Other than whiskey or tobacco, there are few, if any, products more prone to tariffs than automobiles.
Over the decades, I have seen all sorts of taxes or tariffs placed on American cars and trucks sold abroad, all to protect home markets. Every country seems to want a local car manufacturing industry. They put the importance of the auto business right up there with a national airline.
In Japan decades ago, they set up what were called nontariff barriers, which were local-content rules and vehicle standards. It was a very effective technique to add to the cost of imports.
Countries would add tariffs and restrictions to get their own fledgling car industries off the ground. Unfortunately, they would maintain those taxes long after their auto industries were big and healthy. It simply became a normal way of doing business.
It would be easier if everyone believed in free trade. Simply eliminate all tariffs and let everyone compete on an equal footing.
That sounds good in theory, but there are still many nations that want to protect their auto industry regardless of the state of its maturity.
Decades ago, it was a pretty simple business: Build a car here and ship it there. If only that was the case today.
Today, it is a far more complex and globally connected industry. No vehicle is made in one country. Thousands of components can cross dozens of borders multiple times before the vehicle is finally assembled.
So, it is often impossible to figure out just what the true country of origin is. We have a hodgepodge of rules and definitions for what constitutes an assembled vehicle in a particular country. The North American Free Trade Agreement is a perfect example of how hard it is to come up with a fair definition and to figure out the impact of all of those rules.
On the face of it, Mexico is the big winner. With low wages, it has been able to attract a great deal of capital for cars, trucks and assembly plants, not to mention suppliers.
Setting trade policy is as complicated an issue as you'll find. So what is a fair solution? We would be wise to let those who are smarter than us sort it out.
Believe me, whiskey and tobacco are a lot simpler.
You can reach Keith Crain at kcrain@crain.com
