Economics Readings Site By Colin Ong

This blog has been created to provide an area for economics students to read about how economics impacts daily life. It is especially useful for students to understand the application of macroeconomics as communicated through the media and governmental websites.

This online resource has been set up for educational purposes.All rights are reserved by the various websites.

For further clarification, please email colin@mrmc.com.sg

Buy American

Jan 30, 2009
Alarm over 'Buy American'

WASHINGTON - A NEW 'Buy American' push in President Barack Obama's economic stimulus plan is sparking protests about protectionism from US businesses and trading partners.

Mr Obama has pushed for swift passage of the American Recovery and Reinvestment Act as vital to prevent the collapse of the fragile US economy as it reels from the global financial crisis.

The US House of Representatives passed an $819 billion (S$1.2 trillion) economic stimulus package Wednesday with a 'Buy American' provision that generally prohibits the purchase of foreign iron and steel for any stimulus-funded infrastructure project.

The massive tax cuts and spending package has moved to the Senate, where lawmakers are working on their own version that extends the 'Buy American' initiative beyond the House's iron and steel mandates to include all US manufactured goods.

The bulk of Mr Obama's stimulus plan is infrastructure spending that is aimed at ensuring the country's long-term competitiveness in the global economy.

The sweep of infrastructure projects is broad, from roads, rail, bridges, airports and dams to military construction and housing, among others.

Mr Obama says the stimulus package, supported by unions, could create more than three million jobs.

Leading business interests, however, warned that such measures could trigger trade wars that only will exacerbate the slump in trade volumes and economic growth stemming from the global financial crisis.

'Since 95 per cent of the world's consumers live outside the United States, American workers would be the first to suffer as 'Buy American' provisions trigger retaliation by other countries - that is, 'Buy German', 'Buy Chinese', and so on,' said Mr Chris Braddock of the US Chamber of Commerce.

'We certainly aren't against companies and governments 'Buying American,' but we are against the government arbitrarily mandating such a requirement, because it would harm our economy in numerous ways,' Mr Braddock said, citing the trade wars that eventually sparked the Great Depression.

'The Chamber is absolutely committed to avoiding a replay of that disaster,' he said.

The House's 'Buy American' provision bars spending on any infrastructure project 'unless all of the iron and steel used in the project is produced in the United States'.

There would be exceptions if the head of the federal department or agency determines that applying the provision 'would be inconsistent with the public interest'.

Other exceptions would be made if there was an insufficient quantity of US iron and steel of satisfactory quality available and if inclusion of US iron and steel would raise the overall project's cost by more than 25 per cent.

The House's 'Buy American' spur also raised hackles in Canada, the United States's biggest trading partner, as well as in Europe.

'We want to avoid protectionism in this economic slowdown,' said Canadian Prime Minister Stephen Harper.

It is a 'serious concern to us,' he said, and so 'we're joining with all countries in the world to insist that the United States respect its WTO (World Trade Organisation) commitments.'

Under the North American Free Trade Agreement (NAFTA), Canada sells about 40 per cent of its steel to its southern neighbor.

Harper intends to broach the 'Buy American' issue with Mr Obama when the US president visits Ottawa on February 19, his first official visit abroad, Canadian Industry Minister Tony Clement said.

A European Union spokesman said it was premature to take a stance on a text that had not yet been seen.

'However, the one thing we can be absolutely certain about, is if a bill is passed which prohibits the sale or purchase of European goods on American territory, that is something we will not stand idly by and ignore,' said Mr Peter Power, spokesman for EU trade commissioner Catherine Ashton.

There was no immediate reaction from China, another major steel producer.

Mr Obama, who criticised international trade agreements, including NAFTA, in his presidential campaign, has wasted no time in taking a tough stance on trade since taking office on January 20.

The next day, the Obama administration branded China a currency manipulator, setting the stage for a trade war with the Asian giant which has overtaken Japan as America's biggest foreign creditor. -- AFP