Stimulating a Trade War
Just in case you thought the "stimulus package" was about the general welfare, here's a reminder that it's really about payoffs to politically powerful labor unions.
The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.
A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.
Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas....
Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.
"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.
Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.
At a Morons Society gathering last weekend, I was on a panel discussing the economy. One of the questions during the Q&A made me realize that there's a widespread misconception out there about the stimulus package: People think this is a WPA-style plan to employ people off the streets. Now if you're going to lavish tax money on infrastructure projects, I'll concede it makes good sense to use trained construction workers, not random day laborers. But politically it's still a union payoff. And there's no public-spirited reason to overpay for materials (or, for that matter, for labor).
But the cost to taxpayers isn't the biggest problem with the bill's protectionism. A trade war threatens to exacerbate the single largest danger in the worldwide downturn: that a serious contraction in China will lead to domestic unrest and that that the Chinese government will engage in military aggression to focus frustration outward.