Import quotas on Japanese cars

In 1980 the United Auto Workers (UAW) and Ford Motor Company petitioned the International Trade Commission (ITC) to
recommend relief from import competition; during the first half of that year foreign car companies shipped 1.2 million
passenger cars to the United States, an increase of 21 per cent over the previous year. The foreign share of the US new car
market increased from 17 per cent to 25 per cent in that period.

US car manufacturers and workers faced big problems. American Motors sold out to Renault, Chrysler made huge losses
and was forced to sell most of its foreign subsidiaries, Ford made even larger losses and General Motors had to borrow
large sums to keep afloat. By the end of 1980, 193,000 out of 750,000 members of the UAW were unemployed.

The ITC rejected the appeal, saying that the problems of the motor industry were due to a shift in demand to small, fuel-
efficient cars caused by higher petrol prices, and that the industry had failed to anticipate this. The reason for the US
consumers’ preference for Japanese cars was debatable. One theory, along the lines of the ITC position, was that
imports were perceived as having better fuel economy, engineering and durability. This was supported by a survey of
10,000 US households carried out by the Motor and Equipment Manufacturers Association. Supporters of this theory felt that
imports should not be limited.

However, another theory was that price differences created by labour cost differences were the cause. The Bureau of Labor
Statistics estimated that average Japanese car workers’ wages and benefits in the first half of 1979 were only half those of US
car workers. Those supporting this theory largely favored taxing imports.

One of the arguments for protecting or aiding the US motor industry was related to the past performance of US manufacturers,
the possibility of achieving economies of scale and higher productivity with new plants. Ford, for example, estimated that
the conversion of its Dearborn engine plant would cost $650 million but would increase productivity by 25 per cent.

Those who rejected the idea of protection, like the ITC, blamed the managers of the US companies for their bad decisions.
They claimed that these managers and firms should not be rewarded at the expense of the consumer and taxpayer, who would
not only face higher prices and taxes, but also suffer from limited choice. Retaliation from foreign countries was another
problem that they said might ensue from any kind of protection.

The UAW was mostly concerned about maintaining jobs rather than protecting the profits of the manufacturers. They thus
pushed for foreign manufacturers to produce in the United States and to have 75 per cent of their parts produced in the
US. This was against the interests of the manufacturers, who were trying to produce cars globally by buying
parts in many different countries wherever they could be bought cheapest. The Ford Escort for example, which was assembled
in the United States, Britain and Germany, contained parts from nine countries.

What happened?? UAW gathered much public support and, with opposition from consumers being largely unorganized, was
successful in 1981 in obtaining a ‘voluntary’ agreement with Japan to limit car exports to the USA to 1.68 million units/year
for 3 years. Japanese producers and politicians entered the agreement fearing that lack of cooperation
could result in even stricter limits.

When the agreement expired, Japan continued to limit exports, but by that time the major manufacturers like Honda, Toyota
and Nissan already had plants in the United States and sales from these soon outnumbered imports.

The effects of the import quotas are also controversial.

The US car industry did recover, but some of this was due to the economy moving out of recession. US consumers switched
back to consuming more expensive and profitable cars, but this was partly an effect of the import restrictions, which gave US
consumers little choice except to buy more expensive cars.

The limits on Japanese imports were in quantity not in value; therefore, Japanese firms redesigned their cars to make them
more luxurious and expensive. During the three years of the original export agreement, the average Japanese import
increased by $2,600; a Wharton Econometrics study attributed $1,000 of this to the import limits. In the same period the
prices of US-made cars increased by 40 per cent.