Oct 2, 2019

Buckle up: GM, Michigan and 2020

Illustration: Aïda Amer/Axios

The UAW strike against GM is now in Week 3, and the longer it lasts, the worse Michigan's fragile economy becomes — with huge potential consequences for the 2020 presidential race.

Why it matters: Michigan, which voted twice for Barack Obama then narrowly flipped to Donald Trump in 2016, will be a key battleground state in next year's election. A loss in Michigan would raise the stakes for Pennsylvania or Wisconsin. Meanwhile, other states with large auto-worker populations are watching.

  • "If the strikes goes on, the economic ripples will threaten Trump’s presidency," says Anderson Economic Group CEO Patrick Anderson, who has been studying the effect of local pocketbook issues on national elections since 2004.

Where it stands: The GM strike is now 17 days old, and the pain is starting to spread across Michigan — home to about half the 46,000 striking auto workers — and beyond.

  • Workers faced their first payday without a check last Friday, but $250 in weekly strike benefits kicked in this week.
  • Employees at some supplier companies as well as GM plants in Canada and Mexico have been laid off due to parts shortages.
  • GM is losing an estimated $25 million a day, and $113 million in profits to date.
"Workers who are on strike pay are not yet pushed to the wall, but they're certainly not going to go out to dinner and a movie right now."
— Charles Ballard, economics professor, Michigan State University

Catch up fast: The strike is the first at GM since 2007, and the longest since 1998.

  • Unresolved issues include wage increases, health care contributions, job security and the use of lower-paid temporary workers.

The bottom line: Workers argue that they gave up a lot to help GM through bankruptcy a decade ago and haven't gotten their share of the company's record profits since.

Michigan's traditional dependence on manufacturing gave rise to an old bromide: "When the nation catches a cold, Michigan gets pneumonia."

  • That's less true today because Michigan's economy is more diversified; in the 1960s, the auto sector was a quarter of the state's GDP while today it's 8%. Auto manufacturing represents about 1% of the nation's GDP.
  • But while the U.S. economy remains fairly strong, Michigan has the highest risk of recession in the nation, according to Lending Tree.

It's the economy, stupid: Pocketbook issues — like growth in income, inflation, and unemployment — have a well-established effect on how Americans vote. Anderson's research found...

  • In good times, voters tend to reward the incumbent party; in hard times, they tend to toss out the incumbents.
  • In tight races, even small shifts in a state's economic performance can matter.
  • Michigan's economy looked shaky in early 2012 but improved later in the year, helping Obama narrowly win Michigan and secure re-election.
  • In 2016, with the U.S. economy in good shape, the pocketbook model predicted the incumbent party would win the popular vote nationally, which Democrat Hillary Clinton did.
  • But Trump was able to tap into economic anxiety in manufacturing-heavy swing states including Michigan, squeezing out enough narrow wins in the Electoral College to carry him to the presidency.

What to watch: Trump promised Michigan in 2016 that he'd bring manufacturing jobs back to the U.S., a promise largely unfulfilled. Faced with industry disruption and a looming cyclical downturn, it’s not clear he can do anything to stop any of it.

Our thought bubble: Voters may put aside their economic worries if the election becomes a referendum on impeachment; 33% of UAW workers voted for Trump in 2016.

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