Advantage, Trump? That’s what some of his supporters have been claiming since he and European Commission President Jean-Claude Juncker announced a truce in the U.S.-European Union trade war last week. The decision banishes, for now, the specter of a 25 percent U.S. tariff on European auto imports and the retaliation that might have brought.
The two sides agreed to discuss ending the U.S. levies on steel and aluminum that started the tiff, as well as the E.U.’s retaliatory levies on whiskey, Harley-Davidson motorcycles and such — then move on to what Trump described as a zero-tariff deal for “non-auto industrial goods.”
This president is a “master negotiator,” former Trump campaign economics adviser Stephen Moore writes in the Washington Times. The president’s threats forced Europeans to open markets they had kept shut despite politer pleas from his predecessors, and soon he’ll enlist the Europeans to “isolate China as the bad actor on the world stage,” Moore says.
Want a more realistic perspective? Just look out the window and count the Volkswagen pickup trucks as they pass by.
Your count will never get past zero because the United States is pursuing a protectionist policy spawned by a trade war with Europe almost 60 years ago. The policy still warps global markets and trade politics; and if we’re not careful, Trump’s “temporary” tariffs, supposedly bargaining chips, will also turn permanent.
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Here’s the backstory: In 1962, Europeans jacked up tariffs on frozen chicken to protect French, German and Dutch farmers from low-cost American imports. The next year, newly installed President Lyndon B. Johnson retaliated with, among other measures, a 25 percent tariff on pickups.
It applied worldwide, but the main victim was Volkswagen, whose sales of pickups in the United States shrank from $17.1 million in 1963 to $5.7 million in 1964 — never to recover.
The “chicken war” ended soon thereafter, but the pickup tariff remained, and American automakers and unions lobbied to keep it in place when Japan’s auto industry emerged as a possible replacement for VW as a competitor.
Behind this high-tariff wall, Ford, Chevrolet and Dodge came to dominate the American pickup market. That was good for them, because the vehicles are more profitable to make than smaller cars, and because in 2017 1 out of every 6 vehicles sold in America was a pickup. A lot of those bore Japanese brands, such as Toyota or Nissan, but were built in America because importing is not an option.
By now, the 25 percent tariff on pickups is hard-wired into the U.S. industry’s business model. Ford and the United Auto Workers fought the U.S.-Korean free-trade agreement under Trump’s predecessors for fear the deal would open the American market to Korean-made pickups. Trump’s renegotiated deal with Seoul, signed last year, extends the tariff on Korean pickups through 2041.
Whether pickup protection has been good for American consumers is another question. The Ford F-150, Chevy Silverado and Dodge Ram are great vehicles and great brands, but how much better, and cheaper, might they have become with more competition?
In the long run, Detroit’s dependence on the pickup tariff isn’t even necessarily good for the automakers. It dulled their incentives to compete in the global market for smaller vehicles, which is one reason the American companies have tolerated Europe’s 10 percent tariff on cars, even though it’s four times the U.S. tariff on European cars.
Detroit wanted, and needed, neither more protection in the form of Trump’s 25 percent tariff nor the zero-tariff deal that German carmakers floated earlier this year — which would have included pickups and would have applied worldwide to Japan, Korea and China too — because of World Trade Organization rules.
For better or worse, the transatlantic status quo in automotive trade is here to stay. The auto industry on both sides of the pond prefers it to zero tariffs, which is a devil they just don’t know. That’s why Trump is only talking about liberating trade in “non-auto” industrial goods.
The only remaining issue is what happens to the tariffs Trump imposed this year on European steel and aluminum, and to the retaliatory levies Europe has imposed on U.S. whiskey and Harleys. Both “will get resolved as part of what we’re doing,” Trump said.
The lesson of the long-ago “chicken war,” however, is that tariffs can be easier to impose than to repeal. With each passing day, the companies (and, in some cases, unions) that benefit from them become more attached and the incentive to lobby for them grows.
If Trump and the E.U. don’t get rid of these tariffs within the next six months, they might be around for the next 60 years.
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