Wednesday, February 04, 2009

Will US stimulus trigger a trade war?

The following article is an extract from a BBC report by Philippa Thomas

The massive economic stimulus package being debated in the US Senate this week has a hugely controversial condition attached.

It is called "Buy America" and it means that all of the projects financed by the government's $800bn (£567bn) bailout should favour American iron and steel. It could, perhaps, even mandate American preference for all "manufactured goods".

Could this be the start of a new American protectionism? Even a new trade war?

There are big principles - and great passions - on both sides of the argument.

It seems to be abstract, but it could have a huge global impact.

More jobs

I met the president of the United Steelworkers Union Leo Gerard this week.

He had two reasons to celebrate: his football team - the Pittsburgh Steelers - had just pulled off a Superbowl victory against the Arizona Cardinals; and he had seen the "Buy America" provision attached to President Obama's economic stimulus plan clear its first hurdle in the House of Representatives.

The bill was up for debate in the Senate on Tuesday and may jump that hurdle by the end of the week.

What does it mean?

The steelworkers say it is about putting stimulus cash - American taxpayers' dollars - towards American jobs.

This at a time when the domestic steel industry has fallen below 40% capacity for the first time in history. Mr Gerard is known for his straight-talking.

It is "baloney", he says, to argue the case for spending billions to prop up US banks, then cry foul about a commitment to buy US steel.

His case has strong backing in Congress from Democrats who represent big steel states - Pennsylvania, Ohio, Indiana.

Ohio Democrat Tim Ryan has calculated that using wholly domestic input for infrastructure projects here will yield an extra 77,000 jobs across America.

"We're going to spend this money in Youngstown, Warren, Akron" he says. "Not Beijing, Mumbai or Dubai."

Mr Gerard is blunter still: "Why should we send dollars to China, so that they can ship us more junk steel?"

But there is a predictable backlash in Congress.

The senior Republican in the US Senate, Mitch McConnell, has warned that the provision could lead to trade wars.

"The entire world is experiencing a downturn in the economy," he says.

"I think it's a very bad idea".

Full article.

Maybe it's no surprise that steel should emerge as one of the first "battlegrounds", between the protectionists and supporters of free international trade. Steel and steel products have been the source of trade disputes in the past, particularly in the early days of Chinese expansion within the steel industry. There have been "tit for tat", trade restrictions involving the US, the EU and China in recent history, with import duties used to create barriers.

The "Buy America", is not a unique tactic, the British ran a big campaign in the early seventies to persuade consumer patriotism. Whether or not the Senate will support it remains to be seen, and will the American consumer forgo cheaper imports for the good of the nation?

The globalisationof Steel and the growth of China and India in particular, has had a major impact upon the steel world in recent times. The global economic recession, may yet have more impact on the steel industry , than just price and production levels.


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