As the recession continues, the hunt for a scapegoat intensifies. No one in Washington wants to hold Wall Street accountable for its mega-profits from unregulated credit default swaps, packaged subprime liar loans, and incompetant credit ratings. Despite the resulting housing, banking and market collapse, and continuing foreclosure crisis, it’s still business, profits, and bonuses as usual on Wall Street. None of those who got super-rich from the bubble economy is in prison or handcuffs.
With the 2012 national elections on the horizon, politicians want to position themselves as doing something about the lack of jobs resulting from the economic recession. Because of political gridlock, they are unable to agree on a jobs bill or anything else. But they have to do something, or at least make voters think they’re doing something.
So this week the U.S. Senate voted 79-19 to move forward on legislation the senators hope will result in tariffs on Chinese imports to punish China for keeping its currency artificially depressed, or in other words for charging the U.S. too few dollars in exchange for goods imported from China.
Why is this a bad and potentially dangerous policy for the U.S.? Let me count the ways:
1. At best it will raise costs to U.S. consumers, not only for Chinese imports, but also for other products that become competitive in the market burdened with import tariffs.
2. It won’t cause China to change its monetary policy of maintaining a stable currency, which is central to its economic development strategy. China has experienced rapid monetary inflation in the past, and never wants to risk its recurrence again.
3. It won’t create U.S. jobs. At best it may accelerate the shift of some jobs from China to other countries like India, Vietnam, and Malaysia with growing ability to manufacture at low cost to worldwide quality standards.
4. U.S. tariffs on Chinese imports will invite Chinese retaliation, not only against U.S. exports, but also in many other areas where the U.S. depends on Chinese cooperation, like combating the piracy of U.S. intellectual property, and trying to negotiate controls on North Korea’s nuclear weapons.
5. At worst, the new tariff statute may set off a trade war which triggers a worldwide economic depression, as the 1930 Smoot-Hawley tariff act did prior to the Great Depression. A worldwide depression causes people to lose faith in democracy and turn to authoritarian leaders and political parties, and that leads to international conflict and war.
If our politicians were honest they would tell unemployed voters that their jobs were lost as the result of greed and fraud on Wall Street which caused the continuing economic recession. And they would tell them that because of automation, new technology, and new competition from China and other developing economies, many of those jobs are never coming back regardless of what we do.
Future job growth in the U.S. will depend on constant innovation, to produce new things faster, with higher quality, and more efficiently than can be done in other countries. There’s no logical reason why U.S. workers should be paid more, or have a higher living standard, than workers in China, India, or any other country, unless we can supply the world with a constant stream of new innovations that can’t be produced as efficiently anywhere else.
To do that we need trained and educated workers who understand science, technology, and engineering. Our politicians should be discussing how to train and educate that work force for America’s long-term benefit, rather than setting off a trade war in an effort to get themselves re-elected.