President Elect Barack Obama met with President Bush yesterday to discuss the transition of the presidency and the current economic crises. According to the New York Times, President Bush said he would be willing to bail out the auto-industry if Obama and Congressional Democrats (who now have the majority) would support the Colombia Free Trade Agreement (Colombia FTA).

To read the New York Times article, click here.

Long story short, the Colombia FTA would allow over 80% of exports to Colombia to enter their country duty free, with tariffs being phased out over 10 years. Tariffs are taxes that U.S. manufacturers and producers pay when shipping goods to countries that are not part of a free trade agreement.

Some of the goods we ship to Colombia include beef, cotton, wheat, soybeans, a vast array of fruits and vegetables, remanufactured goods and textiles including yarn, fiber, fabric and apparel manufacturing. The agreement would also allow Colombia to join the WTO Information Technology Agreement, would implement laws and regulations making it safe for foreign investors, and would require inspection on beef, poultry and chicken.

Sounds like a deal for the Colombians. The Democrats have avidly opposed this, even though it would increase production and output for U.S. firms who have a heavy market in Colombia (farmers and textile industry companies).

Click here for an economic understanding of why free trade is always better than no-trade.

So what does this have to do with the auto-industry and juggernauts General Motors (NYSE: gm), Ford (NYSE: f) and Chrysler?

Bush has been rumored to support a bail out for the auto-industry so long as Democrats support the Colombia FTA.

What’s in it for America? The Colombians seem to have the upper hand in this agreement.

And that’s true. But removing tariffs on shipping goods to Colombia would

1) make it cheaper for U.S. producers to continue to ship to Colombia,

2) allow more firms in those industries (scroll up if you are curious about how many industries ship to Colombia) to begin to ship to Colombia,

3) increasing their sales and output which would

4) probably create more jobs.

Right now, we need help where we can get it in America. Although I don’t think it was appropriate for George Bush to politicize the auto-industry, it was his last chance before he leaves office to do something (probably one thing) right. Economically, it would be to America’s advantage if the Democrats supported the Colombia FTA. GM and Ford have such terrible balance sheets that if you were to remove the name of the companies from the top of the balance sheet, you would think it was about to declare bankruptcy. GM used to sift through $20 billion in cash a month. What the hell is $25 billion going to do for both GM and Ford?

The lady on CNBC made a good point - “we’ll be having this discussion in 4-5 months” … and, “NYC was just fine before the mortgage crisis. Detroit has been in shambles for years…”

Facts are facts: Poor management in the largest industry in America and an inefficient way of producing cars will lead to the demise of any auto manufacturer. Hopefully it’s not too late (or is it?)

For GM’s balance sheet, click here.

For Ford’s balance sheet, click here.

If you’re not too familiar with reading balance sheets, quickly compare “Total Assets” v. “Total Liabilities” of each company. Assets are “what you have” and liabilities are “what you owe”. Relate this to your own personal finance situation. Not a good situation to be in.

What about all the drugs in Colombia?

Well, they’ll still be coming to America and the rest of the World. The black-market will be around so long as the Sun is around. It’s not going anywhere no matter what we do. Just remember, people in economic distress will find a way to make money through any means possible. If we help to improve their economy, more legitimate jobs will exist, deterring people away from selling drugs.

You never know.

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