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Global Scale by Coletta Kemper No Quick Fix

“Buy American” sounds patriotic, but it would only plunge our economy deeper into the abyss.

By  Coletta Kemper

At the risk of sounding un-American, I have serious reservations about the protectionism fervor that is sweeping the country under the guise of “Buy American.” Buy American sounds good—like motherhood and apple pie.

Buy American products and save American jobs—the equation sounds simple. But in today’s globalized world, the answer is anything but simple, a lesson governments are learning as they struggle to deal with the financial crisis and get their economies back on track.

It’s not surprising that “Buy American” fever has reared its head at this point. In tough times, it’s only natural to hunker down and circle the wagons. Americans are fearful for their futures, and who can blame them? Millions are losing their jobs, facing foreclosure on their homes and watching their retirement accounts plummet in the worst economic crisis since the Great Depression. And to make matters worse, there is no end in sight.

In the meantime, Americans are desperate. They want jobs and futures for their children, and they are looking for someone to do something about it.

The recently passed $787 billion economic stimulus package contained a “Buy American” provision that threatened to touch off a global trade war if cooler heads hadn’t prevailed in the debate in Congress. The provisions were aimed at increasing jobs in the iron and steel industry by requiring the U.S. government to use American products in public works projects. That sounds reasonable. If the government is spending trillions in taxpayer money to right the economy, then it darn better include jobs for American workers.

One problem is the U.S. has trade agreements with Canada, Mexico, the European Union and other countries that allow them to compete for American procurement projects and vice versa. If Congress had approved the initial “Buy American” plan, it could have violated some of our trade agreements with our best trading partners.

But after President Obama wisely warned that the provisions could spark a trade war, the Senate pulled back and approved an amendment to the bill requiring the “Buy American” provisions to be “applied in a manner consistent with U.S. obligations under international agreements.” The move was to reassure trading partners that the U.S. wasn’t backing away from its trade agreements or its support for world trade.

Even American business opposed the provisions. The Emergency Committee for American Trade, a coalition of U.S.-based corporations and more than 125 business and trade associations, said the “Buy American” plan could trigger trade restriction measures from other countries.

During a February trip to Canada, Obama tried to further reassure trading partners saying, “Now is a time where we have to be very careful about any signals of protectionism.” He added, “I’m quite confident that the United States will respect those obligations and continue to be a leader on the need for globalized trade.”

But the issue goes far beyond fear over a trade war. History shows us that retaliation is painful for the economy. Former presidential candidate Sen. John McCain, R-Ariz., warned that the provisions smacked of “the disastrous Smoot-Hawley tariff act,” a reference to a law passed by Congress in 1930 in an effort to protect American jobs during another world economic crisis. Under that misguided effort, the U.S. raised tariffs on more than 20,000 imported goods. Foreign governments retaliated in kind, and the volume of American exports plummeted nearly 50% between 1929 and 1930. American exports to Europe plunged from $2.3 billion in 1929 to $784 million in 1932, according to the U.S. State Department. The economic impact was disastrous and helped prolong the Great Depression.

As economic conditions worsen worldwide, pressure on governments to protect jobs and industry at home is building. The Washington Post reports that Japan is facing the worst decline in 35 years, Britain the worst in nearly 30 years. Germany’s economy is in the worse slump of almost 20 years. While China’s economy is still growing at 6.8% annually, unemployment and fears of unrest are rising. More than 30 nations have erected new trade barriers since last November when the G-20 met in Washington to discuss the financial crisis and world trade.

Looking for a way out, countries will try to export their problems to other countries.

President Obama makes a good point on that subject. “I think that if you look at history, one of the most important things during a worldwide recession of the sort that we’re seeing now is that each country does not resort to ‘beggar they neighbor’ policies, protectionist policies, that can end up further contracting world trade.”

The debate over protectionism is far from over and will only grow more contentious as the economic crisis deepens. We all want to find ways to create jobs and get people back to work. It will take courage to stand against the current of protectionism and not trade off short-term fixes for long-term economic security.

Kemper is The Council’s vice president of Industry Affairs.
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