As of midnight EST or 5.00 am BST,  the UAW, the American Union of Autoworkers, has called its Detroit members out on strike. The strike that has been called, although by far not the first and with some certainty not the last, is unique as for the first time in the history of Detroit’s very special labour relations the union members of all three big automakers will have in unison laid down their tools at the same.

I have for many years watched Detroit with interest and with awe. The UAW has a long and successful history of reminding the boards of the big three – GM, Ford, and Chrysler – that the path of least resistance is to settle quickly and to avoid the costly inconvenience of manufacturing shutdowns. Europeans tend to think of the United States as the home of unbridled capitalism while forgetting that American trades unions have a history of militancy, and success, which can put many of our own in the shade.

One might remember the late Jimmy Hoffa who as leader of the IBT, the International Brotherhood of Teamsters, which is the truckers’ union wielded near unbridled power to bring the country to a standstill and who had no reservations when threatening to do so. Hoffa famously ended up in bed with organised crime and on July 30 1975 disappeared from the face of the earth. Whether he was “wearin’ concrete shoes” and was dumped in the marshes of New Jersey or whether he is “sleepin’ with de fishes” somewhere off the coast we shall most probably never know. Either way, the USA has a large economy and therefore its unions have big muscle.

The issue of unionisation, or perhaps more accurately the resistance by many employers to allow unions into their companies, is a matter of legend. Not only is the tech sector reluctant but the rigorous stance against unionisation at Walmart with its staff of 1.7 million is quite extraordinary. Detroit, on the other hand, has always been strongly unionised and the UAW is the biggest kid on thee block. The story of the decline of Detroit as Auto City or Motor Town is well documented and the blame can be ascribed in equal measure to the arrogance of the companies and the unions, both of which spent the 1970s and the 1980s believing that and behaving as though the US auto industry was impregnable.

I was living there in the late 1970s when foreign carmakers were beginning to materially challenge the status quo. There had always been a market of exotic European marques. From New York to Los Angeles owning a Mercedes was one of the most prominent status symbols. British and Italian sportscars were also a treat for the wealthy up and down the thin strips on the East Coast and in California but once one moved inland it was all Detroit Steel. What was there not to love about the raw muscle of Ford Mustangs, Chevrolet Camaros, and Dodge Chargers, even if the build quality was abysmal and bits regularly fell off for fun?  

The fish rots from the head, or in the case of the American auto industry from the tail as it was not the top end of the market that was missing the boat but the space of low cost volume production where Toyota, Datsun and Honda were busily eating the Big Three’s lunch. I was based in LA and the main household wheels were a Honda Civic. I was warned that if I thought of driving one anywhere in the middle of the country, I’d be at risk of being run off the road.

 At one point I went to visit a young lady friend up in Minnesota and she proudly moved around in a Ford LTD, a vehicle not much smaller than an average aircraft carrier. The bit about the mid-western hatred of Japanese cars was duly confirmed. I digress.

The Detroit unions had the measure of the carmakers and by a thousand cuts negotiated labour contracts which might have made sense when the domestic car market was closed and a near Detroit focussed monopoly but as Motor Town’s share of the home market declined and then declined further, the employers found themselves lacking the labour force flexibility in order to respond to the wave of imports of both cheaper and better cars.

By the turn of the century Detroit was a dead man walking and by the time of the GFC it was all but over. Chrysler had in 1998 already been acquired on the cheap by Daimler Benz, a trade which would ultimately nearly break the German company. The similarly optimistic decision by Swissair to take over the lamentable mess of the Belgian national carrier Sabena did in fact end up killing what had been one of the world’s best airlines. Gresham’s Law applied to industry. 

By the time of the GFC, the clock had run out and both Chrysler and General Motors ended in Chapter 11 and only escaped liquidation with substantial government support. Ford was still family controlled and against all the odds held out; a bankruptcy filing would have wiped out the Ford family fortune. Bill Ford Jnr, the son of Bill Ford Snr who is famous for having tried to and failed to buy Ferrari, hung in, and hung in. Alas, the effect of the bankruptcies was to break the existing labour contracts which in turn swung power away from the UAW and back towards the board rooms. Now the fight is on again.

The three carmakers had collectively offered an 18% wage rise over a period. As at last night their final offer was 20%. The UAW is demanding and holding out for 34%. Its strategy of calling workers out at all three – Chrysler now goes under the name of its current Franco-Italian owner Stellantis – on a simultaneous “Stand Up Strike” is a novelty.

We must watch developments in Detroit with special interest as this is precisely one of those cases where cost-push inflation is in the process of being displaced by high wage claims and a rising risk of demand-side powered price inflation. The Federal Reserve’s monetary policy committee, the FOMC, which meets next week will without a doubt have its binoculars trained on Michigan.    

The Governing Council of the ECB already went with a 25 bp tightening at its meeting yesterday, taking the central rate from 4.25% to 4.50%. There had been much speculation as to whether, given the parlous state of the eurozone economy, it would have the courage to go again or as is expected of the FOMC next week, to wait for a month to see what lies ahead.

In its stead, the ECB did go and its president Christine Lagarde counterbalanced the possibly damaging effect upward move in rates by inferring that this one would spell the end of the rate cycle. Markets loved it. I did not. Her assurances smell uncannily like forward guidance, and we all know what that’s worth when it’s at home.

That said, one cannot but have sympathy with Ms Lagarde. The German economy is against the ropes. The same phenomenon that did for the US automakers 15 years ago has now got the Vaterland by the throat. During the fat years in which German industry could do no wrong complacency thrived. Ever shorter hours, ever better benefits it is amongst others the very companies which were Detroit’s nemesis that are now falling victim to pretty much the same industrial relations phenomena. Should the ECB by further tightening monetary conditions be deepening the recession risk – Q2 GDP has just been reported at an anaemic 0.1% – or should it discreetly look the other way and hope that inflation will take care of itself? We have the first part of the answer although I fear it to have been at tad premature to suggest quite so clearly that the tightening cycle is done.  

Write to us with your comments to be considered for publication at