Several weeks ago, Jordan McGillis drew important lessons from relatively recent U.S. history about industrial policy. Two slices:
The truth, however, is not so clear. Even the deal’s ardent supporters acknowledge that it resulted in a decade of high auto prices for American car-buyers. “[VER] raised prices for consumers by an average of 8%, costing American consumers an additional $5.1 billion,” American Compass wrote in 2022. It believes these imposed costs were justified, however, because “within the decade it had prompted nearly three times that much in foreign direct investment and brought 26,600 new auto-assembly jobs to the American South and Midwest.” Compass founder Oren Cass again lauded VER in July on The Ezra Klein Show, calling the Toyota Camry “the most American car on the market.”
But VER’s imposed costs, their distribution effects, and the economic benefits they purportedly brought to America require more attention. First, VER’s real-world effects contradicted the rhetoric the Reagan administration offered to the American people when it pushed Japan to accept the policy in 1981. As Steven Berry, James Levinsohn, and Ariel Pakes unearthed in an analysis for the American Economic Reviewin 1999, U.S. Trade Representative Bill Brock told the New York Times the day after the agreement was reached that while it would help the domestic industry, it would not restrict car sales “enough to affect the price.” In fact, VER “increased Japanese prices fairly dramatically,” Berry found.
Damningly, the VER policy’s implicit tax fell disproportionately upon the most cost-conscious car buyers. Japanese carmakers had found such success in America in the 1970s and early 1980s because they offered affordable vehicles with good fuel economy, while Detroit continued to churn out inefficient land yachts. In 1980, the year before VER was established, the average Japanese car was sold in the U.S. for $6,585, while the average domestic car was sold for $7,758.
The cost-conscious car buyers interested in Japanese cars and the savings they offered—and the even more cost-conscious buyers on the used market as the effects of the policy filtered down—were precisely the Americans who paid for Detroit’s “breathing room.” By 1986, the fifth full year under VER, the cost of a Japanese car had risen to $8,229 and that of a domestic car to $9,223. The additional cost for new cars took money that Americans could have invested or spent elsewhere in the economy in the absence of VER. The total effect of the policy, Berry estimated, was a net national welfare loss of close to $3 billion.
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VER supporters justify these costs by arguing that the policy induced foreign direct investment and yielded 100,000 jobs or more in the long run. But foreign firms were already exploring U.S. production prior to VER. Germany’s Volkswagen, not a Japanese firm limited by VER, was the first modern foreign carmaker to set up shop stateside. When American consumer preference shifted after the first oil shock in 1973, Volkswagen responded decisively: it purchased a plant from Chrysler in 1976 in New Stanton, Pennsylvania. By 1978, VW was finishing 800 units of its Rabbit model per day to meet the booming demand in America for small cars that Detroit’s Big Three failed to capture. Japanese firms’ later success at making cars in the U.S. only affirms that Volkswagen was onto something when it moved into Pennsylvania in the 1970s. (Like the Japanese carmakers, Volkswagen would later make cars in southern states with more flexible, less union-dominated labor-market arrangements.)
Meantime, the Reagan administration’s fixation on the auto industry entrenched domestic car makers, despite their diminished dynamism. Berry et al. figured that VER gave Detroit a cumulative profit boost over the 1980s of $10 billion. Allowing Detroit to feel more pain would have been difficult politically, but it may have disabused U.S. manufacturers of bad habits. Instead, the Big Three lumbered on, fell back into the pattern of producing gas guzzlers when oil prices were again low in the 1990s, and went back to Washington hat in hand amid the 2008 Financial Crisis.
And Reason‘s Eric Boehm shows that Trump is no real friend of U.S. firms and workers – not even those producing steel. Two slices:
A few hours after the American stock markets closed on Monday night, President-elect Donald Trump announced that he was “totally against” the sale of U.S. Steel to a Japan-based competitor.
“As President, I will block this deal from happening,” Trump promised.
When those same stock markets opened this morning, shares of U.S. Steel sank by more than 7 percent immediately (and are down nearly 8 percent as of this moment).
That’s a tidy illustration of the cost of government intervention in the deal between U.S. Steel and Nippon Steel. Even though Biden’s ongoing attempts to block the salewere likely priced into the stock long ago, Trump’s promise on Monday night seemingly wiped out more than 7 percent of U.S. Steel’s value.
What’s even more remarkable is that the politicians who favor this intervention—including Biden, Trump, and others like Sen. J.D. Vance (R–Ohio), Trump’s incoming vice president—continue to frame it as being in the best interest of U.S. Steel.
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In a fun twist of fate, the same federal government that for so long protected U.S. Steel from competition is now blocking the company’s owners from selling the remnants. That would be funny if it weren’t so utterly not the government’s business.
More than 90% of enslaved Africans were sent to the Caribbean and South America between the 16th and 19th centuries, while only about “6 percent of African captives were sent directly to British North America,” according to historian Steven Mintz. Although the trans-Atlantic slave trade receives far more attention today, the trans-Saharan slave trade—which involved Arabs transporting captives from black Africa across the Sahara Desert and the Persian Gulf to the Islamic world of North Africa and the Middle East—involved a larger number of African slaves and lasted for a much longer period.
“It is striking,” Harvard scholar Orlando Patterson wrote, “that the total volume of African slaves acquired by Muslim masters is greater than the total acquired by Europeans in the Americas.” Nor, Mr. Patterson stressed, was slavery unique to Africa, Europe and the Islamic world or to a particular stretch of time. “There is nothing notably peculiar about the institution of slavery,” he wrote. “It has existed from before the dawn of human history right down to the twentieth century, in the most primitive of human societies and in the most civilized. There is no region of the earth that has not at some time harbored the institution. Probably, there is no group of people whose ancestors were not at one time slaves or slaveholders.”
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Earlier this week, California Assemblyman Isaac Bryan said he would introduce legislation to require the University of California and California State University to give admissions preferences to the descendants of slaves. “For decades universities gave preferential admission treatment to donors, and their family members, while others tied to legacies of harm were ignored and at times outright excluded,” said Mr. Bryan, who represents parts of Los Angeles. “We have a moral responsibility to do all we can to right those wrongs.”
But the real moral obligation is to stop discriminating by race altogether, not change who’s on the receiving end, which is all his legislation would do. Mr. Bryan and others seeking reparations need to decide whether they want justice, or payback.
Mike Munger decries the taxing, by government bureaucracies, of our time and effort.
Here’s the Washington Post obituary for CEI founder and long-time leader, Fred Smith.
