Pardon the length, but if all the fallacies strewn throughout this essay by Wells King and Dan Vaughn were to be addressed, what would follow would be a monograph of more than 100 pages.
Editor, National Review
Wells King and Dan Vaughn praise Ronald Reagan’s use of Voluntary Export Restraints (VERs) in the 1980s to protect the U.S. automobile industry from Japanese imports (“The American Camry,” October 17, 2022). Unfortunately, their essay is infected with several flaws, three of which are especially noteworthy.
First, by writing as if the cause of Japanese auto producers building factories in the U.S. during the 1980s was the VERs, King and Vaughn commit the post hoc, ergo propter hoc fallacy. It’s possible that the Japanese agreement back then to restrict their auto exports to the U.S. was exclusively responsible for prompting Japanese automakers to open factories in America in order to evade the restrictions of the VERs. But it’s more likely that the VERs at best sped up such direct foreign investment in the U.S. – a country with a skilled labor force, excellent infrastructure, and (importantly) a flexible and largely non-unionized labor market in those parts of the U.S. where these foreign auto producers built factories.
Because the VERs were set to expire after a few short years, no foreign automaker would have built a factory here if it weren’t convinced of the long-term profitability of doing so. Further, the VERs applied only to auto exports from Japan. A germane fact unmentioned by King and Vaughn is BMW’s announcement in 1992 of plans to manufacture cars in the U.S., with Hyundai following suit in 2002 and Volkswagen in 2008. None of these announcements were the result of Reagan’s VERs and, more generally, none appears to have been prompted by fears of U.S. protectionism.
Second, King and Vaughn never ask “As compared to what?” Because the VERs caused Americans to pay higher prices for automobiles – on average about $1,000 more per vehicle* – which goods and services were, as a result, denied to American consumers? And which industries in America shrank, and which jobs in America were destroyed or not created, by whatever artificial diversion was effected by the VERs of resources into increased auto manufacturing in America?
King and Vaughn reveal a dismaying ignorance of the economic case for free trade by mistakenly suggesting that economists who support free trade are surprised by protectionism’s ability, at least for a time, to buoy protected industries. We serious economists have never denied the possibility of such buoying. Instead, what we deny is the possibility of using protectionism to buoy some industry or industries without at the same time harming one or more other industries – industries and harms unseen; industries and harms ignored by King and Vaughn.
Third, it’s distressing that in the same essay in which King and Vaughn applaud protectionism because of its alleged success at inciting foreigners to invest more in the U.S., these authors also applaud Robert Lighthizer’s proposal to use protectionism to incite foreigners to invest less in the U.S.
By praising Lighthizer’s call for raising tariffs as a means of reducing U.S. trade deficits, King and Vaughn display their ignorance of the meaning and implications of trade deficits – and in particular their ignorance of the fact that the more foreigners invest in the U.S., the larger is America’s trade (more precisely, current-account) deficit. The investments by the Japanese in America that King and Vaughn applaud made U.S. trade deficits larger than these would have otherwise been. And so if U.S. trade deficits are, as King and Vaughn believe, an evil appropriately resisted with protectionist measures, these authors should then lament rather than praise the greater foreign investments in the U.S. that they celebrate as having been caused by the VERs.
King’s and Vaughn’s understanding of the economics of trade is so shallow and mistaken that all that they write about trade and trade policy should be read with great skepticism.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* Douglas A. Irwin, Clashing Over Commerce: A History of US Trade Policy (Chicago: University of Chicago Press, 2017), page 592. (Adjusted for inflation, $1,000 in the early 1980s is, in 2022 dollars, about $3,000.)