By on August 8, 2010

Doesn’t it bug you when other countries give their carmakers money? Doesn’t it bug you a hell of a lot when other countries give their carmakers money with they express  purpose to increase exports? Shouldn’t those felonious countries be dragged in front of the WTO and shot? Well, there are exceptions.One such exception is Ford.

At his good-will tour to Detroit, President Obama came bearing gifts for Ford. Ford will receive $250m in government financing that will help export more than 200,000 vehicles, the White House announced, and the DetN printed it.

The money doesn’t come from the Whitehouse. It comes as a loan guarantee by the Export-Import Bank of the United States. It will finance $3.1b of export sales for more than 200,000 vehicles to buyers in Canada and Mexico.

Why?

Says the DetN: “The bank makes loans to help boost exports, in part to level the playing field when other countries help industries with exports.”

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33 Comments on “What’s Wrong With That Video? WTO Edition...”


  • avatar
    NulloModo

    Does it bother me when other countries support the export of goods for their local companies? No, of course not, government should certainly help domestic business. The government exists for the benefit of the people, a more robust economy benefits the people, and encouraging the export of goods helps create a more robust economy.

    This isn’t a gift, it’s a loan, that will be paid back, with interest, in a year. According to their website the bank has made over 17 billions in similar loans thus far this year to other US business, it exists to loan money. Banks make money by loaning money, the more they loan, the more interest they get back, the more money they can loan back out, and the cycle just repeats itself.

    One of the most basic tenets of business is to never spend your own money when you can spend someone else’s instead. Ford has paid billions of dollars in debt back in the last year, so $250 million is a drop in the bucket. It makes sense to take it though if the interest rates are attractive enough to leave more liquid capital available.

    • 0 avatar
      Doc

      I cannot agree that government exists for the benefit of the people. This “common good” is extremely difficult to define and has been used to justify all sorts of highly questionable activities throughout history. Government should exist to protect individual rights only.

      Business needs to sort out its own issues. If other countries want to pump a bunch of taxpayers money into certain companies and dump products into the US, then we benefit from the lower prices, and the taxpayers of that country take the pipe.

      It benefits us in no way to follow them down the government-business partnership sink hole.

    • 0 avatar
      Maxb49

      I cannot agree that government exists for the benefit of the people. This “common good” is extremely difficult to define and has been used to justify all sorts of highly questionable activities throughout history. Government should exist to protect individual rights only.

      Oh yeah, and individual rights are not a common good. *rolls eyes*

      We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

      Sound familiar? It is pretty clear that this government’s founding intent was to promote the common good. Whether this has worked out at various points in history is a separate issue.

  • avatar
    tced2

    And of course the Export-Import bank is a wholly owned and operated division of…you guessed it…the United States government. (Established by an executive order (the President of the US) in the 1930′s).

    Other countries have “given” their automakers money through sneakier means…currency valuation manipulation. I wonder who?

    Why don’t normal privately owned banks (if there is such a thing these days) do these loans? One reason is that the government has a source money that is cheaper than any bank has…the Federal Reserve printing money…it just costs green ink and paper.

    • 0 avatar
      L'avventura

      >>Other countries have “given” their automakers money through sneakier means…currency valuation manipulation. I wonder who?

      The US Ex-Im Bank is a currency manipulator for the US government. This is the fundamental nature of how Ex-IM banks operate globally. Its a federally-run organization that directly subsidizes US exports that couldn’t find funding through free-market means.

      More importantly, being a federally-run bank with massive lending power, Ex-Im banks essentially function under “reserve practices” (as the US GAO likes to call it). Basically allowing for the revaluation of currency. This is further multiplied by the fact that EX-IM banks deals with the Forex market and influences exchange rates by directly facilitating the purchase of foreign currency using government money.

      Furthermore, Ex-Im banks have a severe lack of transparency and is frequently used as a political tool by whomever is in power; Obama is using it for funding wind & power projects, while Bush used it to fund defense contractors. The GAO has a report on it:

      [PDF]:
      http://www.gao.gov/new.items/d04531.pdf

      Here’s a wake up call, the US government is just as bad a currency manipulator as every other First World country. This is more true under Bernake’s QE/CE(credit easing) practices over the last few years. We have come to a point where the US Federal Reserve fabricates a bank account and then buys its own US Tresury bonds (80% of all US bonds last year); basically the Federal Reserve is creating money out of nothing, lending it the US government and collecting interest on that fabricated loan. This is a method of increasing money supply and devaluing the dollar.

      The hypocrisy of it is that they raise hell when foreign countries do it citing ‘currency manipulation’, but its the first thing we resort to when our own housing bubble/credit market collapses.

    • 0 avatar
      NulloModo

      Maybe I just don’t understand international finance that well (which I don’t) but why would the US government want to devalue the dollar? A more valuable dollar means we have more wealth as compared to other nations, and isn’t that a good thing?

      I know I liked it a lot more when $1 US was worth close to $2 CDN, it meant I could travel up there and everything was close to half price. Now that the currency is almost equal, what’s the point?

    • 0 avatar
      L'avventura

      @NulloModo

      There are several reasons why the US wants to, and has to, devalue the dollar. We first have to understand that currency is relative. Currently, many currencies (such as China’s) are pegged to the dollar, and the reason for that is that the US is the largest market economy and that many major commodities (such as oil) are dominated in dollars.

      The US, as it stands now, has a lot of leverage in terms of how it values it currency. Essentially, the US can increase its money supply (a.k.a. print money) and countries such as China will pay for that cost to support its export market, and the US can pump money into its economy. This allows the US to finance a lot of its spending using foreign money. The Japanese have largely forfeited this market as supporting the dollar doesn’t guarantee sales for them (which is also the reason the yen has spiked).

      Another reason is that the US is trying to fight deflationary pressures due to the lack of lending due to the economic crisis by essentially printing money as its pays for these bailouts. Deflation means that existing debt will increase over time, which will mean more defaults and existing debts are harder to pay; its vicious cycle that the US is trying to avoid. The US buys its own debt so that banks are discouraged from buying bonds which have little return. This way banks will lend to free market rather then buying US treasuries.

      There is a very easy to understand video NPR Marketwatch made that explains all of this:
      http://www.youtube.com/watch?v=ohKQP_wSO9k

      Ultimately is about balance. Neither the US, nor any other country wants to devalue its currency too much, nor do they want it to be too expensive that it discourages FDI. Due to the current economic environment a lower currency is very valuable as it helps its own exports and discourages imports from other countries.

      However, as developing countries grow there is less and less incentive to peg their economies to the dollar. And as the dollar falls further there is the risk that major commodities will no longer be dominated in dollars and the US will be at a disadvantage in petrodollar warfare. This will result in massive inflation for Americans.

      • 0 avatar
        2ronnies1cup

        Petrodollar warfare will increasingly be of the bombs-and-bullets variety.

        It’s happening already – what do you think is the /real/reason for all those expensive military forces in the mideast?

    • 0 avatar
      mpresley

      L’avventura: There are several reasons why the US…has to, devalue the dollar.

      It is difficult to argue that the US “has” to devalue the dollar. It is mostly tied to fiscal (and not monetary) policy. At this stage of the game the dollar will devalue simply because the US has engaged in too much deficit spending. In order to cover our debt one of three things (or a combination) has to happen:

      1) taxes must rise. This has the effect of reducing the money supply for private (productive) investment, but does not reduce the overall supply. However, at current rates of government spending, there is not enough private dollars to tax in order to cover the bill. If people have less to spend, the macroeconomic effect tends to be deflationary (unless countered by government spending–see below).

      2) the government borrows the money from the existing supply of private dollars (or foreign currency that can be converted into dollars) through the sale of bonds). This does not necessarily increase the amount of dollars in circulation.

      3) the central bank can buy the government bonds. This increases the money supply, all things being equal. However, the money supply is mostly increased through the process of private bank fractional reserve lending (the so-called multiplier effect). At this time, since private loans are stalled, the actual money supply is not as large as one might otherwise expect, even with monetization (central bank purchases).

      Now, money supply increases relative to a fixed amount of goods creates monetary inflation. This has nothing to do with price increases due to commodity based supply and demand (shortages or surplus), and, any increase in the supply of money relative to goods has the effect of devaluing the currency.

      Currently, many currencies (such as China’s) are pegged to the dollar…

      The Dollar/Renminbi peg was designed to allow US consumption at the expense of domestic Chinese. The peg was instituted by the Chinese central bank resulting in yuan inflation. Chinese domestic inflation decreased the value of mainland Chinese savings, but as the peg is slowly removed the yuan should appreciate allowing internal Chinese demand to absorb a goodly portion of their own domestic production, resulting in a higher standard of Chinese living. Alternately, Chinese exports will become more costly.

      The US…has a lot of leverage in…how it values…currency. Essentially, the US can increase its money supply (a.k.a. print money) and countries such as China will pay for that cost to support its export market…

      See above. As the dollar further depreciates, and inasmuch as the return on government bonds is near zero, how long do you think the Chinese will continue to absorb this imbalance? Domestic inflation has already caused major economic problems for the Chinese, and there is no economic reason for them to continue to purchase US debt (although there may be political reasons for them to continue). Especially since a rising yuan will stimulate domestic Chinese purchases that will counteract any loss in exports.

      Another reason is that the US is trying to fight deflationary pressures due to the lack of lending…

      There is plenty of money to lend, but no one is taking. Why? It’s foolish to borrow when there is no hope of return on investment. Would anyone in their right mind borrow money to start a business in California? Or anywhere in the US, today? We are experiencing a strange mixture of price deflation due to private spending reductions, but face the frightening aspect of monetary inflation due to massive government spending.

    • 0 avatar
      L'avventura

      @ mpresley

      While I think we are largely in agreement, we have some semantic disagreements. The dollar ‘has’ to be devalued due to both US fiscal and monetary policy; neither exists within a vacuum. One is the result of the other and the other is a result of overall economy.

      The whole point of QE is to stimulate private sector lending in the face of a high-risk and sluggish economy; which influences money supply and the ultimately the value of the dollar . All the lengthy individual points you have brought is merely stating in pieces what I’ve stated as a whole.

      As we are bracing for yet another round of QE as we’ve read everywhere these last few days, and as the stagnation of this economic recovery has shown, we are directly following the foot steps of the Japanese after their own bubble. Its interesting to see what we as a country have said in the past on this subject versus what we are doing right now.

      also…

      in reference to RMB and China allowing their currency to float. So far since before the G20 when it was announced we are talking about mere fractions of a percent that it has been allowed to appreciate (we are talking about going from .1465 to .1475 CNY to the USD since the announcement). That’s nothing (a delta of .001).

      While psychologically its not insignificant, the movement of the RMB has been minuscule relative to the attention its gotten. We’ve always known that China would loosen its control of their currency as they gain in wealth, this is a given, and in the best interests of the Chinese over the long-term. But these latest announcements are nothing but political fodder, all sound and fury, signifying nothing.

    • 0 avatar
      mpresley

      laaventura: As we are bracing for yet another round of QE as we’ve read everywhere these last few days, and as the stagnation of this economic recovery has shown, we are directly following the foot steps of the Japanese after their own bubble.

      I wish I knew what to do, but these problems transcend any of us.

  • avatar
    BDB

    Doesn’t it bug you when other countries give their carmakers money? Doesn’t it bug you a hell of a lot when other countries give their carmakers money with they express purpose to increase exports?

    No, and it doesn’t seem to bother you, either, except when the US does it.

  • avatar
    wmba

    Since Canada and Mexico are the two other members of NAFTA, a nominally free trade association, someone will have to enlighten me as to why Ford needs financing to export cars to either of these countries. It’s nominally the same market.

    From that perspective, looks like Ford managed a coup. Free money for nothing. Canada and Mexico should bring it up at the triumvirate meetings and complain.

    • 0 avatar
      tced2

      NAFTA has “free” in its title. That doesn’t mean the trade it defines is “free”.
      A famous television commenter said something like “We have free trade between Kansas and Nebraska with zero pages of a trade agreement, but NAFTA has several thousand pages of free trade conditions.”
      It sort of makes you wonder what’s going on in the extensive free trade agreement NAFTA – I suspect a lot of “not free trade”.

    • 0 avatar
      Lorenzo

      NAFTA isn’t quite a free trade zone. Mexico got an exception for cars, requiring cars sold in Mexico to be built in Mexico, or face stiff tariffs. Canada has its own version of the UAW and there are some protections for them in the agreement. The US has no such protections, and automakers take advantage by building many price-sensitive (econobox) models mostly in Mexico. Brazil has a free trade agreement with Mexico, so some of those Mexican built cars can be shipped to Brazil. Canada’s wages and exchange rate made it attractive to build many rwd cars and minivans in Canada.

    • 0 avatar
      Cammy Corrigan

      @Lorenzo

      “NAFTA isn’t quite a free trade zone. Mexico got an exception for cars, requiring cars sold in Mexico to be built in Mexico, or face stiff tariffs.”

      Are you absolutely sure of that?

      http://www.thetruthaboutcars.com/hecho-en-los-estados-unidos/

    • 0 avatar
      holydonut

      @ Lorenzo…

      Unless they made a recent change to NAFTA – one of the key provisions when it came into effect was to stop the tariff of vehicles assembled in the USA and sold in Mexico.

      Fact sheet: summary of principal provisions of NAFTA – North American Free Trade Agreement
      US Department of State Dispatch
      August 30, 1993
      http://findarticles.com/p/articles/mi_m1584/is_n35_v4/ai_13297337/

      “For automotive products, NAFTA immediately reduces and will terminate over 10 years complex Mexican trade and investment restrictions that had forced automotive assemblers and parts firms to manufacture in Mexico in order to serve the local market, forced exports onto the U.S. market, and virtually banned U.S. exports of vehicles to Mexico. Mexican automotive tariffs (10-20%) will be reduced immediately and ultimately eliminated.”

  • avatar
    Z71_Silvy

    HA!

    Now Ford is taking EVEN MORE government money…and yet, the same people that chastise GM for taking government loans…won’t see a problem with Ford taking government loans.

    Hypocrites…all of them.

  • avatar
    ihatetrees

    So, I suppose Toyota could get a similar loan for any US parts or cars they need to export?

    • 0 avatar
      NulloModo

      I would assume Toyota could apply for a loan, though I would hope they would be denied. Toyota is still a Japanese company, if they want export assistance, they should petition the Japanese government’s equivalent of the Export/Import Bank.

    • 0 avatar
      Cammy Corrigan

      @NulloMondo

      Maybe Ford should hand back the loan guarantee they got from the UK government?

      http://www.thetruthaboutcars.com/ford-scores-more-european-aid/

    • 0 avatar
      Telegraph Road

      In March 2009, Toyota Financial Services requested a $2B loan from the Japan Bank for International Cooperation under a program to help Japanese firms sell products in overseas markets–in this case the U.S. The press, to my knowledge, did not report whether the export-import bank approved the loan request.

      http://www.marketwatch.com/story/toyota-reported-seeking-2-billion-loan

    • 0 avatar
      BDB

      Toyota, Honda, Hyundai, Nissan, and Volkswagen (with the Chattanooga plant coming online soon) all receive sweetheart deals from state and local governments, if not from the federal government.

    • 0 avatar
      NulloModo

      Cammy –

      Not to split hairs, but the UK is a bit different. Aside from a smattering of extremely niche players like Lotus and Morgan, there is no British owned car industry. Ford of Europe, Vauxhall, and Tata owned Jaguar/Land Rover are the closest England has to domestic manufacturers.

      Also, from what I can remember, the loans that Ford applied for from the British and German governments were to help fund the construction or retrofitting of factories in those countries. The US has given plenty of money (if not always through loans than through generous tax breaks or other subsidies) to Toyota, Mercedes, Subaru, et al. to build factories here, so I would expect European nations to do the same when it would benefit them directly. The US giving money to help Toyota export more vehicles or the UK giving money to Ford to help export more vehicles would just be silly.

  • avatar
    forraymond

    Regardless, NAFTA pretty much screwed the American manufacturing base. And don’t get me started on the WTO.

    • 0 avatar
      BDB

      Agreed. NAFTA sucks, not only for American manufacturing by Mexican farming. There’s a direct relationship between the flood of cheap, subsidized corn into Mexico and the vast increase in immigration (illegal and otherwise) since the mid-90s. Small-scale mexican farmers have been bankrupted.

  • avatar
    AaronH

    They are just stealing from the mentally retarded voting majority…The publik skewl / TV watcher phules are too stupid to realize it.

  • avatar
    John Horner

    Newsflash, that is what the Ex-Im Bank does.

    Does the author decry the financial involvement of the Chinese government in industry and in the promotion of said industry’s exports?

  • avatar
    Adamatari

    You know, not too long ago I used to be all for free trade and etcetera, but in recent years I’ve realized it’s a farce. Yes, in a theoretical perfect market everyone would do what they do best and everyone would be richer and happier – but we don’t, never have, and never will live in that entirely theoretical Utopia. NAFTA, for example, put a great big bunch of Mexican corn farmers out of business (some of whom then came to the US illegally) because the American companies that have economies of scale plus subsidies up the wazoo could sell corn cheaper than a poor Mexican farmer. China manipulates it’s currency to push exports while demanding all foreign investment go into joint ventures.

    All of this and I’m supposed to be outraged that the US Export-Import bank gave Ford a chunk of cash? Tell me again why?

    Sorry, the fairyland where libertarian free trade economics works does not exist any more than the fairyland where communism is a great idea that makes people free and equal. I want to believe, I do, but it just isn’t like that.

  • avatar
    ComfortablyNumb

    They are only doing this to provide Obama with something to throw back at those who accuse him of shilling GM and Chrysler. Ford won’t turn it down, they’ll just quietly accept it and pay it back in a year. Obama’s got a comeback, the UAW can’t complain about it, rah rah team.


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