Inertia Wins!

President Trump is mulling a tariff on automobiles. Joining a long list of people urging him against it is the Japanese auto industry. That opposition is obviously self-interested, but has merit. Japanese automakers directly employ 92,000 U.S. workers. Counting in dealerships, parts suppliers, and others, they support over 1.5 million jobs, at least by their own estimate. An auto tariff would also antagonize the Japanese government, a needed ally for President Trump’s China reform efforts.

Trump would enact the tariffs on national security grounds. Japanese Automobile Manufacturers Association Chairman Akio Toyoda responds to that point in a statement:

Imported vehicles create new market demand, including demand for new vehicle technologies, thereby expanding and diversifying the choices available to our U.S. customers. As such, these vehicles clearly do not threaten United States national security.

In short, importing cars means importing new technologies, some of which could increase U.S. security.

The same arguments apply to European carmakers, especially in Germany. Many of the cars are assembled in the U.S. by American employees, and support related jobs. Trump will have a hard time pursuing his China policies without the EU’s cooperation, and auto tariffs hurt that cause. And European cars, especially high-end ones, contain new technologies with potential security benefits.

There is also an old saying among economists that during war, the first thing a country does is blockade its enemy from foreign trade. Protectionists seek to blockade their own countries, even during peacetime. That President Trump is proposing such blockades on national security grounds only adds to the irony. I previously dealt with other national security arguments for tariffs here.

It’s also not just Japan and Europe who oppose Trump’s proposed auto tariff:

• Congress doesn’t want it since it would hurt their constituents.
• Consumers don’t want it. Cars and car parts would become more expensive.
• Domestic auto companies might benefit from being able to raise prices without being undercut by competitors. But higher prices would hurt sales, and many of their parts costs would increase. From their perspective, it’s at best a mixed bag, and existing tariffs have already led to billion-dollar losses and more than 14,000 layoffs at GM alone.
• Even Trump’s campaign staff is probably wondering what he is thinking. An auto tariff would hurt auto workers in Trump-friendly states where many foreign car companies have production plants.
• Investors don’t want it. A new study estimates the S&P 500 would be 11 percent higher today if not for Trump’s trade policies. An auto tariff would not reduce that number, though it would reduce Americans’ retirement savings.

If you don’t think of Hondas or Audis as national security threats, you’re not alone. Now would be an excellent time for Congress to vote on the Bicameral Congressional Trade Authority Act. This would reduce the President’s Section 232 authority, which is what enables him to unilaterally raise tariffs if he cites national security. Not only would this improve economic growth, it would make for a healthier balance of powers between legislature and executive.

For more on trade policy, see my Web Memo, “Common Myths and Facts about Trade: Clarifying the Trade Debate Is Crucial to Ensure the Prosperity of America and the World” and my 2018 study, with Iain Murray, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade.”