Tuesday, February 10, 2009

Trade war coming?

It's gotten a little attention, but not enough focus, I think. One of the hidden gems in the $800-billion (or so, still subject to negotiation) "stimulus" package is a "Buy American" provision that could trigger -- or help to reinforce what some other benighted countries are doing or contemplating actively -- a trade war. The provision would require infrastucture projects to use American-made steel. It was amended slightly in the Senate so as to say explicitly that it wouldn't be interpreted in a way that would violate existing trade treaties. But it still got the trade ministers at Davos up in arms. And even with the amendment, it would seriously restrict imports from China, India, Russia, Ukraine anbd Turkey, which are not yet WTO members.

The U.S. passed the Smoot-Hawley tariff in 1930, which seriously contributed to deepening the Depression. Some countries have already restricted exports of food in response to last year's food crisis, which is partly attributable to ethanol subsidies and mandates in the U.S. and some Western European countries. Countries are always tempted by protectionism in an economic downturn, and when they succum it always makes the downturn worse. Oh, what tangled webs we weave when we restrict and try to micromanage!

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