The Big Three’s Shameful Secret

July 6, 2003 • Commentary

Last year, America’s best selling car was … a truck. In fact, for the last 21 years, the Ford F‐​Series has been the number one selling vehicle in America. Chevy Silverado, another pickup, took the number two spot in 2002.

Americans love pickup trucks. They are rugged and utilitarian, like the American pioneer. They serve our inclination toward industriousness. Pickups embody the American spirit.

But the “Big Three” harbor a shameful secret. The industry is not as tough as the “like a rock” image it projects. Behind the façade, the industry fears foreign competition. And it forces its loyal customers to flip the bill for that insecurity.

Foreign‐​made pickup trucks are subject to a 25 percent import tariff, a policy heartily endorsed by U.S. producers. So a foreign truck valued at $20,000 costs the importer $25,000 before he can even clear customs. Meanwhile, domestic producers of $20,000 pickups have an artificial $5,000 cushion, enabling them to increase prices without appearing out of line.

At 25 percent, the import tariff is virtually prohibitive. In 2001, fewer than 7,000 pickups were imported from outside North America. That’s only 0.23 percent of almost 3 million purchased. Without imports, supply is smaller, choices are fewer, and domestic producers are the only game in town. It’s a veritable sellers’ market, sanctioned under official U.S. policy. And truck buyers — if you’ll pardon the pun — carry the load.

The tariff is a vestige of a 40‐​year old dispute between the United States and Europe. In 1962, the European Economic Community raised import tariffs on chicken, which U.S. exporters were selling with great success in Europe.

After diplomacy failed, President Johnson authorized retaliatory tariffs against four products important to European exporters. Among them was “automobile trucks,” a key export of West Germany’s Volkswagen.

Intended to persuade Europe to abandon its protectionist chicken policy, the truck tariff was an abject failure. U.S. exporters quickly lost the European chicken market and Volkswagen cargo vans and pickup trucks practically disappeared from the U.S. market.

Japanese producers, who were beginning to export pickups to the United States at that time, were also hurt by the tariff. To remain viable, they began exporting chassis (the entire truck minus the bed), which were subject to a more tolerable 4 percent tariff. After importation, a bed was attached to the chassis and the unit was sold as a pickup truck. The once‐​ubiquitous Chevy Luv was constructed from Japanese parts and sold according to this formula.

In 1980, at the behest of the Big Three and the United Autoworkers, the U.S. Customs Service reclassified cab chassis as trucks, subjecting them to the 25 percent duty and closing the loophole through which foreign light trucks were made available to U.S. consumers.

U.S. protectionism encouraged Japanese investment in U.S. vehicle production. First came Honda in 1982. Soon after came Nissan, Toyota, Mazda, Subaru, Isuzu, and Mitsubishi, and even the Germany‐​based BMW and Mercedes‐​Benz. Today, 32 different foreign nameplate vehicles are produced in the United States.

Subsequent mergers and equity tie‐​ups have made it difficult to ascertain which automakers are domestic and which are foreign. Chrysler has become DaimlerChrysler. General Motors owns 49 percent of Isuzu, 20 percent of Fuji Heavy (makers of Subaru), and 20 percent of Suzuki. Ford owns 33.4 percent of Mazda. DaimlerChrysler owns 37.3 percent of Mitsubishi; and Renault owns 44.4 percent of Nissan.

Even with the world’s largest non‐​American truck producers, Toyota and Nissan, producing in the United States, the Big Three dominate the market. They accounted for 87 percent of pickup truck sales in 2001.

So what explains U.S. producers’ affinity for a tariff they don’t need? The only plausible explanation is that it is perceived to be an arrow in the quiver of U.S. trade negotiators. Under the mercantilist logic of trade negotiations, countries make the “concession” of reducing their trade barriers in exchange for “concessions” abroad. Accordingly, the United States should hold on to the high truck tariff because it gives negotiators something with which to bargain.

But removing the tariff is of limited commercial value because the major foreign truck producers already manufacture in the United States. It is unlikely to “buy” much in the way of reciprocal market openings.

More importantly, the truck tariff weakens the U.S. bargaining position by undermining the credibility of U.S. trade policy. Maintaining a tariff of 25 percent — almost 10 times the average U.S. tariff — at the behest of a powerful domestic interest reeks of hypocrisy.

U.S. policymakers have advocated open trade and have urged our partners to remain steadfast in the face of their own domestic protectionist pressures. The tariff is jarringly inconsistent with that rhetoric and is unfair to America’s pioneering truck buyers.

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