President-elect Barack Obama pushed for speedy aid to the troubled U.S.
auto industry when he met with President Bush on Nov. 10. Then
Democratic congressional leaders said they would seek to use $25
billion of the $700 billion financial sector bailout to help the
automakers, but have since backed away from the plan following
criticism from Republicans.
At least four individual banks (Bank of America, Wells Fargo,
JPMorgan Chase, and Citigroup) have already received aid of $25 billion
or more. The bailout plan for the insurance firm AIG has reached $150
billion. So providing loans to the auto industry, a central pillar of
the real economy with links to 1 in 10 jobs in the country, is a very
Before the election, Congress approved $25 billion in loans for
America's three largest car makers to retool old plants so they can
produce more fuel-efficient vehicles. But these funds are not
immediately available. The industry needs bridge loans to help cover
operating costs during the recession. Additional measures will be
needed to address the legacy costs of health care and pensions without
betraying retirees who earned these deferred payments.
The plight of the automakers is fundamentally different from that of
the financial sector. Wall Street created its own disaster by
concocting a house of cards based on "innovative products" that
leveraged the world of high finance into a black hole. The lavish
spending, reckless decisions, and arrogant behavior of bankers and
brokers have enraged the public. Even those who understand that the
financial system must be saved if the economy is to recover, have had
to hold their noses.
The auto industry, in contrast, is the symbol of Main Street, with
its skilled workers, shirt-sleeve management, and practical
engineering. Henry Ford's decision to pay his employees a wage
sufficient to buy the cars they were building steered America toward
its great achievement of lifting the working class into the middle
class - something putative conservatives forget at their peril.
When the "greatest generation" was liberating Europe and Asia, it
was the expertise of the auto industry that created the "arsenal of
democracy" on the home front. America won the shooting war, but in
recent times has been losing the trade war to foreign rivals who take
the kind of aid being discussed now in Washington for granted. A wide
variety of subsidies, formal and informal import barriers, tax breaks,
and fiat currency policies have given foreign automakers large
competitive advantages against their American rivals.
In 2007, the United States
imported $257 billion worth of cars, trucks and auto parts, but only
exported $121 billion worth of goods in these categories. Foreign-owned
automakers now hold half the U.S. market.
The global recession will only intensify competition to control
markets at home and abroad to sustain jobs and production in the face
of falling demand. The Doha Round of World Trade Organization talks
collapsed over the summer because the major developing countries would
not give up their right to protect key sectors from rival imports.
India, South Africa, Brazil and China made continued support for their rising auto industries a top priority.
South Korea did the same in its negotiation of a "free trade
agreement" with the United States last year. The agreement fails to
open the Korean market to American exports. South Korea shipped about
700,000 automobiles to the United States last year while importing only
5,000 from the United States. As a practical matter, no stack of paper
will open Korea to large-scale auto imports. Informal barriers from a
nationalistic culture backed by government suasion, plus state support
for domestic industry, will guarantee that Korean firms will dominate
their home market. The same will remain true in China, Japan and Europe
Peter Morici, a former chief economist at the U.S. International
Trade Commission and now a professor at the University of Maryland, has
analyzed the massive U.S. trade deficit - more than $700 billion in
each of the last three years, in terms of three problem areas: oil,
China and autos.
Nearly everyone understands the folly of having become so dependent
on foreign oil imports. The need to "drill, drill, drill" in America
has become a popular cry, especially among conservatives. Most people
also understand the folly of providing China with money, technology and
production capacity, given that Beijing is a geopolitical rival of
Washington in every overseas trouble spot.
Political leaders, especially conservative Republicans, need to
address the harmful impact of losing the trade competition in autos as
well. Funding programs for import substitution will have to go beyond
just energy if the real American economy is to recover and embark on
the road to stable growth. It is time to "build, build, build" in