VIEW FROM WASHINGTON / JAMES RISEN : German Car Makers Will Honk for Joy

If President Clinton goes through with his vow to slap 100% tariffs on 13 Japanese luxury cars, there will be dancing in the streets of Stuttgart, not Detroit.

Clinton’s new managed-trade initiative might as well be called “The BMW Relief Act of 1995.�

Usually it takes a while to figure out just what the unintended side effects of Washington’s trade and industrial policies will be. But not this time. The big winners from this U.S.-Japan spat all live in Germany.

A Cadillac, after all, looks nothing like a Lexus. But a Mercedes-Benz does. It’s now 1995, and GM is still threatening to bring out its Mercedes killer--next year. It’s been next year since about 1982.

To be sure, Cadillac--and Lincoln, for that matter--still outsell the imports. But the domestic luxury car makers have never been able to bust out of their traditional, older customer base and compete with the Germans and Japanese for the hearts and minds of the rising generation of luxury car buyers. So even Detroit executives concede that there are two luxury car markets, one for imports and one for domestics, with very little cross-over between them. Cadillac executives worry about beating Lincoln, not Infiniti.

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This stuff is so obvious that it raises an interesting question: Aren’t there any car buffs in the White House? Bill Clinton still owns an old Mustang and has fond memories of his Astroturf-lined El Camino. But have any of the wonks who came up with this policy ever read Motor Trend?

What’s worse, the rationale behind the Administration’s decision to make Japan’s high-priced luxury models the targets of its wrath, rather than high-volume models sold to the U.S. middle class, underscores just how silly the White House looks in this debate.

Why didn’t Clinton go after Japan’s bestsellers in America, like the Honda Accord or the Toyota Camry? Because they are built in the United States. The luxury models are the only cars the Japanese can’t quickly replace with U.S.-built substitutes.

Hmmm. Makes you wonder why that little fact didn’t set off any alarms at Clinton’s National Economic Council. You’d think someone in the brain trust would have recognized that the auto industry has become a bit more complicated, a bit more globally interdependent than it was when Jimmy Carter bailed out Chrysler.

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There is no doubt that the Japanese market is still effectively closed to U.S. autos and auto parts. It has only occasionally been pried open, thanks mostly to pressure from Washington. And Clinton has good reason to be angry and frustrated that the Japanese have been backsliding on their promise, made to President George Bush, that Japan’s auto makers would double their purchases of U.S. auto parts. Even the Japanese auto companies’ U.S. plants don’t buy enough American-made components to qualify for duty-free shipment to Mexico or Canada under the North American Free Trade Agreement.

So Clinton decided it was time to get tough. The new chairman of the NEC, Laura D’Andrea Tyson, has been urging a tougher line on trade with Japan since her days as an economist at UC Berkeley.

But bullheaded federal policies almost always lead to ludicrous--and surprisingly funny--consequences in the auto industry. Here’s one prime example that shows what might be coming around the corner this time:

In the late 1980s, Ford found itself in the happy position of once again selling lots and lots of big, gas-guzzling, rear-wheel-drive cars. But that threatened to place the No. 2 auto maker in violation of the federal government’s fuel-economy standards.

Under the federal rules, the average fuel economy of all cars sold by an auto company each year must equal or exceed 27.5 miles per gallon; extra sales of big cars tipped the scales against Ford.

But there was one loophole, and Ford drove a Crown Victoria through it.

The fuel-economy law requires auto companies to count their imported and domestic cars separately when complying with the mileage standards. Their imports are grouped together to get an average import mileage number, and their U.S.-built cars--defined as those with at least 75% U.S. content--are grouped together to get an average domestic number. That clause was inserted by the United Auto Workers union when the law was written back in 1975 to prevent GM from importing a lot of compact Opels from Europe to meet the new mileage standards.

Ford applied the law of unintended consequences with a vengeance. It started importing engines and other major components for its lumbering Ford Crown Victoria and Mercury Marquis models and got the U.S. content in the vehicles below 75%. Technically, that transmogrified them into imports. So even though they were still assembled in the United States, they were no longer dragging down the average fuel economy for Ford’s domestic fleet. The only real losers were a bunch of American workers at parts plants.

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So what should we expect if the new luxury car tariffs go into effect?

Almost overnight, prices on Mercedeses, BMWs, Porsches and Audis will surge. The Germans have never gotten over the fact that the Japanese successfully invaded their turf in the yuppie-luxury market; now, with one stroke, Clinton can make their fondest dreams come true. The Swedes and the British will join in the fun too, with Volvo, Saab and Jaguar all indulging themselves in a little sticker shock.

For the most part, Detroit will be an innocent bystander. Unfortunately, the United States is no more than the battleground in a global rivalry between the Japanese and Germans for hegemony over the luxury market; American car makers aren’t major combatants.

So how is Clinton’s trade initiative likely to be remembered?

A car salesman might put it something like this: With this simple line: “Sir, it’s not a car. It’s a Mercedes.�