Protecting Whom?
First he threatened the federal government with bankruptcy and the implied costs of unemployment and monopoly in the auto industry. A cowed Congress granted his firm $1.5 billion in loan guarantees. But that wasn't enough for Chrysler chairman Lee Iacocca. On top of federal subsidy, he now wants the government to force consumers not to buy some of his competitors' products.
Yes, you read that correctly. In an interview with the Wall Street Journal on March 11, Iacocca said that he favors federal legislation to slash imports of cars from their current 30 percent market share to the 17 or 18 percent they held in 1978. In other words, about 42 percent of those who wanted to buy a Japanese or German car would be forbidden to do so—and those who could do so would end up paying a premium price for it.
Iacocca's is not the only voice urging such anticonsumer measures. Cong. Charles Vanik several days before had warned Japanese automakers to cut back their exports to this country to 1977 levels "or face more drastic action through legislated quotas." Meantime, United Auto Workers president Douglas Fraser went to Japan to threaten the carmakers with retaliation if they didn't open plants in this country. On his return (after receiving no such commitments) he began urging legislation to require "up to 75 percent North American content" in imported cars. Perhaps the ultimate extension of this philosophy is a current proposal by Britain's largest union to ban all auto imports by 1982, in order to "protect" dying British Leyland.
What a morally despicable thing is "protectionism." What right has government to interfere with the liberty of consumers to purchase whatever automobile they may prefer—or with the liberty of producers to sell whatever cars they can to willing buyers? There can be no moral justification for using force to prevent such transactions.
Millions of American consumers have made it clear by their purchases that they prefer compact, well-made, fuel-efficient Japanese and German cars. Surveys of 10,000 American households in 1978-79 by the Motor & Equipment Manufacturers Association revealed that imports strongly outrank US small cars in perceived fuel economy, engineering, and durability. A recent survey by Ward's Automotive Reports found that almost half of Detroit's own engineers think that Japanese cars rank highest in quality; American cars placed a distant second (at 27 percent). Even Lee Iacocca concedes that "the Japanese have earned their reputation for quality."
But protectionism does more than just violate the rights of the consumers and producers directly involved. It harms countless others, as well. One very visible group of victims is the Americans who work for imported-auto dealers. As Joseph Coberly—himself a Ford dealer—pointed out recently in testimony before Congress, there are 4,500 foreign car dealers, employing some 140,000 people. "By what standard should they be sacrificed to the 150,000 UAW members now on indefinite layoff?" he asked. Coberly also pointed out how another protectionist policy—restrictions on low-priced steel imports—increases costs to American automakers by $50 to $75 a ton. Protectionism is not only immoral; it flies in the face of sound economics.
US automakers would also suffer from Douglas Fraser's proposed local-content requirement. If the US government imposes such a rule, other governments will follow suit. And that will torpedo the plans of Ford and GM, among others, to produce "world cars"—utility vehicles assembled from components produced wherever it is most economical to do so.
The concept of a world car illustrates a basic principle of free trade: the international division of labor. By allowing resources to be utilized wherever it makes the most economic sense—doing labor-intensive operations where labor is cheap, electricity-dependent operations where electric power is cheap, etc.—the total amount of goods and services that can be produced is maximized. Interference with this process, whether by subsidizing infant industries or shielding them with tariffs, or by restricting imports and exports, is inherently wasteful and is literally counterproductive.
The principle of comparative advantage is so powerful that it even makes sense for a country to go it alone, eliminating its own tariffs and quotas even if other countries keep theirs. As evidence, witness the success of tariff abolition in 19th-century England, post-World War II Hong Kong, and today's Chile. In the latter country, the rapid, unilateral slashing of tariffs has led to a major restructuring and revitalization of the economy.
But the most important practical argument against auto protectionism is that it could well set off a new trade war among nations. For the past several years pressures in that direction have been building up. Reports Britain's National Institute for Economic and Social Research, the fraction of international trade in manufactured goods under government control went from 13 percent in 1974 to 21 percent this year—up 62 percent in just six years.
The last great period of trade war was the 1930s. The Smoot-Hawley Tariff imposed major increases on thousands of imported products, thereby turning a business cycle contraction into the Great Depression, not just in this country but around the world. Today American industries like steel, footwear, and even semiconductors are calling for increased tariffs or quotas on imports. The same thing is occurring all over Europe. The Wall Street Journal's Philip Revzin notes ominously that "some trade experts fear that a few more protectionist acts in sensitive industries such as chemicals and autos could touch off a major international trade war, sending everyone scurrying behind tariff and quota walls." And, unfortunately, once such a trade war begins, it is the developing countries that are generally hurt the worst.
Think about that when you go to buy your new Datsun 280ZX. The Lee Iacoccas and Douglas Frasers who seek to forbid you from doing so are not simply interfering with your freedom of choice; they are endangering the economic well-being of countless millions of people around the world.