At long last I can criticize my de facto home team. The “Buy American” protectionist measures in the Stimulus Package play to the weaknesses of the Dems – and populist Republicans.
Why are they so bad?
It’s not merely the hit on our economic productivity from our unilateral protectionism.
It’s not just the secondary effects of our trading partners playing the same suicidal game.
Those are bad, but they’re not the real problem with protectionism.
The real problem with a neo-protectionist global trade war is China.
Keeping China healthy, peaceful, prosperous, and engaged in a win-win world trading system is job one for any American administration. Forget pinworms like Al Qaeda, whack jobs like North Korea, Gazan plagues, and Putin’s follies – China is what matters*. If China goes down the tubes, and hundreds of millions of young brideless Chinese men become restless, our current problems will be small tubers.
Here’s what’s happening …
… Even economists who strongly support the stimulus package are dismayed by the protectionist measures contained within it.
"It looks like a very bad thing in the bill," said economist Brad DeLong, who worked on trade issues in the Clinton administration and teaches at University of California, Berkeley.
"Pressure from the Canadian government saying, 'Do you really want to do this?' is important."
Canadian officials have, in fact, been working behind the scenes to keep protectionist measures out of the economic stimulus package.
But they failed to stop the House version of the bill from including a provision banning the use of anything other than American-made iron and steel in projects funded by the stimulus package.
The Senate version of the bill would require that everything it funds use only American products.
The White House could try to convince the Democratic leadership to strip the anti-trade measures from the bill, both before it is voted on by the Senate and during the conference to reconcile the House and Senate versions of the bill.
If that fails, then Mr. Obama could issue what is called a signing statement saying the "buy American" provisions of the bill violate treaty obligations. That might effectively veto the measures
If there's little excess capacity in the U.S. steel industry--so that the price of steel is high enough to induce people to look outside for suppliers--then a stimulus won't be much needed. If there's a lot of excess capacity so that a stimulus is needed, then steel customers should be able to bargain prices down to marginal cost--in which case foreign producers will have an extremely difficult time competing on price given that steel is heavy and distances are great. "Buy American" seems mostly designed to allow the steel producers to collude and push their profits up--at the expense of American taxpayers.
Could Obama add a signing statement to the stimulus bill stating that the "Buy American" provisions conflict with our NAFTA and WTO treaty obligations and hence are void? I am not a trade lawyer, but my suspicion is no: neither NAFTA nor the WTO are self-executing, so any actions they call for or block are supposed to be implemented through duly passed acts of congress. Of course, NAFTA and the WTO are also treaties that are supposed to be kept.
If Obama did declare the "Buy America" provisions null and void in a signing statement, people could sue in U.S. courts to carry them out--and IMHO likely win. Then foreign governments could take the case to the NAFTA and WTO dispute-resolution forums--and IMHO certainly win. Better to strip the provisions from the bill now, or in conference.
A reformed GOP would be strongly against Protectionist suicide – and would listen to military advisers warning of the importance of a peaceful, prosperous China. Alas, the POL (Party of Limbaugh) is probably pushing this stupidity alongside the Dems.
* What about India? I have, maybe undeservedly, far more confidence in the resilience and health of India.