How to Make Cars

There are two ways (at least) to have cars in America.

FILED UNDER: Economics and Business, International Trade
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Pch101 says:

    Since the country was founded, there has been a battle between US manufacturers that want tariffs to protect them and US ag producers that want to lower tariffs so that they can have more access to foreign markets.

    This has changed somewhat now that many of the US business concerns are building abroad.

    The Japan situation is a bit muddled. Japan uses non-tariff barriers to minimize foreign competition, but American producers don’t build much of anything that the Japanese want to drive. If we had no tariffs tomorrow, it probably wouldn’t make any difference at all for the auto market.

  2. grumpy realist says:

    @Pch101: Actually, one of the main reasons US cars weren’t that popular in Japan was the SIZE of the cars….try to get one of those behemoths through a typical Japanese street. Or around a typical corner.

    Also, the MPG just absolutely SUCKED, which means a US car isn’t going to be very popular when you’re paying 100 yen/litre or more.

    What has been popular in Japan is US sports cars and the smaller SUVs. I remember going to the Tokyo Motor Show and finding everyone drooling over cars like the Viper.

  3. Pch101 says:

    @grumpy realist:

    The thing that a lot of Americans don’t understand is that Detroit has a long history of using regional production strategies. In other words, they didn’t build cars in the US with the goal of exporting many of them.

    GM and Ford were the first global automakers. When they began to expand, everyone had trade barriers, plus the Europeans were already taxing the stuffing out of fuel due to the fact that they had very little oil.

    So for the most part, Ford and GM built foreign plants when they wanted to serve foreign markets. Cars built by American automakers in the US are still primarily meant for us.

    The Japanese did and do protect their markets, but this largely hurts the Europeans, not us. If Japan lowered its barriers, they would spend the money on BMWs, not Chevys.

  4. grumpy realist says:

    @Pch101: I remember people running across one of Ford’s models for the European market and being bewildered that it wasn’t available for sale in the U.S. It always seemed to me brain-damaged as well, that Ford and GM were yowling so much about How The Japanese Were Eating Their Lunch and they had perfectly good models which could have been used in competition with the Japanese cars.

    (I do admit that my last car purchase was a Japanese car, but that’s because I want a car with a dashboard that doesn’t look like Mission Flight Control. The last time I rented a Ford Focus I couldn’t figure out whether they intended me to fly it or drive it.)

  5. gVOR08 says:

    Nobody talks about the real issues. Manufacturing employment is down more because of technology than globalization. Free trade is good for both countries, as essentially every honest economist in the world will tell you. Good for the country is not the same as good for everybody in the country. The benefits of trade, and lately of everything else, flow to the top. The real issue is not trade, the issue is income distribution. Thomas Piketty wants a world wide wealth tax. He is correct to do so.

  6. FredW says:

    Umm, they grow corn in Iowa…

  7. Pch101 says:

    @grumpy realist:

    There is less of this differentiation at Ford than there once was, but there are still some models that are mostly region-specific. Engine-drivetrain differences are more prevalent and will probably always be an issue due to the fact that US fuel prices are so much lower than most.

    Differences in tastes, tariffs and taxes prevent products from being truly global. To a lesser extent, right-hand drive vs. left-hand drive can also complicate matters.

  8. Stormy Dragon says:


    Umm, they grow corn in Iowa…

    Which can be traded to Japan in exchange for cars.

  9. Tyrell says:

    @grumpy realist: I miss Pontiac. I still don’t quite understand why they went out. At the time, they were making good cars and showing a profit. Who can forget the “wide trac” and the GTO ! Cars that would speed a person’s pulse up just thinking about them.
    “We build excitement”

  10. gVOR08 says:

    @t: I couldn’t figure out what the V8 in Mad Max was. Turned out it was a ’73 Ford Australia Falcon. They kept making Falcons after the US quit and stuffed big motors in some of them.

  11. Pch101 says:

    Australia is a small market, but had trade barriers that forced automakers to build there.

    For quite awhile, the Aussies also had inadequate roads, which required them to build cars that were engineered to survive them.

    As a result, the Ford Falcon and GM’s Holden Commodore became the standard. They were configured to serve just about every role from family station wagon, pickup and sedan to muscle car, cop car and taxi.

    The Aussies have more recently moved away from trade barriers, which has subsequently torpedoed domestic production and sunk those models. The days of the Aussie muscle car are just about over, and imported compacts and smaller pickups dominate.

  12. Terrye Cravens says:

    A lot of those Japanese cars are made right here in Indiana. Just like a lot of BMWs are made in South Carolina. Hopefully they won’t shut down those plants and take those jobs back home.

  13. Pch101 says:

    @Terrye Cravens:

    Japanese transplant car production is made primarily for us and secondarily for Canada, so it’s probably not going anywhere.

    The US market is appealing because it is large and consumer-driven. But over the long run, companies may start becoming wary of our increasing lack of stability and predictability. Businesses hate uncertainty, and the Republicans keep producing more of it.

    When the Chinese seem more trustworthy than the US, then you know that something is terribly wrong. And things are moving in that direction.

  14. michael reynolds says:

    Things are so bad in Australia they’ve taken to attaching rock guitarists by giant rubber bands to the hoods of their trucks. You wouldn’t believe what you’ve got to do for a gallon of gas. And the truck stops? Almost as bad as the Jersey Turnpike.

  15. Just 'nutha ig'rant cracker says:

    @FredW: I was wondering what your point was–I assume that Iowans probably know what they grow in their own state, but when I saw that your link was to something called “beerguideapps,” everything became clear.

  16. Just 'nutha ig'rant cracker says:

    @Tyrell: My guess is that you may have been the only person left in the world who still wanted to buy Pontiacs when they folded.

  17. Just 'nutha ig'rant cracker says:

    @Pch101: When I was visiting my cousin in Adelaide, she was telling me that the Holden factory there was going to close at the end of either 2016 or 2017, I can’t remember which.

  18. Pch101 says:

    @Just ‘nutha ig’rant cracker:

    Ford closed its plant near Melbourne a few months ago.

    GM and Toyota will be closing toward the end of this year. After that, no more domestic car production.

  19. StanFL says:

    You oversimplified ‘free trade’. A less simplified view of it is embedded here:

  20. Slugger says:

    A large part of the problem is that all 330 million Americans do not have identical interests. Honda has made my life better, but hurt some guy in Michigan. In an ideal world the leader of our nation would find a way to balance these interests for the good of the country as a whole. However, the reality is that the national leader is tempted to maximize his personal clout, and the votes of Michigan might be extra valuable. Unless we elect saints, we are likely to have leaders who believe with all their heart that their interests and the nation’s are identical. In other words, we’re are going to reap the benefits of a strong coal mining sector soon.

  21. Matt says:

    @Pch101: I know a large number of Aussies that would highly disagree with your sentiment.

    For example.

    2016 saw a decrease in compact sales and an increase in SUV sales.

  22. Dave Schuler says:

    That could work if Japan didn’t have all sorts of trade barriers for U. S. agricultural products. The TPP would have removed Japanese tariffs but left other trade barriers in place, especially those for rice, a significantly bigger potential market for U. S. producers than wheat. Additionally, because of the provisions in the TPP for phasing out tariffs rather than eliminating them at once the adverse effects on U. S. employment would have been immediate while whatever effects it had on Japanese agriculture would take place over time, assuming the Japanese didn’t counter by creating new non-tariff barriers.

    For such a system to work it would also need to require the Japanese to take the dollars they receive in trade and use them to purchase goods and services rather than Treasuries. As long as Japan prefers to buy Treasuries over purchasing American goods and services the system works as a sort of syphon in which Japan exports goods and imports employment.

  23. Tyrell says:

    @Just ‘nutha ig’rant cracker: The G6 was a good car, and their suv got some good reviews. Still not as good as they had it in the ’60’s.
    Chevy has some good cars, but they need something really bold – that would be a Tesla category car.
    NASCAR needs an prototype car division for electric, hydrogen, and other.

  24. Pch101 says:


    Top 10 best selling vehicles in Australia in 2016:

    Toyota HiLux – pickup
    Toyota Corolla – compact car
    Hyundai i30 – compact car
    Ford Ranger – pickup
    Mazda 3 – compact car
    Toyota Camry – intermediate car
    Holden Commodore – large car + pickup
    Mazda CX-5 – crossover
    Mitsubishi Triton – pickup
    Hyundai Tucson – crossover

  25. JohnMcC says:

    @FredW: The creator of the childish drawing above has just discovered an economist named Ricardo. He was able to draw this crude attempt at explaining Mr Ricardo’s contribution to economics after he got over his shock that Lucille Ball’s ex-husband was a man of such multifaceted talents.

  26. Tyrell says:

    Do they sell Buicks or Cadillacs there ?

  27. michael reynolds says:

    I tried hard to buy an American car in three recent go-rounds.

    First, I wanted a stylish luxury convertible that could seat 4 and incorporate the latest safety equipment to shut my wife up about how I was going to roll it and kill us all. American cars that fit the bill? Zero. So I bought an E350 Benz cabriolet.

    When it was time for my wife we looked for a small to medium SUV which was likewise attractive, safe, comfy, and. . . Volvo. Second choice would have been Acura.

    Finally, my daughter. Again, safe, reliable, tech-ready, a small SUV since I figured after high school she could sleep in her car: Kia Sportage.

    Even when I’m trying, even when I’m not terribly price-sensitive, Detroit is making it hard for me to buy American. American design, styling and quality have still not recovered from the self-inflicted wounds of the 70’s and 80’s.

  28. @michael reynolds:

    the self-inflicted wounds of the 70’s and 80’s.


  29. Just 'nutha ig'rant cracker says:

    @Dave Schuler: Japan (and Korea and IIRC, China) already buy American rice under provisions for protection of rice production in areas where rice production is considered in danger of failing (yes, US rice farmers get a subsidy from the world, how ironic is that?). The Koreans, until the shooting of a South Korean visiting Kumgang Mountain, used this rice for food relief to North Korea. I don’t know what Japan does with theirs, but I do know that the consensus that I have received from Japanese that I have met and friends that I had in Korea is that not many people would be likely to buy American rice irrespective of price because of strong national pride and, possibly more importantly, because they don’t think American rice tastes as good.

    I would hold the second explanation as mere jingoism except that having eaten Korean and Japanese rice, I don’t think American rice tastes as good either. Why it shouldn’t, I haven’t a clue about–but not having clues is common for me.

  30. Just 'nutha ig'rant cracker says:

    @michael reynolds: l was able to find an American car that met my needs–small, easy to handle, fuel efficient. I bought a Chevy Spark–manufactured in South Korea by GMC Korea, formerly, GMC/Daewoo. As a Daewoo, it was named the World Car of the Year in 2010, I think, and became so popular in Korea that eventually Hyundai/Kia copied the body design and engineering to get back into that market segment. It was also subsequently copied by Honda.

    See? It is possible to buy a good American car! /snark

  31. dxq says:

    I just drove my 2002 Ford Fiesta 3,000 miles from florida to washington state. It got 40 mpg.

  32. dxq says:

    BTW, people who think they need to explain Econ 101 to others, usually don’t know there’s an econ 201, Econ 301… The real world is vastly more complicated than my Econ 101 textbook was. That’s cause you’re learning to walk, not beat everybody in the marathon.

    The biggest problem with Economics I think is the shitty libertardian values that bias how they view everything.

  33. HarvardLaw92 says:

    @michael reynolds:

    I tried hard to buy an American car in three recent go-rounds.

    Agreed. Show me an American car which performs at least as well as, has equal or better build quality than, and is engineered as least as well as my M760i and I’ll consider it. As far as I could tell, and I did look, nothing made in the US even comes close. The damn thing has infrared night vision and parks itself.

    (that twin turbo V12 doesn’t hurt the appeal either …)


  34. Ben Wolf says:

    @Dave Schuler: Exactly. We’ll have a trade deficit so long as the dollar remains the world’s reserve currency and governments want to accumulate more of it. To change that we have to give the status up.

  35. Guarneri says:

    @michael reynolds:

    The Kia and Volvo are fine, but does the Mercedes come with a walker?

    Next time go BMW 6 series.

  36. Tyrell says:

    @HarvardLaw92: Take a look at the 2017 Ford GT, a miracle of engineering: years ahead. A production street car that can be driven directly on the race track.

  37. HarvardLaw92 says:


    $450,000 for a car with cheap cloth seats? 🙄

  38. Matt says:

    @Pch101: Note the top seller is a fullsize truck.

    I like how you call things like a 4 door corolla a compact. The corolla is only a few inches smaller in length/width/height than a camry (they share many internal parts including the cabin area).

    The Hyndai i30 is bigger overall (longer/wider/taller) than a subaru impreza WAGON. I do find it hilarious that wagons are now considered “compact cars” by some.

    The mazda 3 is about 10 inches shorter in length than the Camry so I’ll give you that one.

    My reason for pointing this out is that the definition of “compact” appears to be anything smaller than a full sized SUV. None of these cars would of been considered compact by the standards of the early 2000s or 90s. When does a definition that has been expanded well beyond it’s original meaning lose all meaning?

    Regardless your own list shows 3 out of the top 10 being called “compact” while 6 of them are classified as trucks or near truck like (crossovers aka SUVs can be considered a truck or car depending on the state). This proves my statement of the lower popularity of compacts and the higher popularity of trucks/suvs.

  39. Grumpy Realist says:

    @Matt: I had the same problem when looking for a replacement for my beloved 2000 Nissan Altima. The newer models invariably get fatter and longer. Which isn’t all that great when one of your constraints is “how well I can drive this thing around a compact parking garage and parallel park it when city driving.”

    The reason I didn’t go for a Kia or Hyundai was the four-gerbil-power acceleration. I do enough highway driving that I needed something that accelerated like a sports car.