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Argument: US can rely entirely on foreign automakers in global economy

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Supporting quotations

Richard M. Ebeling. "Bailing Out Big Auto Is a Bad Idea". American Institute for Economic Research. 10 Nov. 2008 - When the current economic crisis passes – and it will as all other crises have in the past – Americans will still want cars, trucks, and maybe SUVs to drive. But that does not mean that the suppliers have to be American automobile manufacturers. The whole purpose of open, competitive markets is to find out who can “deliver the goods” better and cheaper, and to take advantage of the resulting cost savings and improved qualities of what is being offered.

If it turns out – in the extreme – that one or more of the Big Three go out of business, so what? The plants and supply networks will be bought up and transferred to more productive and cost-efficient hands. The new owners will then employ people and support companies to help them make the cars that consumers want at the prices they are willing to pay.

Yes, that means that some time in the future Americans might buy all their motor vehicles from foreign-owned companies. But, again, so what? There are many countries in the world that buy all their commercial airplanes from foreign manufacturers, and in many cases from America airplane producers. Should the citizens of those countries be fearful or feel insecure because they are “dependent” on America for their supply of airplanes? Would they or we be better off if they insisted upon primarily or only buying planes produced in their own countries?

One of the great benefits of a global marketplace with world-wide competition is that if gives people in other countries the opportunity to take advantage of all the better and cheaper goods that they can buy from America.

It also means the same thing in reverse. Americans should be able to improve their standard of living by buying what the rest of the world has to offer. This may mean buying all of our cars from companies owned and headquartered on other continents. But even ownership and management is global. If, say, a Japanese auto manufacturer generates attractive profits by selling cars to Americans, many Americans may end up earning some of those profits by buying shares in that Japanese company.

Matthew J. Slaughter. "An Auto Bailout Would Be Terrible for Free Trade". Wall Street Journal. 20 Nov. 2008 - Congress is now considering a federal bailout for America's Big Three automobile companies. Many want to grant them at least $25 billion from the $700 billion Troubled Asset Relief Program on top of $25 billion in low-interest loans approved earlier this year.

But these figures represent only a fraction of what the total cost of the bailout could be. In a global economy, a federal bailout of the automotive industry could cost Americans jobs as well as foreign markets to trade in. 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. On Sunday, President-elect Barack Obama asked, "What does a sustainable U.S. auto industry look like?"

Well, it looks a lot like the automotive industry run by "foreign" car companies that insource jobs into the U.S. In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538.

At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year.

Across all industries in 2006, insourcing companies registered $2.8 trillion in U.S. sales while employing 5.3 million Americans and paying them $364 billion in compensation. But as the world has grown smaller, today the U.S. faces increasingly stiff competition to attract and retain insourcing companies. Indeed, the U.S. share of global FDI inflows has already fallen. From 2003-2005 the U.S. received 16% of global FDI. That's down from 31.5% it received in 1988-1990.

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.

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