James Pethokoukis

Politics and policy from inside Washington

More evidence of rising trade protectionism

September 24, 2009

As Reuters reports it:

The United Steelworkers union, fresh from persuading President Barack Obama to restrict tire imports from China, filed a new case Wednesday asking for duties on coated paper from both China and Indonesia. The action came just one day after Chinese President Hu Jintao complained to Obama about the tires decision in a meeting on the sidelines of a United Nations summit in New York. … The steelworkers union, which represents workers in a number of industries, sees itself in a battle against what it believes are unfair foreign trade practices that have led to the loss of millions of U.S. manufacturing jobs. They are joined in their latest trade case by paper manufacturers NewPage Corp of Miamisburg, Ohio; Appleton Coated LLC of Kimberly, Wisconsin; and Sappi Fine Paper North America of Boston, Massachusetts, which together employ about 6,000 union workers at paper mills in nine states. … Unlike the steelworkers’ petition in the tires case, this complaint will not land on Obama’s desk. Instead, the U.S. International Trade Commission, a U.S. federal agency, will have the final word on whether anti-dumping and anti-subsidy duties will be imposed after an investigation by the U.S. Commerce Department.

Worried about how this sort of thing will affect the economy recovery both in the US and globally? Ed Yardeni is:

But what about Art Laffer’s warning about how rising taxes and protectionism could still cause another Great Depression?” …  He observed: “While Fed policy was undoubtedly important, it was not the primary cause of the Great Depression or the economy’s relapse in 1937. The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy’s relapse in 1937.”

I completely agree with Art that the Smoot-Hawley tariff was the major cause of the Great Depression. So it is certainly disturbing to see the Obama Administration pander to the United Steelworkers by slapping a tariff on tires imported from China. This morning’s WSJ reports that three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union’s threat to protect other US industries after winning a recent trade decision against China. We’ve seen plenty of similar trade flare-ups in the past even during the Reagan and Bush Administrations. Nevertheless, they can spin out of control. More importantly, now is not a good time to resort to protectionism given that the global economic freefall earlier this year was mostly attributable to a collapse in exports as trade credits froze up.

A bigger and more likely threat to a sustainable recovery is the sun-setting of the Bush tax cuts after 2010. This will amount to a major tax increase that could send the economy back into a recession in 2011. I don’t think this will trip up the bull market any time soon. But it is likely to become a big issue by the second half of next year.

Comments

Art Laffer neads to learn that Smoot-Hawley lasted only years and was not passed until 1930, after the crash in 1929. He needs to read Dr. Pat Choate or Eamonn Fingleton before he tries to use “scare” tactics.
The American people are no longer willing to be the clueless Eloi as they walk willingly into the cave entrance of the Morlocks.
The Morlocks have feasted the past 30 years on unbridled free trade and their hay day is coming to an end.
True patriots are turning back to the advise of our wise founding fathers who felt that his nation and her sovereignty is worth protecting.
The “invisible” hand has pick pocketed pockets to the point that the American consumer has no money left to buy those goose-grinded down our throats “cheap” goods.
The curtain has finally been pulled back to expose the smoke and mirror act of the great and powerful wizards of free trade – AKA Oz!

Posted by Barbara Toncheff | Report as abusive
 

I meant to say Smoot-Hawley lasted only FOUR years! (sorry for the finger slip)it applied to only 1/3rd of our imports and was 60%.
The tariff of 1828 was 62% and only lasted FOUR years also. Hmmm…no depression after that one.
When will the robber barons learn that we are on to them and the unbridled free trade feast on the standard of living of America’s middle class is coming to end?

Posted by Barbara Toncheff | Report as abusive
 

High taxes and restrictions in free trade are good for economic growth. Everybody knows that.

Posted by Tom Nail | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •