Smoot-Hawley Redux?

“Those who ignore history are doomed to repeat it.” - George Santayana

“A generation which ignores history has no past – and no future.” -Lazarus Long (aka Robert A. Heinlein)

We cannot say they haven't been warned. There's no way they can claim ignorance about the outcome of actions they've taken or are planning to take. When the “fit hits the shan” and the economy grinds to a halt because they've singlehandedly managed to kill trade, and with it millions of American jobs, we know they'll claim “But we didn't know this would happen!”

Anyone with even a fair to middling understanding about trade protectionism, and particularly about the Smoot-Hawley Tariff Act would know such protectionism in the name of saving American jobs usually has just the opposite effect. Sometimes only a few thousand people find their jobs disappearing, along with their customers. And other times, like just before the Great Depression, tens of millions find their jobs and customers have gone the way of the dodo.

The effects of “unintentional” trade protectionism built into the $787 billion stimulus package has already been felt, with some American manufacturers being locked out from being able to bid for local, state, or federal government contracts because they can't meet the “Buy American” provisions of the stimulus bill.

On paper, Tom Pokorsky would seem to be a clear beneficiary of the government's $787 billion economic-stimulus package.

Mr. Pokorsky runs Aquarius Technologies Inc., a company in Port Washington, Wis., that makes equipment to treat sewage. The stimulus plan earmarks some $6 billion for municipal wastewater projects that are right in his company's sweet spot.

But the bill's Buy American provisions -- meant to give U.S. companies a leg up on foreign competition -- are causing Aquarius and other U.S. companies a lot of grief with both suppliers and clients in Canada.

It hasn't helped that some Canadian business opportunities formerly open to American companies have now been closed because of “Buy Canadian” campaigns organized in retaliation.

Now that grief has boiled over into a major diplomatic row with the largest U.S. trading partner. Canadian communities angered by perceived American chauvinism have started a Buy Canadian campaign to exclude U.S. bidders from municipal contracts.

"If that sticks, well, there goes 25% of my business," said Mr. Pokorsky. "To me, Ontario may as well be Indiana."

Halton Hills, a town of 50,000 people about 25 miles west of Toronto, is one of about a dozen Canadian communities forging ahead with plans to amend their procurement policies to freeze out American companies. "We won't be taking any products from any country that is discriminating against us," said Mayor Rick Bonnette.

For those of you lacking any understanding of the Smoot-Hawley Tariff Act of 1930 and the resulting worldwide economic meltdown, the tariffs were created by the act in order to preserve American jobs after the stock market crash of 1929. It did this by restricting foreign goods by making them far more expensive, causing our trading partners to do likewise to American goods. This had the effect of destroying almost all trade among nations. The result was that American companies lost customers (some lost all of their customers), which in turn caused them to fail. Workers lost their jobs because no one was buying American goods. Unemployment skyrocketed to 25%, and the economy collapsed. What had been a moderately severe recession was turned into a worldwide depression.

Here's where the scary part comes in:

Obama is playing the same game Herbert Hoover did, but somehow he expects the results to be different...this time. How is it he believes that if he slaps tariffs or other barriers on foreign goods coming into the country that somehow the foreign nations affected by his actions won't retaliate in kind? As we've seen from the “Buy American” requirement in the stimulus bill, that blowback has already started, and that from a nation that is our closest neighbor and biggest trading partner.

It just shows President Obama is neither a student of history or of economics. And we already know where that will lead us.

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