Good News and Bad News on Trade

Matt Welch | February 4, 2009

The good news: "President Obama to water down 'Buy American' plan after EU trade war threat," headlines The Times of London.

"I agree that we can't send a protectionist message," he said in an interview with Fox TV. "I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."

And don't let Obama's above-it-all filibustering fool you: As Reason has been documenting for two years, the president ran and won a campaign that on a daily basis bashed trade agreements, particularly with troubled Mexico and anxious China. And his party found success swapping its pro-trade stance of the mid-'90s for cheapjack "Buy America" bullshit in the late aughts. Former Reason editor Virginia Postrel points to one of many truly horrible possible consequences of a more protectionist America:

A trade war threatens to exacerbate the single largest danger in the worldwide downturn: that a serious contraction in China will lead to domestic unrest and that that the Chinese government will engage in military aggression to focus frustration outward.

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robc|2.4.09 @ 8:38AM|#

Hoover Democrats.

|2.4.09 @ 8:42AM|#

As Reason has been documenting for two years, the president ran and won a campaign that on a daily basis bashed trade agreements, particularly with troubled Mexico and anxious China. And his party found success swapping its pro-trade stance of the mid-'90s for cheapjack "Buy America" bullshit in the late aughts.

And why not? The rhetoric (and rhetoric and votes on farm subsidies) didn't stop most Reason contributors from preferring him over Senator McCain, and it certainly won votes from other people.

Pro-trade and anti-farm subsidy people might complain, but they just don't take those issues seriously enough to actually vote on the basis of them. Not compared to other issues. Which is fine, of course, making decisions based on the lesser evil. Just don't be all shocked if and when rhetoric has consequences, particularly when enough protectionists and farmers do vote solely on the basis of those issues.

|2.4.09 @ 8:43AM|#

On one hand, Obama is worried that China will stop buying our treasury debt. On the other hand, he calls them a currency manipulator. He seems not to understand how the two are linked (ie. sell yuan, buy dollars, use dollars to buy treasury debt) Without China bidding for debt, the long end of the yield curve would be maybe 2-3% higher in yield. Which would be a real bitch for those trying to refinance right now - and also for the Fed, who is trying to get people to lock into 30 year fixed rate mortgages so it can inflate away their problems.

|2.4.09 @ 8:44AM|#

Did any reason contributors actually vote for Obama or McCain? I'm really curious. Preferring one over the other doesn't mean either are good or worth voting for.

|2.4.09 @ 8:46AM|#

and to link this to the thread, pressuring China to revalue the Yuan is probably the biggest protectionist measure that is being considered by several orders of magnitude. We'll be lucky if that gets scotched in favor of some targeted subsidies that only impact a few industries (however disgusting that will be from a free market perspective)

|2.4.09 @ 8:47AM|#

To heck with world trade we HAVE to look out for ourselves! Rest assured no one else is going to look out for us!

RT
www.real-privacy.us.tc

A trade war threatens to exacerbate the single largest danger in the worldwide downturn: that a serious contraction in China will lead to domestic unrest and that that the Chinese government will engage in military aggression to focus frustration outward.

No offense to Mongolians or Laotians, but that "danger" doesn't really affect us. We should be more concerned that China would no longer be able/willing to buy T-Bills, so that our national bankruptcy would become evident.

|2.4.09 @ 8:48AM|#

History repeats itself and those who don't learn the lessons of history are doomed to make the same mistakes.

Matt Welch|2.4.09 @ 8:48AM|#

Did any reason contributors actually vote for Obama or McCain? I'm really curious. Preferring one over the other doesn't mean either are good or worth voting for.

Can't speak for the contributor universe, but maybe one staffer? Two? The biggest votes by far were for either Bob Barr or none of the above (I would have voted for Barr, but I registered too late, thus preventing him from winning the District of Columbia).

|2.4.09 @ 8:49AM|#

Nick, I don't think anyone voted for McCain, but several said they were voting for Obama, an equal number to those who were voting for Barr as I recall. Tim Cavanaugh wrote an article on why he was voting for Obama because he thought it would symbolize the end of the race card. The others didn't have much better reasons.

ed|2.4.09 @ 8:55AM|#

What kind of historically illiterate, economically retrograde, and bogusly populist jerktards

O'Reilly & Dobbs to name just two.

|2.4.09 @ 8:57AM|#

Short memory, eh Mr Welch?

Bagge - Obama
Bailey - Obama
Balko - Barr
Carey - anybody but McCain
Cavanaugh - Obama
Chapman - Obama
Dalmia - none
Doherty - none
Gillespie - Barr
Jillette - Barr
Mangu-Ward - none
Moynihan - none
Poole - McCain
Root - Barr/none
Sanchez - Obama
Sullum - Barr
Walker - Barr
Weigel - Obama
Welch - Barr
C. Young - Barr
M. Young - Ariel Sharon (kidding, he didn't say)

Reinmoose|2.4.09 @ 8:58AM|#

that somehow we're just looking after ourselves and not concerned with world trade

What freightens me here is that Obama seems to be confusing world trade (a relationship in which all parties benefit over not engaging in trade) and world aid! As if this "buy American" protectionist bullcrap would actually result in a much better economy for the US to the detriment of the world.

Matt Welch|2.4.09 @ 9:00AM|#

Here is the most relevant link.

And no, that's not a "short memory"; among the people currently on full-time staff for the mag or foundation, only one person at that link voted for Obama.

Matt Welch|2.4.09 @ 9:01AM|#

Not that there's anything wrong with that, etc. Hell, I voted for Jerry Brown in '92, among many, many other sins. Though actually I feel pretty good about that vote in retrospect....

|2.4.09 @ 9:05AM|#

Good point, sir. I commend you for purging the Obama supporters from your ranks.

stuartl|2.4.09 @ 9:08AM|#

Maybe we will be lucky and a trade war will keep Obama from nationalizing the banks and healthcare.

I voted for McCain, his response would have been to fire Hu Jintao.

Matt Welch|2.4.09 @ 9:10AM|#

I commend you for purging the Obama supporters from your ranks.

Even though this was a joke, I just want to strangle it in its crib as a plausible explanation for anything. We are a politically diverse bunch, and don't judge each other by who we vote for.

Matt Welch|2.4.09 @ 9:11AM|#

I voted for McCain, his response would have been to fire Hu Jintao.

We have a thread-winner!

|2.4.09 @ 9:18AM|#

Did Bailey vote for Obama for the same reason comedians voted for Bush?

Citizen Nothing|2.4.09 @ 9:31AM|#

NPR's All Things Considered actually had a funny bit yesterday about the trade situation that included the audio of Ben Stein from Ferris Beuller's Day Off.
"The Hawley-Smoot Tarrif Bill...did it work...did it work...anyone?...anyone?"

Or tariff.

kimq|2.4.09 @ 9:33AM|#

that a serious contraction in China will lead to domestic unrest and that that the Chinese government will engage in military aggression to focus frustration outward.

Is there any evidence to support Postrel's claim on this front? She's basically claiming China will start a war with...somebody...in order to control their populace. I realize we live in difficult times, and I realize the Chinese government is dedicated to maintaining its power, but who exactly does Postrel think the Chinese are going to invade?

Wicks Cherrycoke|2.4.09 @ 9:37AM|#

Isn't this the same Obama who is going to restore our reputation with our allies and honor treaties and make the world love us again and persuade other nations to take Gitmo detainees off our hands simply by not being George W. Bush?

Sure. Just like his absolute rule against lobbyists working for his administration.

shackleford|2.4.09 @ 9:41AM|#

The NPR story Citizen Nothing refers to is here

Also, an interesting link that appeared when I was looking for the previous one.

s

Citizen Nothing|2.4.09 @ 9:48AM|#

Thanks for finding the link, shackleford. Sorry I'm so damn lazy.

Actually, I'm not sorry.

|2.4.09 @ 9:59AM|#

|2.4.09 @ 10:11AM|#

The bad news: What kind of historically illiterate, economically retrograde, and bogusly populist jerktards would even CONSIDER, for just one second, that a reasonable approach to this Great Depression 2.0 they keep telling us about is reviving the ghost of Smoot-Hawley?

I'm very opposed to these Buy American provisions to the bailout, but to compare them to the Smoot-Hawley Act is as historically illiterate as comparing the current economic downturn to the Great Depression. Protectionism is bad, but let's not get carried away with exaggerated comparisons. We're not Dem or Rep partisans here.

and to link this to the thread, pressuring China to revalue the Yuan is probably the biggest protectionist measure that is being considered by several orders of magnitude.

It's protectionist to call for a nation to have their currency float freely based on supply and demand? What Geithner said was impolitic, but correct.

|2.4.09 @ 10:15AM|#

Read the bill! The bill does state that American Steel should be used...BUT there are exceptions to this rule that does not disallow the use or foreign manufactured steel.

Please educate yourself before you blather on about an issue!

Note: both the Congress and Senate bills say similar things...so when talking heads go on and on...they are only telling half truths - as usual.

|2.4.09 @ 10:16AM|#

I realize we live in difficult times, and I realize the Chinese government is dedicated to maintaining its power, but who exactly does Postrel think the Chinese are going to invade?

Taiwan, perhaps? They do have a history of invading and absorbing neighbors, or have we already forgotten Tibet? And they have never given up their claim to Taiwan.

A prosperous and stable China is more likely to continue its halting progress toward more economic and perhaps political liberty. An unstable and economically damaged China is probably more likely to look for things to do to keep the lid on, both domestically and (perhaps) with foreign adventures.

Johnny Nowhere|2.4.09 @ 10:21AM|#

kimq | February 4, 2009, 9:33am | #
I realize the Chinese government is dedicated to maintaining its power, but who exactly does Postrel think the Chinese are going to invade?

Some candidates: Taiwan, Tibet, any of the heavily Muslim regions of the various 'Stans on their western border.

Geoff Nathan|2.4.09 @ 10:21AM|#

Is there any evidence to support Postrel's claim on this front? She's basically claiming China will start a war with...somebody...in order to control their populace. I realize we live in difficult times, and I realize the Chinese government is dedicated to maintaining its power, but who exactly does Postrel think the Chinese are going to invade?
In case anybody hasn't been looking at international affairs in the past, say, fifty years, the 'country' China would most like to invade, and the country against whom their build-up of fifth generation fighters, bombers etc. is aimed is their 'rebel province', Taiwan. The one we used to arm with some of our most advanced fighters etc (they are also building their own now, incidentally, as are the Chinese, who used to just buy Russian)

beaten by RC.

cuernimus|2.4.09 @ 10:23AM|#

but who exactly does Postrel think the Chinese are going to invade?

As RC says Taiwan. China has wanted to invade Taiwan since 1949 but has not done so because of the West's backing of Taiwan. A large scale "buy American" campaign might remove the one consequence that is currently keeping them from moving in. It would also be a rather large bit of propaganda to sate all the poor who are no longer able to move up to the middle class and all the middle class who have lost their jobs as a result of no one buying from them.

|2.4.09 @ 10:30AM|#

A large scale "buy American" campaign might remove the one consequence that is currently keeping them from moving in.

The US Navy is going down due to Buy American provisions?

Naga Sadow|2.4.09 @ 10:41AM|#

I believe there are already standing provisions to "Buy American" in just about all facets of government. I believe that just for the DOD, a foreign good must have at least a 50% rate cut compared to a domestic good to even be considered.

cuernimus|2.4.09 @ 11:01AM|#

The US Navy is going down due to Buy American provisions?

I'm not sure the 7th Fleet would be getting in the way. It was the main reason China stayed put in the past, but I highly doubt the majority of Americans would care who owns Taiwan but would be really, really pissed if we started losing ships to Chinese subs.

|2.4.09 @ 11:04AM|#

The US Navy is going down due to Buy American provisions?

Barack Obama is going to get us into a shooting war with China?

AHhahahaha!

|2.4.09 @ 11:05AM|#

Not only are Democrats and their already unbearable apologists grossly misusing the analogy of Herbert Hoover (much in the way many continue to pretend that George W. Bush was a deregulation zealot)

Just make sure you don't leave that bubble, Matt.

creech|2.4.09 @ 11:16AM|#

And let's not forget the defeat of the trade act with Colombia that would have, among other benefits, helped Caterpillar compete with equipment from Asia. That's right...the same Caterpillar that recently announced big layoffs of thousands of union workers.

|2.4.09 @ 11:24AM|#

Barack Obama is going to get us into a shooting war with China?

AHhahahaha!

Right, the election of a Democrat means that we will no longer support our allies. There will be no shooting war because China won't invade Taiwan because it's suicide for the PLAN.

Lay off the Hannity dude.

LarryA|2.4.09 @ 11:41AM|#

A trade war threatens to exacerbate the single largest danger in the worldwide downturn: that a serious contraction in China will lead to domestic unrest and that that the Chinese government will engage in military aggression to focus frustration outward.

Mexico is deeper in trouble, in the midst of a USWoD-caused civil war, and a hell of a lot closer.

|2.4.09 @ 12:40PM|#

Right, the election of a Democrat means that we will no longer support our allies.

Who said anything about Democrats? I seriously doubt that Bush would have gotten into a shooting war over Taiwan, either. The real deterrence on China is trade sanctions. Devaluing that deterrence by imposing "America First" trade sanctions increases the risk for Taiwan, no?

|2.4.09 @ 1:13PM|#

Who said anything about Democrats? I seriously doubt that Bush would have gotten into a shooting war over Taiwan, either. The real deterrence on China is trade sanctions. Devaluing that deterrence by imposing "America First" trade sanctions increases the risk for Taiwan, no?

You did, when you said, "Barack Obama is going to get us into a shooting war with China?" You said nothing about a generic president (as contrasted by cuernimus' comment).

I think you completely misread the America First provision. It is for the stimulus package spending only, which is incremental to the $340 billion of goods that China already exports to the US, plus over $100 B with Japan and $200B with the EU-15.

Not to mention the risk of fucking up Taiwan and losing face is just as large a deterrent as trade sanctions are. Notice how Hong Kong is still largely autonomous. Taiwan-China relations are thawing peacefully and they won't risk that just because of stupid American policies. It's not as sexy as, "ZOMG!!!!11!!! We can't do this because China will invade Taiwan."

Invisible Finger|2.4.09 @ 2:24PM|#

I'm against the "new" protectionism on economic grounds, but Postrel et al can shove the
"red scare" crapola.

|2.4.09 @ 4:52PM|#

The reason the 'buy American' provisions are in there is because you can't have a 'fiscal multiplier' in your stimulus package if the initial spending goes offshore. The whole notion of a fiscal multiplier requires that the money be spent on resources (people and goods) in America, which will in turn trigger more spending on American resources. If the intitial spending leaks away out of the country and gets saved in bank accounts in Brussels, your multiplier is gone.

This is the box the stimulus is trapped in: If you restrict trade, you'll kill the economy. If you don't restrict trade, your 'stimulus' may wind up stimulating the economies of Japan and South Korea and leaving you with a huge debt (those stimulus dollars will come back at some time in the future, in the form of a demand for American productive assets).

Yet one more reason why a fiscal stimulus is doomed to fail. People in Washington, most of whom have never worked in a factory or business management, have no idea just how globalized the supply chain has become. It's good thing that it's globalized, but it really reduces the power of government to affect positive change through spending. They can do lots of damage, of course. They can make America unproductive, devalue the American dollar, trigger massive inflation, or make the government unable to borrow money in the amounts its going to need to when the baby boomers start really stressing Social Security and Medicare.

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