Nobody really remembers that their first names were Reed and Willis, nor do they remember which one was Finance Committee Chairman and which one the Chairman of Ways and Means.
But everybody who knows a bit about history (which is decidedly not everybody) knows the last names of Smoot and Hawley.
They were ones who passed the Tariff Act of 1930. High school history teachers blame the Stock Market Crash of 1929 and those two Republicans who set out to protect their farmers from unfair competition for the Great Depression.
We didn’t climb ourselves out of that economic morass until we started mobilizing for war in the Europe and Asia.
I personally think that Smoot-Hawley gets a bad rap for the Depression. America wasn’t first to impose higher tariffs at that time (France was), and I share the opinion of Milton Friedman that bad monetary policy was the real reason that the world economy shrank to a miserable level for that lost decade.
Smoot-Hawley may not have caused the Depression, but they certainly get blamed for it and as a consequence of that blame, Congress gave up its power to impose tariffs, giving that power to the Executive Branch. Another consequence is that America has always had lower tariffs that just about any other country. A final result is that America has long been a proponent of multi-lateral trade relationships over bilateral trade agreements.
When Donald Trump decided he was going to impose tariffs on China, it shocked official Washington. Most economists condemned the move, saying that they would unnecessarily increase prices and slow the economy (which certainly didn't happen during the Trump years). Trump imposed most of those tariffs to protect the steel industry, which has long been abused by overproduction in China, meant to put American steel companies out of business.
Trade nerds don’t acknowledge that multi-lateral trade organizations don’t care about American self-interests. Yes, they are supposed to implement an agreed upon set of rules that all member companies theoretically agree to. But how many battalions does the WTO actually have? And if you are China, you scoff at this Rules based system hoisted upon it by some effete Western capitalists. The Chines are playing for keeps. We seem to be playing to preserve a rules-based system that only a bureaucrat can love.
The Chinese are flooding the marketplace on a variety of critically important industries. American chemical companies, who have to contend with an out-of-control EPA, face price competition from Chinese-backed companies that seek to put them out of business. Some liberal white women might not like chemical companies, but without them, they can’t live the lifestyle of which they have become accustomed. From a national security perspective, the destruction of American chemical companies will be a disaster for our national defense.
Here is how the CEO of Olin Industries, Ken Lane, put it in an oped in Washington Times:
As president and CEO of Olin Corp., the largest U.S. producer of epoxy resins, I live with these facts. The U.S. industry has been on the cutting edge of epoxy resins for decades.
This critical and strategic raw material is vital for key economic sectors, including automotive, construction, electronics, aerospace and defense. Fighter jets, missiles, automobiles and cellphones all depend on this material. Furthermore, because epoxy resins are essential to clean energy industries — such as wind turbine blades — they are necessary to build a more sustainable economy.
Americans would have an enormous competitive advantage in epoxy resins on a level playing field — but China doesn’t play fair. Using massive subsidies and other nonmarket distortions, China has created enormous oversupplies of epoxy resins and the main inputs needed to make them. As a result, China has more than doubled its epoxy exports, which allows it to manipulate the U.S. market and harm American producers such as Olin.
You think the WTO cares about America’s epoxy resin industry?
I doubt it.
Tariffs might be the only tool in our woodshed that could help protect American industries from Chinese domination.
The Wall Street Journal ran a story about China’s efforts to corner the Cobalt industry:
A Chinese mining company has gained control of more than a third of the world’s cobalt supply—and the U.S. is worried about getting cut off.
U.S. officials are accusing China-based CMOC 3993 -3.53%decrease; red down pointing triangle Group of flooding the market to make it harder for others to invest in producing cobalt, which is used in jet fighters, munitions, drones and electric-vehicle batteries.
“The players are new, but the playbook is old,” said Jose Fernandez, a State Department undersecretary in charge of international energy policy. “That predatory conduct is hurting not only the competition,” but it is also jeopardizing America’s energy transition, he said.
CMOC said that its higher production is a byproduct of higher copper output—the metals are mined together—and that it is acting responsibly.
The sudden rise of an obscure company to a position of dominance in the mining industry is a study in how Chinese companies are spreading around the globe, often to feed the country’s manufacturing machine.
Marco Rubio highlighted this problem in the New York Post:
“China Shock 2.0” could devastate a slew of national economies.
And its impacts could be even “more fundamental” than those of the first China Shock, experts say, because they involve industries more critical to countries’ survival.
Gone are the days when China’s manufacturing ambitions seemed limited to cheap toys and apparel.
Today, Beijing openly touts its aims to position China as the sole supplier of commodities and high-tech goods that other countries would cease to function without.
And yet, across the globe, elites invested in the economic status quo are determined to . . . do nothing.
German Chancellor Olaf Scholz and Spanish Prime Minister Pedro Sanchez are examples.
Their nations’ auto industries rake in short-term profits from car sales in China and Chinese investments in their own EV companies.
In other words, they are dependent on good terms with Beijing.
To no one’s surprise, they are actively undermining EU plans to hike tariffs on Chinese-made EVs.
Another example comes from the International Monetary Fund.
This multinational agency stands for “open, stable, and transparent trade policies,” the polar opposite of Chinese export dumping.
Yet IMF economists are diverting blame from Beijing’s industrial policies to “macro forces” due to the COVID-19 pandemic — while chastising the United States for defending domestic production.
Why?
Simply put, the institution is biased by Beijing’s membership, and its economists are blinded by their free-trade fundamentalist training.
The truth is that Chinese overproduction is far from accidental: The Chinese Communist Party laid out its plan to dominate global trade in vital industrial inputs and high-value goods almost 10 years ago.
It is time for America to rethink global trade in the face of an aggressive Chinese government that thinks the rules are for us and not for them.
Mr Smoot and Mr Hawley probably never envisioned a hostile and powerful Chinese government that has a clear objective to bankrupt key American industries ad is doing it through trade espionage. But they might have had the right way to fight back: Effectively using tariffs to protect our national security and keep the bad guys from bankrupting American businesses and American families in the process.