Smoot-Hawley-Schumer: The Chinese Currency Bill

by Crocker on October 4, 2011, 1:20 pm

in Economics,History,Politics

At a time when President Obama has finally decided to move forward free-trade agreements with Colombia, South Korea and Panama, the Senate has passed Chuck Schumer’s “Currency Exchange Rate Oversight Reform Act of 2011”, which would impose stiff tariffs on goods imported from countries that hold their currencies at artificially low levels.

While the bill doesn’t actually mention China, there’s little doubt who Senator Schumer has in mind as he’s been pushing tariffs on Chinese imports for years. The House had previously flirted with similar legislation and I’m all the more disturbed that Republican Senators like Jeff Sessions have bought into this foolishness as well.

This is a form of protectionism, pure and simple. It’s the latter day manifestation of the Smoot-Hawley Tariff, which did so much to create the Great Depression. I’ve been harping on this theme for years, most recently in my post, “Not in the Stars but in Ourselves” on September 22. It’s a bad idea and for a full apocalyptic analysis, I can’t do better than send you to Tyler Durden at Zero Hedge.

As a hedge-fund emailer at Instapundit writes, “Actually, the Chinese have been nudging their currency irregularly higher for quite a while. It’s in their interest to do so now, given their internal inflation problem. The Yuan has weakened vs. the Dollar in the last couple of weeks, but that’s due entirely to the financial crisis and a flight to currencies seen as safe. US politicians are entirely deaf to the risk they’re pouring gasoline on the world’s financial infrastructure by provoking a needless currency war at the worst possible time.”

Indeed.

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{ 2 comments }

William Bush VIII October 14, 2011 at 12:20 am

Protectionism? Well, yes, I guess that’s the point of the bill – you know – to protect American jobs from the artificially low Chinese currency. What are Americans supposed to do? Should continue to sit around as the Chinese relentlessly flood our country with cheap crap made by slaves? I don’t think so. And if you feel like China is a such a great trading partner, well, why don’t you head on over there and see if you can drum up some business blogging in their country. The other “free trade” bills passed this week, with South Korea, Panama and Columbia will be equally disastrous as the mother of all trade-screws NAFTA. What are we trading with Panama you may ask up there in Maine. Well, essentially we’re going to send our US dollars down to their Panama banks in exchange for the Panamanian promise to not tell the IRS anything about those US dollars on deposit. The only reason anyone ever does business in Panama is to hide their money from the US tax man. Columbia: we already have a pretty good trade agreement with them – you know the one that lets us get all that cocaine. And they’re a really great group down there – as long as you don’t any problems with your boss in which case you’re likely to find yourself dead. Oh and the South Koreans? Another great little thing they’ve got going there with their slave labor camps in South Korea. Lovely trade deals. No wonder the US Congress passed those deals with such ease. All in the interest in the American people.

admin October 15, 2011 at 3:19 pm

As to China, no one is saying they’re the ideal trading “partner” and I do agree with you that they’re running a mercantile scam on the rest of the world – which will collapse in the near future as do all such systems. The point here is that there are worse things, like cascading trade barriers that bring down the entire show – as did Smoot-Hawley. As to the rest (and the massive chip on your shoulder), let’s look at a few facts. Panama is still strategic real estate for us and the free trade agreement is designed to keep Panama in our orbit rather than China’s. It’s one of the fastest growing economies in Latin America. As to Colombia (not Columbia), you’re entirely incorrect: the Colombians have over the last 25 years pulled themselves up from the bottom, reaffirmed democratic government while putting down both drug kingpins and the FARC – and done so with courage and at considerable cost. As to South Korea, I have no idea what you’re talking about. South Korea is prosperous and democratic – I’ve been there on business and there are no “slave labor camps”. Could you be thinking of North Korea?

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