Summary of "The Indicator from Planet Money" Episode: "The old trade war that brought foreign carmakers to the U.S."

Release Date: May 21, 2025

Hosts: Waylon Wong and Stephen Bisaha

Introduction: The Paradox of American Cars

The episode opens with an intriguing observation by Stephen Bisaha, highlighting the presence of iconic American vehicles such as the Ford F150 and Tesla Model 3, alongside models like the Honda Accord, Toyota Camry, and Volkswagen Atlas [00:12]. This juxtaposition sets the stage for an exploration into the lesser-known fact that many of these "American-made" cars are produced by foreign automakers who have established manufacturing plants across the United States over the past four and a half decades [00:24].

The Genesis of the Foreign Car Plant Boom: A Historical Perspective

Waylon Wong introduces the central thesis: the proliferation of foreign car factories in the U.S. wasn't solely due to free trade but was significantly influenced by a trade war that unfolded over 40 years prior [00:39]. This historical context is crucial for understanding current trade dynamics and President Donald Trump's contemporary push for increased domestic manufacturing [01:01].

1970s Energy Crisis and the Rise of Fuel-Efficient Cars

The narrative delves into the 1970s, a period dominated by American muscle cars like the Chevy Camaro, Pontiac Firebird, and Ford Mustang [01:35]. However, as A.J. Jacobs, a car industry historian, points out, the focus on powerful engines resulted in vehicles with "lousy gas mileage", exemplified by the 1970 Mustang [02:00]. The impending energy crisis, characterized by a surge in oil prices—"jumped about four times higher"—posed a significant challenge to the American auto industry's reliance on fuel-inefficient cars [02:15].

Japanese Automakers Enter the U.S. Market

High gasoline prices became a catalyst for change, creating an opening for Japanese automakers known for their fuel-efficient and cost-effective vehicles. A.J. Jacobs underscores the appeal of models like the Toyota Corolla, lauding them as "the most sensible car in the world" with impressive fuel efficiency ratings of 49 highway and 36 city miles per gallon [02:42]. In contrast, John Moore, an auto historian, emphasizes the practicality of these cars despite their lack of flair: "They're not pretty, they are not fast, they're not gonna get you a girlfriend, but they're gonna get you to work and they're not gonna make you broke" [02:51].

American Automakers Struggle to Compete

American manufacturers, exemplified by Ford's lineup of gas-guzzling vehicles, found themselves unable to compete with the more economical Japanese imports [03:02]. The mounting pressure from foreign competition led to increasing resentment towards Japanese vehicles in the American market, a sentiment that permeated the 1980s [03:20].

Reagan's Strategic Response: The Use of Tariffs

The episode shifts focus to the early 1980s, under President Ronald Reagan's administration—a period marked by attempts to curb the dominance of Japanese automakers [03:36]. Contrary to contemporary Republican figures like Trump who favor protectionist measures, Reagan was a proponent of free trade [03:56]. In a notable speech to Ford workers in Kansas City, Reagan criticized proponents 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." [04:16]

However, Reagan leveraged the threat of tariffs as a "powerful bargaining chip" to negotiate voluntary export restraints with Japanese automakers [04:30]. A.J. Jacobs humorously describes this coercive strategy as "volontold", a blend of "voluntary" and "forced," highlighting its coercive nature [04:47].

Foreign Automakers Localize Production in the U.S.

In response to these pressures, Japanese and later German and Korean automakers began establishing manufacturing plants in the United States to circumvent export restrictions [05:03]. This strategic move not only preserved their market share in the U.S. but also led to the creation of tens of thousands of American jobs [05:38]. Examples include Honda in Ohio, Toyota in Kentucky, Subaru in Indiana, Mercedes in Alabama, and BMW in South Carolina [05:13].

John Moore further explains that this localization was driven by fears of potential disruptions in trade relationships, prompting foreign automakers to secure their presence in the lucrative American market [05:20].

Long-Term Impacts and the Evolution of Auto Exports

The establishment of foreign plants in the U.S. transformed the automotive landscape. Today, the United States exports a significant volume of automobiles, valued at approximately $170 billion last year—five times more than in 1970 when adjusted for inflation [06:03]. This surge in exports signifies a robust interconnectedness between the U.S. and global automotive industries but also introduces vulnerabilities. A resurgence of global trade wars could jeopardize these exports, threatening American jobs linked to both domestic and foreign-owned auto plants [06:54].

Lessons for Contemporary Trade Policy

A.J. Jacobs cautions against assuming that historical outcomes can be replicated in today's vastly different economic and industrial environment [07:08]. The current landscape is characterized by advanced automation, meaning that new or expanded plants today employ fewer human workers than their 1980s counterparts despite similar or greater levels of production [08:03]. This shift diminishes the potential employment benefits that might have once offset the negative impacts of trade restrictions.

Current Trade Tensions and Their Mixed Outcomes

Fast forward to the present, President Trump has reinstated 25% tariffs on car and auto part imports, aiming to bolster American manufacturing [07:30]. The consequences have been mixed:

• Negative Impact: Ford has warned that tariffs could cost the company approximately $1.5 billion, signaling significant financial strain [07:46].

• Positive Developments: On the other hand, Mercedes announced plans to produce a new vehicle in Alabama by 2027 and is expanding its workforce in the U.S., indicating growth and investment despite the tariffs [07:56].

John Moore suggests that while new assembly plants might not proliferate, existing facilities are likely to expand given the high costs of establishing new ones [08:03]. However, the expansion may not necessarily translate to proportional job growth due to increased automation [08:26].

Conclusion: Navigating the Complexities of Trade Wars

The episode concludes by reflecting on the intricate legacy of the past trade war and its lessons for today's economic policies. While the previous trade tensions successfully incentivized foreign automakers to invest in American manufacturing—thereby creating jobs and fostering economic growth—the contemporary global economy presents new challenges. The increased scale of U.S. auto exports and the prevalence of automation mean that a modern trade war could have more profound and potentially less beneficial impacts on the American workforce [06:29].

The hosts emphasize the importance of understanding historical contexts to navigate present-day policy decisions effectively, ensuring that strategies aimed at protecting domestic industries do not inadvertently undermine the very sectors they intend to bolster.

Notable Quotes:

• A.J. Jacobs [02:42]: "The Toyota Corolla two door sedan, probably the most sensible car in the world. 49 highway, 36 city."

• John Moore [02:51]: "They're not pretty, they are not fast, they're not gonna get you a girlfriend, but they're gonna get you to work and they're not gonna make you broke."

• Waylon Wong [04:30]: "They offered to voluntarily restrain auto exports to the United States."

• A.J. Jacobs [04:47]: "They call it voluntary, but it was basically like a volontold."

• John Moore [07:25]: "Yeah, you can do it to a certain degree, but they're already here."

Production Credits:

• Produced by: Cooper Katz McKim
• Engineered by: Kwesi Lee and Robert Rodriguez
• Fact-Checked by: Sierra Juarez
• Edited by: Kate Kincannon

This episode is part of NPR’s "The Indicator" series, offering concise insights into economic phenomena shaping our world.