How DaimlerChrysler’s Troubles Brought the Americas Together

How does the layoff of 26,000 workers bring two continents closer together?

February 2, 2001

How does the layoff of 26,000 workers bring two continents closer together?

To be sure, the news headlines in U.S. papers following the announcement of massive job cuts among the carmaker were discouraging. “Chrysler Plans 26,000 Layoffs” exclaimed the Washington Post. “Daimler to Reduce Chrysler Workforce by 20%” read the New York Times. “Chrysler to Ax 26,000 Jobs” bellowed the Indianapolis Star.

But what all these headlines missed — and the articles covered only in passing — was that these job losses will not be confined to the United States, but will instead be spread out across the company’s operations in both North and South America.

Aside from the United States, DaimlerChrysler has manufacturing operations in Canada, Mexico and Brazil — many of which were established or enlarged once the North American Free Trade Agreement (NAFTA) facilitated increased cross-border trade, at least for Canada and Mexico.

At the time, NAFTA encountered vigorous opposition in the United States. Perhaps the most famous argument of all was the “giant sucking sound” that was predicted not only by organized labor, but also by elected leaders that feared an exodus of low-skill jobs to Mexico, where labor costs are significantly lower.

More than a decade has passed since NAFTA was first enacted, a decade which saw an economic expansion in the United States of unparalleled dimensions. As such, the giant sucking sound of jobs going south was overshadowed by the roar of sport-utility vehicles, cruise-ships and construction equipment as U.S. consumers enjoyed their ever-growing prosperity.

Now, however, this prosperity seems to be coming to an end. Hundreds of dot-com companies are closing their doors and going bankrupt, while many others — including such notable names as Amazon.com — are laying off workers by the thousands. And after falling stock prices and slowing investment, layoffs are now also starting at “old economy” companies such as Xerox, Gillette — and, of course, DaimlerChrysler.

As the roaring of the economy slows down, one might expect to once again hear that sucking sound — and with it the clamoring for increased protection for American jobs, including the age-old favorites: tariffs, quotas and other import restrictions.

This, however, may not happen. The lower-end jobs in manufacturing sectors are often the first to go as companies reduce production and output. And because some of these jobs have indeed moved south, the effects of the economic slowdown are now dispersed throughout North and South America.

DaimlerChrysler provides a case in point. Even though it is closing six of the Chrysler factories, only two-thirds — or 18,000 of the projected 26,000 — job cuts will take place in the United States.

In pre-NAFTA times, U.S. newspapers would probably not have included the layoffs of auto workers outside the United States in their headlines. That is what Daimler has now indirectly managed to change.

U.S. newspapers are now finally thinking beyond the borders of the nation proper — and more in regional terms.

That should be welcome news for the folks interested in making the case for free trade, which tends to be an abstract and hard one. The benefits resulting from economic concepts such as comparative advantage are not easily understood by a public that is first and foremost concerned with keeping their jobs, making a living and providing security for their families.

The current business climate, however, perfectly illustrates an often-forgotten side of free trade. By creating a larger free trade area, the effects of an economic downturn are dispersed among a larger labor pool — and are thus more easily absorbed.

No doubt the over 18,000 jobs lost in the United States will cause hardship — and so will the 8,000 jobs lost in other countries. But now at least, the people of an entire hemisphere can share the growing (and contracting) pains of free trade.