By Eamonn Fingleton
For decades East Asian competition has played a controversial role in
the decline of the American car industry. Both Japan and Korea have
long been accused of unfair trade and closed markets. For their part
Japanese and Korean officials have argued that their markets are open
and that an incompetent and heedless Detroit doesn't make the sort of
cars their consumers want.
In all the charges and countercharges, little of the remarkable truth
of Detroit's trade problems has come out. To see how well -- or rather
how badly -- you understand the background, try this quiz:
1. What was the Detroit companies' share of the Japanese market in
1930? (a) About 90 percent. (b) About 20 percent. (c) Less than 4
2. How many models do the Detroit corporations currently make with the
steering wheel on the right (the standard configuration for Japan)?
(a) More than 40. (b) 12. (c) 3.
3. What was the combined share of all foreign makers – American,
European, and Japanese – in the Korean car market in the last decade?
(a) Less than 2 percent. (b) Around 15 percent. (c) More than 70
The correct answer in each case is (a).
If you flunked, don't feel bad. Just cancel your newspaper subscription.
For decades American press coverage of global car industry competition
has been abysmal. Reporters and commentators have almost never dug
below the surface and their idea of fact checking has too often
consisted merely of "accurately" recycling previous observers' errors.
Worse many commentators have displayed an almost venomously elitist
bias against Detroit. In short, readers of the American press have
been fed a diet of sophistry and outright fiction, while key facts that
give the lie to the foreign trade lobby’s special pleading have been
swept under the carpet.
Much of the most egregious press coverage moreover has emanated from
writers and editors at some of the most “respected” media
organizations, not least the Wall Street Journal, the Economist, the
Washington Post, and the New York Times. Reuters and Associated Press
have not been far behind and even the automobile trade press has
often unforgiveably spun the story to Detroit's great disadvantage.
Part of the problem has been that, in thrall to a particularly toxic
dose of laissez-faire fundamentalism, many top
editors and commentators have been persuaded that any nation that
protects its markets hurts only itself. Thus the message for
Washington policymakers has been that irrespective of whether nations
like Japan and Korea reciprocate with market opening measures of their
own, the American national interest is best served by maximizing the
openness of the American market.
In far too many cases commentators who take this view have also
embraced an end-justifies-the-means strategy in which they have
consciously suppressed or distorted important facts the better to
ensure public acquiescence in their extreme agenda. This mentality has
been particularly evident in the Wall Street Journal’s editorial
pages. Indeed it seems to have been pioneered by the late Robert
Bartley, who as the Journal's editorial page editor in the 1970s and
later as editor in chief never saw a piece of foreign car lobby
propaganda he did not want to publish.
Bartley seems to have been an ideologue pure and simple. But
something beyond ideology has also been at work, something more
reliably effective: money. Even more than the rest of the foreign
trade lobby, foreign car makers have succeeded in buying the press
They have long taken care of individual journalists via fat speakers'
fees and other barely disguised bribes. Meanwhile they have
established an institutional arm-lock on top media executives via
Given their well-known ability to work together in government-led
cartels, Japanese corporations in particular boast a "comparative
advantage" in pressurizing media ad departments.
Of course, as press commentators have generally spun it, the Detroit
story has been a simplistic morality tale of "incompetent executives,"
"lazy workers," and "intransigent unions." Detroit in other words has
richly deserved its fate and, in the opinion of many of the more
callous observers, the sooner it is put out of its misery the better.
Pace the commentators, the real story is a complex, highly nuanced one
in which the American auto industry has often been more sinned against
One of the most important elements of the story, the rise of the
Japanese car industry, has been particularly misunderstood. Many
commentators seem to accept that the Japanese people are naturally
endowed with some special car-making proclivities -- a comparative
advantage denied to Americans (for a recent statement of this canard
see an editorial page article in the Wall Street Journal in May by
Matthew Slaughter, a George W. Bush-era member of the Council of
To say the least, this idea hardly squares with the fact -- almost never
mentioned in all those "Detroit-as-basket-case" editorial page
commentaries -- that in the 1920s and early 1930s the Detroit corporations
utterly dominated the Japanese market. As the author C.S.
Chang has pointed out, by 1930 all three of them had established major
assembly operations in Japan and they also sold many American-made
cars there. The fact is that Detroit would probably have retained its
lock on the Japanese market indefinitely had not the Tokyo government
in the 1950s launched a Herculean effort to "target" cars as a major
growth industry. There then followed a massive ramp-up of investment
as the Japanese establishment set to work with great purposefulness
(and not a little guile) to break America's then seemingly
unassailable comparative advantage.
For two decades the Japanese ramp-up went largely unnoticed in the
United States but finally, in combination with an earlier one by West
Germany, it began to cut a swathe through the American market in the
1970s. The Japanese were helped by the oil crises
of that decade, of course. More controversially
they indulged in predatory pricing to win market
share. This crucially meant that the Detroit companies were starved of
the adequate returns necessary to invest in new, more efficient
By contrast and pace the elite press, the rise of the Japanese and
more recently the Koreans has been speeded by protectionism at
home. In a closely related point (if a more difficult one to document --
we can't do justice to it in the space available here), key foreign
governments have generally kept their currencies undervalued.
Essentially the Americans' main competitors, particularly
the Japanese and Koreans but to a lesser
extent the Germans, have been subsidized by home market consumers.
They have made good use of those subsidies by investing in the latest
production equipment years before Detroit could afford to.
Naturally Detroit's foreign competitors have denied their
home markets are protected. Yet instead of challenging such
obfuscation American press commentators have generally aided and
No nation has benefited more from protectionism than Japan. In recent
years, however, the fact that the Japanese car market remains as
protected as ever has dropped off the American press’s radar. Although
Japanese officials first proclaimed the market open as far back as
the 1970s, as of 2008 the combined share of all foreign makers was
still just 5 percent. This was only a fraction more than in the 1980s
and the second lowest in the developed world after only Korea. Apart
from BMW and Mercedes-Benz, which have been allowed token market
shares on condition that they pitch their prices nice and high (so
they don't spoil the game for the home team), every other foreign
maker is shut out. Even Renault, which, via a stake in Nissan,
ostensibly controls Japan's second largest car distribution network,
has never been able to get its cars into its own showrooms. (Why
hasn't Renault pressed harder for market access? As Renault executives
have consistently ducked the question, CounterPunch put it to
officials at the French embassy in Tokyo -- and for good measure
asked also why the Peugeot Citroen group's cars are even less visible
in Japan. Not entirely unexpectedly, the embassy never responded.
Basically the French government is powerless to influence Japanese
car trade policy but would rather not say so. And, as is well known
in the Tokyo diplomatic community, any attempt to embarrass the
Japanese establishment via public statements is viewed with vengeful
disapproval by the Japanese establishment.)
Whenever the subject of Japanese protectionism comes up, press
commentators allege, in a classic blame-the-victim gambit, that the
Detroit companies aren't trying hard enough and their products just
don't meet Japanese consumers' expectations. The fact that all but two
European car makers plus the entire Korean industry are also shut out
is never mentioned.
Of course, as the commentators never fail to point out, the Japanese
drive on the left -- and Detroit, it is alleged, makes virtually no
cars with the steering wheel correctly positioned for Japan. As the
author Pat Choate has pointed out, this is a classic piece of Japan
lobby chop logic. Why? Because the Detroit Three have always operated
large subsidiaries in Europe whose products are available in both
left-hand-drive and right-hand-drive versions. As the European
subsidiaries' models have been systematically shut out of Japan, it
would hardly make sense for the Detroit Three to invest the necessary
several hundred million dollars to establish production lines in their
home factories to serve a Japanese "open market" that exists only in
the minds of the more intellectually-challenged members of the American
The right-hand drive argument is chop logic also in a different sense
in that many Japanese buyers of foreign cars -- indeed often a
majority -- actually prefer the steering wheel on the "wrong" side.
(Why? Because it betokens a foreign -- and, given Japanese conditions,
an expensive -- car. Basically American-configured cars have snob
value, particularly in the case of larger cars. But, of course, if the
cars are not allowed in, they can't be bought.)
All this notwithstanding, the steering wheel argument keeps turning up
like a bad penny. It is a particular favorite of right-wing
commentators and indeed, as far as the Wall Street Journal's editorial
page is concerned, no discussion of global car industry competition is
complete without a stern dressing down for Detroit for allegedly
failing to ascertain which side of the road the Japanese drive on.
Most such admonitions come from the more naïve sort of think-tank
analysts or ivory tower economics professors. But the steering wheel
argument has also often been invoked by people who really do know
better. For many years one of its more notable exponents has been
David Sanger, who formerly headed the New York Times's bureau in
Tokyo before going on to become the paper's chief Washington economics
correspondent, and more recently White House correspondent. He has
rarely passed up an opportunity to play the steering wheel card. (He
has also repeatedly ridiculed Detroit for not investing in specially
built local plants to serve the Japanese market. In reality if the Japanese
market was remotely as open as Japanese officials -- and their surrogates
in the American press -- claim it is, it would be more cost effective for
Detroit to serve Japanese consumers from existing plants in the United States and
Europe. Fact: Neither BMW nor Mercedes-Benz, the two foreign makers
who have achieved a token foothold in the Japanese market,
manufacture there. Someone should tell the Times's
chief trade "expert" that the purpose of trade is trade.)
Perhaps the ultimate low blow has come from the Economist. In a
smart-aleck contribution couched as an open letter to the then United
States Trade Representative Mickey Kantor, the magazine wrote in 1995:
"Dear Mickey, Ever considered the real reason why the Japanese don't
buy American cars? Yes, we know about all that closed-market stuff….
The real problem is that Detroit has never catered for those strange
foreign markets, such as Japan and Britain, where cars are driven on
the left and steered on the right. It's not easy driving a car with
the steering wheel on the 'wrong' side. Just try overtaking." The
writer sneeringly suggested that, rather than unfairly picking on the
Japanese, Kantor would be better employed "bashing those villainous
Saudi Arabians for not buying American ski-equipment." The letter was
signed, "Yours helpfully, R.H. Driver."
The special significance is that the Economist's editors were better
placed than almost anyone to know how disingenuous the steering wheel
argument is. By virtue of their London base, after all, they should be
aware that the Detroit Three's European subsidiaries make a huge range
of cars suitable for Japan yet these cars have consistently been shut out.
Then there is the fact that virtually the entire European car industry corroborates
the Detroit companies' allegations. Korean carmakers too are completely
blocked in Japan. (This incidentally cannot be attributed to anti-Korean
sentiment among Japanese consumers. In other, less "strategically
important," areas of the Japanese market, Korean companies are
dominant players. Thus Seoul-based Lotte is the biggest player in many
categories of confectionery.)
Given its eponymous expertise in the dismal science, the Economist
also can be assumed to have understood that Kantor was not just
fighting for better access for American cars in the Japanese market.
His most important objective was different: to eliminate a huge source
of hidden subsidies for the Big Three's Japanese competitors. This
objective needed to be pursued irrespective of whether the Detroit
companies ever aspired to sell a single car in Japan. In all
probability had Kantor succeeded, the Big Three would indeed have
found it profitable to invest in American production lines to serve
Japan (apart from anything else blue-collar wage rates in the United
States have long been lower than in Japan). But even had the Big Three
never sold a car to Japan the fact that the Japanese market had been
opened to _someone_ -- say the Europeans -- would have restored some
badly needed balance to the world trading system.
The Economist's editors also understood that Kantor's efforts were as
much concerned with _components_ as with the vehicles that are made
from such components. Until the 1980s the United States had been a
major net exporter of car components -- many of them made by such
erstwhile huge Big Three subsidiaries as GM's Fisher Body and Delco.
The Economist's letter made no mention of components -- for the good
reason that the components issue self-evidently did not fit the
writer's snarky agenda. After all, irrespective of whether you drive
on the right or the left, an American-made battery or carburettor will
work just as well. As the Economist surely knew, Japan's components
market was not only even more tightly closed than its car market but
was even more extensively rigged to channel excess profits to Japanese
car makers. (This is a rather technical point but basically Japan's
so-called sha-ken system of periodic government vehicle inspections
strongly favors components officially blessed by the company that made
the car. Essentially the maker enjoys monopoly profits in the
after-market parts business. The margins can be quite rich given that
a U.S. government survey in the 1990s discovered that some components
were priced at as much as six times what a free market would dictate.)
The contemptuous tone of the "Dear Mickey" letter was particularly
piquant in view of an earlier apparent conflict of interest by one of
the magazine's principal commentators on the world car industry, Nick
Valery. In the late 1980s Valery imported an expensive European
sports car to Japan when he moved there as the magazine's Tokyo bureau
chief. Before leaving in 1992 he sold the car -- a Lotus Turbo
Esprit -- for a profit that, according to one witness, he boasted to
colleagues had substantially paid for an apartment on the American
West Coast. In a telephone interview with CounterPunch, Valery, who is
now retired and lives in the Pacific Palisades area of greater ck Los
Angeles, laughingly downplayed his profit and added: "I suspect I made
probably $50,000." He also mentioned that he had got the idea from a
British friend, the Tokyo branch chief of a foreign securities firm,
who had imported a series of vintage Rolls-Royces and sold them for
as much as three times what he paid. In a subsequent email exchange
Valery backed away from the $50,000 figure and provided various
details that seemed to suggest the transaction had actually made a
loss. He failed to respond, however, to repeated e-mails requesting
clarification of how the various versions of the episode could be
In the interval between CounterPunch's interview with Valery and
Valery's subsequent apparent backing away from the $50,000 figure,
CounterPunch put some written questions to John Micklethwait, the
magazine's current editor in chief. CounterPunch asked:
1. Whether in view of the large profit Valery had apparently made,
Micklethwait believed the transaction was a bona fide arm's length
2. Whether Micklethwait believed that the Japanese car market was
substantially open at the time of the transaction?
3. Had Valery ever written for the magazine about the American or
Japanese car industries after he sold the car?
Micklethwait never replied. An informed guess is that the "Dear
Mickey" letter was written either by Valery or by Valery's close
associate Bill Emmott. The latter had been Valery's predecessor in
Tokyo and subsequent immediate boss. He went on to become the
magazine's editor in chief.
Micklethwait's silence notwithstanding, there is a serious case to
answer. Certainly the Economist cannot have it both ways. For decades
it has held that Detroit's allegations of Japanese protectionism have
been greatly exaggerated and that the Japanese market has been
substantially open to anyone who "tried hard enough." It follows
therefore that no one should have been able to make large arbitrage
profits on personal imports. Of course, in the subsequent email
exchange Valery seemed to disown the idea that he had made any profit
at all. But this does not get the Economist off the hook. The point is
that in an article some months before he sold the car Valery had
actually written about his securities industry friend's profitable
Rolls-Royce sales. If the Japanese market had really been open, it is
a fair bet that no securities house chief would have had any incentive
to moonlight as a used car salesman.
In reality no one of good faith who knows the Japanese or Korean car
markets has ever endorsed the official line
that protectionism is a thing of the past. In Korea's case, trade
barriers probably keep car prices on average nearly $2,000 higher
than they otherwise would be. This represents pure profit for Korean
makers and the aggregate subsidy probably runs close to $2 billion a
year. In the case of Japan, though the per-car effect is probably
less, the aggregate subsidy probably runs more than $8 billion a year.
Numbers on this scale deserve
attention. Yet the practical effect of protectionism in raising prices
in the Japanese and Korean markets has been utterly ignored by the
Many journalists seem blind to the practical details of other nations'
car industry protection tactics. What sort of tactics? Speaking in
Washington in 2007, Steve Biegun, a strategist for Ford, provided some
eye-opening recent Korean examples:
* Ford was barred from airing advertising commercials except between 2
a.m. and 6 a.m.
* Its showrooms' floor space was restricted by government regulation.
* Korean tax officials automatically audited anyone who bought a foreign car.
Japan has used similarly disingenuous techniques in the past and
indeed the tactic of hitting buyers of foreign cars with tax audits
was invented in Japan.
In recent years Japanese officials have relied largely on the
manipulation of regulations on specifications to keep foreign cars
out. The effect has been compounded by the extreme difficulties faced
by foreigners in trying to build dealer networks. Not only are
suitable sites hard to find but, contrary to all Western ideas of open
markets, Japanese car makers rule their distribution networks with an
iron rod and are permitted a free rein by government officials in
"discouraging" their dealers from handling rival products.
If the regulations in Japan and Korea are problematic for foreign
makers, the capriciousness with which these regulations are changed is
even more infuriating. A favorite gambit in Korea is so-called
"pop-up" tariffs, whose level is changed depending on market
conditions. At times when foreign suppliers are not a factor, tariffs
are slashed but the moment someone tries to break in to the market
they may suddenly be doubled. The effect is to allow Korea to claim a
low average tariff level for international statistical purposes while
simultaneously keeping most would foreign entrants into the market
The Japanese have traditionally used a similar but even more
objectionable technique: the revision of standards after a foreign
exporter's goods have already left port. Thus a car exporter who has
met all current Japanese regulatory requirements might find his
consignment rejected at the port of entry because of a rule change
announced while his goods were on the high seas. In the past this has
necessitated entire consignments being shipped back to the exporting
To be fair Tokyo has now renounced this technique. But the fact that
such a strategem persisted into the early years of this decade surely
substantiates the Detroit Three's contention that Japan is hostile
territory, where their products are distinctly unwelcome.
The key thing for our purposes here is that so little of the story has
been told in the English-language media. Take Biegun's disclosures
about the Korean market. These were completely ignored by the American
It seems that reports of East Asian trade barriers are just not news.
Yet assurances by East Asian officials that their markets are
substantially open are taken at face value.
Take for instance a description of Japan in 1982 by Japanese Foreign
Minister Yoshio Sakurauchi as "one of the most open markets in the
world." His remark was reported by both the Associated Press and
United Press International.
This episode had an interesting sequel in 2000 when
Minoru Makihara, vice chairman of Keidanren, the semi-official voice
of the Japanese business establishment, told the Tokyo foreign
correspondents' club that as recently as the late 1980s the Japanese
market had been "still closed and tightly protected." He was trying to
make the point that there had been substantial liberalization in the
meantime (a highly debatable point, of course) but, to anyone who had
witnessed first hand how assiduously Japanese officials had presented
the Japanese market as already open in the 1980s, it was a stunning
gaffe. In truth it should have been front-page news in the American
press. In reality not a single English-language media organization
picked it up. (The present writer has referred to it in a
subsequent book and in magazine articles.)
Criticizing Detroit for not trying hard enough in East Asia is one
thing -- but even when the press is ostensibly presenting Detroit in a
favorable light it often manages to undermine the industry.
A particular problem is a phenomenon best known as the "Don't worry,
be happy" story. The term refers to a periodic tendency for the press
to look determinedly on the bright side and discount the industry's
problems. The "Don't worry, be happy" message panders to a marked
tendency by Washington policymakers to seize on any excuse to back
away from tough action on opening foreign markets.
It has taken many guises over the years. In the 1970s and
early 1980s much upbeat press commentary was based on the assumption
that Japanese inroads into the American market would prove
automatically self-limiting. Supposedly some sort of psychological
block rendered it impossible for the Japanese from making a
competitive full-size car. Some American observers even seemed to
think this was related to fact that the Japanese were not the world's
tallest people! Thus Americans could hope forever to keep their big
car operations safe from Japanese targeting. This was convenient
because margins were much fatter on large cars. This theme was widely
aired up to the mid-1980s. Then in short order the Japanese launched
the Acura, Lexus, and Infiniti brands and suddenly Detroit's heartland
was being targeted.
In reality the idea that Japanese car makers were somehow
size-challenged was absurd. Certainly the Japanese had never suffered
any similar block in other fields. The largest aircraft carriers
deployed in World War II, for instance, were Japanese. Japanese
shipyards went on by the late 1970s to build oil tankers nearly 10
times the displacement of the Titanic.
Perhaps the ultimate excess of the "Don't worry, be happy" school came
in 1994 when Paul Ingrassia and Joseph White, both Pulitzer-winning
journalists at the Wall Street Journal, published Comeback: The Fall
and Rise of the American Automobile Industry. Reporting that Japanese
car makers were supposedly "in retreat," Ingrassia and White
proclaimed an "American success story" in which Chrysler -- the same
company that has ranked consistently as the weakest of the Detroit
Three since the 1970s -- had emerged as "the envy of the auto industry
around the world." All in all the Americans had morphed into
"formidable global competitors."
The book was written in the fashionable novel-like style favored by
many business journalists, a technique that, perhaps conveniently,
relieves authors of the need to use their commonsense, let alone
perform any serious financial or economic analysis. In reality in
stringing together a few anecdotes, Ingrassia and White had overlooked
the one fact that really mattered: Japan was still targeting the
American automobile industry.
Even before Detroit's implosion, the Comeback thesis was toast. For
one thing Japan had by 2007 passed the United States in total car
output -- not bad for a nation with less than half America's
population. Meanwhile Toyota passed General Motors the same year. By
comparison as recently as 1989 -- at the peak of the Tokyo financial
boom -- GM had boasted fully $220 of revenues for every $100 of
Toyota's. For our purposes the most significant thing about Comeback
was what it didn't say: it utterly failed to address the unbalanced
world trading system, thus implicitly seeming to endorse claims by
both the Japanese and the Koreans that they had fully opened their
One of the earliest airings of the "Don't worry, be happy" message
came in the Economist in the late 1970s. This was a time when American
policymakers were already hitting the panic button about rising car
imports. Enter the Economist magazine with a magisterial word of
reassurance. The foreign car makers' share had probably peaked, the
magazine opined, and would never again return to the record 18.5
percent level reached in 1977. Detroit had got its act together and
imports would soon be "rolled back into the sea."
As we now know, it was not to be. Quite the contrary, the imports just
kept flooding in. Thus by late 1981, the foreigners' share had passed
20 percent and by the 1990s it exceeded 30 percent. And as of last
yearit was approaching 50 percent.
All this is the more surprising because, as in the case of
the steering wheel canard, the Economist's editors had a much better
understanding of what Detroit was up against in Japanese targeting
than their U.S.-based counterparts. After all in the magazine's own
backyard in the U.K., such targeting had by the late 1970s already
proved repeatedly lethal to some of Britain's most vaunted
manufacturers. The lessons had been particularly painful in the
shipbuilding and motorbike industries. As recently as the mid-1950s,
Britain's global leadership in these industries had seemed
impregnable. With lightning speed, the Japanese ramped up capacity
and, helped by subsidized export pricing, they took a buzz-saw to
British margins. By the mid 1960s the British were on the ropes and by
the late 1970s those who had not already succumbed were at death's
Perhaps the most amazing thing about Detroit's press coverage over the
years is the indecent speed with which commentators have swung from
one extreme to the other -- portraying Detroit as knocking the socks
off all competitors one minute and writing it off as a basket case the
next. Though these views were of course irreconcilable, the key
geopolitical point is that the policy implications were identical: no
action by Washington was needed. At least no action was required in
the traditionally thankless matter of trade diplomacy.
Rarely if ever have commentators offered a balanced, commonsense,
middle-ground account of the geopolitics of Detroit's plight. Such an
account would have pointed out that while Detroit had weaknesses, it
also had strengths, and that the single most cost effective help
government could have provided was to take a much tougher line with
key trade partners.
In the end the Japanese were right in one respect: Americans have not
been trying hard enough. But the Americans in question have not been
Detroit's ill-starred workers and executives. Rather they have been
the incurious and often conflicted Pooh-bahs of an increasingly dysfunctional
Eamonn Fingleton is the author of In Praise of Hard Industries: Why
Manufacturing, Not the Information Economy, Is the Key to Future
Prosperity (Boston: Houghton Mifflin, 1999) and In the Jaws of the
Dragon: America's Fate in the Coming Chinese Hegemony (Thomas Dunne
Books 2008). He can be reached at email@example.com.