American car industry cuts and the decline of the United States as unrivaled global power

Photo by Melissa Vaeth
Contributed by Jim Hayes

The American car industry looks like its heading into trouble. Ford is allegedly planning layoff 12 percent of its workforce, in and outside the USA, as a response to the $1 billion slump in the year’s profit. General Motors will also cut jobs in the United States and Canada to trim costs. This is on top of recent severance packages offered by the car giant. Unfortunately, this is the sort of thing that happens when a business isn’t making enough money. As they can’t afford to pay people, the company was left with no choice but to let some of their employees go. This situation could have panned out differently if the car giant had considered incorporating some financial software into their business. By using the software from, for example, the company could have looked at what would have happened if they suffered a loss at the end of the year. That way, they could have made some adjustments to make sure that they increased their profits. Unfortunately, as the business failed to do this, they are now letting go of many of their employees.

Mary T. Barra, G.M.’s chief executive of the company said in a conference call: “We are taking this action now while the company and the economy are strong to keep ahead of changing market conditions.” This is a rather polite way to say that it is getting harder to sell cars.

Other car makers, Fiat and Chrysler, are also feeling the heat. When you consider that this industry employs about a million people, any slump is going to have serious consequences for the American economy and society.

At present, the demand for petrol guzzlers is high and low for more efficient alternatives in the US. This is helped along by low fuel prices. Over time, the effects have been to turn the industry away from properly investing in change and to put it out of kilter with he global trend, which is towards smaller, more efficient vehicles and new technologies.

Compounding the problem, is developing trade war against China and Europe. The American car industry is dependent on both the import of raw materials and parts and the export of cars to overseas markets.

Ford CEO Jim Hackett recently told Bloomberg that last month’s tariffs on imported aluminium alone “took about $1 billion in profit from, us. If it goes any longer, it will do more damage.”

Some of Ford’s cars are manufactured in China, and ongoing tariffs on Chinese exports could put a question mark on the ongoing viability of continuing to do this.

General Motors’ cuts are driven by the same causes. The Trump tariffs have already caused this company to slash its profit outlook for the year.

The cuts to an industry that employs about one million poeple, will ricochet across the whole economy through the effect on parts makers, dealerships and others closely associated with the

making of cars and keeping them on the road.

This is a significant political problem for Donald Trump. One of his core election promises, and important to building his support base was to save car industry jobs, it to turn the industry around. But he is failing to deliver in a spectacular way. Unless this is turned around, there is going to be a backlash.

As important is that trade war, intended to hurt America’s rivals in the global economy, also hurts powerful American business interests. The reality is that aside from making cars, there is not a great deal of manufacturing left in the United States. Much of the productive capacity has been shipped overseas, especially at the high-tech end. Much of it to China, which has benefited from access to the associated technological knowledge, built a massive export industry and expanded its economy to challenge American supremacy. Many American corporations are now firmly embedded in this arrangement and no longer have the capacity to do otherwise.

Cutting Chinese exports to the United States, cuts business for American corporations. Imposition of tariffs on major trading partners risks raising the ire of these corporations, something that Donald Trump and Washington as a whole are very vulnerable to. It is a double edged sword that can easily cut the wielder.

Tariffs also invite retaliation from the target. China is already moving with its own counter tariffs. It is not only China. Tariffs have also been used in an attempt to break down barriers to American products and investment in the European market. Europe is responding with its own measures. This scenario is making it increasingly attractive to put together alternative trading arrangements that may leave the United states out of the loop.

If this happens, the American car industry is likely to be one of its major victims, suffering much greater damage than has already been the case.

The Trump era policy is really free trade for everyone else, while building protection for American corporations, and they are increasingly being used as weapon for political pressure. While this has always been part of the package, this is becoming more pronounced in the new era.

In the real world, the United States is no longer the unchallenged super power that can do whatever it likes. It no longer holds overwhelming economic, political and military dominance . The world is changing with the rise of the East and the challenge in Europe.

The greatest errors in the Trump view of the the world are not to recognise this, or to understand that the United States can no longer get away with what it could get away with. The longer the adjustment to this reality takes, the greater the risk, not only from stronger retaliation by other nations, but the wrecking of the American economy and the pulling down of the global economy with it. The troubles of the car industry are only a small taste of what may be waiting down the road

Marching towards crisis, easily leads to a transition from diplomatic squabbles to a shooting war. This is the ultimate danger. The cost of a global conflagration is too horrific to contemplate.

The world needs new systems to regulate global trade and international diplomacy, which respect all nations, recognise that all depend on each other, and encourages all to act together for mutual benefit, without there being a single dominant power. This is the path towards saving our collective future.

The first step towards this goal, is for the world to put an end to the present round of punitive tariffs and to insist that differences be resolved by diplomatic means.

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