Policy Analysis No. 83

Foreign Manufacturers in the United States: Should They Be Told to Buy American?

By Thomas J. DiLorenzo
February 24, 1987

Executive Summary

American protectionists have set their sights on a new target: foreign manufacturers, especially Japanese automakers, that have built plants in the United States. A small but politically vocal coalition of American auto parts manufacturers and their unions is complaining that Japanese automakers located in the United States do not buy enough American-made parts for their cars and that this is unfair and discriminatory. By purchasing auto parts from Japanese suppliers located in Japan and in the United States, Japanese automakers are accused of nothing less than a conspiracy to “colonize” American industry: “The Japanese conceived a grand design years ago to supplant the U.S. not only as the world’s No. 1 carmaker but as the world’s largest parts producer.”[1] The protectionists seek government action that would compel Japanese automakers to purchase more of their products, and the issue is under investigation by the U.S. International Trade Commission.

This report investigates these complaints of unfair competition and discusses the economic impact of increased international competition in the auto parts industry. It shows that the complaints of discrimination against American companies are untrue. In fact, Japanese automakers do not discriminate against American parts suppliers per se—only against the ones that offer inferior or uncompetitive products. Japanese manufacturers do business with hundreds of American parts suppliers. These particular American suppliers are not complaining about unfair competition but are busy striving to make their products more competitive in the international marketplace.

The increased competition provided by Japanese auto parts manufacturers provides significant benefits to the auto industry and workers and to consumers. Consequently, any legislative action that restricted such competition would have harmful effects on the economy. As with all protectionist legislation, such actions would provide short-lived benefits to a small segment of the auto parts industry but would be harmful to the industry in the long run by reducing its incentives to produce better products.

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Thomas J. DiLorenzo is John M. Olin Visiting Professor at the Center for the Study of American Business, Washington University, St. Louis.