Morning Bell: The Protectionist Threat of Another Great Depression

Conn Carroll / September 29, 2010

A financial bubble fueled by easy money and loose credit bursts. Unemployment shoots up, and gross domestic product falls sharply. Some in the U.S. Congress blame foreigners for unfair trade practices and pass a trade bill that prompts widespread retaliation, exacerbates the popping of the bubble, and sends the country into further economic trouble. That is what happened with the Wall Street Crash of 1929, the Smoot–Hawley Tariff Act of 1930 and the Great Depression. Americans might hope our leaders would learn from our past mistakes. But the leftist majority in Congress, aided by some misguided members of the minority, is trying to repeat this terrible history.

At issue is H.R. 2378 or the Currency Reform for Fair Trade Act. The bill would grant new powers to the Obama administration, allowing them to raise tariffs on imports if the Commerce Department determines that an exporting country is manipulating its currency. Its not known what President Obama would do should this bill hit his desk. A real leader would let it be known loud and clear that it faces certain veto. The protectionist proponents of this bill believe that Chinese currency manipulation is artificially lowering the price of Chinese goods imported into the United States while inflating the price of U.S.-made exports. In 1930, the protectionists thought they could help American manufacturers by punishing foreigners. They were tragically wrong. The same misguided logic is being applied to China now. Heritage Foundation Research Fellow Derek Scissors explains why higher tariffs on Chinese imports would not help the U.S. economy: (more…)