The Ugly Spector of Protectionism

Sometimes the cumulative effect of governmental policies, influencing local events, can have a global impact. This occurred during the housing boom of the early part of this decade when property values in parts of the United States were driven up by a shortage of land on which to build new homes. That shortage was created by policies which set aside land because of conservation and environmental concerns. As author Thomas Sowell documented in his book The Housing Boom and Bust, in the California county of San Mateo more than fifty percent of available land was set aside by public policy decisions. Laws of supply and demand showed the predictable result. Increasing property values made buying homes unaffordable to many.

To remedy a perceived affordability dilemna the federal government coerced lending intitutions to alter sound lending policies and grant mortgages to applicants who would not have qualifed based on their financial circumstances. The domino effect of mortgage defaults on a massive scale led to grave economic difficulties for large loan holding corportions. The government again intervened to try to salvage a crisis whose genesis can be traced back to governmental policy decisions. The many local events eventually led to severe adverse effects on international markets and economies.

Sometimes though, policies enacted at an international level can adversely impact local economies. Some of those policies are described by the term protectionism. In a previous entry protectionist moves by the Obama administration were disclosed. In a Wall Street Journal article titled A Protectionist President we get a fuller accounting of a recent path to protectionism. Some of the highlights:

• China threatens action against U.S. exports of chickens and auto parts to China after the Obama administration imposed a 35% tariff increase on Chinese tires.



• French President Nicolas Sarkozy advocates the imposition of a European "carbon tariff" on importers that don't adhere to European environmental policy mandates.



• U.S. Energy Secretary Steven Chu has endorsed a U.S. version of a carbon tax on imports. The U.S. House of Representatives passed a cap-and-tax bill with a carbon tariff included.



• The stimulus bill, passed during Obama's first weeks in office, contained "buy American" provisions which upset our leading trading partner- Canada.



• Another law banned Mexican trucks from U.S. roads. This appears to violate the provisions of the Nafta Treaty which also has the effect of law in the United States. As a result Mexico retaliated against U.S. farm and kitchen goods.

It is now widely recognized that the Smoot-Hawley tariff of 1930 helped bring on the Great Depression. Like Obama, Hoover thought the domestic pressures for protectionism could be managed. History proved him wrong. Historic lessons are too easily forgotten.

Retaliatory Measures by China?

Yesterday I posted an entry about the imposition of additional U.S. tariffs on imports of Chinese tires; a policy encouraged by the huge labor union, the A.F.L.-C.I.O. A Wall Street Journal article published today, UPDATE: China: Investigating US Auto, Chicken Product Imports, indicates the fallout from that decision by the Obama administration is already manifesting itself. In an obvious retaliatory move the Chinese have "singled out U.S. automotive and poultry product imports for investigation."

This could be the start of a domino effect where one tariff leads to another. World trade and prosperity suffer as strong and efficient enterprises are made to pay the price for the protection of weaker and more inefficient ones. Let's hope this stops here and that cooler heads prevail. The root problem seems to be the feeling by the White House that the interests of a powerful supporter- big labor- must be advanced as some sort of quid pro quo. There are larger economic concerns however which include the well being of the economy as a whole. Also of concern is our relationship with China which has become an important trading partner as well as a key investor in the United States. The American business community should keep an eye on this and pressure politicians to pursue a prudent economic course of action.

A Tariff on Tires from China

The New York Times article China Denounces New Tire Tariffs shows how campaign slogans like "Politics of Hope" give way to protecting special interest groups once the election ends and policy making begins. The relevant special interest group is the A.F.L.-C.I.O. and the dubious policy encouraged by that organization is the imposition of a 35% tariff on Chinese tires for cars and light trucks. The Chinese are complaining about protectionism and violations of international law. Obama complained strongly about U.S. policies and international laws where detained suspected terrorists were concerned. Yet international laws affect a broader array of issues than that.

What is particularly disturbing is the sorry history of protectionism. Historians note that the Smoot-Hawley Tariff Act was a contributing factor bringing about the Great Depression. Consumers suffer when tariffs are raised to protect domestic enterprises and retaliation often comes at the expense of productive American exporters.

Ordering IRS Forms and Publications Online

The IRS has a web page which some businesses would do well to bookmark. Online Ordering for Information Returns and Employer Returns contains tables listing different IRS forms and the means of ordering them by specifying form and number of such form needed. A number of Publications containing useful information can also be ordered. Publication 15 (Employer's Tax Guide) is a popular item.

Processing Times and Document Replacement Applications

The U.S. Citizenship and Immigration Services website has a web page with the heading USCIS Processing Time Goals. If you need to replace your legal permanent resident alien card you must file an I-90 application. The estimated processing time is currently 5.8 months although there is variation with location.

If you need to file an N-565 application to replace a certificate of citizenship you face an average estimated processing time of six months.

Businesses and Independent Contractors

The IRS website has a page titled Employee vs. Independent Contractor – Ten Tips for Business Owners. The difference between an employee and an independent contactor is significant. Therefore it behooves business owners to know what information and what documents should be obtained from those treated as independent contractors. Businesses also have an obligation to supply tax documents and should know what these documents are as well.

The IRS has criteria by which it assesses the actual relationship between workers and businesses. Behavioral Control, Financial Control, and the Type of Relationship are concepts considered by the IRS. Direction and control of behavior and finances as well as the perception of the nature of the relationship are relevant considerations. More details are at the lnked article.