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This paper reflects a preliminary examination of the Fair Practices in Automotive Products Act (H.R. 5133), which would sharply restrict the volume of imported cars and car parts that enter U.S. markets. The focus of the study is on certain major macroeconomic and microeconomic effects that could result from implementation of the act. In being confined to these aspects, the study is not a comprehensive analysis of the effects that domestic content legislation might have.

The study was undertaken at the request of the House Committee on Ways and Means, Subcommittee on Trade. In order to permit timely delivery of these preliminary results, the paper did not undergo the external and internal review process customarily required of papers published by the Congressional Budget Office. Staff members of the CBO who contributed to the analysis included Lloyd Atkinson, Damian Kulash, David Santucci, Suzanne Schneider, Emery Simon, and Stephan Thurman of CBO's Fiscal Analysis and Natural Resources and Commerce divisions. Frank Pierce and Johanna Zacharias edited the manuscript. Special thanks go to Dorothy Kornegay and Kathryn Quattrone, who typed the paper under strict time pressure. In keeping with CBO's mandate to provide objective analysis, this paper offers no recommendations.
 

Alice M. Rivlin
Director
August 1982
 
 

CHAPTER I. AN ECONOMIC ANALYSIS OF H. R. 5133 INTRODUCTION AND SUMMARY

• The Fair Practices in Automotive Products Act
• Primary Economic Effects of Domestic Content Requirements
• Secondary Economic Effects
• Alternative Estimates of the Effects of H. R. 5133

CHAPTER II. EMPLOYMENT IN THE U. S. AUTO INDUSTRY-RECENT EXPERIENCE AND OUTLOOK

• Causes of Employment Declines in the U. S. Auto Industry
• Slower Future Sales Growth

CHAPTER III. POTENTIAL MICROECONOMIC EFFECTS

• How Would Production and Sales of Imports Be Affected?
• How Much Would New Car Prices Increase?
• How Much Would Sales of Domestic Cars Increase?
• How Many Additional Jobs Would Be Created?

CHAPTER IV. POTENTIAL MACROECONOMIC CONSEQUENCES

• The CBO Analysis
• Possible Secondary Effects
• Cautionary Note

Between December 1978 and April 1982, the number of jobs in automobile manufacturing plummeted, from 762,400 to 459,700. Four factors in particular have led to these declines:

• Slow economic growth and record high interest rates;
  
  
• Increased productivity growth in the U.S. automotive industry as manufacturers attempted to meet heightened foreign competition:
  
  
• Increased auto imports as the U.S. market swung from standard-size cars toward subcompact models; and
  
  
• Increased "offshore sourcing" of automobile components as automakers attempted to reduce production costs.

By itself, economic recovery cannot offset all of the automotive industry's employment declines. Demographic changes--for example, the passing of the "baby-boom" generation beyond its initial car-buying years--portend slower growth in the U.S. car market in the years ahead.

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