‘Buy American’ will translate into a 21st century Smoot-Hawley

Politicians in Washington D.c. have cooked up a nice way to re-create the mistakes of the Great Depression by attaching a ‘Buy American’ provision onto the stimulus bill making its way through Congress. Apparently the Canadians and Europeans have already voiced their concerns, with the Europeans threatening to retaliate.

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Politicians in Washington D.c. have cooked up a nice way to re-create the mistakes of the Great Depression by attaching a ‘Buy American’ provision onto the stimulus bill making its way through Congress.  Apparently the Canadians and Europeans have already voiced their concerns, with the Europeans threatening to retaliate.

The White House has promised to review the protectionist proposals, passed last week by Democratic allies in the House of Representatives, which would ban the use of non-American steel in the $800 billion of construction projects.

Obama officials are under pressure from what European diplomats in Washington describe as a discreet but outspoken campaign of “quiet fury” from America’s closest allies.

They regard the move as a provocative shift away from free trade and towards economic populism at a time of turmoil.

Anyone who has read a cursory history of the Great Depression knows that protectionism and the banking system were at the core of events. As time goes on, I have become increasingly pessimistic about the skill of the political establishment in the U.S. and elsewhere to navigate this economic crisis. Certainly, the response to the banking crisis has been less than stellar. However, increasingly, it is also apparent that countries are turning to export subsidies and protectionism in a bid to favor domestic producers as trade plummets. The auto sector is front and center in this effort. I am certainly not convinced that Obama’s team will brush back the tide of protectionism — his record on the issue is dubious at best. However, America’s neighbors to the north are trying to stop the protectionist train from gathering steam.

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Canada and other nations fear “Buy American” barriers could trigger a cycle of retaliation that would strangle world trade and undermine efforts to end the global economic crisis.

The measure would not raise any illegal tariffs but some experts say it may violate public-procurement provisions signed with the World Trade Organization by Canada, the United States, the European Union and other countries.

“There’s some pretty furious legal research that’s going on right now to see where it potentially may cross the line,” Day said.

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Let’s see where this leads.  The Telegraph in the U.K. has reported this:

Privately, diplomats are withering about the “excitable” US rhetoric in support of the Buy America proposals. But they are resigned to a solution that leaves Mr Obama with something he can sell as protecting American workers, so long as it does not violate the letter of the trade arrangements.

European Commission representatives and diplomats from the British, French, Canadian and Mexican embassies in Washington have all launched an intensive lobbying operation to convince senators to strike the provisions from the bill they will debate this week.

A Western diplomat in Washington made clear that otherwise a trade war was in prospect. “The EU has said it will not stand idly by and let this happen. I’ve not heard words that strong from Brussels in 20 years,” the official said.

This certainly is not the makings of recovery and prosperity. Stay tuned. Apparently, in uncertain economic times, it’s every nation for itself. Economic nationalism has well and truly arrived.

Sources
Barack Obama to dilute ‘Buy American’ plan after Europe threatens US with trade war – Telegraph
Canada may raise “Buy American” issue with Obama – Reuters
Protectionism could destroy us all – Telegraph
Buying American – Economist

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