Japan’s Quotas on Cars to U.S. Hurt Everyone
There is a lot of talk from the Reagan Administration these days about restoring the competitiveness of U.S. business. Unfortunately, along with it, there is considerable talk about retaliating against countries that restrict imports of U.S.-made products.
The problem is that retaliation will not propel the economy toward greater competitiveness. In fact, it stands a good chance of propelling some key industries in exactly the opposite direction.
As it happens, a good case study of this is in hand, and it made news just last week. The Japanese government announced that it will continue to impose quotas on its own exports of autos to the United States for what will be a seventh year. U.S. leaders could disclaim responsibility for this move, pointing out that Japan acted voluntarily. But that would ignore the vast pressure that the U.S. government has put on Japan in the past and the continued cries for protection in Congress.
What both Japan and U.S. protectionists are failing to recognize is the failure of the quota program to protect anything. In fact, the main result has been a vast increase in what U.S. consumers must pay for cars. A secondary result has been to encourage even more foreign car producers to invade this market. What it promises to do over the long run is destroy more jobs at American car factories than it saves. Let’s look at the record. A key argument for protection is that it gives an embattled domestic industry some time to improve its operations and get back in the race, all the while keeping its work force on the job.
What has happened is that the Japanese government has carved up a major share of the U.S. market among the Japanese car companies, reducing the competition among them to the point that they have been able to tilt the mix of products they sell here toward the highest-priced models, and raise prices to boot. Demand for foreign cars is built into this market and, higher prices or not, foreign models continue to be popular.
Consider that despite quotas no greater than the year before, the value of Japanese car exports to this country has been running 40% above the year before. Some of that is price increases forced on the Japanese by the rising value of the yen, but much of it is simply costlier models. In response, U.S. companies have chosen to raise prices rather than try to beat the Japanese on price.
Some experts have concluded that consumers pay as much as $1,000 above what they otherwise would be paying for American cars without quotas. The premium on the Japanese cars is estimated to be considerably higher.
It is true that U.S. auto companies have taken steps to become more competitive, slimming down payrolls in the process. That effort, however, was more a response to a general slump in auto sales than to the Japanese threat. More recently, domestic companies and foreign firms alike have benefited from a sharp rebound in demand for cars.
Meanwhile, by imposing quotas on itself, Japan has opened the door to producers in other countries--South Korea and Yugoslavia, to name just two--bound by no quotas. By encouraging both the Japanese and the American firms to boost prices and move to costlier models, the quotas have helped to create a market in low-priced models for these newcomers.
The irony is that quotas are always supported on humanitarian grounds--they will save jobs for Americans. In truth, however, by lessening the incentive to be competitive, quotas lead to further weakness in this country’s factories and give the work force false security. The answer to the problem isn’t an easy one, but it must include making real strides in competitiveness, face-to-face with the full threat from overseas producers. It lies also in recognizing that protection has a high monetary cost. Consumers pay billions of dollars for it and the cost per job saved--$105,000 by one estimate--is much too high.
Far better to spend the money on building the abilities of the U.S. work force through better education and training, and on increasing the mobility of that work force through such things as more portable pensions. Then, displaced workers can move more easily to secure jobs in healthier industries.
