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A Tariff in Time . . . Saves Billions:
The Proposed Automotive Industry Bailout

Thomas Hart Benton, "Steel in America Today," 1930

1,231 words

November 20, 2008

Free markets mean competition. Competition means winners and losers. Some losers even lose their shirts and go out of business. When a business fails, this should be regarded as a success for the capitalist system as a whole. That goes for really big businesses as well as small ones. In a capitalist system, nobody is “too big to fail.”

Why, then, is nobody applauding the prospect of America’s Big Three automakers—Ford, GM, and Chrysler—going out of business? Shouldn’t this be counted as a sign that capitalism, free trade, and competition are working splendidly?

“Yes, but what about the suffering that will be borne by American workers?” But, again, one can’t have a free market without the freedom to fail, and when businesses fail, workers lose their jobs. So job losses, which are a sign of local failures, are actually a sign of overall health for the system, just as sloughing off dead skin is the sign of a healthy snake.

So let’s hear a big round of applause for free trade and free choice.

But aside from a few kooks, I’ll wager, the silence out there is deafening. I suspect that even most libertarians are not thrilled at the prospects of three million Americans losing their livelihoods.

But if we are not willing to allow the Big Three to fail, then we really do not believe in free trade. When confronted with the ultimate consequences, we flinch.

But before we commit $25 billion to bailing out the Big Three, shouldn’t we ask ourselves if there are other non-free market strategies that would be better at staving off the collapse of the US automotive industry? Is loaning out or giving away billions of dollars the best strategy conceivable? (Any loans would amount to massive giveaways, since inflation favors borrowers, and the US government has vastly increased the amount of dollars in circulation since the beginning of October. When the global financial markets regain their senses, the increased supply of dollars will lead to a massive devaluation, i.e., inflation.)

The main problem with giving or loaning money to the Big Three is that it does not address the underlying problem: US manufacturers are not able to compete with foreigners. And if the underlying problem is not dealt with, another bailout will just be required in the future. (Remember the Chrysler bailout of 1979?) In fact, a new bailout will probably increase the likelihood of a future bailout, since once the car industry receives huge loans, it will create pressure to bail them out again lest they default.

But how do we address the underlying cause: the inability of the Big Three to compete with foreigners? The solution I propose has two prongs: (1) tariffs on imported cars and car parts, and (2) regulations directed at increasing the quality of US manufactured cars.

Throughout most of US history, the Federal Government was largely funded by tariffs on foreign manufactured goods. Imagine if we had left those tariffs in place. The Big Three would be flourishing, not queuing up for billions of tax dollars, and the government would be collecting billions of tax dollars from people who insist on buying imported cars. The best way to ensure the long-term competitiveness of the US automotive industry is a return to protectionism.

But protectionism alone is not enough. Protectionism would remove foreign competition, but it would not make American cars genuinely competitive. That is to say, it would do nothing to improve the quality of American cars. In fact, it would remove incentives to improvement, insofar as competition with foreign manufacturers spurs the Big Three to make better cars. (American manufacturers would, of course, continue to compete with one another.)

Look at it another way: US citizens might gain by stabilizing the US car industry, but what’s in it for US consumers? A good consumer is not necessarily a good citizen, and when the two conflict, the interest of the citizen should trump that of the consumer. But shouldn’t we do all we can to decrease the conflict? Wouldn’t it be nice to have the best auto industry in the world, so that one would not have to sacrifice being a good consumer to being a good citizen?

To achieve that, the government cannot allow US auto manufacturers to get lazy behind the wall of tariffs. We need to use carrots and sticks to encourage them to constantly improve themselves. How could that be accomplished? People are justly skeptical of the government’s power to improve anything. But that is because of the envious, leveling egalitarian agenda behind so many government programs, not because of a flaw in government intervention per se. Government can also raise standards rather than lower them. It can reward excellence rather than penalize it.

Consider seatbelts, for instance. It would be cheaper for car manufacturers to leave them out, and in a highly competitive market, they would have an incentive to leave them out of some low end models. Seatbelts would become an option, an extra, not standard for all cars. The government mandating that seatbelts be included in all cars means that no manufacturer has a competitive disadvantage in including them.

The same is true of all safety innovations. Imagine that GM invents a better airbag. In a free market system, they might patent it, to gain a competitive advantage at the expense of overall public safety. What if, however, the government was to mandate that new safety innovations be used across the whole industry? The whole public would benefit, and other manufacturers could be compelled to pay GM a small royalty: not so large as to constitute a real competitive disadvantage, but large enough to recoup the research and development costs and offset the loss of a monopoly on a new safety invention. Presumably, as each manufacturer came up with new innovations that were mandated to be adopted across the industry, these royalties would balance each other out, and the rising standards would lift the companies and consumers alike.

Tax laws could also be structured to encourage research and development to improve safety, performance, and energy efficiency, and to reduce pollution.

Is this approach Democratic or Republican, capitalist or socialist, conservative or liberal? None of the above, really. I do not look at economic problems from the point of view of a capitalist, a laborer, or a consumer. These are partial viewpoints, from which one cannot see the common good. Instead, I look at economic issues from the point of view of what is required for a healthy republic. Protectionism and regulation to progressively raise standards are necessary to create and preserve a strong middle-class society, a society with private property that is broadly distributed. They are necessary to ensure a society that is economically self-sufficient and technologically advanced enough to be competitive politically in a world of scarcity and Darwinian competition for planetary dominion.

To the extent that the interests of capital, labor, and consumers contradict the health of the community, they must be trimmed back. The common good must come before every individual or factional interest.

My specific form of communitarianism is racial nationalism. I look forward to the replacement of multicultural, multiracial America with a homogeneous white ethnostate. But whatever patriotism you hold, even an attachment to the present regime, the proposals outlined above would be preferable to constantly bailing out a sinking ship rather than just plugging the hull.

 

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