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Protectionism plays with fire
By Ni Tao |
February 12, 2009, Thursday
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AS the US$825 billion stimulus bill that contains the "Buy American" provision winds its way through the US Congress, its reverberations can be felt all over the world.
The clause, which requires only American-made steel products be used in infrastructure projects funded by the stimulus money, triggered backlash from key US trade partners.
The US, supposedly the bulwark of free trade and the leading force behind globalization, appears to have strayed wildly from the very ideals it pledges to defend.
The argument that jobs and cash must stay inside one's borders to ensure local well-being is pernicious. And implementing it means squandering a lot of US political capital earned with the right words at Davos.
Nevertheless, with the ballot box always lurking in mind, it's tempting to choose the "lesser of two evils."
But is it really the "lesser evil"? Willis Smoot and Reed Hawley surely didn't envisage the disastrous impact of their tariff act when they proposed in 1930 to slap on hefty duties that essentially halted imports.
Nor did they expect the deal to invite massive retaliation and become cause of concomitant catastrophe.
The dangerous flirtation of late with protectionism and "egocentric" economics won't work the magic of shoring up moribund businesses.
Instead, it may well spiral out of control before it can be harnessed to do any good. As the saying goes, one plays with fire at his own peril.
We don't have to be disciples of Adam Smith or David Ricardo to reject protectionism. Economists of all stripes subscribe to the notion that protectionism destroys more jobs than it creates, beggar-thy-neighbor only infuriates your neighbor and in the end you both become beggars after a vicious game of tit for tat.
A correct move
In an op-ed in the Wall Street Journal dated February 6, Princeton University Professor Burton G. Malkiel laid out his case against the "Buy American" provision inserted in the stimulus package.
"The provision could delay some shovel-ready infrastructure projects, since sufficient American-made materials may not be immediately available," he said. "The US does not manufacture enough steel to meet domestic demand." While enough ink has been spilt on the necessity of joining hands to brave the storm, cooperation is elusive, at least for now.
Jiang Zengwei, China's Vice Commerce Minister, told a news conference on Monday that China won't mandate a "Buy China" policy in response to the US stimulus bill. A move in the right direction, indeed.
The clause, which requires only American-made steel products be used in infrastructure projects funded by the stimulus money, triggered backlash from key US trade partners.
The US, supposedly the bulwark of free trade and the leading force behind globalization, appears to have strayed wildly from the very ideals it pledges to defend.
The argument that jobs and cash must stay inside one's borders to ensure local well-being is pernicious. And implementing it means squandering a lot of US political capital earned with the right words at Davos.
Nevertheless, with the ballot box always lurking in mind, it's tempting to choose the "lesser of two evils."
But is it really the "lesser evil"? Willis Smoot and Reed Hawley surely didn't envisage the disastrous impact of their tariff act when they proposed in 1930 to slap on hefty duties that essentially halted imports.
Nor did they expect the deal to invite massive retaliation and become cause of concomitant catastrophe.
The dangerous flirtation of late with protectionism and "egocentric" economics won't work the magic of shoring up moribund businesses.
Instead, it may well spiral out of control before it can be harnessed to do any good. As the saying goes, one plays with fire at his own peril.
We don't have to be disciples of Adam Smith or David Ricardo to reject protectionism. Economists of all stripes subscribe to the notion that protectionism destroys more jobs than it creates, beggar-thy-neighbor only infuriates your neighbor and in the end you both become beggars after a vicious game of tit for tat.
A correct move
In an op-ed in the Wall Street Journal dated February 6, Princeton University Professor Burton G. Malkiel laid out his case against the "Buy American" provision inserted in the stimulus package.
"The provision could delay some shovel-ready infrastructure projects, since sufficient American-made materials may not be immediately available," he said. "The US does not manufacture enough steel to meet domestic demand." While enough ink has been spilt on the necessity of joining hands to brave the storm, cooperation is elusive, at least for now.
Jiang Zengwei, China's Vice Commerce Minister, told a news conference on Monday that China won't mandate a "Buy China" policy in response to the US stimulus bill. A move in the right direction, indeed.
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