I bought a Japanese car seven years ago. It cost me less than $7,000 at the time. It has given me as perfect service as any car could. In seven years I have replaced the battery once and the muffler assembly twice. The latter is inevitable on New England's heavily salted winter roads. If I wanted to buy the same make and model today the cost would be over $10,000. The increase is largely due to the quota on Japanese car imports, which has been a bonanza for both the American and the Japanese motorcar industry.
Both made glittering profits during the quota phase.
Before the quota the Japanese had to keep down their prices to build their position in the market. This held prices down all along the line. With the quota, they could sell all they could import and also lift the price, as they did.
President Reagan has now dropped the quota. The Japanese will be free to ship in as many cars as they can sell. The sales prospect is already checking prices. Have you noticed?
Some American manufacturers have announced that their next round of models will be at the same old prices. It's a long time since Detroit has toyed with the idea of holding the price line.
Some of the Japanese manufacturers are just as sad about the passing of the quota as are most of the big American producers (General Motors excepted). Stiffer competition will come back into the price structure. Perhaps not many prices will come down, but the price rise will be less than it would have been.
Who paid the cost for the higher prices which the manufacturers loved? We, the consumers, of course.
Who lost out from the quotas besides the American consumer? Probably the biggest loser was the long-term strength of the American economy.
Can you remember back to those early years after World War II when American manfactured goods flooded world markets? The rest of the world wanted and needed what America could produce. There were hardly any motorcars that didn't come from Detroit. We lent massively to others to make it possible for them to buy our goods. Ft. Knox was filled to bursting with the world's supply of gold. The world became America's debtor.
Our inflation of the '70s, plus sluggish plant investment, has transformed the condition. America has been running a trade deficit for a long time now. The American automobile industry has lost its overseas markets. It can sell in them now only by building overseas. The gold that flowed into Ft. Knox in the '50s and early '60s has been flowing back. The Economist magazine notes that this year the United States ``will become -- or may already be -- a net debtor for the first time since 1918.''
In other words the US has been living on the fat that it accumulated in the boom years, when America alone emerged from the war with a modern (for those times) industrial fabric and almost unlimited production capacity.
For all who live on borrowed money, as the US is doing today, there must be a day of reckoning. Eventually one of two things must happen. The US either regains a competitive position in world markets, or it runs out of credits. Running out of credits would be the more painful ending.
The prudent choice is to start at once taking such steps as would put the US back into a competitive position in world markets. The essential first step is to bring down the level of the dollar -- as Federal Reserve chairman Paul Volcker started to do last week.
More of that treatment over a long enough time would start the balance of trade turning to American advantage. The lower the dollar, the more goods (including wheat) the US could sell, and the fewer imports it could afford. The US could head back toward balanced trade.
In terms of getting America back to what is best for the American economy, President Reagan was right in ending import quotas and Mr. Volcker was right in bringing down the dollar, a little. Much more of the same, and a balanced budget in sight, are still needed to finish the job.