DCReport's David Cay Johnston says US President Donald Trump's reaction to GM layoffs shows he doesn’t get automakers, technology or his own new tax law

Donald Trump, photo AP.

*This article comes from DCReport and is used with permission.

By David Cay Johnston*

Donald Trumps’ reaction to General Motors plans to close five North American plants and lay off nearly 15,000 workers reveals how little Trump knows about business, technology and the effects of a major tax law he signed.

It also reveals how worthless his campaign promises to voters were.

“If I’m elected you won’t lose one plant,” Trump declared on Oct. 21, 2016, in  Warren, Mich., just miles from a plant GM is shuttering. “You’ll have plants coming into this country. You’re going to have jobs again. You won’t lose one plant, I promise.”

Now America is losing four GM plants, Canada one. We can reasonably expect other American factories to close, too, including those that supply parts as the long economic boom that began early in the Obama Administration runs out of energy.

Just nine days before the 2016 election, Trump promised voters that “I will bring your jobs back. And I will keep companies from leaving Michigan, firing the workers, opening plants in Mexico and other places.”

He said that if Hillary Clinton won “you’re going to lose your car companies. And you’re going to lose them. Believe me. You’re going to lose them.”

Our Constitution grants him no such power to dictate where companies build factories. But Trump has shown that he has no regard for our Constitution’s limits on presidential power.

Trump went on to accuse politicians generally of being economic traitors who report not to American voters, but foreign governments, a preposterous lie that drew applause:

“Why do you think they’re making all these incredible deals in China and Mexico and all these countries? Why do you think?” Trump said. “Do you think because the politicians are that stupid? Some of them are. But do you want to know? They have total control over our politicians. We have to get the money, foreign money out of our politician’s pockets.”

Of course, what motivates GM is what its executives and directors believe is in the best interests of the company and its shareholders, not what Trump wishes they would do to help him acquire and hold onto power.

Marick Masters, a business professor specializing in labor economics at Wayne State University in Detroit, explained that the GM job cuts are “more of a strategic adjustment by General Motors to prepare itself for a future in which it’s trying to get ahead of the technology curve.”

As ride-sharing programs like Uber and Lyft expand GM and others will be making fewer cars. This trend will be accelerated as self-driving trucks and cars take hold, allowing people to get a vehicle on demand instead of having them sit idle for 23 or so hours each day so they can travel when needed. Then there is the shift from vehicles that burn gasoline and diesel and toward those powered by electricity, which also came under attack from Trump who denies the existence of climate disruption and favors burning more coal and petroleum.

Improved manufacturing efficiency means that fewer good-paying automobile assembly jobs. That can be a benefit to America over time, painful as it is in the short run to auto workers who get pink-slipped.

More than a decade ago Harbour Consulting, known for its deep insights into the costs of vehicle manufacturing, noted that “Improved labor productivity allows money to be redirected to make future vehicles more appealing.”

The automotive industry has known for years that the future would mean fewer jobs. At the most efficient auto plants it takes less than 14 hours of labor to assemble a vehicle, though at some less efficient plants it takes 33 hours, Motor Trend revealed a decade ago.  At the turn of the century nearly 1.4 million people were employed building cars, trucks and parts, but today the number is below 970,000, a decline of about a third, government data show.

This trend has long been obvious to anyone who actually studied economics. That Trump does not acknowledge that there will be fewer auto industry jobs in the future provides further evidence that Trump was given a bachelor’s degree in economics by the University of Pennsylvania, but did not earn his diploma through study.

A fundamental trend that Trump does not grasp is that more and more industrial work is being performed by capital, in the form of machines, and less and less work is performed by people using their hands and backs.

Professor Robert Ashford of Syracuse University promotes the idea that all workers should be paid in part with capital, which he calls “inclusive capitalism.”

Ashford explains how capital performs work with the story of a poor man who gets a job hauling sacks of grain on his back. From his pay for this arduous labor, he saves some of his money and buys a donkey. The donkey, a form of capital, can carry more grain, allowing the man to earn more money and to increase his savings until he can buy a pickup truck, which in turn allows him to make and save more so he can buy an 18-wheeler that can haul more grain in a day than he could in a year.  Notice that as the man’s income grows the work is being done not by his labor, but by his capital.

Individuals cannot build their own auto plants, of course. Automobile factories are multibillion-dollar investments that take years to plan and then build. They also are designed to use less and less human labor over time as robotic arms replace humans with welding torches and components parts are designed for quick and easy assembly.

Similarly, when the first steel was made in India millennia ago it took years of labor to produce one ton of steel. Today a ton of steel requires less than 40 minutes of labor.

Vanquished cities in the ancient world often paid tribute to their conquerors not in gold or jewels, but in much more valuable steel. This is a running theme in the HBO television series Game of Thrones, where Valerian steel swords are prized above all other weapons. Today steel is cheap and easy to make, its central role in the American economy of the Eisenhower-Kennedy years long ago replaced by innovative digital services.

And it’s smart to do assembly, which accounts for only about 15% of the value in vehicles, near where they will be sold so making cars in China for Chinese buyers, as GM does, makes sense. That Chinese government requires local assembly, just as Brazil does, is a matter properly negotiated as a global trade issue. Manufacturing and trade rules are valid subjects for revision and refinement, but that requires smart and informed negotiators and often involves other trade-offs, such as political-military diplomatic and national security concerns of mutual interest.

Trump understands none of this. All he knows is slogans and attacking those whose self-interested actions do not fit with his hollow promises. Look at his tweets after GM announced its plans.

“The U.S. saved General Motors, and this is the THANKS we get!”

His tweet seems aimed at the federal tax credit for electric vehicles (disclosure: my wife and I lease a Chevrolet Volt). His rhetoric is not to encourage domestic investment in auto manufacturing, but to propose punishing GM for making electric vehicles here in America and discouraging those who buy or lease them from continuing to do so.

Among the vehicles GM said it will stop making, not incidentally, is the Volt. The fate of its all-electric Chevy Bolt, a very slow seller, is uncertain, but GM ’s plans to move toward battery-powered and self-driving vehicles are clear.

Before Trump, remarks like those in his tweets would have evoked howls of protest from Republican lawmakers, the editorial pages of publications like The Wall Street Journal and others about improper political interference in business decisions. American presidents are not dictators, but servants of the people whose duty is to faithfully execute the laws Congress makes. Again, Trump doesn’t understand this or doesn’t care, speaking as he often does as if he is a dictator, albeit one stymied by federal judges and Congress.

Trump’s unconditional promise to voters about no factories closing was both impossible to keep and silly, especially for someone who promotes himself as a master businessman. But it won him votes.

Trump is not a businessman in the traditional sense of one who builds wealth, which is what GM shareholders expect over the long run and which explains its decisions to close money-losing plants.

The Trump business model is similar to Mafia bust-out schemes. He’s a cash extractor, a financial vampire. He gets control of enterprises using other people’s money and then withdraws cash as fast as he can until the firm collapses, leaving unpaid bills behind.

What no voter could have anticipated is that the Trump/GOP tax law enacted in December 2017 would favor investment overseas at the expense of domestic investment. That’s because Trump’s tax law levies domestic profits at 21%, but profits of foreign subsidiaries pay just half that rate.

We call it the Trump/GOP tax law because it passed without a single Democratic vote in the House or Senate. It also showered the tax breaks on the richest Americans and corporations, especially multinationals like GM, Apple, General Electric and drug makers.

Implicit in Trump’s criticism of GM for seeking to maximize profits now and as the auto industry shifts into a new era is the idea that auto workers make too much. Companies build cars overseas because labor costs are often cheaper. Mexican autoworkers, for example, make about $8 an hour, half that for workers in auto parts plants, compared to almost $30 an hour for American auto workers.

Trump has proposed modest adjustments to the North American Free Trade Agreement that he claims will discourage GM and Ford from assembling cars in Mexico. If Congress approves, many Mexican auto workers make $16 an hour, still far less than American auto workers, but the rules are so vague that Mexican pay may not change much if at all.

GM and Ford would save money by keeping Mexican wages low and paying Trump’s proposed tariff on cars imported from Mexico. That tariff is just 2.5%, a sum of minor significance. The net result may be no identifiable change in North American automaking.


*David Cay Johnston is Editor-in-Chief of DCReport and a Pulitzer Prize winning US investigative journalist. He featured in this interest.co.nz video interview earlier this year.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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23 Comments

Unemployment has continued to go down in the US since the GFC under Obama and Trump. But the charts look grim when you consider the debt cycle and where we're currently at in the global economy.

If these amazing economists are so clever please tell us the month when GFC2 is likely to hit and what other strategies they'll use other than quantitive easing to stem it?

I,like Trump no little about business but i do know that the bankruptcy process involving GM cost the American taxpayer 10 billion dollars and then GM have a share buyback.hmmmmmmm which has cost GM approx 11 billion with more to come.

I will say it on Donald's behalf: "This is all just fake news".

Donald Trump doesn’t need to know anything about anything but he does know that that, doesn’t matter. Because if it did matter, he wouldn’t be where he is today, There it is.

" reveals how worthless his campaign promises to voters were"

maybe you want to visit the actual vidoes of him promising those 1500 odd GM workers that not only were their jobs safe but there would be more created.

Hi Steven
For those who want a link ot Trumps promises may want to refer to this clip from the Daily Show (worth watching all on a Friday afternoon, but relevant clips at about 4 minutes).
https://www.youtube.com/watch?v=3FMu_jNOUwY

I trust that these workers - and others - don't forget Trump's hollow promises.

Whats FAKE NEWS, GM plants are closing, this is real, can be proved . this is the real world

Has anything that Trump has claimed is fake news , actually been proven to be fake?.
I don't understand why the media doesn't challenge these claims more. CNN , NYtimes etc do , but the are dismissed as anti Trump so don't matter.
Is there any law that says a media outlet can not publish news it knows to be fake ?. Been monitoring the Fox news site , and its pretty blatant. Sure you can publish opinion , which may not necessarily be fact based , but actual articles should be required to be the truth.

It's not always fake but it is always selective, biased and manipulative. The rise of the Internet has removed their monopoly on manipulation.

Interesting how its possible to recognise things in others that you identify with within oneself...

'The Trump Organization Planned To Give Vladimir Putin The $50 Million Penthouse In Trump Tower Moscow' - https://www.buzzfeednews.com/article/anthonycormier/the-trump-organization-planned-to-give-vladimir-putin-the

Actually fill a super tanker. However he does seem to be a master of debt and knows how to skin a mark, give credit where it is due.

The author describes Brazilian politicians as "smart and informed", whereas most of Brazil views them as criminally incompetent and/or criminal.

Where? Not in this article.

I am about to write a self published book about how Mary Barra is driving GM over a cliff and it is all Trump's fault. Who will buy it?

How cheap, and what grade of paper? Determines whether it goes in the hiking pack as wet day reading material with backup job of emergency TP..

The greater the volume of negative media coverage of Trump, the more he thrives.
You can’t trump the Trump. His methods are unconventional - but he voices things that many (silently) agree with.
Like “why are are taking in all these people from s***&& countries”. Now that’s a crass crude statement, but it addresses western middle class/working class anxieties about immigration, and may show more insight than diplomatic globalisation words from other politicians.
CNN has almost become a strident anti-Trump machine which only makes him stronger. People expect nothing else from CNN. So they are no longer regarded as a news channel.

Could any other politician have survived the negative press?
Would any other world leader have stood up to China, slapped tariffs on, and moved the US Embassy to Jerusalem? Only an outlier

A caveat..I am neither a democrat or republican supporter as a norm as I have supported both parties over the years depending on policy. As a kiwi that lives in the USA trying to grapple with how trump ever became president to start with I have come to this conclusion....You have to be very careful where you get your information. The US media is basically made up of entities that either support or rebuff trump. This has become increasing clear to me in that the country has become so divisive that the media at this point can not be trusted at all to report the truth. They may be doing so but no one can actually tell. There are people that suck up the propaganda by only listening/reading their one news channel that always seems to lean one way all the time, depending on what rich guy owns the entity. And this works for both trump supporters and democratic supporters.
The media trump wants, reminds me of the early days of Hitler and how his regime took over the media and brainwashed a whole population because there was only one official outlet for news, leaning one way.
While we now have a free press, regardless of trump, we can no longer distinguish which outlets are telling the truth, even though the outlets themselves think they might be, we the people, can no longer tell.
My view....has nothing to do with trump being a republican and everything to do with the fact that he will never have the respect or moral attributes in 10 lifetimes that many other presidents have had in their one. The mere fact he uses bankruptcy as a regular business tool in his private businesses shows his lack of character and business morality. Look at the way he mocked witness Ford in the Kavanaugh hearings, Anyone who watched those hearings know kavanaugh directly lied to Congress about his past.
Trump is a disgusting human being in so many ways, regardless of his politics.
These opinions are formed by watching the actual words come out of mouths, not of the medias interpretation.

Gosh,I hope none of this comes as a nasty shock to anyone.

Trump's ignorance is legendary.He admits to never reading a book and as former White House staff have commented,he won't/can't? read a briefing paper of more than one page. Apparently,even that's a stretch,unless his name features prominently. We know that he lies as he breathes. The Washington Post has awarded him countless Pinocchios and the rate is increasing. We know that his own business record is incredibly patchy and recent detective work has shown just how much he got from his late and unlamented father. He features in Michael Lewis's book,The Money Culture.The essay dates from Oct 1990 and shows him up for the for the deeply unpleasant narcissist that he is. Perhaps even worse,he regularly cheats at golf.
This claim was made by the former PGA player and regular winner,Suzann Petterson.
I quote her; "He cheats like hell,so I don't quite know how he is in business". She went on to say that in all the times she had played with him,he never came close to breaking 80. That's not how Trump tells it,but I know who I believe.

People can go on all they like about how bad they think Trump is but it won't have any affect.
Trump has captured the hearts and the spirit of the people. They are enthralled.

This is no ordinary man. On that I think we can all agree. To many he is a hero, the messenger, the lightbringer, tapping into something primal. To others he is a clown or a monster. It's hard to imagine anyone else pulling this off. A creation of Internet consciousness.

He is practically invincible, the embodiment of a Nietzschean superman. All his detractors have withered and perished. It is scary, I can acknowledge that, but such a being would evoke intense feelings.

Like a real god, a Greek or Norse god, not perfect, none of them were, but something very rare in our lives. It's fascinating when you think about it and I am glad that I lived to see it.

ZS,

Great stuff-just what I need to brighten a dull,wet day-too wet to finish my golf this morning-but reading your post brightens me up no end.
"Trump has captured the hearts and minds of the people". Really? All the people,or just some(admittedly significant) minority of the people? Given the results of the recent elections,I think that even you would have to agree that not all Americans are in thrall to this "embodiment of a Nietzschean superman". Trump would have no idea what you are talking about,as he never reads books.
keep up the posts,they give me a great deal of amusement. Can i assume that like your hero,you think Global warming is a hoax?

Always here to entertain linklater01.

I'm not alone with my line of divine or magical thinking. See this:

Dark Star Rising: Magick and Power in the Age of Trump

The supposed fact that Trump has never read a book only reinforces my theory I feel.