Barack Obama

Obama has to guard against protectionism

PUBLISHED : Monday, 02 February, 2009, 12:00am
UPDATED : Monday, 02 February, 2009, 12:00am

World leaders have agreed that turning inwards does not offer nations a way out of severe economic difficulties. One of the biggest mistakes in the 1930s Depression was the United States' adoption of trade-protection policies. The summit of the Group of 20 largest economies in November underscored 'the critical importance of rejecting protectionism' in dealing with the present crisis. It is worrying therefore, and worthy of condemnation, that such a discredited, 'beggar thy neighbour' approach should have been supported in the US Congress.

Despite a pledge by G20 nations not to raise trade barriers for 12 months, countries from Russia to India, from France to Indonesia have done so already - testament to domestic political pressure to protect local jobs. It could be a disaster for hopes of economic recovery if a protectionist trend gathers momentum. But the US House of Representatives has inserted 'buy American' provisions in President Barack Obama's US$819 billion stimulus package. This is regrettably at odds with the philosophy behind America's support for free trade.

The bill would largely bar the use of foreign steel and iron in infrastructure projects under the stimulus plan. The legislation now goes to the Senate, where an even tougher move has been foreshadowed to exclude most foreign-made goods and equipment. Supporters of 'buy American' provisions argue that they are needed to ensure the creation of jobs at home and not abroad. Critics point out that they could violate international trade agreements, including one sponsored by the World Trade Organisation that widens foreign access to government procurements.

The strongest argument against 'buy American', however, comes from the country's own industrial giants, such as heavy-equipment makers and the aerospace industry, which hope to secure a share of the business flowing from huge stimulus measures in China and Europe. Their leaders rightly say the policy amounts to a repudiation of free trade that could spark retaliation against US companies and worsen the financial crisis.

The world awaits the Obama administration's response to all this. The US president needs to get his stimulus package approved quickly. Hopes of global economic recovery hinge on it. But this should not stop him making an unambiguous reaffirmation of America's support for free trade, and using all his powers of persuasion and the prestige of his office to resist the 'buy American' provisions. We hope that when the Senate considers them, common sense and the lessons of the past will prevail. History shows that global prosperity depends on international co-operation, not economic isolationism.