Is What’s Good for General Motors Good for America?

Michael finds “The American Camry,” a piece in the latest print issue of National Review, to be an interesting case study. I find it to be one as well, although for different reasons.

Wells King and Dan Vaughn Jr., both of American Compass, argue in that piece that the Reagan administration’s pursuit of import limitations on Japanese cars was an example of “a simple lesson in political economy: Blunt constraints that set market boundaries, while encouraging competition within them, can help ensure that capitalism serves the national interest.” The administration capped the number of Japanese imports at the 1979 level and kept that cap in place through 1985, they write.

First, I must say that I am quite grateful for this piece, which takes a conversation that is often too abstract and gives a concrete example from the relatively recent past of the type of policy that today’s protectionists have in mind. It never uses the bromide “market fundamentalism” and avoids all other forms of name-calling.

That’s a relief because the period in question, the 1980s, is part of a time when the “market fundamentalists” are often said to have been in charge of trade policy. As we can see in the piece, that is not true. The U.S. has countless tariffs and import restrictions and does not even approximate a unilateral free-trade regime. Even Ronald Reagan, the great proponent of free markets (and he was, overall, a great proponent of free markets), put significant barriers in place.

Now that we’ve retired that straw man, we can have a more meaningful discussion about trade and economics in general. And the approach outlined by King and Vaughn still leaves much to be desired.

We’re told that after this approach was applied by Reagan, “Detroit turned around, and the Japanese firms invested tens of billions of dollars in a massive new manufacturing base in the South that created hundreds of thousands of American jobs — the single, exceptional example of significant foreign manufacturing capacity relocating to America instead of the other way around.”

Are we sure Detroit turned around? The city’s population today is roughly half what it was in 1980. Hanging your hat on Detroit seems like an odd choice.

If they mean Detroit as a metonym for the American automobile industry, that’s different, but not much better. That would be buying into the mindset epitomized by the quote that General Motors executive and Eisenhower defense secretary Charles Wilson didn’t quite say, which is that what’s good for General Motors is good for America.

In 1953 when Wilson made that remark (the exact quote was “I thought what was good for our country was good for General Motors, and vice versa”), he had more of a point, since GM was then the largest corporation in the United States and one of the largest in the world, both by revenue and by employment. But the churn of a market economy has a way of changing those facts rather quickly, and today’s GM is not the behemoth it once was, even with the protectionism coming to its aid.

Part of the reason for that is foreign competition, especially from Japan, which sought to capitalize on the American car industry’s producing crappy cars in the 1970s. It’s not as though the Big Three were lean, mean, free-market machines that had never benefited from any government policy before 1980. And thank goodness Nissan, Toyota, Honda, and others saved ordinary American drivers from being stuck with the Chevy Vega and the Ford Pinto.

That Japanese firms began manufacturing cars for the North American market in the U.S. is indeed good news, but American consumers only knew about those cars because they were allowed to purchase them. If the government had done more to shield American manufacturers from Japanese competition earlier than Reagan, there might not be a North American market for Japanese cars at all. Then, Americans would have been stuck with crappy cars, and there would have been no jobs from the foreign carmakers, either.

(Letting consumers decide need not necessarily cede the playing field to foreigners, by the way. Citroen, Renault, and Peugeot all tried to sell cars in the U.S. at various points, but Americans largely didn’t like French cars, and the French manufacturers gave up. Consumer tastes are also not uniform by country; while Japanese sedans have done very well in the U.S., Japanese pickup trucks have not done as well. American manufacturers have specialized more in truck production and all but abandoned the sedan market in recent years.)

King and Vaughn seek to denigrate “the economic-policy tools that conservatives most comfortably wield — tax reform, deregulation, expanding trade, and so forth” and suggest that they are outdated. But in pointing to the movement of car manufacturing to the South, they are highlighting one of the best examples of those policies’ succeeding. Japanese carmakers went to right-to-work, low-tax, low-regulation states and left the American manufacturers to deal with the UAW and big-government Democrats.

American Compass wants conservatives to be more friendly to organized labor, with executive director Oren Cass arguing for European-style sectoral bargaining. If the U.S. had adopted that approach in the ’80s, it would have been much harder, if not impossible, for Japanese carmakers to build in the U.S.

All things considered, there is decent evidence in King and Vaughn’s piece that American car companies benefited from Reagan’s decision. But should it be the federal government’s job to protect them from competition? If so, is it also the federal government’s job to protect other large companies that employ many Americans from competition? Meta, the parent company of Facebook, just announced it will be cutting jobs and freezing hiring because its revenue is falling. Part of the reason for Meta’s recent struggles is that it is facing stiff competition from ByteDance, the Chinese company that owns TikTok.

Is this a case for more protectionism?

Michael’s thoughts on Facebook are well known, and he is basically cheering for the company’s demise. I actually share a lot of his concerns about Facebook’s effects on people, and I don’t use the platform myself. Regardless of my thoughts on the company, it’s perfectly fine with me if Meta goes under. Corporations go out of business every day.

But the logic of King and Vaughn’s piece would seem to suggest that Meta should be the beneficiary of government protection. We’ve got a situation where one of the largest companies in America is getting beaten up by a company that’s essentially an appendage of the Chinese Communist Party, and now American jobs are on the line.

Meta has made plenty of mistakes all on its own, but so did GM and Ford in the ’70s. Companies can always make an argument that their own mistakes were actually the fault of some nefarious competitor, and the argument goes over even better with politicians when it’s a foreign competitor. That doesn’t mean government should grant them special protections with public policy.

We’re already seeing how this is playing out with the CHIPS Act, which King and Vaughn praise. The federal government has decided it will support the domestic semiconductor industry with $52 billion in corporate welfare — as the world market enters a semiconductor supply glut. And U.S. chipmakers were already having a hard time filling their existing jobs before the government money came along.

King and Vaughn also praise proposals from Josh Hawley for domestic-content requirements and Robert Lighthizer for an across-the-board tariff on all goods coming to the U.S. These are vastly broader proposals than the Reagan import restriction, and it does not follow from their argument in favor of Reagan’s actions that Hawley’s or Lighthizer’s ideas would work. Hawley’s domestic-content bill was astounding in its economic illiteracy, as I wrote at the time, and Lighthizer has been explicit that he wants higher prices to reduce consumption. (And U.S. carmakers would be some of the first companies in line asking for exemptions from an across-the-board tariff, as I wrote about here.)

King and Vaughn’s piece demonstrates that they want government to be in the business of intentionally and explicitly favoring certain corporations for political purposes and using public policy to impose costs on the rest of the U.S. for those corporations’ benefit. That is, indeed, an interesting case study.