From The Independent (U.K.): “France in protectionist row as Renault switches Slovenia jobs“:

France was embroiled in a protectionism row yesterday after the government announced that the assembly of some Renault cars would be shifted from Slovenia to the Paris area, creating 400 new jobs.

President Nicolas Sarkozy later insisted that the move would not cause any job losses in a fellow EU state, but the European Commission said it planned to launch an investigation.

M. Sarkozy infuriated eastern European members of the EU last month when he linked €6bn (£5.6bn) in cheap loans to the struggling French auto industry to a guarantee that car-making jobs would remain in France. He even questioned why French car firms needed plants in eastern Europe at all. Alarm bells rang in Brussels and across eastern Europe yesterday morning when the French Industry Minister, Luc Chatel, announced that production of some Clio cars would transfer from Slovenia to a giant Renault assembly plant at Flins in the Seine valley, west of Paris.

Los Angeles Times, “U.S.-Mexico relationship hits some bumps“:

Reporting from Washington and Mexico City — Secretary of State Hillary Rodham Clinton ventures south of the border this week at a moment when the tricky dynamics of the U.S.-Mexico relationship are on full display.

It’s too soon to call it a rough patch, but a flap over cross-border trucking and unwelcome words about the drug war have led Mexico to push back against its powerful neighbor recently.

The trade dispute got tetchy last week when Mexico raised tariffs on scores of U.S. imports — retaliation for Washington’s decision to stop funding a program that allowed some Mexican trucks on U.S. highways under a free-trade agreement.

We don’t want to oversell the “rising tide of protectionism” theme. The Mexican tariff reaction was relatively modest unless you’re in agriculture in Oregon, Washington and California, and the Administration has signaled it desire for commercial comity.

It also seems a good time to link to this piece by Dan Ikenson of the Cato Institute, a free trader through and through, “A Protectionism Fling: Why Tariff Hikes and Other Trade Barriers Will Be Short-Lived”:

Despite some episodes of backsliding, the world is unlikely to witness a significant departure from the trend toward trade and investment liberalization that has been evident since the end of World War II. An increasing number of governments have come to recognize that optimal economic outcomes arise under conditions where policies enhance—rather than limit—the freedom of people to transact with others, including foreigners. Protectionism limits choices and thereby undermines human liberty and economic efficiency.

Reasonably well-respected trade rules and the reality of a global economic system that renders trade openness an imperative for success are some of the reasons to believe that any protectionist outbreak will be fleeting. Indeed, policymakers would be advised to respond to the downturn by reducing their trade and investment barriers unilaterally because doing so expands choices, reduces costs, and spurs the kinds of structural reforms that facilitate economic growth.

The New York Times reports that Tim Geithner, the nominee to be U.S. Secretary of Treasury, said in written responses to Senate Finance Committee inquiries that he believed China manipulates its currency. From the story, “Geithner Hints at Harder Line on China Trade“:

“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” Mr. Geithner wrote. He stopped short of charging that China is manipulating its currency intentionally to gain an unfair trade advantage, as the 1988 law requires for an official citation of currency “manipulation.”

The Times considers this page one news, seeing it as indication of a harder policy line against China’s economic policy. The NAM’s Frank Vargo, vice president for international economic policy, comments:

The National Association of Manufacturers, whose members have pushed previous administrations to get tougher with China, was pleased, but also cautious given the potential for a confrontation that could exacerbate global woes.

“You know the world has changed a lot with the financial crisis and China has a lot in U.S. Treasuries,” said Frank Vargo, vice president for international economic affairs at the manufacturers’ association. “This needs to be done in a cooperative, not a confrontational, way.”

 You would certainly hate to see President Obama repeat the mistakes of President Hoover and sign legislation that sparks a destructive round of protectionism worldwide.

UPDATE (9:45 a.m.): Wall Street Journal also reports, “U.S. Stance on the Yuan Gets Tougher“:

“You don’t want to be the bull in the China shop when it comes to currencies right now,” said Frank Vargo, a vice president of the National Association of Manufacturers, which has long lobbied against China’s yuan policy. “But…we all know the Chinese currency is deliberately undervalued

Or, as the new year dawns, ox in the China shop.

The United States has learned its historical lessons and will avoid going down the path of the depression-deepening Smoot-Hawley and protectionism as it counters the current recession. Surely it has.

But given the new global economy, more integrated and competitive than in the 1930s, the United States is not the sole determiner of economic policies. Maybe this time around, it’s China that makes the mistake of enacting its version of Smoot-Hawley, a foolish, domestically targeted policy that sparks a trade war.

From Reuters, “Yuan drop extremely disturbing“:

WASHINGTON, Dec 4 (Reuters) – A sudden drop this week in the value of the Chinese yuan <CNY=CFXS> could reignite political tensions over the huge U.S. trade deficit with China, U.S. business groups said on Thursday.

“This is extremely disturbing,” Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers, told Reuters as U.S. Treasury Secretary Henry Paulson and other senior Bush administration officials were in Beijing for high-level economic talks.

The yuan’s drop came just days before that meeting and just a little more than one month before President-elect Barack Obama takes over in the White House.

This news comes just as the fifth U.S.-China Strategic Economic Dialogue wrapped up. Secretary Paulson did not address the issue in his formal closing remarks, saying later that China remains “committed” to continued appreciation of the currency. And trade is not ONLY currency.

From Paulson’s closing statement:

As in the past, we discussed the importance of domestic-led growth, and the importance of a market-determined currency in promoting balanced growth in China that will contribute to a healthy global economy. I welcome the steps announced by the Chinese to further open their financial markets, such as allowing foreign banks to trade bonds on the same terms as Chinese banks. Strong financial markets will enable healthy economic development across China. (continue reading…)

WTO Director General Pascal Lamy’s speech on the financial crisis and trade (see here and here) provides the opportunity to cite a case of how the Smoot-Hawley tariffs did damage to one specific segment of the economy, in this case, egg producers. Lamy provides the big picture, and Don Boudreaux at Cafe Hayek focuses in, a post from June 17, 2007:

Protectionism doesn’t achieve even its own nonsense goal of increasing  exports.  A revealing, specific example involves eggs.  Smoot-Hawley raised the tariff on egg imports into the U.S. from eight cents to ten cents per dozen.  This higher tariff caused eggs imports from Canada to fall by 40 percent.  In response, Canadian authorities increased the tariff on U.S. eggs exported to Canada; this tariff went from three cents per dozen to ten cents per dozen.  The result was that American eggs exports to Canada fell by 98 percent – from 11 million annually just before Smoot-Hawley to a mere 200,000.   (I found this tidbit in Jeffry Friedan’s 2006 book Globalization.)

Tariffs on imports to the United States caused related exports from the United States to plunge 98 percent! Astonishing. Instructive.

WTO Director General Pascal Lamy’s speech Wednesday at the University of California Berkeley is an outstanding survey of the value of global trade, even more valuable when the financial crisis is shaking global economies and public confidence. Facts, figures, history and the proper emphasis on multilateral trade negotiations (with only a passing nod to the shibboleth of global climate regulation, a guaranteed economy-killer):

From “Restoring citizens’ confidence in trade requires sound domestic policies“:

Among the most disastrous political decisions taken in the wake of the Crash of 1929 was the passage of the Smoot-Hawley Act, signed into law on June 17, 1930. The idea of this ill-conceived legislation was to protect US farmers – a notion popular in many WTO member governments to this day. As farmers pressed to have greater protection from imports, many other industries joined the queue of lobbyists and as they often do, these lobbyists succeeded in gaining protection for their industries. Duties of more than 60% were slapped on 3,200 imported products, lifting overall average tariffs by about 20%. If the idea was to curb imports, Smoot-Hawley was a fantastic success – by 1933 imports had fallen from $4.4 billion to $1.3 billion while exports fell 69% over that same period to $1.6 billion. But there was an unintended consequence to Smoot-Hawley – its contribution to an economic depression. Smoot-Hawley touched off a domino effect of retaliation and counter-retaliation among trading partners which provoked a severe contraction of international trade, depressed growth and rising unemployment around the industrial world. From 1930 to 1932 the unemployment rate soared from 8.7% to 23.6% and remained at more than 14% for the remainder of the decade.

How did the collapse of trade contribute to this? One reason is that contrary to the conventional wisdom, imports are good for you. A great many Americans were then and are today employed in sectors linked to imports. Parts needed for manufacturing became dearer if they could be found at all. The soaring jobless rate was also a product of the response from other countries which were anything but pleased to be the target of trade sanctions. Predictably, these countries retaliated. US exports to Europe, for instance, declined from $2.3 billion in 1929 to $784 million in 1932. Globally trade contracted by 60% between 1929 and 1932.

If there’s anything good to be found in the financial crisis, it’s that it encourages a study of history, a study that study destroys the arguments for protectionism when economies fall into recession or depression.

Righteous column in National Review Online from Phil Kerpen of Americans for Prosperity, “From Panic to Depression?”

Blame for today’s financial panic can be assigned to a Federal Reserve that kept interest rates too low while a bubble inflated; unscrupulous lenders; people who bought homes they couldn’t afford; Wall Street wizards who overleveraged and wrote derivatives they couldn’t pay; and a Congress that set the policy goal of universal home ownership and recklessly grew Fannie Mae and Freddie Mac to pursue that goal.

But with so many real culprits out there, we cannot afford to blame the fake culprits of free trade, low taxes, and flexible labor markets. These are the fundamentals of a free economy. If we undermine them in response to the panic, we risk repeating the mistakes that followed another great panic and ushered in the Great Depression.

We tend to think that at least on the trade issue that we really have learned from history, that is, the errors made as panic turned to crisis turned to Great Depression from 1929 to 34. The Smoot-Hawley legislation to raise tariffs was such an unambiguous (Republican) failure, inviting retaliation and shutting down global trade, that no one would dare recreate it by backing out of NAFTA or raising protectionist barriers while the rest of the world expanded trade, right?

But then we see how organized labor has pulled out all the stops — pulled out all the money from the wallets of their members — to promote candidates for opposing trade and have to conclude the possibility that history repeats the old conceits, the glib replies, the same defeats.

On a related topic, from today’s Wall Street Journal op-ed page, “Labor Unions Prolonged the Depression.” A new Wagner Act could be on the horizon, writes Mark Mix, president of the National Right to Work Committee.

The Heritage Foundation’s Foundry blog has noted another astonishing omission from the presidential/vice presidential debates, that is, any serious inquiry into the candidates’ position on free trade. From “Morning Bell: A Trade Free Zone“:

International trade has been one of the biggest drivers of economic growth in recent years. The one bright spot in the American economy this past year has been the continued growth in U.S. exports. Exports generated an impressive two-thirds of U.S. economic growth over the past year. With the Doha round of trade talks grounded, bilateral free trade agreements (like those Obama voted against for Panama, Colombia and South Korea) are one of the only options for expanding trade. Although they comprise only 7.5% of global GDP (not including the U.S.), the countries the U.S. has free trade agreements with accounted for more than 42% of U.S. exports. Shutting down free trade now would be disastrous for the U.S. economy. The last time the U.S. reverted to protectionism in a time of economic turmoil President Herbert Hoover’s Smoot-Hawley Tariff helped usher in the Depression. This is not the direction our country needs to go.

Definitely not, but in a strange way, the financial crisis may have done some modest good for the cause of free trade, politically, that is. Everytime a candidate or politician denounces this or that policy for threatening “The Even Greater Depression,” he serves to remind the public of that era’s mistakes, including its worst until FDR took office, the Smoot-Hawley Tariff that led to a nascent, global trade war. (That’s Hawley on the left, Smoot on the right — both Republicans.)

And to every Democrat who denounces a Republican today for being a new Herbert Hoover, we say, denounce away — as long as you include Hoover’s signing of Smoot-Hawley as one of the appalling enactments needing repudiation.