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Essay: The automotive industry

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  • Subject area(s): Business essays
  • Reading time: 2 minutes
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  • Published: October 17, 2015*
  • File format: Text
  • Words: 575 (approx)
  • Number of pages: 3 (approx)
  • The automotive industry
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Throughout the Twentieth Century no industry symbolized American industrial prominence greater than the automotive industry. Large powerful conglomerates dominated the vertically integrated industry, with every linkage in the value chain being handled by domestic workers. Meanwhile developing nations seemed to lack the competence necessary to pose any rational threat to the American giants. However, as time has passed, many countries have developed industries that can match or exceed the United States in sophistication. Today, more and more vehicles are being imported into the U.S. by international firms, or by American multinationals that produce the vehicles in low wage countries to minimize production costs.
As the automobile sector accounts for approximately 10% of the employment in the United States (1.3 million directly, 7.9 million in dependent or related jobs), it is not surprising that political forces have entered into the conversation. Many have called for greater protectionism, employing the rhetoric of patriotism and economic sustainability. Conversely, others have stressed the values of free trade and market capitalism in calling for a more liberalized policy.
Both sides have used their political muscle to influence the international auto trade. The United States currently imposes a rather liberal import tariff of 2.5% on all imported cars. Such a tariff is relatively low when compared tariffs in China, which exceeded thirty percent before its entry into the World Trade Organization and have only since been reduced to twenty-five percent.[16] Still, American auto manufacturers have received much greater governmental protection on pickup truck imports, which currently stand at twenty-five percent. Advocates of free trade claim that such a elevated tax rate is anti-competitive and adverse to U.S. consumers. Yet nonetheless it persists, creating greater sustainability for American multinationals.
Perhaps no political act has had a more profound impact on the American auto industry than the North American Free Trade Agreement (NAFTA) signed in 1993. This act decreed that goods could be produced in Canada or Mexico and sold to the United States with no import duties, whatsoever. No other sector was so profoundly affected by this act as the auto industry. In fact, automobile and auto parts trade make up 20% of all intra-NAFTA trade.[18] The measure was both simultaneously a huge blow to American, industrial auto workers, and a huge boon for American multinationals who were able to utilize low wage Mexican labor, to produce products to be sold to the U.S. market.
These plants, known as ‘maquiladoras’, created a huge burst in Mexican auto trade, with the American “Big Three” accounting for 75% of all exports, and 80% of Mexican auto imports. Many thinkers insist that the agreement has been mutually beneficial, saving tens of thousands of American jobs, mostly those producing parts to be assembled elsewhere. However, NAFTA remains among the most vehemently controversial economic agreements in U.S. history. Its opponents maintain that NAFTA has displaced 879,280 American workers, widened the income gap, decreased real wages for U.S. production workers, and irrevocably damaged U.S. workers ability to organize. They further assert that as America’s trade deficit continues to balloon more and more jobs will be lost, as the domestic economy becomes entirely dependent on imports. Nevertheless, if current trends persist, American participation in the global economy will assuredly intensify before it declines.

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