‘Buy American’ plan sparks warnings

US trading partners alarmed at protectionist clauses tied to economic stimulus plan.

us steel construction
The proposed stimulus plan will favour US-made steel over imports [GALLO/GETTY]

On Wednesday Australia added its voice to growing concerns over the bill, with the country’s prime minister warning that such a move would throw “a spear at the heart” of the country’s economy.

“Protectionism just effectively throws a spear at the heart of the economy because so many of our jobs are generated by the trading sector of our economy,” Kevin Rudd, the Australian PM, said in a radio interview.

Rudd’s comments follow concerns from Canada, America’s top trading partner, which is seeking assurances that they will not be affected by the “buy America” provisions in the stimulus bill, and with the hope of seeking an exemption.

Clause under review

“We can’t send a protectionist message”

Barack Obama,
US president

Canadian officials said the clauses would breach Washington’s free-trade commitments, and possibly set off a retaliatory trade war.

US officials have responded to Canada’s concerns but gave no guarantees of any exemption, prompting Stockwell Day, the Canadian trade minister, to say that they will “keep the pressure up”.

Commenting on the controversial “buy American” provision in TV interviews on Tuesday, Obama said that the terminology will be looked at.

“We can’t send a protectionist message,” he told Fox News, without commenting specifically on wording.

Speaking in another interview with the ABC network he said it was important to ensure that “any provisions that are in there are not going to trigger a trade war”.

Negative impact

Obama is facing a tough battle to get the stimulus measures approved [EPA]

As the senate debated the nearly $900bn stimulus plan this week a new study warned about the implications of using such language in the economic recovery bill.

“The negative job impact of foreign retaliation against ‘buy American’ provisions could easily outweigh the positive effect of the measures on jobs in the US iron and steel sector and other industries,” Gary Hufbauer and Jeffrey Schott, senior fellows at the Peterson Institute for International Economics, said in a report released on Tuesday.

Robert Gibbs, a White House spokesman, told reporters the Obama administration was still reviewing its position on the Buy American provision.

Trade concerns

On Monday governments of both the EU and Canada sent letters to members of the congress calling for the provision to be dropped.

“If buy America becomes part of the stimulus legislation, the United States will lose the moral authority to pressure others not to introduce protectionist policies,” Michael Wilson, Canada’s ambassador to the US, said in the letter to senate leaders.

“A negative precedent set here in the United States can have repercussions around the globe and could provoke debilitating beggar-thy-neighbour policies,” Wilson said, adding that Canada had deliberately avoided including any new protectionist measures in its own stimulus plan.

Echoing similar concerns John Bruton, the EU’s ambassador to the US, told Reuters in an interview that Obama had “a major opportunity to give leadership to the world” that few US presidents have had.

“If the first major piece of legislation that he signs is one that is seen as damaging the economic interests of other countries in a way that is unnecessary and wasteful, then his capacity to give the sort of leadership the world needs at this time is considerably and unnecessarily reduced.”

Source: News Agencies