The president’s recent approval of a 35 percent new tariff on Chinese-made pneumatic tires is wrong and worrying. The Chinese have asked for the opening of consultations at the WTO on the matter, and the results of the process may well be determinative for the future of world trade, and the depth of the present economic slump. Using authorities granted in Section 421 of the American trade law, the President has done what his much-maligned predecessor had always refused to do, punishing China for the fact that its population is poor, and can produce low-tech items at far lower cost than American workers.
Economists are well aware that the Great Depression was partly caused by a massive shrinkage in the volume of global trade, as each nation tried to subsidize its own domestic producers with higher tariffs on imports. Many have been warning against a repeat of the same mistake, but it appears that ideology and the powers of populism will trump the guidance of logic and commonsense as the world’s main advocate of free trade decides to strangle it with protectionist policies. Protectionism is not good for developing nations, but it is plainly nonsensical and idiotic when practiced by advanced economies. The leadership of a third world nation may justify tariffs on agricultural products in an economy that is 70 percent dependent on that industry segment. Smaller, less developed nations can make an argument for protectionism, although, ultimately, even in their situation this approach is likely to prove much less than optimal in terms of growth and progress. But when a nation that has benefited from globalization and free markets like no other, the U.S., decides to contradict itself by imposing prohibitive tariffs on imports, the result can be described as nothing but hypocrisy and folly. Will the Chinese retaliate against these measures? They are already suspicious of the intentions of America, and the President’s new decision will only confirm the suspicions of the pessimists, and strengthen the hands of hardliners in Beijing who see the U.S. as an outdated imperialistic dishonest relic of the Cold War era.
The worst aspect of this political gamble is the possibility that populism will generate another negative feedback loop which can then cause the current slump to last even longer than it would otherwise do. Politicians will find it hard to withdraw protectionist measures in an economy that is suffering from 10 percent unemployment, as they will not want to appear insensitive and callous to the sufferings of the unfortunate. Yet that is the worst that can happen. What we need is not sympathy, tears, and soft hearts, but logic, reason, and a dispassionate analysis of what is right and what is wrong in the long term for the American people and the world at large, since we are not living on the Moon. Protectionism is bad for the common people, it is bad for America, and bad for the world. Since the dawn of time, humanity has achieved prosperity through trade and interaction. History tells us that nations in the crossroads of trade prosper, those that are isolated stagnate and fail to advance. An anti-free trade, protectionist approach as a solution to our problems exceeds folly and borders on a populist political crime.