Posted on October 6, 2011
By Greg Johnson
You'll likely not find an economist of any stripe - conservative, liberal or independent - who will say anything good about the Smoot-Hawley Tariff Act of 1930. In tough economic times, Congress moved to "protect" American workers by imposing tariffs on imported goods. The result was a global trade war, a war that deepened and prolonged the Great Depression. Now, 81 years later, Democrats in Congress appear on the verge of repeating the same mistake, putting the struggling US economy in jeopardy.
Tennessee's senators reacted. First, from Sen. Lamar Alexander, denouncing the Currency Exchange Rate Oversight bill that would impose sanctions as a reprisal for China's currency manipulation and saying the bill will "escalate a trade war that no one will win:"
"It will give a punch in the nose to China, our second largest trading partner, our third largest export market, our fastest growing export market, and the second largest economy in the world. History teaches us what will happen. We saw that during the Great Depression. Perhaps it was the cause of the Great Depression. We remember the Smoot-Hawley tariff, the trade war that developed, the reciprocal punches in the nose that countries gave to themselves over trade, plunging the world into a depression."
From Sen. Bob Corker:
"There's no question that China manipulates its currency, but I don't believe this bill would bring any production to the U.S. or create one job here in America. This approach is a typical Washington, cut-your-nose-off-to-spite-your-face response that would prove counterproductive," said Corker. "We've seen this play out before. In 1930, in a moment of populism, Congress reached for simple answers to complex problems and passed the Smoot-Hawley Tariff Act. The result was a deeper depression and a decade of increased joblessness."
"If we want to do something productive regarding China, we should focus on pushing the Chinese to end preferential procurement policies, addressing China's disregard for intellectual property rights, encouraging the Chinese to make investments in manufacturing plants in the U.S., and ensuring that America maintains access to the 1.3 billion Chinese consumers. These are the right policy responses toward Beijing. Unfortunately the bill currently on the Senate floor does none of this but instead would be the opening salvo in a new dynamic of hostile relations."
"To me, one of the most shocking aspects of this debate has been the Home Alone syndrome at the White House - a total lack of leadership from this administration on an issue of great international importance."
This bill might win a populist battle for unions, liberals and protectionist conservatives, but it could lead to a war with few survivors on either side. It is a war America should not wage.