The old trade war that brought foreign carmakers to the U.S.

Summary

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

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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.

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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."

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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.

Transcript

[Waylon Wong]

NPR.

[Stephen Bisaha]

When it comes to made in America, we actually make a lot of cars and trucks here like the Ford F150, the Tesla Model 3 and the.

[Waylon Wong]

Honda Accord, the Toyota Camry, the Volkswagen Atlas.

[Stephen Bisaha]

Now that might not sound right, but it's true. These Japanese and German automakers set up shop here in the US a few decades. Foreign carmakers like Toyota and Mercedes have actually opened more than 20 factories in the US over the last 45 years.

[Waylon Wong]

Yeah. And the reason many of those plants opened up in the US 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.

[Stephen Bisaha]

This is the indicator from Planet Money. I'm Waylon Wong here with friend of the show Stephen Bisaha from the Gulf States newsroom.

[Waylon Wong]

Good to be with you, Waylon. And and on today's show, President Donald Trump wants more products made in America. Forty years ago, a different trade war made that happen.

[Stephen Bisaha]

So we're going back in time to learn about how that trade war played a key part in bringing foreign car plants to the US and why that's probably not going to happen this time.

[Waylon Wong]

And where we're going, we don't need roads. Perfect rendition.

[Stephen Bisaha]

I love that movie.

[Waylon Wong]

So good.

[Stephen Bisaha]

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.

[A.J. Jacobs]

But most of all, the 1970 Mustang's got personality.

[John Moore]

They're basically making huge cars with big engines that get lousy gas mileage.

[Waylon Wong]

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 gallon battery.

[Stephen Bisaha]

Enough to get you very slowly around the block once to show off your car.

[Waylon Wong]

Yeah, I mean, that's all you really need with a car that pretty, Right. 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.

[Stephen Bisaha]

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.

[A.J. Jacobs]

You asked for it. The Toyota Corolla two door sedan, probably the most sensible car in the world. 49 highway, 36 city.

[John Moore]

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.

[Stephen Bisaha]

But what's the point of all this money if you don't have love?

[Waylon Wong]

Steven this explains why I'm single with my Japanese car.

[Stephen Bisaha]

Oh no. Shakes fist well, American companies like Ford with their lineup of gas guzzlers just couldn't compete with the Japanese models.

[Waylon Wong]

So around the start of the 80s there were threats to break out the T word. Yet we're talking tariffs.

[Stephen Bisaha]

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.

[Waylon Wong]

Another important part of the 80s, and really a big factor in defining all the 80s, was the presidency of Ronald Reagan.

[A.J. Jacobs]

Shortly after we came to office, our administration discussed the auto industry's problems with the Japanese.

[Stephen Bisaha]

That clip is from the Ronald Reagan Presidential Library and a speech Reagan gave to Ford workers in Kansas City.

[Waylon Wong]

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 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 was in favor of trade restrictions.

[A.J. Jacobs]

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.

[Stephen Bisaha]

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 exports.

[A.J. Jacobs]

They offered to voluntarily restrain auto exports to the United States.

[Unnamed Historian]

They call it voluntary, but it was basically like a voluntold.

[Waylon Wong]

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.

[Stephen Bisaha]

U.S. all these foreign assembly plants started opening in the U.S. in the 80s. Honda in Ohio, Toyota in Kentucky, Subaru in Indiana.

[Waylon Wong]

And German automakers were not far behind. Like Mercedes in Alabama and BMW in South Carolina, they were aware of what.

[Unnamed Historian]

Had happened with the Japanese makers. There was a fear that if they did not localize production that something else might disrupt that relationship.

[Stephen Bisaha]

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 US Cheaper still.

[Waylon Wong]

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.

[Stephen Bisaha]

We break out the tariff ticker tape parade, there's also a danger of overlearning history's lesson here. Historians like John say just because the US Got so much from this past trade war doesn't mean it can do the same today.

[Waylon Wong]

And ironically, that's because of what that past trade war accomplished. Like take those foreign owned and US Made cars. The US produces so many at this point that they're no longer just selling them in the States. A lot of them actually get exported.

[Unnamed Historian]

While the exports that we have are not under, you know, traditional American brands, but they are exports nonetheless. You know, we are exporting Mercedes from Alabama, we're exporting Toyotas from Indiana.

[Stephen Bisaha]

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 US last year they were priced at about 170 billion. Adjust for inflation. And that's about five times more than in 1970.

[Waylon Wong]

To put it another way, those exports mean the US auto sector has a lot more to lose today than it did back then from other countries. Retaliatory tariffs.

[Unnamed Historian]

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 jobs rely on those may find themselves out of work.

[Stephen Bisaha]

And again, those are American jobs we're talking about.

[Waylon Wong]

And it's not just that the US has a lot more to lose, it has a lot less to gain too. Historian A.J. jacobs says that's cause foreign carmakers have already opened plants in the U.S. scaring Hyundai, scaring Toyota.

[John Moore]

Yeah, you can do it to a certain degree, but they're already here.

[Stephen Bisaha]

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.

[Waylon Wong]

Yeah, on the bad side of things, Ford recently warned that tariffs could cost the company about one and a half billion dollars.

[Stephen Bisaha]

On the brighter side, Mercedes also recently said it would produce a new vehicle in Alabama in 2027 and it's hiring more US workers.

[Waylon Wong]

What AJ says does not seem to be coming because of tariffs is the big prize we're talking about is new assembly plants.

[John Moore]

The cost of the plants are so high that most likely what you're going to see is expansion in existing. 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.

[Waylon Wong]

But I'm still hearing you say like, hey, it could lead to an expansion of some plants here.

[John Moore]

Yeah, but does that mean that there are going to be more jobs?

[Waylon Wong]

And this here 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 is going to come with a lot more robots and a lot fewer human workers than it would have 40 years ago.

[Stephen Bisaha]

This episode was produced by Cooper Katz McKim and engineered by Kwesi Lee and Robert Rodriguez. It was fact checked by Sierra Juarez and edited by Kate Kincannon. The indicators of production of NPR.