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Trade and Michigan: Cars, Korea and a New Dynamic

Will a Promised Export Boon Be Enough to Win the Auto Vote?

Touting free trade at an auto plant in economically battered Michigan — and with the head of state of a top car exporter at his side — might seem an odd choice for an American president. After all, lowering barriers to foreign goods and services has for years been the definition of a political hard sell in that Rust Belt battleground, which has so often been on the wrong end of globalization in recent decades.

But President Barack Obama is betting that his choices on trade policy — along with President George W. Bush’s decision to use taxpayer money to finance a restructuring of auto giants General Motors and Chrysler (which was carried out by Obama) — will help keep Michigan’s 16 electoral votes in his column next fall. That’s why he toured a GM plant outside Detroit with South Korean President Lee Myung-bak in October — the same week that Congress approved a long-stalled trade liberalization agreement between the United States and South Korea. The pact reduces the tariffs imposed by each nation on the other’s imports and — the White House and Michigan automakers and union members all hope — will increase the sale of American cars in one of the fast-growing Asian markets while also increasing Korean investment in U.S. manufacturing.

It’s one reason Michigan is perhaps the best place to look at trade policy’s role in the 2012 presidential race and at whether reducing tariffs can in any way help the president maximize his prospects.

The very fact that Democrats have to worry at all about their statewide chances in (relatively) union-heavy Michigan illustrates the economic headwinds that face Obama. He carried the state by 16 points in 2008, and the last time its electoral votes went to a Republican was in 1988.

But GOP presidential hopeful Mitt Romney is a native Michgander and still maintains strong political ties in the state. And, more importantly, regardless of whether a native son is the Republican candidate, Michigan will almost surely remain near the epicenter of the country’s unemployment problem. (Its 10.6 percent jobless rate was exceeded  only in Nevada and California in October.)

Of course, Michigan’s problems did not start with the recession of 2009. The domestic auto industry that is the lifeblood of the state’s economy has been in decline for decades as manufacturing has shifted to lower-wage destinations in Asia and other parts of the world.

In Michigan as in other states, trade policy mixes broad questions of international economics and strategy with parochial, close-to-home issues such as the price of imports and the survival of local factories. And the American public is ambivalent — according to a survey taken by the Pew Research Center earlier this year, just less than half of Americans (48 percent) see free-trade agreements as a “good thing,” while 41 percent view them as a “bad thing.”

Resentment about the effects of globalization has been a common political theme in Michigan in recent decades as the domestic automakers became increasingly inefficient relative to their nonunionized foreign competitors, who took business and jobs from the Rust Belt industrial base.

Trade Deal Struggle

The skepticism goes back two decades to the implementation of the North American Free Trade Agreement, which was negotiated by a Republican president, George H.W. Bush, and pushed through a sharply divided Congress — and the intense opposition of organized labor — by his Democratic successor, Bill Clinton. (Michigan’s Senators and nine of its 15 House Members at the time voted “no.”) The liberal Economic Policy Institute argued in a recent study that the loss of nearly 44,000 jobs in Michigan can be linked to NAFTA’s liberalized trade with Mexico and Canada.

“There is a checkered history of reaction to trade agreements here in Michigan because of the powerful influence of organized labor,” noted Bill Ballenger, a political analyst and former state politician based in Lansing.

Labor unions, including the United Auto Workers, opposed the trade deal that President George W. Bush negotiated with South Korea in the waning years of his presidency. Ford also opposed it largely because Korea had a long history of keeping its markets closed to American autos. Ford argued that the new deal would break down barriers to more affordable Korean cars without guaranteeing U.S. access to the Korean market.

During the 2008 campaign, Obama called for a renegotiation of the pact, then sat on it during his first two years in office — along with trade deals Bush had reached with Colombia and Panama. But in 2010, with the business community clamoring for action and Republicans preparing to take back the House, Obama boosted efforts to strike a new deal. Under pressure from Ford and the UAW, he demanded and won several concessions — including that U.S. tariffs on Korean vehicles would phase out at a slower pace than originally envisioned.

Ford signed off on the final deal, as did the UAW, one of the few major unions to back the agreement. It was an indication of the struggles facing the auto laborers and just how important the export market has become to Ford.

And when the pact was put before Congress in October, the Michigan House delegation voted, 10-5, in favor. So did its Senators, Democrats Carl Levin and Debbie Stabenow.

The vote by Stabenow, who faces a spirited Republican challenge next year when she seeks her third term, was particularly notable. She has been a vocal advocate of retaliating against China for currency manipulation that hurts U.S. exporters and argues — as does Ford — that the administration should keep Japan out of emerging Pacific Rim trade talks because of Tokyo’s protectionist auto policies. But she says she readily concluded that the final version of the Korea deal is a good deal for Michigan and should prove to be a political boon to Obama and Democrats next year. “The White House was willing to make changes at our request,” she said.

But five of the delegation’s six Democratic House Members bucked the president and opposed the pact. (The exception was Rep. Sander Levin, ranking member of the Ways and Means Committee.) “Past trade deals such as NAFTA have had a devastating impact on the Michigan economy, especially on our manufacturing sector,” said second-term Rep. Gary Peters of suburban Detroit, adding that the government should not “adopt any further bilateral, NAFTA-style deals while our nation faces an unprecedented jobs crisis.”

And while the AFL-CIO and other major unions opposed the Korea trade deal, there is no chance they will abandon Obama or other Democrats next year.

It All Comes Down to Jobs

More broadly, the White House and Democrats are touting what they call the resurgence of GM and Chrysler — Ford did not take government money — after the government bailout initiated by Bush and continued and expanded by Obama. The administration ushered both companies into bankruptcy and restructured them with government loans. Now much of the federal money is paid back (at least by the companies’ accounting) and both are profitable. Some laid-off workers have been rehired and new employees have begun to come on board.

The job-creating effects of the domestic auto resurgence, of course, are uneven. As ever, if people aren’t buying cars, it’s not good news for Michigan. Meanwhile, Republicans, who pushed the UAW to accept concessions, get part of the credit for the bailout’s success.

But the White House and Congressional Democrats are trying to take advantage of the uptick in Michigan and Ohio, which has a significant auto presence. They’re making sure any Republican who opposed the bailout is now called to account — particularly when it comes to Romney, who lived in Michigan from birth through high school while his father, George, was president of American Motors and then governor. If the former Massachusetts governor is the presidential nominee, the auto industry and trade policy are certain to feature prominently in the 2012 campaign.

Romney famously wrote a 2008 New York Times op-ed arguing that the government should allow GM and Chrysler to fail. The headline, “Let Detroit Go Bankrupt,” is one that Democrats won’t let anyone forget. (On the other hand, he has been aggressive on China’s economic policies, calling Beijing a currency manipulator and pledging to take punitive actions to balance the trade playing field.)

Like criticizing China, supporting the auto industry is not a particularly partisan issue in Michigan. Despite barbs from conservatives, Republicans such as House Ways and Means Chairman Dave Camp also supported the restructuring of the automakers. And he played a major role in getting the Korea trade agreement passed, working out a deal to ensure continued retraining assistance to laid-off workers and making the case that the pact will result in more jobs.

For Obama, that’s what it comes down to. Jobs are issue No. 1, no matter where they come from. So it was fitting that as the president pressed South Korea’s Lee, who sported a Detroit Tigers cap at the auto plant in October, to reassure the crowd. Lee declared that the new trade accord “will not take away any of your jobs. Rather, it will create more jobs for you and your family, and it is going to protect your job.”

Whether that’s a promise he or Obama can claim to keep is far from certain, given the ever-shifting dynamics of supply and demand.