“Buy American” Clause Unites U.S. and European Media in Anger

The U.S. and European media showed unusual unanimity in their response to the inclusion of a "Buy American" provision in the $900 billion stimulus package currently before the U.S. Senate, following adoption of a slightly smaller measure in the House last week. The clause endorsed by the House would require public works projects funded by the stimulus bill to use only U.S. iron and steel, while the Senate version extends the restriction to all manufactured goods.

In the United States, publications such as The New York Times and The Christian Science Monitor  ran strongly worded op-eds admonishing Congress for having apparently been persuaded by American steel industry lobbyists to insert the "Buy American" clause into the bill. The Christian Science Monitor piece cites research by the Peterson Institute for International Economics suggesting that, depending on the version of the provision, 1,000 to 9,000 new jobs might be created, but the blocking of U.S. exports by retaliatory measures in other countries could lead to far greater American job losses. The New York Times article by Dartmouth College economics professor Douglas Irwin points out that U.S. companies such as GE and Caterpillar oppose the provision as it might prevent them winning contracts abroad, further hurting American workers. Time magazine's report describes trends toward protectionism in Europe in response to the global economic downturn. Italian Trade Minister Adolfo Urso is quoted saying that risks stemming from a "Buy American" provision are not only European retaliation against the United States but potentially serious divisions within the European Union.

European op-eds and news reports reflect similar anxiety over the "Buy American" clause, warning that it has the real potential to cause a spiral of protectionist legislation that could lengthen the recovery time of the world’s economies. The Times of London and The Daily Telegraph both report that EU and Canadian officials sent strongly worded letters to Senate leaders, warning against "entering into a spiral of protectionist measures around the globe that can only hurt economies further." The Independent says that the "Buy American" provisions could "trigger a disastrous trade war." The Independent is among the few European newspapers to mention that Vice President Joe Biden did not see the provision as a "harbinger of protectionism," although several European reports have suggested that President Barack Obama is concerned about the provision. Like the British papers, French daily Le Monde stresses how detrimental such a provision might be to global trade and that it will possibly harm the "carefully cultivated" popularity of President Obama abroad. The Financial Times Web site carries a lengthy op-ed blog entry by London School of Economics Professor Willem Buiter, a former chief economist of the European Bank for Reconstruction and Development, who links the wave of protectionist leanings among the G-20 major economies to many economic challenges facing the world and Europe today. Buiter says:

The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause.  If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.

The Financial Times, in an analysis similar to the one published by Time magazine, says that Europe will find it hard to implement protectionist policies by the traditional means of raising tariffs, because of EU and WTO commitments. But it warns that other kinds of protectionism, in the guise of "economic nationalism," are cropping up around Europe, as well as dangerous new forms of financial protectionism.