The impact of international automakers on the US economy
INSIGHT ARTICLE |
Auto industry OEMs, suppliers and dealers—with considerable justification—are urging caution when it comes to discussions of a potential withdrawal from NAFTA.1 While there is general agreement that the North American Free Trade Agreement needs to be modernized, auto associations and companies are concerned that any renegotiations could put U.S. auto sector jobs and capital—including $9.5 billion in new investments announced by the auto and auto parts sector—at risk.
Statistics in a survey by the Association of Global Automakers (AGA) and the American International Automobile Dealers Association (AIADA) make a compelling case for a cautious approach to agreements with offshore countries and companies. In the aggregate, the numbers in the 2017 International Automakers and Dealers in America report2 illustrate what is at stake where international trade―and relevant treaties―are concerned.
Integral to the US economy
According to the report, since NAFTA took effect in 1994, international automakers have invested more than $63 billion in U.S. operations. At a time when many states are struggling to fill budget shortfalls, the report notes that international automakers and dealers in America generated $28 billion in state and local tax receipts and other revenues in 2016. On the federal level, that figure rises to $39 billion in tax receipts and other revenues.
When it comes to employment, outsourcing operations overseas is often cited as the reason for the decline of manufacturing jobs in the United States. A number of studies, however, have shown that technology may be more to blame than global operations for the decrease.3 (Job outsourcing statistics, in fact, suggest that outsourcing jobs overseas has declined overall.4)
Moreover, according to the AGA/AIADA report, international automakers are directly responsible for 130,000 U.S. automaker employees. Not all of these jobs are in manufacturing: Nearly 600,000 dealership employees work for international nameplate automobile franchises across the country. R&D facilities in 16 states employ workforce personnel dealing in market research, design styling, engineering, crash safety testing, and research into connected car, infotainment and telematics systems.
As automotive industry cohorts have warned, trade protectionism designed to shield domestic industries through import taxation could lead to higher prices for U.S. consumers. To keep prices down, businesses will go to where they can produce quality products at the lowest price—and it is hard to compete with countries such as China and India that can offer both criteria.
Drive with care
Policymakers and U.S. government entities seeking to modify trade guidelines should keep in mind what many in the auto industry already know: There are significant economic and workforce benefits for the United States resulting from inbound foreign direct investment by the auto industry. While international companies have much to gain from a robust U.S. market, a less-than-thoughtful approach to negotiations could have profound economic consequences.
1“Auto Industry Tells Trump ‘We’re Winning With NAFTA’” (Oct. 24, 2017) Reuters.
3F. Cocco, “Most US manufacturing jobs lost to technology, not trade” (Dec. 2, 2016) Financial Times.
4Job Overseas Outsourcing Statistics, statisicbrain.com.
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