One of the myriad unintended consequences of America’s bailout bonanza is the prospect of an international trade war. Though the WTO moves slowly, the European Union often takes a firm line on American subsidy regimes. And a report in Automotive News Europe [sub] indicates that the EU is prepared to take a firm line on automotive subsidies, as it has in the past with steel and agricultural protective measures. “Europe cannot just look on if someone offers subsidies and market forces are dispensed with,” declares German Chancellor Angela Merkel. “We have to watch carefully what the new president of the United States … will do with the American automotive industry,” growls EU Industry Commissioner Guenter Verheugen. But what’s this? Auto Motor und Sport reports the details of France’s latest 300m Euro effort to rescue the Renault and PSA Peugeot Citroen’s supply chains.
France has already given its two major OEMs 500m Euros, and there are reports of 5-6 billion more Euros to come. Germany has floated the idea of a 100b Euro fund for its automakers, and Reuters says BMW is looking for loan guarantees as well. France has introduced “clunker culling” subsidies, and Germany has followed suit. These subsidies raise the stakes in the transatlantic controversy over public support for private firms. Thus far both sides are positively supporting their industries instead of placing sanctions on imports, but as the rhetoric steps up a full-blown trade war could still easily be the end state of the current bailout bonanza.
The arms race of the new millennium: the Socialism Race
Merkel is the perfect person to complain about government involvement in a major global automaker.
Different from the US, Germany has not given subsidies to the Car Makers directly, but subsidized the purchase of cars in general. This benefits any car makers, German or foreign.
The subsidies given by the US directly to Chrysler and GM should certainly lead to repercussions from WTO and other countries. The US, THE advocate for free markets and unhindered access, which it has used over the last decades to grow internationally, now basically hampers market access by foreign automakers through such subsidies. If this is the way to go in this financial crisis, then we will see quickly customs duties rising, which will destroy international trade and by this many jobs and businesses. The US better be careful.
Has the WTO ever even looked at the way the Yuan and Yen are manipulated to the advantage of Chinese and Japanese companies?
The WTO is a joke. Airbus gets direct subsidies and to justify that, the EU whines about Boeing military contracts.
TireGuy is right, however the problem for Germany is that they’re depending on exports, while the Americans are not. So Germany could only lose in a full scale trade war. They might be right, but being right doesn’t always help you.
@Ronnie: Has the WTO ever even looked at the way the Yuan and Yen are manipulated to the advantage of Chinese and Japanese companies?
Please look up currency rates before making these comments. The Yen is at an an all time high which ruins their export (if you don’t believe me, make a trip to Tokyo and convert foreign currency. I do it about once a month … avoid taking a cab from Narita to downtown, it will set you back $300 …even the darned shuttle bus cost you $32, I don’t call that currency cheap) The Yuan rose as the dollar tanked (as the Yuan should have) but when the dollar started rising mid 08, the Yuan remained at the highs and didn’t budge. The Yuan should have gone down against the USD as the dollar rose against major currencies. It did not. When the peg of the Yuan to the USD was removed in 2005, the yuan rose from 8.28 to 6.84 now.
The Yen and the Yuan are artificially high, not artificially low. I know it may sound strange, but a look at currency charts would tell the truth.
“Ronnie Schreiber :
January 20th, 2009 at 1:09 pm
Has the WTO ever even looked at the way the Yuan and Yen are manipulated to the advantage of Chinese and Japanese companies?”
You mean those currencies that are killing their export, thanks to their high exchange rates?
“The WTO is a joke. Airbus gets direct subsidies and to justify that, the EU whines about Boeing military contracts.”
Which is exactly the ONLY way they can get things even, correct – Boeing was ALWAYS subsidized by the US Government through military contracts, despite all the crap Boeing workers spread (I met a few and I bet they are being brainwashed over there.)
Ronnie: Has the WTO ever even looked at the way the Yuan and Yen are manipulated to the advantage of Chinese and Japanese companies?
Bertel: Where does Ronnie mention currency rates in his post?
Correct me if I am wrong, but about a month ago weren’t Toyota and Honda pleading to the Japanese government to intervene to bring down the value of the Yen (currently 1:90) so they could make a profit (they want 1:100+).
Isn’t currency manipulation a subsidy?
Has the WTO ever even looked at the way the Yuan and Yen are manipulated to the advantage of Chinese and Japanese companies?
The Yuan and the Yen (especially) are at relative highs compared to the buck. The only way the big Asians have been keeping their currencies from much higher exchanges with Uncle Sam’s pesos dollars is that their central banks turn around with all their trade-surplus dollars and plow that into U.S. Treasury paper. Buying US debt weighs their currencies down with our debts and that is the only thing really keeping the currencies close.
It’s a testament to the economic disaster of the credit markets that their currencies are appreciating despite their best efforts at eating almost a trillion bucks of more Treasury paper in the past six-months. Actually, it’s a testament also to how cheap the dollar is without these kinds of actions by foreign central banks to keep the buck propped up.
Its a joke when a country tries to regulate exchange rates via fiat. The Soviets tried it for decades much to the laughter of the wider-world. I imagine Zimbabwe’s “official” exchange rate is quite the punchline to a tragic joke.
@SkiD888:
Bertel: Where does Ronnie mention currency rates in his post?
He doesn’t, and there’s the problem. He makes sweeping accusations of currency manipulation “to the advantage of Chinese and Japanese companies,” where a simple look at currency charts would tell just the opposite. As others have pointed out, the Yen and Yuan are high, not low. A low Yuan or Yen would be to the advantage of Chinese and Japanese companies, a high currency (as we have it now) is to their detriment. Capisce?
@CarnotCycle:
It’s a testament to the economic disaster of the credit markets that their currencies are appreciating despite their best efforts at eating almost a trillion bucks of more Treasury paper in the past six-months. Actually, it’s a testament also to how cheap the dollar is without these kinds of actions by foreign central banks to keep the buck propped up.
Understanding how foreign currencies work is hard. Predicting them is an exercise in futility. In the U.S., there is very little understanding of the workings and nuances of the foreign currency market. Hence, it is very easy to sell the American public on “currency manipulation” if a foreign currency doesn’t go the way special interest groups would like to have them to go. You hear very little about “currency manipulation” out of Europe, where people grew up with foreign currencies and the vagaries of exchange rates.
The ironic thing is that the people who make the most noise about currency manipulation actually demand currency manipulation. The Yen is a freely traded currency. The only way to “manipulate” the rate is to buy or sell the currency by the central bank. Also called “central bank intervention.” The Chinese Yuan is pegged against a basket of currencies. It goes up and down with those currencies. What the Chinese Central Bank can do is change the weight of currencies in the basket. Some may call that currency manipulation. Some call it setting foreign exchange policy. The dollar lost value until July 2008, and the Yuan gained accordingly. When the dollar rose, the yuan should have lost value. It did not. There are many, amongst them Morgan Stanley, who say that the Yuan has been quietly pegged again against the weak dollar of July 08. It had been done so under pressure from the US government. In December, Paulson urged the Chinese to stick with it, job losses be damned: http://www.ft.com/cms/s/0/e8b30672-c2d5-11dd-a5ae-000077b07658.html
The US government demanded from China to “manipulate their currency.” China obliged, worried of a trade war. Only people who have no concept of how currencies work can accuse Japan or China of manipulating their currencies to the advantage of their companies. The Japanese central bank did nothing (so far) and the Chinese “manipulated” their currency to the distinct disadvantage of their companies. Whatever “manipulation” there was in China (changing the weight of the basket to mostly dollars) was done at the behest of the U.S. government.
One of the myriad unintended consequences of America’s bailout bonanza is the prospect of an international trade war. Though the WTO moves slowly, the European Union often takes a firm line on American subsidy regimes. And a report in Automotive News Europe [sub] indicates that the EU is prepared to take a firm line on automotive subsidies, as it has in the past with steel and agricultural protective measures. “Europe cannot just look on if someone offers subsidies and market forces are dispensed with,” declares German Chancellor Angela Merkel.
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Marsh
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