TCS Daily


Don't Smoot the Weasels

By Arnold Kling - April 24, 2003 12:00 AM

If there were a Hall of Fame for economic policy blunders, then the Smoot-Hawley tariff of 1930 would get in on the first ballot. The consensus among economists is that this protectionist legislation exacerbated and contributed to the Great Depression that held most of the world's economy in its grip for a decade.

Today, with the stock market having suffered its worst collapse since 1929, unemployment high and rising in much of the world, and deflation considered a risk for the first time since the Second World War, the last thing we need is another setback to international trade. It is in that context that I think we should take a sober assessment of the urge to inflict economic punishment on what Scott Ott dubbed the "axis of weasels" France, Germany, and Russia.

Rebuilding Iraq

Iraqis ought to choose which foreign suppliers to use in rebuilding the country. That choice should be competitive, based on price and quality considerations. Private-sector companies from France, Germany, and Russia should be allowed to compete for Iraq's business, along with other private-sector companies. Even if we have a quarrel with the governments of the Weasels, it is not productive to take revenge on the private sector.

As of this writing, the United Nations sanctions against Iraq remain in force. Technically, if they wish to comply with the sanctions, other countries might not be allowed to trade with Iraq. In theory, if a French company had commercial opportunities in Iraq, this might be blocked by the French government in order to comply with the UN decree. However, I find it difficult to believe that President Chirac would carry his principles that far.

As more countries develop economic ties with Iraq, this will broaden the base of support for the new regime. I think we would like to see other countries with a stake in a stable, prosperous Iraq.

On the other hand, I see no particular need to give the United Nations as an institution an economic role in Iraq. Trading oil for food, for example, does not require a bureaucratic middleman.

Boycotts?

Obviously, people should be free to choose to buy whatever they want for whatever reason they choose. But I hope that the desire on the part of Americans to boycott products from the Weasel countries, and vice-versa, will prove to be short-lived. An economic boycott is the opposite of a JDAM - it causes maximum collateral damage while having little or no impact on the target.

Among the casualties in a boycott of French wine, for example, would be Americans in the import business as well as privately run French wineries whose owners, for all we know, may have supported our war effort. Again, I think that if our quarrel is with the government, we ought not to punish the private sector.

Free Trade Now

What I would like to see the Bush Administration try in the wake of its military success in Iraq is a reverse of Smoot-Hawley. That is, we should undertake a unilateral reduction in tariffs, farm subsidies, and other trade barriers.

After the war in Iraq, the rest of the world views the United States as being extremely powerful, and they are wary of what we will do next. If our next big foreign policy gesture were a dramatic reduction in our trade barriers, this would send a positive message about our values and our role in the world.

It is odd that in international trade we have come to believe that reductions in trade barriers have to come from mutual "agreements." This is not the case. Getting rid of trade barriers unilaterally will make our economy more productive and our consumers better off, regardless of what other nations do.

One of the silliest government positions ever created was that of "Chief Trade Negotiator." There is no need to negotiate - we can do our part for free trade now. The whole concept of trade negotiation is absurd. It is like saying to your spouse, "I'll change my underwear regularly, but only if you'll agree to brush your teeth." We should eliminate our harmful trade barriers, not keep them in place just to have "negotiating leverage."

If America experiences a "regime change" in 2004, it will likely be as a result of a soft economy. One way to ensure a strong economy is to open up trade. Even if that benefits the Weasels.
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