07 August 2014

Trade Deals vs Protected Markets

There are some car producing nations that allow imports in with low or no restrictions. There are others that protect their domestic industry with high tariffs. Which is better? Well it depends on the size of the country but let's look at a few examples.

Australia: For years it had duty to protect a car industry based around large cars. Relatively low volumes and high manufacturing costs were compensated. However, the government then progressively reduced import duties, while at the same time the large car was losing out to SUV type vehicles. This has led car makers to give up making cars there. Thought: Should an inefficient industry be protected?

The big car going the way of the dodo in Australia

Brazil: It has a protected industry and car making is surprisingly expensive. A deal for free trade on cars with Mexico was reneged on as Mexico did much better out of it. Because of few trade deals, about 85% of cars made are for the domestic market, with most exports to Argentina. With both markets not doing well, production is down. Thought: Too many eggs in two baskets.

India: A nation that assists local producers with duties. Most production is for local consumption, yet it wants to be a strong exporter. It cannot have it both ways. It's size sustains it but a more open policy would help. Thought: Imports would not flood the market if allowed due to unique local needs, so why not ease duties though trade deals?

China: It is a strongly protected market against imported cars. Most cars made in China are for local consumption. It is doing fine while the local market keeps growing, but will be hurt badly if a sudden domestic downturn occurs. Why does China protect itself from car imports? The industry no longer needs that protection. Thought: China may one day regret it's anti trade stance in this area.

The BAIC B40 looks like a Jeep knock off.  

Korea: It restricts imports while exporting with vigour. A strong South Korea is good for stability in the region so nations allow them to get away with it. However, things are now changing with the US and Europe now getting better terms for exporting vehicles there. Locals fed a diet of Hyundais and Kias will be glad for some choice regarding mass market brands. Thought: Protection has gone on too long.

Japan: Outwardly it is an open market to deal with. It keeps its currency undervalued - which is common in Asia - to help exports and hurt imports. There is a culture of supporting local brands, and there are ways employed to assist in this. Also, if a car makers struggles, often others come to their aid, sometimes at the direction of government. Thought: A unique market, dominated by local brands and a big exporter too.

Mexico: A very open market with trade deals everywhere just about. New car makers are moving in and it has now passed Brazil in units made. Growth potential is strong and it is now a very important part of Mexican manufacturing. Thought: An open car market is working here.

Russia: Through protection it has managed to get many car makers to go there. Generally cars made are for the local market so it is dependent on local consumption. It seems a recent slowdown has hurt producers and some may question their presence there in future. Thought: Local production faltering a bit.

EU: It generally doesn't restrict imports with high duties and car makers have to fight hard. Some car makers have struggled and others done well. Overall European car making has become more competitive in this environment. Thought: A model for elsewhere on the benefits of more open trade.

EU car making is very productive for the most part

North America: Canada seems to have hit a ceiling with car making, but the US is still growing. Local producers get a fair amount of support from buyers so making cars in the US makes sense. The rewards are there for car production but a hard market to get established in. Thought: High wages can be overcome with high volume and proximity to the market.

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