Philadelphia, PA

Dear Gabrish,

I wonder if you could supply the source of your information reported in your question. I think it might be useful to have a look.

Historically, the U.S. opened its market to Germany and Japan, and some other countries, as I understand the matter, partly to counteract some marketing practices of U.S. producers (you will perhaps recall the notion of "planned obsolescence"?)--increasing domestic competition, and partly to help bind allies economically during the Cold War.

In addition, I believe there were some negotiated agreements, regarding automobile production, designed to help Europe recover its industry after WWII. You will recall that GM long owned the German producer Opel. Some of this has changed in recent years, but there seems to be lingering effects of older policies.

H.G. Callaway

Hubert is apparently correct, or almost. It seems that the EU places a flat tax of 10% on car imports, while the US import tax is 2.5%. And the situation is far worse with China, where the import tax is 25% for most cars, and way more than that for luxury cars, or cars with large displacement engines.

I've always heard that this was the case, but never actually looked it up. I included the links to two recent articles in the attachment. People make the point that many EU cars are now built in the US, so not actually imported, but that does not address the point about why the high import tariffs in the EU. Honestly, much of the whining sounds a tad self-serving.

There may have been political reasons historically, but we're not in the 1950s anymore. There were previously also obvious financial reasons which prevented Europeans from buying US cars, such as the rather big difference in fuel economy, plus the really hefty tax, in most European counties, on engine displacements above a certain very small maximum. I think Germany had some limit like 1.8 liters, and Italy had a 2 liter limit, beyond which taxes rose quickly. Those have changed recently, I believe. Not positive. So for sure, those displacement penalties also hurt US cars, which had engines in the 3.6 to more than 6 liter range almost exclusively, back in the 1970s (say about 220 to 400 cubic inches, where the smaller figure applied to the smaller of the straight six engines).

With the very high European taxes on gasoline, the fuel economy penalty became quite significant. But these days, that handicap has mostly disappeared, with the ever increasing corporate fuel economy mandates on US manufacturers. Even large cars in the US are sold with small displacement 4 cylinder engines these days, at least as their basic option. Yes, even in Cadillacs. Amazing, eh?

Although the US does not produce the tiny "citicars," which have been popular in Europe for multiple decades. With parking always at a premium, in European cities, relatively larger American cars will always be handicapped.

Still, good to keep everything in perspective.

Philadelphia, PA

Dear Manfredi,

You fill in some interesting details --on non-tariff impediments. It is not, I think, that anyone would expect European countries to lower their taxes on gasoline, say,--given that so little oil is available on the continent. But there is a lesson in this on how local adjustments to circumstances can make even mandated equality of import taxes somewhat beside the point. Much the same goes for the taxation on engine size.

Internal regulations and taxation can make the impediments to foreign producers virtually opaque. Such regulation can also change quickly in response to changing conditions--more quickly in some political systems than in others. The interesting, fine details are often simply missing from the formalism of international trade treaties. But only changes to the formalities are to count as protectionism? Or, should we actually attend to the resulting balances of trade?

BTW: If we are not for ourselves, who will be?

H.G. Callaway

Dear Prof. Callaway, I thing that the tariffs on automobiles stemm from the Uruguay Round of GATT in 1993. All participating sides - U.S., Germany (and EC) - negotiated these different tariffs. There must have been a reason for the differences. It could be that the Urugay round did acknowledge special U.S. rights for extraordinal import restriction policies, but the U.S. had to accept higher EC tariffs. But frankly, I am not sure that I am right. If I were right, this UR and GATT was a deal! Now, this deal obliges both sides.

Thank you for your contributions. In the meantime, I came to grips with the problem - at least on a tentative basis. Here are my reasoning:

It is true, EU tariffs on car imports from the U.S. and – this is important – from all non-EU countries are far higher than U.S. import tariffs. Seemingly, Prof. Manfredi is not right: EU tariffs on cars from China are at the same 10 % level as imports from the U.S. This has been regulated in the Uruguay round 1994. I do not know why such a difference has been agreed 24 (or even more) years ago, but I think it is no important to know the reasons. I think that those tariffs had and have nothing to do with cost structures. Tariff structures on automotive imports are part of a whole package regulating tariffs on all traded items, not only cars. And here, there are trade items with higher U.S. tariffs than EU tariffs. This brings me to the crucial issue: the Uruguay round or WTO rules are international binding law. Therefore, a signature state cannot one-sidedly change it or its parts without severe consequences. One of these consequences is the application of the most-favored nation clause: If the EU would be pressed to reduce tariffs on U.S. cars, the same would apply to car imports from China, Russia etc. Though I believe it is possible to exempt 3.6 ltr cars from the U.S., because China seems not to produce such tanks. But this would not correct the EU trade balance with the U.S. very much. What I would like to say: Among civilized nations, a fair change is acceptable only through comprehensive negotiations. They were on their way: The EU offered the U.S. a transatlantic free trade agreement with far-going tariff reductions, which were almost completely negotiated. However, the new U.S. government was not interested, and therefore, the higher, and certainly not justified by cost structures, EU tariffs on car imports from the U.S. continue to apply – such as higher U.S. tariffs on imports of other items from the EU apply.

To conclude: I asked for a rational explanation of tariff differences. The rational explanation cannot be found in economics but in international politics. At least something!