Did the Four Horsemen Destroy the Auto Industry?
by Darin Gilley
The day of reckoning has arrived for the U.S. auto industry and much like
the four horsemen of the apocalypse (strife, war, famine, death) our
nation's policies (tax, trade, health care, energy) have helped decimate
American manufacturing. As a result, America has gone from the world's
greatest creditor nation to the world's greatest debtor nation.
Let's look at how these long-standing policies have virtually eliminated
several industries from the productive side of the American economy - shoes,
TV's, textiles, electronics, and potentially the auto industry.
Horseman No. 1 - Tax Policy
Other nations gain an advantage through their use of a Value Added Tax (VAT)
system. A VAT is a levy on the "value added" to goods and services as they
pass through each stage of the production process. The advantage is gained
when a foreign manufacturer exports their goods to the U.S., where at that
point the exporting nation rebates the Value Added Taxes back to the
manufacturer. This allows foreign goods with no tax cost component to
"compete" with American goods that must include U.S. taxes as part of their
price. This generally gives goods from VAT nations a 10 percent advantage.
To make matters worse, VAT nations assess the tax on American goods entering
U.S. Rep. Mike Michaud of Maine estimates this produces a $375 billion
burden on American goods and services. Fortunately, he plans on introducing
legislation in the next session of Congress to address this problem. This
simple tax issue will immediately assist the auto industry and other
manufacturers to be more competitive.
Horseman No. 2 - Trade Policy
America cannot continue to lead a free trade agenda while other nations
strategically subsidize, support, and protect their industries at our
expense. For example, the U.S. House Ways and Means Committee has found that
Japan manipulates its currency to give their vehicles a $2,000 - $8,000
advantage when imported into the U.S. This also raises the cost of American
vehicles that are imported into Japan by the same amount.
Currency manipulation and other non-tariff barriers allow Korea to export
over 600,000 vehicles to the U.S. last year while only importing 5,000 from
We could learn from Europe as well. If a foreign automaker wants to open a
car plant in Europe they must use 80 percent locally produced parts, far
higher than the 35 percent average content American transplants currently
use. This would generate almost two million American jobs. In addition,
Europe puts a ceiling on the amount of state subsidies provided so that
those plants actually benefit the local economy and not siphon off tax
dollars to shareholders.
Horseman No. 3 - Health Care
The United States pays twice as much per person for health care as other
industrialized nations. It has been estimated that if GM were a Canadian
company it wouldn't be asking for help. Economist Dean Baker estimates if GM
had purchased the same health care used in Canada it would have saved over
$22 billion over the last decade. In fact, if health care costs were the
same here as in other industrialized nations 80 percent of the Big 3 losses
Horseman No. 4 - Energy
In the late 1990s a barrel of oil sold for $10. The Big 3 enjoyed strong
sales and consistent profits. In 2008 a barrel of oil sold for $147. If
legislators had developed an energy policy then, all industry, but
especially the auto industry, would have had a foundation on which to
design, engineer, and build vehicles.
Instead we watched our elected officials vote to unleash the "market forces"
that came with deregulating the futures commodity market (Commodities
Futures Modernization Act). This resulted in gas exploding to over $4 a
gallon. The consequence of this decision was the entire economy devolving
into a recession while oil companies reported record profits.
Obviously, the financial crisis is the immediate cause of the worldwide auto
crisis but these four policies or lack thereof have long been a cause of
American manufacturing decline. It is time for responsible legislators to
take the reins and look for solutions that will put domestic manufacturing
on at least a level playing field in their own market. Our economic recovery
depends on it. No nation has ever consumed its way to greatness, nations
must produce their way to greatness.
A version of this article originally appeared in the St. Louis Post-Dispatch
© 2009 American Forum