Trade Policy Follies

by Pejman Yousefzadeh on May 26, 2009

In shocking news, protectionism still doesn’t work:

The Obama administration faces mounting pressure to wind back Buy American measures passed by Congress this year amid growing concerns that they hurt some US workers they were designed to help.

The measures, which were in the $787bn US stimulus bill, require any project funded with stimulus money to use only US-made steel, iron and manufactured goods.

An outcry from the US’s trading partners saw the bill amended at the last minute as the White House urged that it not contravene existing trade agreements. Some businesses and officials say that amendment is proving virtually meaningless in practice.

More than a third of the stimulus money is being disbursed by states and local authorities, which are not party to free trade accords such as the North American Free Trade Agreement.

Canadian manufacturers complain that their goods are being shut out of contracts funded by the US stimulus even though Canada is party to NAFTA, which prohibits discrimination.

In retaliation, some Canadian municipalities have passed “Do Not Buy American” resolutions to shut out US-made goods. That has rattled some exporters. Texas manufacturer JCM Industries told the Financial Times that it might have to lay off workers if the situation worsened.

Pennsylvania-based steel company Duferco Farrell has warned it might lay off 600 workers after its biggest client said it would cancel orders because Duferco’s goods, some of which have to be partly produced abroad, were not Buy American compliant.

Remember that the Administration basically stood by and allowed the “Buy American” provisions to be placed in the stimulus package at the insistence of Congressional Democrats. Apparently, our Lords and Masters still haven’t learned the lessons of Smoot-Hawley. The damage is going to be deep.

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