A massive blow to the US economy is looming as the United Auto Workers' (UAW) strike takes off, with experts warning that the financial toll could reach a staggering $5 billion. Despite the huge potential impact, the situation is unlikely to push America into the throes of a recession, mainly because unionized sectors of the industry aren't as influential on the national economy as they used to be, explains Gabriel Ehrlich, an economist from the University of Michigan.
The lasting impact of the strike is contingent on various factors such as its duration, the possibility of companies laying off workers at other plants, the number of workers participating in the strike, and the length of time taken for unions and companies to negotiate a resolution.
UAW President Shawn Fain voiced his perspective, emphasizing that the strike’s aim is not to derail the economy, but rather to undermine the billionaire economy. Although the anticipated economic devastation isn’t expected to "wreck the economy", the financial repercussions could indeed be significant. If all UAW employees at Ford, General Motors, and Stellantis cease work for 10 days, it scenarios predict a $5 billion economic setback, as per the Anderson Economic Group’s calculations.
Ehrlich, on the other hand, suggests a less dramatic immediate ripple effect. He believes that a two-week strike involving all UAW members would lead to a national income loss of $440 million. If the strike continues for eight weeks, he predicts a jaw-dropping $9.1 billion hit to earnings across the country.
Several ways the US economy could suffer from the strike include lowered revenue for businesses close to strike locations as striking UAW members, subsisting on $500 a week in strike pay, are unlikely to maintain their previous spending habits.
Employers near the affected auto plants might also need to lay off workers if the strike extends over a long period, asserts Tyler Theile, vice president, and director of public policy at Anderson Economic Group.
Vehicle inventories across the country are still recovering from the pandemic lows, Ehrlich highlights, which will likely make the Big Three automakers eager to kickstart production once the strike concludes. This urgency might lead them to delay canceling orders for parts required for their vehicles. However, when these automakers finally begin to cancel orders, a ripple effect will be felt throughout the supplier network, causing potential layoffs.
Furthermore, the strike could adversely impact tax revenue collection. Fewer people working means less tax revenue for the government, hampering financial support for many programs. Particularly in Michigan, the strike's epicenter, an estimated $10.6 million reduction in tax revenue is expected if the labour agitation persists for two weeks, Ehrlich estimates.
An additional and unexpected fallout may be an uptick in car prices. The Anderson Economic Group forecasts that a 10-day strike could result in 25,000 fewer vehicles being produced, leading to higher prices especially considering the current tight inventory, states Theile.
Still, Jonathan Smoke, Chief Economist for Cox Automotive, believes the overall economic impact of the strike won't be in the same arena as the extraordinary challenges posed by the Covid pandemic and computer chip shortages that crippled the entire US auto industry in recent years. Currently, new vehicle prices have increased nearly 3% from last year, as per the August Consumer Price Index.
