SUVs and the Chicken Wars

People tend to focus on market failures and negative externalities when talking about carbon emissions. But we often forget the public policy decisions that got us to where we are today.

An editorial in today's New York Times tells the story of a forgotten trade war with Europe that started with a tariff on US chicken exports. In response, the US placed a 25% retaliatory tariff on German light trucks and kept the tariff after the trade war ended. The Times explains:

The chicken war ended, but the tariff survived. It explains a lot about why Detroit chose to stake its future on S.U.V.’s.

At the time, Detroit was not even dreaming of urban light trucks. But over the ensuing decades, they proved instrumental in the battle to fend off Japan’s hypercompetitive automakers. American carmakers retooled but still couldn’t come up with cars that Americans liked more. And they had Washington running defense: negotiating voluntary export restraints with Tokyo and pressing Japan to make the yen rise against the dollar...

Years of cheap gas (unleaded didn’t breach $2 a gallon until 2004) helped a lot — as did government tax breaks and looser rules on fuel efficiency and tailpipe emissions. Perhaps most important, Washington used the chicken tariff to wall off the light-truck market, giving American automakers a protected and profitable niche to exploit...

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.

Now, for American automakers and for the global climate, the chickens are coming home to roost (sorry, but I can't believe they didn't make that joke in the editorial. A little too on the beak?).

This story illustrates two important principles: (1) trade protection can, in the long-run, produce weak domestic industry that never manages to become competitive; and (2) public policy is subject to the law of unintended consequences.

We shouldn't take this to mean that all government action is negated by unintended consequences. But it should make us weary of quick policy solutions to complicated problems. It should also make us more vigilant to fight inertia in the policy system. It was easy to put the light-truck tariff in place; it was very difficult to get rid of it.

Maybe we should teach policymakers the same thing they teach med students: "first, do no harm".