Obama's Trade War – Does Anyone Remember Smoot-Hawley?

Isn’t it amazing how history repeats itself. The 1920s and last few years have become eerily similar. First we had unsustainable economic booms, followed by busts. The government responded to both crises with public works programs, stimulus spending, more easy money by the Federal Reserve, and tax hikes on “the rich.” These policies did not cure what was ailing the economy in the late 1920s, and they are not curing our economy today. The only government response to the crisis in the 1920s that is missing from today’s response is trade protectionism, the Smoot-Hawley Act of 1930. The Smoot-Hawley Tariff Act imposed duties on thousands of imported products in order to make them less competitive against domestic US products. It is acknowledged by many economists that Smoot-Hawley and the wave of international trade protectionism that it brought forth was a major contributor to the worsening of a recession that turned into a depression.

So, with perfect 20/20 hindsight, what is President Barack Hussein Obama doing? Not satisfied to ruin the US economy, he is now actively pursuing a trade-war policy with China that threatens to engulf the entire world. The amateur autocrat is now calling for a trade-war with China that is threatening to envelop other countries of the developing world, leading to – escalation? And it’s all about green energy, specifically solar panels. In order to protect a domestic industry that literally lives off government subsidies, Obama has embarked on a path that could take us back to Smoot-Hawley.

Following embracing bankruptcies (for Obama and his administration) by Solyndra, Evergreen Solar, and Intel spinoff Spectrawatt, the Department of Commerce (DoC) has decided that China is to blame because it subsidized its solar panel industry. So DoC is considering a tariff of from 50% to 250% on Chinese solar panels. And all of this is going on while environmentalists and clean energy enthusiasts are celebrating the fall of photovoltaic panel prices, arguing it will introduce a fantastic renewable future.

The Chinese have now responded by accusing us of unfair trade practices by subsidizing the US thin film industry, the main component of solar panels. Will it stop there? Not likely. The Ministry of Commerce of India announced it too would yield to a petition from its solar industry and will investigate unfair trade practices by both China and the United States.

Do we have here an environment for escalation and retaliation? Yes, because every country in the world is going to be subsidizing its unprofitable renewable energy sector. Why? Because none of these technologies are economical in a market environment. And because every government in the world will be able to accuse every other government of subsidizing its renewable energy industry, the possibilities for future trade wars are literally endless.

Thus we have one more reason to abandon taxpayer subsidies for green energy fiascoes. No wonder Obama wanted to defer and/or avoid the Keystone XL pipeline decision. A trade war that will increase the cost of green energy and an “incorrect” decision on the pipeline could cause environmentalists to abandon him in 2012.

But that’s just my opinion.