Smoot-Hawley Anyone?
Posted by Ray on September 29, 2010 under Main | 
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Here we are some 81 years after the Great Crash of 1929 and what turned out to be the beginning of the Great Depression which ushered in unusual monetary policy and solidified Keynesian economics. Part of the reason for the Depression was probably the best intentioned, yet most ridiculous, legislation which placed tariffs on imported goods, Smoot-Hawley. The idea was to protect America and to bring us economic riches, but the exact opposite happened. While not all of the Depression can be blamed on that legislation pretty much everyone agreed that it was a major contributing factor as it triggered trade wars. 81 years later and we are repeating the same mistake, politicians never, ever, learn.
I was shocked when the bill passed committee, well, not shocked, but surprised, but I am dumbstruck by the fact that it went to the House for a vote… and passed! I am referring to the brain child of Lindsey Graham and one Mr. Charles Schumer, 2 peas definitely not alike with the exception of being idiots. The bill I am referring to is Schumer-Graham, the new Smoot-Hawley, which will force Treasury to impose tariffs on countries they feel are manipulating their currency lower, in this case against China. One wonders if the U.S. will feel the wrath of the bill since we are sinking our own currency, but we would never manipulate our dollar lower, yeah, right.
I had spoke about a brewing trade war with China about a year ago as we leveled tariffs on some steel imports and tires. China responded with claims of dumping cars and chicken products and we retaliated, etc., etc. The politicians will not feel, yet, the fallout of this idiotic move, but the people who are struggling sure will. This will essentially guarantee that we will place tariffs on cheap products made in China, I wonder if the iPhone will fall in this category, which impacts the shoppers of Walmart the most, or Target or insert your favorite low cost store here.
I wonder, why does Washington hate the poor? Because that is exactly who they are punishing with this legislation, the poor. They will have to pay higher prices for what used to be low cost goods, money they do not have I might add. While the guise of this bill is to protect American jobs, read protectionism, it will likely do the opposite as China will retaliate in some fashion, I am sure of it. It also makes little sense to give your largest creditor a hard time and to alienate the fastest growing, or one of the fastest growing, economies in the world. Well, Washington is brain dead and probably never thought this far ahead, but still, how could they not?
China already made claims about other chicken products, this is a new claim a couple days ago, which shows that they are willing to do something to return the favor. What that is, who knows, but perhaps they will void more financial contracts with U.S. banks or ban some products. What I am sure of is this will pave the way for more protectionism worldwide and that is not good. You cannot legislate your way to prosperity and punishing a country for keeping their currency cheap is just wrong. I have stated many times before that a major revaluation of the yuan will lead to mass bankruptcies in China, but this is what the U.S. wants, not a strong dollar, but a strong yuan, who cares about the dollar anyhow.
It will not create jobs domestically for one simple reason, Vietnam has favorable currency rates, so does Indian, Indonesia, Peru, Mexico, Malaysia and many other countries. What are we going to do when our corporations move to these other countries? Are we going to tax them or simply place general tariffs on the products manufacturer there? Are you getting the point yet? Capital will flow to the next easier place to do business and Congress can continue to throw up road blocks, but they will fail. Not to mention that we want to double our exports in 5 years, according to Obama, and if we slap China do you really think they will let us have free reign or trade with them? Nope.
This is a job killer and will turn the troubled economy into deeper mud, there is simply no way to deny this. I just cannot believe Congress passed this bill this far, it makes zero sense. I know the Democrats are desperate for votes and this is a populous bill, but most people will see it, if they at least paid attention in high school history class, as a major problem for us. Especially since most Americans know China is our largest lender. Worse is that only 70 or so in the House voted against it… how can there be that many stupid people in Congress?
The bottom line is that our sugar daddy is going to be upset and probably cut us off because of this. We will now have fewer jobs and little financing of our massive deficits. Nice job guys, perhaps you would like to come to each Americans home and kick them in the shin as a follow-up because I do not see how they can top this idiotic move.
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