As if the Democratic Porkfest Bill didn’t do enough damage on its own to the long-term prospects for the American economy, the Washington Post reports that it could set off a trade war that would bring the global economy crashing, too.  Democratic protectionists loaded up the bill with “Buy American” clauses that shut out foreign producers of steel and iron.  Just as in the Depression, however, that will force other nations to close their markets — which will virtually recreate the Smoot-Hawley fiasco that made the Depression exponentially worse:

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the “Buy American” provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

This is the end result of the protectionist rhetoric of the Democratic campaign in 2008.  And it’s not hard to see why they pursue it.  Buy American is a slogan that practically guarantees popularity.  What could be more patriotic than looking for the Made in the USA label, especially when taxpayer dollars are on the line?

Nothing, if you don’t mind killing the entire American export sector.  We already have large trade deficits, thanks to our massive wealth transfers each year to oil-producing nations based on our unwillingness to pump our own crude.  If we touch off a trade war, which this will almost certainly do as it violates all of our WTO and bilateral trade agreements, other markets will close their doors to American products, such as cars and technology.  Instead of closing our trade gap, we will explode it, and even those oil imports could get retaliatory tariffs from our two closest trading partners, Canada and Mexico, our two largest foreign suppliers of crude.

We have done this before, and under worse circumstances, which is why this such sheer folly.  The Smoot-Hawley tariff act turned a severe but recoverable recession and turned it into a generational depression.  Instead of working cooperatively, the major trading nations had to respond to American penalties with more penalties, and the Buy American provisions of the New Deal entrenched those divisions, making recovery impossible.   The rest of the world — Europe, Asia, Latin America — would likely shut out the US and trade amongst themselves, and we would lose decades of work in building American economic strength abroad.

America doesn’t need a trade war at this moment in time.  We need to ensure our access to as many foreign markets as possible.  Protectionism now will take us down a primrose path that we have traveled before, and the end result will be bread lines and 25% unemployment, and worldwide misery.

Tags: unemployment