Europe’s euphoria over European Union threatening legal action and retaliatory sanctions and opening up the prospect of an explosive trade war.is fading fast. As Congress wrangles over the President’s $819 billion stimulus package, a “buy American” clause has the
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’sstates 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 , and the Senate is currently debating an $888 billion version of the bill.
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. , 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 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.has demanded that it be stripped from the bill. Major U.S. companies like
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