This “Trade War is a Different Ballgame”

How the US Trade War with China over autos stacks up against the Trade War the US Lost against Japan.

So-called “trade wars” are neither new nor uncommon for the US and its trade “partners.” The US automotive industry has seen its share, all of which the US has lost so far, though it won some skirmishes. The results are seen in this chart, which shows net imports of new passenger-vehicles into the US in dollars. This is the annual total of imports minus exports of new passenger vehicles (data via the US Trade Administration’s Office of Transportation and Machinery).

One of the big “trade wars” that US fought over new vehicle imports was, repeatedly, with Japan. US exports to Japan remain near zero, but as a concession to various administrations clamoring for a level playing field, or whatever, the Japanese brands have increased production in the US. Honda has done so in an exemplary manner. So that was a skirmishe the US won in the “trade war” with Japan’s auto industry, that it lost.

Are there parallels between the trade wars the US fought with Japan and the trade war the Trump administration is now trying to fight with China?

Automotive News Asia editor, Hans Greimel, in Tokyo, takes a good crack at this question in an editorial published today in Automotive New China. This “trade war is a different ballgame,” he says.

An ascendant Asian nation with a powerful domestic auto industry that brims with international ambition. A ballooning trade surplus with the U.S. And a populist American president threatening punishing tariffs in a desperate attempt to level the field.

The scenario seems ripped from the pages of today’s headlines. But the country in question is Japan, not China. And the president is Bill Clinton, not Donald Trump.

Clintons efforts took place in the 1990s. Japan was the second largest auto market in the world. Japanese automakers seemed “invincible”: they were already active in the US, “turning what was then the world’s biggest auto market into their cash cow.”

“Superficial similarities abound with the latest campaign launched by Trump against China. But striking differences suggest Trump’s gambit might have some better leverage,” Greimel writes.

One of the differences between Japan and China is that US automakers had essentially no presence, no connections, and no distribution network in Japan at the time. And lacking realistic possibilities, US automakers failed to produce vehicles for the Japanese market.

Clinton’s trade war was an extension of largely failed attempts by administrations before him. He stepped it up a notch by making the unprecedented threat to levy a 100 percent tariff against 13 imported Japanese luxury car models.

“The ultimatum worked. To a limited degree,” Greimel writes. After a few efforts, US automakers still failed to breach the hurdles in Japan.

The Japanese kept a low profile, acquiescing to US pressure when necessary — and quietly boosted exports every year. When exports became politically problematic, they simply began building cars stateside. By then, at any rate, they already had a loyal and growing following.

China has become the largest auto market in the world, with 24.7 million new passenger-vehicle deliveries in 2017, compared to 17.2 million deliveries in the US.

But “today’s brawl with Beijing is set against a different background,” Greimel writes: “Not a single homegrown Chinese auto brand has yet to land stateside.”

One takeaway from Japan is that America’s 2.5 percent tariff on passenger cars wasn’t high enough. Japan exported its way to success despite the barrier. Boosting the duty to double digits, however, might just forestall a wave of Chinese imports before it begins.

China, which already had 15% tariffs on US vehicle imports, reacted to Trump’s threatened tariffs, by jacking up its tariffs to 40%.

Yet US automakers are in some ways more insulated from such blowback than they were during the Japan trade wars. For starters, GM and Ford combined already sell millions of vehicles a year in China, as opposed to thousands in Japan. Most of those vehicles are built in China, ducking the duties.

Detroit brands have sophisticated and well-entrenched retail networks in China. And they have massive R&D centers in the country to ensure that their products meet local needs. The quality and engineering of the American-branded products are arguably its best ever. Chinese customers aren’t turning up their noses, as the Japanese did and still do.

In Japan, they were always struggling to break their way in. In China, American brands are already on the inside and thriving.

“Now the US has the chance to keep Chinese hopefuls at bay,” Greimel writes. “That could be a key leverage point.”

Beijing hasn’t been shy in voicing its overseas ambitions. Chinese President Xi Jinping’s Made in China 2025 campaign prioritizes global domination in several key next-generation automotive fields. And a slew of Chinese automakers, from upstart electric vehicle makers to established state-owned players, are brandishing plans to crack the US market as early as next year.

GAC Motor, angling to become the first Chinese automaker to export to the US, has already said it may have to ice those plans after Trump’s threat to slam imports with tariffs.

A big risk is how China could hit back beyond cars and tariffs. Indeed, China’s countermeasures — affecting $34 billion in American goods — target everything from auto parts to soybeans. Beijing might also hold businesses hostage through regulatory shenanigans.

And China has some non-tariff tricks that could directly hammer American carmakers. Ticked-off mandarins could marshal the state-controlled media to whip up an anti-American backlash inside China against Buick, Cadillac, Ford and Jeep.

Which China has done with great success against Japanese automakers in 2012 and with the Korean automakers in 2016, to accomplish some political purposes, not trade purposes.

But as “Washington locks horns with a new automotive heavyweight,” Greimel writes, “important dynamics are also dramatically different.”

When Clinton decided to finally play hardball in the 1990s, the Japanese had long been winning the game. With China, the game is still in its early innings. Trump is swinging for the fences. Only time will tell whether he will strike out as well.

After decades of relentless offshoring, the equation may change for automakers and component makers. Read…  Beyond the Hysteria about Auto Tariffmageddon  
 

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

 

  84 comments for “This “Trade War is a Different Ballgame”

  1. michael
    Jul 16, 2018 at 3:51 pm

    Why not just put a flat 30% tariff and/or introduce a manditory 90 day quarantine “national security” on all Chinese goods. That should get their attention.

    • Jul 16, 2018 at 4:06 pm

      I think we have their attention already and if you have any doubts ask the cherry and apple producers on the “red” side of the Cascade mountains. Ask the soy producers in the Midwest. Ask the whiskey producers in Tenn. and Kentucky. Google the list of American products now facing retaliatory tariff in China. The 1st dozens are farm products.

      If we did as you suggest there would be a lot of empty spaces under X-Mass trees this year. That would get a lot of attention..

      • Nick
        Jul 16, 2018 at 4:13 pm

        So what?

        Americans might have to go without for once. Boo Hoo! We are a bunch of children, acting like spoiled brats while we burn the financial future of our grandchildren etc. The American people i.e. those farmers’ grandkids and their kids will be much better off. The problem is we have been sucking off the tit of our debt based monetary system for way too long. China has been raping us along with kleptocrats in our government and multinational corporations for far too long. It’s like listening to teachers who make $75K a year, great benefits, full pensions/retirement complain that they are “underpaid”. Wha wha wha! If they added up all the days off they get for holidays, summer etc. they are actually making well over 6 figures. It’s the rich that have siphoned off this country. Good for Trump having the balls to go after the Chinese. If China was a moral, ethical country and not a communist cesspool of repression etc. they’d have to enact the same strict environmental standards and OSHA standards that we have. That right there would go a long way in leveling the playing field.

        • Prairies
          Jul 16, 2018 at 5:20 pm

          “So what?

          Americans might have to go without for once.”

          Those farmers won’t starve, they produce food and they will likely horde it. Hopefully you have a garden and live in a southern state.

        • Jul 16, 2018 at 5:51 pm

          Ask any working class person if we’ve been burning our future for the past 40 years. China couldn’t have raped us unless it was with the acquiescence of and for the benefit of those capitalists who had the power to move American manufacturing to wherever paid the least. China did nothing to us that those with the power in the US didn’t approve of beforehand. Don’t you think it amazing that a communist cesspool worked hand-in-glove with capitalists & corporatists to enrich themselves at the expense of workers everywhere. If the US was a moral and ethical country we would never have allowed this to happen in the 1st place and then let it continue for 40 plus years but we did. You can praise Trump but I think he thinks his dealings with China is like stiffing the plumber’s union but China isn’t a small contractor that has to make payroll but a country that understands the long road and we don’t. If a trade war brings on a recession the party in power will be out of power. That’s how it works in the US..

        • CrazyCooter
          Jul 16, 2018 at 11:05 pm

          First, ZH covered this a while back and was frankly probably one of the most interesting things I read in a long time:

          https://www.zerohedge.com/news/2012-11-24/goodbye-petrodollar-hello-agri-dollar

          The chart titled “the haves and have nots” is worth printing and magnet-ing to the fridge.

          I don’t think it will get that far – leaders with egos will run into reality and eventually things will find a (different) equilibrium.

          Regards,

          Cooter

        • max
          Jul 17, 2018 at 2:36 am

          One of the unappreciated benefits of international trade is that it helps reveal the cost of domestic policy. For example, the Occupational Safety and Health Administration can impose high costs on American companies, but it has no jurisdiction elsewhere. Our Environmental Protection Agency can impose costly regulations on American companies, but it has no power to impose costly regulations on companies in other countries. Congress can impose costly tax burdens on American companies, but it has no power to do so abroad. Restrictions on international trade conceal these costs.

          By the way, all trade is fair in the eyes of the parties trading, or else they would not trade. It’s third parties who seek to interfere.

          https://www.lewrockwell.com/2017/01/walter-e-williams/free-trade-3/

        • Lune
          Jul 17, 2018 at 11:20 am

          Max-
          You’re absolutely right about trade revealing the costs of domestic policy. Without having OSHA and the EPA we can see that production of the iPhone at its current price requires suicide nets on factory walls. And that coal power plants mean 20 million people in Beijing no longer know what a blue sky looks like. Those benefits are concealed when international trade is restricted.

          Thanks, free trade, for letting me see what life is like in an unregulated “utopia”. I myself prefer living in a regulated hell hole where I pay a little more for my iPhone so my children and I don’t hack up a lung every morning and die 10 years early.

        • Mike
          Jul 18, 2018 at 9:33 pm

          I agree with David Calder. The transfer of manufacturing to China occurred due to U.S. corporations and the rich that control them seeking to maximize their profits, while U.S. administrations looked the other way as more and more U.S. manufacturing jobs were transferred overseas.

          That will not end with China. Vietnam, other southeast Asian countries, India, and other countries in diverse places will be the next places where those same corporations and their rich owners transfer their manufacturing plans. Only if the cost of manufacturing in the U.S. with lower wages and automation approaches that of manufacturing in very low wage, low labor rights, low pollution-control countries, will they return manufacturing to the U.S.

          I do wonder what the protector of the rich is seeking to do. I do not believe for a moment that he truly has the best interests of U.S. workers at heart. Perhaps, he is trying to look like a hero to capture populist appeal, so he will get reelected in the next election and get more benefits for the rich: e.g., eliminating any healthcare benefits for the bottom 90%, or eliminating social security, medicare, estate taxes, etc.

          Perhaps what I have heard, that Chinese commies have been taking over businesses established as joint partnerships/ventures with wealthy foreign investors is true. If those foreign investors are angry to be forced out of those businesses by their always-required Chinese commie partners, Trump may be retaliating against China on their behalf.

          Hope springs eternal: I hope that these tariffs actually result in some transfer of manufacturing back to the U.S. Even if it does, I suspect that will not last, unless Republicans accomplish their dream of returning American labor laws and wages to 1899 robber-baron levels, now that they have successfully crushed or intimidated unions.

          With the corrupt supreme court, which will soon have even more right-wing members, which previously already allowed what amounts to legalized bribery via its Citizens United decision, I fear that they have a good chance of succeeding. Unfortunately, given current trends, I predict that the U.S. will not be a workers’ utopia like the commies claim is ultimately inevitable.

          For the richest 1-8%, it will be a paradise with the next generation’s students forced prostitute themselves figuratively and literally to try to get an education. For most Americans, I predict that our future will resemble a dystopian nightmare.

          It will be like a more technologically sophisticated version of Orwell’s 1984 in which all the actions of the poorer 90% are monitored for any sign of rebellion by neural nets. Computerized face recognition will deprive all of any chance to escape close monitoring, and any members of the lower 90% who hold unauthorized protests (and they will all be unauthorized) will be injured or killed by remotely operated drones or military robots. We have financed and will finance the development of those future tools of the rich.

          Already, so many Americans are in untenable conditions that the rates of suicide are spiking. I predict that those rates will only go up as more and more opportunities dry up, like the unreported unemployed, while the Fed banksters and others use statistical tricks to hide the truth from the majority.

          Some think that America is headed for a revolution. I fear what we will actually see is a concealed U.S. version of the Tianamen Square massacre of 1989.

          Already, Google has been censoring political results in the U.S. See https://www.wsws.org/en/articles/2017/11/22/pers-n22.html. Such socialists and all dissenters should be allowed to be heard, particularly if the rich are continuing to purchase all media outlets and present a skewed version of reality through their reporter-stitutes.

          I predict that such censoring by more and more corporate controlled media of any critical voices will only grow year by year. While communism is a crazy choice, given their genocidal history and tendency to steal all assets for commies, Americans will soon see that something worse is possible.

          That future will is coming. It will occur due to the amazing beliefs/lack of motivation of Americans like those who believe that the U.S. is doing just great right now. Too many people have behaved like ostriches and it is probably too late to stop what is coming. All parents who have children in the U.S., who will be in the poorer 90% of Americans in the future, should recognize that we have all failed them.

      • TropicalSunset
        Jul 16, 2018 at 8:46 pm

        “If we did as you suggest there would be a lot of empty spaces under X-Mass trees this year. That would get a lot of attention..”

        This is the classic reaction of the MSM and corporate wall street business media. And people start whining if they have to pay 50 cents more for something.

        This is one of the problems with democracy. Politicians rarely want to do things that might be painful in the short term, but very good for the country in the long term. Why? Because they won’t get re-elected. So they do anything to prop up the economy in the short term and keep people happy.

        • Jul 16, 2018 at 9:09 pm

          I’m long past putting up X-Mass trees but it is a political reality that China doesn’t face. We do. If we push this looming trade war to the point of a recession, the party in power will be out of power and that too is a political reality that China doesn’t face.

          First Bush and then Obama propped up the banks, not the people, with QE for a decade. Wages fell while profits rose which didn’t benefit the people, at least not as I understand who the people are, but it made a lot capitalists very happy.

    • max
      Jul 16, 2018 at 7:56 pm

      why 30%
      why not 80%
      why just do not stop trading with china ?

    • nick kelly
      Jul 18, 2018 at 3:06 pm

      Little tidbit from CBS: of the up to 1000 US$ iphone, China gets 8.60 cents’
      When the phone assembled in China enters the US it is booked at the factory price of $220. 00, which less the 8.60 is part of Apple’s profit, though more is coming downstream.

      The 220$ per phone is considered part of China’s export surplus.
      Maybe the tariff should be on Apple and its shareholders.

      • mike
        Jul 18, 2018 at 9:53 pm

        The tariff is actually on Apple, its shareholders, and all other companies that import products at near-retail prices. Most importers to the U.S. use this tactic to avoid reporting income in U.S. taxes.

        If a car, for example, is imported at a price of $25,000 and is sold at a price of $27,000, and the extra $2000 is spent on advertising, etc., they do not have to pay U.S. income taxes. Reportedly, that tactic is used by almost all importers.

        (Who is imposing the tariffs it is the unbelievable part. I suspect that he really wants to be reelected to get his cronies more goodies and pardons.)

        Many of these importers that use these tactics are U.S. based companies, which are controlled by wealthy Americans, who use many diverse tactics to evade paying most taxes. As an attorney that represented many rich persons, I can assure you that once you are among the top 5% richest Americans, you do not have to actually pay most taxes if you choose not to and even compliance with a huge number of laws is optional: e.g., their companies control email servers and require communications through their email systems, so they can destroy evidence at will.

        If they are sued, they can have crooked attorneys/executives “clean” their files of prejudicial documentary evidence. Corrupt judges, like in LA County (where the banning of recording devices and absence of court reporters allows corruption to flourish without impediment), will always rule in favor of those wealthy, corrupt persons.

        With most of the richest 5-10% of Americans, their patriotism is dead. They look out for themselves. The majority of Americans (the poorer 90%) should wake up and look out for themselves.

        • nick kelly
          Jul 19, 2018 at 6:51 am

          OK book the tariff to Apple then, but the 220 is booked to China as part of its surplus but China doesn’t get the 220.
          Is it China ripping off the US (the current theme) or is it Apple?

          Why is China the bad guy?

          This question is not directed so much at you as to those who blame China.

      • Kraig
        Jul 19, 2018 at 12:01 am

        This sounds like a tax reform. Ending the offshore deferral would do it. Change to a smaller headline,higher effective tax rate, I believe was a trump suggestion.

        (That would potentially kill the budget deficit) The EU ruling pointed out that profit sharing atrrangrement would be fine if the revenue and taxes went to California rather than the Caymans.(after all the iPhone wasn’t designed in the Cayman islands, so why does Apple revenue share to there? Maybe the 0% tax.

  2. George McDuffee
    Jul 16, 2018 at 4:17 pm

    This report brings to mind the famous observation about the UK troops in WWI – “Lions led by asses.”

    Indeed, from an examination of the available data and recent history, the “leadership” of our auto industry is worse than incompetent, and are actively collaborating with foreign auto firms, apparently to both “punish” the UAW for their terminity in forcing the corporations to provide high wages/benefits, and because “offshoring” is the easiest and quickest to generate a short-term profit (and executive bonuses).
    Remember that for many years the “big three” were the top importers of foreign vehicles and major vehicle components (engines. transmissions).

    No matter how level the playing field, if the fix/point-shaving is in, one side will never win.

    Remember the Pinto, Corvair, Cimarron and Chevette. If we are serious about “saving” some facet of our domestic auto industry, the only way, IMNSHO, is a total reconstitution/purge of the senior management, and pay/bonus caps on the replacements.

    • nick kelly
      Jul 16, 2018 at 4:26 pm

      Steady on lad! Next you’ll be saying Japan is so successful because it makes cars US customers want to buy.
      So all we all have to do is thwart the desire of the US buyer with tariffs.

      • Jul 16, 2018 at 5:27 pm

        Nick, when it comes to trade, you speak with the soul of a true non-American, which you are (according to your many statements about being Canadian). Look, the whole world benefited from the US trade deficit and from Corporate America’s dedication to offshore production — everyone benefited except the US. Now that gravy train might start offering a bumpier ride for the rest of the world. Gravy trains don’t run smoothly forever. So you better get used it ;-]

        • nick kelly
          Jul 16, 2018 at 5:57 pm

          OK but Canada is in balance with US and still getting tariffs.

          Re: the tariff on Canadian softwood newsprint (a tariff also being fought by the rapidly disappearing US newspapers)

          The complaint originates with a Private Equity outfit that bought a US mill and then filed the complaint. Suspicion is they want to flip it.

          :)

        • james wordsworth
          Jul 16, 2018 at 7:11 pm

          “everyone benefited except the US.”

          Not true. Americans benefited from having the lowest prices in the world for many many goods This allowed them to buy far more than they would have been able to buy if prices were at “true” levels. The real loss for the US is that the debt remains, but all the crap that was bought is now at the dump. You don’t get to have your cake and eat it too.

        • max
          Jul 16, 2018 at 7:52 pm

          Tariff = “A tax imposed on imported goods and services.

          are you saying that we are going to get rich by taxing ourselves?

          born in SFRY

        • Jul 17, 2018 at 12:31 am

          Max,

          Tariffs are a margin squeeze for importers. They had it good for a long time. And Corporate America just got a big tax cut. So let’em squeal.

          You’re correct, tariffs are tax on importers – in fact, they’re a sin tax, like taxes on alcohol and cigarettes, designed to discourage behavior (offshoring) that is costly in some way to US society. You can raise taxes here and lower them there, if you want to keep it neutral. Trump already lowered Corporate Taxes, so that part has already been done.

          Besides, with our $1-trillion-plus jump in our national debt in 2018, it wouldn’t hurt to collect a little extra by squeezing corporate margins … they just got a huge tax cut.

        • phusg
          Jul 17, 2018 at 9:08 am

          Wolf, when it comes to trade, you speak with the soul of a true American, which you are not (AFAIK you are a German, even though you hide it well behind your all American name). Look, the whole US benefited from the US dollars reserve currency status and from America’s dedication to offshore enforcement – everyone benefited except for the rest of the world.

          Now many non-American souls wish that particular gravy train would start to offer a bumpier ride, but given that the euro is fundamentally flawed, sterling is fundamentally flawed, the yen is funadementally flawed, gold is fundamentally, bitcoin is fundamentally flawed, the track ahead seems pretty smooth on that one. So please go easy on us rest of the worlders with rebalancing trade and defence costs ;-]

        • Jul 17, 2018 at 11:54 am

          phusg,

          In terms of my ancestry, it’s a little more complex: My father and grandfather were naturalized Germans. Their people were Bohemians in the Kingdom of Bohemia, which was part of the Austrian-Hungarian empire when they were born. During the Roman times, the Romans who encountered them called them the Bavarii. A big group split off later and settled around Munich. The others stayed… fierce warriors. Today, this area is the Czech Republic. Read up on what happened to German-speakers there.

          My mother grew up mostly in Austria. Both were buried in Austria.

          And yeah, I was born in Germany. I came to the US in 1973. I have voted in US elections since the 1980s. I have never lived in Germany as an adult. I go there and it’s exotic to me. All Germans laugh when I speak German. Check out my book to find out more:

          https://www.amazon.com/gp/product/B00613TA56

        • Tim
          Jul 17, 2018 at 11:15 am

          “…Look, the whole world benefited from the US trade deficit and from Corporate America’s dedication to offshore production — everyone benefited except the US. …”

          Whoa! The US trade deficit means that we got the goods, they got the paper/electronic digits. Who won? Or, who’s winning? This is like the ultimate Yankee trader scam. Follow the real wealth, not the financial wealth. It costs us almost nothing to make electronic currency. Adam Smith: ‘no government in history has paid it’s debt’ or words to that effect.

          US labor, on the other hand, has gotten shafted by this. So it’s a bit of a toss up, but still, follow the real wealth flow.

        • Jul 17, 2018 at 12:10 pm

          Tim,

          The goods and services are consumed. They disappear after they’ve been consumed. But the debt remains.

          Don’t confuse these goods with “assets” that produce an income. Assets are not included in the trade balance.

    • Maximus Minimus
      Jul 16, 2018 at 5:25 pm

      I would concur with the first statement, and historical references aside, it mysteriously carries over to peace time. How could Jaguar/Land Rover been mismanaged for so long, and turned around so quickly by the new owners?

  3. nick kelly
    Jul 16, 2018 at 4:20 pm

    I think there is zero chance of a true Chinese domestic like Chery becoming a threat in the medium term.
    What MAY be exported to the US (don’t know if they are already) are US or other countries like German autos built in China.

    • Reese Baird
      Jul 16, 2018 at 4:57 pm

      According to this 2017 article, there are three American cars made in China and exported to the US, in addition, to one Volvo (now owned by Geely).
      https://cars.usnews.com/cars-trucks/cars-made-in-china

    • Mike G
      Jul 16, 2018 at 6:01 pm

      The Volvo S60 and Buick Envision are Chinese-built vehicles sold in the US.

  4. Rates
    Jul 16, 2018 at 4:51 pm

    The US will never win a car war with Japan. The later particularly Toyota has car making down to a science. Toyota’s continuous improvement process is a legend in the industry. Heck some software people are copying it.

    Don’t know about the Chinese. Can’t even think of one Chinese car that’s well known internationally.

    • KFritz
      Jul 16, 2018 at 7:01 pm

      Yes. Initially at least, Japan won its auto-trade wars with the US because it produced better quality cars at competitive prices. I believe the same was true for portable consumer electronics. If the US had won those trade wars, would we be driving cars of the quality we use today? Were I a wealthy person, and if the automotive people I know gave me the same information I was hearing, say 10 years ago, I’d pay the tariff on a Toyota.

      • Wolfbay
        Jul 17, 2018 at 6:21 am

        How could we possibly compete with the Japanese. American companies were UAW. The Japanese were allowed to open non union factories. If I’m not mistaken GM tried to compete with Saturn as a separate non union company but that was stoped and UAW took over. We gave the Japanese the car market. GM only survives today because the tax payers bailed them.

        • kiwi
          Jul 17, 2018 at 12:29 pm

          There was this guy named W. Edwards Deming, a person who promoted quality control, who was ignored by US automakers and went to Japan.

          Deming is why US autos were becoming crap while Japan autos improved.

        • KFritz
          Jul 17, 2018 at 1:44 pm

          Yep. When in doubt blame the unions.

    • Halsey Taylor
      Jul 16, 2018 at 8:38 pm

      Agreed. Toyota’s primary product is cars. American car companies’ primary product is stock price.

      On the other hand, China’s built an economic model based on cheap-n-cheesey – which seems to trump quality in price sensitive markets.

  5. Truthalwayswinsout
    Jul 16, 2018 at 4:59 pm

    The US loses trade wars because Congress and its prior Presidents and families are so easily bribed and get rich off selling out the US.

  6. JB
    Jul 16, 2018 at 5:06 pm

    Incredible graph – the increase in net imported cars post last recession is sobering. is that a result of off shoring? It would take enormous amount of capital reinvestment to make every car here that could be sold in the States. And yet it seems that truck tariffs have kept production/sales here viable.

    • Mike G
      Jul 16, 2018 at 6:21 pm

      If that were broken down by country I believe you would see most of the growth coming from Mexico.

  7. Drango
    Jul 16, 2018 at 5:12 pm

    Why not just force the yen to its natural value? The yen has been kept weak for so long people think it’s a law of nature. But how strange is it that one of the major economies in the world is allowed to play the kind of currency games normally played by banana republics? Without a weak yen, Japan’s car companies won’t even be able to sell the cars they make here at a profit, let alone the cars that are imported. Are the Japanese foolish enough to think this will go on forever?

    • Rates
      Jul 16, 2018 at 6:12 pm

      The Japanese has the BIGGEST government debt to GDP in the world at 350%. The Yen’s natural value is probably 300 to 1 as opposed to the current 110 to 1.

      • cd
        Jul 16, 2018 at 7:55 pm

        the Yen-Gold pair is best way to play gold….part of the cabal misdirection

      • Tim
        Jul 17, 2018 at 7:53 am

        Agreed. Moreover, the BoJ now owns almost half of all JGBs in issue, most bought since GFC I. There is now hardly a market (in any meaningful sense) in JGBs. Purchases are running at c53tn JPY annually, whereas the fiscal deficit is only c 20tn JPY.

        Cutting to the chase, they’re monetising debt. That should have battered the value of JPY, but it hasn’t – yet, anyway…..

        • Tim
          Jul 17, 2018 at 11:27 am

          They aren’t printing yen to buy foreign imports are they? Or are they? If they can restrict the inflation to the finance sector, financial assets, then the foreign exchange problem decreases. Japan actually wants to keep the Yen down for competitiveness/sales. Japan is usually trade surplus (upward pressure on Yen), so the debt monetization becomes is less of a problem. Or is that all wrong?

        • Rates
          Jul 17, 2018 at 11:47 am

          No one in this world will be able to explain why the Japanese has not collapsed into hyperinflation yet. Anyone saying otherwise is downright lying.

          People were literally brought out in bodybags shorting the Yen.

        • Tim
          Jul 17, 2018 at 11:58 am

          Hyper-inflation is a foreign exchange phenomenon. As long as Japan can ‘sterilize’ the monetization, restrict the inflation to financial assets, and not interfere with the trade surplus, they are ‘ok’. Are Yen leaving Japan rapidly, chasing foreign goods?

          But I’m not saying that I’m explaining it. So I’m not lying.

        • Tim
          Jul 18, 2018 at 1:18 am

          The trade effects of the process are secondary to the point I was making.

          The figures I cited surely make it clear that Japan is monetizing debt, the definition being ‘printing money to repay the government’s debts’.

          No sane investor should hold – and no sane trading partner should accept – any currency which is being monetized so blatantly, and on such a scale.

        • Tim
          Jul 18, 2018 at 1:22 am

          On hyperinflation, it’s really a matter of the credibility of the currency. If that credibility is lost, the cost of essential imports soars.

          Monetization risks hyperinflation by putting that credibility at risk.

  8. Maximus Minimus
    Jul 16, 2018 at 5:15 pm

    On the contrary, the US has gained a lot by the auto trade war with Japan. What would the big three US automakers be offering today, giant gas guzzlers with chrome bumpers if it wasn’t for a Japanese competition? The rest is the result of paying more attention to producing quality cars rather than stock price, and executive compensation. Let me not go into how cars are advertised to American consumer; the dumber, the better.

  9. Paulo
    Jul 16, 2018 at 6:00 pm

    May the best car win.

    We have two Japanese products in our carport, both made in Japan. I sold my 3/4 ton Chevy PU to buy the Yaris. The truck had only 150K on it with a leaking rear seal, a leaking rear valve seal, crappy brakes, and one day I couldn’t shift it and was stuck in a gas station with about 1500 lbs of high end Zin grapes in the back. About 1 month later I got 2500 dollars for the truck on a buy-back scrap it program. It looked brand new, and was macho all to hell, but was my last Chevy unless the new Colorados are a far sight better.

    Get this, my wife sold a Maverick to buy a new Honda Civic. We drove that forever and now she drives the Yaris. A Maverick, for Gods sake.

    Behind me sits a new Wouxshun dual band radio. Obviously, it is made in China. When I programmed it I could select it to talk to me in Chinese, or English. It is a mobile, but I use it for my base station. They don’t even make radios in the US anymore. Just sayin’.

    I doubt the US will win any auto wars having been sold out long ago by the Corporations. Of course those same corps control the Govt and are protected by SCOTUS. I suppose Americans could revive some patriotism and choose to buy US made cars and products and that would make a Trade War irrelevant. But hey, it’s a free country, (or isn’t it?)

  10. Jul 16, 2018 at 6:00 pm

    The Chinese will just buy up everything and destroy America just like they did to Canada, Australia and New Zealand. First it starts with the west coast then all of America. The U.S. can never win a trade war because all of America is broke and the Chinese hold all the money and power now. How times have changed.

  11. Sporkfed
    Jul 16, 2018 at 6:32 pm

    I enjoy it when some commentators say tariffs will increase
    auto prices. Don’t you think automakers would charge higher
    prices if they could already ? What will happen is lower profits
    on imported cars and some manufacturers will move production
    here to avoid tariffs. If not then the Treasury gets much needed
    funds.

    • nick kelly
      Jul 17, 2018 at 12:08 pm

      Check profit margins on the lower – middle sector: 15K to 20 K.
      Both Mitsubishi and Nissan offer a 9999.00 car.

      There are no fat profits in this sector. In fact it’s not certain all will survive.

  12. Alex
    Jul 16, 2018 at 6:49 pm

    After WW2 Demming https://en.wikipedia.org/wiki/W._Edwards_Deming went to the Big 3 offering to consult on how to build better cars. They ignored him so he went to Japan and helped Toyoda start to build world class quality cars. Till this day Japan still awards the Demming Award to the company with the best quality.

  13. AlG
    Jul 16, 2018 at 6:55 pm

    Will Google and Apple become major car companies? It’s worth looking ahead a few years, as this clip makes clear.

    https://youtu.be/zh7noqeF9BE?t=21m40s

  14. Bobby
    Jul 16, 2018 at 6:59 pm

    An interesting internet read on the history of taxes, in US pre1913 and Canada pre1917, both countries function primarily from excise taxes and very high tariffs. Over the years incomw taxes rose, while tariffs slowly fell. Income taxes mostly didn’t exist. It would be interesting to roll back the clock, remove all income taxes and go back to yesteryear pushing all tariffs to 100%+

    • nick kelly
      Jul 17, 2018 at 10:49 am

      Check average income (in corrected dollars)

      Check social services pre-1917.

      The latter is Zero. This was the job of charities.

  15. cd
    Jul 16, 2018 at 8:00 pm

    Hey, Enjoy peak auto while its here….

    with subscription, ride sharing and the car generation gentrifying auto sales will begin to slip. Fade the Auto Sales SAAR….

    • Joe Banks
      Jul 16, 2018 at 10:23 pm

      cd you are dreaming. Millennials are grown up now and it turns out they love the suburbs and love having their own wheels too. There a very few cities in the US where one could live and not need a vehicle. Shared? Would you share your kitchen with anyone? Cars are more intimate than kitchens. Until they make self cleaning bcars, I’ll never share my vehicle. Gross. Having a vehicle equals freedom. Most want freedom including me. Long live the automobile and long live the internal combustion engine!

  16. unit472
    Jul 16, 2018 at 8:25 pm

    Growing up in San Francisco there was field of ‘Hondas’ sitting in the Marina district off Lombard circa 1969/70. Hundreds, maybe thousands of them. There they sat. Too underpowered to conquer Bay Area grades these golf cart sized Hondas eventually disappeared but Honda didn’t.

    Japan came back with real cars for Americans and ate Detroit’s lunch. Not hard to do when US auto makers were making Pintos and Vegas to compete with Japanese economy cars but you can’t sell basic no frills cars in the US anymore. Too many rules and regulations automakers must adhere too. I doubt many of those 27 million made in China vehicles could meet. US auto standards.

    Ask Mr. Elio about the difficulty of selling a bottom rung vehicle in the US.

  17. Ray
    Jul 16, 2018 at 8:51 pm

    We need trade barriers to protect our workers. Put a 50% tax on imports and do away with the payroll tax. Salaries would rise, and domestic demand would rise.

    • max
      Jul 17, 2018 at 2:50 am

      Tariffs: The Preferred Tax of Masochists
      Gary North – January 28, 2016

      If I were to come to you and say “What this country needs is higher taxes in order to make us all rich,” you would correctly conclude that I had lost my mind or my principles. But if I were to come to you and say, “What this country needs is higher tariffs to make us all rich,” a considerable number of you would say, “You know, he’s absolutely right.”
      What you need to understand is that these two statements are the same, economically speaking: “What this country needs is higher taxes to make us rich” and “What this country needs is higher tariffs to make us rich.”
      Why are they the same? Because a tariff is a tax. This is the “dirty little secret” that every promoter of higher tariffs never tells you. It is the secret revealed by economic analysis ever since Adam Smith’s Wealth of Nations (1776), which is why those people who publicly promote tariffs are very seldom trained economists, and why those few who are economists are devoted followers of John Maynard Keynes and hostile to the idea of economic freedom.
      The defenders of tariffs insist that tariffs are the one remarkable exception to the logic of economics. We can raise tariffs (get the government to collect more sales taxes on imported goods), and in doing so, stimulate the economy and increase our nation’s per capita wealth. Let’s think about this for a moment. Higher sales taxes are beneficial to the economy? That is what the tariff advocate is saying, though he never says it this way. (If he said it this way. nobody would believe him.)
      This is Keynesianism with a vengeance: tax and tax, spend and spend. This is the tax collectors’ siren song. “We’ll take your money, and you’ll be so much better off!” This is the economics of the New Deal: tax ourselves rich. Yet conservatives buy this argument almost every time when the word “tariff” is substituted for “tax,” unless they have read and have also understood Henry Hazlitt’s Economics in One Lesson or some similar free market economics book. They instinctively have faith in word magic: substitute a different word, and the laws of economics no longer apply.
      https://www.garynorth.com/public/14789.cfm

      • Jul 17, 2018 at 8:30 am

        Max,

        What YOU need to understand is that EVERYONE knows that tariffs are taxes. That is explicit. It’s not a “dirty little secret.” Tariffs are a tax on importers and will squeeze their margins. Corporations just got a huge tax cut. So tariffs will fill a fraction of the void left behind by those tax cuts.

        BTW, I hate to tell you this: The US has to borrow over $1 trillion this year to make ends meet. So to re-pose your rhetorical question: What we need is even more debt to make us all rich?

        • Tim
          Jul 17, 2018 at 11:31 am

          Public sector debt (national) is totally different than private sector debt. *enforcement*

        • Jul 17, 2018 at 11:41 am

          Tim,

          Sure, obviously. But Max was talking about TAXES (hence public sector revenues). That’s what I was responding to. There was nothing in this discussion about private sector debt.

  18. farmlad
    Jul 16, 2018 at 11:12 pm

    Since a minimum level of tax income is needed to run a country it Seems to me that a 5 to 10% tariff on all imported goods would be a good idea to maintain economies and industries that are a diversified and sustainable instead of supporting the big corporations that are powerful enough to manipulate and monopolize wages etc. Sadly we have lost so much industry, and entrepreneurs that it would take a long time and lots of sacrifice I highly doubt it will ever return to what we had 50 years ago. Not with this nation full of people who are physically and mentally unable to get of the couch. Once we can no longer take on more debt to buy our essentials from the rest of the world it will not be pretty and then it will be obvious what a shithole country this has become.

  19. max
    Jul 17, 2018 at 3:01 am

    They send us their worldly goods and services, we send them little green pieces of paper with pictures on them.

    The gain from foreign trade is what we import.
    What we export is a cost of getting those imports.
    And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.

    This carries over to the terminology we use. When people talk about a favorable balance of trade, what is that term taken to mean?

    It’s taken to mean that we export more than we import.

    But from the point of our well-being, that’s an unfavorable balance.

    That means we’re sending out more goods and getting fewer in.

    Each of you in your private household would know better than that. You don’t regard it as a favorable balance when you have to send out more goods to get fewer coming in. It’s favorable when you can get more by sending out less.

    Milton Friedman

    • Jul 17, 2018 at 8:32 am

      You’ve got everything confused and twisted around. I hope you’re trying to be funny here.

      • Tim
        Jul 17, 2018 at 11:37 am

        It is a question of real wealth versus financial wealth. Which way do you want the real wealth to flow? max looks to be in line with classical economics. There is a problem in accounting definitions.

    • Jul 17, 2018 at 5:19 pm

      Not just Milton Friedman. Adam Smith and Henry George wrote basically the same thing: Imports are stuff Americans want, and we would prefer to have more rather than less.
      If Americans cannot produce competitively, maybe we should remove some of the taxes (income tax, payroll tax, sales tax on equipment, property tax on buildings, etc.) which hamper production.

  20. MC01
    Jul 17, 2018 at 3:18 am

    Personally I am not completely sold on the idea of the Chinese car industry being this threat.

    Honda attempted bringing China-made Jazz subcompacts into Europe between 2014 and 2016 and it was such a sales dud they had to switch back to Japan-made cars. What was the problem? Chiefly that when all was said and done the tag price was slightly higher for the China-made car thus affecting already disappointing sales.
    Chinese manufacturers have also tried selling their models here in Europe and results haven’t been that exciting.
    The chief problem is, again, price. These cars, pickup trucks and SUV’s are not as cheap as one may expect them to be.
    The two chief reason for this are components and transport.

    You see, for the Chinese manufacturer it’s often cheaper to just buy a powertrain for sale outside their own market than coming up with a proprietary design: these Chinese carmakers are manufacturing powerhouses but still have a very long way to go when it comes to R&D, possibly because they depend so much on their foreign partners to provide the tech. Just to give an example all Great Wall Motor models sold in Europe are equipped with Mitsubishi Motor (Thailand) engines. Yes, Chinese cars with Thai engines designed in Japan.
    These foreign-design or -made components are nowhere near as cheap as domestically made parts, but allow the Chinese manufacturer to get into another market quickly and with minimal investment: if the project has to be scrapped there’s no R&D and tooling to be recouped, just a vending contract to be resolved.

    Transport is a more complicated and costly issue. Cars (and every other sort of wheeled or tracked vehicle) are usually shipped with specialized ships called “pure car carriers” or “pure car/truck carriers” (collectively known as CTC). The difference between the two is the former are wholly dedicated to passenger vehicles while the latter can also be used to ship commercial/industrial vehicles.
    CTC’s are nowhere near as abundant as container carriers, hence rates are always rather high. To make matters worse their design makes them intrinsically more prone to accidents than other vessel types, leading to far higher insurance costs, leading in turn to higher rates.
    Finally there’s another twist in the story. The largest fleet of CTC’s by a fair margin is owned Nippon Yusen, a Japanese shipping company part of the Mitsubishi keiretsu. Nippon Yusen owns outright about 20% of CTC capacity worldwide, meaning they pack an extremely heavy punch.
    Nippon Yusen has historically acted as a driver for Japanese exports and has long standing contracts with companies such as Toyota. No need to add any more.
    By contrast COSCO, the giant Chinese State-owned shipping company, has never considered CTC a “strategic” asset. Their CTC fleet is relatively small and mostly used for shipping commercial/industrial vehicles to developing markets. Things are changing but an unusually slow pace as far as China is concerned.

  21. Nicko
    Jul 17, 2018 at 7:00 am

    The 21st century is a story about technology and automation. It really won’t matter what you drive, it’ll be produced relatively locally, built by robots, and sold to you by an international megacorp.

    Furthermore, as others have mentioned, living standards are changing, urbanization is increasing — car ownership is going down — rideshare/mass-transit ect… is going up.

    Trump’s tradewar only stands to limit investment into the US and hobble it’s badly needed transition toward the fourth industrial revolution.

  22. nick kelly
    Jul 17, 2018 at 8:33 am

    ‘for the Chinese manufacturer it’s often cheaper to just buy a powertrain for sale outside their own market than coming up with a proprietary design’

    This engine swapping has been going on for a while. Subaru launched with a VW engine.

    • nick kelly
      Jul 17, 2018 at 8:45 am

      These cars had Toyota engines.

      Pontiac Vibe (2002-2010) …
      Geo Prizm (1990-2002) …
      Chevy Nova: 5th Generation (1985 – 1988)

  23. TCG
    Jul 17, 2018 at 8:54 am

    It’s too bad US car makers often design and build such crappy cars, which was a major reason for the Japanese cars making such a huge incursion into the US market, especially starting in the 1980s. I think American brands have improved some since the 1970s and 1980s when they gave us so many wonderful lemons at the same time that Hondas and Toyotas were becoming better to drive, more fuel efficient and reliable every year. There were also reasons imports like Yugo didn’t have huge success, despite being cheap. It’s not all just about price alone. Japanese manufacturers came to care about quality and US manufacturers just didn’t give a rat’s ass.

    Probably the SUV market segment brought some of the most success for American car companies, but not everyone wants to drive one. American car companies seemed to to be asleep at the wheel for decades and they wonder why they crashed and burned and lost so much of their market share among some segments to the Japanese cars.

    No thanks, I wouldn’t have wanted a K-Car or a Pinto.

  24. Jeremy
    Jul 17, 2018 at 9:10 am

    There’s another difference between the 90s and today: supply chains were simpler.

    A vehicle that is “built” in a particular country should really be said to have been “assembled” there. The components may have come from dozens of other countries.

    Those tariffs may well be applied to the components, which will make things tricky for US manufacturers as well.

    The supply chain will eventually adjust, but that would take many years.

  25. raxadian
    Jul 17, 2018 at 11:07 am

    Eh, why is the US doing this now and not during the age of Zero interest rates when it could have gone better?

  26. nick kelly
    Jul 17, 2018 at 11:58 am

    ‘It’s not tariffs keeping American cars out of Japan, it’s Japan itself’

    For a full read enter the above and CNN Money.

    First: there are no tariffs on US cars entering Japan.

    Oh but what about non tariff barriers?
    The piece discusses those and adds: “The US association of auto manufacturers did not respond to outdated claims of barriers.

    As the piece tells it this market makes the NA one look like a play pen.
    Toyota rules the roost as 6 others are in a knock- down fight for what’s left.
    Note these are all domestic in a market roughly one third the US.
    Imagine the Big Three being the Big Seven.

    Now get this: a full one- third of the market is the ‘kei’ car. A type of sub miniature made nowhere else. They are 2 ft shorter than a Yaris with about 60 HP.

    So right now there is a third that in no way, shape or form the US has a shot at. Not due to a barrier of any kind. More like why Vegans don’t buy beef.

    Apart from a much higher gas price, size matters. There is no way a contractor here is going to negotiate an F-150, RAM. or Silverado in Japan’s off hiway streets. (Or Escalade)

    So where does that leave GM? Maybe it could it export from its South Korean operations, its small car outpost.

    One US outfit is having some success: Jeep.

    Apart from its iconic name it also caters to this market in an obvious way; the steering wheel is on the right side.

    Can you imagine how many Japanese cars would sell here if the wheel was on the left?

    Unrelated: The days of RH on Canadian roads may be numbered. The first survey reveals they are in substantially more accidents.
    But the extra risk will be trivial compared to a MC, so I hope they can hang around.

  27. Marc D.
    Jul 17, 2018 at 8:50 pm

    If we lost a trade war with a Japan, we’re doing pretty well anyways, as our economy as a whole has been doing much better than Japan’s for the past 25 years. Now it’s true that their automakers have done better than ours have. Toyota and a Honda have fared better than GM and Ford over that time. However, overall our economy has done much better than theirs.

    • Jul 17, 2018 at 11:14 pm

      GDP per working person in Japan is the highest among the major developed countries. What has made the US economy LOOK stronger is population growth. On a per-capita basis, which is what ultimately counts for people, and particularly on a per-working person basis, which is the crux, the US economy has been no more than so-so.

      That myth about the “lost decade” in Japan, or Japanese “stagnation” is US propaganda.

  28. Marc D.
    Jul 18, 2018 at 10:06 am

    Japan’s lack of population growth is part of their problem. True, they’ve done well in per-working person GDP, but a lack of population growth impacts your overall economic growth and creates issues with having enough workers to support the retirees. They’ve actually run up much bigger national debts than we have. Their debt-to-GDP ratio is 253%, while ours (while still too high) is only 105%. And Abe went nuts with the QE there to try to stimulate their economy, with much bigger levels of stimulus than the Fed used here, on a relative basis.

    But while their automakers have fared better than ours over the last 25 years, during that time we’ve had other industries rise up and more than offset our losses in the auto industry, such as the tech industry, with new global titans like Alphabet, Microsoft and Apple.

    • nick kelly
      Jul 19, 2018 at 7:06 am

      Their debt is held internally. No one can threaten them with dumping it.

      Second and more important: What US jobs in tech could equal those in autos? Apple doesn’t physically make anything in the US. Or anywhere else, Foxxcon does it.

      Germany has a far healthier economy than the US without the presence of ‘tech’, which in the case of Alphabet is a bit of a misnomer. Google is a user of tech to sell advertising

      • Marc D.
        Jul 19, 2018 at 2:32 pm

        Nick, that’s a good point about employment. The auto industry (including suppliers) provided a lot more employment historically than the tech industry does.

        Nevertheless, our unemployment levels are very good right now. But, there’s still a question about the quality of the jobs – there’s a lot of low-paid retail and service jobs in today’s economy that have replaced those former high-paying manufacturing jobs.

Comments are closed.