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Get Ready for a Trade War

A Big 3 Bailout Could Kill Thousands of Export Jobs

If nothing else, the Great Depression proved very instructive. Plenty of commentators and analysts learned one of its important lessons: protectionist policies are only likely to deepen and worsen an economic slowdown. One person who’s given no indication that he’s learned the lesson is Barack Obama, but we can at least hope that his protectionist talk was nothing more than campaign rhetoric.

That said, it seems likely that the current move to bail out the Big 3 U.S. automakers might ignite a trade war anyway:

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 throwing a lifeline to General Motors Corp., Ford Motor Co. and Chrysler LLC, officials in Europe are preparing their own assistance packages — even as they threaten to lodge a World Trade Organization complaint against any U.S. bailout. Other governments also may take issue with an American rescue as their own automakers press them to follow the U.S.’s lead.

Any WTO complaints may open a Pandora’s Box, bringing to a head a long-simmering dispute over government policies that U.S. automakers say unduly aid their rivals, including state-financed health-care and retirement benefits, and currency policies.

Under the rules of the World Trade Organization there are several ways that a bailout could be found to be an unfair trade practice which merits retaliation by U.S. trading partners. That retaliation typically takes the form of a tax on U.S. products exported abroad. Often those duties are applied against the impacted industry — in this case, cars. However, the WTO frequently sanctions duties applied to sensitive products exported by the offending country.

Any nation that produces cars or trucks might win a finding that the bailout illegally harms their domestic producer. That nation — be it Japan, the EU, China, India, or a smaller country — could seek to apply tariffs on cars imported from the U.S. But it could choose to apply them to computers, or beef, or another product deemed politically sensitive enough to compel Washington to ‘fix the problem.’

In 2005, the U.S. won the right to impose a 44 percent tax on chips imported from Korea when the company was bailed out by the Korean government. If the Korean government believes Hyundai is harmed by a Big 3 bailout, they might seek to impose retaliatory duties on auto imports from the U.S. — or perhaps on the import of agricultural products such as rice or beef, which are already controversial in Korea. America’s trading partners imposed millions in taxes on U.S. imports in retaliation for U.S. implementation of the ‘Byrd Amendment,’ which took years to remedy. U.S. exporters could suffer far more in penalties if they are sanctioned because of government ‘help’ for the auto industry.

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