Saturday, September 12, 2009


Back in the 20s, the worlds economy was roaring along, the stock markets were booming, and everything was coming up roses. Except for Utah and Oregon. In 1930, Utah Senator Reed Smoot teamed with Oregon Rep Hawley to fix this, and boy, did they ever fix it.

International trade, which made up about 1/4 of US business, went to near zero, and unemployment went to nearly 25%. For the next 20 years, no one could figure out why.

Let's try it again, this time it will turn out different. After spending a billion dollars to artificially raise the price of used cars to a minimum of $3500 and make replacement parts scarcer and more expensive, the administration is going to increase the cost of maintaining your used car by increasing the price of tires by 35%.
In one of his first major decisions on trade policy, President Obama opted Friday to impose a tariff on tires from China, a move that fulfills his campaign promise to "crack down" on imports that unfairly undermine American workers but risks angering the nation's second-largest trading partner.
What could go wrong. If the price of Wang Chung tires goes up 35%, the price of Goodyears will go up by a similar amount. The working poor will be forced onto public transportation, and the grateful taxpayer will happily subsidize their new rides.

Of course the Chinese are not happy with this, and are proposing tariffs against US made goods. Meanwhile, back at the Champs d'Elesyee, Mr Sarkozy is proposing his own version of Smoot-Hawley, only this time instead of claiming that the tariffs "protect domestic workers from shoddy merchandise made by underpaid foreign labor"*, he gets to claim that since other countries (China and India) are not hobbling themselves with massive energy taxes, this will be offset by an equally massive "carbon tax", which is also known as an import tariff. The Chinese and Indians are not amused.

Can you say "International trade war?". I knew you could. Now try "Global Depression", followed by "Major War". OK that's probably an extreme view of things, and enough world leaders remember what happened the last time to not make the same mistakes one more time. At least we can hope, right?

*This phrase was used in reference to German products in the 20s. Its utility is that the actual target may change, but is never actually named, making the phrase evergreen. It was probably first used about 10,000 years ago when somebody tried to sell his stone arrow points in the village down the river.


Brad K. said...

I see a flaw in your "it won't be war" thinking.

If world leaders are inept and arrogant enough to figure that trade sanctions, tariffs, and closed trade policies won't be catastrophic for them this time around - what makes you think they won't believe that a
"small war" won't be worth their while?

Underestimating ignorance is a dangerous hobby, Sir.

Billll said...

You mean like a "very small rectification of the national borders" like bringing Taiwan back into the PRC fold, or bringing Georgia back in the USSR, or re-uniting Columbia with Venezuela?

Or maybe restoring the "rightful, elected" government of Honduras?