Wednesday, November 19, 2008

The Tariff Temptation


On Monday night, I listened to Michael Savage discuss his ideas for what would save the auto-industry. Putting the union matter aside, he was in favor of a $5,000 tariff on all foreign cars. He felt it fair because in Japan, for example, they apply tariffs to U.S. cars, importing only 400k per year, while we import 20 million. Clearly there is an imbalance. I am a free trade kind of guy so the idea of tariffs scare me. I listened to this discussion and the emotional side of me began to weaken on tariffs. The intellectual side of me then made a compromise. Why not just impose a tariff on only those cars that are imported. If Toyota makes their cars here, they are tariff free.
What a wonderful idea I thought. We raise money, level the playing field, and keep jobs one way or the other. Either the big three become more competitive now, or they still go under, but more foreign automakers make their cars here to avoid the tariff, thus creating jobs. I was all set to blog on this very idea, and then I got to thinking. Are foreign cars cheaper than U.S. made cars? Not really. It was the case at one time, but not anymore. Usually they are more expensive, but the consumer demands the quality of the foreign car. This competition is what has helped our auto-industry from only creating gas guzzling rust buckets. The result would not be cheaper cars, it would just help our own industry become more of a dinosaur with less competition.
I also thought that if tariffs were the answer to saving the auto-industry, shouldn't they work for every industry. Shouldn't we, on the same principle, tariff all foreign goods? We slap tariffs on imported ethanol from Brazil. Brazil produces an ethanol that is more powerful and cheaper than our own corn based ethanol. Brazil ethanol, at the time gas was high, would have been a real alternative that was cost effective for the consumer. Our own ethanol is produced at a loss and is only sustained through government subsidy. The result of this tariff is that the consumer loses out on choice. We have also seen how the entire aggro-business has suffered as prices for grain and beef have gone up as a result of our domestic ethanol program. Do we want this same situation to exist on every product we consume.
The reality for my family is that we, along with millions of others, have benefited from cheap products produced internationally. Would I have rather paid $50 for a pair of pants so that a textile job remains here or would I have rather paid $15 for a pair of pants. For a large family like mine, I have greater buying power because of cheap imports. Obviously, everyone else does too. Once we open the door to tariff a product to protect an industry, we put ourselves on the same slippery slope we have with the bailout. Who gets a tariff and who doesn’t? Who decides all these things. As with the bailout, I say no thanks to tariffs. And yes, China is making cars now.

2 comments:

Kansas Bob said...

Hands down one of the best things that I have read on tariffs Scott!

For me it is all about quality.. I loved my '95 Jeep Grand Cherokee that I bought new and did all the maintenance on but sadly incurred thousands of dollars in maintenance because it was simply an inferior product.. I mean really.. bad exhaust manifold.. bad A/C.. bad electrical harness in the door.. and I did all the maintenance.. I could go on. I traded it in on a Japanese made SUV.

Until Detroit gets it's act together they will continue to fall further and further behind in the automobile market.. hopefully we will listen to Romney and let them fail.

jrchaard said...

Thank you bob. I heard Romney this morning. He was on target. A guy here at work also has a grand cherokee that has been nothing but problems. my 2000 Ford van has all the paint chipping off of it, along with a multitude of other problems.