Obama meets with Harper on “Buy American”
President Barack Obama made a trip to Canada this week to settle fears over the “Buy American” provision in the so-called “stimulus” package:
President Barack Obama on Thursday moved to reassure business and trade partners that the “buy American” provision of the economic stimulus package will not further harm the economy.
Critics of the measure, including foreign trade partners, business groups and even some U.S. industries that use steel and other products, have called “buy American” protectionist and complained it will drive up the cost of business.
Obama, who met with Canadian Prime Minister Stephen Harper for several hours in Ottawa, said he told his counterpart the United States would abide by existing trade pacts.
“I want to grow trade and not contract it,” Obama said. “And I don’t think that there was anything in the recovery package that is adverse to that goal.”
The provision mandates that any construction or infrastructure project in the “stimulus” bill would be required to use American metals, like iron and steel, unless costs were to exceed 25%. This misguided provision has sparked fears of a trade war.
In 1845, Frédéric Bastiat wrote the Petition of the Candlemakers, satire that pointed out the follies of protectionism to French lawmakers:
You are on the right track. You reject abstract theories and little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.
We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.
We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
Competition spurs improvements and lower prices. Protectionism is what brought us the Smoot-Hawley tariff in 1930, an interventionist economic policy that exacerbated economic problems which eventually led to the Great Depression.
Policies like “Buy American” will only cause retaliation in other parts of the world. We cannot afford that in the middle of a recession.