The week of Monday, September 4: A possible autoworkers’ strike, electric vehicles, the Panama Canal, George Washington’s economic policy, and much, much more.
The week of Monday, September 4: A possible autoworkers’ strike, electric vehicles, the Panama Canal, George Washington’s economic policy, and much, much more.
The threatened strike by the United Auto Workers (UAW) is another reminder, however disguised, that those governments participating in the “race” to net zero by 2050 (at the latest) will not enjoy the consequences. As mentioned in earlier Capital Letters, climate-related policies have already triggered violent disturbances in France and the rise of a rebel farmers’ party in the Netherlands. They also have helped the rise of the far right AfD in Germany to an unprecedented 22 percent in the polls. In Britain, the expansion of an “ultra-low zone” (ULEZ — admittedly only partly linked to climate change policy) by London’s Labour Mayor led to the embattled Conservatives winning a special election they were expected to lose.
The UAW’s militant turn is primarily about pay and benefits, but scratch just a little beneath the surface and it’s easy to see that the danger to jobs posed by the forced transition to electric vehicles (EVs), one of the more pointless elements in a “race” where the winners will receive no prizes, is something of which the leadership of the UAW is well aware.
The United Auto Workers union on Friday called on the Biden administration to soften its proposed vehicle emissions cuts that would require 67% of new vehicles to be electric by 2032.
The UAW…said the Environmental Protection Agency’s proposed standards should be revised to “better reflect the feasibility of compliance so that the projected adoption of (zero emission vehicles) is set to feasible levels, increases stringency more gradually, and occurs over a greater period of time.”
“We fear the proposed standards are premature and risk disrupting the market that will make the EV transition possible,” the UAW said. “We urge EPA to continue to work with all key stakeholders to ensure the new rules do not disproportionately impact domestic union auto production.”
The UAW was right to give that warning (which echoes those given by auto manufacturers). There is a lot that is wrong with the EPA’s rules, but among the worst is that they are recklessly premature. And one of the consequences of this rushed schedule (which will make no material difference to the climate) is the opportunity it offers to the Chinese companies looking to fill the gap that U.S. manufacturers will not yet be able to fill. That probably won’t extend to imports of many EVs (the same is, as I discuss below, not true in Europe), but Chinese suppliers of batteries and other elements in the EV supply chain will benefit.
As Rich Lowry wrote on Friday:
The [EPA’s] goals would make Soviet central planners blush. Last year, electric vehicles accounted for about 7 percent of U.S. sales, but according to the panjandrums at the Environmental Protection Agency, they’ll have to be nearly 40 percent by 2027. A couple of years after that, they’re supposed to be higher than 60 percent.
And why not? All that’s missing is the charging capacity and supply and processing of the minerals necessary to build the 1,000-pound batteries, not to mention the consumer demand.
Last month, UAW President Shawn Fain harshly criticized the U.S. Energy Department plan to lend $9.2 billion to a joint venture of Ford and South Korea’s SK On to build three U.S. battery plants.
Fain called the loan a massive “giveaway” with “no consideration for wages, working conditions, union rights or retirement security” that would help create low-paying jobs, adding, “Why is Joe Biden’s administration facilitating this corporate greed with taxpayer money?”
In a recent piece for NRO, Noah Rothman essentially provided the answer:
If the Biden White House is forced to choose between the demands of autoworkers and the highly subsidized greening of the American economy, it will choose the latter.
There have been few political costs associated with the Democratic Party’s addiction to throwing money at the green-energy sector, but the prospect of a UAW strike might finally impose some. An ugly intra-coalition dispute would highlight traditional blue-collar labor’s secondary role in a party dominated by highly educated, well-heeled, culturally progressive Americans.
Responding to Rothman, I argued that the administration might try to dodge a confrontation between the automakers and the UAW by using the clout that comes with all the money it has thrown at them (the big three are rapidly becoming wards of the state) to lean on the automakers to offer much more than they otherwise would. But there is only so much pressure that the White House can apply without greatly increasing the already high risk that the EV mandate will mean disaster for the big three.
Rothman also quoted from a letter sent to UAW members by the union’s president in May, in which the UAW withheld (for now) its endorsement for Biden’s reelection because of the EV issue.
“The federal government is pouring billions into the electric vehicle transition, with no strings attached and no commitment to workers. The EV transition is at serious risk of becoming a race to the bottom. We want to see national leadership have our back on this before we make any commitments,” Fain said…
Fain and U.S. Senator Bernie Sanders on Thursday criticized a General Motors joint venture battery plant for paying workers much less than assembly plant employees even though it benefits from hefty U.S. government tax credits.
Workers at the Warren, Ohio, joint venture Ultium Cells plant near Lordstown start at $16.50 an hour rising to $20 an hour after seven years while union workers at a nearby Ohio GM assembly plant that closed in 2019 made $32 an hour or more.
“The situation at Lordstown, and the current state of the EV transition, is unacceptable. We expect action from the people in power to make it right,” Fain said.
That, of course, is not how the green economy is supposed to work. Its advocates have always conceded that decarbonization would cost jobs in the old “dirty” economy but then gone on to maintain that the green economy would create enough new jobs to make up for those losses.
The structure of a new (August 31) $15.5 billion package of grants and loans to assist in the switch to EVs shows that the administration is keen to demonstrate the importance it attaches to the quality and quantity of new green jobs. The looming strikes have concentrated minds wonderfully as, no less, probably, have fears of alienating a significant blue-collar constituency ahead of the next elections.
And so the package comes in two parts. The first ($2 billion in grants, and up to $10 billion in loans) is, as explained by the Department of Energy, “primarily focused on retooling existing factories” for the transition to EVs. The idea behind it (my emphasis added) is to “support automotive manufacturing conversion projects that retain high-quality jobs in communities that currently host these manufacturing facilities.”
In other words, this program is meant to keep as much of the “new” auto industry as possible where it is, rather than migrating to states where unions have less of a grip. Moreover, an application will be more likely to succeed for (again, my emphasis added), “projects that are likely to retain collective bargaining agreements and/or those that have an existing high-quality, high-wage hourly production workforce, such as applicants that currently pay top quartile wages in their industry.”
The DOE will also make available “$3.5 billion in funding to expand domestic manufacturing of batteries for electric vehicles and the nation’s grid, as well for battery materials and components currently imported from other countries.” This funding is “intended to support growing domestic industry while also supporting manufacturing workers and promoting equity and environmental justice.”
In his comments on this package, Biden argued that “building a clean energy economy can and should provide a win-win opportunity for auto companies and unionized workers who have anchored the American economy for decades.”
We’ll see.
The UAW’s Fain welcomed the package, but only as part of a broader “just transition”:
“The UAW supports and is ready for the transition to a clean auto industry. But the EV transition must be a just transition that ensures auto workers have a place in the new economy. Today’s announcement from the Department of Energy echoes the UAW’s call for strong labor standards tied to all taxpayer funding that goes to auto and manufacturing companies.
“We are glad to see the Biden Administration doing its part to reject the false choice between a good job and a green job. This new policy makes clear to employers that the EV transition must include strong union partnerships with the high pay and safety standards that generations of UAW members have fought for and won.
Fain added that he had yet to see the automakers promising job security “in our ongoing negotiations.”
His concerns are understandable enough. However, what he is envisaging (a massive reworking of the auto sector which largely preserves the pay, the jobs, and the geographical location of today’s industry) may be optimistic, but will certainly be expensive. Money is to be thrown at automakers (and other manufacturers in the EV supply chain) to produce cars they don’t particularly want to make to sell to unenthusiastic consumers who must be bribed to buy them. That is not an obvious recipe for a rational, economically sustainable undertaking, but the consequences of central planning rarely are. And that is before considering what the substantial increase in pay being called for by the UAW would do to the viability of this new sector.
And there’s something else to consider. As Kevin Hassett noted in an article for Capital Matters, “according to Ford Motor Company CEO Jim Farley… it takes 40 percent fewer workers to make an electric vehicle than one with an internal-combustion engine.” So, what then, is that 40 percent going to do? Farley suggests that Ford will take much of the component work they have long sub-contracted out back in-house, so that “everyone has a role” in the future. But if Ford, GM, and Stellantis all adopt that approach, that may likely leave many components manufacturers with not enough business to survive. What happens to their workers? As Hassett explained, Biden has promised to create a million jobs in the EV sector, but that is a gross, not a net, number. The latter reflects the job losses caused by the transition. That is this the number that counts.
And, as the UAW understands, so does the pay that goes with those jobs. Currently, Hassett relates, about “1 million workers are employed manufacturing motor vehicles and parts, with the vast majority of them currently producing cars with internal-combustion engines.” That’s how the BLS describes these workers, but it is a considerably narrower definition of the auto sector than Biden’s. He reaches his total of a million new EV jobs by including those employed in “domestic auto supply chains, and auto infrastructure, from parts to materials to electric vehicle charging stations.” Hassett asks whether “manning a charging station [is] likely to pay as well as an auto-manufacturing job in Detroit?” It’s a question that answers itself.
Meanwhile, tales of the green transition on the other side of the Atlantic are not at all encouraging. In the U.K., the center-left government promised a green industrial revolution, but the only “revolution” it is likely to see will be when it is thrown out of office after the next general election, which is due no later than January 2025. So far, British voters have largely endorsed an aggressive climate policy, but they are not endorsing the (largely unacknowledged) contribution it has already made to the slowing of the British economy, a contribution that is only going to grow worse (especially and ironically, if the Tories’ likely replacement, the Labour Party, prevails). What will happen when the electorate makes the connection between climate policy, a deteriorating economy, and higher prices, a connection that will be made even easier to make as voters start to suffer from the reduced consumer choice and increased state intrusion that come with net zero?
Matt Goodwin, a British academic who has been watching populism in the U.K. for many years now (for some background see here) has predicted that net zero may be the “next big populist revolt” (after Brexit) in Britain, but it’s not hard to see how some of his findings may be relevant elsewhere.
While it is certainly true many voters remain broadly supportive of tackling climate change and are instinctively on board with cleaning up the environment, it is also true they become much less supportive when they are asked —or simply told— to absorb the spiralling financial costs of this agenda.
You can get a sense of this tension at the heart of our politics by asking voters to choose which of the following two statements comes closest to their view:
(1) ‘The Government should prioritise helping the UK reach Net Zero carbon emissions, even if this increases the cost of living for ordinary people’, or,
(2) ‘The Government should prioritise keeping the cost of living as low as possible, even if this means it has to do less to help the UK reach Net Zero’.
Only one in eight voters (16%) voice their support for Net Zero initiatives which will increase bills for ordinary people while most (54%) would much rather the government focus on reducing bills, even if this undermines the quest for Net Zero.
Goodwin returns to what is for him a familiar topic, the revolt by “millions of voters across the West…against a political and cultural revolution which they feel is being imposed on them from above by a distant, homogeneous and often self-serving elite.” He cites four flashpoints, mass immigration, wokery, globalization and “the hollowing out of national democracy, where power, authority, and legitimacy are being transferred away from the masses toward an insular elite and expert class.” He argues that these four may well be joined by a fifth, opposition to net zero policies:
Today, what the politics of ULEZ and the growing backlash to it symbolise is how, in the eyes of many ordinary voters, this elite-led revolution is now rapidly expanding to encompass the politics of Net Zero —a project which many voters similarly feel is hard-wired to serve the values, the interests, and the priorities of the New Elite at the expense of ordinary, hard-working people like them.
And the potential for this backlash to expand, as one recent academic paper notes, is clear. Despite the popularity of Net Zero in elite circles, very few people actually know what these targets mean for ordinary people and cannot say with any real certainty how much they will cost and how much disruption they will bring.
Well, they are just beginning to find out, and not only in the U.K.
Germany’s reckless, poorly planned decarbonization has been underway for years. The result, even before the Russian invasion of Ukraine, was to leave Germany, Europe’s industrial champion, with very high energy prices. With little sign of that changing, some of its larger energy-intensive firms are moving more of their production elsewhere.
The switch to EVs looks set to be another blow, largely because of the impact of Chinese competition. Originally, the sale of new internal combustion engine cars was going to be banned in the EU from 2035. At Germany’s insistence, there is now an exemption when those cars are powered by e-fuels (climate neutral synthetic fuels). How realistic an alternative that will prove to be remains to be seen, but for now the German auto sector, both the brain and the backbone of Germany’s all-important industrial base, is looking very vulnerable, both at home and in its vital export markets, to the challenge from Chinese EVs, including in China itself, where German cars (whether exports or locally made) have long enjoyed a strong market presence. At a stroke, the mandated introduction of EV technology has eliminated many of the advantages of incumbency enjoyed by Western auto manufacturers, and that will hit European manufacturers very hard.
In a classic mercantilist move, China has developed a strong EV industry (and a controlling position in the EV supply chain) in a way and at a pace not possible in countries where companies were expected to take a disciplined approach to their capital expenditure, and where (until recently) governments had not been throwing around cash. Beijing’s plan has been to develop EVs as a key export product, and it may well succeed. China can manufacture EVs from high-end to bargain basement. With a weak yuan, and a subdued domestic market, its EV manufacturers are poised to take a significant slice of the EU auto market, which is protected only by a tariff of 10 percent, compared with a 27.5 percent tariff (and significant non-tariff barriers) in the U.S. So far this year, China has accounted for 8 percent of all new EVs sold in Europe, up from 4 percent in 2021.
Europeans thus face the prospect of a forced switch to EVs and, in countries such as Germany, France and Italy, a wave of job losses in their important domestic auto sectors driven by two factors that cannot be wished away. The first is that fewer people are needed to manufacture EVs and the second is Chinese competition. It is hard to see how (when all this come into clear view) the transition to EVs, and, by extension the broader net zero project, will proceed without major political pushback.
When it comes to the U.S., Hassett offers up a few more numbers:
American Automakers, an industry association, estimates that about 7.5 million people in the U.S. have work that is related to cars. This is bigger than those just in manufacturing, because it includes people working at dealerships, repair shops, and gas stations.
If, as the administration would like to see, two-thirds of the new cars sold in 2032 are EVs, “millions of lives,” will have been disrupted.
Hassett continues:
It would be a profound mistake to underestimate the political impact of this dramatic change. Imagine the entrepreneur who left his country and put his life savings into a small gas station. How will he feel about the fact that his business has been destroyed by EVs? And what about the hundreds of thousands of workers making cars and parts, who will find themselves out of work? What might the climate agenda do to their politics? Not to mention those employed in the energy sector. If market forces were driving this, then the change would be gradual and give workers and small businesses a chance to adjust. But the massive subsidies virtually guarantee that we will see a short sharp shock.
And the shocks that the race to net zero will set off don’t stop there.
Adam Smith 300
All year, the Adam Smith 300 essay series from National Review Capital Matters has been celebrating the tercentenary of the birth of the father of modern economics. Each month, a new essay has reflected on Smith’s legacy from a different perspective.
Now, we’d like you to join us in person to hear from some of the leading voices on Smith’s thought. January author Dan Klein of George Mason University and October author Anne Bradley of TFAS will talk with National Review Institute Rhodes fellow and Capital Matters contributor, Dominic Pino, about Smith’s continued relevance today. May author Samuel Gregg of AIER will give a keynote address, followed by a conversation with NRI trustee David Bahnsen.
Whether you’re already a Smith expert or only loosely acquainted with his works, this event is a unique opportunity to celebrate the life of the author of The Theory of Moral Sentiments and The Wealth of Nations. More than a mere symbol of free markets, Smith possessed deep insight into human interaction, and his analysis of what he called the “system of natural liberty” still holds up today. With free markets under attack, it’s important to return to intellectual foundations, and remember why William F. Buckley Jr. wrote in the mission statement for National Review that “the competitive price system is indispensable to liberty and material progress.”
If you are interested in attending, more details here.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 134th episode, David was joined by the former president of Marsh Advisory, Michael Poulos, for a trip around the horn, discussing the Covid impact on the economy (and public trust), the right defense of a market economy, and the challenges underlying the current state of affairs that often get missed. There is something for everybody here — from theology to economics to politics — and the takeaways may surprise you.
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here online at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy…
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
China
John Donne famously wrote that “no man is an island entire of itself.” Something similar might be said of the U.S. economy.
Anyone doubting that the U.S. will be affected by China’s economic troubles has not been paying attention to the seriousness of China’s woes. Nor have they been taking note of the impact that this crisis is already having on the economic outlook of its Asian trade partners, Germany, and the commodity-dependent emerging market economies…
Far too often, American entrepreneurs have been misled about the true nature of overseas investing. Many pursue foreign markets solely on the expectation of receiving a reasonable rate of capital returns. These investors are often quick to overlook the lack of transparency and absence of privatization in an autocratic country so long as the captured markets provide access to lucrative opportunities to grow wealth…
The fund has about $1.4 trillion under management (or about $250,000 per Norwegian citizen), and is one of the largest investors in the world. It owns 1.5 percent of the world’s publicly quoted shares. It is now closing its one office in China…
The Possible UAW Strike
“President Biden promised to be the most pro-worker and pro-union President in American history, and he has kept that promise,” the White House insists. Indeed, “Bidenomics is a blue-collar blueprint for America,” the president claims. But the president’s image-makers may struggle to advance the notion that Biden is the best friend a unionized worker could have if one of the nation’s largest unions goes on strike later this month….
It’s no great surprise to see that a possible strike in a traditional industry is being accompanied by some old-school class-war language, but in this passage in a speech he gave recently, UAW president Shawn Fain added a new post-Covid twist…
The United Autoworkers’ president, Shawn Fain, has made news with increasingly vitriolic threats to the automakers as the deadline for approval of a new contract approaches. At a Labor Day speech last weekend, he warned that the UAW would achieve its contract objectives “by any means necessary,” in a speech that made a strike almost certain. In the past, it has been typical for the UAW to target a single automaker for a strike, but interestingly, this time it appears set to strike against the Big Three.
While negotiations between unions and firms can often feature extreme rhetoric, it would be a mistake to think that Fain is just posturing. Indeed, the UAW clearly understands the reality that EVs pose the greatest threat to the UAW in its history. A few simple undisputed facts about auto manufacturing make the point obvious…
Energy
Global subsidies for fossil fuels totaled $7 trillion in 2022, or 7 percent of global GDP, according to the International Monetary Fund’s latest working paper, published in August. This estimate is over $1 trillion more than the estimate in a 2021 working paper by the same authors, economists Simon Black, Antung A. Liu, Ian Parry, and Nate Vernon.
News that the world is spending $7 trillion on subsidizing fossil fuels, and exacerbating climate change, has garnered headlines in Reuters, Radio Free Asia, and India’s Mongabay. But the truth is a little different…
Working from Home
Asian workers have more uniformly gone back to the office, while in Europe, remote work varies more from country to country. The U.K. has a high rate of remote work, and France has a low one, Boyle writes.
U.S. companies are taking very different approaches, with little input from government. There are two ways that might shake out. One is that a certain balance of remote and in-person work will demonstrate itself to be most conducive to business and will win out over time. The other is that different businesses will succeed with different balances that work for their employees or industry, and the varied approaches will persist…
Electric Vehicles
Insofar as a rush to electric cars throws us into the arms of Chinese manufacturers and suppliers, it should rightfully be thought of as an anti-industrial policy.
We foolishly haven’t made adequate arrangements for mining or processing the minerals the batteries require, and it’s hard to ramp up quickly. Fortunately, there’s a country that’s a leader in this area. Unfortunately, it’s China…
Bill Richardson
With the passing of former New Mexico governor Bill Richardson, yet another Democrat of a bygone era departs the scene. Richardson was personally friendly and ideologically simpatico with Bill Clinton, helping the president pass the NAFTA free-trade agreement and then being named U.N. ambassador for the final few years of that administration.
Free trade is (sadly) increasingly unpopular on both sides of the aisle, and in this sense both Richardson and Clinton are creatures of a different era…
George Washington
It is difficult to find an original angle on George Washington, but Cyrus Ansary’s 2019 book George Washington: Dealmaker-In-Chief manages the effort. Ansary argues that Washington was more than just a wealthy landowner, military victor, and founding president. Washington, in Ansary’s telling, was a superb serial entrepreneur who deserves top billing among the creators of America’s uniquely free and vibrant economy…
Transportation
Some news reports have described a “traffic jam” at the Panama Canal, which is true but not very interesting. There’s always a traffic jam at the canal. Every ship on the planet that wants to go directly from the Atlantic to the Pacific or from the Pacific to the Atlantic uses the canal…
ESG
One of life’s bleaker pleasures is watching the efforts of the management consultant, McKinsey, as it continues to try to ingratiate itself with the Beijing regime and yet, as a rent-seeker doing business in the West, offers its services as a guide toward allegedly enlightened management…
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