By on October 24, 2012

There is a shiny new car factory in Chattanooga, Tennessee. People enjoy working at this Volkswagen factory. The factory is airy, there is a lot of space inside and outside the factory for expansion. However, it will be a while until it will make more than the Passat. The people in Tennessee had hopes for Audi moving in here. Instead, Audi decided on going to Mexico. When the new Golf MkVII comes to America, it will be made in Mexico. There is no other car in sight for Chattanooga. Why is the factory, one of the best specimens in Volkswagen’s vast global collection, losing out on new jobs? The Chattanooga Times Free Press thinks it knows the reason: Lack of free trade agreements.

“A lack of free trade pacts between the United States and other nations may steer future VW production to Mexico rather than Tennessee, according to industry experts and others.”

Mexico has free trade agreements with 44 countries. The U.S. has 19.  Most recent FTAs were spearheaded by Republican presidents. Under the Obama administration, only three FTAs were added, two insignificant (with Panama and Colombia). The significant agreement with Korea was signed by G.W. Bush in 2007, it was renegotiated by the Obama administration, a watered-down version was signed in 2010. At least 17 new unfinished FTAs, among those an agreement with the EU, and the Trans-Pacific Partnership (TPP), are treading water.  Japan is not even included in the TPP, also because of shrill and often perplexing opposition by a Japan-bashing alliance between the UAW and the Detroit 3.

A lot is said about FTAs making imports cheaper. What is often forgotten is that FTAs make exports competitive. With the low dollar, America could be an export machine, and FTAs could be the motors. Why is this engine stalled? Cars shipped from Chattanooga to Hamburg (no FTA) cost 10 percent duty. Cars shipped from Puebla to Hamburg (FTA) cost none. No wonder the jobs go to Mexico. The wages are not the reason. Wages amount to approximately 10 percent of a car’s cost … the saved customs duty can finance the whole payroll. While Mexico turns into an export powerhouse, the unemployed north of the border pay higher prices, driven up by a trade war flamed by union interests.

And it’s not just Mexico… thanks to strong trade relations with the EU, Brazil is benefitting as well, gaining $4.4b in new VW investment.

America’s inability or unwillingness to secure more FTAs is killing America’s transplant auto industry, and preventing Obama from achieving his stated goal to grow jobs by doubling exports. This is particularly ironic considering that Obama has touted the bailout, the Korean FTA and a loan guarantee program as aimed at boosting America’s exports. FTAs boost exports. Protectionism kills jobs and causes inflation.

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126 Comments on “Protectionism Kills Jobs. As Demonstrated In Chattanooga...”


  • avatar
    icemilkcoffee

    You could just as well argue that the FTA with Mexico has caused VW to move production to Mexico. This argument goes both ways. Ultimately- the labor cost is way cheaper in Mexico. How is the US going to compete with that?

    • 0 avatar
      ElSnuggles

      Not to defend one administration over another but Hollywood’s insistence on inserting copyright protectionism into treaties has killed at least two during Obama’s administration.

    • 0 avatar
      wsn

      By quality, maybe?

    • 0 avatar
      Sigivald

      Build quality?

      Barring that – why bother to compete with that?

      If something can be produced more efficiently outside the US, *it should be*. Go Ricardo and Comparative Advantage.

    • 0 avatar
      L'avventura

      The US already has a significant amount of transplant factories in the US, regardless if Mexican labour is cheaper, the money, tooling, workers, and capacity are in the US. So why aren’t these factories used more extensively for export.

      I think what Bertel is trying to say is that US factories are an US export opportunity missed. Particularly to Europe.

      There are real world examples of this, the US-S.Korea FTA known as KORUS recently ratified. The first thing we heat about?

      Basically US-made Hyundais, and even Toyotas, are going to be exported to the S. Korea. Even Japanese car makers send American-made cars back to Japan, because the tariff wall is much smaller. Japan joining the TPP would mean that more American-made cars would be sent back to Japan where the yen is way too strong.

      Let’s look at the advantages that US manufacturing is not fully utilizing:

      The US dollar is weak, labor laws are favourable compared to Europe, workers are highly-skilled, infrastructure and logistics are world class, and there is a robust supplier network. As the factories are already here, adding capacity is a much smaller investment. So why is US manufacturing and exports nowhere near its real potential?

  • avatar
    tced2

    “Cars shipped from Chattanooga to Hamburg (no FTA) cost 10 percent duty.” Is the US adding 10% to the price of the car delivered to Hamburg? Or is it Hamburg (Germany) adding 10% to the price of the car? If Germany is assessing the tariff then it’s up to Germany to quit collecting the tariff – not a free trade agreement between the US and Germany.

    • 0 avatar

      Rolling eyes ….

      It is not Hamburg, it is not Germany, it is the EU. And that duty will be there until the FTA is signed. The EU has an agreement with Mexico. No duty both ways. If the U.S. wants to be competitive, it needs that same agreement.

      • 0 avatar
        tced2

        OK. The EU needs to quit collecting the tariff. What’s so sacred about a FTA? Why does it take a FTA (filled with legalisms) to cancel the tariff?

      • 0 avatar
        Pch101

        “Why does it take a FTA (filled with legalisms) to cancel the tariff?”

        Blaming the US is very convenient.

      • 0 avatar
        activeaero

        Bertel,

        I love your stuff, but your conclusions are incorrect. The reason the Chattanooga plant is not getting a second car is very simple. They cannot find enough good workers there. Winterkorn said capacity was exhausted. What he meant was, they cannot possibly find enough people to support a second vehicle with a rollout that meets VW’s standards.

        You are right there is room to expand, but there aren’t enough workers.

        BTW. Thats exactly why Toyota passed on Chattanooga for their Mississippi plant. All things being equal, the local workforce was seen as an advantage in Miss.

      • 0 avatar
        wsn

        tced2: “OK. The EU needs to quit collecting the tariff. What’s so sacred about a FTA? Why does it take a FTA (filled with legalisms) to cancel the tariff?”

        Seems I have to make an anology to suit your intellegence level:

        Suppose that you get into a fight with another guy, you punch each others’ nose at once per five second.

        1) Will you stop punching him and just let him keep punching you? You probably won’t. (Same with EU not let go of the tariff, while the US keeps collecting them.)

        2) At what point will both of you stop punching each other? Probably when both of you have a mutual agreement to stop. (It’s call the FTA here.)

      • 0 avatar
        Sigivald

        tced: Why would the EU *want* to stop collecting a tariff, though?

        They don’t give a damn about US exports, just “protecting EU jobs” … unless we give them a quid-pro-quo.

        Like dropping *our* tariffs in return. Thus the FTA.

        (As wsn explained below; the “legalisms” are important because they make it harder/more expensive for either side to *cheat*.)

      • 0 avatar
        AmeroGuy

        Right but not mentioned in this story is the EU has resisted attempts to dismantle its tariffs on cars because they like the protection of EU industry. There’s nothing stopping the EU from lowering its tariff on cars to 2.5% except they want to protect European jobs.

      • 0 avatar
        L'avventura

        @tced2

        Europe car production is at overcapacity.

        Ford is cutting 4,000 jobs in Genk, Belgium, with UK van factory also on the cutting block. Peugeot is cutting 8,000 jobs near Paris. GM is considering a end to production in Bochum, Germany by 2016.

        Worse, closing one factory has reciprocation in the entire economy. While 4,000 workers are laid-off by Ford in Genk, there is actually 9,500 jobs lost when suppliers are considered.

        Due to labor conditions, laying off workers in the EU is an incredibly expensive affair. That Genk facoty is expected to cost Ford $1.4 billion to close.

        This is why tariff barriers exist. This is why its hard to negotiate FTAs. However, the sacred cow in FTA negotiation is usually always agriculture.

        Its very unlikely that there will be a US-EU FTA ratified any-time soon. The EU will be flooded with US manufactured and agricultural goods.

  • avatar
    Zombo

    If avoiding higher wages and benefits aren’t the main reason for cars being built in Mexico then why do American car companies move vehicle production down to Mexico ?

    • 0 avatar

      It’s in the article:

      - Wages amount to approx 10% of price of car (industry rule of thumb)
      - The customs duty is levied on the full price (plus shipping).

      If you save 10% duty, you finance your payroll. The non-duty country always wins.

      • 0 avatar
        Zombo

        I would say the higher profit margin always wins in today’s global economy since Audis are expensive and the prices won’t drop one penny whether they are manufactured in Germany or Mexico . And in Mexico there are few worker’s rights and environmental protections to worry about further increasing the profit margin of Audi . Tariffs do serve their purpose of protecting a country’s industry and jobs from other countries dumping products in the market .

        Would Harley Davidson have survived in the 80s to become the powerhouse they eventually became when they improved their motorcycles over the shoddy product made by AMF ownership without the tariffs imposed by president Reagan on motorcycles 750cc and above ? Who knows , but the middle class buying power of the new mythical Mexican middle class that was supposed to snap up U.S. made products never materialized that was promised by the passage of NAFTA by a democratic president and republican congress . Mexico is and always was a corrupt country run by about 25 families with little concern for anything other than their own growing wealth . Much like what the U.S. is morphing into with or without trade agreements !

      • 0 avatar
        Viquitor

        Indeed it does. But if Mexico and the US both enjoyed FTAs with all those 44 countries, production would still be located in the cheapest location possible.

  • avatar
    th009

    The indications are that VW will build a future crossover (or two?) in Chattanooga alongside the Passat. The reason for VW to choose the crossover for Chattanooga rather than the Golf matches your argument: the crossovers will be mostly sold in US and Canada, which will be tariff-free, whereas a large percentage of the Golfs will be exported outside NAFTA.

  • avatar
    JorgeLB

    And perhaps Brazil was the wrong example to use. They’re as protectionist as it gets right now, and it has bolstered their economy significantly.

    • 0 avatar
      darkwing

      I don’t think anyone’s arguing that protectionism doesn’t have short-term benefit — that’s why it’s such a popular topic in the first place. And the worse off a country is going in, the longer those benefits are going to last, which is why Brazil’s done so well.

      The question is, once a country’s grown wealthy enough, and its economy’s grown advanced enough, to need to stay competitive to continue that growth, then how does protectionism impact things?

      • 0 avatar

        See discussion below.

        There will be apoint it won’t work anymore. I blieve we’re not there yet. For now, it seems to be working. For the time being.

      • 0 avatar
        tonycd

        The headline of this story is “Protectionism kills jobs.”

        This is untrue. Protectionism saves jobs, and makes jobs.

        Not temporarily, or in a fantasy world, but in America. Where protectionist tariffs saved jobs, made jobs, and contributed to our nation’s well-being, from the time Alexander Hamilton helped institute them at the founding of our republic, continuously and without interruption, until the successful assault on American workers during the Ronald Reagan presidency starting in 1980.

        Since that first-ever systematic stripping of tariffs in America, there has been an almost continuous exporting of manufacturing jobs that previously thrived in this country. I do not suggest it is the only reason for this, but it is a major contributor to it.

        There are people with a whole lot of money who make even more when tariffs, and American jobs, are removed and the current “race to the bottom” of wages is promoted. These people have unlimited access to the press, to think tanks and to the funding of convincing-sounding studies and “experts.” But the history speaks for itself.

      • 0 avatar
        Landcrusher

        Tony,
        Jobs created by protectionism have a bad habit of disappearing . We then need more protectionism because people who should have chosen other careers will become destitute if the scheme ends. Contrast this with less regulation and less protectionism where jobs only exist because they create value for real reasons. The jobs don’t end as suddenly, and they have the virtue of actually creating value.

        The race to the bottom is a myth. Cheap Chinese labor hasn’t managed to put them ahead of us for 50 or more years of claims they would do so. Nor has the rest of the world’s cheaper labor.

      • 0 avatar
        tonycd

        Landcrusher, in one way, we both agree. The jobs go away “if the scheme ends.” In other words, as we’ve proved since Reagan, we lose the benefits of protectionism if we end protectionism. Agreed.

        The race to the bottom, on the other hand, is a grimly proven reality — as demonstrated not only in cars, but in the active intervention of bad actors like Walmart to export jobs. Fun fact: The average Chinese sweatshop, last time I looked a few years ago, paid 31 cents an hour. The average Chinese sweatshop whose formerly American jobs were midwifed there by Walmart? It paid THIRTEEN cents an hour. No race to the bottom?

      • 0 avatar
        Landcrusher

        I believe your data isn’t correct overall. The Chinese and the US benefit from the trade. The Chinese and the US have gained higher standards of living due to the trade. The Chinese still have so many poor areas that cheap labor will be available there for a long time.

        Still, robot manufacturing will bring a lot of the production back eventually. In the end, it’s not the jobs we want, it’s stuff. Protectionism leads to more jobs and less stuff while free trade leads to more stuff for less work. Some protectionism is good to prevent cheats and monopolies, but it’s a real long game that is best played overly fairly in order to turn enemies into friends.

  • avatar
    redmondjp

    What are the environmental and worker-protection laws in Mexico?

  • avatar
    Pch101

    “America’s inability or unwillingness to secure more FTAs is killing America’s transplant auto industry”

    Of course. Every time that I see an American-made Honda, Toyota, Nissan, Hyundai, Kia, BMW, and Mercedes on the road, the first thing that comes to my mind is “Boy, that transplant industry sure is dying.”

    • 0 avatar
      Landcrusher

      Snarky, but accurate. He should have said something about hurting the transplants growth opportunities, or export opportunities. Overall, Herr Schmitt is correct on this one, more FTAs are good. If we could get enough, China would likely implode in another decade. All command economies blow up in the end.

    • 0 avatar
      celebrity208

      I belive the “killing” reference is in terms of the SEEN vs UNSEEN effects of a FTA gap. (FTA Gap copyrighted incase it takes off like: missile gap, trade gap, etc.) Were there more FTA’s on the books this article posits that there would be more world spec cars manufactured in the US and exported.

    • 0 avatar

      True, my Honda was made in Ohio and I bought it here in Canada – NAFTA helped the US out here. But you’ll not see an American-built Honda in Europe.

  • avatar
    mikey

    @pch101….Yeah I was wondering that some issue. For the last 8 years all we have ever heard from the former big three is “our labour costs have got to brought in line with the transplants”

    So now we have to go to Mexican standards?

    • 0 avatar
      Pch101

      The EU slaps a 10% tariff on most imported cars, but the cars built in Mexico pay 0%. In contrast, the US charges a 2.5% tariff on imported cars (with no tariffs for vehicles built in the NAFTA zone, of course.) The EU is taxing us more than we tax them.

      A FTA between the US and EU probably wouldn’t be a bad idea for the US. But to claim that the lack of an FTA is destroying American automotive production is pure hyperbole.

  • avatar
    rpol35

    Not really surprising as the current President is more in the pocket of organized labor than any President that I can recall in recent memory.

    As you indicated, America, due to the depressed value of the dollar which is another hallmark of the current administration, would be in an envious position to produce and export more things like cars et al but politics tend to trump reasoning.

    Now, if the current administration gets reelected and doesn’t have to shill for union votes again, they may change their tune towards FTA’s. Stay tuned…..

    • 0 avatar
      celebrity208

      The reelection argument is true, but only for 1/2 of the govt that makes laws. You’d still have to convince Congress. Not to mention that the “party” still want to get reelected, even after a 2nd term president.

    • 0 avatar
      jpolicke

      The lack of a FTA hurts Detroit brands as well. Europeans already have enough reasons to not buy American cars, an extra 10% penalty on top isn’t going to help.

      That said, even with the same FTA as Mexico, their labor is still cheaper.

  • avatar
    philadlj

    Isn’t Brazil practicing protectionism by insisting automakers build cars there(likely creating Brazilian jobs) or else try to sell their cars there with huge import duties tacked on?

    If VW is serious about increasing it’s North American sales so badly, it’s going to need to make more cars Americans want like the Jetta and Passat. Golfs and Audis are too niche to make that happen.

    I don’t see what’s wrong with simply building another US-centric model alongside the Passat. There are huge mainstream segments in which VW does not compete.

    They have no answers right now for the Escape and CR-V; the Explorer and Pilot…even the Camaro, Mustang, and Challenger handily outsell both the A4 and the Golf in the US.

    The lack of FTAs may be hurting VW, but their lack of expanding their lineup to cater to US tastes is also hurting them, and the latter is something they can control.

    • 0 avatar

      VW can control anything, haven’t you heard? :)

      Seriously though, it’s working in Brazil. The very rich now have to pay more of their money to buy an import. The higher middle class sees that imported dream more distant and settle on local products. The middle class never dreamed of an import.

      More jobs, taxes, and social peace. I for one feel very less threatened noe than 10 yrs ago. Whether this is due to protectionism or not is open to debate. Differently from Bertel, I think it can help.

      Now what can’t happen is for this to go on ad infinitum. Then it hurts everybody. But as a temporary measure, well, I see, understand and feel the results.

      • 0 avatar

        Marcelo, tell them what you pay for a car, not imported, made in Brazil … They’ll faint.

        Protectionism drives up prices, and protects the obscene profits of those on the inside.

      • 0 avatar

        Oh Bertel so true. But I’m a Catholic and the powers that be have taken me on a guilt trip that somehow makes me rationalize the extra charges I must pay ’cause (supposedly) it’s going to help the poor!

        But, in Brazil so much of the market is still distorted that I believe that’s the way we roll.Cars have always been expensive here and will continue to be so for the forseeable future. I could move or just take it. For a myriad of reasons, I choose to take it. Besides, we’re rich now! We can take it!

        A Ford Ka sans anything is 11,500 USD (subcompact)
        Fiat Palio sans anything starts at 15,500 (compact)
        Chevy Cobalt with AC no airbags about 22,500 (compact sedan)
        Toyota Corolla starts at about 30,000
        Ford Ranger about 33,000
        Fiat Freemont (aka Dodge Journey) 41,000
        Ford Fusion 42,500
        BMW 118 (?) 50,000
        Hyundai Azera 60,000
        Audi A6 200,000
        Lexus something or other 300,000
        Ferrari start at 500,000
        Rolls Royce more than a million.
        Yes, those are dollars (USD1=R$2)

        Read and weep!

      • 0 avatar

        Good article on the matter:

        http://www.noticiasautomotivas.com.br/lucro-brasil-faz-o-consumidor-pagar-o-carro-mais-caro-do-mundo/

        Google Translate will deliver the gist of it …..

        Want protectionism? Then get ready to pay for it. Pricelist see above.

      • 0 avatar

        Hi Bertel if you’re interested, I can forward to you a direct link, bit there’s a very good article about it on autoinforme.com.br by Joel Leite. It’s worth the read.

        In it, he talks not only about the “custo Brasil” but also shows the “lucro Brasil”. Here, we have reached a point where the makers not only make profits on volume, but also on each and every car.

        Now, it’s wrong and all but the guv needs the revenue. They won’t let it off. I hesitate to say the word, but the truth is the makers have to give up some of the “obscene” profits they enjoy. Not only in cars. It’s everywhere in our economy. Look at bank profits and margins!

        One day there will be a major shakedown. Or, alternitavely, things will normalize at a snail pace. It’s what’s happening now. Right now, the guv and the companies are in a dangerous game of seeing who blinks first. As we are not really known for revolutions and such, margins will slowly drop and when they reach some unknown breaking point in future, the economy will force the guv to reform. It won’t happen in the next 10 yrs. No, I don’t believe it’ll happen in the next 20. But we’ll get there.

        Problem is when we get there, the world will probably be elsewhere :(!

      • 0 avatar
        philadlj

        Hmm…sounds like Brazilian cars are hella expensive no matter what, unless you by bargain-basement stuff like a Ka or Palio! I won’t argue that what works in Brazil won’t work in the US, or even work in Brazil forever.

        My primary argument is that VW’s hands aren’t totally tied when it comes to US production.

        Let me list out my points regarding VW’s specific US position:

        1. VW wants to increase NA sales dramatically.
        2. The biggest market in NA is the US.
        3. VW was off to a good start with the Passat and Jetta, which have sold well despite not setting autojournos’ hearts on fire. But after those two models they just stopped.
        4. VW does not compete in several highly competitive and profitable US model segments, because its comparable models are either the wrong size, wrong price, or both.
        5. VW can NOT control which FTAs the US signs.
        6. VW CAN control which models it develops for the US market.
        7. The Chattanooga plant only makes one model – the US-only Passat – but that one model is popular, and proved the critics wrong: a US-only model that is more affordable CAN be a success – and a rousing one, at that.
        8. If lack of FTAs make production of import models in the US impossible at this time, then they should consider building other US-only models there. A Passat-based crossover is the most logical choice. It should be in development yesterday.

      • 0 avatar
        Dynasty

        How would one sell a pre-owned U.S. market car in Brazil?

      • 0 avatar

        Dynasty: You can’t.

    • 0 avatar
      silverkris

      This is also true in China. Not only that, a international vehicle maker has to have a Chinese JV partner, too.

      Interestingly, China is one of VW’s biggest markets, where it is the No. 1 automaker there.

  • avatar

    Gee, I really miss the J.W. Bush administration.

  • avatar
    JohnTheDriver

    Is TTAC going to become less stupid after the election?

  • avatar
    tresmonos

    “The wages are not the reason. Wages amount to approximately 10 percent of a car’s cost”
    Wages are just a fraction of the total overhead of a plant. Wages actually are closer to 5%, but that’s nit-picking.

    There are numerous reasons why product finds itself being built in Mexico. The most important is overhead. Complexity and purchasing economies of scale are some others I can think of.

    All I know is overhead in Mexico is about 1/2 of what it is in the USA. VW’s plant in Puebla is massive. If I remember correctly, it currently builds 4 platforms. That has to aid in costs.

    Edit: my point is if you think FTA are the only thing limiting auto manufacturers from sourcing here for export, you may be right after globalization further adjusts us to parity. We’re not there, yet.

  • avatar
    tomLU86

    If “Cars shipped from Chattanooga to Hamburg (no FTA) cost 10 percent duty. Cars shipped from Puebla to Hamburg (FTA) cost none. No wonder the jobs go to Mexico”, does that mean that BMWs shipped from Germany to cost 10 percent duty?

    Can the writer or anyone answer me?

  • avatar
    stuntmonkey

    FTA always look contentious at the outset, but prove (mostly) right in the long term. In a roundabout way, tariffs are a way to export unemployment; that’s why economists call tariff “beggar thy neighbor” policies. If everybody erects fences, the whole global economy comes down.

    If you and I both make cars and computers, but I’m better at computers, and you’re better at making cars, it makes sense for me to make more computers and for you to make more cars and for us to trade. That way, both of us can benefit because we can devote our own resources to towards the thing that we do best.

    What if I erect a tariff on your cars to protect my cars? Sure, my cars will benefit, but the customers on my side of the fence will suffer because they’re paying for your cars with added tariffs. They are also suffering because my resources are now shifted towards my cars, which I’m not as good at, and less towards computers. That means my computer people also suffer. So It’s important to remember that tariffs don’t just pit imports versus exports, but also domestic industries against one another.

    • 0 avatar

      Ah the comparative advantage school…Always comes out in this debate. Unfortunately, if Brazil had followed that line, we’d all still be planting coffee and sugarcane. Not that many of us would have the money to even buy a car, even if we cornered all the coffee exporting business in the world!

      • 0 avatar
        darkwing

        Isn’t it interesting how often this sort of thing seems to come down to “you gringos want to keep us down”? First the Europeans, now the Americans…if it ain’t broke, don’t fix it, I guess.

        As a counter-example, consider the state of Florida. It has massive and successful agricultural and tourism industries, thanks in large part to its natural advantages. Now, while those industries generate a lot of money, they don’t generate many high-paying jobs. But, instead of complaining about Northern aggression, the state funds itself through taxes on those industries, leaving the population with no state income tax and a low state sales tax, making it a cheap and attractive place to live — and suddenly those high-paying jobs come rolling in. (Miami didn’t become a financial powerhouse thanks to geography alone.)

      • 0 avatar

        We have had many many years of bad administration. Protectionism is a high rope act. It takes finesse. Seems like this time around its working.

        I never said anything about gringos keeping us down. Though certain sections of our populace love to blame the guv, the world, the US, the ex military dictatorship, the Catholic Church, the racial make up of the population, the Portuguese, the Americans and so on ad nauseaum, I don’t believe in any of that. We have got ourselves into this mess. Finally, there are signs over the last 20 yrs of intelligent life in Brazil that is catapulting the country into the 21st century.

        I hope the trend continues.

      • 0 avatar
        darkwing

        I guess I read something into “still be planting coffee and sugarcane” that wasn’t there. My apologies.

        I won’t argue that protectionism can’t be a short-term jump-start — but yes, as you say, it takes finesse. More so at the end, probably.

      • 0 avatar
        Landcrusher

        Protectionism takes more finesse than humans have. I am constantly amazed that people who latch on to arguments about pollution externalities and corporate greed have such faith in government free lunch schemes. If the other guys are playing even moderately fair, you are better off without protectionism.

        The benefit to having your people learn that wealth comes from true value creation while the other guys learn to get ahead by rent seeking will double the trade in your favor in less than a generation. Meanwhile, the rent seeking guys are the ones which get the social inequity.

  • avatar
    corntrollio

    “And it’s not just Mexico… thanks to strong trade relations with the EU, Brazil is benefitting as well, gaining $4.4b in new VW investment.”

    That’s a bit of a stretch. Brazil is putting tariffs on imported cars to encourage manufacturers to build local plants, which undercuts your whole “protectionism kills” argument. In an article from Jan 2012 about Brazil’s protectionism:

    http://www.economist.com/node/21542780
    “Last month a 30-percentage-point tax increase on cars with less than 65% local content took effect, taking the tax on some imported models to a punitive 55%—on top of import tariffs.”

    That’s why car manufacturers are building factories in Brazil, not free trade.

    • 0 avatar
      Pch101

      “That’s why car manufacturers are building factories in Brazil, not free trade.”

      That famous leftist Ronald Reagan used the “voluntary” import quotas to achieve the same thing with Japan.

      Here’s an article from 1987 that discussed how this was going at the time: http://www.csmonitor.com/1987/0122/fcar.html

      We have transplants today because we had trade barriers that encouraged them. The US is a large enough market to make domestic production worthwhile to a foreign company. Brazil enjoys the same advantage.

      • 0 avatar
        corntrollio

        “That famous leftist Ronald Reagan used the “voluntary” import quotas to achieve the same thing with Japan”

        Exactly. That’s why Toyota, Honda, and Nissan have so many factories in the US. The Chicken Tax is another reason.

        The Germans also find the US is a great place to outsource labor. Mercedes (Alabama) and BMW (South Carolina) avoid both tariffs and high labor costs by building cars in the US, especially when many of them will stay in the US. They can more flexibly ramp up and ramp down their laborforce here than in Germany.

        And, of course, the Big Three also outsource assembly to Canada too and have done so for a long time.

      • 0 avatar
        Pch101

        “Chicken Tax is another reason.”

        The chicken tax isn’t particularly relevant. It’s easily avoided, and in any case, nobody outside of North America is building large pickups for themselves, which provides Detroit with a natural oligopoly for that type of vehicle.

        The main thing is that car production is a largely regional activity. It makes sense to build US-oriented models in the US, because the US (and Canada) want certain things out of their mainstream vehicles that others don’t want, and there is enough volume here to entice production that focuses on our demands.

        Building for export has never been a priority here. In the day when trade barriers abroad were the norm, it made no sense to have an export orientation, since the quotas and tariffs would keep us out. But Americans have also had different taste in vehicles for a long time, and the vehicles were differentiated accordingly. GM and Ford set up separate operations abroad for those reasons — even if the regulations hadn’t deterred us from exporting high volumes of US-oriented vehicles, the market would have punished us for the effort.

        The US-Canada region offers a market of 340 million people. If the US was just as quirky as it is but had a tiny population, then they would ignore us and nobody would bother building here. But we’re just too large to ignore, and now, Brazil can’t be ignored, either.

    • 0 avatar
      geeber

      They are building plants in Brazil because there is a large market – and I wouldn’t be surprised if it were possible to export vehicles from Brazil to other South American countries without a native automobile industry.

      corntrollio: Brazil is putting tariffs on imported cars to encourage manufacturers to build local plants, which undercuts your whole “protectionism kills” argument.

      It does cost customers money – the people who really matter. The Voluntary Restraint Agreement negotiated by Ronald Reagan ended up raising the cost of Japanese cars, as the supply was restricted while the demand wasn’t. The domestics, in turn, used that umbrella to raise THEIR prices.

      It also encouraged the Big Three to slack off on the improvements in quality and productivity that they had been making (Ford, in particular) in the early 1980s.

      Those were the days when you were lucky if the Honda dealer deigned to sell you a brand-new Accord at sticker price, and didn’t add a $500 wax job and $200 floor mats (in 1983 dollars) as required “accessories.”

      The Voluntary Restraint Agreements also ultimately backfired, as they encouraged the Japanese to move upmarket – if they were going to be restricted in the number of cars they sold, then they were going to earn as much profit as possible on each one.

      This drive upmarket, with the Lexus, Acura and Infiniti divisions, hastened the fall of Cadillac, Buick and Lincoln.

      In the end, all that the Voluntary Restraint Agreement did was postpone the Day of Reckoning and make cars more expensive for everyone. It would have been better, in retrospect, if the Big Three and the UAW had been forced to confront the productivity, quality and vehicle development issues in the mid- or late 1980s instead of the early 21st century.

      • 0 avatar
        Pch101

        “They are building plants in Brazil because there is a large market”

        That isn’t the only reason. A high import tariff, combined with the desire to strike while the iron is hot, i.e. to take market share before others get the chance, also inspires such behavior.

        “The Voluntary Restraint Agreements also ultimately backfired, as they encouraged the Japanese to move upmarket”

        That didn’t matter. Even though they may have sounded like a protective measure for Detroit, the ultimate agenda of the voluntary quotas was to increase the amount of domestic auto production. It didn’t matter which companies did the producing. If an automaker can build a car in Marysville, Ohio that makes Americans happy, then it really doesn’t matter which company is building them.

        From an economic standpoint, a transplant is better than an import. Barring massive tariffs, many consumers would have bought those foreign nameplates, anyway, so you may as well turn import buyers into transplant buyers. The “profits go to Japan” argument is bogus; the lion share of the money goes to where the labor and parts suppliers are, and those are tied most closely to the point of assembly.

  • avatar
    danio3834

    I tend to agree. It’s a double edged sword. In the end it’s just better to accept free trade and try and be competitive as possible.

    The market will always find a way. If you try and fight it, you’ll only end up getting screwed.

  • avatar
    Beerboy12

    Protectionism for the US auto industry has been around far to long to blame one administration.
    Not having an FTA is not really protectionism any way. Mostly because it affects domestic manufacturers as much as the so called transplants.

  • avatar
    krhodes1

    I think it makes perfect sense to have an FTA with a trading partner that is at parity in standard of living and wages. Thus, the Canadian half of NAFTA makes perfect sense to me. The Mexican half of NAFTA is just exporting jobs. Sure, companies love it because they get to cut costs and increase profits, but we are just screwing the working class over.

    And I am definitely NO fan of unions – there is a happy medium of pay in there somewhere, and I suspect the non-Union transplants have found it.

    There is probably a fine line to be drawn – free trade with equal partners, some measure of protectionism with those who are TOO cheap. At this point is it even possible to buy (for example) underwear that is made in the USA? I would be perfectly happy to pay $.50/pkg more for my Haynes if that meant someone in this country had a job at a decent wage – I would not even notice. But to Haynes, $.50/pkg * 10 zillion packages a year is serious money, and the production goes overseas. Makes perfect sense in the short term, but in the long term you are gutting the country. Repeat a million times for every cheap consumer product.

    • 0 avatar
      corntrollio

      “At this point is it even possible to buy (for example) underwear that is made in the USA? I would be perfectly happy to pay $.50/pkg more for my Haynes if that meant someone in this country had a job at a decent wage – I would not even notice.”

      It’s not impossible to buy goods made in the US in a variety of contexts. You do have to work at it and have to pay a little more, but it’s not impossible.

      Remember back in the day when Walmart used to be all about “Buy American!” Not the case any more, but if you shop carefully elsewhere, it’s doable for many types of goods, but difficult.

    • 0 avatar
      geeber

      Our tariffs were already low when NAFTA was ratified. NAFTA eliminated the steeper MEXICAN tariffs.

      WE were the primary beneficiary of NAFTA.

  • avatar
    carve

    Brief lesson on economics, tariffs, and protectionism.

    We want to buy imported goods, because many of them are more affordable (Chinese crap) or better (sports sedans) than what we produce domestically. This means our consumer gets more or better products for their dollar, and benefit by having a higher standard of living.

    In order to buy imports, we need to sell exports of some kind to, effectively, have that foreign currency to buy things with. Likewise, countries we buy things from now have US dollars to buy our stuff with.

    Let’s say item X is 20% cheaper to build overseas than domestically. Someone suggests we put a 20% tariff on it to “level the playing field”. Now, that overseas nation has fewer US $ to buy our goods. The American consumer is paying 20% more for that good. The worker keeps their jobs in the short term at the expense of lower living standards for the consumer, but in this global market, they’re now wasting resources producing an overpriced good that they’re unable to export to any other country, further losing competitive advantages. Furthermore, the overseas nation may put a similar tariff on some good we’re better at producing, further hurting our export opportunities. Except for a very short-term benefit to our workers (at the expense of our consumers), everyone loses. Free trade agreements are the way to go.

    • 0 avatar
      Zombo

      Except the NAFTA trade agreement with Mexico has already proven that it doesn’t work that way with two unequal trade partners . Like krhodes1 said in the previous post it’s just exporting jobs to have a free trade agreement with a slave wage/no worker benefits/no environmental protections country . With the right country free trade is good , with the wrong country it’s bad for jobs here . Fair trade not free trade is the way to go , but the massive growing national debt of this country will sink it eventually either way – it’s just a matter of putting off the inevitable . Only a matter of time until we become Mexico North . But hey vote for the grow the military guy or the guy who wants a massive healthcare program and pretend neither will grow the deficit .

      After all it’s what the Wall Street owners of the country want you to do after they crashed the economy buying up all the bad mortgages and not a single stinking one of them went to jail ! And after the dotcom bust when they escaped scot-free too .Buy enough lobbyists and politicians and you buy the law !

      • 0 avatar
        stuntmonkey

        > Like krhodes1 said in the previous post it’s just exporting jobs to have a free trade agreement with a slave wage/no worker benefits/no environmental protections country . With the right country free trade is good , with the wrong country it’s bad for jobs here . Fair trade not free trade is the way to go ,

        We Canadians had similar sentiments about free trade with the US in the late 80′s (though to be fair, a large portion of trade was already free outside of the FTA) Free doesn’t necessarily mean unregulated, though, nor does it mean an end to all things. For many years after Free Trade and NAFTA, we were still wrangling in legal terms with the US over lumbar exports. Free trade is not a compulsory shackle placed on two countries, it’s just a framework for ongoing negotiations.

      • 0 avatar
        daiheadjai

        “Fair trade” tends to be a euphemism for protectionism by other means.
        I’m not saying that there shouldn’t be some sort of standardization/regulation regarding quality and workplace conditions, but anything beyond reasonable minimums, and you’re really trying to justify punishing a cheaper-labour country for producing the same product for a significantly lower cost – i.e. protectionism.

      • 0 avatar
        carve

        Uhhh…we get cheaper cars, and car companies who are more competitive on the global market.

        Fair is what the market dictates- not getting paid $60k to push a broom and bring down the US auto industry.

      • 0 avatar
        el scotto

        Immoral and probably illegal activity occurred with the mortgage crisis. Greed and stupidity drove the dot.com bubble; not illegal activities. Calling my dog’s house a 50k addition to my house is immoral and probably illegal. Paying shipping plus full price for a bag of dog food to be delivered to my house is stupid; he runs out I go buy some dog food, I don’t wait on delivery.

  • avatar
    corntrollio

    By the way, not to imply that he omits this for partisan reasons, but one thing Bertel doesn’t mention is that all treaties must be ratified by the Senate. The Senate has been very slow at approving FTAs — for example, those three FTAs that have been approved:

    http://www.nytimes.com/2011/10/13/business/trade-bills-near-final-chapter.html?pagewanted=all&_r=0

    Populism in the Senate has slowed the process a bit, and the Senate has wanted concessions in some cases to get these things passed. The recessionary times have made some Senators loath imported products and imported workers.

    • 0 avatar
      Pch101

      “but one thing Bertel doesn’t mention is that all treaties must be ratified by the Senate.”

      He also failed to mention that the Obama administration wants to negotiate a free trade agreement with the EU. He made it sound as if the administration doesn’t want such an agreement, when the opposite is true:

      http://ictsd.org/i/news/bridgesweekly/136978/

      In any case, the issues between the EU and US have little to do with cars (which the Europeans obviously have no problem importing here) or with tariffs (which are not high). If there are going to be sticking points, then it’s going to be with EU’s concerns about issues such as US agriculture, food processing and aircraft production.

      • 0 avatar
        Clarence

        Obama is a Bill Clinton Democrat and would sign more free trade agreements if he had a Congress that was willing to work with him. But this article is not about free trade agreements; it is about the election on Nov 6th. Bertel and Schreiber have turned TTAC into a Republican spin-zone on the order of Fox News. Bummer.

      • 0 avatar
        darkwing

        This is the downside to 24-hour cable and online punditry: people get sucked into the colorful vapidity, turn into wannabe wonks, and interpret everything — absolutely everything — through narrow political blinders. Hence, this article isn’t what it’s *actually* about, it’s *really* about some minutiae pertaining to Obama’s changes in the election.

        I eagerly await finding out how Murilee’s latest “Junkyard Find” is a veiled jab at Obama, too.

  • avatar
    Geekcarlover

    I believe it was Thamos Sowell who best described protectionism.
    Two men in boats are angry at eachother. One shoots a hole in the bottom of his boat. The other retaliates by shooting two holes in the bottom of his. No one gains anything, and all parties lose. Some just lose faster.

  • avatar
    manu06

    I live in a town that nearly died when NAFTA came into effect. Free Trade guarantees worldwide
    competition for labor with the cost of living in the US. All of the social safety net programs are
    paid through payroll taxes. With Free Trade those programs suffer from a lack of revenue while
    the need for them increases. We should be asking what is best for the citizen,not the consumer
    or the corporation.

    • 0 avatar
      geeber

      “Consumers” are citizens. Making citizens pay more for inferior goods hardly benefits them.

      And please note that companies and workers exist to serve customers, not the other way around.

  • avatar
    jeffzekas

    In the end, all cars will be built in China. Why? Because 1. labour is cheap 2. there are no environmental protections in China 3. the money of China is artificially under-valued.

    Free trade does not exist.

    Free trade has NEVER existed.

    All nations create favorable conditions, artificially, to promote their own industries. It’s just that some are better at cheating than others.

  • avatar
    jim brewer

    Interesting editorial. Unfortunately, almost completely unsupported by fact. U.S. exports are at an all-time high, higher even than pre-recession levels. Pretty good considering our trading partners are mired in a worse recession than we are. Autos are an important part of of our exports.

    Remember, Germany has an unnatural export advantage in what is for Germany, artificially weak currency, the Euro. Were Germany still on the D-Mark their auto industry would be in a world of hurt.

    • 0 avatar
      MarkP

      Yes, almost completely unsupported by facts. I also noticed that other than one source the newspaper quoted, all are Republican or “conservative” sources. They typically like to claim that the market can solve every problem, if only the government would get out of the way and let it operate. Enough with these strangling regulations! Enough with your liberal panty-waisted “clean” air and “clean” water and “safe” workplaces! Enough with your “living” wages! Enough with your “decent” jobs! If your company moves your job out of the country, well, McDonalds is hiring! If you want cheap shirts then your textile mill must move to China. No matter that now you have no choice but to buy those cheap shirts because you don’t have enough money for decent shirts. Or maybe even enough money for any shirt, cheap or not.

      Protectionism may not solve problems long term, but “free trade” doesn’t solve those problems either. What you call free trade is the process that allows big businesses to make more money but fire their employees or pay them less. As noted above, free trade with equals or near equals can work, but if the partners have drastically different standards of living, all it does is reduce the standard in the advanced country while increasing it in the less advanced country. It is the all-time champion of income redistribution.

      • 0 avatar
        psarhjinian

        Free trade is totally fine, as long as it’s accompanied by unrestricted immigration.

        Somehow, though, the people who really like unencumbered capital really don’t like unencumbered labour.

      • 0 avatar
        darkwing

        Um, are you joking? What fat cat (real or imaginary) doesn’t like cheap labor? The problem comes from the folks who don’t think those unencumbered laborers should actually, you know, labor.

      • 0 avatar
        geeber

        Free trade and unrestricted immigration are two totally different subjects, and one does not have to be linked to the other.

      • 0 avatar
        Landcrusher

        Psar, that’s an interesting comment. If its not just a pot shot at caricutures of traditionalists I would be interested to hear more. I have been floating a virtually unrestricted immigration scheme for years. Immigrants would hire an agent, be bonded, and have to show income or wealth to provide for their families. I doubt it would cost more than a coyote.
        You would still have to control the border though. So it’s clearly a racist scheme, lol.

      • 0 avatar
        Pch101

        “Free trade is totally fine, as long as it’s accompanied by unrestricted immigration.”

        I do believe that you’re confusing capital mobility with trade.

        Free trade is a matter of exchanging goods and services, i.e. moving them in both directions. But the United States doesn’t engage in free trade; instead, it is in the business of unbridled importing, bringing (mostly) cheap goods from abroad in an effort to avoid domestic inflation.

        Free trade requires selling goods to the rest of the world in an amount that is similar to what you buy from the world. But there is no way for the US to do that without sacrificing the lifestyle that comes from having access to cheap goods, since the US can’t possibly make enough products that others want to match its appetite for imports. So the US is pretty much fated to not practice free trade anytime soon.

        We’ll pay for it in the end, and that’s too bad. But again, the notion being advanced by this article that the US has abundant opportunities to build a significant automotive export market is a joke.

  • avatar
    Viquitor

    Much has been said about Brazil, and I think I can add to that and to everything Marcelo said.

    Brazil is getting all these factories not just because of the import taxes. Brazil is a continental country, with a very large territory, 27 states and several large metropolitan areas, stretched almost all across the South America. Actually, most of South America is, indeed, Brazil.

    Imports can’t stand a chance here. Our fuel is different. Brazilian cars run on ethanol and gasoline, but even the gasoline has 20% of ethanol. Ethanol contains quite a lot of water, it’s rather hazardous for the regular gas burning engines everyone else has.

    Also, our roads are among the worst in the world. Not in São Paulo, Rio de Janeiro state of in the southern Brazil, but in the other 22 states roads are pretty bad. So our cars must have stronger and heavier chassis, and beefier suspension components to cope with that. The Fiat Uno, when it first came up in Brazil, in the early 1980′s, was almost an entirely different car from its italian counterpart. Our cars are mostly different in ther innards. Even cars that look the same, like the Fiat Punto and Idea, sit on a completely different platform than their italian counterparts.

    Proteccionism is a brazilian habbit, it has to do with the very political system we currently enjoy. Much like in America, lobbysts are everywhere and the stakes are high.

    Also, brazilians are not used to free trade. The average brazilian wouldn’t even consider an import, these are most times deemed as incapable of dealing with our roads and fuel, of having parts that are too expensive or simply harder to obtain. Therefore the depreciation is worse, which is in itself a big deal because cars here are amazingly expensive and most people buy their car thinking about the sale two or three years down the road. Not to mention that this is a rather violent country, insurance is not cheap and imports fare even worse on that as well.

    Even today, almost 20 years after the Mercosul FTA with Argentina, Paraguay and Uruguay was created, cars produced in Argentina suffer in the marketplace.

    And to top all this, we are now #4 market in the world. Before this new automotive regime, the only companies missing the brazilian party were BMW, the chinese and smaller japanese companies like Subaru and Mazda. Even Suzuki produces in Brazil since 2010.

    Imports can live in São Paulo, Rio or in the southern states. Most state capitals have imports dealerships and they sell in good numbers. But these are mostly niche or expensive cars, not the market’s bread and butter. In the heart of the country, or in the hands of the average worker, it’s either the VW Gol, the Fiat Palio of whatever GM has to offer on that price range. Even the other options like the offerings of Honda, Renault, Peugeot and Citroën are mostly sold in the bigger cities. On a sidenote, the average brazilian is so conservative that these brands are mostly still considered to be imports, even if local production started more than 10 years ago.

    But everyone wants a piece of the action, so that’s mainly why we got all these new plants. The Inovar-Auto is just a way the Labor Party found to help itself remain in power for the decades to come while enjoying the favorable tide. Their electoral base, and their very origin, are the unions – mostly from the auto industry. Local production equals more workers, better salary levels, stronger unions, and a stronger party. It also helps to balance trade and to create economical growth, which is always a good thing.

  • avatar
    jim brewer

    Based on my observations its an open question as to whether more ETOH goes into the engine or the driver in Brazil.

  • avatar
    Landcrusher

    I shouldn’t be surprised by the stuff on this thread. I hope those who think protectionism really has advantages will open their minds and think about all the ways it hurts a country in every different case. Think how it changes behavior over time.

    China, and many other countries, have had lots of protectionism for a long time. Which ones are really better off than the US? Our own protectionism hurts us more than paying half the freight for the worlds peace keeping and healthcare products.

    Sometimes, you have to fight fire with fire, but reciprocating in measured ways while never, ever trying to take advantage in he game is by far the best policy.

  • avatar
    sideshowtom98

    Bertel;

    Thanks for the Econ 101 class. It could easily have been mixed with a Amer Hist 101 class. Your simple and straight forward explanations were quickly obfuscated by those who can’t, or won’t see the obvious or learn from the past. You mentioned, and questioned the Dear Leader. You shined light on the truth. Those who oppose FTA’s won’t soon forget this insult. In a few more years, barring regime change, you will have the rights to your opinion curtailed. Your ranting could be blamed for riots in the Middle East, and you could be in a Federal prison for your own “protection”. It can’t happen here!

  • avatar
    real streets

    Free trade agreements are just a race to the bottom. If we didn’t have tariffs then there wouldn’t even be a plant in Chattanooga! Every single VW would be built in Mexico or wherever has the cheapest labor that’s capable of assembling them.

  • avatar
    shelvis

    Don’t buy it folks.
    First the jobs were moved out of the USA because the unions were making labor uncompetitive. Now it’s free trade agreements are making the tariffs too high.
    It’s a race to the bottom to find the cheapest labor, period. All of the talk of tariffs is a smoke screen.
    Half of Bertel’s “news” on this site is schilling for the pro globalization crowd.

  • avatar
    el scotto

    Much talking on here on how cars should be made as cheap as possible to be competitive in the global market,blah, blah; don’t worry about quality blah, blah, blah, Adam Smith,John Keynes blah, blah, blah. If we’re not there yet, we’ll soon be to the point autoworkers can’t afford the cars they make. Non-union white collar jobs will be next for wage cuts or outsourcing. That Can’t Possibly Happen To Me! Sure.

    • 0 avatar
      geeber

      We’ve been hearing that one for over 30 years, when the transplant operations run by Honda, Nissan and Toyota were supposed to drive the Big Three out of business. This, in turn, would enable the transplants to turn their workers into industrial serfs straight out of Dickens novel.

      I’m still waiting for this Victorian Horror Story to happen.

      Apparently, how things work in the real world is a tad more complicated than your post suggests.

      • 0 avatar
        Pch101

        “We’ve been hearing that one for over 30 years, when the transplant operations run by Honda, Nissan and Toyota were supposed to drive the Big Three out of business.”

        GM and Chrysler both failed. Without government support, they would have liquidated, and Detroit would have become home to the Medium-Sized One.

        Protectionism would have helped GM and Chrysler to stay in business, but that would have come at the expense of the American consumer. In any case, if Honda can make an Accord in the US that is preferable to the Chevy Citation that would have been made in the US in its place, then that’s a win-win for workers and consumers alike.

      • 0 avatar
        geeber

        Pch101: Protectionism would have helped GM and Chrysler to stay in business, but that would have come at the expense of the American consumer.

        Very true…but that is my concern. My suspicion of protectionism is based on the fact that it tends to benefit entrenched interests at the expense of the customer.

        The ultimate manner in which a customer can express unhappiness or dissatisfaction with a company’s product is to buy something else. Which is what a whole lot of car buyers in the United States have been doing since about 1979. Protectionism ultimately denies us that opportunity.

        It would be nice if companies really did pay attention to customer complaints, or use the breathing room provided by measures such as Voluntary Import Restraints to make necessary structural and product improvements.

        Unfortunately, the response of the domestic auto industry in general, and GM and Chrysler in particular, has usually been to:

        1. Hand out fat executive bonuses when profits returned, which signaled to the UAW that it should get its share (why not?);
        2. Whine about imports;
        3. Whine about the critics (Consumer Reports is BIASED against us!);
        4. Whine about currency manipulation;
        5. Whine about the UAW (while giving them what they wanted during contract negotiations);
        6. Whine about the people who buy imports;
        7. Whine about what happened in World War II;
        8. Whine about people not remembering how great the 1949 Cadillac or 1955 Chevrolet were;
        9. Whine about…have I missed anything?

        Ford did make real improvements during 1980-86 and again in this century. That was because its back was against the wall, not because it felt sorry for people who had bought Windstars and Tauruses with faulty head gaskets and grenading transmissions.

        Frighteningly enough, this was still more than what GM did.

      • 0 avatar
        Pch101

        “My suspicion of protectionism is based on the fact that it tends to benefit entrenched interests at the expense of the customer.”

        Protectionism often results in higher prices. In a small country, those higher prices might be necessary to support local industry, particularly if it doesn’t export much, since they can’t generate enough scale to otherwise cover their fixed costs. In a country such as the US, it just increases profits.

        Protectionism doesn’t have to necessarily impact product quality, though. Japan had a highly protected market (and still does to a point, albeit to a lesser extent than it once did), but that didn’t prevent Toyota from making great strides in changing the production method so that product quality was greatly improved. (What may have helped TMC to ultimately do so well was the failure of its first effort to enter the US market; that defeat made them realize how tough it is to succeed in the US, and they worked hard enough to overcome those challenges.)

        One of the worst things that happened to Detroit was the inadequacy of British, French and Italian imports. The failure of those upstarts must have emboldened them — they felt completely invulnerable to foreign competition, and just focused on each other. They didn’t worry about the Japanese until it was too late, by which point the Big Three couldn’t offer a decent counteroffensive.

  • avatar
    ThirdOwner

    The two reports by the actual residents of Brazil above indicate that protectionism does work for the benefit of the population.

  • avatar
    jim brewer

    A Toyota Tundra according to Toyota has more U.S. content than a Ford F-150. I can believe it. Assembly hours required for a new car are way down–as little as 14 hours for a Ford Fiesta. There’s not much incentive anymore to beat the UAW out of their $25 per hour and lose easy access to the main market in the world. We export a heckuva lot. That won’t happen if we engage in protectionism.

    My view is colored by personal experience. I remember the “voluntary” export quotas on Japanese cars in the early 1980′s. The local manufacturers pressured Japan through Washington to limit imports of sedans in the depths of the early 1980s recession. Naturally, the economy began to turn around almost as soon as the quotas went into effect. Japanese auto dealers sold out immediately at a premium to MSRP. You would purchase a car off a grease board at the car dealer, which would describe the car being shipped and its expected arrival date. American dealers had product, but it was very low quality and also overpriced. I ended up paying $7,500 for a pickup truck that a few months earlier could have been bought for $5,500. They weren’t covered by the quota, but their prices were influenced by the quota.

    The Japanese responded. They went up market. High profit lines like Cadillac, Lincoln and Oldsmobile never recovered. Basically, it was a disaster.

  • avatar
    carve

    Ever hear of “petro dollars”?

    We’ve coerced OPEC to trade only in dollars in exchange for military protection. Every country that tries to do otherwise, such as Iran, eventually has the shit kicked out of them.

    Other countries want oil. They sell us crap so they can get dollars to buy oil. It’s what keeps our living standards artifically high. We, in effect, outsource our production of goods to the middle east selling oil. Unfortunately, we do so at the threat of violence, and it isn’t going to last forever.


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