United Liberty

Barack Obama seems to be on the verge of committing one of the gravest mistakes of the 31st President of the United States:

President Obama traveled to Wall Street yesterday to press his case for more financial regulation, but the bigger economic issue of the day concerned other White House policies. To wit, what does it mean for the world economy if America now has its first protectionist President since Herbert Hoover?

The smell of trade war is suddenly in the air. Mr. Obama slapped a 35% tariff on Chinese tires Friday night, and China responded on the weekend by threatening to retaliate against U.S. chickens and auto parts. That followed French President Nicolas Sarkozy’s demand on Thursday that Europe impose a carbon tariff on imports from countries that don’t follow its cap-and-trade diktats. “We need to impose a carbon tax at [Europe’s] border. I will lead that battle,” he said.

Mr. Sarkozy was following U.S. Energy Secretary Steven Chu, who has endorsed a carbon tax on imports, and the U.S. House of Representatives, which passed a carbon tariff as part of its cap-and-tax bill. This in turn followed the “Buy American” provisions of the stimulus, which has incensed much of Canada; Congress’s bill to ban Mexican trucks from U.S. roads in direct violation of Nafta, prompting Mexico to retaliate against U.S. farm and kitchen goods; and the must-make-cars-in-America provisions of the auto bailouts. Meanwhile, U.S. trade pacts with Colombia, Panama and South Korea languish in Congress.

Through all of this Mr. Obama has either said nothing or objected so feebly that Congress has assumed he doesn’t mean it. Despite his pro-forma demurrals, Mr. Obama’s actions and nonactions are telling the world that the U.S. is abandoning the global leadership on trade that Presidents of both parties have worked to maintain since the 1930s.

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The modern free-trade era began during the Great Depression, after the catastrophe of the Smoot-Hawley tariff of June 1930. Hoover also thought he was shrewdly playing tactical politics by adopting a tariff that the economist Joseph Schumpeter said was the “household remedy” of the Republican Party at the time. But the tariff ignited a beggar-thy-neighbor reaction around the world, and the flow of global goods and services collapsed.

And the consequences of that worldwide trade war are pretty easy to figure out. Depression, war, and poverty for a good part of the world.

That may not be what Barack Obama wants, in fact I’m sure that it isn’t and that he thinks he’s doing the right thing by trying to protect an American industry under threat from international competition, but the effect of what he’s started could be disastrous.