Editor’s Pick
JANUARY 29, 2009 11:46PM
"Buy American" stimulus provision is bad news for US, Canada
I've just read a story about the US stimulus bill from a Canadian point of view. The facts are:
- The stimulus bill, as passed by the US House of Representatives, includes a provision that any projects funded by the stimulus money need to buy only US-produced steel and iron
- The version of the bill pending in the US Senate includes a provision that is much broader - any projects funded by the stimulus money need to buy American for all their materials and equipment.
- Other countries are not at all happy about this - the story I read mentions responses in Canada and the European Union.
I'll get my more controversial comment out of the way now: Although protectionism is more popular with the liberal crowd in the US (relative to the conservative crowd there), the sentiment underlying this action is the same American exceptionalism and arrogance that explains Bush's adventurism in Iraq and its widespread popular support among Americans until a few years ago. [I'm not claiming that the "buy American" provision is in the same ballpark of immorality and stupidity as the invasion of Iraq, just that they both have American exceptionalism underlying them.] There seems to be a complete failure to even consider how the impact of this measure on other countries will affect the global economy and come back to hurt the US economy.
- I've heard lots of proposals from the left in the US for "fair trade" measures - for example, targetted tarrifs against certain goods from certain countries that have lax labour or environmental protections, to bring the costs of those goods up to what they would be if reasonable labour and environment standards were in place. I'm not an economist, but those sound like they might be good ideas to me. The measure in the stimulus bill, however, is blanket and blatant protectionism.
“I know that countries around the world are expressing grave concern about some of these measures that go against, not just the obligations of the United States but, frankly, the spirit of our G20 discussions,” [Canadian Prime Minister] Harper said.
- This sort of measure could likely lead to retaliatory measures: Canada, the EU, and other jurisdictions could enact similar measures, reducing the foreign demand for US steel and other goods. I think that this is the biggest practical argument against the measures. It is also the main justification for my claim that the measures are a manifestation of American exceptionalism: that fact that other countries would be pissed off and that they could very well enact retaliatory measures just hasn't been a big consideration, apparently.
Already, there are some American companies expressing concerns about it, about potential retaliation if this were to go further.
“It's bad for Canada, it's bad for the U.S., it's bad for the global economy," [Perrin Beatty, president of the Canadian Chamber of Commerce] said. "When you see people engaging in protectionism at the time of a recession, the fear is that other countries will retaliate as well."
It would leave U.S. taxpayers paying higher prices for public works and could spark "tit for tat" in trade policies, he said.
"The temptation will always be there for someone to say, 'Look, somebody has put up a barrier against us; we will put up a barrier against them,' and everybody loses as a result," he said.
- This measure is almost certainly illegal. The US has treaty obligations, under NAFTA and WTO to name two important ones, and my understanding is that under the US constitution treaties are a higher law than anything else except the federal constitution itself.
[Canadian] Industry Minister Tony Clement also did not hide his unease.
"We're always concerned when there are protectionist pressures in the United States," he told CBC News.
"The U.S. Congress is a place where you get manifestations of protectionist pressures, there's no doubt about that," he added.
"At the same time, the United States has treaty obligations that they have signed on to — NAFTA is one, the World Trade Organization is another — and we expect the United States to live up to its treaty obligations of open and fair trade."
In Brussels, the European Union warned Thursday that it would protest the provision, the Associated Press reported. Europe will not "stand idly by and ignore" a provision that "prohibits the sale or purchase of European goods on American territory," EU spokesman Peter Power said.
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Joan Walsh
Kerry Lauerman
Salon.com
Comments
Yes, I had that in mind while I was writing my post. Not just "not honouring" its treaty obligations, the US went out of its way to violate them for years, also ignoring several NAFTA and WTO arbitration rulings against them, and then finally "settling" the matter by giving Canada a payment that is a fraction of the total damage done and the duties imposed.
As an aside, I think the new (at that time) Conservative federal government in Canada was right to accept the settlement, because that was the best we could hope to get from the US.
I think it's worth pointing out that I think this is probably THE most fundamental between Canada and the U.S. (I'm drawing a lot from a recent book by John Raulston Saul) Canada, since it's beginnings, has always been a country anchored in treaties. Since 1701 with treaties New France signed with the Indian nations, and then 1763 with the treaties between the French settlers and the new British overlords. Those treaties have broken again and again, but they've always been there as legal fact. This is why Canada has always worked more like an ongoing project of civilization than the more insular nationalist model of the U.S. It'll be interesting to see how this plays out.
Then again, a vigorous debate about the consequences on national economies from globalization is long overdue. Free trade may benefit a nation, but we haven't really figured out how to make sure it benefits every citizen.
this whole idea of stimulus is insane. economic policies that were not sustainable were allowed, encouraged, to enable the smarties to get rich and hell with the country. after looting the nation, the smarties pocket the swag and cry "we need money, money, or the nation will be rooned!" and money is found: the taxes of generations to come.
americans put up with this, generation upon generation. dumb!
The sky is not falling, and this argument rings only true if you're reading too much into this weeks issue of the Economist (?). The EU has an interest, as a steel producer and manufacturer.
The better question would be, from a Canadian viewpoint, is why Canadian government isn't encouraging the building of infrastructure and manufacturing in Canada, instead of focusing solely on the two primary economic activities I previously named.
This sounds, DonOntario, like a lot of shouting for nothing. And quite frankly, we have more problems than those that president of the Canadian Chamber of Commerce or Harper have an eye on. So, I suggest you look out your window, put your jacket on, and start walking those alleys and streets of your city.
Couple of things you probably don't know about the US. Number one, getting a job making a living wage without a four year college degree is next to impossible. Number two, we're broke. To be more accurate, we wish we were broke, we're actually at the bottom of a deep red sea. Number three, we're on the short path to bloody revolution down here. The majority of the population is struggling to stay above the poverty line while the elites drone on about "international trade benefits everyone". We've had twenty years of NAFTA, it hasn't benefited working people at all, in fact it's a large part of why we find ourselves fighting over jobs that wont pay our electric bills.
So, if Americans tend to look at your post and shrug, it's because we've been screwed by our government for the last twenty years, maybe it's your turn...
According to Wikipedia, the US is the third largest steel producer in the world, at 97.2 million metric tonnes in 2007, and Canada is the sixteenth biggest producer at 16.4 million tonnes. So it seems that steel production is a bigger part of the Canadian economy than the US economy, since those numbers work out to 0.5 tonnes of steel per person in Canada and 0.3 tonnes per person in the US. Of course, steel production isn't a huge part of either country's economy, and it's nothing compared to the auto and parts manufacturing or forestry industries in Canada, but I don't agree with the claim that these measures don't impact Canada because steel is big in the US and insignificant in Canada, relatively speaking.
"The sky is not falling, and this argument rings only true if you're reading too much into this weeks issue of the Economist (?). " You're right, of course. (Except about the Economist, which I haven't read.) This is certainly not the end of the world or even necessarily the start of a trade war.
"The better question would be, from a Canadian viewpoint, is why Canadian government isn't encouraging the building of infrastructure and manufacturing in Canada, instead of focusing solely on the two primary economic activities I previously named. That is a good question. In many respects, Canada has a third-world economy in many of our most important sectors, with a first-world standard of living (for now). I don't think that protectionism is the way to change that, but even if I did I wouldn't want Canada to unilaterally violate our treaties and international obligations, especially at a time when we've agreed with many other countries to make coordinated efforts to intervene in our financial markets and economies, as the US is possibly doing with the "buy American" provision in the stimulus bill.
"This sounds, DonOntario, like a lot of shouting for nothing." I hope so. I may have picked up the habit of getting political agitated over meaningless things during the years I lived in the "Excited States".
The United States has generally been the patsy saying, yeah, free trade! Go ahead and ship here!
Take China, for example. Their stimulus package requires everything to be bought from Chinese manufacturers.
If the rest of the world wants to protect their industries, then the United States should do the same.
Don't like it?
Then drop your trade barriers first.
It's time the United States stops being the world's patsy.
I do take exception to your last sentence, though. ("So, if Americans tend to look at your post and shrug, it's because we've been screwed by our government for the last twenty years, maybe it's your turn.") I don't see how the US government screwing over its own people, no matter how badly or for how long, justifies the US government screwing over other countries.
I believe that is true of China and many other countries. But it is not true of countries with which the US has free trade treaties, including your biggest trading partner. If the US wants to go tit-for-tat with China, I haven't got a problem with that. But NAFTA has specific prohibitions against governments giving favourable treatment to bids from their country's companies. Making a blanket restriction that doesn't consider which foreign country steel or equipment comes from isn't right.
And Canada isn't the US's largest trading partner by some narrow margin. The total trade that goes over one bridge between Detroit, Michigan and Windsor, Ontario is greater than all the trade between the US and Japan.
If you advocate free trade you become demonized as being against unions and for the lining of corporate profits. In actuality it is the reality of globalization and the pivot from a manufacturing economy into an information one.
It renders a lot of traditional economic political thinking moot.
Try selling that it, however.
This stimulus package is a United States Stimulus package paid for by United States citizens to get our economy back up and running again after eight years of cronyism and illegal wars sucking the life out of our system. We can not stimulate the rest of the worlds economy any more after these past eight years of thievery by our previous administration (like we have been able to do for the past 80 years) until we get our ship back into shape. When our economy is running again, the world's economy will then be able to again be stimulated by the USA's very own economy.
For eight years, we have lost our manufacturing jobs (and our ability to defend ourselves since the manufacturing of computer chips down through the steel industry have left our shores.)
The US taxpayers' funds being spent are to shore up the US economy, not Canada's, not China's, not Iraq's, not anyone else's. So, putting a restriction on what can be purchased by US funds (rather US debt) NEEDS to be from US manufacturers is the whole purpose of the bill.
By putting our economic house in order first (and faster with the buy US stipulation) we'll be able to then purchase more foreign goods sooner than if this economic stimulus funds go to shore up some other country's economy.
So I'm not advocating a trade war with Canada. Although I would like to see sanctions placed on importing anything with Celine Dion.
But if we're going to take money from American taxpayers and spend it to stimulate our economy, we should make sure that we create as many jobs as possible within the United States. The same should happen if a stimulus bill gets enacted in Canada. The goal should be to create as many Canadian jobs with Canadian taxpayer's money.
By requiring that money be spent with American manufacturers, we do this.
I think it's only fair. It's not protectionism. It's spending the country's money to best create jobs in the country.
Will "buy American" restrictions in the stimulus bill actually create more US jobs and better stimulate the economy? Or will effectively increasing the costs of materials and equipment for stimulus-funded works and infrastructure just mean fewer projects get funded and so fewer jobs are created? I actually don't know, but even accepting the logic of the "buy American" restrictions for the sake of argument, it's too bad that the mainstream left in the US is, to paraphrase Obama's inaugural address, as willing to sacrifice their ideals (rule of law, multilateral international action) for the appearance of economic security, as the right has been for national security.
It sounds to me like some of the (very few) Americans who bothered to post here seem to think that the US was almost doing Canada a favour by signing NAFTA, that this trade agreement was altruistic.
But many, many Canadians, especially those leaning to the left and many moderates, as well (but not the multinational corporation 'champions' and globalization of business and trade idealogues) were very fearful and opposed to NAFTA. Despite Mulroney ramming it through, there was a lot of opposition.
There was even a rather short-lived party led by Mel Hurtig whose main platform was how NAFTA was all in the favour of the US and would end up screwing Canada. Many Canadians were especially concerned with how it would affect our national resources, and give the US unlimited access to our water supply. My understanding is that it takes away some of our sovereignty over our natural resources. Using the water example, once we are supplying the US with a certain amount of water, we have a contractual obligation to supply at least that amount if the US still wants to purchase it... even if Canada is facing a water shortage!
I don't live in BC, but I certainly recall the softwood lumber dispute emma peel refers to. Even with the dispute mechanism in NAFTA (and WTA) deciding in Canada's favour again and again and again... the US ignored the findings and just went up to the dispute board one more time. As emma says, it killed the forest industry in Canada.
Many others felt the terms greatly favoured the US. Even the Canadian ambassador to the US, who had negotiated with his US counterparts on the terms of the agreement, was not enthusiastic about it after the deal was done, and felt he had been browbeaten to accept some terms that were far more beneficial to the US than to Canada. His lame defense was that it was the best deal he could get, under the circumstances.
Mexico had many of the same concerns about NAFTA that Canada had. I have heard some Mexican activists speaking here in Canada about what a bad thing NAFTA was for the average Mexican worker.
I can empathize with Americans who are anxious and concerned about the state of their economy, job losses, housing losses and the enormous deficits. I 'get' where this is coming from.
But also find it interesting that so many Americans on the left can see how detrimental it is for the US to act unilaterally and selfishly when it comes to foreign policy and military actions, war against Iraq... ignoring the messages from other democratic nations ala the Bush regime. But the same Americans on the left cannot see the parallels of ignoring the voices of other democratic nations when it comes to these kind of trade issues and treaty obligations.
Sorry for the long post...
"We can't be protectionist, our industry depends on foreign markets and international materials." He wasn't an economist by any means, just a factory foreman.
The way I see it, it's gonna be impossible to keep companies like this manufacturing giant going without continued and really open free trade.
How can Caterpillar "create" jobs when the foreign market for its products has dried up? Ditto General Motors or any other U.S. product. Infrastructure projects should help a great deal in Caterpillar's case, IF they manage to get off the ground soon...but we'll be seeing a lot more of the same (job losses) if the "isolationists" come to rule the economic roost.
Just MHO, though...
About six years ago the United States slapped 'anti-dumping' restrictions on European and Japanese steel. The WTO eventually gave the European Union the green light to retaliate against those illegal measures--which forced President Bush to back down.
It would be American exceptionalism if -- for example -- the reasoning behind it was "American steel is the best steel on Earth, and doesn't the greatest nation on Earth deserve the best bridges on Earth? How can you build the best bridges on Earth without using 100% pure American steel, forged in the crisp, mountain air of the Rockies, by illegal immigrants?"
No, the reason for such provisions -- not that I entirely support them -- is that keeping the money in-country has a multiplier effect. The money doesn't just build a bridge, but also pays American workers. So more jobs are produced locally, and our flagging manufacturing sector gets a needed pick-me-up.
Two points seem to speak against the unfairness of such provisions. First, the entire economic theory of government stimulus is based on the fact that the money injected into the economy would otherwise never have been spent. So none of the complaintants are going to lose anything that they're already getting. Second, it may take a couple of extra steps, but those American workers buy a lot of foreign products. You Cannucks will get your share of our stimulus, just as we'll get a share of whatever moose-part-based currency you'll be injecting into your own economy. So stop worrying.
The exceptionalism part only comes into play when other countries start trying to take similar measures, and America starts browbeating other countries with treaties that we both signed, but that we don't honor ourselves. I'm quite sure that will come to pass, because we Americans are very good at only noticing treaty provisions that apply to other people.
As for our obligations under NAFTA (or Canada's, for that matter), to hell with them. In too many cases, NAFTA (and other free trade agreements) say that we can't ban or restrict harmful products, because it would harm the trade interests of the people manufacturing the products. Want to lower the amount of pesticide residue on your food? No can haz. Mexico is using those pesticides, and if you try, they'll bring a lawsuit. It's a law written entirely for the transnational corporations, who want to make whatever they want, and to have a legal right to sell that product everywhere, regardless of the needs of the people they're supposed to be serving.
At least Canada is smart enough not to buy a load of poison peanuts.
As I said in my first comment, the U.S. has never honoured, in fact has actively and willfully violated, nearly every trade agreement with Canada, it's neighbour and biggest trading partner. It seems that America believes in free trade and democracy, but only when its best interests are served. The rest of the world is supposed to shut up and like it when it arbitrarily changes its mind.
But here's the thing: I don't confuse the American government with the American people, most of whom I like. I do, however, take offense at the arcane, and utterly unrealistic notion, that U.S. government, especially THIS government, can talk about protectionism and circling the wagons on one side of its mouth, and preach free trade and globalism on the other. Nobody gets to have it both ways.
I may be naive here, but considering how much slack was given to the previous pack of jackals despite repeated demonstrations of their treacherous insincerity, it seems imperative that we give their replacements a chance to start rebuilding the trust and respect that was utterly destroyed by their predecessors.
I know pipe dream #1.
It is wrong and potentially suicidal to block the flow of free trade.
That dosen't mean we can't make reasoned, self-interested decisions along the way.
I don't know about the Canadian banking system, but I do know that the UK and European banks are hardly innocent bystanders who are victims of the US banks seeking high returns while ignoring risk.
Keep in mind it's not the US banks who made the biggest loans to emerging markets, it's European banks. And if you think there was a real estate bubble in Las Vegas and Orange County, have you taken a look at London?
Nor should the United States be flogged as anti-free trade. Question: what's holding up the Doha round? Answer: farm subsidies.
Granted, the United States has them, but which was the country that was most responsible for the stink over killing farm subsidies? France.
Anyway, I fail to see how a preference for US manufactured goods, as long as they are cost competitive, amounts to protectionism. Protectionism would be jacking up tariffs on imported steel so that it's not competitive anymore. A buy American preference is not.
I also think that Canadians should hope for the fastest recovery of the United States economy possible. As the number one trading partner of the world's largest economy, when that economy grows, Canada benefits.
And if things turn up sooner rather than later and American steel goes into better roads and bridges, guess what happens to Canadian goods?
They can to the end consumer quicker and that helps the Canadian economy.
http://krugman.blogs.nytimes.com/2009/02/01/protectionism-and-stimulus-wonkish/#more-1333