Wednesday Quick Hits

It's been a while since I've provided the quick hits, so this will be a table-clearing of sorts.  Enjoy:

• Sarah Palin, Free Trader.  Maybe the fact that the Guv mentioned free trade not once, but twice(!), in her "open letter to GOP freshmen" will calm some of those silly fears out there that the Tea Party's packed with raving protectionists destined to turn Republicans against trade altogether. 

• Google, Free Trader.  Alternate headline: Google fires back at China; It's, Like, So On.

• India, Currency Dove.  Great FT op-ed here about how India has thus far refused to fall into the currency abyss (and, by the way, still runs a bilateral trade surplus with the United States even as the Rupee appreciates against the Dollar).

• GM, Fake "Success."  Everyone wants to talk about how super-awesome the GM bailout turned out.  Except that it didn't.  At all.

• US, Mexico Inaugurate New Freight Crossing. Too bad that Mexican trucks are still banned from using it, and that US exporters are paying needless Mexican tariffs.  But other than that, congrats, guys!

• WTO: Cutting Red Tape Through Trade Facilitation Could Save a Fortune.  Pretty interesting stuff out of Geneva, but you already knew this because you read my blog religiously, right?  Right?

• BMW Hires 1000 Americans to Make Cars in America.  So should we start complaining about a "race to the bottom" and demanding that folks "buy American" now, or should we wait until these good folks have found other employment with "real American" companies? (<-- obvious sarcasm)

That's all for tonight, folks. 

2010 Predictions, Ctd. (Subsidy Edition)

Looks like one of my 2010 predictions is shaping up quite, ahem, nicely.  As you may recall, I predicted that 2010 would see a significant increase in anti-subsidy cases because of, among other things, "the massive proliferation of government subsidies in 2009 and increased tradeflows in 2010."  Well, according to Reuters, conflict appears to be brewing between developed and developing countries over this very issue:

Rich-country members of the World Trade Organisation blocked calls on Friday by developing countries to examine the possible protectionist impact of bailouts and financial stimulus packages.

Developing countries believe bailouts can have an unfair protectionist effect by helping industries in states that can afford them; typically high-income countries and some major emerging countries like China.

At a meeting of the WTO's trade policy review body, the United States and Japan blocked proposals for future WTO analyses of trade measures to cover fiscal measures such as bailouts, according to an official who attended the meeting.

The European Union did not reject the proposal completely but said it required further study so it could be conducted in a realistic and pragmatic manner.

The chairman of the WTO, Hungary's ambassador to the body Istvan Major, said he would continue discussions on this issue, but did not set a timeframe for further moves.

The WTO's regular protectionism reports, introduced in response to the financial crisis, have focused on conventional trade measures such as tariff increases and anti-dumping duties.

The call to include bailouts and stimulus packages was led by Argentina, backed by Ecuador, Cuba, Brazil, India and China.

Adding such measures to the WTO's "protectionism list" is a very good idea - subsidies can distort domestic and foreign markets just as much as tariffs can.  So it's surprising that the United States would block such a move, isn't it?  (Note: not actually surprising at all.)  Regardless, it's clear that a lot of countries are focusing on the potential economic disruption caused by all of the subsidies, bailouts, "stimuli" and rescue packages unleashed in 2009.  And if tradeflows do indeed continue to increase in 2010, domestic countervailing duty cases, or WTO subsidy challenges, might not be far behind.

Don't say I didn't warn you.

Shocked and Appalled, part 165

Well, here's a surprise: the auto bailout is going to cost the American taxpayer BILLIONS. The AP reports (emphasis mine):

Taxpayers face losses on a significant portion of the $81 billion in government aid provided to the auto industry, an oversight panel said in a report to be released Wednesday.

The Congressional Oversight Panel did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler LLC late last year is unlikely to be repaid.

"I think they drove a very hard bargain," said Elizabeth Warren, the panel's chairwoman and a law professor at Harvard University, referring to the Obama administration's Treasury Department. "But it may not be enough."

The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10 percent of Chrysler and 61 percent of GM. The two companies are currently private but are expected to issue stock, in GM's case by next year.

The shares "will have to appreciate sharply" for taxpayers to get their money back, the report said.

For example, GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and more than the $57.2 billion GM was worth at the height of its share value in April 2008. And in the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company is "highly unlikely" to ever be repaid, the panel said.

Treasury Department officials have acknowledged that most of the $23 billion provided by the Bush administration is likely to be lost. But Meg Reilly, a department spokeswoman, said there is a "reasonably high probability of the return of most or all of the government funding" that was provided to assist GM and Chrysler with their restructurings.

Administration officials have previously said they want to maximize taxpayers' return on the investment but want to dispose of the government's ownership interests as soon as practicable.

"We are not trying to be Warren Buffett here. We are not trying to squeeze every last dollar out," Steve Rattner, who led the administration's auto task force, said before his departure in July. "We do want to do well for the taxpayers but the most important thing is to get the government out of the car business."

Greg Martin, a spokesman for the new GM, said the company is "confident that we will repay our nation's support because we are a company with less debt, a stronger balance sheet, a winning product portfolio and the right size to match today's market realities."

The Congressional Oversight Panel was created as part of the Troubled Asset Relief Program, or TARP. It is designed to provide an additional layer of oversight, beyond the Special Inspector General for the TARP and regular audits by the Government Accountability Office.

The panel's report recommends that the Treasury Department consider placing its auto company holdings into an independent trust, to avoid any "conflicts of interest."

The report also recommends the department perform a legal analysis of its decision to provide TARP funds to GM and Chrysler, their financing arms and many auto parts suppliers. Some critics say the law creating TARP didn't allow for such funding.

The panel's members include Rep. Jeb Hensarling, a Texas Republican, who dissented from the report. Hensarling said the auto companies should never have received funding and criticized the government for picking "winners and losers."

Other agencies have also projected large losses on the loans and investments provided to the industry. The Congressional Budget Office estimated in June that taxpayers would lose about $40 billion of the first $55 billion in aid.

Color me shocked! The full report, in all its ignominy, is here. And hey, look at the bright side: sure the taxpayers are going to lose big, but the UAW dominated! Here are my favorite passages from the PDF of the report:

Treasury‟s involvement in the Chrysler bankruptcy,as well as the General Motors bankruptcy, where the Chrysler approach was mirrored, is likely to cause investors to reevaluate their risk assessment regarding certain companies with similar characteristics. Large, industrial, heavily unionized companies, especially those with significant liabilities in the form of pension or healthcare obligations, might be considered to be of special interest to the government. (Page 54)

...

The sale served the government’s desire to assure continuation of the company and to protect the union’s interest, but it is not apparent that the sale was designed to maximize the return to the bankruptcy estate and there seems no legitimate reason to have restricted bids based on the bidders’ willingness to assume favored liabilities. The approved sale, therefore, ran afoul of the Supreme Court’s admonition, in an analogous case, North LaSalle Street, that a court should not settle a valuation dispute among parties with a determination “untested by competitive choice.” (Page 120)

Impressive work by the UAW, really. They lined their pockets, dramatically distorted future investment activity and probably subverted decades of bankruptcy common law. Quite the trifecta!