Barack Obama, the newly elected president of the US echoed the concerns of economists and trade partners across the world while he said ‘buy American’ as part of the clause to the approval of mega Economic Recovery Package (ERP) would spark off trade wars. Obama’s statement came close on heels to the objections from the EU, France, Italy and its other trade partners at a TV interview.
The umbrage followed after the Senate tabled a bill which stipulated the use of the US-made iron and steel in all public-works projects, and plans of extending the same to all manufactured goods. In short, the ‘buy American’ clause in the nearly $900bn ERP, rule out any business opportunity to its trade partners overseas.
The European Commission, the executive wing of the EU earlier has threatened the US stating that they would take stern action against this bill at the WTO if the US passes it in favour of protectionism. Besides, the US will have to face consequences in the form of similar protectionist restrictions from their trade partners, while pushing the world to 1930’s situation when countries competed one another by increasing tariffs on imports.
John Bruton, the European Commission’s ambassador to Washington took strong exception to the proposal by saying that the bill did not make any economic sense and the US would be getting less of a bang for the buck and less stimulus for the stimulus. Nonetheless, some trade experts argued that ‘buy American’ did not violate any WTO rules as this was long been in there in the US law.
In another interview, Obama reiterated he wanted to avoid any steps that would “signal protectionism” or risk fueling trade tensions. However, his statements were in direct contrast to the interests of the congressional Democrats and trade unions. Industry observers say that if approved, the ‘buy American slogan is likely to further delay crucial public works due to extra bureaucratic workload and existing complicated contracting formalities. Crisis management experts were of the opinion that since every country was integrated to the global economy and dependent on one another post globalization, any protectionist measures by major economies would only add on to the ill-effects of the world economic crisis.