Surge of Auto Imports Seen if Restraints End
Japanese automobile shipments to the United States would surge by 750,000 cars a year above the current ceiling of 1.85 million vehicles if voluntary import restraints are allowed to lapse, Special Trade Representative William E. Brock said Wednesday.
“Competition would be extremely difficult” for American car makers, Brock admitted, but he said that he and other Cabinet-level officials are proposing that the 4-year-old quota system be allowed to expire at the end of March.
Hoping for Trade-Off
President Reagan has not made a decision on the issue, Brock told a hearing of Congress’ Joint Economic Committee. But Administration officials are saying privately that they hope Japan will be willing to buy more American goods, notably computers, telecommunications equipment and pharmaceutical products, after the U.S. market is opened wider for Japanese autos.
It now appears likely that Reagan will follow the unanimous advice offered Tuesday by his Cabinet council on trade and will let the Japanese decide--without U.S. urging or advice--how many cars to ship to this country.
Established in 1981
The “voluntary” quotas were established by Japan in 1981 after intense pressure from the Reagan Administration, which had argued that domestic auto makers deserved a partial respite while they recovered from the recession and retooled to make small, fuel-efficient vehicles.
Under the self-imposed restraints, Japan took about 18.5% of the U.S. market last year. But, without any restrictions, the Japanese share of all U.S. auto sales will rise to 33% in 1987, according to a Commerce Department report released Wednesday by Rep. John D. Dingell (D-Mich.).
Although the U.S. automobile industry would be hit hard, Brock said, a free flow of Japanese cars would benefit consumers, who may have been paying as much as $1,000 extra per imported car because of the quota system.
The quotas have also let American manufacturers raise prices, which contributed to their record $10 billion in profits last year. The Federal Trade Commission estimated Wednesday that consumers pay an extra $1.1 billion a year in higher prices because the restraints limit competition.
Administration officials are convinced that the benefits to consumers will outweigh the damage to the domestic industry and its workers.
The United Auto Workers union and Chrysler Corp., both of which advocate continued import restraints, responded angrily Wednesday to the Cabinet council’s recommendation. A new surge of imports would wipe out at least 150,000 jobs in direct car production and among related industries, causing “the devastation of a number of automobile communities around the country,” said Don Stillman, the UAW’s director of governmental affairs.
Industry Dislocations
“Initially, we thought, in the worst case, imports would rise by 500,000,” Stillman said. “Now they’re talking about 750,000. This would represent a major dislocation of not only the auto industry but also steel, rubber, electronics and high technology, because the auto industry uses a lot of high-tech production.”
Union leaders meeting at the AFL-CIO executive council session in Florida bitterly denounced the recommendation. “U.S. auto and supplying industries are in the middle of a transition to efficient production of new kinds of high quality, fuel-efficient cars. Cutting off the voluntary restraint agreement now will abort that transition,” the union executives said in a joint statement.
They contended that the Japanese will take “about 40% of the U.S. auto market when the agreements are lifted.”
At Chrysler, Chairman Lee A. Iacocca even threatened to curtail some of the company’s $10-billion worth of domestic investments planned for the next five years. Speaking of the Reagan Administration, he said: “It comes down to what kind of country they want to build for the future. Once they make their call, we’ll make ours. We are continuing to reassess our priorities.”
Foreign Sourcing
As the flow of Japanese imports increases, the competitive marketplace will force American companies to depend increasingly on lower-cost foreign sources for both finished cars and for parts, U.S. officials acknowledge.
General Motors already has moved in this direction and wants the quotas ended because it seeks to import from Japan 100,000 Suzukis, to be sold as Chevrolet Sprints, and 100,000 Isuzu models, to be marketed as Chevrolet Spectrums. Under current restraints, only 5,300 of these cars have been imported this year.
“It’s time to end the quotas,” General Motors spokesman John Hartnett said. “Our feeling is that this type of thing does nothing but trigger trade wars.”
However, Ford Motor Co., Chrysler and American Motors Corp. all insist that import quotas should be retained to protect American jobs and to avoid worsening the already huge U.S. trade deficit. The “fate of the American automobile industry should not be decided” by Japanese trade officials, a Ford executive in Washington said.
Possible Price War
The abolition of import restraints would pose a challenge not just to American firms but also to Toyota, Nissan and Honda, the major Japanese marketers in the United States. Competitors such as Mitsubishi and Isuzu, which have not been able to sell large numbers of cars to American consumers because of the quotas, could pour lower-priced small cars into the United States, possibly touching off a price war.
Joining the new Japanese firms here would be some South Korean companies making their first foray into the vast American marketplace. The new entrants, eager to acquire a share of the market, could be expected to undercut the prices of already hard-pressed American firms.
