From the WSJ, "The smell of trade war is suddenly in the air. Mr. Obama slapped a 35% tariff on Chinese tires Friday night, and China responded on the weekend by threatening to retaliate against U.S. chickens and auto parts. That followed French President Nicolas Sarkozy's demand on Thursday that Europe impose a carbon tariff on imports from countries that don't follow its cap-and-trade diktats. 'We need to impose a carbon tax at [Europe's] border. I will lead that battle,' he said." Here is Hot Air dot com's take on this. Tariffs and trade wars were two of the major causes of the Great Depression.
I believe we all know that the Smoot-Hawley was a major cause of the Great Depression, "The modern free-trade era began during the Great Depression, after the catastrophe of the Smoot-Hawley tariff of June 1930. Hoover also thought he was shrewdly playing tactical politics by adopting a tariff that the economist Joseph Schumpeter said was the "household remedy" of the Republican Party at the time. But the tariff ignited a beggar-thy-neighbor reaction around the world, and the flow of global goods and services collapsed." Would a trade war today have the same impact that it had on the world economies in the past?
Maybe the President is trying to look good on he domestic front, but it could have unintended consequences, "Mr. Obama may not intend to start a trade war, but then Hoover didn't set out to pick one either. His political abdication is what made it possible, however, and trade passions once unleashed can be impossible to control. On his present course, President Obama is giving the world every reason to conclude he is a protectionist." I think Obama is trying to keep the domestic side of the house happy, and he will not start a full out trade war similar to the one that helped to bring about the great depression.
I am sure that the President and the world are familiar with history and will not make the same mistakes. The lessons are clear as day and readily available to just about anyone. If I can understand this lesson, I am sure the people in charge of our government understand this. If they do make the same mistake in regards to protectionism , what would that say about their intentions? There are many similarities in current events to past history and is worth noting to get a feel for where we might be going. Although I don't think this will lead to any great economic depression; an interesting question would be how would America or the world react to a much greater economic crises? When we look at how the America people responded to the recent, mild economic crises by electing the current government, this might give us a clue.
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Obama's walking a real tightrope here: he's got to please the unions, because their support is essential to him, and they are not beholden to him for very many reasons, but he's got to avoid plunging the world economy into a deeper recession. Going too far either way is bad news for him. Going too far towards protectionism is bad for the whole world. Can he walk it?
ReplyDeleteDamn Jeff, you beat me to it! This is what I get for doing my homework. What I thought was particularly interesting was the reaction on Chinese blogs (cited by the NYT http://www.nytimes.com/2009/09/14/business/global/14trade.html) where many urged strong retaliation against Chinese bond holdings.
ReplyDeleteI'm torn on this issue however. I've been furious that Republicans have been so appeasing to our future enemy. I like it when we slap down on them and as the NYT article explains, the impact of Sino-US trade is 13 times more valuable to the Chinese economy than ours. So while it will hurt us for a trade war to occur, but it wouldn't destroy us. (plus the US spends the lowest on foreign goods than any other developed economy in proportion to our total GDP...something like 10%).
More to follow
"I like it when we slap down on them and as the NYT article explains, the impact of Sino-US trade is 13 times more valuable to the Chinese economy than ours."
ReplyDeleteI have a point that the article stated about treasury bonds. How would it impact America if the Chinese decided to not continue to buy our debt or demand that we repay it back? This is a major way that America is getting money for its policies and for the operation of our country.
This is just a general trend that is occurring in the world: the world as a whole is being built up at the expense of America's prosperity. Look at what Cap and Trade and many other policies and groups in America, like the environmental movement, is doing, basically spreading the wealth around the world. I believe that this trend will only continue and get more pronounced in the future. It fits into globalization and an overall goal of those in positions of power throughout the world.
This last point is a good point to remember when investing.
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