As we’ve discussed in these pages, buried in the Porkulus Bill was a stiffened version of the ‘Buy American Act’. The geniuses in Congress originally passed the BAA in 1933 in a further attempt to protect American industry during a depression that they did so much to create. Apparently, the Smoot-Hawley Tariff didn’t do enough to damage the world economy, so they doubled down. And protectionism was one of the things that turned a recession into the Great Depression.
So, here we go again. From the Washington Post:
Is this what the first trade war of the global economic crisis looks like?
Ordered by Congress to “buy American” when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.
Outrage spread in Canada, with the Toronto Star last week bemoaning “a plague of protectionist measures in the U.S.” and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.
And as the article points out, this trade war could be quite different because it involves internal regulations that are normally not subject to international law.
Rather than merely raising taxes on imported goods — acts that are subject to international treaties — nations including the United States are finding creative ways to engage in protectionism through domestic policy decisions that are largely not governed by international law. Unlike a classic trade war, there is little chance of containment through, for example, arbitration at the World Trade Organization in Geneva. Additionally, such moves are more likely to have unintended consequences or even backfire on the stated desire to create domestic jobs.
Read it all.
Isn’t it interesting that a faulty Depression-era statute can bedevil us in our own age? I certainly hope Congress reconsiders. A trade war will finish us all off.
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