Thursday, January 29, 2009

Troubling Protectionist Provisions in Stimulus Package

According to a Washington Post article today, the financial stimulus package passed by the U.S. House of Representatives yesterday contained a Buy American provision that will require stimulus dollars for infrastructure products to be spent on domestic iron and steel.  In addition to keeping stimulus dollars in the U.S., the Buy American rider is intended to protect American jobs.  While these are worthy goals, there are serious long-term negative economic consequences that are likely to result from such an action.  In addition to potentially violating our trade commitments under the World Trade Organization (WTO) agreements and various bilateral trade treaties, this action raises concerns about a return to protectionist policies that many economists agree significantly contributed to the worsening of the Great Depression in the 1930s.  Ironically. the International Monetary Fund reported yesterday that the world economy already is growing at the slowest pace since that time.  If the United States enacts these types of restrictionist policies, other countries are likely to follow suit, causing American companies to have difficulties selling their products abroad.  And, under WTO rules, any retaliatory measures imposed for violations of WTO obligations do not have to be limited to the industry sector that is the subject of the violation.  Many American companies that would benefit from the Buy American rider, such as General Electric and Catepillar, are objecting because of the threat to their ability to sell their products abroad.  Such a policy will also make these infrastructure projects more expensive for U.S. taxpayers by requiring the U.S. government to pay more for these products and materials to less competitive American manufacturers rather than being able to accept the lowest bid, regardless of the nationality of the bidder.


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