To trade or not to trade: Congress and Asian exporters move closer to rekindling the trade wars

Joe Tauke Contributor
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Business headlines may soon be making yet another comparison between current economic circumstances and the Great Depression if international events trigger the return of a hallmark of the 1930’s — the trade war.

Persistent unemployment has made the issue of China’s currency manipulation, which many economists say gives Chinese exporters an artificial boost at the expense of American producers, a sore spot for Congress. Treasury Secretary Timothy Geithner came under fire in the Senate last Thursday from angry lawmakers who have grown weary of Washington’s continued unwillingness to react to the problem.

“We’ve laid out the policy that China has, which is mercantilism, not free trade,” said Democratic New York Sen. Chuck Schumer. “And when we ask that someone do something about it — whatever administration — they shrug their shoulders and say, ‘Well, nothing much that we can do.’ Not so. At a time when the U.S. economy is trying to pick itself up off the ground, China’s currency manipulation is like a boot to the throat of our recovery.”

Schmuer is one of many legislators who are threatening to take matters into their own hands by passing new laws regarding Chinese imports. “Since this administration has decided to follow in the Bush administration’s footsteps and not take Chinese manipulation seriously, it may be time for new legislation to ensure that Treasury looks out for American workers, not Chinese creditors,” warned Republican Alabama Sen. Richard Shelby.

Congressional action to stem Chinese currency manipulation could mirror the events of the beginning of the Great Depression, when the Smoot-Hawley Tariff was passed to protect American industry from foreign competition. Then, other governments retaliated with their own tariffs on American goods, stifling international trade for years. But in the current economic climate, lawmakers are feeling the heat on job creation, not trade, especially from labor unions.

“Our members vote, simply put, and we need politicians who will protect American jobs,” said Gary Hubbard, a spokesman for United Steelworkers, in an interview with The Daily Caller. “Our members have a gun to their head regarding jobs, and we need government action now. We can’t sell goods to China because of currency manipulation.”

True to 1930, unfair trade practices are already spreading. Japan has compounded the problem Congress is facing by announcing earlier this week that the yen would be manipulated to rescue Japanese exporters. American unions, already weary of what they believe are job-killing actions by China, are now pressing for a response to Japan as well.

“China is the most egregious violator, but there are others,” said Hubbard. “Japan is now among them.”

NEXT: Some analysts say currency manipulation has little to do with trade deficits
Still, some analysts argue that currency manipulation actually has little to do with trade deficits. Dan Ikenson, associate director of the CATO Institute’s Center for Trade Policy Studies, suggests that neither China nor Japan stand to gain much from their policies.

“China’s currency value has nothing whatsoever to do with the U.S. bilateral trade deficit with China,” Ikenson told TheDC via e-mail. “We saw the Yuan rise in value by 21% between July 2005 and July 2008, but the U.S. trade deficit with China increased by $66 billion, from $202 to $268 billion during that period….The impact [of Japan’s decision] on U.S. industry will be indiscernible. Exchange rates matter less and less in our globalized world, where transnational production sharing has become so prominent.”

If Ikenson is right, the best thing for Congress to do may be nothing at all. And if there’s one thing Congress does well, it’s nothing at all.