Spoiling Detroit
Seven years of protectionism for the American auto industry became eight on April 1 when Japan’s car makers began another annual extension of their “voluntary” quotas on exports to the United States. Import limitations have now lasted twice as long as their advocates said would be necessary. For all that, the American auto industry, whose profits under protectionism have soared by a remarkable 30% a year since 1983, continues to look for opportunities to cry foul against its strongest foreign competitors.
Ford Motor Co., for example, wants Japan to cut its imports by 600,000 units a year, down to 1.7 million. At the same time the Motor Vehicle Manufacturers Assn., the industry’s trade group, talks about filing a “dumping” complaint against Japanese pickup trucks, while General Motors says it may bring a similar complaint against Japanese cars. Dumping occurs when a foreign competitor’s product is priced below its cost of production or below its selling price in the home country. The complainant in a dumping case must also prove that the competitor’s pricing policy has injured or threatens to injure the domestic industry. If dumping is found, tariffs can be imposed to cover the difference in price.
The somewhat muzzy reasoning behind the dumping allegations is that U.S. prices for Japanese cars have risen by “only” about 25% since 1985--though further price increases were recently announced--even as the yen was appreciating by 80% against the dollar. That 25% has added an average of $3,200 to the price of a Japanese car; presumably U.S. car makers think that a price increase closer to $10,000 would be more appropriate. Of course it makes no sense to maintain that price increases should march in lock step with changes in exchange rates. Always efficient producers, Japanese car makers have become more so in response to the rising value of the yen. They have further cut their production costs, increased productivity and--heresy in the eyes of some U.S. companies--accepted lower profit margins in order to maintain market shares.
The muttering about dumping is implausible on other grounds. It’s hard to understand how the Big Three claim “material injury” from supposedly unfairly priced imports when their 1987 profits came to $9.5 billion, just shy of the record $9.8 billion rolled up--under protectionism--in 1984. Japanese light trucks, which already are subject to a 25% tariff, are in almost every case priced higher than their U.S. counterparts. Sales of imported compact trucks fell by nearly 20% last year, while sales of domestic compacts rose by 18.5%. These figures hardly support allegations of unfair competition or material harm.
What really disturbs the U.S. auto industry is that even under protectionism, Detroit’s share of the market has continued to fall. In 1981, the first year of import quotas, the Big Three had 70.8% of the U.S. market. Japanese imports had 21.8%. Last year those imports still claimed 21.3% of the market, but the Big Three’s share was down to 62.3%. The difference comes from two factors: a rise in non-Japanese imports--South Korea’s Hyundai alone now accounts for 3.4% of total U.S. car sales--and the rising market share taken by U.S.-built Japanese cars. The Japanese are rapidly approaching the capacity to produce 1.8 million vehicles a year in this country. Ironically, what has given the Japanese car companies this new grip on the market and led them to open factories in the United States was the fear of protectionism inspired by import quotas.
The consumer in any event has already paid heavily enough for helping to put a sick industry back on its feet. As Brookings Institution economist Robert W. Crandall has noted, up through 1985 quota-induced shortages added an extra $2,500 to the price of a Japanese car, at the same time permitting U.S. car makers to raise their prices by $700 more than they could have without quotas.
Detroit, rolling in profits, nonetheless continues to sing the blues. It wants further limits on competition. What it should be aiming for is more efficient ways to compete.
