Smoot-Hawley II?

The media opines that the Obama Administration's stimulus and bailout packages are reminiscent of the New Deal. Another oft-ignored parallel to that bygone era and its big government response to global economic crisis springs to mind, prompted by a couple recent news items. That parallel is the federal government's retreat from free trade to insular protectionism. Think of the Smoot-Hawley Act of 1930.

Earlier this week, Jeff Stier of the American Council for Science and Health asked in an op ed piece at Forbes.com: "As we enter a trade war with China, are our toxin fears founded?" He continued:

Scaremongering U.S. regulators have been indiscriminately attacking products from China for years, and China recently struck back. Shanghai's equivalent of our Food and Drug Administration investigated baby products made by Johnson & Johnson, echoing claims by a coalition of U.S. activists that the products pose a threat to children because they contain trace amounts of the "carcinogens" formaldehyde and 1,4 dioxane. That China opted not to ban the products is good from both scientific and economic perspectives--and we should learn from this brush with product banning.

He explained that China's investigation was political retaliation, not legitimate scientific concern. "It's just the latest move in a junk-science-exploiting trade war, which plays well at home in each country--but undermines both trade and health," he said. China was retaliating for equally ill-founded scaremongering in the U.S. where the feds declared Chinese-made toys "toxic" because some were found to contain low levels of lead, despite the fact that the levels did not pose a health threat.

The second example was the political payback the Obama Administration afforded the Teamsters Union on March 11 by rescinding a pilot program allowing Mexican trucks to bring their products into the U.S. (instead of using Teamsters-driven U.S. trucks). Mexico retaliated, applying new tariffs on 90 U.S. products with annual sales of about $2.4 billion in Mexico. Time Magazine's Ioan Grillo calls it "Obama's 'trade war'" and reports:

Down in Mexico, the administration of President Felipe Calderón accused the U.S. of being hypocritical and protectionist. It has a strong case. Under NAFTA, Mexican trucks were meant to be roaming some U.S. roads in 1995 and the width and breadth of the whole country by 2000. However, successive U.S. administrations could not say no to Teamster complaints that Mexican trucks were not fit for the interstates. Finally, both sides agreed on the pilot program to break the deadlock.

Let's not forget our history: The populism of Smoot-Hawley may have had short-term political appeal to "save American jobs," but it widened and deepened the Great Depression. If monetary liquidity is a problem today, let's not compound it by balkanizing trade. China and Mexico are two of our three largest trading partners. What are we going to do next? Disrupt trade with Canada?