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America’s Truck Shortage Reveals the Folly of Pandemic Protectionism

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Scott Lincicome

Shortages during the onset of the 2020 coronavirus pandemic caused many politicians and pundits to embrace protectionism as a means of boosting the United States’ “resilience” to economic shocks and, by extension, Americans’ access to essential goods during the next crisis. Current shortages of pickup trucks, however, show why such plans are not only ineffective but could actually make thing worse.

According to a recent CNBC report, the pandemic is causing Americans to travel across the country and pay record prices for new and used trucks (emphasis mine):

Two factors tied to the coronavirus pandemic are driving the trend. First, when the virus surged across North America in March and April, automakers shut down plants from Canada to Mexico, severely restricting the supply of new models, including full‐​size pickups.

Then, as America emerged from the initial surge of the pandemic, many people who did not own a vehicle in the past decided it was time to buy a car, truck or SUV so they could drive themselves and not have to rely on mass transportation or ride‐​sharing. The result: a run on certain types of used vehicles, like full‐​size pickups.

Tom Kontos, chief economist for KAR Global Analytics Research, who has tracked wholesale used vehicle prices for more than 20 years, calls this is the hottest market he’s ever seen.

“In the space of two months, prices went from double‐​digit declines to double‐​digit gains, and have stayed high since June,” he said. In August, KAR Global reported the average price for a full‐​size pickup hit a record high of $21,557. That’s up $5,166, or 31.5%, since February.

Adams said the surge in used truck prices is so great, some preowned models are now selling for more than a comparable brand‐​new version of that pickup.

Other recent stories back up these trends. They all show that increased demand and pandemic‐​limited production have caused a veritable pickup shortage in the United States, even as North American carmakers have resumed operations and are now running full‐​tilt.

So why, might you ask, are Americans buying only (very expensive!) pickup trucks made in North America? Well, as my colleague Dan Ikenson explained back in 2003:

Foreign‐​made pickup trucks are subject to a 25 percent import tariff, a policy heartily endorsed by U.S. producers. So a foreign truck valued at $20,000 costs the importer $25,000 before he can even clear customs. Meanwhile, domestic producers of $20,000 pickups have an artificial $5,000 cushion, enabling them to increase prices without appearing out of line.

At 25 percent, the import tariff is virtually prohibitive. In 2001, fewer than 7,000 pickups were imported from outside North America. That’s only 0.23 percent of almost 3 million purchased. Without imports, supply is smaller, choices are fewer, and domestic producers are the only game in town. It’s a veritable sellers’ market, sanctioned under official U.S. policy. And truck buyers — if you’ll pardon the pun — carry the load.

The latest data from the International Trade Commission (Figure 1 below) show that little has changed since 2001: because Canada and Mexico are the only major auto‐​making countries currently facing zero tariffs in the United States, they supplied more than 96 percent of all imported pickup trucks in 2019 (approximately 625,000 units, which was about 30 percent of all trucks sold in the United States in 2019). U.S.-based manufacturers supplied the rest, save a handful from Spain. By contrast, Figure 2 shows that Canada and Mexico shipped only about 39 percent of all imported cars, SUVs, minivans — which face a maximum 2.5% tariff (and are duty‐​free for NAFTA and other U.S. free trade agreement partners) — over the same period (3.66 million units, or 32 percent of domestic sales), with U.S. and other foreign producers splitting up the rest of the market:

Yet, even with high tariffs, the U.S. truck market remains severely undersupplied, and prices are predictably surging. In fact, this old‐​school economic nationalism appears to be amplifying the problem: U.S. import data through August of 2020 show that imports of pickups (Figure 3) and non‐​pickups (Figure 4) from Canada and Mexico are down around 27.4 percent and 31.7 percent, respectively, compared to the same period last year, while total imports for each type of vehicle declined by about 27 percent.

The total decline in truck imports this year unsurprisingly parallels the decline in imports from Canada and Mexico because the 25 percent tariffs have effectively blocked other non‐​NAFTA sources (which actually make some very cool trucks) from serving the high‐​demand U.S. market. By contrast, significant volumes of non‐​NAFTA imports of cars, SUVs and minivans from Asia (e.g., Vietnam, China and Korea) and Europe (e.g., Sweden, Hungary, Belgium and Austria) have — undoubtedly aided by lower tariffs — made up for some of the pandemic‐​induced declines in the same imports from Canada and Mexico over the same period.

Put another way, if Canada and Mexico were — like they are with pickups — our only major foreign suppliers of non‐​truck vehicles and thus caused the same 32 percent decline in total non‐​truck imports that we saw in NAFTA non‐​truck imports this year, the U.S. market would have about 300,000 fewer vehicles (about 4.7 percent of 6.3 million imported units). Thus, low tariffs and supply diversity are likely helping American car consumers cope with severe and unexpected changes to supply and demand — and they should continue to help as countries recover at varying speeds in the coming months.

Surely, the math here is more complicated that my back‐​of‐​the‐​napkin doodle (and it’ll be good to revisit the data next year), but this real‐​world example nevertheless shows the folly of kneejerk plans to improve Americans’ access to essential goods by restricting the international supply thereof.

For more on why the COVID-19 pandemic doesn’t justify protectionism, see this recent paper from Cato colleagues Ikenson and Simon Lester.



Source: https://www.cato.org/blog/americas-truck-shortage-shows-how-protectionism-doesnt-ensure-resiliency


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  • Counter Analysis

    International trade needs to be based on more than economics, such as who are our friends and foes, and who shares common values with us.

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