Protectionism and the Detroit Bailout

Like my friend P.S., I am watching the Detroit Bailout hearings on CNBC.  It is interesing how openly the politicians are talking about bailing out their pet causes.  Right now a representative is urging the Detroit Bailout be used to expand affirmative action programs.

The bailout isn’t just about coddling labor unions and pushing race-based preferences, however.  It’s also about protectionism.

The bailout that people are talking about — the second $25 billion bailout for Detroit just this year — is obviously a way of protecting the Big 3 automakers from foreign competition.

For instance, Rep. Barney Frank said (I apologize if the quote is imprecise, I typed it out as quick as I could):

“The upcoming cabinet will have unlimited ability to veto and investment over $25 dollars, and we expect this will be used to prevent any foreign investments.”

In other words, the 2nd Detroit Bailout would make any foreign investment by “American” auto makers subject to the whim of a politician.

Just as the bailout would help protectionism, though, letting the UAW (and the Detroit 3 along with it) go bust would help international trade.  Remember, it was the UAW and the car companies which are preventing progress on the Free Trade Agreement with South Korea:

The U.S. also has viewed its free trade deal with South Korea as a means to check China’s increasing economic influence. And it has been seen as devised to reinforce the traditional U.S.-South Korean alliance, perceived as weakened in recent years due to conflicts over North Korean policy.

It seems there is consensus regarding the KORUS FTA’s political effects, though the economic perspectives of the FTA partners may still diverge somewhat, influenced by diverse interest groups. Opposition has arisen from such U.S. groups as auto and steel workers, manufacturers and labor unions. On the other hand, Korea faces challenges mainly from agricultural and medical groups.

Impact of the U.S.-South Korea FTA –

Ford is the only Detroit auto maker whose cash exceeds its debts.  I wish it well.

Otherwise, it may be best for the country for Chrysler and GM to go bankrupt.

And not just because we could use those bailout funds to get America off foreign oil.