What Else Can Government do to Extend the Recession

How about protectionism. It worked so well during the Great Depression after all.

At the last such gathering, in Washington in November, former President George W. Bush persuaded the Group of 20 members to commit to protecting free trade — whatever the pressures caused by faltering economies and lost jobs. The members include industrialized and developing nations, and the European Union.

“No sooner was the G-20 statement issued than it was breached,” said Daniel M. Price, an official in the Bush administration who helped negotiate the agreement. “Instead of just talking about trade liberalization, countries need to take immediate steps to show they mean it.”

What? You mean actually do something that might make the recession shorter? Is this man crazy?

The World Bank, in a report last week, said that since the Washington meeting, 17 members of the Group of 20 had adopted 47 measures aimed at restricting trade.

Russia has raised tariffs on used cars. China has tightened import standards on food, banning Irish pork, among other things. India has banned Chinese toys. Argentina has tightened licensing requirements on auto parts, textiles and leather goods. And a dozen countries, from the United States to Australia, are subsidizing embattled automakers or car dealers.

The most vivid example of that policy is the “Buy America” provision in the stimulus package, intended to ensure that only American manufacturers benefited from public-spending projects. The Obama administration persuaded Congress to water it down, and Mr. Obama has taken up Mr. Bush’s warnings about the dangers of protectionism.

But pressures are building on other fronts. Last week, the energy secretary, Steven Chu, said he favored tariffs on Chinese goods if China did not sign on to mandatory reductions in greenhouse gas emissions — underscoring how the “green economy” could be the next trade battleground.

Mr. Obama signed a $40 billion spending bill that scrapped a program enabling Mexican trucks to haul cargo over long distances on American roads. Mexico retaliated by imposing duties on $2.4 billion worth of American goods — everything from pencils to toilet paper.

Frankly I think this policy should be implemented at the State level. California, to try and deal with its budget mess and low unemployment can slap tariffs and taxes on all goods made out of state. Neighboring states can retaliate and thus reduce the over all total production of goods and services nationwide. After all, last quarters decline in GDP wasn’t nearly large enough.

FILED UNDER: Economics and Business, Government, World Politics,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Dave Schuler says:

    Frankly I think this policy should be implemented at the State level. California, to try and deal with its budget mess and low unemployment can slap tariffs and taxes on all goods made out of state.

    It’s prohibited by the Constitution.

  2. Dave Schuler says:

    BTW I commented on this last week. And FWIW the subsidies we’re paying to bankers are protectionist, too.

  3. It’s prohibited by the Constitution.

    The US Constitution also prohibits Congress from making laws that infringe freedom of speech and freedom of the press, so you’ll forgive me if I don’t quite take that as the ironclad guarantee you present it to be.

    FWIW, I think Steve knows this. I took his proposal as a little tongue in cheek.

  4. Phil Smith says:

    Hey, I think I’ll stand up for Obama for a moment here. Banning Mexican OTR is a significant public safety issue, especially if you live in a transport hub city near the border.

    I’ll certainly retract this endorsement if anyone can show me that Mexican trucks have significantly improved their safety over the past few years, though.

  5. Dave Schuler says:

    FWIW, I think Steve knows this. I took his proposal as a little tongue in cheek.

    I assumed that. However, not all of the readers may be equally well-informed.

  6. JKB says:

    Hey, don’t count California out. Californians have already proposed confiscating assets people try to remove from the state. Of course, California’s problem is that if they start a trade war, they’ll get their power cut off since they don’t produce it in-state.

  7. George Arndt says:

    I agree with most of the changes that Obama is bringing. However, on tariffs, I’m wary. FDR lifted Tariffs at some point, didn’t he?

  8. sam says:

    And a dozen countries, from the United States to Australia, are subsidizing embattled automakers or car dealers.

    Well, except for those socialist pricks in Sweden.

  9. odograph says:

    It’s ok for people to be on the watch for protectionism, but the buy-American provision in the spending bill strikes me as a straw dog.

    I thought we agreed last time around that buy-native provisions are in government budgets around the world, and have been for 100 years?

    Tariffs are about penalizing private market importers, and the Irish Pork thing is a better example on that.

    On greenhouse gasses, blurb:

    In a “global” environment, without bubble domes over each country, no one can change CO2 emissions by themselves. If we are going to do it at all (and we may not be bright enough, actually), then the response must be by everyone sharing the atmosphere.

    How many ways are there to do that? And what carrots and sticks to early adopters have?

    Obviously a global carbon tax would be most efficient, but what does a leading nation do to encourage that? Taxing ourselves because we are ready, but letting anyone who wants to free-ride do so … I can’t see that as having either good environmental or good economic effects.

  10. odograph says:

    (I really worry that this is a “how can I rephrase things I don’t like, to be protectionist, moment”)

  11. davod says:

    “Mr. Obama signed a $40 billion spending bill that scrapped a program enabling Mexican trucks to haul cargo over long distances on American roads. Mexico retaliated by imposing duties on $2.4 billion worth of American goods — everything from pencils to toilet paper.”

    Let’s see – 97 Mexican trucks versus tariffs on $2.4 billion of American goods.

    There is e good non lobbying money in this somewhere.

  12. Steve Verdon says:

    It’s prohibited by the Constitution.

    Yes, I know so my response would be,

    I was joking.

    Hey, that Constitution thing hasn’t stopped them much so far, why should it now?

  13. JKB says:

    Well, it appears the government isn’t going to use protectionism when purchasing protection to protect foreigners from AIDS.

    Although, buying Chinese condoms to give out to foreign aid recipients might lead to blowback should the protection blowout due to poor Chinese quality controls.