In 1929 Willis Hawley and Reed Smoot, two protectionist Republicans in Congress, sponsored a bill to raise tariffs to the highest levels America had ever seen. And in the midst of economic distress, the protectionists won. The result was a round of reciprocal tariff hikes elsewhere, and a disastrous collapse in international trade.
This was exactly the sort of thing the ministers of the G20 sought to avoid when they met in Washington late last year, agreeing not to devise new trade barriers as the world economy fizzles. But the Democrats are doing just that, anyhow, in the stimulus bill currently winding its way through Congress.
House Democrats want to require that all iron and steel used in stimulus-funded infrastructure projects should be made in the United States. America’s steel producers are happy, especially since they saw their share of the world steel market fall from 7.9 percent to 7.2 percent in 2008. But American exporters fear retaliation against their goods, both in places like China, at whom the steel provisions are aimed, and in rich countries, which are already slipping domestic-purchasing requirements into their own stimulus packages (see article ).
The House favours another so-called “Buy American” requirement for spending on uniforms for the more than 100,000 officers in the Department of Homeland Security. And, though it is not in the House stimulus bill, some lawmakers still favour directing the $20 billion that is being allocated for computerising medical records exclusively towards American tech firms. Such a requirement, they say, is justified in an economic-stimulus package. But critics point out that it is hardly possible to meet it (IT being such a global business), even if it were a good idea.
Such naked protectionism may violate international trade rules. But another perverse idea floating around Capitol Hill is to limit stimulus-related purchases to countries that have signed the World Trade Organisation’s agreement on government procurement. A treaty set up to encourage non-discrimination in government purchases would thus be twisted to bar the American government from buying goods from countries such as China and India.
Before Mr. Obama became president, the consensus was that the ascendant Democrats would merely drag their feet on trade matters. But the huge sweep of the stimulus bill has overshadowed its elements, such as Buy American provisions. So they may yet sneak through.
Ambitions are high. Tim Murphy, a Pennsylvania congressman, is championing a bill that would give Congress power to review presidential decisions on whether or not to increase import duties in the face of sudden dislocations. Not Smoot-Hawley, but still worrying.