There may be another nasty aspect to the bailout: a full-scale trade war, launched by countries that don’t (or even do) bail out their auto industries themselves. Bloomberg writes that “a U.S.-triggered spate of global carmaker-bailout proposals may spark trade disputes over whether the Americans are unfairly trying to subsidize their industry.” Egged-on by the US bailout money that may, or may not, or may, or may not be in the offing, manufacturers all over the globe are holding up their tin cups. At the same time, the European Union threatens to lodge a complaint against any U.S. bailout on the grounds that it’s unfair to the auto makers in the rest of the world, not to mention Renault, Fiat, Volkswagen, Daimler, BMW et al. China also may complain, although their complaints will ring a bit hollow, as the government owns most of the big automakers already. Probably won’t stop them. “Now that we are in the WTO, we might as well use it.” Payback is a bitch.
The U.S. has long bitched about foreign governments subsidizing their industries. Airbus comes to mind. GM, Ford and Chrysler never missed a chance to kvetch about unfair state-financed health-care, retirement benefits, currency policies and whatnot. (Did they/could they build American products specifically tuned to these “exclusionary” markets at a price the locals could afford? China JVs excepted, they did not.) During his presidential campaign, Senator Obama complained that South Korea created disadvantages for American car makers– even as GM imported Korean-made Aveos to bolster their otherwise impoverished small car lineup.
If you think that all this xenophobic, America-first rhetoric was lost on foreign automakers and governments, think again. An American bailout package will be taken apart– and to court– if it violates WTO rules. How could it not? Under these rules, certain kinds of subsidies are allowed. For instance those to protect the environment (hence the additional green sheen on most offers of green). Other subsidies–specifically the alteration of the U.S. Department of Energy’s fuel-efficiency -oriented $25b loans for “liquidity-enhancement”– are completely against WTO law.
If other countries do give bail money, then it’s “stones and glass houses,” according to Garel Rhys, professor of automotive economics at Cardiff Business School in Wales “Everybody has been at this game for their own interests; nobody is pure.” Anti-bailout-warfare could be complicated by the industry’s web of cross-border subsidiaries. Imagine: Germany closes down Opel in retaliation to US bailout of GM, and then sends money to save Opel’s jobs. War is hell.
However, the European Union’s antitrust chief Neelie Kroes admonishes the bloc’s 27 nations to avoid the “costly trap of a subsidy race” that would give some countries unfair advantages. If his warnings are heeded, the coast would be clear for a backlash against American bailouts. As noted in today’s WAS, Ford Germany is not eager for government Euros. Even Opel did a sudden 180, and said they didn’t really mean it. Any politically motivated bailout, such as from Opel’s home state Hessen, could be withdrawn with no political backlash: “Brussels made us do it.” Noses clean, Europe could use the WTO to kick Detroit while Detroit is down.
Already, proponents of intergalactic trade warfare are building a fifth column stateside. David Littmann, economist for the Mackinac Center for Public Policy in Michigan, calls the U.S. bailout a “hypocrisy at the economic level and the political level. We tell others to open up their markets and reduce barriers, and we are doing the opposite.” A WTO wrench thrown into the slow-moving gears of Washington. What’s the next chapter in that saga? Chapter 11? Or skip back to Chapter 7?
Oh, wait. We have the most open market in the world, allow any nation come come dump whatever products they produce with slave labor and wages – killing our homegrown manufacturing base, but when our government considers a rare subsidy for one of our industries, the world is going to bitch??!!
Congress should pass a reciprocal trade law that says our trade barriers will duplicate the other nations. If a nation has high tariffs on a US import, we would have an equal tariff on their exports to us. Our current problems stem partially from our gross over consumption of cheap shit from overseas anyway. If the DVD player goes up $20, so be it.
History teaches us the great depression was kicked off by taxes and protectionism. There is no difference today. Do as I say, not as I do will have it’s consequences.
OK, I get the hypocrisy angle on our trying to force others open while talking of clamping down our own…that’s a fair charge. But unfairly subsidizing our auto industry is a charge coming from the EU? The same EU that is contemplating a bailout ($50,000,000,000) that’s twice the bailout being considered for all the Big 3? That EU? And that’s not hypocrisy?
http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2008/11/push_for_europe.html?chan=globalbiz_europe+index+page_top+stories
Hmmm.
If a nation has high tariffs on a US import, we would have an equal tariff on their exports to us.
China would applaud. They would immediately do away with any quotas on textile imports. Easy: They don’t have any.
@Hank: As noted in today’s WAS: “The consensus in Europe is the package is dead in the water, because it needs the consensus from the non auto making members.” These measures must be passed by unanimous vote. Detroit’s 3 stooges will fly into DC on pigs before this will happen.
One way to get rid of bad trade laws is to just not enforce them.
It is a race to the bottom, and when you were on top, you have farther to fall.
globalization was a good deal only for the top 10 % of the world’s population. Don’t let the cheap goods at Wal Mart fool you.
When our industry competes against some company with no pollution laws, or labor protections, they lose.
The local plant closes…the workers lose.
Your job is outsourced to Mexico, India or Haiti, wherever the population is poor and powerless.
Globalization was not in the best interests of the people. It was, however, a huge bonus to the ruling class.
dwford: well said. I’ve been saying this for YEARS. I don’t see that having tit-for-tat trade rules as being protectionist, I see it as being fair. Hey, you want to put a 25% tariff on our cars? OK, we’ll do the same. Same for electronics, textiles, food, whatever. You can have “special” deals with individual nations on things like food and raw materials, where you may waive a tarriff imposed on a product they’d like to export to us in exchange for our exports. It could be very simple. I think as a nation, we have a unique ability to be more self-sufficient than most other nations – most of which would love nothing more than for us to fail, and that includes the EU. I think there is some insane attitude, especially amongst liberals that it is wrong to be the best and strongest nation on earth. I honestly can’t figure out why. The taxpayers should DEMAND that this be done BEFORE any bailout money is given, IMO.
Wahh. I would be willing to bet our subisidies for our auto industry are some of the smallest in the world. How about when Japan stops the subsidy (including the Yen manipulation) then maybe we can talk?
dwford, speedlaw:
Whether we like it or not, it’s a global market. Protectionism is not a good policy. We all remember what happened last time the US decided to act unilaterally (hint: coalition of the willing MY ASS).
@ speedlaw :
B.S.. I politely disagree with you. Globalization is good. Overall, it has been great for people worldwide. For example you cite India. Wages are much higher for the average person and standard of living has been drastically improved.
“Prime Minister Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalisation of 1991. The reforms did away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors…Since 1990 India has emerged as one of the wealthiest economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security.”
http://en.wikipedia.org/wiki/Economy_of_India
I disagree with all protectionist trade policies. That said, the system is skewed when countries don’t follow the same rules. It truly is the hieght of hypocrisy for Europe or China to cry foul over a bailout.
Saving a domestic industry such as auto’s is a time honored exception to the whole protectionism thing. It’s usually not considered protectionist to ensure that you at least have SOME sort of domestic industry in a sector. OTOH, there is no real need for 3 domestics, so they could have a point. I am in favor of letting at least the first one go, and likely the second. Come talk to me about a bailout for the last man standing, and we will talk.
Globalization is one of those terms that means nothing out of context, and not much in. The definition is so varied from speaker to speaker that it almost makes no sense to use the word anymore.
nevermind.
Protectionism feels real good, but then it comes time to pay the piper. Are you willing to dramatically lower your standard of living to make an ideological point?
Landcrusher – there is a lot of rabble-rousing sentiment bout all of the Big 2.5, especially in the Rustbelt.
B. S. writes some:European Union’s antitrust chief Neelie Kroes admonishes […] If his warnings are heeded…HIS warnings???
Mein lieber Herr Schmitt, I think Frau Kroes would not appreciate being taken for a bloke.
HTH!
C.R.C.
dwford :
November 22nd, 2008 at 7:53 am
Oh, wait. We have the most open market in the world, allow any nation come come dump whatever products they produce with slave labor and wages – killing our homegrown manufacturing base, but when our government considers a rare subsidy for one of our industries, the world is going to bitch??!!
Congress should pass a reciprocal trade law that says our trade barriers will duplicate the other nations. If a nation has high tariffs on a US import, we would have an equal tariff on their exports to us. Our current problems stem partially from our gross over consumption of cheap shit from overseas anyway. If the DVD player goes up $20, so be it.
The US has been on the forefront in the last 50 years to tell other countries to open up. Once open, US companies started entering the markets, crushing local companies. Any counteracts have been regarded by the US as unfair trade. Protection of markets was not allowed. The EU has consequently opened up already since long. Subsidies are very much limited, and closely watched by the commission. Other countries have opened as well, as consequence of WTO. Now, suddenly, when the US finds out it has not adopted itself to globalization, now suddenly free competition is bad? This is really hypocrysy at its best.
I hope Congress will have enough balls to tell the D3 to get lost and rearrange themselves through CH11. Any other solution is extremely unfair to other car manufacturers around the world which have cut in the last years their workforce, have developed fuel efficient cars which look nice and reliable and are therefore today in a position to simply compete better on their merits than the D3.