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.