We Can’t Import Cheap Homes; But We Could Import Cheap EV Cars

We are free trade enthusiasts, in economic terms, even at a time when free trade has been losing some of its aura within the U.S. political system. Why? Because the existence of trade allows countries, in general, to achieve higher consumption levels than what they otherwise could achieve with what is called ‘autarky,’ which is a scenario in which a country doesn’t import or export from/to the rest of the world. This is not a fantasy or a fallacy, it is indisputable. Thus, we take the view ‘free trade is better than no trade’ and everyone wins with ‘free’ or ‘freer’ trade.

Having said this, there are instances where trade protection ‘may’ make sense, such as national security and, sometimes, temporary protection measures. Nevertheless, we always remain reluctant to make a case for some of the protection measures we see over the years. Our reluctance to accept protecting some industries with trade barriers is because often it means protecting industries that have become uncompetitive and inefficient and, typically, protecting them provides little incentives for these industries to make changes and attempt to become competitive again.

It is true that it is very difficult to keep domestic companies competitive if we consider domestic wages compared to wages in less developed countries. Sometimes there is an argument that some countries may be ‘dumping,’ which means that they may be selling some goods to foreign markets at a price that is lower than their production costs. However, sometimes the lack of competitiveness has to do more with failure to adapt and become more efficient than with anything else even though companies/industry lobby groups try to sell protection on anti-dumping arguments even if the evidence is lacking.

The auto industry is one of those industries that has failed to remain competitive in the past. Back in the 1970s and 1980s, the U.S. auto industry was caught off-guard by the increase in oil and gasoline prices, producing large, gas-gauging cars and trucks – sound familiar? At the same time, Japanese automakers were producing smaller, more efficient, and cheaper cars and started to flood the U.S. with cheaper cars that helped Americans deal with higher gasoline prices.