Obama's Schizophrenic Trade Policy

There is no issue on which President Obama is more confused than trade (except for gay marriage, medical marijuana, immigration…). He can’t seem to make up his mind whether to unleash his inner protectionist to appease his union buddies or curb it to create economic growth and jobs. And this week this confusion will be on vivid display as Congress considers a slate of Obama-backed bills that, on the one hand, will conclude free trade agreements with Panama, South Korea and Colombia, while, on the other, threaten a trade war with America’s two biggest trading partners, China and Canada.

In a message accompanying the free trade agreement bills, negotiated by the Bush administration and pending ever since, Obama told Congress that they will “support tends of thousands of jobs across the country.” But apparently this logic doesn’t apply to China and Canada.

Sen. Chuck Schumer on the Democratic side and Sen. Lindsey Graham on the Republican side are introducing a bill that will give U.S. companies the right to seek countervailing duties against countries (read: China) with “misaligned currencies.” But President Obama, whose own Treasury Department has to date refused to designate China as a currency manipulator, is doing absolutely nothing to stop this. Never mind that any correlation between the yuan’s value and China’s trade surplus (not that it’s a bad thing) with the world is purely coincidental. As the Wall Street Journal recently noted:

The yuan has appreciated by almost 30% since the middle of 2005, when Mr. Schumer was pushing for a 25% revaluation. But the Chinese surplus has mostly grown and occasionally shrunk during this period in response to other forces.

This is a repeat of the 1980s, when Congress was bashing Japan for keeping the yen low and running large surpluses. As the yen rose from 360 to the dollar to 80 over 25 years, the surplus persisted and continues today, though it has shrunk in relative terms since the bursting of Japan's bubble.

But China is unlikely to turn the other cheek at this Congressional slapping. Doing so, notes Edward Harrison of CreditWatch, would undermine the Communist Party's authority domestically:

At a minimum China will retaliate in kind. Potentially they could escalate. Depending on the size of the sectors affected - to date, we have seen tariffs on chicken, steel and tires—this could derail America's nascent technical recovery, which I see leading to lower employment and output and depression.

And if other countries join in, we could be off and running into a full-blown trade war, deepening the current recession into a depression, as happened after the 1930 Smoot-Hawley tariffs. (The entire Harrison blog is worth reading for the eerie similarity between the Obama administration’s rhetoric now and Hoover’s administration’s rhetoric then that triggered a global trade war.) 

But if the Obama administration’s sin is one of omission in the case of China, it is one of full and active commission in the case of Canada. It has included in its fraudulently named American Jobs Act a “Buy America” provision—pulled verbatim from the stimulus bill—that prohibits use of imported steel on tens of billions dollars’ worth of infrastructure and modernization projects. This disproportionately affects Canada whose companies are part of a cross-border supply chain serving infrastructure projects that have emerged in the wake of NAFTA. The administration has magnanimously included a provision allowing contractors to get a waiver if using all-American products would increase the cost of the project by more than 25%. “But that’s a cumbersome and time-consuming process—a stimulus for lawyers, not construction workers,” the Washington Post, not known for its free market absolutism, points out.

Canada is absolutely livid about it. But the jobs bill ain’t going nowhere so it is safe for now. That, however, is more than can be said for the American economy so long as Barack Hoover Obama is at the helm.

Oh, how I miss Bill Clinton.

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  • Jeff||

    Barack Hoover Obama

    All references to Obama having a middle name are inherently racist.

  • PIRS||

    "Oh, how I miss Bill Clinton."

    Compared to Obama sure, I do to. It was Bill Clinton after all who began to open up trade with Vietnam - that may be the best thing he did during his entire two terms. So now we trade with both China and Cuba - both of which are officially Communist - but we don't trade with a third Communist country - Cuba.

  • PIRS||

    AHHH - the mistakes --- first of all my to should be too. Second of all my first Cuba should be Vietnam. God I wish these things allowed edit!

  • Mike E||

    Yeah my "Inflate manipulate" line below had me wishing the same thing.

  • Mike E||

    China the currency manipulator. Couldn't it be easily argued that the US manipulates it currency. I mean, how else do we plan to ever repay China all the money we owe them.

  • PIRS||

    "I mean, how else do we plan to ever repay China all the money we owe them."

    You are assuming that we do.

  • Mike E||

    We will. We will just inflate manipulate our currency to do so.

  • PIRS||

    Which, of course, will screw over the rest of us. If that is their plan I hope they at least legalize competing currencies first.

  • Mike E||

    The silver dollar controversy is just the beginning of things if they do it. There will be an underground currency market. Which I suppose explains gold prices.

  • jtuf||

    The Dems are a bunch of bigots, as their objection to international trade makes clear.

  • Mike E||

    I find it amazing that they want to help all of the poor people around the world, yet denigrate any company that tries to hire said people for "slave wages."

  • Jeff||

    I find it amazing that anyone can still be amazed by the Dems' collective inability to recognize even the most obvious economic truths.

  • Mike E||

    I have a problem with overusing the phrase "I find it amazing" when I really don't.

  • Skeletroll||

    What do you consider "obvious economic truths"? I know next to nothing about economics but am interested in learning more, so links would be appreciated. Consider these two statements about the Smoot-Hawley Tariff:

    Statement 1

    Q)It's conventional wisdom that the Smoot-Hawley tariff contributed greatly to the Great Depression, but how does that make sense given that imports were only 5.1 percent of the US economy and the balance of trade's contribution to GDP was a negative 1.1 percent in 1929?

    A)I don't think it did play a big role. I think those who think of themselves as free market economists have exaggerated the importance of Smoot-Hawley. It didn't help; anything that shrinks the extent of the division of labor is going to have an impoverishing effect, so it didn't help. Part of the reason so much emphasis has been placed on Smoot-Hawley is that there are some free market economists who are operating without the benefit of Austrian trade cycle theory. At the same time, they know they don't want to blame the free market but they don't have a coherent explanation for what happened. So, they flounder around, looking for this or that form of government intervention to explain why this downturn occurred. For example, I was very much an admirer of the late Jude Wanniski, who had a lot of important things to say on a lot of important matters, but his view of the depression was that it was taxes and tariffs that caused it. I think because he was not an Austrian, he had no other explanation so he had to revert to blaming the Smoot-Hawley tariff. But I think you're right, it alone couldn't possibly have account for the depths of what people witnessed.

    Statement 2

    The thing that is so patently absurd about the Smoot-Hawley tariff theory of the Great Depression is that America was not an import/export-based economy 80 years ago. The percentage of imports and exports as a percentage of GDP was so small that not even shutting them down completely could have caused such a massive contraction in the 1930s American economy. Debt was the problem then and debt is the problem now. The federal stimulus exacerbated the problem then, and the global stimulus is exacerbating the problem now. And given the relative size of historical debt+stimulus to present debt+stimulus, it should not be hard to understand why the Great Depression 2.0 will be worse than its historical predecessor.

  • ||

    I tend to agree with the answer in Statement 1, but, just because Smoot-Hawley was not a major contribution, does not mean it was not a factor at all.

    One of the problems with trade sanctions is that they almost inevitably lead to retaliation. This not only has potential to harm the US but also tends to spread the misery to other countries as everyone plays the protectionist card.

  • Jeff||

    I was referring to the obvious economic truth that poor, brown people aren't being exploited by making sneakers for Corporation X when their other alternatives for making a livelihood mostly consist of prostituting themselves or scraping in the dirt.

  • ||

    This president continues to astound me; it's like he's a chimera of every past presidents' failings.

    What's next, overt wage and price controls?

  • Mike E||

    Interment camps.

  • Ice Nine||

    He wants more cemeteries??

  • Rhywun||

    I think he means Happy Camps.

  • Bee Tagger||

    Canada is absolutely livid about it

    A thousand hack comedians just got out their pens and paper, feeling inspired.

  • ||

    Hey, don't piss off Canada.

    They have a plan.

  • Skeletroll||

    "Oh, how I miss Bill Clinton."

    Well I hear he's looking for someone to replace whatshername.

    Are we in a recession or a depression?

  • Barack Obama||

    I think it's a depression, guys. Sometimes I can barely even get out of bed in the morning.

    :(

  • Mike E||

    Please don't.

  • ||

    I support total free trade, but the selective outrage Republicans are showing over the "Buy America" provision in the jobs act is phoney-baloney bullshit. The language is substantively identical to "Buy America" provisions that exist in numerous government grant programs and funding schemes already on the books. If a multi-decade serving member of Congress hasn't been bothered to try to repeal those existing provisions, it's hard to take seriously any criticism of inserting the same language again into a new bill.

  • Alan Vanneman||

    "Oh, how I miss Bill Clinton."

    Oh, how you miss prosperity. Men don't determine circumstances, Shikha. Circumstances determine men. And, shockingly, Obama is probably playing politics with the Senate's get tough with China bill, forcing the Republicans in the House (and Senate) to choose between proving that they hate China or love free trade. Sneaky!

  • ||

    Prisoners being held for the peaceful, non-violen­t possession­, sale, transport or cultivatio­n of cannabis hemp must be released immediatel­y. Money and property seized must be returned. Criminal records must be wiped clean, amnesty granted and some sort of reparation­s paid for time served. These cannabis prisoners are the real victims of this monstrous crime against humanity called the “War on Drugs.”
    Ijust started a petition on the White House petitions site, We the People.
    Will you sign it?http://wh.­gov/gf3
    I find it amazing that the government claims there has not been enough testing of cannabis, (which they restrict), and claim it has no medicinal merit, and yet all the while the department of Health and Human Services holds US patent # 6630507 (on THC) which states that THC is worthwhile as a neuroprote­ctant against several diseases. Perhaps they just want to license that technology to their friends in big pharma so more money can be made that way, while preserving the right to criminaliz­e and imprison folks who take matters into their own hands. Where’s the transparen­cy on this issue? What is the real issue? Undoubtedl­y money; the jobs program that has been expanded for law enforcemen­t and incarcerat­ion industries­, and the unwillingn­ess to admit when something has gone very wrong. How can PEOPLE continue to justify a penalty far worse than the imagined, (victimles­s) offense? This is all a medical, (not a criminal), issue, and it’s about time we start treating it as one!

  • jtuf||

    Hmmm. A post mentioning China has been up for a day, and none of the self-appointed defenders of indigenous people posted about the plight of Tibetans. I'm taking note of this.

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