- They say nothing is certain but death and taxes.
But what about tariffs?
We know they affect trade, and we know trade affects cars.
A tariff is a tax imposed by one country
on goods from another.
And the debate about tariffs is older than America itself.
Do they help, do they hurt?
Let's find out.
No one likes paying taxes.
I think the Beatles put it best in their seminal hit,
Tax Man, when they sang,
"Fornicate in my fortress, 40k still my mortgage,
"24k my toilet, all my taxes reported."
That was either the Beatles or Rick Ross,
I always get them mixed up.
But taxes are in the headlines again,
as new tariffs were just announced.
So, do tariffs work?
(classical music)
The U.S. has had a storied past of tariffs.
In fact, if it wasn't for tariffs,
we might not be a country at all.
The year is 1765.
The American colonies still answer to their daddy,
Great Britain.
Colonists are pretty chill about it,
but resentment is growing.
Over the next decade, Britain continued to impose
more and more taxes on the colonies,
which were met with more and more resistance.
Most notably, the Boston Tea Party, which was
in retaliation of the Townshend Act.
It was this act that placed an indirect tax
on products such as glass, paint, paper, and tea,
and that includes Ice T.
In 1773, Boston colonists dumped 92,000 pounds of tea
into the Boston Harbor.
That basically kicked off the Revolutionary War,
and led to the birth of the U.S. of freakin' A.
(swing music)
Let's kick it up to 1.21 gigawatts and zap to 1930.
Pretty much the whole world is affected
by the Great Depression, one way or another.
While other countries got a prescription for Lexapro,
the United States turned to tariffs to try
to dig themselves out of the red.
In the early months of the Act, it was a success.
Construction contracts and industrial production
all increased dramatically.
However, because of weak-ass banks,
the success was short-lived.
The resulting trade war did nothing
but hurt the U.S. economy.
Isolationism and protectionism backfired louder than a 2JZ.
(car backfiring)
FDR vowed to make it right, and after winning the election,
passed the Reciprocal Trade Agreements Act,
relaxing tariffs of foreign imports.
(jazz music)
Cut to 1961, post World War II America is doing
great economically.
Almost every industry is growing,
especially chicken farming.
The U.S. starts exporting vast amounts of juicy chicken
to Europe on the cheap cheap.
The influx of affordable poultry from the States
meant that Europeans could afford to eat more chicken.
And eat they did, and the U.S made up nearly half
of the European imported chicken market.
Many countries saw this as a slap in the face.
Germans accused the U.S. of artificially
plumping the chicken titties with arsenic,
and the French just outright banned chicken
exported from the U.S.
The hysteria was referred to as the chicken tax,
and the tariffs rose higher
than a dirt child in the rafters.
(screeching)
They attempted to diplomatically make things
right with Europe.
Diplomacy ultimately failed, and the U.S. made their move.
President Lyndon B. Johnson imposed a 25% tariff
on brandy, dextrin, potato starch, and light trucks.
Oddly specific, until you realize that those are exports of,
you guessed it, Europe.
The light truck stipulation was a huge middle finger
to Volkswagen, whose van sales had been doing vun-de-bar
in the U.S.
After the tariff was put in place, Volkswagen's sales
of the bus dropped by 1/3.
In subsequent years, sales of Volkswagen vans and trucks
were nearly non-existent.
That's why you don't see VW trucks
on American roads anymore.
The tariffs were sending a clear message.
Mess with our chickens and hitches, get stitches.
'Cause trucks have hitches.
(rock music)
European car manufacturers weren't the only ones
affected by the taxes.
Japanese manufacturers, Toyota, Mazda, Datsun, and Isuzu,
were met with resistance when they tried to import
their trucks and utes to the U.S.
My mentor, Dr. Ian Malcolm, one said.
- Life finds a way.
- And indeed, car manufacturers found a way
to import their cars into the U.S.,
using some pretty creative methods.
Japanese manufacturers found they could ship
chassis cab configurations.
The chassis skeleton was shipped and taxed
only 4% upon arrival, and then was assembled
with a light truck body in the U.S.
The government caught on, and the loophole
was closed in 1980.
Even Ford got in on the action by importing
their transit light trucks in from Turkey,
with passenger seats installed in the back.
Once they reached the Baltimore port, though,
the seats were taken out and shredded,
and the truck transformed back into a light cargo truck.
The process cost Ford hundreds of dollars
in shredded upholstery, but saved them
thousands of dollars in tariffs.
In 1980, U.S. President Ronald Reagan put into law
a limit for Japanese vehicle sales.
Japanese car companies had somehow convinced
American consumers that cars can be affordable,
safe, and reliable, and had in turn started selling cars
hand over fist.
The protectionist president was having none of that.
The number of vehicles Japan was allowed to sell
within the U.S. dropped nearly 10%
within just the first year of restrictions.
Reagan did this to give American car companies
a better shot at dominating the domestic market.
So did the big three hunker down
and take Captain Miller's advice?
No, the companies acted like entitled rich kids
with carte blanche.
Do you know who my dad is?
Come at me, bro.
Without the fear of better cars encroaching
on their territory, American car companies
artificially raised prices by reducing the amount
of cars coming off the assembly line.
Decreasing supply increases value, that's microeconomics.
Or is that macroeconomics?
Supply and demand, my dudes.
And they laid off 60,000 workers.
And the quality of the cars went down
while car buyers were hit with an average
of $1,000 hike on car prices.
You know what they say.
Give a mouse a cookie and that mouse will eventually
destroy the middle class.
(drum solo)
In fact, this false sense of security set the tone
for the U.S. auto industry for the next two decades,
and ultimately can be linked to its near collapse
before the bailout of 2009.
But the Reagan-era tariffs did something else.
In order to retain a share of the American auto market,
foreign car companies set up American factories
to build their products.
Regardless of your stance on what it means to buy American,
there's thousands of American auto workers
in Ohio, Kentucky, and all over the United States
who are employed because of foreign-owned auto companies
building their cars in this country.
(gentle music)
So now we're hearing a lot about new tariffs,
and the debate is raging again.
And the biggest drawback to the tariffs, as I see it,
doesn't have to do with numbers.
It has to do with people.
If you haven't noticed, I love cars.
But not just American cars, cars from anywhere are cool.
And people everywhere can agree on that.
Thanks to Fixd for sponsoring this episode of Wheelhouse.
Fixd is a Bluetooth OBD-II reader that connects wirelessly
to your smartphone and helps you diagnose
check engine lights and keep an eye
on your car's performance.
Click the link in the description to get 10% off
your order with promo code donut.
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Wanna learn more about imports?
Check out this episode of Wheelhouse on how to get
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Be nice, see you next time.