As jobs vanish by the hundreds of thousands, the desire to intervene from politicians is only natural, an attempt to restore economic order and prevent social unrest. In capitals throughout Europe, workers protest and vow to remove politicians who fail to provide immediate economic relief. The US is no different, as the president and Congress race to save jobs with a stimulus package now valued at $900 billion. Lawmakers from states hit hardest by foreclosures, job loss and recession have attached “buy American” provisions to the bill. Likewise, bailout funding for struggling US auto manufacturers includes calls to buy US cars and other goods. “The world now needs leaders who can stay calm in the face of the raging storm and work together to stimulate their own economies without triggering a new wave of protectionism,” writes YaleGlobal Editor Nayan Chanda in his column for Businessworld. Such “Buy at home” campaigns are simply a short-term political fix that will surely invite retaliation from afar and compound the long-term economic pain. – YaleGlobal
Made in America
‘Buy American’ provisions may provide job security to some, but protectionism will stunt global trade
Businessworld, 6 February 2009
Intervention by the state to protect citizens of Western countries from the devastation of the economic crisis is beginning to slip into a protectionist groove that could, if unchecked, sink the world into a 1930s-style ‘depression’. Since that time, when the US ‘beggar thy neighbour’ policy was enshrined in the Smoot-Hawley Tariff Act, brought about economic ruin, the world has become so much more integrated that a trade war could cause incalculable social unrest and political convulsions.
A foretaste of the political fallout to come has been apparent in Europe in recent weeks. Normally placid Icelanders pelted their prime minister with eggs and stones for failing to prevent the collapse of the country’s economy. While Iceland government has collapsed, angry demonstrators in Bulgaria, Hungary, Latvia and Lithuania too threatened to bring down their governments. If that were to happen the successors would likely be more inward-looking ones, focused on insulating them from further foreign contagions. Should they succeed in doing so, however, they would ultimately usher in a new period of disastrous isolation and misery.
As the global financial crisis began on Wall Street, the eye of the protectionist storm could well be hovering above Capitol Hill. With the ranks of laid-off workers swelling daily and businesses hanging ‘going out of business’ signs in US towns, a rattled Congress has been feverishly drawing up legislation to save American jobs. As the stimulus package goes through Congress, lawmakers from the hardest-hit states have attached ‘buy American’ provisions to the rescue plan. For instance, $64 billion of the $825-billion stimulus bill is devoted to repairing US roads, bridges and waterways. Under amendments offered by representatives of states where uncompetitive US steelmakers have had to shutter their mills, strings have been attached to block the disbursement of allocated funds “unless all of the iron and steel used in the project is produced in the US.” Another amendment requires that any health information technology system acquired with taxpayer money must be produced by American programmers and engineers. As one sponsor of the amendment put it, “[t]his is a US jobs bill — let’s keeps those tech and IT jobs here.”
In the current mood of deepening crisis, moves to bail out US car manufacturers have also been accompanied by calls to buy American cars, even to buy only American in shopping malls. This seemingly logical and patriotic call to ‘buy American’ at a time of crisis runs up, however, against two realities. First of all, consumers will struggle to find any article of clothing, shoes, toys or electronics that are not made abroad or that do not contain foreign components. At a time when nearly all industrial products, certainly American cars, are built from foreign parts, if not manufactured wholesale in low-wage countries, the line between American and ‘foreign’ products has been entirely obscured. Would it be unpatriotic, for example, to buy a GM car if that car was made in Mexico? Secondly, the call to exclude foreign goods and workers from US government-funded projects could violate WTO rules. Under a Government Procurement Agreement signed by 28 countries, signatories are committed to procurement rules that do not discriminate against foreign products or suppliers.
The legal challenge aside, one unavoidable consequence of any ‘Buy American’ provisions in the stimulus package would be the retaliation from China, Europe and other countries now in the process of allocating government funds to boost their sagging economies. Concerned about the wider ramifications of this retaliation, US business groups and major companies such as Boeing, Caterpillar, and General Electric — have called on the Congress to resist such protectionist pressure.
Despite the lessons of history, the dangers posed by protectionism are often seen as a problem for tomorrow while saving jobs is a fiercely urgent task. The world now needs leaders who can stay calm in the face of the raging storm and work together to stimulate their own economies without triggering a new wave of protectionism.
The Great Depression that produced trade battles and contributed to the rise of strident nationalism culminating in World War II stands as a singular warning against the seduction of narrow nationalist solutions. ‘Buy American’ provisions may temporarily provide job security for some Americans, but the contagion of protectionism will stunt global trade bringing misery to Americans and rest of the world.
Nayan Chanda is Director of Publications at the Yale Center for the Study of Globalization and Editor of YaleGlobal Online.
Champions aren't made in gyms, champions are made from something they have deep inside them - a desire, a dream, a vision. They have to have last-minute stamina, they have to be a little faster, they have to have the skill and the will. But the will must be stronger than the skill. -Muhammad Ali I'll be more enthusiastic about encouraging thinking outside the box when there's evidence of any thinking going on inside it. - Terry Pratchett Not to be absolutely certain is, I think, one of the essential things in rationality. - Bertrand Russell What we think, or what we know, or what we believe is, in the end, of little consequence. The only consequence is what we do. Sometimes what's right isn't as important as what's profitable. - Trey Parker and Matt Stone There are only two kinds of people who are really fascinating: people who know absolutely everything, and people who know absolutely nothing. - Oscar Wilde Sometimes I lie awake at night, and I ask, "Where have I gone wrong?"/ Then a voice says to me, "This is going to take more than one night." - Charles M. Schulz There is nothing worse than aggressive stupidity. - Johann Wolfgang von Goethe The significance of man is that he is insignificant and is aware of it. - Carl Becker A lie can travel halfway around the world while the truth is putting on its shoes. - Mark Twain "If you know how to spend less than you get, you have the philosopher's stone." So said Benjamin Franklin more than 200 years ago. How much easier it is to be critical than to be correct. - Benjamin Disraeli Of course the game is rigged. Don't let that stop you--if you don't play, you can't win. - Robert Heinlein Ability will never catch up with the demand for it. - Malcolm Forbes No man remains quite what he was when he recognizes himself. - Thomas Mann No man needs a vacation so much as the man who has just had one. - Elbert Hubbard There is no pleasure in having nothing to do; the fun is in having lots to do and not doing it. - Mary Wilson Little Books to the ceiling,/ Books to the sky,/ My pile of books is a mile high./ How I love them! How I need them!/ I'll have a long beard by the time I read them. - Arnold Lobel Leif Ostling said in a statement that his comments about Germany had been "interpreted in a way that was not intended." If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts he shall end in certainties. - Sir Francis Bacon "It's not the voting that's democracy, it's the counting." - Tom Stoppard Elections are won by men and women chiefly because most people vote against somebody rather than for somebody. - Franklin P. Adams Invention is the mother of necessity. - Thorstein Veblen Don't try to solve serious matters in the middle of the night. - Philip K. Dick
Ich weiß nicht was soll es bedeuten Daß ich so traurig bin; Ein Märchen aus alten Zeiten, Das kommt mir nicht aus dem Sinn.
Die Luft ist kühl und es dunkelt, Und ruhig fließt der Rhein; Der Gipfel des Berges funkelt Im Abendsonnenschein.
Die schönste Jungfrau sitzet Dort oben wunderbar, Ihr goldenes Geschmeide blitzet, Sie kämmt ihr goldenes Haar.
Sie kämmt es mit goldenem Kamme Und singt ein Lied dabey; Das hat eine wundersame, Gewaltige Melodei.
Den Schiffer, im kleinen Schiffe, Ergreift es mit wildem Weh; Er schaut nicht die Felsenriffe, Er schaut nur hinauf in die Höh´.
Ich glaube, die Wellen verschlingen Am Ende Schiffer und Kahn; Und das hat mit ihrem Singen Die Lore-Ley getan.