The stimulus bill has many shortcomings — too much pork, too little real infrastructure spending,  and insufficient tax cuts. But it also might be the equivalent of the Smoot-Hawley tariff act. The Washington Post explains:

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the “Buy American” provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

For a President committed to improved international relations, it seems a poor move to pass a bill that would violate a raft of recent trade deals. And on the economics it is perhaps the single most dangerous action the new administration could take. While economists may differ over the efficacy of New Deal Keynesian spending, few question that protectionism deepened and prolonged the Great Depression.

American business leaders are rightfully fretting. Caterpillar, which was  represented at the White House PR show in support of the stimulus, is one of the companies that stands to lose the most. The Post reports:

“There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas,” said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar’s sales — including big-ticket items like construction cranes and land movers — are sold overseas.
“Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism,” Lane said. “It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression.”

The White House says it is “studying” this provision. But this, once again, is what comes from taking a back seat to Nancy Pelosi’s bill drafting. The White House, rather than presenting their own version of a stimulus, deferred to Pelosi. Now, among its other problems, will be the challenge to address the Buy American measure – which could spark a trade-war with allies and contradict Obama’s new charm offensive with the rest of the world.

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This entry was posted on Thursday, January 29th, 2009 at 12:41 PM and is filed under Contentions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.