The Truth about Trade
Truth About Trade & Technology
Truth About Trade & Technology and the Global Farmer Network – farmers committed to inserting their voice and perspective in the global dialogue regarding food and nutritional security.
Protectionism: An Economic Retardant
Jul 30, 2009
I've said it before and I will say it again - the climate-change legislation recently approved by the House of Representatives is a bad bill and it is forcing bad choices - including a ticking time bomb. It requires the United States to impose tariffs on countries that fail to restrict their carbon emissions by 2020.
Reasonable people can differ on global warming. Is it really happening? An even bigger question: Does human activity contribute to the problem? Can we do anything about it without strangling our economy?
On one subject, however, everyone should be in full agreement: This is a bad bill and adding protectionist policies will not help us achieve our climate-change goals.
President Obama was wise to criticize it. “At a time when the economy worldwide is still in deep recession and we’ve seen a significant drop in global trade, I think that we have to be very careful about sending any protectionist signals out there,” he said recently. “I think we’re going to have to do a careful analysis to determine whether the prospects of tariffs are necessary.”
Technically, Obama didn’t oppose the tariffs. But in the language of Washington-speak, he made a clear statement: Protectionism should play no part in any bill that emerges from the Senate.
On a superficial level, the goals of the protectionists are not wholly unfounded. They believe that if the United States imposes greenhouse-gas limits on its own energy-intensive industries, competitors in other countries with no such restrictions will enjoy an unfair advantage. Tariffs are supposed to level the playing field.
Tariffs as 'border adjustments' are never good. The House legislation attempted to address this problem by creating mechanisms to assist “trade-vulnerable industries” through special compensation. Is there something else that could be done to deal with this inequity? It's obvious that the tariffs were added late in the game for blatantly political reasons. They were inserted not to benefit ailing industries or to drive economic growth a decade from now, but to help a controversial bill limp across the legislative finish line.
Representative Tom McClintock of California has a name for the climate-change bill: “our generation’s Smoot-Hawley.” That’s a reference to the 1930 law whose increased tariffs is widely credited with turning a deep recession into the Great Depression. McClintock was referring to more than just the House bill’s protectionism. Even so, his comparison was both appropriate and compelling. The last thing we need right now is an economic retardant—an anti-stimulus that kills jobs, threatens exports, and shrinks consumer choice.
We’ve recently seen how a congressional flirtation with tariffs can spark a trade war. The so-called “Buy American” provisions approved earlier this year have led to retaliation from Canada. North of the border, American companies soon could be locked out of municipal construction projects.
This is a textbook case of unintended consequences. Perhaps Congress didn’t mean to damage U.S. business opportunities in Canada. But it neglected to remember that protectionism often follows one of the fundamental laws of physics: For every action, there is an equal and opposite reaction.
This will be no less true in 2020, if the tariffs included in the House bill become a reality. The United States will start slapping duties on a variety of products, especially imports from developing countries such as China and India. The theory is that if they don’t enjoy access to American consumers, they’ll cut back on their own carbon emissions. This is probably wrong. A more likely response is the one we’ve seen countries take time after time: retaliation. Rather than bending to our will, they’ll try to make us bend to theirs by restricting our access to their consumers.
Keep in mind that the economies of China and India currently service about 2 1/2 billion people. It would be a big mistake to let short-sighted congressional horse-trading in 2009 deny ourselves the long-term opportunity of selling them goods and services as they grow larger and wealthier.
Some climatologists think that global warming is a big threat. Others disagree. Think what you will about their predictions and agendas. Meantime, here’s a forecast in which we can place our total confidence: No matter what the weather is like in the future, protectionism will make the economy worse.
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade.org