October 11, 2010

October 11, 2010 | Commentary on Trade

Protectionist Policies are Slowing Down our Economic Recovery

Congress’ approval ratings are at an all-time low. Even for an institution with typically low approval ratings, this Congress has demonstrated an uncanny ability to defer and deflect responsibility, inviting criticism from the electorate. And when it has acted, its policies have been grossly misguided.

Among the new laws that have failed to live up to their billing: the American Investment Recovery Act, otherwise known as the “stimulus bill,” with an estimated price tag exceeding $800 billion. Instead of creating employment and jump-starting our tepid economy, the result has been a miserable failure with a national unemployment rate hovering around double digits.

It is evident that this year’s Congress is convinced that spending more and more of American taxpayers’ hard-earned money is the only way to reduce our national deficit and improve the economy — never mind the faulty logic.

Because spending money Congress doesn’t have hasn’t worked, they have moved on to finding a scapegoat. Right before skipping town to campaign for their congressional seats, the House of Representatives overwhelmingly approved a bill targeting one of our country’s biggest trading partners: China.

According to the bill’s authors, China is exerting an unfair trade advantage by purposefully undervaluing its currency. Advocates of this legislation contend that America cannot compete with China and explains why unemployment remains high in some of our country’s biggest manufacturing cities.

In short, the bill instructs the Commerce Department to treat China’s currency undervaluation as a subsidy. In this way, the legislation authorizes a tariff on many of China’s imports. The House measure passed by the lopsided margin of 348-79 and now awaits further action from a sympathetic Senate eager to send it to the president for a signature.

Chinese officials have rebuked the House of Representative’s efforts and warned that approving this bill into law would seriously hurt U.S.-China relations.

Diplomacy aside, Congress’ actions are terrible policy that will only hamper our country’s economic recovery. My colleague Derek Scissors, a noted economist, has it right when describing that “targeting the Yuan is a feel good but futile response.” According to Scissors, “there is very little evidence that the Yuan’s undervaluation costs the U.S. a large number of jobs.”

In other words, Congress actions seem more aimed at placating labor unions and populist angst rather than dealing with the very serious economic crisis we find ourselves in. Rather than looking at ways to expand trade with some of our biggest trading partners, this Congress is choosing misguided protectionist policies. We need only look to other failed protectionist policies in our country’s history, such as the Smoot-Hawley tariffs of the 1930s, which only aggravated our economy, sinking us further into an economic depression.

In case one needs any further proof to explain Congress’ terrible approval ratings, the House of Representatives reminded us before skipping town by approving this terribly misguided protectionist bill. Is it any wonder that polls show many of the same members of Congress who voted for this bill will receive their marching orders from the American people?

Israel Ortega is a Spanish Media Associate at The Heritage Foundation in Washington, D.C.

About the Author

Israel Ortega Contributor, The Foundry

First appeared in The Americano