The Other Side of Import Duties And A Quick History of Auto Tariffs and U.S. Presidents
The most popular automobiles on the road in America are pickup trucks. Every pickup truck you pass on the way to work, and you pass a lot of them, was protected by a 25% import duty. More specifically, the automaker who built the truck and the jobs of the workers who built that truck were protected by the tariff.
The Current Import Duty On Vehicles Built Overseas
That import duty was proposed by President John F. Kennedy and instituted by President Lyndon Johnson in 1964. It is still in effect today and pickup sales are booming. Automakers cannot build trucks fast enough to satisfy consumer demand. The top three individual models sold in America this month are all models protected by this import duty. They represent one of the largest and most popular segments of the U.S. auto industry. There is not a single model pickup truck sold today that is imported to America from overseas. Toyota, Honda, Nissan, and other automakers all build their trucks in either America or in Mexico and Canada. The 25% import duty exempts Mexico and Canada under the North American Free Trade Agreement. Still, most of the trucks sold in America are designed and built inside of the U.S. These include the Nissan Titan and Honda Ridgeline.
American Made - What Does It Mean?
A good example of an America-made truck is the Jeep Gladiator, America’s newest pickup truck model. It is built in Ohio. Its engine and transmission are also built in America. Many of its other parts are also built inside of the U.S. by suppliers. For example, the soft tops and cargo bed tonneau covers are built in Acton Mass. by Haartz Corporation (building auto parts for over a century in America) and the axles for the vehicle are built in Toledo Ohio.
The tariff that protects the workers’ jobs who build pickup trucks is officially known as Proclamation 3564. It was instituted by President Johnson in 1964 when a trade dispute between Europe and America could not be resolved via negotiation. Despite it having arisen over a broader dispute, the U.S. has kept the tariff to ensure that America’s most popular vehicles are not imported from overseas.
Imports and National Security
During World War II, American automobile factories were converted to arms factories. The arsenal of democracy produced the planes, tanks, and munitions that won the war. American pickup trucks have fought in every war since, including in Iraq and Afghanistan. The U.S military is currently developing pickup trucks using hydrogen fuel cells. To deny that there isn’t a direct national security link to American vehicle production is absurd. Does importing 400 Hiroshima-plant-built Miatas per month threaten our national security? Of course not.
Other Countries' Import Duties
The U.S. is not the only country that has such import tariffs. European countries and China also have had long-standing import restrictions on automobiles. China’s protections went the farthest, forcing automakers who opted to produce vehicles inside China to partner – and share technology with – a Chinese company. That protectionist policy went unchallenged by America and by other leading automotive producing countries– until 2017 when it was too late. GM is now building crossovers in China and importing them back to the U.S. While closing North American plants.
Tariffs and Innovation
If the 55-year old tariff on imported pickups has stifled innovation it is hard to see how. No other country has any better pickup trucks being sold in any other marketplace. Few have any full-sized “1500” series trucks in service at all. The two newest automotive companies in America are slated to begin producing electric pickup trucks in the next year. Rivian will be producing its trucks in an abandoned Mitsubishi plant in Normal, Ill, and Tesla is likely to build its new truck in an abandoned plant that Tesla obtained from Toyota. Both will be the highest-performance pickup trucks ever produced on Earth by any company. They will also be the most fuel-efficient.
Tariffs On Cars and Car Parts Are Not New
Tariffs on car parts are not new. President Obama was the last U.S. president to institute a tariff on automobile parts. Specifically tires imported from China. President Obama said on the topic of tariffs, "I have made rigorous trade enforcement a central pillar of U.S. trade policy, and we have moved aggressively to protect American workers and to improve labor laws and working conditions with trading partners across the globe.” President Obama felt strongly that U.S. workers were being negatively impacted by very low-cost tires sold into America by China. He moved to protect the American tire industry and the workers.
Are Import Duties A Republican Idea?
If you think Republicans or sitting Presidents are the voice of protectionism, note Senator Elizabeth Warren’s comments this week. She said, “The bottom line is - if they can make a nickel by sending your job somewhere else, they’ll do it. I’ll tell you, these corporations may not fight for American workers, but I’m willing to do it.” She was speaking in Detroit. Senator Warren said she wishes “…“to make it clear that the unified mission of the federal government is to promote sustainable, middle-class American jobs.”
Who Pays For Import Duties?
Critics of tariffs often cite the cost to the consumer. It is true that in most cases an import duty will result in a higher cost to the consumer. However, import duties are paid by companies importing products to the U.S government. This payment is in effect a type of sales tax. Other than fuels, the U.S Federal government does not tax the sale of consumer products directly. While it is true that consumers may pay more, those consumers are also financially benefitting. Both from the tariff payments made, and from the revenue generated by the saved jobs and the income and payroll taxes on those jobs.
There are two sides to the issue of import duties and tariffs on automotive related products. Beware any media reports that lead with “cost to the consumer” and which emphasize “Automakers’ opposition” to such tariffs. Of course, automakers oppose these tariffs. They would prefer to move jobs to locations like Mexico and China where wages are a small fraction of an American living wage, and where environmental and safety regulations can be overlooked. If they even exist.
Vehicle In-Sourcing Works
Toyota and Honda, as well as almost every other "foreign" automaker, have poured billions of dollars into the U.S. economy by in-sourcing jobs here. Most of the leading models in most high-volume vehicle segments are built in America. For example, the Camry, the Accord, the Pilot, and many more high-volume models are built in America. Using primarily American-built engines and transmissions and other parts made in America. These companies do so profitably and have for decades. American states, counties, cities, and towns willingly waive local taxes and fees and invite automakers who wish to build factories with open arms. And with literally billions in financial incentives.
There is no reason why any automaker can’t produce vehicles in America for sale to this market. They have been doing so for a century, and the newest and most exciting automakers like Tesla and Rivian and are opting to locate their factories here.
John Goreham tweets at @JohnGoreham. Please, follow him and send tips.