SINCE THE REAGAN administration won't protect the automobile industry from imports, Chrysler says that it is cancelling plans for a new assembly plant. Instead, the company will increase its own imports of small cars and parts. Last month the chairman of Chrysler, Lee Iacocca, had warned that he would not expand production in this country if President Reagan allowed the quotas on Japanese cars to expire. But the quotas will end this month. Now Mr. Iacocca, with an eye on Congress and the protectionist pressures rising there, has responded with his usual vigor. Should Congress conclude that Mr. Reagan was wrong and override him by passing quota legislation?
No, and Mr. Iacocca's declarations show you why. Nominally, the issue was whether to extend the import quotas for one more year. But nobody builds an automobile assembly plant on the basis of a one-year quota that will expire before the plant even gets into production. What Chrysler wanted was permanent protection. And it would not have been limited to finished cars. As time went on, Mr. Iacocca would have been back for protection from imported components from the same countries where he is now looking for suppliers -- South Korea, Taiwan, perhaps Malaysia.
And suppose Mr. Reagan had unwisely decided to follow that route. The dollar's exchange rate is already very high, in terms of the goods that it can buy, and cutting off expenditures of dollars for foreign cars would have pushed that exchange rate higher than ever. Imported machinery of all sorts would become more competitive in the American market. Would the president then give all machinery producers the same protection that the auto companies were getting? And if all the machinery producers were to be protected, why not everybody else?
That's the picture of a country retreating into itself -- pulling up the drawbridges, abandoning comtion and following the counsel of isolationism. The last time countries tried it on a significant scale was in the 1930s, and you would have to say that it didn't work out well for them. One inevitable cost would be a drastic drop in the American standard of living.
But there is one point on which Mr. Iacocca is absolutely right and deserves support. It is extremely difficult for American companies to compete when the exchange rates are as far out of line as they are today. The burden falls not only on exporters but on companies such as Chrysler that are pressed by imports, and that burden is grossly unfair.
There's a remedy. It's not a quota on imported cars, which merely shifts that unfair burden to other companies and their employees. It's a lower exchange rate for the dollar.