'Buy American' bill risks trade war and drift to protectionism

Barack Obama supported a “Buy American” campaign while running for the White House and even distributed campaign buttons and flyers with a special emblem declaring his support.

But now, as the US Senate moves today to vote on a proposed $1 trillion economic stimulus law backed by the President, there is rising concern the protectionist Buy American provisions in the bill could trigger a disastrous transatlantic trade war.

The American trade unions which enthusiastically backed Mr Obama’s economic platform on the campaign trail are demanding payback in the form of protectionist provisions that will ensure the largest government spending programme in history is focused almost exclusively on US manufacturers.

Democrats in the Senate have responded to public pressure to safeguard American jobsby stuffing the package with even more Buy American regulations than members of the House of Representatives had sought. The Senate is demandingthat federal moneyfor federal projects is only spent on goods and services made by US producers.

The Vice-President, Joe Biden, added to international concerns when he said: “I don’t view [the Buy American provisions] as some of the pure free-traders view it, as a harbinger of protectionism.” Last week the House of Representatives version of the bill stirred alarm in the EU and Canada by demanding that all iron and steel bought to rebuild the country’s crumbling infrastructure has to be American made.

Anxious lobbying by the EU has fallen on deaf ears as explicitly protectionist language was added to the Senate bill leaving it open to legal challenge under the rules of the World Trade Organisation.

The House of Representatives passed the bill last Wednesday without Republican support, and the Senate version must pass before Mr Obama signs it into law.

With the economy deteriorating by the day, Mr Obama finds himself torn between popular anger on Main Street, and promises made to the G20 that he will avoid a descent into protectionism. But with growing opposition to the stimulus package from Republicans, who want tax cuts rather than government job creation by spending on infrastructure, politicians from both sides are rallying around the popular Buy American measures.

Byron Dorgan, a Democratic Senate leader from North Dakota, said it was “absurd for somebody to suggest we’re protectionist”.

“You mean like the French wanting to make sure that their stimulus promotes jobs in France?” he asked, “Well, that’s what the French are doing.”

Big multinational corporations, including Caterpillar and General Electric which depend on foreign manufacturing plants, have launched a rearguard attempt to remove the Buy American provisions from the bill. The Emergency Committee for American Trade, another lobby group, is sending out shrill alarms that the stimulus bill could trigger a trade war that would ultimately damage American interests.

“Protectionism is the crackcocaine of economics. It may provide a high. It’s addictive and it leads to economic death,” said Richard Fisher, president of the Dallas Federal.

Europe and Canada have also sent shots across America’s bows. Canada’s Prime Minister, Stephen Harper, who is about to welcome Mr Obama on his first foreign trip as President, said the bill “goes against the spirit of free trade and the US shouldn’t forget its “international obligations to liberalise global commerce”.

The European Union warned that it will not “stand idly by” if the ban on steel remains in place