I thought this piece by Wells King and Dan Vaughn Jr. was very sharp. They point out how Ronald Reagan saved Detroit from Japanese imports and ended up getting Japan to make major, anchoring investments in the United States and our workforce.
Japan was able to make huge headway into the American market for a few reasons. American foreign-policy priorities had made a priority of keeping Japan as an East Asian ally during the Cold War. Japan’s industrial policy successfully envisioned, subsidized, and tutored a handful of amazing Japanese auto manufacturers. Reagan negotiated an import limit, one that did raise costs to American consumers but only for a short time.
Economists were proven right, in a narrow sense, about the costs of restricting trade. According to government estimates, VER raised prices on Japanese cars by about 8 percent, which translated into an additional $5.1 billion for American consumers between 1981 and 1984. But within the decade, the policy had also prompted nearly three times that much foreign direct investment. The cost per new job in the Japanese supply chain was only about $50,000, and that does not even include the jobs saved at American automakers and suppliers. From one perspective, the exchange may seem unfair — a diffuse cost to millions of consumers for the benefit of a smaller number of workers. But Americans had a different perspective: In a 1980 New York Times poll, 71 percent favored “protecting jobs at the cost of higher prices on foreign products.”
And while the intervention was temporary, the benefits were permanent. VER had been lifted by 1985, and Japanese automakers have not faced any quotas since. But once their American investments had begun, maintaining and expanding them took on an economic logic of its own. No one today suggests that American consumers face higher prices because their Camrys come from Kentucky instead of Tsutsumi; the best place to locate production in a free market is not some immutable truth, but rather a function of previous policies and investments.
This is a great little case study.