General Motors recently announced that it will stop production and lay off some 15,000 employees at several U.S. and Canadian facilities. The announcement elicited a predictable outburst of indignation from President Trump. He said in a Twitter tirade that his administration is “looking into cutting all @GM subsidies, including … for electric cars.” That’s a reference to a $7,500 federal electric vehicle tax credit offered to buyers of battery-powered and plug-in hybrid vehicles.
Trump has made a habit of attacking companies that have the nerve to make business decisions without consulting him. This summer, when Harley Davidson considered moving production overseas in response to a Trump-ignited trade war with the EU, the president threatened: “They will be taxed like never before!” It seems like he would prefer that firms make decisions based on his own political calculations, which are intimately tied to the notion that the CEO-in-chief can and should decide which companies sink and which swim.
The irony, of course, is that this policy of picking winners and losers contributed to GM’s woes in the first place. The company estimates that it will incur an additional $1 billion in costs this year thanks to Trump’s tariffs on steel and aluminum. One company’s protection is another company’s burden.
Moreover, the president’s own 18th century-style mercantilist trade policies may be fostering a growing unease in the business community at large. According to the Economic Policy Uncertainty index, developed by economists at Stanford, Chicago, and Northwestern universities, Trump’s erratic, knee-jerk approach to trade policy engenders uncertainty. If not curtailed, this could ultimately undermine risk-taking, investment, and economic growth.
Yet it’s hard to feel sympathy for GM. For decades, the industrial behemoth has benefited from a host of government-granted privileges. As Trump correctly noted, taxpayers rescued the company in 2009. And out of the $50.7 billion that GM received in federal bailout funds, $11.4 billion was never paid back. The company also benefited from the infamous “Cash for Clunkers” program, which offered a government handout to those who traded in perfectly good older cars for destruction, as long as they used the windfall to purchase a new car. While that program provided a short-term taxpayer-funded boost to companies like GM, there’s no evidence that it had any long-term benefit for the economy as a whole.
And GM’s government gravy train didn’t come to a stop in 2009. According to a subsidy database constructed by the advocacy group Good Jobs First, GM has since received another $700 million in federal grants and loans. While most of that figure comes from programs administered by the Department of Energy, the company received money from the U.S. Export-Import Bank and the National Science Foundation as well.
It’s also worth mentioning that GM’s ongoing employee pension woes could conceivably lead to another taxpayer bailout down the road. GM’s pension obligations are underfunded by approximately $30 billion, far beyond even the $18 billion insured by the federal Pension Benefits Guarantee Corporation (PBGC). Were the PBGC compelled to take on GM’s pension obligations at some point, the taxpayers could be on the hook for a bailout if the agency doesn’t have the resources to cover its own obligations.
General Motors also benefits from privileges in the tax code, though it would prefer to benefit more. The $7,500 tax credit that Trump mentioned in his tweet is limited to the first 200,000 electric vehicles an automaker sells. GM is already close to meeting this cap, so the company has actually been lobbying to have it lifted, so as to stay competitive with the other brands that haven’t yet.
GM benefits from the so-called “Chicken Tax,” too — a 25 percent tariff imposed on light trucks in 1964 as a response to European tariffs on U.S. chicken exports. The tariff has survived because it helps insulate politically powerful U.S. automakers from foreign competition.
The lesson here is that with government dollars come government shackles. Though lucrative in the short run, bailouts, subsidies, and protections are no guarantee of perpetual profitability. In fact, by insulating a firm from the realities of the market, they likely encourage poor decision making.
And as GM is discovering now, these privileges give politicians leverage over the firm. In a healthy economy, firms make investment decisions based on market signals of prices, profit, and loss. And in a healthy republic, presidents don’t single out particular firms for either privilege or punishment.
Matthew Mitchell is a senior research fellow and the director of, and Tad DeHaven a research analyst for, the Mercatus Center at George Mason University’s Equity Initiative.
