such as Michael Piore, Lester Thurow, and Robert Reich, see great potential in the vitality of American businesses that draw on new technology or engage in small-batch production...
...Politicians find it difficult to tell their constituents that the Government should do nothing about lost jobs—so at least four other approaches now provide rationales for trade activism...
...A selection of letters will appear in a future issue...
...Rather, trade policies should complement domestic measures, particularly the training and placement of dislocated workers and the promotion of competition to improve goods and production technology...
...Breakthroughs in international transportation and communication make it practical for them to coordinate their production around the world...
...However, this prescription fails to appreciate that, for the foreseeable future, the majority of manufactured goods consumed by Americans will be mass-produced...
...Domestic-content legislation represents a variant of the industrial policy approach to trade problems...
...Domestic-content legislation would require companies selling more than 100,000 cars and trucks a year in the United States to use a substantial proportion of American parts and labor...
...The campaign for domestic-content legislation, by focusing on a means of controlling all major auto companies, discourages racist thinking and avoids solutions that serve only to protect U.S...
...We are approaching a world of common labor skills, technology, infrastructure, and capital markets...
...Controlling the multinationals means limiting their trading power...
...If the entire U.S...
...In the article below, Lee Price, an economist with the Auto Workers, makes the case for domestic content...
...The fair-trade school seeks to adjust import prices at the border to offset such foreign practices as export subsidies and dumping of goods below cost or home-market price...
...The reciprocity school also blames foreigners for our trade problems, but it takes a more aggressive stance...
...Though members of this school accept the validity of some import relief, they do not accept the notion that companies should be sheltered by barriers at the border and then left alone...
...What are the costs and benefits of free trade...
...Every other important auto-producing nation has acted to stabilize this critical industry against displacement by imports from Japan...
...The constant threat that foreign labor will be substituted for domestic labor gives these companies tremendous power over their American work force, especially in a period of high unemployment...
...the Smoot-Hawley Tariff Act of 1930 doubled the tariff rate on most goods imported into the United States to about 50 per cent...
...A sustained increase in U.S...
...Domestic content for the auto industry takes account of important changes in the international economic picture: the potentially disastrous impact of free trade on essential industries...
...Of most immediate concern, of course, is competition with Japan, a nation that has been admired and maligned far beyond what it deserves...
...As a result, Japan's overall productivity and pay scales lag a third or more behind those prevalent in the United States...
...It can convert some of its "savings" in labor costs into improvements in product quality...
...The Reagan Administration's trade policy mimics its military strategy in arrogance and destructiveness...
...As free trade becomes politically and economically untenable, we are lapsing into ad hoc protectionism based on political expediency rather than reasoned analysis...
...As other nations, particularly Japan and Western European countries, develop consumption patterns resembling our own, each has more products to exchange...
...Today, however, most trade involves manufactures that can be produced in high volume wherever the necessary labor skills are matched with the proper equipment...
...Our Government tends to leave trade policy in the hands of corporations, though private economic decisions have as much impact on our lives as decisions pertaining to pollution, product safety, or civil rights—areas in which Washington does take an active role...
...Their infrastructures and labor skills have been catching up to ours as well...
...parts and labor as a percentage of the manufacturer's auto sales in this country...
...And this was accomplished though the European auto industry is less productive than the U.S...
...Anyone who expects unions to insist on traditional contract advances but ignores employers' foreign "outsourcing" is blind to the realities of the 1980s...
...Second, fair-trade laws meet with less foreign resistance because they seem more legalistic and less discretionary than other trade relief routes...
...economy can now benefit from technology developed abroad...
...it assumes that the United States must develop a moderate, medium-term strategy to contain the disruption of a key industry...
...Workers unwilling to accept a wage as low as the lowest their multinational employer can pay in another country are doomed to displacement...
...Early last November, the U.S...
...purchases of mass-produced commodities, which are cheaper per unit than small-batch goods, will far outstrip the strength of foreign markets to absorb our hi-tech exports...
...Whatever the primary reason, the decline in trade did not benefit the U.S...
...Contrary to widespread belief, however, some 85 to 90 per cent of the Japanese work force is employed in sectors that have low productivity compared to their American counterparts: services, agriculture, and other manufacturing...
...Foreign workers and design engineers are growing in number and experience, and many of their industries are developing technology comparable, if not superior, to our own...
...Many of the conditions that formerly insulated the U.S...
...Imports have displaced more than 10 per cent of the American auto industry in the last few years, costing more than 200,000 manufacturing and supply jobs...
...The free-trade school holds that the Government should not interfere with the flow of foreign trade, either directly at the border or indirectly by adopting measures to restrict or encourage trade...
...The domestic-content bill provides an appropriate measure for reasonable constraints on the Big Three auto manufacturers and, at the same time, encourages other auto companies to invest here and compete for the dollars of the American car buyer...
...However, most unemployment among auto workers resulted from the decline in overall sales and the U.S...
...businesses...
...Unemployment in those industries that compete with imports would be aggravated...
...the need to limit competition between American workers and lower-paid foreign workers, and the fact that the U.S...
...Foreign "outsourcing" can permit a multinational corporation to supply the market during a strike, but the more insidious leverage comes with ability to export work or close plants altogether...
...Between 1929 and 1933, imports and exports plummeted...
...David Ricardo's classical theory of comparative advantage justifies trade—not unrestrained trade...
...Protectionist isolationism lost favor long ago and shows no signs of reviving...
...economy...
...Tariff increases probably were less responsible than worldwide depression, shaky international credit, and unstable currencies—all hauntingly reminiscent of the current world economy...
...Laissez-faire lies at the heart of this notion—whether or not other countries practice free trade...
...Duties on foreign products are being assessed with increasing frequency and force to combat these tactics...
...The school of protectionist isolationism carried the day early in the Great Depression...
...Urquhart, an economist, is a member of the American Federation of Government Employees, and Parker is a member of the UA W. Readers are invited to join the debate...
...The domestic-content ratio would be determined by computing the value of U.S...
...Public discussion of trade policy is based on assumptions that were valid a generation ago but are unfounded today...
Vol. 48 • January 1984 • No. 1
