Obama’s New War

by Steve Shute

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While you weren’t looking, the Obama Administration started another war last week – and one we will most certainly lose.

No, I’m not referring to the drone attack on Pakistan’s Waziristan province that killed 22 people, mostly civilians, or his pledge to add another 30,000 troops to our forces in Afghanistan over the next 6-9 months.

The war I’m talking about could very possibly end up being a much more costly one.

Last Thursday, apparently with the full blessing of the new Obama Administration, Secretary of Treasury-designate and admitted tax cheat Timothy Geithner declared in a written statement in his Senate confirmation hearing that China was manipulating its currency, the yuan, to maintain price advantages over American producers of goods, both in the Chinese domestic market and overseas – a charge that China has vehemently denied.

At the same time, Geithner strongly alluded that it would be in the nation’s best interests to put measures into place (a new Smoot-Hawley Act, perhaps?) that would support US-based producers of products such as iron, steel, heavy equipment, and automobiles – products where China has made significant inroads worldwide over the last several years.

(In fact, Section 1110 of H.R. 1, the House version of the Economic Stimulus bull – er, bill – states explicitly that “…none of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States.”)

Hey, I’m all for free trade, and have said in previous columns that the so-called “free” trade agreements pursued by the Bush Administration were little more than corporate welfare to gigantic trans-national conglomerates that had allegiances to no nation at all – only to their bottom lines.  However, as the Obama administration is about to embark on the largest expansion of government in our nation’s history – most of it being financed by selling US Treasuries (i.e., debt) to nations such as China – is this the time that we should be picking a fight with our largest benefactor?

It almost seems like the United States is trying to invite China to crash the dollar and make it worthless, by selling off our Treasuries on the open market and buying something else – like, say, gold.

In an environment such as this, when the rest of the world’s major economies are slowing down precipitously and the appetite for US debt is beginning to wane, it is beyond unwise to provoke China into dumping their dollars.  Yet, that’s what it looks like the Obama Administration is trying to do – and they haven’t even been in power for a week.

This new war – a trade and economic one – is one that, as the largest debtor nation in the world, we can ill afford to wage.  Smoot-Hawley-type protectionist measures imposed while we’re in a major recession make about as much sense as raising taxes – they will only serve to make imported goods (i.e., most of the goods we buy) more expensive (or unavailable altogether); and, more importantly, they will encourage other nations to divest themselves of our debt, causing an accelerating inflationary spiral at a time when our real incomes are stagnating or decreasing.

Weimar Republic, anyone?

Thirty – or even ten – years ago, we would possibly have been able to wage this war, before we became so dependent upon China and other foreign nations for our economic lifeblood.  But now, pushing this button will lead to only one assured destruction – our economy’s.