Smoot-Hawley and the Italian job

One consolation for the observer of the current slide into recession has been the fact that for the most part, governments have been conscious of the need to avoid the mistakes that aggravated and prolonged the Great Depression of the 1930s. Action to combat the slowdown has been prompt and massive, and there has been a welcome willingness to suspend fiscal "prudence" for as long as it takes to end the slump.

There are, however, worrying signs that trade protection is rearing its ugly head again. As usual, the US is in the forefront. President Obama's fiscal stimulus programme includes "Buy America" provisions so explicit that a number of large corporations, including Boeing, firms have been lobbying for their removal, out of fear that other countries may retaliate against US exports. With the Democrats in control of the White House and both Houses of Congress, it's likely that the "Buy America" provisions will stay. It's all scarily reminiscent of the Smoot-Hawley Tariff Act of 1930, a protectionist measure widely blamed for turning the stock market collapse of 1929 into the depression that began in 1931.

Even before the Obama stimulus is passed into law, there are plenty of signs of protectionist sentiment around the world. Despite earlier agreements, there has been no resumption of the suspended talks on a new world trade agreement. In France, the Sarkozy Government has made its assistance to the auto industry conditional on a "Buy French" policy. Judging from the scale of the "Black Thursday" protests in France this week, other segments of the economy will be looking for similar help in the months ahead.

The protests at the Lindsey refinery in Lincolnshire over the hiring of Italian workers can be seen as part of the same process. Gordon Brown, hobnobbing with the rest of the headless chickens at Davos, has already indicated that he will talk to industry about how jobs can be secured for British workers. That's just another form of protectionism, though it has to be said that sympathy for the the Italian (and Portuguese) workers at Lindsey might have been eroded just a titch when two of them were photographed making rude gestures at the British protesters.

The excellent Chris Dillow asks in his blog why workers are up in arms about the Italians, yet have not taken to the streets to protest against bankers, who have caused far greater job losses. His view is basically that it's a question of salience. People can make a more obvious connection between the Italians and job losses than they can between bankers and job losses. That seems fair enough, and as we are only now beginning to see mass redundancies as a result of the recession, there are sure to be many more such protests to come.

If resisting protectionism is to be the next test for politicians, how are they likely to perform? It's hard to be optimistic. Over 1,000 economists signed a petition against the Smoot-Hawley Act, but it still got passed. Even with history's damning verdict on the effects of Smoot-Hawley, similar steps are being considered by Congress right now, and it remains to be seen whether the objections of large US exporters will carry any weight. Other governments are facing similar pressures from their voters. Rescuing the financial system may yet turn out to have been the easy part.