Obama's China Trade Test

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But if that was a politically powerful argument then, when the economy and jobs were growing, it will be even more so now when they are not. This is especially the case given that the Chinese government a few months ago pumped in some $10 billion to boost its sagging textile exports—its core industry. This is hardly different from the U.S. giving $17 billion to Detroit automakers to keep the domestic car industry afloat. Nevertheless, China's move has handed the U.S. textile manufacturers potent ammunition to demand countervailing measures should the ITC investigation detect an uptick in China's exports. Bruce Raynor, the general president of UNITE HERE—a labor union representing textile and hotel workers—is reportedly even demanding a new regime of "permanent safeguards" against Chinese apparel.

Avoiding a Full-Scale Trade War

While that would almost certainly violate WTO rules, there are plenty of other temporary measures—ranging from higher tariffs and a renewed quota under a different (Section 421) provision—that won't. But even if the U.S. could get away with such protectionism, it shouldn't try.

For starters, such curbs will deprive U.S. consumers of cheap goods when they are most strapped. But this won't be good for U.S. producers either because it will legitimize barriers against their goods by other countries. As it is, Indonesia is slapping restrictions on 500 products; Russia is hiking tariffs on imported cars, poultry, and pork; and Argentina and Brazil are contemplating tariffs on a host of food and clothing items. This might not escalate into a full-scale trade war of the kind the world experienced in the wake of the Smoot-Hawley Tariffs, thanks to WTO rules prohibiting the more draconian kinds of trade barriers. However, even a limited war will exacerbate the current economic slump.

It will prevent industries from clearing their growing backlogs. It will also thwart their ability to reinvent themselves by ferreting out new markets for new products. This will ultimately kill—not spur—job growth, defeating the very purpose of the barriers. When Smoot Hawley went into effect, unemployment was 7.8%—comparable to what it is now. One year later it had soared to 16.3%—and two years later 25%. There are certainly people who lose under open trade, but even more lose in a trade war. In any case, there are ways other than a zero-sum war to help them.

China, like Japan previously, has become a convenient target for protectionists. Now that Geithner has won confirmation, it is time to put the anti-China saber back in its sheath. Obama needs to unequivocally signal that the U.S. plans to stay open for business during the recession—and expects the rest of the world to do the same. Otherwise, he might well invite "Herbert Hoover time."

Shikha Dalmia is a senior analyst at Reason Foundation, a Los Angeles-based free market think tank. She writes frequently about trade and immigration issues for Reason magazine and numerous other publications.