Is the House of Representatives trying to start a trade war in the midst of the worst economy in a generation? Sure seems that way. When the House passed the Energy and Water appropriations bill they included a protectionist provision that is not only misguided, but it is poorly applied. The law states:
“None of the funds made available in this Act may be used to purchase passenger motor vehicles other than those manufactured by Ford, General Motors, or Chrysler.”
Not only does this bill ban foreign competition, but it names just three companies that can receive contracts. This is pretty extraordinary, even for protectionists. We are not the only ones to notice this move; our Japanese and European allies have already voiced concern over this current attempt at a protectionist policy.
Protectionism ends up hurting American consumers and producers far more than it helps them. Countries that we target with protectionist policies will retaliate against American firms. Protectionism hinders economic growth and it will only further economic hardship. The protecting part of protectionism, in fact, does not help American consumers or producers. By placing additional tariffs and burdens on trade, Americans pay a higher cost for the goods they purchase. In effect, they are taxed by this protectionist scheme. Every dollar spent funding a protectionist regime is one dollar that cannot buy an additional product or hire an additional worker.
But the more interesting objection is that this provision will not actually accomplish the protectionist ends its authors seek to achieve. Why? The answer is that foreign cars sold in America are not really all that foreign.
What is an American car?
Typically, one thinks of Ford, GM, and Chrysler—the ‘Big 3’—as the manufacturers of American cars. But foreign-owned car companies manufacture their products in the United States. Kia, Hyundai, Toyota, Nissan, and Honda all have large production facilities in the United States and many of them have design operations and R&D in the US. Tens of thousands of Americans design, engineer, and build these ‘foreign’ cars.
Indeed, Volkswagen will be opening a new facility in Tennessee which will create thousands of more American jobs. It is worth questioning how America will attract investments such as this one in the future if its government chooses to favor one set of American manufacturers over another.
We live in an economically interdependent world. American car companies are increasingly trying to sell their goods to other countries and ‘foreign’ companies increasingly build their cars in the US to sell to Americans. By singling out the ‘Big 3’ for special treatment, the House is heading down an economically disastrous path.