Let’s not ignore the tariff deal with Japan
Yesterday this was in the news, although it was easy to miss in the huge flurry of stories about Russiagate 2.0:
U.S. President Donald Trump struck a trade deal with Japan that lowers tariffs on auto imports and spares Tokyo from punishing new levies on other goods in exchange for a $550 billion package of U.S.-bound investment and loans.
It is the most significant of a clutch of agreements that Trump has bagged since unveiling sweeping global levies in April though, like other deals, exact details remained unclear. …
“I just signed the largest TRADE DEAL in history with Japan,” Trump said in announcing the deal on social media.
On Wednesday he said Japan and Indonesia were opening their markets to the U.S. “I will only lower tariffs if a country agrees to open its market,” Trump wrote.
The article mentions that US automakers are criticizing the deal because the tariff on Japan’s autos will be 15%, whereas US autos made in Mexico and Canada have tariffs of 25%. More here:
“American Automakers still need to review the details of the U.S.-Japan agreement, but any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than it does North American-built vehicles with high U.S. content is a bad deal for the U.S. industry and U.S. auto workers,” said Matt Blunt, president of the American Automotive Policy Council, which represents the American companies Ford, General Motors and Stellantis.
“High US content” means, I assume, that some parts are made in the US but the vehicles are assembled in Mexico and Canada? Clearly, Trump wants them to bring the entire operation back to the US:
Though the White House has argued the tariffs will help the U.S. build more cars at home, domestic automakers have also taken a hit from the duties, due to the integrated nature of North American auto supply chains. U.S. companies rely on Mexico and Canada to help build cars and supply parts, particularly after Trump renegotiated a North American trade deal lowering duties between the countries. To ease some of the pain, the White House has offered a complicated rebate scheme for portions of certain North American-made cars’ sales value over the next two years, but automakers are still struggling.
I don’t think Trump is interested in harming the US auto industry, but I don’t know the details of what this really means, or how easy or difficult it would be to bring the manufacture of US cars wholly back to the US.
Commerce Secretary Lutnick said the following:
“Come on, there’s no tariff if you build it in America,” he said. “American manufacturers are going to do extremely well in America — as long as they build it in America. You build it in America, you’re good,” he said.
Easier said than done, but perhaps necessary.
Good reminder that “American” cars are often just American brands applied to cars made abroad and imported.
On the other hand, Toyota, Honda, Nissan, Subaru, and Mitsubishi all operate plants in the United States. What make and model you buy might have come from Japan–my Toyota did–but might have been built in the US.
I personally am certain that tariffs and other trade barriers considered purely from an economic perspective do more harm than good, but it’s not like we haven’t always had them for one excuse or another, and whatever we as a people decide about tariffs needs to be based on factual information about where stuff is actually manufactured and not what country we associate the brand with.
Incidentally Japan is notorious for trade barriers that are not tariffs, for example these from trade.gov:
Perhaps necessary ? Well, Yes. This marks the gradual end of globalization, which is basically shifting production to less costly labor, and so leaving the American worker hung out to dry, jobless and impoverished. And needing Medicaid.
Apparently it was one of the better kept secrets (kept from the general American populace, anyway) that some countries hid their domestic trade favoritism via non-tariff means. Hopefully this agreement with Japan has also addressed some of those forms of “trade war”. As Trump is now emphasizing, that form of abuse of commerce has gone on for far too long, especially after the nations recovered from the destruction of WWII (for both former allies and enemies).
But just as it is reasonable that Japan might wish to retain a dominant position in domestic rice farming to avoid or minimize food shortages, we and others need/ needed to take or retake a more aggressive position from a national security (and medical/ health security) view to onshore, re-shore, or near shore selected elements of our commerce and economy. Plus we of course also need to counter and punish the CCP type cheating occurring (it seems) at every turn.
But when it comes to industrial policy in general, and the role of the government as “employer of last resort”, to what extent is it a proper government role to assist (or ensure?) that our domestic labor market is valued and supported? If we have the highest level of individual liberty in the world, and have demonstrated very high levels of innovation for 200 years coupled to that level of liberty, we should also be emphasizing that aspect of our economy since our human capital is our greatest asset. [As is also the case for Israel, Japan, and other relatively high performing nations when they let their people realize the benefits of their respective efforts.]
It is also to our national interest and advantage to have South American and other allies growing in prosperity (and potentially allegiance to us). At 5% of the global population, we cannot expect to remain the “largest economy” forever, if other’s boats rise along with ours. Nigeria, Mexico, Russia, India, Bangladesh, et al. have sizeable populations that could come to rival us in net $ terms if/when they ever get their act together. Just need to keep all of this in perspective.
Well stated, R2L.
It will be ignored.