Rough trade winds complicate UAW talks

Keith Laing
The Detroit News

Washington — Automakers are negotiating with the United Auto Workers union on a labor contract that will cover the next four years at a time when they can’t be certain what the trade environment will look like in four months.

And that's sure to shape negotiations between Detroit carmakers and the UAW as they work toward a deadline of Sept. 15 when contracts expire.

President Donald Trump has sent confusing and contradictory signals in his escalating trade war with China: On Friday, he said he would reinstate tariffs on cars from China; by Sunday he admitted to second thoughts, after which an aide said he meant he should have raised them higher. 

The United Auto Workers Local 174 sign is shown outside their building in Romulus.

Also on Friday, the president ordered U.S. companies to leave China before an adviser said that order would not "be exercised presently."

Then on Monday, Trump said he was not "at this moment" considering fresh tariffs on Japanese cars but hastened to say he could "at a later date if I wanted to."

"The overall interaction of trade, fuel economy and the economy overall, plus the demand for vehicles over the next four years, makes for a very difficult environment to negotiate an agreement," said Kristin Dziczek, vice president of the Center for Automotive Research.

She expects the negotiations to be contentious, complicated by plant closings and an imminent shift to electric and self-driving cars that could radically shift production as the union knows it.

Dziczek said the UAW's rank-and-file is likely to want as many things guaranteed as possible in the next labor contract, while carmakers are likely to push for flexibility in light of the fluid trade environment. 

"If things turn south, (the companies) don't want to be locked into guaranteed wages," she said. "Based on the same set of facts, the negotiators can have different motivations." 

More:Trump maintains he has authority to order companies to leave China

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More:Trump rejects new tariffs on Japan auto imports ‘at this moment’

The UAW declined to comment Tuesday, citing the blackout period that prohibits negotiators from commenting publicly on ongoing labor talks.

But the labor union has taken a nuanced position on trade issues. While it supported the Trump administration's investigation into whether 25% tariffs on imported cars are warranted as national security threats, UAW Legislative Director Josh Nassar told a Senate panel last fall that tariffs alone were not the answer.

"The UAW believes that tariffs are a tool, not a comprehensive plan for ensuring industries of the future are created and built in the U.S.," Nassar said. He urged the administration to "take a measured and targeted approach to bolster domestic manufacturing."

In comments submitted to the U.S. Trade Representative, Nassar argued that some tariffs are necessary to protect U.S. autoworkers.

"Imposing additional duties to products from China ... is a commonsense mechanism for trade enforcement," he said. He said the auto-parts trade deficit with China was $10.7 billion, calling that trend "untenable."

Charlie Chesbrough, a senior economist at Cox Automotive, said the Trump administration's tariff-heavy trade strategy could put the UAW in an awkward position.

"The UAW likely supports President Trump’s efforts to force more domestic automotive manufacturing. However, higher tariffs will lead to higher vehicle prices, and ultimately lower vehicle sales," he continued. "Will the UAW still support the president’s policies if the vehicle market falls significantly and leads to layoffs across the industry?"  

Chesbrough said the uncertain trade environment makes it difficult for carmakers to negotiate long-term labor agreements without a firm understanding of future sourcing costs.

"Without firm trade policies, OEMs will have a difficult time agreeing to longer-term output levels. Will the U.S. be able to profitably export to China? Will a 25% tariff also be placed on European parts and vehicles later this year? Will Europe retaliate in kind, making automotive exports unlikely?"

Arthur Wheaton, an automotive industry specialist at Cornell University’s Industrial and Labor Relations School, said the industry would face an upheaval if Trump decided to follow through on his demand that U.S. companies leave China. While it is unlikely that such an order would succeed, he noted that Chinese companies have bought U.S.-based part suppliers in recent years. 

"A lot of wiring harnesses and some of the electronics, they are starting to import more of that," he said of automakers that are dependent on good trade relationships between the U.S. and China.

Wheaton said Trump thrives on unpredictability in trade negotiations, but the resulting instability makes it difficult for businesses that are trying to plan for the future.

"One of the things Wall Street hates and auto executives hates is instability," he said. "They want to know with some certainty as we're investing $1 billion in a new plant ... they want some stability, and that's exactly what President Trump hates."

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Twitter: @Keith_Laing