The Indicator from Planet Money - The old trade war that brought foreign carmakers to the U.S.

Starting point is 00:00:00 NPR. When it comes to Made in America, we actually make a lot of cars and trucks here, like the Ford F-150, the Tesla Model 3. And the Honda Accord, the Toyota Camry, the Volkswagen Atlas. Now, that might not sound right, but it's true. These Japanese and German automakers set up shop here in the U.S. a few decades ago. Foreign carmakers like Toyota and Mercedes have actually opened more than 20 factories in the U.S. over the last 45 years. Yeah, and the reason many of those plants opened up in the U.S. in the first place is not because of free trade, or at least not free trade alone. They came to America because of a trade war that happened more than 40 years ago.

Starting point is 00:00:52 This is the indicator from Planet Money. I'm Waylon Wong here with friend of the show, Stephen Besaha from the Gulf States Newsroom. Good to be with you, Ayelan. And on today's show, President Donald Trump wants more products made in America. 40 years ago, a different trade war made that happen. So we're going back in time to learn about how that trade war played a key part in bringing foreign car plans to the U.S. And why that's probably not going to happen this time. And where we're going, we don't need roads.

Starting point is 00:01:29 Perfect rendition. I love that movie. I love that movie. So good. Let us zoom back to the 70s. This is the time of big American muscle cars. You had the Chevy Camaro. the Pontiac Firebird, and, of course, the Ford Mustang. But most of all, the 1970 Mustangs got personality.

Starting point is 00:01:53 They're basically making huge cars with big engines that get lousy gas mileage. That is A.J. Jacobs. He's a professor in car industry historian at East Carolina University. And when he says lousy gas mileage, he means it. Like that Ford Mustang we're talking about, that gets like 15 miles per. for gallon bag. Enough to get you very slowly around the block once to show off your car. Yeah, I mean, that's all you really need for the car that pretty, right?

Starting point is 00:02:21 No, AJ says that lousy gas mileage became a big problem when an energy crisis in the 70s kicked in. Oil prices jumped about four times higher. And this is a big turning point in the auto industry. Those high gas prices were the opening Japan and their fuel-efficient cars needed to break into the American market. You asked for it. The Toyota Corolla two-door sedan, probably the most sensible car in the world. 49 Highway 36 City. They're not pretty.

Starting point is 00:02:52 They are not fast. They're not going to get you a girlfriend, but they're going to get you to work. And they're not going to make you broke. But what's the point of all this money if you don't have love, Stephen? This explains why I'm single. It's my Japanese car. Oh, no. Shake's fist. Well, American companies like Ford with their lineup of gas guzzlers just couldn't

Starting point is 00:03:18 compete with the Japanese models. So around the start of the 80s, there were threats to break out the T-word. Yeah, we're talking tariffs. The 80s was also a time of a lot of American resentment around Japanese imports. We did an episode about the tension, and you can find the link in our show notes. Another important part of the 80s, and really a big factor in defining all the 80s, was the presidency of Ronald Reagan. Shortly after we came to office, our administration discussed the auto industry's problems with the Japanese. That clip is from the Ronald Reagan presidential library and a speech Reagan gave to Ford workers in Kansas City. Now, it might be easy to forget, given the current state of Republican politics, but Ronald Reagan was not a big fan of tariffs. In the same way that

Starting point is 00:04:05 Trump is the tariff guy, Reagan was the free trade guy. During that same speech in Kansas City, Reagan took the time to take shots at anyone who is in favor of trade restrictions. They believe we should run up the flag in defense of our markets, embrace protectionism, and insulate ourselves from world competition. But we'll never meet the challenge of the 80s with that kind of defeatist mentality. But while Reagan may have been against trade restrictions, the threat of them by Congress on Japanese cars was basically a powerful bargaining chip. And Reagan used it to get the carmakers to cut back on experts.

Starting point is 00:04:42 They offered to voluntarily restrain auto exports to the United States. They call it voluntary, but it was basically like a voluntold. John Moore is an auto historian at the College of Southern Maryland. He says Japanese carmakers wanted to keep their hold on the American market. And if they couldn't export as many cars, they would just build them in the U.S. All these foreign assembly plans started opening in the U.S. in the 80s. Honda in Ohio, Toyota and Kentucky, Subaru and India. And German automakers were not far behind, like Mercedes in Alabama and BMW in South Carolina.

Starting point is 00:05:19 They were aware of what had happened with the Japanese makers. There was a fear that if they did not localize production, that something else might disrupt that relationship. It wasn't all tariff fears. Part of that was due to multi-million dollar trade incentives from states. It also made selling in the U.S. cheaper. Still, this is an example of tariffs, or at least the threat of them, working. Japanese, German, and Korean companies created tens of thousands of American jobs. Now, before we break out the tariff ticker tape parade, there's also a danger of overlearning history's lesson here.

Starting point is 00:05:55 Historians like John say, just because the U.S. got so much from this past trade war, doesn't mean it can do the same today. And ironically, that's because of what that past trade war accomplished. Like, take those foreign-owned and U.S. made cars. The U.S. produces so many at this point that they're no longer just selling them in the States. A lot of them actually get exported. While the exports that we have are not under traditional American brands, but they are exports nonetheless. We are exporting Mercedes from Alabama. We're exporting Toyotas from Indiana. One of the most dramatic ways to see how this has changed the industry is by looking at the value of auto exports from the U.S.

Starting point is 00:06:36 Last year, they were priced at about $170 billion. dollars, adjust for inflation, and that's about five times more than in 1970. To put it another way, those exports mean the U.S. auto sector has a lot more to lose today than it did back then from other countries' retaliatory tariffs. And so if we really do, you know, an international global trade war, it's very likely that those exports will be imperiled. And the people whose, you know, jobs rely on those may find themselves out of work. And again, those are amazing. American jobs are talking about. And it's not just that the U.S. has a lot more to lose.

Starting point is 00:07:14 It has a lot less to gain, too. Historian A.J. Jacobs says that's because foreign carmakers have already opened plants in the U.S. Scaring Hyundai, scaring Toyota. Yeah, you can do it to a certain degree, but they're already here. Trump recently put a 25% tariff on car and auto part imports with some exceptions. And so far, there's been some mixed signals on how that's gone. Yeah, on the bad side of things, Ford recently warned that tariffs could cost the company about $1.5 billion. On the brighter side, Mercedes also recently said it would produce a new vehicle in Alabama in 27, and it's hiring more U.S. workers.

Starting point is 00:07:56 What A.J. says does not seem to be coming because of tariffs is the big prize. We're talking about is new assembly plants. The cost of the plants are so high that most likely what you're going to see is expansion in existing. facilities. So Toyota, Hyundai, they can expand. They're in these rural areas. They can expand the factory. I mean, the Kia plant is on like 2,200 acres. But I'm still hearing you say, like, hey, it could lead to an expansion of some plants here. Yeah, but does that mean that they're going to be more jobs? And this year is one of the biggest differences in 2025 compared to 1985. Automation is just a much bigger factor in the car market these days. And any new plant or expansion

Starting point is 00:08:37 is going to come with a lot more robots and a lot fewer human workers than would have 40 years ago. This episode is produced by Cooper Katz-McKim and engineer by Cui Cui and Robert Rodriguez. It was fact-checked by Sierra Juarez and edited by Kate Kincanon, the indicators of production of NPR.

The Indicator from Planet Money - The old trade war that brought foreign carmakers to the U.S.

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