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The Truth about Trade

RSS By: Dean Kleckner, AgWeb.com

Dean is Chairman Emeritus of 'Truth About Trade & Technology, a nonprofit advocacy group led by a volunteer board of American farmers.

Self-Inflicted Protectionism

Sep 19, 2008
Senators John McCain and Barack Obama promise change. “We’re going to change Washington,” pledged McCain at the Republican convention. Obama’s old bumper-sticker slogan was “Change we can believe in.” His new one is “Vote for change.”
 
It reminds me of a joke: Change is inevitable, except from a vending machine.
 
The rhetoric of change is popular right now because so many Americans believe their country needs to alter its course. In an Associated Press poll last week, 70 percent said they thought the country was heading in the “wrong direction.”
 
It’s as if they’re worried the U.S. economy is a gigantic vending machine that’s ripping them off. The financial system is in turmoil, as Lehman Brothers declares bankruptcy, Merrill Lynch sells itself and the Federal Reserve steps in and takes over AIG to stave off another failure. The effects of the mortgage crisis continue to ripple through the market. The cost of just about everything, from food to health care, keeps going up, up, up.
 
A few days ago, an editorial in a New Hampshire newspaper said that this year’s presidential contest is “the most important election in American history since 1932, when the country was just beginning to deal with the full economic catastrophe of the Great Depression.”
 
Wow. That’s quite a claim. Just to be on the safe side, perhaps we should demand that the candidates agree on something a little more specific than the need for change: They should agree to avoid the political blunders that contributed to the coming of the Great Depression.
 
Economists still debate the exact cause of the Great Depression, a global slump that began with a stock-market crash in 1929 and lasted about a decade, until the start of the Second World War. Yet virtually all of them think that the Smoot-Hawley Tariff Act of 1930 played a major role in the Great Depression’s terrible severity.
 
What was so bad about Smoot-Hawley? It was a mischievous piece of protectionism, approved in the belief that the U.S. economy would prosper if it was cut off from the rest of the world.
 
That’s one kind of change we definitely should avoid right now.
 
Several economists have calculated that by raising tariffs on foreign-made products, Smoot-Hawley shrank America’s GNP by 5 percent--an enormous blow. By comparison, points out historian Larry Schweikart, the terrorist attacks of 9/11 damaged GNP by 3 percent and Hurricane Katrina sapped half a percentage point of GNP.
 
Unlike 9/11 and Katrina, Smoot-Hawley was a self-inflicted wound. It was an act of Congress, authored by a pair of Republicans--Sen. Reed Smoot of Utah and Rep. Willis C. Hawley of Oregon--and signed by President Herbert Hoover, another Republican.
 
Democrats certainly haven’t forgotten this GOP catastrophe. In 1993, during the debate over NAFTA, Vice President Gore appeared on Larry King Live. He hauled out a framed photo of Smoot and Hawley and presented it to his sparring partner, Ross Perot. “They sounded reasonable at the time,” said Gore. “A lot of people believed them.”
 
And what a mistake that was. Countries around the world retaliated with their own protectionism. In the aftermath, global trade fell by about two-thirds and the Great Depression dragged on.
 
Gore might be wise to dig out that old photo and show it not only to his Republican rivals, but also to members of his own party. Earlier this year, Obama discussed the possibility of renegotiating NAFTA. Now he seems to have retreated from this brash talk, though it’s hard to know for certain. The Democratic convention was chock full of union bosses who have savaged beneficial free-trade agreements with Colombia, Panama, and South Korea.
 
If voters truly want change, then the next president should embrace a trade agenda that seeks to open markets for American products, rather than repeats the disastrous mistakes of Smoot and Hawley. We need to approve those languishing trade deals. We need to revive Trade Promotion Authority, so that our government can negotiate more pacts that help consumers and business alike. We also need to jump start the world trade talks--a tall order, but one that nevertheless should be a presidential objective over the next four years.
 
Let’s keep the rotten legacy of Smoot and Hawley where it belongs: in the history books.
 
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade.org
 
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COMMENTS (1 Comments)

Charles Hart
The truth is politics that demands other countries meet Republican party standards of "Americanism" is the greatest Tariff that the US has today. When Obama becomes President with respect for the rights of other people and nations we will enjoy more free trade than any written agreement can ever guarantee. Open minds make open borders.
8:38 AM Sep 20th
 
 
 
 
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