United States trade policies and their effect on the automotive Essay

United States trade policies and their effect on the automotive industry - Essay Example The desolate outlook for the United States' auto industry comes as no surprise for most everybody.In the beginning of 2006 Ford Motor Company and General Motors, two of the "Big Three" automakers, announced staggering layoffs in the tens of thousands and debilitating year over year losses in the billions of dollars. In addition to these layoffs, both General Motors and Ford have planned for multiple plant closures and the selling off of controlling shares of assets or subsidiaries in their ongoing struggle toward profitability. These announcements come as a blow to the tenuous economic recovery of the United States.The recent trends regarding the economic recovery of the United States remains slow but promising. According to Employment Situations published by the U.S. Bureau of Labor and Statistics, the current average unemployment rate for the United States is 4.7%, (2006). The effect the impending massive job loss in the automotive industry will have on the unemployment rate and th e overall health of the nation's economy is uncertain.In the four years between 2000 and 2003, an estimated 5.2 million people lost their jobs. Over 2 million of those lost jobs were in the manufacturing industry ("Employment Situation," 2006). The cause for the ongoing decline in America's auto industry are many and range from increasing fuel prices and the growth of the global economy to poor product design and increased foreign competition. Although all of these issues are contributing factors in the decline of the American auto industry, none are as contentiously argued as issues of United States trade policies. According to Section 2102 Congressional Statement of Purpose on trade, there are 6 defining factors to U.S. Trade agreements (2003): To foster economic growth. Reduce or eliminate trade barriers. Trade 2 The establishment of fair and equal international trade. Provide protection of American industry and labor against "injurious" import competitions. To open market oppoutunites for U.S. commerce in non-market economies. To provide "reasonable" access of products too less developed countries or nations. In the process of attaining these goals U.S. trade polices have drawn harsh criticisms due to the nations' 2005 trade deficit in manufactured goods of $726 billion and to the apparent effect they have on the U.S. economy, its' labor force and worker rights and wages (Scott 2006). As the trade deficit in manufactured goods continues to rise, so too does the loss of jobs in the manufacturing industry. The United States finds itself unable to compete with low labor and production costs in foreign countries. For automakers such as Ford and General Motors, this has lead to the movement of production plants to outside the U.S. as well as the massive volumes of lay offs the industry is currently experiencing. The autoworkers that have been fortunate enough to retain their jobs face the issue of the downward pressure on wages and benefits that is caused by the rising trade deficit and the lower labor costs in foreign countries. Currently, the cost of labor in Mexico is the lowest of any developed nation (Bernard). Labor costs are one of, if not the number one, highest expense of any corporation. While moving U.S. production plants to Mexico creates jobs, increases the standard of living and stimulates the economy for that country, the U.S. labor force cannot compete with these low wages and benefits and therefore, lose bargaining power. The loss of bargaining power is exacerbated by the low level of government enforcement of labor laws in some foreign countries. In the United States this loss of bargaining power often results in the acceptance of lower wages and cuts to benefits and pension programs by U.S employees. Trade 3 While jobs are being exported to foreign countries such as Mexico, auto parts are being imported to the United States at an increasing rate. In 2004, the United States imported $77 billion