On Wednesday I poked fun at the hypocrisy of Vladimir Putin's Davos speech. Despite this, his warning on the dangers of protectionism should be heeded by policymakers, particularly in the US, especially now.
The US House yesterday passed the $819 billion stimulus package, known as the American Recovery and Reinvestment Plan (I love the use of the word "reinvestment", you just know it focus-grouped so much better than "exploding deficit"). The vote was along party lines; not a single Republican voted for the package. The debate over the contents and balance of spending/tax cuts is endless, and I won't wade into those waters here. But I am very troubled by one aspect of the bill: the now notorious "Buy America" clause (which, I must boast, I was all over from the beginning). What at first looked like a shameful attempt at backdoor protectionism, is now officially on the table. It passed.
We know that the House version of the bill is different from the one the President will ultimately sign. It is likely that many of the "pork-lite" programs will be shed to deflect widespread criticism over their relevance to the immediate economic crisis. But in all the partisan back and forth, I have yet to hear a passionate criticism of the "Buy America" clause. The Republicans are more outraged by $335m in funding for sexual health education and prevention programs. The silence on "Buy America" is dangerous and increases the likelihood that the clause remains in the final version. It also provides a fundamental test of Obama's trade policy, whatever that might be. Megan McArdle and Dani Rodrik agree.
Luckily, the European Commission has a bit of a problem with "Buy America" (Canada too). Peter Powers, Commission spokesman, warned, "If a bill is passed which prohibits the sale or purchase of European goods on American territory, that is not something we will stand idly by and ignore." Furthermore, the European Confederation of Iron and Steel Industries (Eurofer), a powerful lobby representing over 370,000 EU workers, has called on the EU to bring it to the WTO, saying, "Our view is that if passed this would be a clear violation of their WTO commitments on government procurement rules", and, "It is a protectionist measure which goes against the commitment made to the G-20 to keep markets open."
Dave was spot on when he said of this rising protectionism, "the real danger is that tariffs/bans on stuffed kittens and fancy cheese are the first snowballs that kick off an avalanche of protectionism that smothers trade and damages geopolitical relations." But what if that avalanche is exactly what we need? Could "Buy America", cheese duties, and stuffed kitten tariffs be the sparks that finally break the DDA deadlock? A rapid deterioration in the trading system could compel leaders to look past the modalities and embrace the central role of trade in saving the global economy.
Maybe. We've learned that a crisis is often necessary to force policymakers out of their comfort zones and stand up to powerful interests. At the very least, a little pressure from the across the Atlantic might bring US policymakers to their senses.
UPDATE: The FT reports that the "Buy America" clause is not present in the current Senate bill, but Senators like Sherrod Brown of Ohio are pushing for its inclusion. I mistakenly assumed it was.
(Photo: funkandjazz)
