US competitors in car-industry are not fools

The US President Barack Obama is trying to pass a protectionist measure as an aid to US carmakers, by preparing a regulation that will press the industry to double its average fuel economy till 2025. This is so called Obama Mileage Rule that at the moment is blocked by the Republican opposition in Congress.

Foreign carmakers like Volkswagen and Daimler are against the rule, while US producers like GM and Chrysler are supporters of it. Also supporters are some syndicates of auto-workers, some eco-activists and California as a state that is much ahead in eco-regulations than the other states.

Every government move that will help the US industry looks welcome, but we must never forget that the protectionism is a risky policy that can lead to a harm for the industry. Seemingly this rule looks as eco and energy saving policy, and now there is a global wave of support of such policies. But US competitors in auto industry are not fools and very well understand what in fact the regulation will mean - an advantage to US producers. And these foreign companies also have governments that can regulate their own market. So if we see the Mileage Rule as a law, it will not be surprising if soon after that we hear about any new idea of European Commission or of Chinese Communist Party about a regulation in their car market. For instance - a tax on too powerful engines in cars. As usually US cars are with much more powerful engines, this may harm US exporters.

Protectionism looks attractive for groups that will benefit from it. But in long term the harm may become bigger than the benefit. And protectionism is not good even in short term for the buyers, as they will have to pay more for their new cars.

It is interesting to note that Obama has support from corporations that received bailout help. In fact these companies are dependent on government so their opinion is not very independent. There is a joke that in fact GM  means not General Motors, but Government Motors... :-))) Also it looks funny that companies saved by the government continue to need government help to survive, instead of surviving by achieving competitive advantages. This is a bad model for developing the national economy. The government creates its own companies and then grants them some privileges to survive. That is not good neither for the free economy, nor for the consumers. It is just a polit-corpo-cartel that is good only for politicians and favored corporations. And good only for a short time..

The best model of economic development is the free market, not limited by useless regulations. Every time a politician tries to test something different becomes a new lesson of disadvantages of not so free market.

Obama and its advisors is good to remember that US competitors in car-industry are not fools...

August 10th 2012

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