8 February 2009

US trashes global economy, then moves towards protectionism

One has to wonder if US President Barack Obama is plotting the ruin of the global economy. The United States is the world's largest exporter of recessions, but that hasn't discouraged Barack Obama from pursuing policies that tip the playing field in favour of American goods. His economic stimulus package, which is yet to be passed by Congress, includes provisions that require public works projects funded under the package to only use American made steel and iron. In response to international protests, the Senate has added an amendment that allows for exceptions in cases where the provisions violate America's commitment to international trade agreements. The Senate rejected an amendment from Republican Senator John McCain to have the protectionist provisions removed from the package altogether.

Obama couldn't have chosen a worse time to move towards trade protectionism. The International Monetary Fund and World Trade Organisation have warned that the so-called "Buy American" provisions could ignite a trade war. Last year, Australia exported $484 million worth of steel to the US.

The development has Caterpillar, which just laid off 20,000 employees, very worried. Jim Dugan, spokesman for Caterpillar, said to Indianapolis Star:

Our position is that, while 'Buy American' may sound good, in fact we're very concerned that if this stimulus legislation contains the 'Buy American' provision, other nations and regions of the world would follow our lead and pass similar provisions.

Suddenly, we could find ourselves with an old-fashioned trade dispute similar to the 1930s, and soon global trade could grind to a halt. We are very, very concerned that this 'Buy American' provision could end up leading to a similar set of circumstances that would be detrimental to Caterpillar, and more importantly, to the U.S. economy and the global economy.

Why has Obama chosen to head down the path of protectionism, despite the risks it poses to the US economy as well as international trade? He owes a debt to the trade unions that invested millions in their campaign to have him elected. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) budgeted US$53.4 million ($80 million) for their campaign efforts, while its affiliated unions spent US$150 million ($224 million). President of the AFL-CIO, John Sweeney, described Obama as "a champion for working families". It is about time that John Sweeney and Prime Minister Kevin Rudd replaced the words "working families" with "union members".

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