Obama: The Reincarnation of Smoot-Hawley

Commentary, Trade, Frontier Centre

In the afterglow of last year’s American election, a significant plurality of Canadians swooned over Barack Obama. His very achievement promised at least a symbolic end to America’s inertness on questions of race. Also, Obama was and is a semi-gifted speaker, better than the vacuous Bill Clinton when he chooses to be and occasionally up there with John F. Kennedy.

Importantly, after the hostility engendered by George W. Bush (some of it fair and some of it hysterical), it made sense for most Canadians to think a new era of Canadian-American relations had arrived, especially given that Canada is relatively more socially liberal as is Obama. In other words, many people could relate to the new American leader.

On a rhetorical level, Obama improves the U. S. image. It’s been harder for terrorists and others to portray the United States as a conspiracy of old white guys since Obama’s historic win. But if Obama’s foreign policy turns out to resemble Jimmy Carter’s and not John F. Kennedy’s–wishful and not realistic about tyrants, Obama will have the same problem as Carter: tyrants won’t care about Obama’s cultural sensitivity; they will instead see his outreach to them as weakness.

That potential foreign policy problem is not Canada’s immediate worry. But we should be alert on trade and not blindly assume Obama’s internationalist posture will automatically work in our favour. The Obama White House and Democrats in Congress are the most antagonistic American politicians relative to Canada’s commercial interest since 1930. That year, Utah’s Senator Reed Smoot and Oregon Representative Willis Hawley sponsored the now infamous Smoot-Hawley Act. That bill slapped new or additional duties and tariffs on over 20,000 imports, including those from Canada.

That act, a contracting money supply and other poor policy, turned a recession into the Great Depression. Obama is neither Smoot nor Hawley –not yet, but his economic policies are bathed in their collective spirit. On trade, the White House and the Democratic majorities in the House of Representatives and Senate happily stall additional free trade agreements around the world. This is unlike Canada which signed nine since the Conservatives took power in 2006. If, as rumoured, the U. S. exempts Canada from congressional “Buy America” provisions, it would be a single welcome exception, but just one exclusion from the usual rule.

Obama is more than ready to stir up the rhetoric against foreign workers when it’s in his interest. He did it during the campaign with anti-NAFTA rhetoric. In May, he said he wanted to preserve jobs in Buffalo and not Bangalore. None of this is helpful and the last thing the American president should get is a free pass from Canadians just because he’s not George Bush.

Consider the auto bailouts as a useful example of how far the U. S. president will go to save a few jobs in the near-term (subsidies are never about long-term economic growth or job creation; they’re about political posturing) and the pressure put on allies to go along.

With only domestic Canadian lobbying from the auto-belt for subsidies, it’s unlikely our federal and Ontario governments would have spent anywhere near the $15 billion they did on General Motors and Chrysler. That colossal sum had much to with behind-the-scenes arm-twisting from the Obama White House. The backdoor U. S. message in spring was clear: deliver subsidies to the automakers and Obama’s autoworker constituency or lose factories to the south-of-the-border subsidy machine.

Additional examples of the current majority political mindset include the American $8-billion “black liquor” subsidy to U. S. forestry companies. The Obama administration happily let that go on at the expense of Canadian forestry companies. No Buy America exemption will change it. Then there was the shutdown of some Mexican trucking into the U. S. and the new trade war against Chinese tires. America’s Congress and president replicate the spirit of Smoot-Hawley in incremental steps.

Obama and House leader Nancy Pelosi both claim to be open-minded, cosmopolitan liberals. But when the issue is trade, both are provincial. In the 1930s, it was the Republicans such as Smoot and Hawley who were isolationist and protectionist. These days, those two labels apply to Democrats.