Every Labor Day weekend brings about some fond memories for me. Early in my career, as a political campaign staffer, first with Obama’s presidential campaign in 2008, then on a few issues and local campaigns, I marched in many Labor Day parades, oftentimes alongside local labor union leaders who supported our causes. It was usually hot, sweaty, and a lot of work, but also a lot of fun especially when you were in your early 20s.

There is a long history of close alliance and mutual support between labor unions and Democratic political campaigns on all levels, from high profiled endorsements by union leaders of candidates, to tight coordination between union members and campaign operations. I have personally hosted phone banks at a Teamsters office, worked out of an IBEW (International Brotherhood of Electrical Workers) office, and organized hundreds of union members to turn out votes during the closing days of different campaigns. I have gotten to know many kind and wonderful union workers along the way.

My own small achievements as a campaign staffer was in no small part due to the support of unions, which I could almost automatically count on as free support. As it turns out, like most things in life, there is no free lunch.

United Auto Workers members walk in the Labor Day parade in Detroit, September 2, 2019.

As America pours billions of dollars into funding industrial policy programs to reshore manufacturing jobs in critical sectors – a direction that has support from even the conservative corners of think tank intelligentsia like the Hoover Institution – union leaders of manufacturing workers are attempting to cash in on years of political leverage, potentially to the detriment of industrial policy objectives.

This highlights an awkward reality where a Democratic president is both the most ideological inclined to push industrial policy forward and the most vulnerable to unions’ demands. The detrimental effect is already showing up in electric vehicles and semiconductors – the two poster children sectors of modern American industrial policy, where American workers are also the least competitive.

It is a hard reality to wrestle with, especially for someone like me who is naturally sympathetic to unions, and especially on Labor Day.

Raining on EVs and Semis

No one would argue against the competitive reality that America is heavily reliant on foreign technology and know-hows to onshore capacities to build electric vehicles and produce semiconductors. This reliance has borne out in very visible ways.

Every new EV battery plant in America is infused with non-American technologies and investments, from either Korea (SK On, Hyundai), Japan (Toyota), or China (CATL). One of the newest EV assembly plants is located in Chatham County, North Carolina, but it will be built by a Vietnamese EV maker called Vinfast. Meanwhile, the most promising initiatives to boost homegrown semiconductor production are commitments from TSMC, Samsung, and SK Hynix, not Intel.

What is implied in this reliance is that American workers are, by and large, ill-equipped to productionize these foreign know-hows and need to learn new skills to be able to do so. This critique may sound jarring, even personal, but everyone loses the skills they don’t practice. These skills can range from something as complex as operating heavy equipment to something simple, like handwriting. It is not an insult to that person’s intelligence or aptitude, but the logical end to not keeping up with new innovations as time passes by.

For people who follow these topics closely (or read this newsletter regularly), this observation is old news. However, many union leaders don’t seem to recognize this truth. This is evident in the way UAW (United Auto Workers) is bargaining with Ford, GM, and Stellantis, and the way Arizona Building and Construction Trades is advocating for local pipefitters, plumbers, and welders against TSMC.

The UAW vs Detroit Big Three negotiation may lead to a massive strike if agreement is not reached by September 14 and has dominated headlines recently, so I won’t rehash the issue here. What stands out to me is two of the UAW’s positioning that is pulling the rug under America’s EV future.

BlueOval City

One is its attempt to organize workers at the BlueOval City battery plant – a joint venture between Ford and SK On that received an unprecedented $9.2 billion federal loan and is being counted on to help the US catch up to China in battery production. Unionizing this plant and folding its workers into the current (or future) labor negotiations will undoubtedly drive up production costs and give the Korean side cold feet. Like most large manufacturers from Asia, SK is not a fan of organized labor and dealing with unions before a single battery cell is produced is not what they signed up for.

The other is the main request of UAW’s negotiating terms46% pay raise (roughly $47 per hour) and a 32-hour workweek for 40 hours of pay – which prime facie is already quite ridiculous. Even the French and Italians work harder than 32-hours per week. If we combine this request with the reality that China is already producing 64% of all the EVs globally, these asks seem almost delusional. To catch up against your competitors, at the bare minimum, you should not work less than your competitors.

Meanwhile in Arizona, the Arizona Building and Construction Trades (ABCT) union is lobbying lawmakers to not grant visas to some 500 workers that TSMC wants to send from Taiwan to Phoenix to speed up the Arizona fabs’ construction progress. (It is already delayed.) ABCT’s members felt entitled to those jobs, and made a website to express their wounded feelings to Arizona politicians, but only the Democratic ones (or formerly Democratic in the case of Kyrsten Sinema), who rely on their votes and support.

Source: https://protectazworkers.org/

The rhetoric of the website is not only littered with tinges of xenophobia, its positioning, like the UAW’s, is also removed from competitive reality. It refers to these incoming Taiwanese workers as “cheap shortcuts”, when TSMC is more than doubling the salary to incentivize its Taiwan-based workers to uproot their life to salvage the delays in the Arizona desert. The top of the website shows an op-ed written by the head of the ABCT, whose strongest argument for why the local union workers deserve these jobs is their experience and skills building Intel’s fabs, nevermind that Intel has fallen so far behind TSMC it is embarrassing to describe.

This conflict is, of course, foreseeable. Last December, when President Biden proclaimed at the TSMC Arizona fabs tool-in ceremony that the facilities will be built by union labor, Morris Chang chafed at that remark. In case you think Chang’s view is an isolated example, Fairchild Semiconductor, which pioneered the integrated circuits, was staunchly anti-union and moved manufacturing to Hong Kong and Singapore, as soon as labor relations in America became a headache. An aversion to unions has been in the DNA of the semiconductor industry from the outset. As Chris Miller described in “Chip War”, without Fairchild’s aggressive drive for low cost productivity and efficiency – impossible to do with unions – computing cost would never have reached the level that Moore’s Law had predicted.

While many commentators and analysts may simplistically chalk these problems up to the inevitable cultural clashes between East and West, thus concluding that any attempt by an aggressive Asian manufacturer expanding in the US would fail, there is a surprising counter example.

Fuyao Glass America, the star of the Oscar-winning documentary “American Factory”, which stirred up loads of controversy with its own anti-union stance revealed in the film, is now striving. It is building a new large facility in Ohio, in addition to taking over the abandoned GM factory in 2014, that is set to create 500 new local jobs when it’s finished in 2025. The local city council unanimously approved a 12-year, 100% tax abatement. The local county commissioners also approved $750,000 in development funds to help Fuyao with this expansion.

People seem to like Fuyao just fine, when unions are not involved.

Partisan Ideology vs. Competitive Reality

Organized labor comes in many flavors, covering teachers, government workers, Hollywood writers, and delivery drivers, many of whom are not directly relevant to America’s industrial future or compete with skilled workers from other countries.

But of the ones who do, like UAW and ABCT, their stance is both destructive to their country’s future and their own. I’m personally quite sympathetic to their predicament, especially UAW’s. Given that their last labor agreement was negotiated during the auto bailout of 2009, when the entire industry was on the verge of bankruptcy, the terms were probably hashed out under duress. Fourteen years later, these auto workers deserve to get a new and better package. But it has to be properly contextualized in the technological and geopolitical changes in the last fourteen years as well.

In some ways, these labor unions' “delusion” is not entirely their own fault. It is hard to know how much you are really worth, when the President tells you that “American union workers are the best”, when you are really…not.

President Biden at today’s Labor Day event at the Sheet Metal Workers’ Local 19 office in Philadelphia

Sadly, we are stuck in a deeply-rooted and self-conflicting dynamic between partisan ideology and competitive reality.

A typical Democratic president is more ideologically inclined to push for industrial policy programs, but the Democratic Party’s close ties with labor unions, however uncomfortable, always ensure some level of pandering and ruin the odds of these programs succeeding.

A typical Republican president is more ideologically opposed to any industrial policy programs whatsoever, even though the Republican Party also likes to hold up supply chain security as a big issue, industrial programs can certainly address the problem, and its aversion towards organized labor would actually improve the odds of such programs succeeding.

Democrats and Republicans are simultaneously at odds with each other and themselves.

And until someone is honest and bold enough to tell these union workers that they are not the best, but they can be if they stay humble, soak up all the know-hows and skills from workers elsewhere, and just work more than 32 hours a week (or more like 50), labor unions will continue to rain on America’s industrial policy parade, until the music stops and there is nothing left to rain on.