Saturday, January 31, 2009

Trade Lessons of the 1930s Unheeded

WASHINGTON POST -- The stimulus bill passed by the House Wednesday contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package. A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas. Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

CATO INSTITUTE (Dan Ikenson) -- For all practical purposes there is no difference between the Smoot-Hawley tariff bill of 1930 and the “Buy American” provisions in the $819 billion spending bill that passed the House Wednesday.

Smoot-Hawley was the catalyst for a pandemic of tit-for-tat protectionism around the world, which helped deepen and prolong the global depression in the 1930s. “Buy American” provisions will no doubt inspire similar trade barriers abroad and will have the same effect of reducing global trade—and therefore prospects for economic recovery. It is not unreasonable to say that U.S. policymakers are on the verge of taking us down that same disastrous path.

HT: Paul Sebastian

11 Comments:

At 1/31/2009 1:16 PM, Anonymous Anonymous said...

I agree. This is war on free trade and the isolationist country will always be the big loser. It helps a few at the cost of hurting everyone else.

 
At 1/31/2009 2:13 PM, Blogger fboness said...

We will earn the money to pay off our huge foreign debt by exporting to the world.

Two years of this crap and you will all be so desperate that you will vote Republican just on the off chance that will make the pain stop. It may not work but, like I said, you will be desperate.

 
At 1/31/2009 5:01 PM, Anonymous t jefferson said...

This IS a war on the middle class when we have free trade. Instead of giving away the farm for the 1% that pay 40% of the U.S. taxes lets try fair trade for the next thirty years

 
At 1/31/2009 7:00 PM, Blogger QT said...

George W. Bush also tried to protect American steelworkers with protectist tariffs thereby hurting millions of workers in fields that used steel like the auto industry for example. Maybe Bush has a legacy afterall?

 
At 1/31/2009 7:22 PM, Blogger Craig said...

" Instead of giving away the farm for the 1% that pay 40% of the U.S. taxes lets try fair trade for the next thirty years"

Could you elucidate? As written, the above makes absolutely no sense. Are you suggesting that we hurt the 1% who pay 40% of the taxes or help them?

By the way, every trade is a fair trade as long as both parties come away from it satisfied.

 
At 1/31/2009 8:31 PM, Anonymous t jefferson said...

By the way, every trade is a fair trade as long as both parties come away from it satisfied.

How is it fair when Korea can export thousands of cars to the U.S., but we can only sell hundreds them them. How about China having content laws that make companies provide content to their assembly operations and the currency manipulations of China and Japan.
The loss of a broad based manufacturing sector has effectively eliminated millions of consumers as a part of the one thing that drives the economy..consumers.
Globalization is driven by greed and the search for cheap labor, not brains or any concern for the future of America.

 
At 1/31/2009 8:51 PM, Anonymous EJ said...

"How is it fair when Korea can export thousands of cars to the U.S., but we can only sell hundreds them them. How about China having content laws that make companies provide content to their assembly operations and the currency manipulations of China and Japan."

The examples you gave are NOT free trade.

 
At 1/31/2009 11:30 PM, Blogger wcw said...

..and yet the 'buy america' provisions here are as stupid as Smoot-Hawley was once upon a time. Just because addlepated libertarians support a position doesn't make it wrong. Here the free traders are right, if they often are wrong on all the policies that are needed to make free trade work.

 
At 2/01/2009 9:55 AM, Blogger 1 said...

"..and yet the 'buy america' provisions here are as stupid as Smoot-Hawley was once upon a time. Just because addlepated libertarians support a position doesn't make it wrong"...LOL!

Occasionally even some liberals get it: "Buy American": A Very Bad Move in the Stimulus Package...

 
At 2/01/2009 2:29 PM, Blogger Colin said...

Poor example QT. Bush went for the steel tariffs but also was able to help provide cover for some congressman to vote for fast track aka Trade Promotion Authority. Once Bush had TPA he concluded a number of bilateral deals as well as CAFTA and pushed hard on Doha.

With steel he lost the battle but won the war.

 
At 2/02/2009 4:43 PM, Anonymous Anonymous said...

the US' smoot hawley was devastating to the US in 1930's b/c it was a huge exporting powerhouse, similar to the way China is today. compared to China, the US has very little to lose by going the trade protection route. So China's currency manipulation is more in-line with being the Smoot Hawley of the modern era.

 

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