Editorial: Detroit Bailout = Thermonuclear, Intergalactic Trade War

There may be another nasty aspect to the bailout: a full-scale trade war, launched by countries that don’t (or even do) bail out their auto industries themselves. Bloomberg writes that “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.” Egged-on by the US bailout money that may, or may not, or may, or may not be in the offing, manufacturers all over the globe are holding up their tin cups. At the same time, the European Union threatens to lodge a complaint against any U.S. bailout on the grounds that it’s unfair to the auto makers in the rest of the world, not to mention Renault, Fiat, Volkswagen, Daimler, BMW et al. China also may complain, although their complaints will ring a bit hollow, as the government owns most of the big automakers already. Probably won’t stop them. “Now that we are in the WTO, we might as well use it.” Payback is a bitch.

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 campaign, Senator Obama complained that South Korea created disadvantages for American car makers– 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.

However, the European Union’s antitrust chief Neelie Kroes admonishes the bloc’s 27 nations to avoid the “costly trap of a subsidy race” that would give some countries unfair advantages. If his warnings are heeded, the coast would be clear for a backlash against American bailouts. As noted in today’s WAS, Ford Germany is not eager for government Euros. Even Opel did a sudden 180, and said they didn’t really mean it. Any politically motivated bailout, such as from Opel’s home state Hessen, could be withdrawn with no political backlash: “Brussels made us do it.” Noses clean, Europe could use the WTO to kick Detroit while Detroit is down.

Already, proponents of intergalactic trade warfare are building a fifth column stateside. David Littmann, economist for the Mackinac Center for Public Policy in Michigan, calls the U.S. bailout a “hypocrisy at the economic level and the political level. We tell others to open up their markets and reduce barriers, and we are doing the opposite.” A WTO wrench thrown into the slow-moving gears of Washington. What’s the next chapter in that saga? Chapter 11? Or skip back to Chapter 7?