February 3, 2009

Smoot Hawley II? Say It Ain't So.

For those who remember their history, it was the Smoot - Hawley Tariff act that led to a dramatic decline in global trade during the Great Depression in the 1930's (See picture above). Most economists believe that this misguided policy put the "Great" in the Great Depression. In fact, a recession is a time to increase commitment to trade. Unfortunately, as quoted below, our Government not only as called for reduced trade disguised as "Buy American," but also angered our major trading partners as well.

From the New York Times, Monday, May 5th, 1930
From BBC NEWS: "The EU has increased its pressure on the US to reconsider the "Buy American" clause in the $800bn (£567bn) economic recovery package now before Congress.

The clause seeks to ensure that only US iron, steel and manufactured goods are used in projects funded by the bill.

A European Commission spokesman said it was the "worst possible signal" the Obama administration could send out.

The EU will launch a complaint with the World Trade Organisation (WTO) if the clause remains, the spokesman said."
The Cato Institute has even claimed this act to be Smoot - Hawley II. "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."

Here is more from the 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. "

UPDATE: Obama backs down on the anti-trade, protectionist "Buy American" clause: Good Move. Read more here.


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