You are currently viewing the printable version of this article, to return to the normal page, please click here.

GHEI: Reliving the Great Depression

Congress considers reviving disastrous anti-trade policies

Question of the Day

Is it still considered bad form to talk politics during a social gathering?

View results

As if it weren't bad enough that President Obama has been lifting his economic policies from Franklin D. Roosevelt. On Monday, the Senate voted 79-19 to advance debate on legislation that would re-create the very mistake the 1930s Congress made with the Smoot-Hawley protectionist tariffs.

This time, it's called the Currency Exchange Rate Oversight Act, a measure that would spark the same sort of trade war that once hurled a weak economy into the depths of the Great Depression. The proposal would grant the Obama administration the authority to declare that a certain country has a "fundamentally misaligned currency" so that new tariffs could be slapped on its goods. Once a nation is so designated, federal agencies would be barred from buying its goods and services.

It's nothing less than a direct assault on trade with China, the one major player in the global marketplace without a free exchange rate, which allows Beijing to lock in a low value for its currency. The Middle Kingdom has accumulated as much as $3 trillion in reserves and a $270 billion trade surplus from its commerce with the United States. Sen. Charles E. Schumer, New York Democrat, summed up the mood of anti-trade factions by saying there "is nothing we can do to create jobs better than by correcting China's trade imbalance." It may be convenient to pin the blame for our economic woes on a faraway land, but acting on such rhetoric risks doing grave harm to our economy.

We live in a global, multilateral world, especially regarding financial affairs. It is inevitable that we will run trade deficits with some countries and surpluses with others. The flip side of a trade deficit is a capital surplus. The accumulation of reserves by the Chinese has enabled American interest rates to remain low and kept the cost of servicing our ever-increasing federal debt that much lower.

The high U.S. unemployment rate has very little to do with China's currency policy and a lot to do with domestic policies that inhibit investment and hiring by private businesses. Reducing uncertainty at home and allowing private enterprise to flourish would be the better path to restoring job growth. Mr. Obama finally has sent Congress the three long-pending free-trade agreements with South Korea, Colombia and Panama. Passing those will do far more for creating jobs than this disastrous bill, which quite likely is noncompliant with our treaty obligations to the World Trade Organization.

Ultimately, China's mercantilist policies hurt the Chinese people the most, not Americans. Keeping the value of the yuan artificially low (though it has appreciated in real terms about 10 percent this year) makes goods that much cheaper for Americans and more expensive for Chinese consumers. There is an income effect to this, which analysts all too often ignore. China would be better off with a flexible exchange rate and fewer capital controls, as would its trading partners. Engaging China to move along this path would leave everyone better off. Slapping on tariffs and ending up in a trade war will leave everyone worse off. The Senate ought not to repeat the mistakes of the past.

Nita Ghei is a contributing Opinion writer for The Washington Times.

© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.

Comments
blog comments powered by Disqus
TWT Video Picks
You Might Also Like
  • Maureen McDonnell looks on as her husband, former Virginia Gov. Bob McDonnell, made a statement on Tuesday after the couple was indicted on corruption charges. (associated press)

    PRUDEN: Where have the big-time grifters gone?

  • This photo taken Jan. 9, 2014,  shows New Jersey Gov. Chris Christie gesturing as he answers a question during a news conference  at the Statehouse in Trenton.  Christie will propose extending the public school calendar and lengthening the school day in a speech he hopes will help him rebound from an apparent political payback scheme orchestrated by key aides. The early front-runner for the 2016 Republican presidential nomination will make a case Tuesday Jan. 14, 2014, that children who spend more time in school graduate better prepared academically, according to excerpts of his State of the State address obtained by The Associated Press. (AP Photo/Mel Evans)

    BRUCE: Bombastic arrogance or humble determination? Chris Christie’s choice

  • ** FILE ** Secretary of State Hillary Rodham testifies on Capitol Hill in Washington, Wednesday, Jan. 23, 2013, before the Senate Foreign Relations Committee hearing on the deadly September attack on the U.S. diplomatic mission in Benghazi, Libya, that killed Ambassador J. Chris Stevens and three other Americans. (AP Photo/Pablo Martinez Monsivais, File)

    PRUDEN: The question to haunt the West

  • Get Breaking Alerts