Which Came First, the Chicken or the SUV?

In a story logically related to yesterday’s post about Freddie Mac and Fannie Mae, there’s this bit in the NYT about government’s influence on the US auto market. Short version: in a tariff war with Europe over frozen chickens, the federal government implemented, among others, increased tariffs on light truck imports (which impacted Germany’s VW, primarily) to counter European tariffs on poultry. 

This led to US automakers to forecast, rightly so, that light trucks would be big sellers against the competition–which included Japanese pickup manufacturers. Ford and Chevy, it appears, were successful selling light trucks not because they were better at it than the Japanese, but because they had a 25% head start (the cost of the tariff to foreign competition).

The numbers are staggering:

The downside of this is evident today. Light trucks account for 57 percent of sales at General Motors; 62 percent of Ford’s; 72 percent of Chrysler’s. It’s not a good place to be with gas at $3.50 a gallon.

 It’s not clear if the NYT editorial faults the automakers for following the government’s lead, or the government for implementing the protectionist policies. Of course, this blog will assert, just as with the scandal in the Department of the Interior, when you get government involved in business, this is precisely what you can expect. Detroit would have been insane, and irresponsible, to have done anything other than what they did–irresponsible to their shareholders. 

There’s likely more to the analysis than is covered in the editorial. For example, why, precisely, did so many people buy SUVs and other light trucks if not because they liked them (irrespective of the price, which is where the tariff has had the most impact)? But, the immediate conclusion is: just another example, among thousands or hundreds of thousands of possible examples, of why we need separation of government and business just as we have separation of church and state.

Some might say: but, this was done in response to European tariffs against American products. True enough. But the result is to fight against protectionist policies, not to perpetuate them.

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