When Is A Bailout Not A Bailout?

There’s a story a read when I was a kid. A woman, whose husband had recently died, was found going over the bills, the will, the insurance papers and all the other details of his estate. She looked up and murmured, “It’s such a trouble; sometimes I wish George hadn’t died.”
That may be a bit like how the Obama administration feels about our economy right now. It’s one thing to bail out a few industries and banks; it’s another to have your kind and necessary actions threaten to come back and bite you in the tail.
It’s bad enough to have economists and conservatives worrying that the cost of the bailouts could ruin our future economy and/or currency. Now we’ve got a bunch of foreigners claiming that the bailouts constitute an illegal subsidy. And they have a point.
For years we have protested the fact that our unsubsidized industries have been forced to compete against foreign companies that are supported by their governments. We have insisted on—and gotten—specified penalties that we can invoke against such practices.
Now, this may be coming home to bite us. Surprise, surprise. Foreign companies are looking at American firms like General Motors and Chrysler—who are getting billions in government cash as “bailout” funds—and asking what on earth that is if not a subsidy.
Well, we can answer back, if we hadn’t given General Motors a few billion, it would have gone broke and cost lots of American workers their jobs. And the Europeans, for instance, can answer right back that if the French, British and German governments had not supported the development of the Airbus, it could never have competed against Boeing—and would have gone broke and lots of Europeans would have lost their jobs, … et cetera, et cetera.
As the major economies rush to shore up their collapsing industries, more and more smaller, developing nations are yelling, “Foul!” They are taking their case to the World Trade Organization to demand the right to impose sanctions and tariffs on the United States, and possibly Japan and Europe.
Some nations aren’t waiting for a WTO ruling. This past week’s “BusinessWeek” cites a few worrisome statistics. Ecuador has raised tariffs on over “600 CATAGORIES of imports” so far. Malaysia is restricting that number of ports that will accept imports from abroad. Argentina is leading a block of nations into the WTO, asking for a ruling. Are bailouts subsidies?
Or when is a bailout not a bailout? Critics suggest that our bailout packages (as well as European bailouts) were put together in a rush with little or no thought as to what their impact on international trade might be.
One can see how Toyota, BMW or Kia might construe a loan of $35 billion to General Motors—that keeps the company from collapse—as a massive subsidy. I don’t have any trouble seeing their point of view at all. And I confess I never gave the idea a thought last fall and winter.
I remember writing that I thought we were moving too fast, without thinking things through carefully enough. But the thought that it might lead to a tariff war that slowed foreign trade did not cross my mind.
Could foreign banks point to the billions/possibly trillions we’ve committed to keeping financial entities like AIG and Citicorp alive and call that a bank subsidy? Why not? We have long been a leading proponent of sanctions against nations and industries that play unfairly on the field of foreign trade, why shouldn’t they use our own words against us?
If our bailouts result in a trade war—like the one we had in the 1930s that nearly shut down all international trade—that will do us harm on a scale that will render insignificant any benefits the bailouts will offer.
At the moment it lies in the eye of the beholder. Is it a bailout? Is it a legitimate salvage job? Is it a subsidy? The moment somebody like the WTO rules it’s an illegal subsidy, we’ve got a trade war on our hands—and, buster, we don’t need that!
It’s a bit like trying to equalize weight in a canoe. You push it this way or that, you reseat yourself—but the awful moment comes when the miserable thing tips over completely. When is a bailout not a bailout? Or when is a subsidy not a subsidy?
Obviously, when it’s the other thing. Oh boy.