The usual argument for protecting U.S. industries from foreign competition — that they cannot be expected to compete with low-wage labor in awful Third World countries — does not do very much to explain the travails of U.S. carmakers, who were not challenged by sweatshop-made products from Pakistan and Haiti. Instead, they got their lunches eaten in the 1970s and 1980s by the same firms that trouble them today, which are based in relatively high-wage countries such as Germany, Japan, and, more recently, the Republic of Korea.
It’s true that Germany and Japan have slightly lower median household and equivalent adult incomes than does the United States, but not by an amount that gives overseas automakers an enormous competitive advantage. And this is complicated by the fact that German autoworkers are paid more than their U.S. equivalents, rather than less. (As always, the facts on the ground are complicated.) Japan does not use tariffs to keep U.S. goods out of its markets: It charges no duties at all on U.S. vehicles. The European Union and the United States have relatively modest import duties (typically 10 percent and 2.5 percent, respectively), and eliminating those is a key goal for supporters of a U.S.-EU free-trade pact. Trump — and now those who follow him — generally opposes such free-trade pacts, even though in this case such a deal would be a step toward the so-called level playing field that the anti-traders insist on.
The fact is that playing fields never are level. Germany is full of Germans, and the United States is not. Germany has a top corporate-income tax rate of just under 30 percent; the United States has a top rate of just under 40 percent. But the tax codes are very different and liabilities are calculated in different ways. Germany has very powerful automotive unions, but they are very different from their corrupt and ineffective U.S. equivalents. Germany has a very different education system, and it is the dominant economic power in the world’s second-largest free-trade association, second in size only to NAFTA. But, again, the facts are a little more complicated: The United States accounts for about 85 percent of NAFTA’s economy: Canada isn’t that big, and Mexico isn’t that rich. Germany accounts for only about 20 percent of the European Union economy, meaning that Germany’s free-trade zone gives it richer opportunities for trade than ours does us.
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