Global Trade War?

The “Buy American” provisions are in the bills passed by the Senate and House today. Will this lead to a global trade war? From the article:

The heated war of words over “Buy American” laws may be nearing a truce in Congress, but there are still fears among critics that it could spark a new global trade war.

The reworked stimulus bill that the House and Senate are due to vote on Friday has language on “Buy American” provisions that provides even tougher requirements to limit materials used in public works projects paid for by stimulus to those made in U.S. factories.

Many major steel producing countries, such as China, Brazil and Russia, will essentially be blocked from selling their products for use in construction and energy projects being paid for under the program.

But because the “Buy American” provision will not trump existing trade agreements, it allows companies in many major trading partners, such as Canada and the European Union, the chance to sell steel, pipes and other products that can be used in the projects.

Most economists fear a trade war and any kind of protectionism. It could set the U.S. and global economy back several decades. This stance is more of a political one which shows voters that politicians are protecting their jobs at home. At what cost though? WE, the consumer, end up paying more for products when there are trade barriers.

Since the “Buy American” provision won’t trump any existing trade agreements, Canada and the EU probably won’t mind. China, Brazil, and Russia will and could retaliate. It is also possible our politicians would use this to sign trade pacts with China, Brazil, and/or Russia. That would be fine if the trade pacts are mutual and neither country feels forced into signing.

The real concern I have is that other countries will copy our “Buy American” stance. They will say “the U.S. is closing their boarders to us so we should retaliate”. After all, Paul Krugman (Nobel Prize Economist) has shown there are cases where protectionism can benefit an economy. We are the biggest consuming nation and may countries depend on exporting their products to us. If we don’t buy, they will be in a world of hurt.


12 Responses to “Global Trade War?”

  1. 1 Heidi11 February 13, 2009 at 6:45 PM

    The potential conflict between nations that this policy might bring about reminds me of something a professor told me in a class last semester. He said that with the globalized market we find ourselves in today, if a country feels threatened economically (as the provisions mentioned in this article may do), it is quite likely that war, at least in some form, would break out. He went on to say that the comments made by the heads of government in numerous countries are reminiscent of pre-WWII sentiments. It seems that America has enough on its plate as it is; adding the possibility of international conflict is an unnecessary risk that may do more harm than good, and we are in no place to take such risks.

  2. 2 mrrodenas February 14, 2009 at 9:38 PM

    I agree that protectionist laws might have a large opportunity cost, and marginal cost of broken international relations or worse might end up exceeding the domestic benefit.

    The impact of the stimulus plan as projected could impact the slow economy creating jobs in domestic production/manufacture even though using imported steel. I like the quote by Ambassador Michael Wilson about the need for nations to work together to overcome a crisis that is suffered by all.

  3. 3 lalves February 14, 2009 at 10:01 PM

    First of all, this wouldn’t be an issue if the stimulus bill wasn’t passed. I thought it was interesting how Obama was contradicted when stating that this stimulus package would allow CAT president to rehire many of the people he had to layoff. Shortly after this, the president said that he would not be able to hire workers back even with the passage of the stimulus package and that the employment situation would probably get worse before it would get better.

    Now on to the “buy America” aspect of this piece. I would love to see more jobs created in America and less overseas, but that can’t be forced upon America buy cutting off trade with other countries. In the end, this will cause inflation which will hurt our economy even more. Everyone benefits from trade in a free market. It allows specilization.

  4. 4 BeuWolf256 February 15, 2009 at 12:33 AM

    “Buy American” is a little late to help stimulate the economy, or our economy at least. Since our country is the biggest consumer of goods, then we should be more self reliant vs. depending on others to support our needs. With us exporting our jobs and resource needs, we supply them with a form of an economy. But, when we pull away from a supplier, they’ll get angry, and like it was said, a war will break out in a form. Kinda like if another country wanted to charge more for our products to be produced, we would just either threaten to find somebody else to do it cheaper, or just move production elsewhere all together. Thanks to NAFTA that our politicians have created not so long ago, well now face this trade war that’s on the horizon. Simply because were going to put even more people in other countries out of jobs, kinda like how our special interest politicians did with NAFTA saying it would create more jobs; in other countries. How many goods are available for US consumers to purchase that state “made in USA”. But, maybe this will create more domestic jobs, maybe.

  5. 5 Wiloni Robertson February 17, 2009 at 11:35 PM

    The whole “Buy American” concept is crazy. Most of our top companies use other countries to make the goods for us to sell in the United States.And if any of the countries we are blocking feel disrespected by the Bill. It’ll be even more problems our economy would have to face.

  6. 6 Michael Huddleston February 18, 2009 at 7:41 PM

    War is one reason why we are facing financial difficulties as a country. The Gov’t hasn’t raised enough taxes to compensate for their spending with the long run hopes of future generations having to pay for it. It looks like they are even considering cutting taxes which may make the deficit more with the hopes of raising consumer spending to help stimulate the economy. But will we be able to catch up?

  7. 7 janeth f. February 19, 2009 at 4:36 PM

    Im not so sure i understand this article but the parts i do get don’t seem like such a good idea. If they do vote to pass this, it will affect other countries we trade with. Like the article said, “many countries depend on exporting their products to us”. If we block them, it might ruin their economy too and so on to other countries. I agree with the author about that it could cause a war. If we block them out then they might feel offended and try to get back at us. I really don’t see how it’ll benefit us or anyone.

  8. 8 Frank February 20, 2009 at 7:16 PM

    The whole ” Buy American ” idea is bad because our country does not have all the natural resources we need to run our businesses. Also it could lead to a lot of conflict with other countries and they too could end up closing their doors on us which would cause our country even more problems than we already have. Our goal should be to go forward and do so by staying out of problems and worrying about our country and what’s best for us. Hopefully the right decision is made.

  9. 9 LK Economics February 23, 2009 at 7:54 PM

    In the past we have said to buy “All American” but that does not always work. Yes, we want to support our country but will we be able to afford “All American” prices? I am not sure this is the solution. Doesn’t trade benefit all of us. I understand somethings should stay “All American” but not everything. I don’t want to see another war.

  10. 10 ace1989 February 26, 2009 at 8:38 AM

    i think this would be a great idea for the fact that it would bring so many jobs back to the states. i agree that we would need to buy other suplies and materials from other countries but this would be a god send to our economy. sure it wouldnt do well with forgien relations but we shouldnt worry about that as much as ourself. America should protect itself before others.

  11. 11 Andrew May 12, 2009 at 4:22 PM

    Protectionism isn’t a good idea. It will cause an upset in the global economy. We will want to have our own goods be above the rest, which will cause other countries to put tariffs and taxes on our goods which will reduce the number of exports we have while our imports could rise or stay the same. We should instead try to support American goods while still supporting international goods.

  12. 12 Craig K May 20, 2009 at 8:56 PM

    The “Buy America” laws have created nothing but problems for economies around the world. The fact that countries like China, Brazil, and Russia will be unable to import materials such as steel into our country will make for a hard place between countries. I would blame that on the US, since we are the ones attempting to shut down our borders and therefore trade in and out. If we want to get our economy back on track we should be looking for help in any form it may come in. Using other nation’s materials to stimulate our own economy may be one way to go about it, and we cannot do this if the “Buy America” laws stand. I think the people should be able to buy foreign without eliminating goods produced domestically. We just need to step up to their level..

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