Matthew J. Slaughter. “An Auto Bailout Would Be Terrible for Free Trade”. Wall Street Journal. 20 Nov. 2008 – The bailout’s third global cost could fall on the U.S. dollar. For 32 years the U.S. has run trade deficits and offset it with sales of U.S. assets to foreign buyers. A critical foundation of foreign-investor confidence in U.S. assets has been transparent competition in our product markets — competition that spurs economic growth and rising average standards of living. To keep that up, it is important to address concerns related to allowing foreign companies to compete on U.S. soil, not by bailing out struggling companies but by taking care of workers who are dislocated in the give-and-take of a competitive market.
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.
Reduced foreign demand for U.S. assets would be troubling at any time. Its prospect is especially troubling now, when the federal government’s fiscal 2009 deficit is widely forecast to reach something near or exceeding $1 trillion — up from $456 billion last year. With net saving still near zero for U.S. households and falling profits for U.S. companies, financing that deficit will require attracting foreign capital.