Congressional Democrats tell us that one of the reasons they supported a massive economic “stimulus” was because they had learned “the lessons of the Great Depression.” They argue that a massive government intervention at the start of the slowdown might have prevented the worst. Not all economists agree with that, but pretty much all agree that the Smoot-Hawley tariff made the Depression worse – some say much worse – by stifling international trade. But this is a lesson House Democrats have apparently not learned. More than 40 percent of them have signed on as original cosponsors to legislation that would stifle trade in a way America has not seen in nearly 80 years.
The Smoot-Hawley tariff began as an attempt to help the U.S. agricultural sector, which had suffered in a slump that began in the early 1920s. Herbert Hoover was elected in 1928 on a platform that called for revising tariffs to help farmers. This effort eventually produced a bill that raised tariffs on more than 890 products. Hoover signed the bill despite the opposition of more than one thousand American economists. Rather than lead, Hoover caved in to valued political constituencies.
According to economist Douglas Irwin, the effect of the Tariff Act was to increase duties by an average of 20 percent. It led to immediate retaliation from a number of nations; first and foremost, Canada – whose government nevertheless fell. The new Canadian leadership imposed even higher duties. American exports fell, and world trade contracted dramatically. Between 1929 and 1933 in fact, world trade fell by more than 60 percent, killing millions of jobs all over the globe.
Is the United States preparing to repeat this mistake?
During his campaign for the presidency, Barack Obama promised to seek to renegotiate NAFTA, with a view to incorporate labor and environmental standards. Early in his presidency, he signed the “stimulus” bill, despite multiple provisions that violate US trade commitments. Mexico has imposed tariffs in retaliation for Obama’s cancellation of its commercial trucking rights and some Canadian cities are no longer purchasing American imports – in retaliation for the “Buy American” rule. Beijing has now adopted a “buy Chinese” rule for purchases funded by its stimulus package. Australia is angry over new U.S. subsidies for dairy products. Ecuador, Malaysia, Argentina, and other nations argue that the “stimulus” package is an illegal trade subsidy – one against which they should be allowed to retaliate.
Clearly, these are dangerous times, at least when it comes to international trade. Many of America’s leading trading partners believe that Barack Obama is caving into protectionist interests. They believe our government is no longer willing to abide by international trading rules, and would prefer to “go it alone,” no matter how it impacts their economies.
Into the dangerous mix, opponents of consumer choice have introduced the “TRADE Act.” They bill the legislation as fulfilling the promises of Barack Obama and Congressional Democrats to renegotiate America’s existing trade agreements. If enacted, this bill will probably replace the existing trade nuisances with a full-blown trade war.
The TRADE Act requires that all outstanding trade agreements be renegotiated to ensure they match up to ideal standards on environmental and labor standards, food safety, agriculture, human rights, federalism safeguards, currency manipulation, and national security. It would require every future agreement to include these provisions, as well as exceptions to allow the U.S. to implement “Buy American” policies, impose new labor requirements on trade partners, and control Foreign Direct Investment. It requires that all of this be accomplished before any new trade negotiations can begin, and before Congress votes on any trade agreements that have been completed but not approved. Lastly, it puts Congress in the driver’s seat on trade policy by barring the president from negotiating trade deals until Congress has already established the basics of the deal.
This bill is too bad to lampoon. Simply put, it would kill all future trade negotiations.
It took considerable pressure to convince trading partners to agree to labor and environmental standards in new deals. Other nations resent U.S. meddling in their domestic policies. They also recognize that the point of trade is to become prosperous enough to fix labor, environmental, and other problems. Imposing unrealistic standards makes that more difficult. If we were to insist on a whole raft of new and enforceable standards, some of them intended specifically to block trade, our partners would refuse. It would prove flat out impossible to renegotiate deals like NAFTA, CAFTA, the GATT, and our bilateral trade deals. As such, Congress could never vote on new or outstanding agreements. We would effectively stop participating in all future trade negotiations. U.S. exports would suffer as Europe, China, Japan, and other economies negotiated new deals without us, a process that is already well under way in fact, given the refusal of this White House to lead on trade.
And if the U.S. actually attempted to impose some of the requirements set forth in this bill, we should expect other nations to reciprocate. American firms are already losing in foreign markets as other nations copy us on “Buy America;” those losses would grow dramatically, with the potential for a massive decline in international trade and wealth generation.
One might think that President Obama would refuse to go along with such a shortsighted agenda. But then again, no one thought he would sign “Buy America.” Few thought he would be willing to pick a fight with Mexico by canceling the commercial trucking program. And the TRADE Act has an extraordinary level of support; it is being sponsored by more than 40 percent of House Democrats, including 9 full committee chairmen.
It will take presidential leadership to stop this suicidal policy. And so far at least, that hasn’t been something Barack Obama has been willing to provide.
Brian Faughnan's Bio
Brian Faughnan is a contributor to RedState.com and the Weekly Standard blog. He has written columns for the D.C. Examiner, and has provided political commentary on National Public Radio, XM, SkyNews, and other media outlets. Mr. Faughnan is a 10-year veteran of Capitol Hill, and has worked as a lobbyist and a consultant. He resides in Virginia.
Posted
06-26-2009 12:05 AM
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