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Smoot Hawley, and Democratic Stimulus

One of the most important components of The United States economic engine is due to free trade policies and our ability to export the products we manufacture, and services we provide. The North American Free Trade Agreement is an important component of our free trade policies. Our trade relations with The European Union are important as well.

The stock market crash is historically referred to the starting point of our great depression of the 1930’s. However, in the wake of the stock market crash, despite a slowing economy, the bottom had not fallen out of the labor market and the unemployment rate, though the unemployment rate was higher it was still manageable. In 1930 Congress passed the Smoot Hawley Act that raised Tariffs to historically high levels. This was done to protect American agriculture sector and jobs in general. However, what it did do was trigger a trade war with Europe.

It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the “beggar-thy-neighbor” policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.

http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html

One of the components in the news in the past month coming out of Europe is the possible trade war with the United States if it starts to enact protectionist measures. You definitely do not see it in the news here in the United States. However, in the British Guardian Newspaper there is a column about just this scary possibility. They are asking the question:

With more than a whiff of depression in the air, is a “Smoot Hawley” like backlash against trade about to follow? It was the collapse of GNP in 1929-30 that led the US Congress to impose the tariff that caused the unravelling of world trade. Might the same happen again?

The danger exists. If the past months have taught us one thing, it is that anything is possible. Other economic aspects of the 1930s that many of us thought we would never see in our lifetimes have reared their ugly heads. Google News listed 181 articles mentioning “Smoot Hawley” this week.

http://www.guardian.co.uk/commentisfree/2008/dec/31/trade-policy-tariffs-us-uk

Well now we have another news story in the British Telegraph that is getting even more concerned:

The EU trade commissioner vowed to fight back after the bill passed in the House of Representatives late on Wednesday included a ban on most purchases of foreign steel and iron used in infrastructure projects.

The Senate’s version of the legislation, which will be debated early next week, goes even further, requiring that any projects related to the stimulus use only American-made equipment and goods.

The inclusion of protectionist measures has quickly raised hackles in Europe.

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/barackobama/4389597/US-EU-trade-war-looms-as-Barack-Obama-bill-urges-Buy-American.html

These people in Europe are equating “Buy American” in the pork stimulus bill is another way of locking them out of US markets. They are taking this very seriously! Will this lead to a trade war? If the people of the United States think we are losing jobs now, wait till they see what happens if we get in a trade war with Europe! In just the same manner that Smoot-Hawley caused us to have our exports plummet, putting a lot of US workers out of work, the same thing will happen here if this “Stimulus” bill passes. This stimulus bill will only stimulate more job losses if the Europeans do not get the “Buy American” provision removed.

How much do you want to bet a trade war is in the offering? Is this reason enough to oppose this monstrosity of a bill? It is for me, and then I feel it is compounded by the massive debt spending that is going to occur that will bring huge inflationary effects from printing all that money.

Republicans in the Senate need to pay attention to this or they are going to be left holding the bag when it blows up in their faces. The Democrats will be laughing about it all the way to the next election because the Republicans in the Senate covered them by taking the heat for it. Don’t think it won’t happen, because it will.

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