Monday, December 8, 2008

domestic automaker protectionism?

One of the things that helped cause the international trade collapse that turned the 1920's recession into World Depression I was nationalistic protectionism.

Every nation suddenly thought buying goods from somewhere else was a bad thing for the national economy. Global trade collapsed, making things worse for no good reason.

I wonder if we aren't looking at some risk of doing basically the same thing by helping the car and truck folks in Detroit out. We have a big domestic auto manufacturing industry, some in Detroit with old American names, some in the rest of the country with newer (and mostly Japanese) names. So, why should one get free money and not the other?

Say we give the American brands free cash and they use it to make their product more competitive - so much so that Japanese automakers cannot compete (far fetched, I know, considering where things stand today (see Ford Thunderbird, Dodge Caliber, Pontiac Aztek). But lets pretend, for the sake of argument that with sufficient free money the domestics could theoretically beat the imports). Given that no new car buying demand will be created, every sales win by the domestics is a sales loss by the imports.

Effectively, the best possible result of the bailout would be to transfer job losses out of Detroit and into Japan, except that most of the Japanese cars sold in the US are not built in Japan.

Most of the "Japanese import" vehicles sold in the US are built in the Southern US (and Canada). So, the bailout, if successful, will at best have a net impact of moving unavoidable job losses from Detroit to the South.

And that is regional protectionism, which is also known as just plain stupid. I'm not assigning morality or blame to any of this, only pointing out what the net impact would seem to be and that no system-wide benefit can come from it.

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