1931 was the year that put the Great in the Great Depression. A banking crash in Europe knocked a fragile recovery off course and after the US Congress turned to protectionist trade policy with the passage of the Hawley-Smoot tariff in 1930, a global trade war wrecked everyone’s exports and the bad economic times turned truly savage.Eighty years later, policy makers in both Europe and the US are doing their best to make sure that history repeats. The Europeans are doing their best to recreate the banking crash; now it looks as if the US Congress is helpfully working on a new Hawley-Smoot.
The FT has the story:
The US Senate is set to vote next week on legislation to punish China for manipulating its currency, as the renewed threat of global recession raises tension over exchange rates.Harry Reid, Democratic leader of the Senate, said this week he would invoke “cloture” – a procedure to prevent delay – for senators to vote on a bill that would require the US to use estimates of currency undervaluation when calculating anti-subsidy import tariffs. The bill is subject to amendment, meaning that it could end up with so many additions it becomes in effect impossible to move forward, but experts in trade policy said it had a good chance of passing.
If this misbegotten bill becomes law, watch for prices to rise and stocks to fall.US economic policymakers blithely neglected the needs of our domestic economy while setting up the deeply flawed global trade and finance systems that now exist, and as the global recovery gains momentum (one of these days) it will be time for a serious conversation about how to promote our national interests more effectively through international trade. But this is not the time and this bill is not the way.Let’s hope Congress decides not to jump off this particular cliff; I for one think the economy is bad enough as it is, and I don’t feel any urgent, burning need for legislative action to make things still worse.