Almost unnoticed by the public, Douglas Fraser's United Auto Workers union has launched an all-out effort to force leading Japanese car manufacturers to build plants in this country -- or be subject to a quota that would dramatically cut their sales.
This would be accomplished by so-called "local content" legislation requiring that, by 1985, 90 percent of the business done in the United States by companies selling over 500,000 cars annually must reflect American labor and parts. A declining percentage requirement would apply to smaller exporters.
Fraser, desperate to protect a shrinking union in a depressed American industry, claims that more than 850,000 auto and related jobs would be saved. This notion is challenged by a number of independent studies, including a new one by the Congressional Budget Office. All argue convincingly that "local content" legislation would merely raise prices to the consumer, would not frustrate the Japanese, could cost as many jobs as it saves and invite retaliation. Perhaps worst of all, it would water down whatever long-term incentive remains for Detroit to improve its products.
If there is more dangerous protectionist legislation than the local content bills (HR 5133 and S 2300), I don't know what it is. Yet, HR 5133 is being pushed inexorably toward a floor vote when Congress returns after the Labor Day holiday. Congressmen with high unemployment in their districts will find it hard to vote against it. Martin Anderson, an auto industry expert at MIT, notes the ironic results, if Japanese producers ultimately have to deal with such a bill: they will be able to show substantial U.S. "content" by accounting gimmickry (no jobs added); by purchase of parts abroad from American-owned affiliates (no jobs added in the United States); and through purchases of "low-tech" or bolt-on parts from continental American companies (only a few added jobs, none among UAW members).
Only Toyota, Nissan, and Honda would have to consider building assembly plants here to meet high "local content" percentages. And these would be highly automated factories employing few of the 300,000 UAW members now out of work.
The UAW's motives are understandable: automation and robots are taking over the manufacture of cars, here as well as abroad. And those American companies remaining alive are buying more and more of their own parts and assemblies abroad -- a practice that would have to be curtailed if the local content bill goes through. Thus, American producers who last year supported the "voluntary" quota on Japanese cars, this time are keeping silent, and not supporting Fraser.
The one certain result of "local content" legislation would be to hit the consumer in the pocketbook, by $3,000 or more per Japanese car. (American prices would move up, too.) Fraser assails such numbers as "wild" overestimates "by knee-jerk 'free traders'".
Harbridge House, the respected auto analysts of Detroit, estimates that the 7 percent drop in Japanese car supplies in the past 12 months because of the "voluntary" quotas cost American buyers approximately $1,900 per car. (Many were upgraded into luxury categories.) Thus, $3,000 or so looks like a modest estimate, if there is a 40 percent cutback (as estimated by the House Ways and Means subcommittee on trade) in response to local content legislation.
The Reagan administration earlier didn't take the local content bill too seriously. It has now awakened to the danger. Secretary of Commerce Malcolm Baldrige bluntly labels it a "bad" bill: "No other major industrialized country has such a bill. We would be sending a clear message that the United States is heading down a protectionist path." Retaliation would be almost certain against American exports of aircraft and high-technology goods.
Fraser's Folly deserves a rapid demise. The problems of the auto industry can't be solved by shutting off imports. There will never be a return to the 1940s and 1950s methods of making cars. Some of those unemployed now in Detroit will never get their jobs back. These are fundamental problems that must be addressed. New ways must be found to promote government-business-union cooperation rather than confrontation. Perhaps additional tax changes have to be considered to help companies in international trade.
But for the moment, the president and Congress should reject the local content bill, tough as it will be to do it in this election/recession year. At least we shall have a good test of President Reagan's leadership. Is his commitment to free trade real, or merely a rhetorical exercise?