by Ioannis Sidiropoulos, Lawyer, LL.M LSE and Lecturer in Commercial Law and Consumer Protection at CIM-Cyprus Business School
Throughout history, tariffs have significantly shaped the American and global automotive industry, affecting production strategies, consumer prices, and international trade relationships. Two key periods—during the 1930s and the 1980s—offer valuable insights into how protectionist policies can have far-reaching effects on industry, commerce, and consumer protection. These lessons are especially relevant today, as modern trade policies continue to echo past protectionist measures. By examining these historical examples, we can better understand the potential impacts of similar tariff measures in today’s evolving economic landscape.
Today’s Tariffs: A new chapter in trade protectionism
On April 3, 2025, U.S. President Donald Trump announced a sweeping new set of tariffs, including a 25% tariff on foreign-made automobiles. This move, part of a broader policy that also includes a 10% baseline tariff on all imports, aims to protect U.S. jobs and manufacturing. However, such policies are likely to have ripple effects on global trade and the auto industry. While designed to bolster American manufacturing, these measures raise concerns about higher consumer prices, retaliatory actions from other nations, and potential disruptions to the market.
These tariffs also raise significant commercial law questions, as the new trade policies could impact international agreements, trade practices, and the rights of consumers. The lessons from previous tariff surges, such as those in the 1930s and 1980s, can help us understand how similar trade measures may unfold today.
The 1930s: The Smoot-Hawley Tariff Act and its impact on commerce and consumers
In 1930, the United States enacted the Smoot-Hawley Tariff Act, which raised import duties on over 20,000 goods, including automobiles and auto parts, as an effort to tackle the domestic economic adversities caused by the Great Depression. While it was intended to protect American industries during this period, it led to a series of unintended consequences that affected both industry and consumers. International trade between 1929 and 1934 plummeted.
American automakers, such as Ford and General Motors, faced rising production costs due to the tariffs, as many components were imported. For example, a Ford Model A, which cost around $500 in the early 1930s, saw its price rise as tariffs pushed up the cost of foreign parts. These price hikes made cars much less affordable for the already poor average American consumer during the Depression.
Additionally, U.S. manufacturers struggled to find sufficient domestic suppliers for the parts they needed. This scarcity, combined with rising prices, led to fewer vehicles being sold. The Smoot-Hawley Act serves as a reminder of how protectionist measures can inadvertently harm consumers by increasing prices and limiting access to goods, highlighting the importance of consumer protection in the context of trade laws.
The 1980s: Voluntary Export Restraints and industry adaptation in the age of Consumer Law
In the late 1970s, the U.S. faced increased competition from Japanese automakers like Toyota, Honda, and Nissan, as the consumers moved away from the so-called gas guzzling vehicles traditionally produced by the American car makers, to the more economic ones from Japan, as a result of the oil crises of that decade. To protect the domestic auto industry, the U.S. government ‘encouraged’ Japan to agree to a Voluntary Export Restraint (VER) in 1981, limiting its car exports to the States to 1.68 million units annually.
The VER initially benefited U.S. manufacturers by reducing foreign competition, but it led to a 14% increase in the price of imported cars. By 1983, a typical Japanese car cost an additional $1,200 on average due to the restrictions. This price increase came at a time average U.S. household income was about $20,000, making it more difficult for consumers to afford vehicles.
Japanese automakers, seeking to bypass the export limits, began building manufacturing plants in the U.S. By 1991, Japan had invested billions of dollars in U.S. production facilities, creating around 25,000 jobs. While this investment helped secure market access, it also resulted in higher car prices for U.S. consumers. The VER illustrates how trade barriers can cause higher prices and reduce consumer choice, affecting both the competitive landscape and consumer access to affordable products.
Lessons for contemporary trade policies
The experiences of the 1930s and 1980s show that while tariffs and trade restrictions can temporarily protect domestic industries, they often have negative effects on consumers, such as higher prices, reduced access to products, and retaliatory actions from trading partners. These trade measures had a direct impact on U.S. consumers’ purchasing power.
Furthermore, the creation of U.S. manufacturing plants by Japanese automakers in response to trade restrictions underscores how foreign companies can adapt to trade barriers, leading to changes in the competitive environment. By 1990, Japanese automakers had heavily invested in the U.S., fundamentally altering the American auto industry.
These historical lessons suggest that modern trade policies must consider the broader implications for consumer protection and the long-term effects on the industry. Policymakers should focus on strategies that encourage innovation and competitiveness in domestic industries rather than relying solely on protectionist measures, which can lead to unforeseen economic consequences.
Conclusion
The Smoot-Hawley Tariff Act and Voluntary Export Restraints provide important lessons for understanding the effects of protectionist trade policies on the auto industry. While these policies aimed to protect American manufacturers, they often resulted in unintended consequences, such as higher prices for consumers and significant shifts in the competitive landscape. With the new 25% tariff on foreign-made automobiles, the potential consequences for global trade and consumer access to affordable products echo these historical precedents.
Ultimately, the experiences of the past demonstrate the need for a balanced approach to trade policy that protects domestic industries without unduly harming consumers or stifling global competition. As we move forward, policymakers can look to the lessons of the 1930s and 1980s to craft more effective and consumer-friendly trade strategies.
