Most economists agree the Depression began with the U.S. stock
market crash of 1929, but it took Reed Smoot and Willis Hawley to
really make it "Great."

The two U.S. politicians sought to protect U.S. workers from cheaper
European imports and in July 1930 wrote a bill that hiked tariffs on
20,000 imported goods.

Smoot and Hawley: Did they pull the levers to make a regular depression a Great Depression?
    (CP photo)In one sense, it worked great.

The U.S. State Department says the Smoot-Hawley Tariff was
responsible for imports from Europe declining from a 1929 high of $1.3
billion to just $390 million in 1932.

As for protecting the American worker, unemployment was at 7.8 per
cent in 1930 when the bill was passed, but jumped to 25.1 per cent by
1933. U.S. exports to Europe fell from $2.3 billion in 1929 to $784
million in 1932.

Canada didn’t even wait for the Smoot-Hawley to pass before it retaliated. In their book International Economics In the Age of Globalization,
authors Wilson Brown and Jan Hogendorn say Canada put new duties on 16
U.S. imports to Canada, affecting about 30 per cent of cross-border
trade. A month after the bill was passed, 125 products were hit with
new or higher tariffs, and Canada looked to Britain and the Empire for
new markets.

'The last thing we need now is a retaliatory trade war.'
   —Stockwell Day, international trade minister

Now Smoot and Hawley are back.

On Monday, International Trade Minister Stockwell Day compared the provisions in the new U.S. stimulus bill to the pair.

As written, the bill would require major public works projects to
favour U.S. steel, iron and manufactured goods over imported ones.

Canada sells about $11-billion worth of steel to the U.S. every
year, and Day worries other U.S. industries will lobby for similar
protections. Although he says he’s “cautiously optimistic” the U.S.
will back down.

"Their awareness of our concern, and wanting to do something,
appears genuine at this point. And we'll just keep working closely with
them," Day said.

"The last thing we need now is a retaliatory trade war."

It’s an issue that forces politicians to a tough place. Whatever
benefits they see to their own economies from freer trade, they must be
responsive to the voters who don’t necessarily appreciate the market
forces that move their jobs overseas or flood their markets with cheap
foreign grain.

'Trade protectionism serves no purpose.'— Wen Jiabao, Chinese premier

British
Prime Minister Gordon Brown may champion "British jobs for British
workers" at a Labour party conference, but he was in a tough position
this week when thousands of British workers went on wildcat strikes,
protesting the use of cheaper Italian and Portuguese workers by British
contractors.

Still, the laws of the European Union seem quite clear: they allow for free movement of labour.

It seems many countries speak out of both sides out of their mouths
when it comes to protectionism. Here’s a look at some recent trade
imbalances:

China

"Trade protectionism serves no purpose as it will only worsen and
prolong the crisis," said Chinese Premier Wen Jiabao. China is the
world's second-biggest exporter after Germany.

India

Kamal Nath, India’s minister of commerce, told the Davos gathering
that protectionism “is a panic response” that will hurt developed as
well as developing economies. He wondered how many North American auto
jobs would be spared if parts companies can’t easily outsource to
cheaper labour markets, like India.

    

Well, wait a minute: India
has raised tariffs on steel to protect local producers. Plus, one of
the main reasons the World Trade Organization’s most recent Doha Round
of talks collapsed was because India wanted to impose a special tariff
to protect poor farmers in the event of a food import surge or price
drop.

   

France

"It's extremely preoccupying that one of the first acts of the new
Obama administration could be a measure that is clearly protectionist
and a distortion of competition," said Anne-Marie Idrac, the French
trade minister.

    

     

Well, wait a minute:
The European Commission says France’s subsidies to its fruit and
vegetable sector, amounting to over 330 million euros over the last
decade, are against the EU rules. This week, the French government
moved to help the country’s media industry by providing free newspaper
subscriptions to teenagers on their 18th birthdays.

    

   

Spain

Spanish Prime Minister Jose Luis Rodriguez Zapatero told his Chinese
counterpart last week that both countries must reject the temptation of
resorting to protectionism amid the global economic downturn.

Russia

Russian Prime Minister Vladimir Putin warned the Davos gathering of
unrestrained state interference” in the economy and of protectionism. “

Germany

Do all these national stimulus and bailout packages constitute some
sort of unfair government subsidy? German Chancellor Angela Merkel
thinks so. “I am very wary of seeing subsidies injected into the U.S.
auto industry,” she said. “That could lead to distortion and
protectionism.

Japan

Japanese Prime Minister Taro Aso told the Davos gathering that his
country would do its part: "We will resolutely fight protectionism."

    

Well, wait a minute: The
Canadian auto workers have argued for years that Japanese car
manufacturers have an unfair advantage because they keep out North
American competitors while the American and Canadian markets are
largely open.

   

Indonesia

"Free
trade agreements should be expanded," said John A. Prasetio, chairman
of the international co-operation committee of the Indonesian Chamber
of Commerce and Industry. "This is important in these times when other
countries are promoting protectionism and going against the rules of
the World Trade Organization."

    

Well, wait a minute:
Foreign pharmaceutical companies must establish manufacturing
facilities in Indonesia if they want to distribute and sell drugs in
the country.

   

Brazil

"Protectionism won't solve the problem of the crisis. It's not fair
that, now that the rich countries are in crisis, they forget their talk
about free trade," Brazilian President Luiz Inacio Lula da Silva said
last week.

    

Well, wait a minute:Last
week, the Brazilian government reversed a decision that would have
placed restrictions on 60 per cent of the products imported from
abroad, apparently due to criticism from its neighbours.