We’ve covered the FDR angle, I think, and now:
The Times – Obama’s lethal game of beggar-thy-neighbour<br/> The ‘Buy America’ policy, proposed by the most protectionist Congress in memory, is a piece of disastrous economic folly, by Rosemary Righter
Trade leadership will have to come from Britain because it will not come from the America of Barack Obama. There, “economic patriotism” is the new protectionism, prettily wrapped in stars and stripes but just as damaging to the world’s prospects of recovery as was the 1930s variety.
Is Mr Obama a protectionist? Instinctively, yes; he has never seen a free-trade deal he would actually vote for, and he talks about trade policy as a tool “to support good American jobs”. But as the election campaign wore on, he toned down his invective against foreign competition, and, because his economic team is basically free trade, the jury is still out.
The verdict, however, will be in very soon. At the behest of the most protectionist Congress in memory, Mr Obama may be about to repeat, at the dawn of his presidency, the same historic error that the much derided Herbert Hoover made just before quitting the White House in 1933. In the depths of the Great Depression, he signed into law the innocent-sounding Buy America Act. It required the US Government to use American suppliers in all public contracts. Less notorious than the Smoot-Hawley Tariff Act, “Buy America” did huge damage. It proved a disaster for US manufacturing exports and the global economy. Other governments followed suit, and it took decades to begin to reverse the closure of markets.
Now, prodded by America’s mighty steel lobby, a key congressional committee has voted, 55-0, to attach a still more rigorous “Buy America” clause to President Obama’s stimulus package.
The truth politicians need to ponder is that the financial crisis has made sophisticates of us all. Most of us understand far more about how globalisation works, how the pieces hang together, than we did before everything went pear-shaped. We have made the connection between prosperity and globalisation – at the simplest level, that cheap T-shirts from Bangladesh leave us with more money for other things. We do worry about our ability to compete; we demand clear and impartial trade rules. But we can see how beggar-thy-neighbour protectionism creates more beggars – costing, not “saving”, jobs. It is time the language of politics caught up with us.
So he can be blamed for starting the Depression and prolonging it for a decade! Oh wait…
Update: Not like we can depend on the British for help…
The Great Depression is the precedent that today’s policymakers fear. Its human costs were measured in unemployment, homelessness and hunger. It was aggravated by protectionism. With the Smoot-Hawley Tariff Act in the United States, the adoption of tariffs and imperial preference by Britain and the division of the global economy into currency blocs, world trade by the end of 1932 was barely one third of the level of 1929. The World Bank now forecasts that world trade will contract in 2009, for the first time since 1982. A renewed Doha Round of trade talks is needed.
In these circumstances, policymakers have an onerous responsibility but an easy message to convey. Economic nationalism is morally objectionable; it is also a fast track to penury.
In 1933, the worst year of the Great Depression, an economic conference was convened in London and attended by the representatives of 66 nations. Its principal purpose was to revive international trade. There was one notable absentee. President Franklin Roosevelt stayed on his yacht in the north Pacific and issued a radio message condemning the conference for trying to stabilise currencies and declared that the United States would not participate in the negotiations.
(eh… he did?)
The consequences of the failure of the 1933 conference were profound. The collapse into protectionism deepened the recession, encouraged the rise of nationalism and resulted, ultimately, in world war.
So, good. We can add world war to the list of fun stuff in our future.