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Strike against automakers could slow US economy, trigger job losses

by Stella Morgan

The Threat of a Strike at Big 3 US Automakers: Potential Economic Impact

A strike at the Big 3 U.S. automakers – General Motors, Ford, and Stellantis – could have far-reaching consequences for both workers and the economy as a whole. With up to 143,000 workers potentially facing a loss of livelihood, the economic fallout could be significant. Not only would businesses lose out on spending from striking autoworkers, but car component suppliers could also grind to a halt, and consumers may decide to avoid higher prices.

According to Mark Zandi, the chief economist for Moody’s Analytics, a six-week strike would result in a loss of two-tenths of a percentage point of economic growth over a three-month period ending in December. While this may seem small, it is a meaningful impact that could weaken the U.S. economy at a time when it already faces other threats, such as high oil prices, a potential government shutdown, and the end of a moratorium on student loan payments.

One of the immediate effects of a strike would be a spike in car prices. As automakers sell through inventory that has already been diminished due to pandemic-related supply chain disruptions, the limited supply could lead to higher prices. This, in turn, would threaten the Federal Reserve’s efforts to bring down inflation, creating an additional challenge for the U.S. economy.

Even a shorter strike lasting 10 days would have significant economic consequences. A report released by the Anderson Economic Group estimated that such a strike would cost the U.S. economy $5.6 billion in losses. This includes direct wages foregone by autoworkers, missed production, and losses suffered by consumers and dealers as repairs are delayed and inventory is lost.

The most significant impact, however, would come from the lost wages that thousands of United Autoworkers (UAW) members would experience. Tyler Theile, vice president and director of public policy for Anderson Economic Group, emphasized the immediate effect of lost wages on households and their spending power. With workers receiving strike pay of $500 per week, which is significantly less than their previous income, many would have to cut back on discretionary spending. This would have negative consequences for businesses such as restaurants and movie theaters, as well as a ripple effect throughout the economy.

The impact on workers and businesses would also extend to companies down the supply chain. Initially, suppliers may retain workers, hoping for a quick resolution to the strike. However, as the strike drags on and production comes to a standstill, furloughs and reduced income would become inevitable. This would create a backup in the supply chain and trigger a slowdown in production. According to Erik Gordon, a business professor at the University of Michigan, suppliers of car components may be forced to shut down shifts and even cease manufacturing altogether.

In Michigan alone, a four-week strike against all three automakers would result in 161,000 lost jobs, according to a report by Gabriel Ehrlich. A long-term strike would lead to over 300,000 job losses in the state. These numbers highlight the severity of the potential impact on workers and the wider economy.

Furthermore, consumers would be affected by the strike. Due to the lingering effects of supply chain disruptions caused by the pandemic, the Big 3 automakers currently hold only one-fifth of the inventory they had in 2019. Tyler Theile noted that this limited supply, combined with increased demand amid the strike, could lead to higher car prices. This would make it a challenging time for consumers to purchase a car, as they are unlikely to find any significant bargains.

As the clock continues to tick down to a possible strike, President Joe Biden has discussed the ongoing negotiations with Shawn Fain, President of UAW, and leaders of the major auto companies. These discussions highlight the concern surrounding a potential strike and the need for a swift resolution to prevent significant economic damage.

In summary, a strike at the Big 3 U.S. automakers would not only threaten the livelihood of thousands of workers but also have a ripple effect throughout the economy. With potential losses in wages, production, and consumer spending, the impact would be felt by businesses, workers, and consumers alike. Resolving the negotiations and avoiding a strike is crucial to mitigating the economic consequences.

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