Monday, April 10, 2006

Saving private US auto industry

The accelerating woes of Ford and General Motors and the ongoing crisis in auto parts have produced vows from Detroit that business-as-usual won't continue. Yet unless U.S. trade policy changes, too, and Washington imposes sweeping emergency tariffs on imports of manufactured goods, the American-owned automotive industry will soon disappear, and along with it much of the rest of America's core manufacturing.

For a quarter-century, Washington has dodged the biggest trade problem plaguing domestic automotive producers: an import tidal wave of vehicles and parts from rivals enjoying a host of advantages unavailable to U.S. automakers. Though Japanese, German, and Korean automotive companies sell freely to the U.S. market, their home markets have been tightly protected. These governments also use numerous other tricks to promote their auto sectors such as currency manipulation and subsidies.

Since the import flood began in the 1970s, U.S. leaders have lacked the will and economic savvy to counteract these unfair competitive advantages. And unfortunately, Detroit has flunked the trade policy challenge, too.

In the 1980s, the United States imposed import quotas in part aimed at forcing foreign automotive companies to produce in America. But because no overall competitiveness strategy accompanied these barriers, they handed the Europeans and Asians not only new access to U.S. markets, but bargain-basement labor and health-cost structures with no retirement obligations.

During the 1990s, domestic automotive producers strongly backed NAFTA, believing that such a deal would strengthen American manufacturing by enabling labor-intensive operations to be sent to low-cost Mexico and by requiring Asian and European manufacturers to use high levels of North American content if they wanted to sell here. However, even though foreign-owned factories produce millions of vehicles in the United States, car and truck imports from these countries keep surging.

More here.


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