“I can’t believe our president would allow this to happen,” a disappointed General Motors worker in Lordstown, Ohio, complained this week to an AP reporter. She was reacting to the news that GM is shedding its money-losing sedan business, idling three U.S. plants, and letting thousands of workers go.
Of course, presidents only take credit for jobs created. They don’t actually create them. But this decision serves as a reminder not only for President Trump, but for his two predecessors as well. First, you cannot subsidize your way to sustainable manufacturing jobs, as former Presidents George W. Bush and Barack Obama tried when they bailed out the domestic auto industry.
Obama’s specific hope had been that the Chevy Cruze was the “car of the future,” as he put it in 2010. He also promised to buy a Chevy Volt after leaving office. He has not yet done so, and he had better hurry because both cars are now being discontinued, along with the Chevy Impala, the Buick LaCrosse, and Cadillac’s CT6 and XTS models that were made at the four plants.
The other lesson applies primarily to Trump: Just as you cannot subsidize your way to prosperity, so you cannot tax your way to it, in this case with tariffs against imports.
Trump specifically promised last summer, when he visited the Lordstown plant, that the jobs lost previously were “all coming back,” based on his false belief in the efficacy of protectionism. Instead, GM has lost an estimated $1 billion from his steel tariff alone. The company didn’t specifically blame this tariff as a reason for the coming layoffs, but just do the math. A billion dollars (and counting) is real money for a company that is now talking about cutting back capital investment by $1.5 billion per year.
[Read more: Trump threatens to cut federal subsidies for General Motors after layoffs, plant closures]
This isn’t all about tariffs. Part of GM’s decision is based on following bad government-created incentives to their logical conclusion. For every crossover GM manages to sell instead of a sedan, the company not only loses less money but also more easily meets fleet fuel economy standards within the SUV-light truck category.
That is, of course, a cynical benefit that wouldn’t be necessary at all absent government interference, but such is life in the 21st century.
Another reason for GM’s decision is consumer choice. All workers and consumers suffer in the long run when companies engage in money-losing behavior. American consumers have cast their vote for the SUV-light truck category of vehicles, which beat car sales last month by a 2-to-1 ratio. Those Americans who do buy cars prefer foreign brands (most of them U.S.-made) by an even greater ratio than that. GM is thus wise to focus on its strengths, and in the long run, it will create more jobs and sell more vehicles by doing so.
There are still more silver linings in GM’s announcement. It would be much worse if the company were reacting to a downturn or an implosion of the company. By eliminating an unloved and money-losing product line while times are still good, the company is maximizing the likelihood that job opportunities will be there for many of the 6,000 affected blue-collar workers (including those in Ontario) within their industry and even within their company. This decision will also make GM stronger so that the next downturn is less catastrophic. It was failure to think ahead like this that led the company to the precipice in 2009.
Trump has already set the stage for a thriving U.S. auto industry by proposing the more reasonable fuel economy standards that his administration outlined this summer. He should keep pushing for that change. But if he really wants to get these autoworkers back on the job quickly and encourage GM to put new product lines in its idle factories, he should begin by rescinding his ill-advised metal tariffs that are hurting the domestic auto industry all around.
