It was just a matter of time before history once again repeats itself. I am referring to the joint press conference held by Senator Jeff Sessions, R. Atlanta, and Senator Charles Schumer, D. New York.
Since the President's jobs program is a non-starter for both Republicans and Democrats it was only logical that both parties needed something to not only show the electorate that jobs were paramount but also to show that both parties could and would be bi-partisan.
Who to make the whipping boy for both parties? None other than China. Then, with the blessing of Senator Harry Reed, D. Nevada, the Senate will propose a bill that will penalize our bankers for not playing ball and allowing their currency to float.
The theory goes that if the Chinese would only let their yuen trade like all other world currencies, as our dollar becomes cheaper through devaluation, their dollar (yuen) would be more expensive.
Therefore our manufactured products would be cheaper and theirs would be more expensive. Their people would buy our goods and not theirs. Our companies would be overwhelmed with buy orders and finally would have to hire 3,000,000 new workers to keep up with the demand.
In theory it sounds terrific. However, when you're clutching at straws everything in theory seems to make sense. The problem is we've seen this movie before. It was called the Smoot Hawley Tariff Act of 1930.
Twelve months after the crash of 1929, unemployment reached a peak of 9% (sound familiar?). Congress wanted to protect farmers and jobs from foreign competition.
President Hoover knew a tariff act, like that which had been proposed, was not in anyone's best interest (sounds like today's White House). However, he yielded to party pressure (also today's White House) and signed the bill.
Seventeen countries responded with their own tariff plans and the trade war was on. The result: from 1929 to 1934 overall world trade decreased by 66%. That which was supposed to be a job creator was a job destroyer as unemployment rose to 16.3% in 1931, 24.9% in 1932 and 25.1% in 1933.
The Chinese were very smart in pegging their currency to ours. Our devaluation, while hurting the rest of the world’s trade, had little effect on China. The trade came down to which country could produce at the least cost, and not the cheapest currency.
I’m surprised the rest of the world didn’t follow China’s lead. But that would be a fixed standard like ummmmm…Gold?
This bill coming up is pure politics but unfortunately may have the same effect as happened over 80 years ago.
Edmund Burke once said “Those who don’t know history are destined to repeat it.”