A Trade War of Words

Are we headed for a new trade war?

The stock market started lower yesterday on just those fears. Over the weekend the Obama administration imposed tariffs on tires imported from China. China retaliated with restrictions on imports of chicken meat and car parts. Both nations are appealing to the World Trade Organization. Weren’t trade disputes part of the Great Depression?

Well, yes. The Smoot-Hawley tariff was enacted in 1930. It raised fees on thousands of items, sometimes to over 20%. When the law was enacted it had a hugely negative effect. World trade contracted by as much as 33% in its aftermath and the international retaliation that followed. There is little question that it worsened the Great Depression.

Are we headed there again? Most don’t think so. First, most political leaders understand the broad benefits of trade. The math is compelling: lower prices for consumers benefit everyone. If Chinese factories are gearing up, they’ll need American-style accounting and information technology. Second, we also have a World Trade Organization to help us address disputes. Nothing like this existed in the ‘30s.

Finally, China has a history of jawboning the US but then acting reasonably. A month or so ago they said that they’d like to use a diversified basket of currencies for their reserves. But just yesterday their finance minister admitted that there really is no alternative to the dollar.

Churchill noted that “Jaw, jaw, jaw is always better than war, war, war.” Let’s hope this trade jaw stays just that.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T13:18:33+00:00 September 15th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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