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CNN
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With the historic United Auto Workers strike officially underway, experts say the U.S. economy is already bruised — but the impact of the strike is unlikely to push the country into a recession.
“That’s because the unionized part of the industry, while still large, is no longer as large a part of the national economy as it once was,” Gabriel Ehrlich told CNN, economic forecaster at the University of Michigan.
But the ultimate impact of the strike depends on factors such as how long the strike lasts, whether companies lay off workers at other factories, how many workers lay off their jobs and how long it takes for unions and workers to companies to negotiate an agreement.
UAW President Shawn Fain said, “We are not going to destroy the economy. The truth is we are going to destroy the billionaire economy.
And while estimates of the strike’s economic impact don’t suggest “destroying the economy,” 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 U.S. economy $5 billion, according to estimates from the Anderson Economic Group.
Another estimate from Ehrlich assumes there would be a much smaller immediate ripple effect. He estimated that $440 million in revenue would be lost nationally if all UAW members went on strike for two weeks. If the strike lasts eight weeks, he estimates the country’s revenues will suffer $9.1 billion.
Here are the possible consequences of the strike on the American economy:
Although striking UAW workers will receive $500 per week in strike pay, it likely won’t be enough to maintain normal expenses. This means local businesses near strike sites will lose revenue.
If the strike lasts long enough, it could lead employers near affected auto plants to lay off workers, said Tyler Theile, vice president and director of public policy at Anderson Economic Group.
Because car inventories nationwide are still below pre-pandemic levels, the Big Three automakers will be eager to restart production as soon as the strike ends, Ehrlich said. That’s why he expects them to delay canceling orders from suppliers for the necessary parts for as long as possible.
But when automakers finally start canceling orders, it will have a ripple effect throughout the parts supplier network. At first, suppliers who work directly with automakers, called tier one suppliers, will try to keep workers on payroll because they fear being able to rehire if they lay people off, in what this is called “waiver hoarding behavior.” »
But if the strike lasts long enough, they will have no choice but to lay people off.
The pain can then spread. Second-tier suppliers – those who supply first-tier businesses – could also be forced to lay off workers.
Fewer people working because of strikes will mean the government won’t be able to collect as much tax revenue. This is important because it means fewer programs will receive the funds they need.
At the state level, Ehrlich estimates that Michigan, the epicenter of many strikes, will see a $10.6 million drop in tax revenue if the strike lasts two weeks.
Anderson Economic Group estimates that 25,000 vehicles will not be produced if the strike lasts 10 days. That would lead to higher car prices, especially since inventories are currently tight, Theile said.
Still, the impact of the strike will have nothing to do with the Covid pandemic and computer chip shortages that have largely crippled the entire U.S. auto industry in recent years, said Jonathan Smoke, an economist CEO of Cox Automotive.
Currently, new vehicle prices are up nearly 3% from last year, according to the August Consumer Price Index.
CNN’s Peter Valdes-Dapena contributed.