A relatively obscure government agency told Philip Caldwell and Bill Cummingham to get lost the other day, Caldwell is the $620,000-a-year chairman of Ford Motor Co. and Cunningham is an unemployed auto worker featured in a recent advertisement by the United Auto Workers union. Both Ford and the UAW want car imports restricted, but the U.S. International Trade Commission said no. This was a good decision, and because Ford and the UAW now may take their case to Congress, it's important to understand why.
The way we discuss the auto industry's problems illustrates the American tendency to compartmentalize. We have an "inflation problem" or an "auto problem" or a "foreign policy problem," but we rarely relate them to each other. Failing to make connections leads us to constant error.
Auto import restrictions, aimed primarily at the Japanese, would be such a mistake. They would drive up car prices. They would hurt other industries, including some of our critical high-technology industries, that complete against the Japanese. And they would further undermine America's leadership abroad. We cannot ignore these side effects just because they are indirect or inconvenient.
No one disputes the near-depression conditions of the auto industry today. The number of auto workers onlayoff remains near 200,000, and, in the third quarter alone, losses of the three major automakers exceeded $1.6 billion. The UAW would have you believe that imports caused this catastrophe. The ITC, after extensive hearings, simply couldn't agree.
Sales of imports (excluding those from Canada) probably will total between 2.4 million and 2.7 million units this year, up from 2 million in 1978. Meanwhile, sales of U.S. cars have tumbled from 9.3 million to about 6.5 million. Even if imports hadn't increased by a single car, the U.S. industry would be in deep trouble.
Everyone appreciates that the dramatic shift to smaller, fuel-efficient cars has crippled the industry, but what no one seems to recognize is that today's bit U.S. cars are still vastly more fuel-efficient than cars even two or three years ago. What has further suffocated sales of these cars is high prices. Despite the new cars' smaller size and less power, their prices have risen 50 percent since 1975. The average price of a U.S. car today almost certainly exceeds $8,000.
The industry is being strangled by its own wage-price spiral. In the Fall of 1978, the UAW and the major automakers negotiated a contract that has resulted in an increase in labor costs (including fringe benefits) of about 20 percent this year to $18 an hour. All forecasts of improved employment and profitability in the auto industry depend on a pick up in car sales. Yet the combination of high interest rates and high car prices could frustrate the forecasts.
The obsession with foreign cars has obscured these bedrock problems, and imposition of import restrictions simply would make other industries pay for the sins of auto companies and the UAW. Cars represent about one-fourth of Japan's exports to the United States. Limiting their sales (Ford wants five-year quotas set about one-third below current levels) would almost certainly cause the yen to depreciate. That would make other Japanese products cheaper and put other U.S. industries facing Japanese competition at a serious disadvantage.
The yen depreciation would result from supply and demand. The Japanese auto companies ultimately sell the dollars they earn in the United States for yen to pay their bills at home. Ford thinks quotas would raise car import prices by between 8 percent and 15 percent, but even with those higher prices, lower sales would mean fewer dollars for the Japanese to change into yen. Lower demand for yen on foreign exchange markets would cause its value to fall. Ford concedes this but ignores the consequences.
We cannot afford to do this. This whole complexion of competition between the United States and Japan is shifting from consumer goods toward high-technology goods: semiconductors, machine tools, office equipment. Japanese and American companies increasingly face ech other in third markets, and the record is not good. A recent study from the Georgetown Center for Strategic and International Studies reports that the U.S. share of manufacturing exports to developing countries fell from 28.3 percent to 22.1 percent between 1970 and 1978. Japan's rose from 21.8 percent to 26.1 percent.
Nor can we painlessly allow the UAW and Ford to dictate foreign policy. In today's world, countries aim to satisfy their economic needs as much as their physical security. Japan is an obvious case. Its imports consist overwhelmingly of raw materials, and the Japanese tremble at the possibility of being unable to obtain critical supplies.
One threat is an inability to maintain its export earnings, and Japan is highly vulnerable. Though competitive, many of its exports are not essential goods: cars, steel, stereos. They can be restricted and replaced, and in a period of slow economic growth, the temptation to do so is strong. Does anyone think the Japanese will thank the United States for encouraging this?
It may be, as Caldwell argues, that the Japanese can't retaliate by restricting U.S. exports. So? The world is a more subtle place, Mr. Caldwell. Our whole foreign policy has rested on a sense of shared interest. As that sense has diminished, so has our leadership position. Japan may not retaliate directly, but it will redouble its efforts to create new commercial and political alliances to protect its interests.
No one can be insensitive to unemployed autoworkers, and the outlook may be worse than even some of the gloomy forecasts. Something needs to be done, but not import restrictions. When the UAW and Ford lobbyists come pleading to the White House and Congress, they ought to receive a simple message. Go home. Renegotiate your crazy contract. Get yourselves out of this mess.