Subsidies for Everyone

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"Subsidies for Everyone"

henrys_cars_1.jpg

Some problems with proposals to come to the aid of the Big Three:

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 foreign rivals already enjoy.

As the U.S. considers a lifeline for its automakers, 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.

In a global economic slowdown, somebody‘s output of automobiles needs to decline. But if a US bailout spurs other countries to start assisting their car companies, then overall capacity and output won’t actually shrink and more money will be needed. Note that this problem gets even more severe if you assume that the United States is going to simultaneously undertake substantial expenditures on mass transit infrastructure. Ultimately, an endlessly growing market for new cars can’t be at the center of every major economy’s industrial policy.

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