Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
January 10, 2011 5:30 P.M. ET
GRAND RAPIDS, Mich. – At this time of year, as we make New Year’s resolutions, we typically are thinking about how to lose weight, or quit smoking, or exercise more. Give up or do more of…something. So – as we think about charting a new personal course, what about a resolution to Buy American? Is “Buy American” nothing more than a clever promotional scheme? Is it simply patriotic or does it make any economic sense? Does it do any real good?
In the auto space, these are somewhat tricky questions to answer. Think of the scores of Americans who have good-paying jobs working for Nissan, Toyota, Honda, or Volkswagen or Mercedes-Benz. Even though you can argue that the profit streams and downline supply chains may exist outside the U.S., still these automakers provide good livelihoods for many Americans. And the systemic interdependence among global OEMs, suppliers and technology providers is not easy to sort out merely with a simple slogan.
Free markets are the foundation of a constitutional republic like the U.S. We stand for unencumbered markets, sometimes even to our detriment as other countries take advantage of our level playing field. Tariffs, for example, are a method that a country uses to make U.S.-manufactured vehicles more expensive than those made elsewhere. Tariffs punish the foreign automaker by making its vehicles more expensive when compared to competitive brands made or favored in a particular country. In nearly all global markets, U.S. automakers face considerable tariffs and thus are incented to make vehicles outside our country. China, Brazil, India, and the European Union all place tariffs on importation of automotive parts and systems, which are restrictive and onerous. The U.S. typically does not.
The U.S. has always sought to maintain a level playing field with few if any tariffs and a floating currency. Meanwhile, the Chinese government holds its currency at an artificially low price to keep its exports cheap – a distortion that over time has caused unfair financial and political implications.
Our biggest concern is to keep a watchful eye on China as it nationalizes commercial markets such as the automotive industry this decade. We cannot afford to virtually create this industry for them, hand over our advanced technology playbook, and allow them to dictate the rules of the game. Alexander Hamilton’s view was that free trade would be fine if all other countries practiced free trade but, so long as they do not, the United States cannot afford to. Hamilton argued that tariffs create a nation of manufacturing, wealth and good jobs. In his day that was true but, in the complexity of a today’s global economy, it’s not as easy to make that policy a reality.
I like the thoughts here by Milton Friedman: “The U.S. should enact a sensible international economic policy, and avoid tariffs which are a kind of retaliatory action that simply leads to further restrictions. We could say to the rest of the world: We believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free.”
Even though others don’t play by the same performance and economic rules that we do, that doesn’t mean the U.S. should lower its standards accordingly. You can and should buy what you want in a new vehicle, and that is Friedman’s view. That’s a truly free market. But today, look carefully at design, content, quality, and safety as you go to purchase a new car, and you’ll see our domestic manufacturers have proven they can and do play well against the foreign competition. Often even better, so when you buy American you’re buying smart.
And maybe helping out the home team while you’re at it.
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