Thursday, May 3, 2018

Tarrifs Can Hurt Businesses They Are Designed to Protect

Consider Ford.

Ford, and all other US auto manufacturers enjoy 25% tarrif protection from foreign made pickup trucks. That means that anyone trying to sell pickup trucks not made in the US has to pay a 25% tax on that pickup once it reaches the US. You don't see any such trucks on the US market even though there are some worthy models out there to import.

Instead, pickup trucks have become the profit centers for all three US brands. I'm sure that the pickup trucks made in the US by Toyota and Nissan are also very profitable. Why is this bad for Ford?

Ford just announced that they are getting out of the car business to focus on pickup trucks and truck like SUVs. In other words, Ford is so addicted to easy pickup profits that they will neglect autos. Rather than take those easy money profits and invest in learning how to make small and mid size cars better and more profitably, Ford will take the easy road and just make protected trucks.

You might say that the US market simply prefers pickup trucks. I might answer that by saying that auto ads are truck ads and that the public has been conditioned to want manly vehicles. The temporarily low fuel prices of the last few years has fed that demand.

Prices will rise, economical transportation will be in demand again and Ford won't have anything to offer. Don't worry, Honda, Hyundai and others will be there to take up the slack, and Ford will probably come asking for a bailout.