Trade War – The "Buy American" clause in the stimulus package

The EU sent out a stern warning to the US today over part of the proposed stimulus package. Protectionist measures in the package worry many nations of the European Union and Canada. Last week the House moved to require that only US iron and steel be used in the infrastructure projects in the $825 billion stimulus package.

Concerns of a trade war had been voiced by members of the House and Senate. “I don’t think we ought to use a measure that is supposed to be timely, temporary and targeted to set off trade wars when the entire world is experiencing a downturn in the economy,” McConnell said. “It’s a bad idea to put it in a bill like this, which is supposed to be about jump-starting the economy.”

The CEO of Fed-Ex stated, “If the Congress passes this Buy American provision, I can assure you – and we operate in 220-some-odd countries around the world and are a huge part of the import-export infrastructure of the United States – we will get retaliation, and it will be American jobs at risk.”

The EU isn’t just spouting hot air. They mean business.

EU Ambassador to Washington John Bruton said that, if passed, the measure could erode global leadership on free trade. “We regard this legislation as setting a very dangerous precedent at a time when the world is facing a global economic crisis.” Canada’s ambassador to Washington warned Senate leaders that if Buy American was in the final legislation, it would set a negative precedent with global repercussions. “The United States will lose the moral authority to pressure others not to introduce protectionist policies,” Michael Wilson wrote in a letter to the senators. Canada was hoping to be exempted from any Buy American measures, said International Trade Minister Stockwell Day. “These protectionist measures, in a time of recession, only make things worse,” he told broadcaster CBC. “It can only trigger retaliatory action and we don’t want to go there.”

I hope Congress realizes this wont protect our businesses. We aren’t the only one’s suffering. The whole world is. In this recession we need to be promoting trade, not hindering it. “Trade is the best economic stimulus,” said Doris Leuthard, the Swiss economics minister. If trade is the best stimulus, then protectionism would be the worst.

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