Issue of the week: The return of protectionism

As the global economic meltdown spreads, many governments are once again flirting with protectionism. But it’s shaping up so far as “a gentler kind of trade war,” said Anthony Faiola in The Washington Post—at least compared with the worldwide “protectionist battle” of the 1930s. During the Great Depression, the U.S. Congress passed a “Buy American” bill that barred imports of 20,000 types of goods, from French dresses to Argentine butter. Other nations retaliated in kind, paralyzing international trade and prolonging the Depression. In the aftermath of that catastrophe, the world’s biggest trading nations created rules against across-the-board trade barriers. But those rules leave “a surprising amount of wiggle room” for countries to engage in a “subtle form of protectionism.” Congress is now exploiting those loopholes, said Ron Scherer in The Christian Science Monitor. Most notably, lawmakers from steel-producing states have added language to the stimulus bill that bars the use of imported iron and steel in new infrastructure projects. The U.S. is far from unique. “At least 33 other nations” have launched stimulus programs of their own, and many include protections for domestic industry.

What did lawmakers expect? asked The Wall Street Journal in an editorial. “Congress is signaling to the rest of the world that U.S. protectionists are in charge” of the stimulus program, and that other countries must defend themselves. They will inevitably retaliate, locking “American companies out of the bidding on their projects.” That will hurt U.S. companies such as Caterpillar and General Electric, which want a piece of infrastructure projects in China and other countries. “Congress must want more Caterpillar layoffs.”

No, Congress wants to create jobs in the U.S., not in China or India, said John Judis in The New Republic. Let’s say the U.S. spends $500 million on the steel needed to repair bridges and buildings. If the U.S. were to spend that money on steel from China, it would stimulate China’s economy but do nothing for our own. But if government spending puts American steelworkers back to work, that will help revive the American economy, and the rest of the world will eventually benefit. The current Buy American provision is meant to ensure that all this spending “doesn’t

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simply disappear in a flood of imports.”

Other nations, though, see it as a blatant act of protectionism, said Dave Schuler in the online policy journal Outsidethebeltway

.com. “Some of our trading partners are just itching to put protectionist measures of their own into place.” Since these measures will hurt many struggling U.S. industries, “let’s not give them the excuse.” President Obama can’t resist the protectionist tide all by himself, said Bob Davis in The Wall Street Journal. The leaders of the world’s economic powers can stem the rise of economic nationalism only by acting in concert. “That will provide some political cover at home for governments that keep their markets open.” Only the U.S., the world’s largest economy, can lead the world out of the economic crisis. But it needs a thriving—and open—global marketplace in order to accomplish that.