Political economy, MFN, and industrial structure

Robert Lawrence:

Although we call the big three automobile companies, they have basically specialized in building trucks…

But another is that the profit margins have been much higher on trucks and vans because the US protects its domestic market with a twenty-five percent tariff. By contrast, the import tariff on regular automobiles is just 2.5 percent…

In 1962, when implementing the European Common Market, the Community denied access to US chicken producers. In response after being unable to resolve the issue diplomatically, the US responded with retaliatory tariffs that included a twenty five percent tariffs on trucks that was aimed at the German Volkswagen Combi-Bus that was enjoying brisk sales in the US. 

Since the trade (GATT) rules required that retaliation be applied on a non-discriminatory basis, the tariffs were levied on all truck-type vehicles imported from all countries and have never been removed. Over time, the Germans stopped building these vehicles and today the tariffs are mainly paid on trucks coming from Asia. The tariffs have bred bad habits, steering Detroit away from building high-quality automobiles towards trucks and truck like cars that have suddenly fallen into disfavor.

If congress wants an explanation for why the big three have been so uncompetitive it should look first at the disguised largess it has been providing them with for years. It has taken a long time — nearly 47 years —  but it seems that eventually the chickens have finally come home to roost.

I think the blame lies with Congress, but I could see them trying to pass the blame to the GATT’s MFN clause.

1 thought on “Political economy, MFN, and industrial structure

  1. Pingback: This

Comments are closed.