Wednesday, March 18, 2009

hoffa is my boss

Finally. Headlines about Mexico that do not include "drugs."

Unfortunately, the economic news between the United States and Mexico is not good. The United States has declared the opening shots of a protectionist trade war with Mexico. And the results may be as tragic as anything happening in Baghdad.

As I read the headlines this week, I thought back on two historical scenarios.

In the first, I imagined an enterprising fellow wandering into fourteenth century London, full of innovative ideas on how to improve the wool trade. He would have been well served to just keep on moving.

The reason: London was a guild town. If you wanted to work in wool, you had to be a member of the guild. And the guilds would prevent you from setting up shop on your own because they had patents from the king. Political authority prohibited competition -- putting a centuries-long damper on improved production.

In the second, the year was 1929. Republican Congressman Willis C. Hawley, of my home state Oregon, was a co-sponsor of a major tariff bill designed to protect American farmers. The Act that would come out of this endeavor was the infamous Smoot-Hawley Tariff Act -- a single act that was responsible, in large part, for the stock market crash of 1929, a world-wide trade war, and a worsening of the depression.

The scenarios are related in a very odd way in last week's announcement that Congress cut off funding for a program to allow Mexican trucks to transport goods in the United States under the provisions of NAFTA.

That congressional and presidential act was the result of brute political pressure from an economic special interest: the Teamsters. Even though the Teamsters tarted up their arguments as safety concerns, the outcome has all of the subtly of a horse's head in an opponent's bed. Without the program, Mexican trucks can cross the border, but must then transfer all goods to American trucks for delivery.

Some of us had sincerely hoped that the Democrats would return to their historical position as the party of free trade. Democrats have been opponents of tariffs since the Age of Jackson. Bill Clinton and Al Gore were the principal advocates of NAFTA's passage.

For whatever reason, the Democrats have decided to turn their backs on their own history and to dress up as Reed Smoot and Willis Hawley. I can easily imagine Harry Reid in a wing collar.

The results were predictable. Mexico has imposed tariffs on 90 American products. The details will be released today.

The impact is going to be far-reaching. Most of the products that will incur tariffs are agricultural. That means that food prices in Mexico will increase -- along with the social unrest that has recently accompanied every food price increase. The Mexican administration is facing a tough election cycle. It just got worse.

That same administration has been bravely fighting a drug war caused by what Americans stuff up their noses and into their veins. This spat is not going to make coordinating a policy around the border any easier.

And then there is the more personal concern of border crossings. Mexican customs officer have been rather lax about enforcing all of the restrictions they could enforce at the border. As an example, visitors to Mexico are allowed to bring no more than 20 CDs and 5 DVDs across the border without paying duty. Every car with families on vacations has now become a potential revenue source for the Mexican treasury.

Maybe none of this will happen. Maybe Smoot and Hawley had the correct approach to protectionism. Maybe I will wake up and discover all of this has been a dream on "Dallas."

I'm not counting on it.


jennifer rose said...

Mexico's been through this before. Some of use remember the pre-GATT times, times of Mexican reaction to some stupid move by its neighbor to the north. This, too, shall pass.

Meanwhile, we'll have to accustom ourselves to Mexican toilet paper and Italian sunglasses.

Anonymous said...

Yes, it seems that the US cannot let too much time pass without putting Mexico in it's place, possible negative results to the US be damned. Someone observed that the three main sources of problems in Mexico are the church, UNAM and the US with the US in recent times being in first place. The relationship issue at all levels is inpregnated with emocion, xenophobia and plain old-fashioned ignorance, all of which pop up regularly in these blogs and forums.

We complain about the twisted mexican psyche, but the US had a lot to do with creating it. I know some educated people here who do believe that is just a matter of time before the US comes back for the half of the country they didn't take the last time around.

Don't expect any of this to change anytime soon. Our new left-edge liberal president is finding it quite easy to ignore the border issues, immigrant policy, the fence etc. That is the one thing I hoped he might try to set straight, since I have no other expectations of him.


Jonna said...

No hay mal que por bien no venga. is a Mexican saying that you should learn soon. In this case there are some bright spots.

Mexican farmers will get a break, one that they desperately need since NAFTA has been hammering them. While some foods may increase in price, the money stays in the country. These tit for tat games have been going on between us for a long time. Like a tennis match, both sides will probe for weakness before negotiating.

As a note, I read in the local news today that Obama will visit Mexico on April 16th and 17th. Clinton comes sooner. Personally, I hope he doesn't come to Mérida, although he would be warmly welcomed, because that is the weekend of our blogger conference. I've been here when 2 other US presidents visited, Clinton (Beeel Cleeenton esta said the taxi driver when I asked what was up) and Bush. Traffic snarls and restricted streets are the norm.

I also read an article yesterday in the SF Chron, I'll look for the url later, quoting a speech by Senator Dianne Feinstein and someone else about the horrendous flow of guns and money from the US to MX. It was a call to put resources towards stopping it and stated that it had been a very conscious decision by the Bush admin to focus all resources on stopping drugs and illegal immigration and little to none on the reverse flow. In other words, they preferred to spend billions busting farmworkers in North Carolina and zero busting arms dealers in Texas. Not the allocation that I and many others agree with. I am encouraged that this administration will direct our forces in a better manner, I see the call for that in this article.

I tend to see the glass half full, but I think that there will be changes and that some will be good and some bad but the good will outweigh the bad.

Felipe said...

The U.S. did not so much take half of Mexico as Mexico (in the pathetic form of Gen. Santa Anna) gave it away.

One of my brothers-in-law is a Mexican trucker. He usually drives stoned on amphetamines and, as I hear it, so do lots of his fellow truckers.

My wife, who worked 14 years for the Mexican highway department, grits her teeth every time we have to pass one of those jokers on the highway.

All other issues aside, keeping them out of the U.S. is a good thing.

Steve said...

Jennifer -- Perhaps. During the GATT days, however, we had the luxury of thriving economies. For Congress to start playing chicken now will just engender higher stakes games.

Anonymous -- As neighbors, we are truly dysfunctional.

Jonna -- I suspect Mexico may be better situated to ride out this type of fight. My concern is that the last two American administrations seem to have done all the wrong things to address the crisis. You are correct, though. Only time will tell -- and the tale it telss wll have many interpretations.

Felipe -- I was positive you would weigh in with your evidence. There was even a timely reminder in this morning's news. A young Mexican truck driver (drunk) swerved out of his land and hit a tour bus head on, killing 11, if I remember correctly. There are safety concerns. I do not doubt that. But the Teamsters are simply a bunch of thugs throwing around their political weight. Safety is not truly their concern.

norm said...

Free trade is good public policy, if it is truly free.
I think we can put Smoot-Hawley in the same basket as the left wing media we hear about, both a fairy tale put out by the right.
Steve, if we have free trade now, how come you have a limit on your CDs? There is a degree of free trade for the big players but for people like you and me, it's "pay up sucker" when we bring any imports across.
I think tariffs are a good way to collect tax, pay for government services, as it evens out the differences in wages between countries and helps domestic industries. The problem with free trade, as now practiced, is that capital can go where it wants but labor is restricted in its movement. The people with the capital can play the workers off each other. Capital is worthless without people to put it to work, old school but true.
Now, if you want to argue for the kind of free trade the US has between its 50 states, for all of the Americas, workers and goods, I'm with ya brother. Let the boom times roll!

Anonymous said...

What's fascinating about living in the current times is that you really begin to understand why so many mistakes were made in the 30's that deepened and prolonged the depression. We are making many of the same mistakes today, driven by narrow political agendas, and the failure of many people to understand basic economics.

It's a wonder that people in New York, Massachusetts, and California, and other high-wage states don't put up more of a fuss about products "imported" from places like Mississippi, Louisiana, South Carolina, or other low-wage states.

And since these states are all so low wage, why don't all the jobs in the U.S. simply move there, leaving nothing but a giant sucking sound in their wake?

Well, I don't suspect you'd have a very easy time hiring healthcare researchers, investment bankers, computer scientists, engineers, or many of the other highly skilled people who tend to populate the high-wage states if you wanted to start up in Mississippi. Yeah, the labor's cheaper, but there's a reason.

So why is free trade a good thing across state (or city or county) boundaries, but across other artificial lines like national boundaries a suspect thing? How do you "keep money in your community?" How narrowly should this community be construed? Is it better to only trade with the people in your neighborhood rather than the city a large? Would it be better to be entirely self-sufficient and trade with no one? Are you likely to be richer if you have a wide variety of trading partners? Would you be better off with fewer?

We all need to think more deeply about these questions before we simply decide that others should be limited in their choices of trading partner by force of government.


Kim G
Boston, MA
Where we have to work to compete with New York, even though it is twice as expensive.

Steve said...

Norm -- You are correct that wherever a national border begins true free trade stops. Everyone likes to think they are better than the other guy. You have hit on one of my favorite topics. I would gladly allow labor to flow as freely as capital. But richer nations have become so addicted to welfare state privileges, the flow presents a huge threat to politicians. The best I can hope for is that the barricades will lessen.

Kim -- Great explanation of how labor and capital flows in a free system. There is no reason the same paradigm could not work between Canada, Mexico, and the United States.