Posted by Jonathan Adler:
Could the Stimulus Start a Trade War?
http://volokh.com/archives/archive_2009_02_01-2009_02_07.shtml#1233944822
Some commentators and trade experts have expressed concern that the
"Buy American" provisions in the stimulus are not only wasteful, but
potentially harmful in that they could be a prelude to greater
protectionism, both here and abroad. For instance, last Saturday in
the NYT, Douglas Irwin wrote:
Steel industry lobbyists seem to have persuaded the House to insert
a �Buy American� provision in the stimulus bill it passed last
week. This provision requires that preference be given to domestic
steel producers in building contracts and other spending. The House
bill also requires that the uniforms and other textiles used by the
Transportation Security Administration be produced in the United
States, and the Senate may broaden such provisions to include many
other products.
That might sound reasonable, but history has shown that Buy
American provisions can raise the cost and diminish the effect of a
spending package. . . . While this is a windfall for a lucky steel
company, steel production is capital intensive, and the rule makes
less money available for other construction projects that can
employ many more workers.
American manufacturers have ample capacity to fill the new orders
that will come as a result of the fiscal stimulus. In addition,
other countries are watching closely to see if the crisis becomes a
general excuse for the United States to block imports and favor
domestic firms. General Electric and Caterpillar have opposed the
Buy American provision because they fear it will hurt their ability
to win contracts abroad.
They�re right to be concerned. Once we get through the current
economic mess, China, India and other countries are likely to
continue their large investments in building projects. If such
countries also adopt our preferences for domestic producers, then
America will be at a competitive disadvantage in bidding for those
contracts.
The Senate's "Buy American" provisions are even worse, and could have
significant trade implications while providing minimal offsetting
employment benefits, [1]noted trade economists warn. Pascal Lamy, head
of the World Trade Organization, has also [2]expressed concern.
Buy local� measures by governments will jeopardise export sector
jobs and risk setting the world on a damaging downward spiral of
beggar-thy-neighbour protectionism, the head of the World Trade
Organisation has warned.
Speaking to the Financial Times, Pascal Lamy, WTO director-general,
said pressures for economic nationalism were an inevitable response
to the global crisis, but in an integrated world economy such
measures were much more dangerous than in the past.
�If you start killing imports, you will kill exports,� Mr Lamy
said. And since a high proportion of global output depended on
international supply chains, shrinking trade flows would have a
huge multiplier impact on world production and jobs.
Mr Lamy would not comment directly on the Buy American provisions
in the US economic stimulus bill, which potentially could be the
subject of WTO litigation, but said that Washington, like other
governments, had to abide by its international commitments.
Should we be worried? Daniel Drezner [3]tries to inject a dose of
optimism. I hope he's right.
References
1. http://www.iie.com/publications/interstitial.cfm?ResearchID=1114
2.
http://www.ft.com/cms/s/a013e78e-f20e-11dd-9678-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fa013e78e-f20e-11dd-9678-0000779fd2ac.html&_i_referer=http%3A%2F%2Fdrezner.foreignpolicy.com%2Fposts%2F2009%2F02%2F04%2Fcould_the_buy_american_idiocy_be_good_for_global_trade
3.
http://drezner.foreignpolicy.com/posts/2009/02/04/could_the_buy_american_idiocy_be_good_for_global_trade
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