There’s at least some evidence that any effort by the Federal Government to directly subsidize the Big Three auto companies could lead to a worldwide trade war:
Nov. 22 (Bloomberg) — 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 or just making up for state aid that foreign rivals already enjoy.
As the U.S. considers a lifeline for its auto companies, officials in Europe, Canada and Asia are considering their own aid packages — even as the European Union threatens to lodge a complaint against any U.S. bailout to protect manufacturers from Renault SA in France to Fiat SpA in Italy.
China also may complain, though the government is considering helping SAIC Motor Corp. and Guangzhou Automobile Group Co.
Any World Trade Organization complaints may open a Pandora’s Box, bringing to a head a long-simmering dispute over policies that U.S.-based General Motors Corp., Ford Motor Co. and Chrysler LLC say unfairly aid rivals, including state-financed health-care and retirement benefits, and currency policies.
“Frankly, it’s stones and glass houses,” said 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.”
Neelie Kroes, the European Union’s antitrust chief, weighed in on the debate yesterday, urging the bloc’s 27 nations to avoid the “costly trap of a subsidy race” that would give some countries unfair advantages.
Over at The Truth About Cars — now a must-read blog if you want to keep on top of the auto industry — Bertel Schmit lays out the consequences:
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 campaig, Senator Obama complained that South Korea created disadvantages for American carmakers– 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.
And, in this war, the casualties would be consumers and the international peace that free trade helps promote.
