Archive for the ‘free trade’ Category

Why Europe No Longer In Obama Camp Over Stimulus

February 5, 2009

Europe’s euphoria over Barack Obama is fading fast. As Congress wrangles over the President’s $819 billion stimulus package, a “buy American” clause has the European Union threatening legal action and retaliatory sanctions and opening up the prospect of an explosive trade war.

Just weeks after hailing Obama’s election, E.U. officials are now howling that his plans are putting a global economic recovery at risk. They want Obama to resist any retreat into protectionism, warning that it could turn the recession into a 1930s-style slump.

The “buy American” clause in the President’s economic stimulus package states that only U.S. iron, steel and manufactured goods can be used in construction projects funded by the bill. The package has already been approved by the House of Representatives, and the Senate is currently debating an $888 billion version of the bill.

Time Magazine

The provisions might protect U.S. jobs in the short term, but the E.U. says they would hobble global trade, a key motor for the world economy. John Bruton, the E.U. ambassador in Washington, has described the measures as “setting a dangerous precedent, and “neither the right or effective response to the situation.” German Chancellor Angela Merkel has said that “past world economic crises showed protectionism would be the completely wrong answer.”

Similar measures to “buy American” have been adopted or considered in Argentina, China, Indonesia, Ecuador, India, Russia and Vietnam. Pascal Lamy, director-general of the World Trade Organization, warned on Feb. 2 that any go-it-alone route would foster a spiral of retaliation. “Today we run the risk of sliding down a slippery slope of tit-for-tat measures. It was Mahatma Gandhi who said ‘An eye for an eye makes the whole world blind,’ ” Lamy said.

The E.U.’s alarm is partly a reflection of its own precarious situation in the face of a widespread backlash against globalization. The commission is now scrutinizing the E.U.’s own stimulus schemes for potential discrimination against foreigners. In focus are plans such as France‘s $10 billion move to bail out its car industry by requiring firms to source car parts from local suppliers.

“In this climate, many people resent seeing billions of tax dollars leak outside the country. But if this ‘buy American’ clause is adopted, it will make it harder for those in Europe in arguing for markets to stay open,” says Simon Tilford, chief economist at the London-based Centre for European Reform (CER) think tank. “Also, after Europe’s huge expectations for Obama, there is bound to be a huge disillusion with him if the U.S. goes down this road.”

“Buy American” is highly popular among Congressional Democrats and trade unions. Obama supported it during his White House campaign, even distributing campaign buttons and flyers with a special emblem.

But the move is opposed by most Republicans, and Senate minority leader Mitch McConnell has demanded that it be stripped from the bill. Major U.S. companies like General Electric and Caterpillar have also opposed the provision, saying it will hurt their ability to win contracts abroad – and impose layers of bureaucracy on what is already likely to be a cumbersome contracting process.

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Senate Votes “Softened” “Buy American” Section in Stimulus

“Buy American” Sounds Good; Carries An Unbearable Down Side

Obama Caught Between World Leaders, Congress, U.S. Voters on “Buy American”

“Buy American” Sounds Good; Carries An Unbearable Down Side

February 4, 2009

American tax dollars directed at America’s ailing economy should be spent only on American products. That sounds logical – and compassionate to US workers, who can use all the lovin’ they can get. But the “Buy American” provision of the megastimulus package winding through Congress makes little sense. Neither is it kind.

Christian Science Monitor, Editorial

Last week, the House passed an $819 billion economic recovery plan with the stipulation that all public projects funded by the bill (read highways, airports, mass transit, etc.) use only iron and steel produced in the U.S. of A. The Senate version goes further, to include all manufactured products.

The lawmakers’ thinking on this is understandable. They’re sensitive to the outrage that would come when it’s discovered that some federal monies will inevitably go to foreign goods, supporting foreign jobs. With an economy this bad, better take care of our own, they reason.

 Obama Caught Between World Leaders, Congress, U.S. Voters on “Buy American”

But the gain in US jobs will not be worth the ultimate cost.

For starters, the number of jobs generated by the House version will be tiny – about 1,000 steel jobs, according to a study this week by the Peterson Institute for International Economics. If the Senate’s broader version is adopted, about 9,000 US manufacturing jobs would be gained, according to the institute.

Now look at the loss side of the ledger. A “Buy American” provision is sure to generate retaliation abroad (threats loom already). If trading partners strike back on steel, the US industry could lose exports equal to or greater than the number generated by the stimulus.

If other countries choose to shut out only a small percent of American manufactured goods from their own government-funded projects, the US would lose 6,500 jobs. More extreme measures could cost 65,000 jobs.

Meanwhile, cutting foreign products from the stimulus bill means less price competition, more expensive public-works projects, and thus fewer of them to go around.

Further, the Buy American provisions violate US trade obligations (though one wonders whether auto bailouts and other rescue measures around the world will end up being legally challenged).

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Obama Caught Between World Leaders, Congress, U.S. Voters on “Buy American”

February 4, 2009

Since he became President of the united States, what world leader gave Barack Obama real substantive advice?  Arguably, Hu Jintao of China, who cuationed the president about the “buy American” provision in the economic stimulus plan.

Buy American sounds good to many voters, as they watch jobs go away, local industries close and Wal Mart fill with foreign made good that used to be “made in America.”

But to President Hu in China and Angela Merkel in Germany and a host of other world leaders, “buy American” is protectionism, a hinderance to world trade and a violation of just about every international free trade agreement.

Nancy Pelosi and her House colleagues put buy American into the stimulus, and judging from radio call in shows most Americans buy it.

So President Obama will have yet one more challenge to ecplain why “buy American” is not good for the U.S. and the world…

Obama cuts ‘Buy American’ plan after EU trade war threat

 Dallas Federal Reserve Chief, China, Germany All Call Protectionism “Death”

 Economy Sparking Protectionism, Global Trade Disputes?

“Buy American” Sounds Good; Carries An Unbearable Down Side

 Obama Forced to Rethink “Buy American” in Stimulus After Hits from China, Germany, Others

 China, Germany Both Pressure Obama on Protectionism

To Trade Sceptic Barack Obama: World Wants To Know is U.S. For Free Trade?

December 22, 2008

The question whether the Obama presidency could deliver the coup de grâce to the sickly Doha trade round may seem like a mere footnote to the unfolding economic drama. Doha’s few ardent supporters concede that the direct boost from a global trade accord would be modest – peanuts compared with the hundreds of billions of fiscal stimulus being pumped into the stalling global economy. The cancellation this month of a ministerial meeting at the World Trade Organisation was all but shrugged off by Pascal Lamy, the WTO director-general. Even in the last chance saloon, he said, there were more drinks available at the bar.

By Rosemary Righter
Times of  London

Yet this was not quite the nonevent that Mr Lamy made out. Doha is not a footnote. It is the canary in a fast-flooding mine. The meeting had been ordered up at their November summit by leaders of the G20, countries that between them account for 80 per cent of world trade, with trumpeted instructions to secure the framework of a deal by the year’s end – before the presidency of George W. Bush, a convinced free trader, gives way to that of the trade sceptic Barack Obama. It did not take place for one reason: these same governments had failed to give trade ministers new marching orders.

The G20’s Doha pledge was a test of international will to keep markets open. Governments failed that test, and are failing others, too. The G20 also undertook not to impose or raise any new barriers to trade or investment for the next 12 months.

Days later, Russia raised import duties on imported cars and announced a general review of all its trade agreements and India increased tariffs on steel. China, cunningly, had already slipped in new export tax rebates on more than 3,700 products – covering roughly 28 per cent its exports – under a “China World Top Brand” programme that on Friday the United States took to the WTO. This was not innocent trade promotion, the US plausibly complains, but a massive export subsidy that gives Chinese manufacturers an unfair advantage over exporters in countries whose cash-strapped governments cannot afford to forgo big hunks of tax revenue. But China could well retort that the US bailout for Detroit is equally discriminatory, as is Nicolas Sarkozy’s “investment fund” to keep France “a country where we continue to build cars, boats, trains and planes”.

The trouble with favours offered to some industries is that they encourage demands from others. With trade volumes expected by the World Bank to shrink next year ….

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