Tariffs have garnered a lot of negative headlines of late. And for good reason. Tariffs amount to government intervention. This distorts free markets. And while government intervention may lift a few selective boats, the rest of the fleet tends to take on water.
The other side of the tariff coin is subsidies. This kind of market distorting government intervention is just as negative.
By giving certain sectors and businesses subsidies, governments make the entire market they operate in less competitive. Some businesses that shouldn’t survive do. But only on the back of taxpayer funded handouts. At the end of the day, that inefficiency benefits no one.
Over in the US, President Donald Trump is moving not only to hopefully end tariffs, but also to stamp out subsidies, as RAW reports.
Trump retaliates after GM closure
The targets of these subsidy stamp outs, according to the White House Economic Adviser Larry Kudlow, are renewables. These include alternative energy sources and tech innovations like electric vehicles.
The change was initiated by the announcement from General Motors Co, who plan to close US plants and layoff thousands of employees. This would drastically reduce the amount of domestic production of sedans, thereby leading to greater purchase of electric cars, and so to more subsidy handouts.
And any non-electric-car-owner taxpayer won’t see any appeal in this reality.
In the federal law’s current state, consumers who purchase electronic vehicles, such as those made by General Motors Co, receive a US$2,500 to US$7,500 tax credit.
‘As a matter of our policy, we want to end all of those subsidies.
‘And by the way, other subsidies that were imposed during the Obama administration, we are ending, whether it’s for renewables and so forth.
‘It’s just all going to end in the near future. I don’t know whether it will end in 2020 or 2021.’
GM think they’ll be unaffected
At the moment, these subsidies are capped by congress at 200,000 vehicles per manufacturer. And GM believe they are quite close to this limit as they approach the close of 2018.
Tesla said they hit the threshold back in July. As such, this removal of subsidies may not hit these two companies the hardest.
Opposers thus see Trump’s threat as one with little direct aim.
However, there are many other automakers who are quite far from this cap, and may not hit it for several years. As such, it seems Trump’s plan is not to punish GM directly, but to prevent other automakers from following in their troubling footsteps.
Experts say the White House cannot change the cap unilaterally. But Kudlow accepted the fact that the changes wouldn’t be a sole blow to GM, knowing the limitations of the federal government.
‘I think legally you just can’t,’ he said.
We’ll see in the months to come how well the market rebounds with this new scheme in place.
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