Wednesday, May 25, 2011

Look what our trade policy did to Detroit

Check out these magnificent 3-D photos of Detroit's decline. The once-grand Michigan Central Station now a graffiti-covered ruin, the empty Packard and Fisher Body plants strewn with trash and weeds. 

It wasn't just NAFTA that destroyed Detroit. Even before the U.S. government decided to send much of our our auto industry to Mexico, our leaders made stupendously awful concessions to other countries.

The U.S. government thought "trade, not aid" would be a great way to rebuild Japan after World War II. It was great for Japan but not for the U.S. auto industry. We gave Toyota a big boost during the Korean War by buying Army vehicles from it.

As economist Judith Stein points out in her masterful book, "Pivotal Decade, How the United States traded factories for finance in the Seventies," the U.S. allowed Japan to protect its domestic auto industry while the U.S. threw open its doors to Japanese imports. Writes Stein,
Japan excluded foreign imports and foreign producers during its drive to build a major auto industry. Orchestrating the whole show, the United States took the lead in reducing tariffs and refrained from pressing other nations to abandon the protection they used to build up their own industries even when they violated the General Agreement on Tariffs and Trade (GATT) rules.
Japan imposed 40 and 50 percent tariffs on foreign imports, controlled foreign investment, made cheap loans, gave favorable tax treatment and directly subsidized its infant auto industry. The Japanese government even encouraged large ships to be built so it would be cheaper to send its cars overseas.

And it sent them to the U.S. It had to. The U.S. was the only open market available. Europe strictly limited the number of Japanese cars that could be imported (under trade rules, that was okay, because Japan limited European imports). Writes Stein,
...the unspoken rule of global trade policy was that the United States would look the other way when American goods were discriminated against.
The story with Canada was a little different, Stein writes. Canada didn't want to produce a Canadian car but did want to increase Canadian auto employment. So President Lyndon Johnson in 1965 signed a deal with Canada that U.S. companies would manufacture enough cars and parts in Canada to offset 95 percent of the cars and parts made in the U.S. and sold in Canada.
And what did the U.S. government do when the U.S. auto industry was flat on its back? Asked -- yup, asked -- Japan for voluntary restraint.

Continuing along that same self-destructive path, the U.S. now wants to enter into a trade deal with South Korea that will open our market further to Hyundais and Kias while allowing a teensy bit more U.S. cars into their country. Worse, those Hyundais and Kias can have as much as 65 percent of their parts from sweatshops in China, North Korea, or anywhere else the multinationals are setting up their sweatshops these days.

Detroit's decline can be reversed. All it takes is sane trade policy.