11.20.2008 11:29 am

Auto bailout is a trade issue too

St. Louis Post-Dispatch

This may be stating the obvious, but a federal bailout for the auto industry wouldn’t just affect the three troubled companies in question. It also would affect their competitors, which employ hundreds of thousands of American workers. And, Dartmouth business professor Matthew Slaughter argues in today’s Wall Street Journal, it would hurt other U.S. companies and their workers by making the U.S. a less attractive place to invest:

Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors?

The answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers willing to invest here.

Slaughter says that a U.S. bailout of General Motors, Ford and Chrysler could lead other governments to prop up failing, but politically powerful, firms. That’s likely to hurt some of America’s most successful comopanies, he adds:

Will a U.S.-government bailout go ignored by policy makers abroad?

No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies’ U.S. employment, R&D and related activities. That would be bad for America.

It’s widely agreed that the Smoot-Hawley tariff touched off a trade war that deepened and prolonged the Great Depression of the 1930s. Could industrial bailouts be the Smoot-Hawley of the new century? It’s a scary prospect.

(1 votes, average: 4 out of 5)

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Tags: autos, bailout, Chrysler, Ford, General Motors, trade

4 comments

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Blog Comments: Rules of the Road

Loan the money to the big Three. Toyota used tax money to build plants in the USA . If we cut the Presidents salary congress’s salaries we could loan the money to the Big Three and have money in our pockets to spend in our communities. CUT THE GREEDY FEDERAL GOVERNMENT

— cinza

1:09 pm November 22nd, 2008

The big 3 auto makers should not be given federal aid to avoid bankruptcy. Giving such aid would only prolong the inevitable (as evidenced by Chrysler’s need for aid < 30 years since its last bail out).

Some aid should be given to the retirees who are hurt by the bankruptcy, but more importantly for the future of our country, aid should be given to the company(s) who purchase their remaining assets (eg manufacturing facilities) and put people back to work under a sustainable, green, business plan that includes autos that run on alternative energy. As part of this plan, the federal government should also place more restrictions on the import of finished automobiles and automobile parts to employ as many Americans as possible (this was part of the Harley Davidson bail out circa 1980s).

The employees of the newly formed auto company(s), both management and labor (union and non-union), must be realistic about their salary and benefits packages. All employees must work at wages commensurate to their skill levels, share in their health care packages, and work as a team to produce world class products.

— John

4:19 pm November 22nd, 2008

It seems a bit ironic that the federal government is chastising the auto industry for mis-performance. How can they hold industry accountable when they aren’t? Let the big 3 go bankrupt.

It is time to wonder about how much of a show we will have for the inaguration festivities. Do you think Washington will listen to their own advice to the auto execs? Heck, Washington is more bankrupt than GM yet they seem to feel the auto execs are the ones with excess.

Also, how about Congress taking boats and buses for their congressional junkets? Maybe even tele-conferencing.

— T8r

1:29 pm November 24th, 2008

The bailout is a trade issue, one which highlights our open door - no strings attached policy versus the rest of the world’s strategic subsidization of their auto industry. We continue this policy though it has led us from being the worlds greatest creditor nation to the worlds greatest debtor nation. Is Mr. Slaughter’s opinion that this is a sustainable model. Does he know that the DETROIT 3 have invested more in American facilities and infrastructure in the last four years than all the transplants combined have in the last 25 years? Is his policy to allow that to disappear so we can beg for more crumbs? Does he care that each domestically made vehicle generates $6,000 in tax revenue while a foreign made vehicle only generates $400? Next thing you know he will be advocating for more schooling while ignoring the fact that with the reduced tax base this country will be unable to fund it.

U.S. trade policy should change so we can address issues like Currency Manipulation which allows Japan a $4,000 - 10,000 per/car advantage. How about addressing the health care cost disadvantage? American health care costs twice what other nations, this is reflected in the cost of all goods not just autos. If U.S. health care costs were the same as other nations the Detroit 3 would see 80% of their losses disappear.

Loan the Detroit 3 the money to get through this crisis but let’s change our trade laws so our domestic producers are not put at a disadvantage in their own market!

— Darin

12:46 pm November 25th, 2008

Auto bailout is a trade issue too

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