August 3, 2008
World Trade Falters Over China, India Food Tariffs
Doha skyline and WTO mural
The collapse of world trade talks last Tuesday at Doha -- capital city of Qatar east of Saudi Arabia – sent shivers down the spine of we old timers who remember the worldwide Great Depression of 1929-39.
At Doha, China and India insisted on their rights to impose tariffs (taxes) on food mostly imported from the United States.
China threw in a threat:
“If the Doha Round repeatedly fails, this will cast doubt on the ability of all parties to find solutions to complex problems such as climate change, high oil prices and food prices within a global framework.”
This statement was an immature double-dog-dare-you threat by China which floods U.S. markets with manufactured goods and in return buys a zillion tons of U.S. foodstuffs.
China’s population is something over a billion, no one is sure. Food is the highest priority.
Without American corn, wheat and beef a hungry Chinese citizenry would be quick to rebel.
TARIFF EFFECTS
It would be useful for China, India (and maybe Brazil) to study the effects of tariffs, which prefixed World War II.
Prior to that there had been an economic “boom” following the First World War. Presidents Harding and Coolidge had persuaded Congress to cut taxes. Productivity soared.
At the same time, however, Congress levied taxes (tariffs) on imported goods to “protect American industries and farms from foreign competition.”
Other countries also adopted protective tariffs.
Though American industry prospered under favorable taxes, the tariff barriers to world markets for agricultural products hurt farmers.
By restricting the ability of foreigners to sell their goods in the U.S., their reciprocal purchases of our industrial products were curtailed. Tariffs have the same, negative impact on investment and commerce as an increase in income taxes.
ANTICIPATING THE FUTURE
The stock market anticipates future events by 6 to 12 months. Stock market investors in 1929 – with personal money at stake – saw farm tariffs as an inhibiting factor on the world economy. They rushed to sell their stocks. 
Novice stockholders on large credit margins were wiped out by the “Great Crash” of l929.
This correlation between taxes and trade was first comprehended by Jude Wanniski, editorialist for the Wall Street Journal.
He discovered the trigger for the Great Depression while searching old files of the Journal. He noticed that every time Congress debated the Smoot-Hawley tariff bill, the stock marked dipped.
When the bill passed the House -- and the Senate promised to do likewise -- the stock market crashed on “Black Thursday,” October 24, 1929.
ICY HIGHWAY
President Herbert Hoover signed the final tariff bill in January 1930 – even though he had asked for lower tariffs.
Foreign governments retaliated with higher tariffs on U.S. products. World trade screeched to a halt.
The efficacy of controlling a national economy through tax-and-spend policies is like speeding down an icy highway – one foot on the accelerator and the other on the brake.
In any economy, money changes hands through the inter-change of demand for – and supply of – goods and services.
This is true whether for automobiles, widgets, oil, corn, or services of accountants.
Until the 1930’s Great Depression, governments worldwide did not appreciate the delicate balance between supply and demand.
“Boom and bust” was simply the reward of one element of an economy trumping the other element through politics.
WHY DOHA FAILED
Leading countries have been working on a Doha trade agreement for seven years. Last week’s effort seemed hopeful inasmuch as the U.S. and the European Union had made concessions on agricultural subsidies.
No matter. China and India continued to balk. According to World Trade Organization rules, all 153-member nations must agree on proposals.
The Wall Street Journal points out that “failure of the Doha talks isn’t likely to have big effects immediately on the flow of world trade or economic growth.
“Outside of agriculture and textiles, trade barriers generally are low globally because of decades of tariff cutting.”
Nonetheless, forgive old timers an incipient bout of heebie-jeebies – considering the Stock Market Crash and Great Recession that we suffered 1929-32.
It took those to teach us the necessity of mutual cooperation and the United Nations – remembering President Theodore Roosevelt’s wise warning:
"Speak softly, but carry a big stick!"
By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist
