Buy American will worsen temporary situation
A clause in a sweeping economic stimulus package would undermine the country’s foreign policy and threaten the relations with other countries, especially with China, according to economists and scholars.
The main purpose of the ‘Buy American’ clause in a bill that President Barack Obama made law on Tuesday is to release $787 billion to rescue the US economy. The stimulus law says US iron and steel would be used for government projects.
It also states that the ‘Buy American’ provision be applied reducing US responsibilities without international agreements, and this will not improve US’s trade with BRIC countries – Brazil, Russia, India and China. The US and 38 other countries have signed World Trade Organization pacts, which state its objection about restrictions on government purchases between member countries.
“These protectionist fears are most significant in relation to China,” said Water Russell Mead, a Henry A. Kissinger senior fellow for US Foreign Policy at the Council of Foreign Relations. “Alienating Asia and China and setting up the potential for bitterness and rivalry could dog this planet for decades. That is probably the most dangerous thing we could do.”
Burt Folsom, a professor of History at Hillsdale College, Michigan, said that such protectionism would make US spend more and gain less. He made such statements during interview with China Daily, “We would pay higher prices for our manufactured goods that use steel. And we would discourage the Chinese from trading with us and supplying us with cheaper goods.”
California’s Bay Area may have the most possibilities to be impacted by the measure’s effect on overall trade, since Bay Area manufacturers earn 60 percent of their revenue from overseas with huge technological exports.
Jim Wunderman, president of Bay Area Council worried about the clause may cause negative effect on relations with other countries. He said, “The Bay Area Council is extremely concerned about this provision and its potential effects on trade, competitiveness and our most important relations with China.”
“The number of jobs the Buy American clause will create is small compared to the size of our global trade,” Sean Randolph, president & CEO of Bay Area Economic Forum, said in a telephone interview, “The US has set a bad example.”
General Administration of Customs (GRC) of the PRC submit the latest statistics showing that trade between the US and China recorded its slowest growth rate in 7 years last year with a total sum of $ 333.74 billion.
Meanwhile, the share of Chinese products in the US market is reducing and Canada has taking over China as the largest exporter to the US in the first 10 months of 2008. The market share of China’s products fell to 15.7 percent from 16.4 percent in the same period in 2007.
Others are skeptical if the clause can stimulate the economy or create any real working opportunities considering highway, transit and airport programs are already covered by similar Buy American requirements that have been running for years.
Gary Hufbauer and Jeffrey Schott, both senior fellows at the Peterson Institute for International Economics, evaluate that the additional US steel production fostered by the provision will amount to around 0.5 million metric tons. This creates about 1,000 new jobs in the steel industry. Since steel is a capital intensive industry, the job impact is not so strong as other industries. In the giant US economy, compared with a labor force of roughly 140 million people, 1,000 jobs could even be ignored as a rounding error. On the other hand, if other countries object US policies, the ‘Buy American’ provision could also cost jobs.
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