IT didn't last long, the lofty pledge by leaders of 20 top economies last November to refrain for at least a year from erecting new trade barriers. A “Buy American” clause in the big stimulus bill before Congress is causing howls from major US trading partners and posing a difficult early challenge for President Barack Obama. The provision has strong support among congressional Democrats and labor unions, and clear popular appeal in the midst of economic distress. But it is opposed by many Republicans, business groups and economists who warn it could provoke trade retaliation and thus further deepen the global downturn, much as protectionist legislation did in the 1930s. “If we refuse to buy foreign-made goods, then our trading partners will refuse to buy from us,” said US Chamber of Commerce President Thomas Donahue. Not only in the United States but around the world, leaders are facing intense domestic pressure to protect jobs and homegrown industries. Economic dismay has worsened since the Group of 20 countries pronounced their opposition to trade barriers at their meeting in Washington. The bill that passed the House of Representatives last week would require the use of American-made iron and steel for public works projects paid for with US tax dollars. The Senate is debating even stronger language that also includes “all manufactured goods.” It puts Obama in a tricky position as he tries to win support for an economic recovery package totaling more than $900 billion. Flat-out rejection by Obama could alienate Democrats. On the other hand, his acceptance of strong language would antagonize economic partners; some say it could risk new trade wars. Without commenting specifically on the House or Senate language, Obama told Fox News on Tuesday night, “We can't send a protectionist message.” He told ABC it was important that “any provisions that are in there are not going to trigger a trade war.” Supporters argue such provisions are similar to ones that have been on the books for decades in government procurement policies and would not violate international trade obligations. “We frankly believe this is a lot of bluster,” said Scott Paul, executive director of the Alliance for American Manufacturing, a union coalition that backs the provision. White House spokesman Robert Gibbs said Obama remains open to suggestions for wording. “The balance he wants to strike is to continue to get our economy going without unnecessarily starting something with trading partners all over the world and global partners that will hinder getting our economy moving again,” Gibbs said Wednesday. European Union officials have indicated they might file a complaint with the Geneva-based World Trade Organization if the United States should enact such a provision. John Bruton, the EU's top diplomat in Washington, warned congressional and administration officials of “a spiral of protectionist measures around the globe that can only hurt our economies further.” The Group of 20 nations meets again in early April, in London. Part of the agenda will be discussed when Treasury Secretary Timothy Geithner meets in Rome this weekend with his counterparts from Britain, Germany, France, Japan, Canada and Italy. Some critics of the Buy American provision suggest it contains echoes of the Smoot-Hawley Tariff Act signed by President Herbert Hoover in 1930, which raised US duties on thousands of imported goods. Other nations retaliated by raising their own barriers on US goods, leading to a collapse in international trade that worsened the Great Depression. The United States is not the only nation considering measures to protect home industries and jobs. British banks receiving government money have been asked by the government to lend only to British-based companies and individuals. The EU is renewing subsidies on some dairy products to protect its farmers. Indonesia last month raised new trade barriers on various manufactured imports. And China launched its own multi-billion-dollar stimulus package that envisions using China-made steel in scores of public works projects. The centrist Peterson Institute for International Economics this week released a study that found the Buy American provision could end up costing more new jobs than it creates. Economist Gary Hufbauer, an author of the study, said in an interview that the US action “will be seen as a license to other countries to do their own protectionist measures. The US has always preached open markets and open trade. And now the United States is violating its international commitments.” “Do I think we'll go down the ‘30s road?” he said. “Certainly, one hopes not. One hopes there's a lot of good sense and a lot of rules that have to be trampled on, and countries won't follow that path.” Congressional defenders of the provision dismiss talk that it will spark trade wars, noting it deals just with government spending practices and does not raise a single tariff on foreign goods or services. Democratic Sen. Charles Schumer said a Buy American clause “doesn't bother me much” in that it's part of “a stimulus package that's supposed to create American jobs.”
