"An Auto Bailout Would Be Terrible for Free Trade"

How will foreign investors react to an auto bailout?:

An Auto Bailout Would Be Terrible for Free Trade, by Matthew Slaughter, Commentary, WSJ: Congress is now considering a federal bailout for America's Big Three automobile companies. Many want to grant them at least $25 billion ... on top of $25 billion in low-interest loans approved earlier this year. ... There are at least three important ways an industry bailout could damage America's engagement in the global economy and hurt U.S. companies, workers and taxpayers.

The first global cost of a bailout could be less foreign direct investment (FDI) coming into the United States. ...

Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors?

The answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers willing to invest here.

The bailout's second global cost could hit U.S.-headquartered companies that run multinational businesses. ...

Will a U.S.-government bailout go ignored by policy makers abroad? No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. ... That would be bad for America.

Rising trade barriers would also hurt the Big Three, all of which are multinational corporations that depend on foreign markets. ...

The bailout's third global cost could fall on the U.S. dollar. ... Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?

Not likely. Instead, America runs the risk of creating the kind of "political-risk premium" that investors have long placed on other countries -- and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar. ...

This week Congress is weighing the cost of the bailout. Let us hope that lawmakers realize that the true cost of such a bailout is far larger than any check the U.S. Treasury will have to write in the coming months.

Many foreign companies are highly dependent upon the general state of the U.S. economy, especially, of course, those operating within our borders. There is also an argument that bailing out the automakers is in the interest of these companies because it lowers the chances of a prolonged, deep recession that would substantially reduce their sales and profits.