BF2S Forums Lessons from history... and the failure to heed them.

The Smoot–Hawley Tariff or Hawley–Smoot Tariff (P.L. 71-361, officially named, the Tariff Act of 1930)[1] was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.[2]

The overall level tariffs under the Tariff were the second-highest in US history, exceeded only (by a small margin) by the Tariff of 1828[3] and the ensuing retaliatory tariffs by U.S. trading partners reduced American exports and imports by more than half.

Some economists have opined that the tariffs contributed to the severity of the Great Depression.

On Thursday, the U.S. House of Representatives passed the Currency Reform for Fair Trade Act, which aims to crack down on Chinese currency manipulation by targeting imports from China and other countries with currencies that are perceived to be undervalued. With a final tally of 348 to 79, the bill was bi-partisan and passed with ease.

The fact that more than 100 Republicans voted in favor of the bill suggests that no Congressman wants to be on the wrong side of the China issue in advance of the November elections. Imports from China are generally blamed for the loss of American jobs overseas and stubborn high employment in the United States. With jobs now the number one issue on the minds of voters, any measure that promises to reverse job outflow, whatever its merits, is viewed as good politics.

Congressional leaders were quick to try and make political hay out of passage of the bill.

“For so many years, we have watched the China-U.S. trade deficit grow and grow and grow,” Speaker Nancy Pelosi said. “Today, we are finally doing something about it by recognizing that China’s manipulation of the currency represents a subsidy for Chinese exports coming to the United States and elsewhere.”

“I believe in free markets and open competition. I believe that American companies and workers can win under those conditions. But the rules have to be fair—and for years now, it has been clear that China’s currency policy unfairly tilts the field in its direction,” Majority Leader Steny Hoyer said in statement. “By deliberately keeping the value of its Yuan low, China is able to sell products here at an artificially low price. As a result, domestic manufacturers — whose prices would be much more competitive if China allowed the market to set the value of its currency — go out of business. And American workers lose their jobs.”

It was recently reported that noted Democratic strategist James Carville urged candidates to hammer Republicans on the issue of trade. This tactic is meant to put Republicans in a tough spot. We're a nation, evidently, that has zero tolerance for Malaysian-made suits sold at reasonable prices.

Now, this might have been tactically advantageous for Dems if so many Republicans hadn't already surrendered to their protectionist political impulses. There's really not much to hammer them on.

It's astonishing how many "free market" candidates I meet who are deeply haunted by mythological ogres who live to "outsource" and "ship jobs overseas" just to screw the Forgotten Man.

It's such a crisis that last week the House passed the Currency Reform for Fair Trade Act — an expansion, I kid you not, of the Depression-instigating Smoot-Hawley Tariff Act. Or, more precisely, a de facto tax on the American consumer.

And guess what? Ninety-nine Republicans voted for it.

Rather than open trade with China, India, Colombia or South Korea (the latter recently signing a liberal trade agreement with the European Union), Washington is busy making demands to corrupt trade — demands that typically have more to do with carbon emissions than American prosperity.

If the newly chaste Republican Party believes free markets hold the answers for health care and for the auto industry and for job creation, then why, a skeptic might wonder, do they surrender to the statist position on free trade?

Well, the answer turns out to be rather simple. In a recent poll conducted by the Wall Street Journal, we learn that Americans have bought populist fears on trade. More than 50 percent of those polled claim that free-trade agreements have hurt the U.S.

That number is up from 46 percent three years ago and 32 percent in 1990. The polls found that 90 percent of Republicans agreed that "outsourcing" is one reason for our present economic dilemma.

No matter how many times history proves the protectionists wrong, they come back and scaremonger and demagogue us into believing trade is harmful. And admittedly, there are few more abstract and politically problematic positions to defend.

We're losing manufacturing jobs. Scary stuff. Which candidate is going to explain to the voters that outsourcing has allowed the American workforce to trade up to better jobs, and allows companies to grow their businesses and expand their workforces?

Which candidate is going to point out that manufacturing jobs have declined in the past 20 years because there has been an incredible rise in the productivity of the American worker? The output at U.S. factories was 37 percent higher in 2009 than it was in 1993.

Higher productivity means a higher standard of living for most Americans. Unproductive jobs? We have that covered with the stimulus.

"Our philosophy has to be not how many protectionist measures can we put in place, but how do we invent new things to sell," Rudy Giuliani once explained, near perfectly. "That's the view of the future. What [protectionists] are trying to do is lock in the inadequacies of the past."

Any Republican who votes for tariffs in the midst of a recession is locking in to the inadequacies of the past. And now that Bill Clinton's Democratic Party is no longer around, once the right surrenders on trade, we're going to be in a lot of trouble.