Protectionism Panic Spreads
Now the Wall Street Journal weighs in with their version of
conventional wisdom, that Smoot-Hawley deepened the Great Depression. I
note it did not precede the Crash of 1929. Correlation tempts one to
conclude causation, but the very fact of the finance crowd worrying
about it makes me think it is purely self-serving for them. Also, the
tariffs were not reduced until we were well out of the depression, at
the Bretton Woods meetings. This was followed by GATT, more complete
trade agreements.
But if correlation is causation, the proximate events before the Depression were weakening labor and overcapacity, and mainly the collapse of Wall Street. Smoot-Hawley followed, but did not lead. The proximate events of recovery were the New Deal, and mainly WW II. Bretton Woods followed, but did not lead.
Here is the finding of the American Tariff League Study of 1951 which compared the effective tariff levels of 43 countries found that only 7 countries had a lower tariff level than the United States (5.1%). 11 countries had effective tariff rates higher than the Smoot-Hawley peak of 19.8% including the United Kingdom (25.6%). The 43 country average was 14.4% - 0.9% higher than the U.S. level of 1929. (From Wikipedia.) Also, strategic issues were highlighted by WW II, such as Britain and France's dependence on imported precision clocks and watches from Germany. They imposed embargoes to restore a native manufacturing capacity. Hmm, what a concept!
So can anyone make a convincing case that we should not take some slighly bitter medicine and pay a bit more for jeans and cars, at least those that can? Those that can't, actually can get along with patching or buying used cars, after all. And if those-that-can't get better-paying jobs manufacturing the more expensive native jeans and cars, they will be able to buy again.
Being dependent on imports is not being healthy. And the likely pain of kicking a dependency is not reason to stay addicted. I quit cigarettes, and had to deal with depression for a while. Big deal, eh? Worth the pain.
So come on, money-protectors, convince me I need your free trade. You will fail regarding my job, since all my income comes from the folks in front of me at a show.
But if correlation is causation, the proximate events before the Depression were weakening labor and overcapacity, and mainly the collapse of Wall Street. Smoot-Hawley followed, but did not lead. The proximate events of recovery were the New Deal, and mainly WW II. Bretton Woods followed, but did not lead.
Here is the finding of the American Tariff League Study of 1951 which compared the effective tariff levels of 43 countries found that only 7 countries had a lower tariff level than the United States (5.1%). 11 countries had effective tariff rates higher than the Smoot-Hawley peak of 19.8% including the United Kingdom (25.6%). The 43 country average was 14.4% - 0.9% higher than the U.S. level of 1929. (From Wikipedia.) Also, strategic issues were highlighted by WW II, such as Britain and France's dependence on imported precision clocks and watches from Germany. They imposed embargoes to restore a native manufacturing capacity. Hmm, what a concept!
So can anyone make a convincing case that we should not take some slighly bitter medicine and pay a bit more for jeans and cars, at least those that can? Those that can't, actually can get along with patching or buying used cars, after all. And if those-that-can't get better-paying jobs manufacturing the more expensive native jeans and cars, they will be able to buy again.
Being dependent on imports is not being healthy. And the likely pain of kicking a dependency is not reason to stay addicted. I quit cigarettes, and had to deal with depression for a while. Big deal, eh? Worth the pain.
So come on, money-protectors, convince me I need your free trade. You will fail regarding my job, since all my income comes from the folks in front of me at a show.
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I get so stuck on metaphors which end up just being rhetorical devices used for propaganda to enforce one's own political take on an issue.
Like water runs downhill and somehow that means that 'third world' countries (are there any left? I never hear that term anymore) end up with goodies on a relativity formula.
You do not do that Tom. You are referencing studies and then demonstrating that post hoc ergo propter hoc does not always solve the equation.
This is over my head. Like the reps on tv still obscuring the issue again today and I get so mad and then I remember they lost and I should hope they keep making the same arguments.
We need protection as a nation whether it is branded protectionism or not. We cannot fill Walmart with toys containing lead. But free trade has helped take the danger of communism off the table for a couple decades.
The southern reps with foreign car makers employing Americans obfuscate but what exactly is American about de facto international corporations?
Corporations like Halliburton who move their base to Dubai and money to the Caribean sp. to escape taxes should be denied all government monies and tax liens should be put on all their property in this country because they are traitors, more than anyone giving the USSR faulty 'secrets'.
Personage and citizenship should be taken away from all corps.
Ah. I feel better after a rant.
And I like to read Tom W. even when I do not know what I am talking about!!!!!
February 1, 2009 8:52 PM | Reply | Permalink
Thanks. Also let us note that the agreed-upon stimulus of WW II did NOT involve selling stuff abroad, but rather making it and then throwing it away, blowing it up, with LOTS of waste in the mix.
February 1, 2009 10:01 PM | Reply | Permalink
I don't agree re WWII, but I am interested in how tariffs might play out now. They seem like one way to feed the Government Beast as long as consumers have a thirst for imports.
Re WWII, the Depression was well on its way out the door before 1941. And we did well after WWII not because we blew stuff up, but because we had industrial capacity to spare while much of the rest of the world had little industrial capacity at all.
February 2, 2009 3:02 AM | Reply | Permalink
I don't give total credit to WW II, but the point stands, I feel, that we produced our way out of depression. And low export barriers were not the case, nor were low import tariffs present until after '51.
The Government Beast, that is, us, ran on custom duties alone for rather a while.
February 2, 2009 6:47 AM | Reply | Permalink
produced our way out of the depression... an interesting turn of phrase!
We produced and consumed our way out. One thing I haven't seen mentioned is the role of mfg. technology in the 30s. What was the role of automation combined with unions at increasing production? Probably another topic...
February 2, 2009 3:40 PM | Reply | Permalink
3rd world is a derogatory expression, so now that we are on our way to becoming a 3rd world country, it would be too painful to self-identify as such.
OR, since we got into the habit of ignoring the plights of anyone other then ourselves, and as a nation, we ignored our own plight as well, preferring to live in the fantasy of a mighty, unadulterated, militant fascism, we did not recognize the achievements of lack thereof for any other nation.
February 2, 2009 2:36 PM | Reply | Permalink
THATS IT, I knew there was a reason we never hear about third world countries anymore. We have seen the third world country is it is us!!!
Good for you Gregor.
February 2, 2009 6:21 PM | Reply | Permalink
The Fraud of 'Free Trade'
by Lyndon H. LaRouche, Jr.
July 10, 2008
http://www.larouchepac.com/news/2008/08/03/fraud-free-trade.html
February 1, 2009 10:30 PM | Reply | Permalink
Imagine the rest of the world disappeared, what sort of life would we be able to achieve for ourselves?
February 2, 2009 4:19 AM | Reply | Permalink
My question, too. Should be possible, and was for much of our history. Imports were for the wealthy, like tea and spices, or fine fabrics and silver.
February 2, 2009 6:49 AM | Reply | Permalink
You mean do without oil and cheap stuff and unseasonal produce?
February 2, 2009 4:40 PM | Reply | Permalink
I think the unseasonal problem is somewhat diminished by our geography.
Certainly living without oil would require a 'work around" to put it mildly. But we seemed headed in the direction anyway.
Clearly I'm not rooting for the rest of the world to disappear but suggesting that in trying to assess the effects of free trade we should take as a base line how we would fare without it.
February 2, 2009 5:07 PM | Reply | Permalink
doing without free trade is not the same as doing without external trade! Now we're talking tariffs and the like (not just taxes on imports but other factors).
February 2, 2009 9:12 PM | Reply | Permalink
I haven't at all gotten into the details. I do remember that life seemed pretty normal during WW2 with presumably very few imports. So to the theoretical question I posed: Could we be self sufficient or nearly so ? my gut feeling is the answer is Yes
Practically of course that isn't going to happen. What very well might happen is either freezing the status quo or increased protectionism. Which would be OK with me.
February 2, 2009 9:51 PM | Reply | Permalink
I'm interested in knowing more about how tariffs could work (assuming various trade agreements were modified).
February 2, 2009 10:26 PM | Reply | Permalink
Not a tariff but another way of approaching the matter is the Buy America requirement in the current legislation. It seems sensible to me that when our tax dollars are being spent to promote recovery of our economy they should be spent so as to produce jobs for our workers.
February 3, 2009 6:43 AM | Reply | Permalink
Canada is complaining about that provision, but agree with you.
February 3, 2009 7:45 AM | Reply | Permalink
Understood, but of course "Made in the USA" is hardly a well-defined category and is subject to abuse.
Spending which goes to capital intensive (automation) projects generates less jobs than spending which goes to labor intensive projects. Electronics assembly is like this, and we've all seen car "robots" in action in video clips.
There is an underlying issue re the role of technology in Jobs vs. Investments.
Bush wasn't all wrong with Ownership Society. But as he did it, it was wrong enough to give it a very bad name.
February 3, 2009 5:11 PM | Reply | Permalink
I guess I'd say my position is "directional". Should we lean for or against outsourcing?
I'd lean against, pretty hard.
February 3, 2009 10:40 PM | Reply | Permalink
I understanding "lean".
I don't know why you choose that particular frame to lean on. If we lose jobs income but gain even more investment income, that's not necessarily bad. It's merely globalization at work.
Now, I'm not a big promoter of globalization. It offers good and bad. It extends risk geographically and across cultural divides, too. It complicates life. But then technology in general complicates life yet we seem to largely embrace that, prudently or not.
My "lean" is for sound planning and effective execution. I lean against sloth and the generalized "welfare state" notion, at least on the large scale (I personally tend to be a slacker, but I don't expect government programs to bail me out).
February 4, 2009 4:16 PM | Reply | Permalink
Perhaps unfairly that position reminds me of a couple of lines by Tom Lehrer
February 4, 2009 9:45 PM | Reply | Permalink
I wonder how the "buy america" idea works for companies like Boeing. They have outsourced a lot of things they used to do (actually still do for some customers) that was previously all done in house.
This is a particular example of the multinational element eds is talking about.
February 3, 2009 7:29 PM | Reply | Permalink
Yeah , when I worked in ITT we tried to rationalize production ignoring borders as much as possible. But doing transfer pricing so that the profit got left in the optimum country. Sort of hard on the country that lost tax revenue but you can't please everybody!
February 3, 2009 10:38 PM | Reply | Permalink
I support labor restrictions on free trade, but my belief is that ultimately we are all one people, and should not let artificial boundaries such as national borders define who we are.
If we want to impose tariffs or other restrictions on goods because those making those goods don't follow certain labor, environmental, or safety regulations, that's fine. But we shouldn't be doing it just to save our jobs at the expense of other people's jobs. That just doesn't feel right to me.
By the way, I'm way out of my knowledge element, and I'm not following anyone else's ideology here. I'm just using my own common sense, which I'll admit is occasionally flawed, so I'm open to discussion, but I hope I've at least made my perspective clear here. I welcome calm, reasoned responses on why I might be wrong in my beliefs.
February 2, 2009 11:21 AM | Reply | Permalink
I believe democracy works best when it's small and local. Free trade agreements undermine democracy by skirting local laws. It allows International corporations to exists. I think it may ultimately create a company that no longer needs a customer if you can believe thats possible, where the corporation becomes the country. One world, one company, one people, one language, under god, indivisible, with liberty and justice for all. That last part was snark for those who can't recognize.
February 2, 2009 11:56 AM | Reply | Permalink
Small and local are fine, as are focusing on local laws. However, it seems to me that most tariffs are focused on preserving local jobs irrespective of local laws, often in a tit-for-tat formula.
That said, as a general principle I think it's best to buy local wherever it makes sense (regardless of arbitrary borders, however) as it's better for the environment and fosters community. "Makes sense" is somewhat arbitrary, unfortunately, and I suppose I mainly support freedom of choice there. For me, for example, I'll buy a foreign car if the net impact on the environment is positive despite it being foreign. (Of course, foreign vs. domestic with respect to cars is very muddy these days with many foreign cars being built here, and many domestic cars getting a large number of their parts from overseas.)
I suppose my main problem is a slavish devotion to arbitrary borders. Sure, local is great, but don't define "local" based on where someone else drew an imaginary line. On the other hand, if your interest is in promoting good practices (labor, environmental, safety), then those good practices should be rewarded also irrespective of arbitrary borders. This is not to say one can't factor in both locality and good practices—one should do exactly that—I just don't think arbitrary borders should be included in that factoring.
Does that make sense?
February 2, 2009 2:29 PM | Reply | Permalink
You raise a good point describing how the "local" can be defined in arbitrary ways. While I have many doubts about the solutions he offers, I have long been struck by Ivan Illich's definition of power: The means and skills to make your immediate environment be as you see fit.
Illich advanced his philosophy as a rebuke to globalization before we even started calling it that.
So there may be many benefits to the U.S. making for itself what it has been buying from others but that doesn't by default mean that particular communities suddenly have been given a leg up.
After all, tyranny has been a local phenomenon for time out of mind.
February 2, 2009 8:33 PM | Reply | Permalink
I'm not about to research this, but there are hundreds of companies in the world whose "economy" is greater then that of hundreds of nations. If my memory serves me the value of unused air miles alone ranks that aspect of the airline industry above hundreds of nations.
I have always been distrustful of the MINCs [MultINational Companies] because it seems that a country is merely an organism on which they can engorge themselves. When Halliburton left the USA, it merely reinforced this idea. I also believe it is the #1 reason these people despise the UN, as that is the only governing body in the world with any chance of regulating them in countries they control.
February 2, 2009 2:42 PM | Reply | Permalink
Tom
You are right in principal, but any move to raise tariffs at this moment might bring down the wrath of the Chinese, who have the dollar and American debt by the short and curlies. The cure might be worse than the disease.
February 2, 2009 3:30 PM | Reply | Permalink
The WSJ didn't say that Smoot Hawley -caused- the Depression, it said that Smoot Hawley "deepened", or contributed to the seriousness and length of, the Depression.
And it did - it's pretty much Intro to Macroeconomics to figure out why - but as a rough guide, killing importers and distributors with punitive taxes won't increase manufacturing locally if market conditions are bad.
Who would open up a factory in 1932?
It's pretty knee-jerk around here to be against free trade, because it's a typical populist issue. Sure, in the long run, more free trade is better for more people.
But you can't predict it, you can't control it, and you don't know who benefits in advance. So people who like government generally dislike free trade (they dislike free everything, really, except "free" health care) as a result.
Repeat after me: The United States of America does not have a comparative advantage in basic manufactures. The United States of America does not have a comparative advantage in basic manufactures.
February 2, 2009 5:17 PM | Reply | Permalink
What we need is the for the Chinese to stop pegging the yuan to 40% of the dollar. Let it float and it will rise to where it proportionally should be based on the Chinese economy. The Chinese people need to spend more and save less anyway. Pick up their consumption to take up our slack because we're tapped out. With a stronger yuan foreign goods will be more affordable for them and their goods will cost more outside their country allowing for more manufacturing elsewhere.
Ideally that could all be accomplished smoothly over a period of time so there wouldn't be major dislocations anywhere. But we're talking about a human endeavor here and humans are notoriously bad with money.
February 2, 2009 6:06 PM | Reply | Permalink
I have heard three main objections to higher tariffs; 1) Higher costs for consumers, 2) Fewer jobs for poor countries, and 3) Not right now.
1) is trivial, since we should never depend on imports for essentials. Japan, and the US, and most countries subsidize agriculture for this reason (see point about precision clocks above). We did not import fuel until recent decades, and it is obvious that we should be producers, not consumers of energy.
2) is irrelevant, since the route to wealth for poor countries is to make their own food first. All wealthy nations and US states have strong agriculture.
3) is minor, since it would be wise to phase in any increase. Almost goes without saying.
February 2, 2009 8:10 PM | Reply | Permalink
I'd like to add
1) Not trivial, but we should [expect to] pay more now for imports and the taxes on imports go to help deal with domestic needs, as higher prices for imports shifts some demand to local suppliers.
2) Not irrelevant, but necessary. China was growing too fast, tariffs 4 years ago would have slowed that excess growth rate. (to pick on China) Also, it's not about food but about making a transition from a food economy to a more industrialized economy, having learned from the already industrialized countries' history and mistakes (basically 1800-2000). Tariffs today might still help.
What complicates this is the multinational, or transnational corporation, and the drawing of the lines as to what constitutes taxable import value.
February 3, 2009 6:37 PM | Reply | Permalink
One element not included in your list is the effect of multinational companies becoming unprofitable. Their shares will tank under harsh tariffs, contributing to the list of creditors not getting paid. Let the hyperinflation begin.
What El Presidente said about competition in basic manufacturing seems to me where there is leverage. His statement is true when we subtract the real costs of producing things.
By real costs, I mean environmental consequences of making things a certain way and the costs of not being able to maintain what has been purchased (you are forced to replace it).
Right now, the price of something only includes what it takes for it to be made by somebody making money making it. If the cost of disposing of it and the byproducts of the production were added to the bill, making stuff in a nation with a "high" standard of living might not seem such a disadvantage.
To develop this notion of the "price" would require more globalization, not less.
February 6, 2009 10:24 PM | Reply | Permalink