The $700 Billion Gorilla Obama Wants to Ignore

by William R. Hawkins

American industry elevated the working class with great positive benefits for the nation’s living standard and political stability. Why does President Obama feel that these gains must be given up?

.... The American auto industry cannot be saved without action taken to limit foreign competition, which is the real source of Detroit’s problem. The contracts the Big 3 signed with the UAW union were predicated on America’s continued dominance of its own transportation market. When foreign rivals took a third of that market away, the wages and benefits promised to workers were no longer sustainable. But the Japanese, Korean and European automakers (soon to be joined by the Chinese) designed their assault on the U.S. market with the full support of their governments who have used a variety of subsidies to carve out a share of the American economy to add to their own.

Even with retiree health care benefits moved off the books and a two tier wage structure set up to reduce the income of new and younger workers, the cost disadvantage will remain around $1000 per U.S. produced vehicle compared to foreign production. The industry must be put on a competitive basis by forcing foreign automakers to play by the same rules as the Big 3, which means requiring them to produce in the U.S. if they are going to sell in the U.S. This is the real world rule imposed elsewhere. One does not see imported cars in Japan, China or South Korea except for some luxury models.

.... At the moment, the foreign auto plants in the U.S. are allowed to use substantial amounts of parts and major sub-assemblies produced overseas and imported only for final assembly here. The Big 3 U. S. automakers have been pushed into using foreign-made parts (including parts from China) to compete. Limits on both the import of vehicles and of major, high-value parts would boost the insourcing of jobs and production capacity to the U. S. economy. This is the only way to assure a true level playing field within the American market and the preservation of a domestic auto industry. The auto industry is vital to a strong national industrial base upon which American power depends in a world of contending states.

President Obama seems to understand the importance of the auto industry, but not how to safeguard its future. The government cannot run the industry and it is dangerous for it to try. The government does have a duty to the industry, indeed to all American industry, to set the parameters within which private enterprise can operate and prosper. As long as Obama fails to set the proper parameters governing international trade, he will be forced to take more extreme and less legitimate actions to compensate. Unless he plugs the leak in the dam, he will exhaust himself with one bail out effort after another.

FamilySecurityMatters.org William Hawkins is a consultant specializing in international economic and national security issues.