America Goes Protectionist, Echos 1930’s Era Actions

Still thickly in the middle of the biggest economic catastrophe since the great depression, American policy makers are making anti-free trade decisions that are eerily similar to the protectionist moves made during the depression.

The A.R.R.A. (stimulus bill), has provisions in it that only allow the money to be spent on “manufactured goods” that are made in America.  While a welcome gift to the American steel industry and steelworkers union, reaction from foreign trading partners much colder.  American companies now face the proposition of being blocked from bidding on contracts in other countries.  Canada and the EU have raised extreme objections to the move and are considering two counter-measures.  First, they have petitioned the World Trade Organization, which is largely for show, but also allows them to take the second action – putting tariffs on American goods going into their countries.  By petitioning the W.T.O., those countries are not vulnerable to claims from the U.S. that they are engaging in unprovoked anti-trade actions.

Caterpillar Tractor is undertaking an effort to be involved with major projects in China.  Due to the recent placement of a tariff (tax on imported goods) on Chinese tires, the American heavy equipment manufacturer may find it much tougher to sell it’s machines in the rapidly-growing Chinese economy.  China has already filed a grievance with the W.T.O. and is now moving to place counter-tariffs on American imports of chickens and auto parts.

Highly-controversial agricultural subsidies have existed for decades.  Some farm subsidies are actually larger than the cost of the product itself.  The U.N. found in 2001 that the U.S. subsidy on a pound of cotton was more than 52 cents per pound.  It costs just above 20 cents per pound to grow cotton in some countries outside the U.S.

Mercantilist policies are also being applied to our neighbors to the south.  Restrictions on Mexican trucks on U.S. highways are making it more expensive for Mexican manufacturers to put their goods on American shelves.  While not a direct tariff, it has the same effect.  How long will it be before American goods are less welcome in Mexico?

Protectionism was a major factor in turning the 1929 recession into the great depression.  It was the leading factor into making the U.S. depression up to 5 years longer than in most other nations in the world during that period.  By taking the same steps, making the same mistakes, and being naive of history, we could be inviting the next great depression.