During the Great Depression, it was the Smoot-Hawley Tariff Act, which in hindsight is blamed for triggering a wave of protectionist actions globally. Protectionism was a major contributor to the downward spiral that created depression. So, have we avoided this kind of outcome this go around?
At this juncture, it is pretty unclear we have. Simmering disputes with China in particular are creating anger in Beijing. First, there was the U.S. steel industry complaint over the dumping of cheap Chinese tires in the U.S. This dispute has received little press. However, the International Trade Commission(ITC) has just sided with U.S. steel interests. I reckon the issue will now become more important.
Then, there was the link between Rio Tinto, the Australian commodities producer and Chinalco, the Chinese commodities company. Rio got itself in a bit of a mess when it leveraged up only to see commodity prices tumble. As a result, the company was forced into the arms of Chinalco. But, Australians and Rio shareholders did not like the concept of the Chinese having such a huge stake. So, BHP Billiton came to the rescue and Chinalco was stuffed (and received a hefty breakup fee).
These types of things are really getting the Chinese sour. And the China of 2009 is akin to the United States of 1930 as Alpha Creditor to the world economy. So, when just days ago Beijing started a ‘Buy China’ policy, we should realize that a Smoot-Hawley outcome is still something we need to act vigorously to avoid. It is protectionism in China as retaliation that we must worry about.
Now that the U.S. has received a green light from the ITC to restrict Chinese tire imports, it will be instructive to see what the Obama Administration does.