Beyond the automakers: How a UAW strike could hit the US economy

New York
CNN
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With the historic strike of the United Auto Workers Officially underwayExperts say the US economy is already bruised – but the impact of the strike is unlikely to push the country into recession.

“This is because the unionized portion of the industry, while still large, is no longer as big a part of the national economy as it once was,” Gabriel Ehrlich, an economic forecaster at the University of Michigan, told CNN.

But the ultimate impact of a strike depends on things like how long the strike lasts, if companies lay off workers at other plants, how many workers leave their jobs, and how long unions and companies take to negotiate a deal.

“We’re not going to destroy the economy. The truth is, we’re going to destroy the billionaire economy,” UAW President Sean Fine said.

Although estimates of the strike’s economic impact do not indicate “the economy being destroyed,” the damage could be significant.

For example, if all UAW workers at Ford, General Motors and Stellantis went on strike for 10 days, it would cost the US economy $5 billion, according to estimates from Anderson Economics Group.

last appreciation Ehrlich assumes that there will be a much smaller immediate spillover effect. He estimated that $440 million in income would be lost nationally if all UAW members went on strike for two weeks. If the strike lasts eight weeks, it is expected to lose $9.1 billion in income across the country.

Here are the ways the US economy could be harmed by a strike:

Although striking UAW members will receive $500 per week in strike pay, it will likely not be enough for them to continue their normal spending. This means that local businesses close to the strike sites will lose revenue.

If the strike lasts long enough, it could prompt employers near affected auto plants to lay off workers, said Tyler Thiel, vice president and director of public policy at Anderson Economics Group.

National auto inventories are still below pre-pandemic levels, and the Big Three automakers will be eager to resume production once the strike ends, Ehrlich said. For this reason, they are expected to delay canceling orders with suppliers to obtain the necessary parts for as long as possible.

But when automakers eventually start canceling orders, it will have a ripple effect throughout the parts supplier network. Initially, suppliers that work directly with automakers, so-called Tier 1 suppliers, will try to keep workers on the payroll because they are concerned about the ability to rehire if they let people go, in what is called “disclaimer hoarding behavior.” ”

But if the strike lasts long enough, they will have no choice but to lay off workers.

Then the pain may spread. Tier 2 suppliers – those who supply tier 1 companies – may have to lay off workers as a result.

A decrease in the number of people working due to strikes will mean that the government will not be able to collect as much tax revenue. This is important because it means fewer programs will receive the money they need.

At the state level, Ehrlich estimated that Michigan, the epicenter of many of the strikes, would see a $10.6 million drop in tax revenue if the strike lasts two weeks.

Anderson Economic Group estimated that 25,000 vehicles would not be produced if the strike lasted 10 days. That would lead to higher car prices, especially since inventory is limited as it is, Thiel said.

However, Jonathan Smoak, chief economist at Cox Automotive, said the impact of the strike would not be like the Covid pandemic and computer chip shortages that have largely shut down the entire U.S. auto industry in recent years.

Right now, new car prices are up about 3% from a year ago, according to the August Consumer Price Index.

CNN’s Peter Valdes Dapena contributed.