Observers outside the U.S. have expressed concerns about the “buy-American provision” in the monstrous stimulus package passed in Washington. For instance, officials attending the recent G-7 meeting in Rome reportedly quizzed U.S. Treasury Secretary Tim Geithner about the provision. A European Commission spokesman called the provision the “worst possible signal” and warned that it could have forced the EU to “take it up with the World Trade Organization.”
However, fears of a trade war were tamped down by a compromise that kept the “buy-American” language but added an important caveat requiring that the measure be “applied in a manner consistent with U.S. obligations under international agreements.” In other words, the compromise version shields existing trade agreements from the encroaching shadows of protectionism—for now.
Canadian Trade Minister Stockwell Day called the compromise “a great step forward.” As Reuters reported, Japanese Cabinet Secretary Takeo Kawamura said Tokyo welcomed the compromise but would “keep a close eye” on the situation on Capitol Hill, given that “the whole process leading up to this bill appeared to be rooted in protectionism.”
Indeed, it could have been worse.
International observers may not appreciate how powerful the protectionist instinct is among those who constitute much of the leadership in Congress and the White House.
If a free-trade scorecard compiled by the Cato Institute is any indication, many key Congressional leaders are inclined more toward erecting trade barriers than promoting free trade. (See www.freetrade.org/congress.)
This sentiment was apparent during the debate over the Colombian Free Trade Agreement, which the Bush administration concluded in 2006, but has languished due to obstruction by members of Congress. Then-Senator Barack Obama was one of several senators who ardently opposed the trade deal with Colombia. Then-Senator Hillary Clinton was another. As senator, President Obama also opposed a free-trade agreement with South Korea. So did Secretary of State Clinton, calling it “inherently unfair.”
In fact, for anyone who cared to notice, the pro-barrier view was on full display throughout the 2008 presidential campaign.
As a candidate, Obama criticized NAFTA early and often. “We can't keep passing unfair trade deals like NAFTA that put special interests over workers' interests,” the would-be president said. He labeled NAFTA “an enormous problem.”
His website declared, “NAFTA and its potential were oversold to the American people.” Thus, his campaign promised to “amend” NAFTA “so that it works for American workers.”
Likewise, he called permanent normal trade relations with China “a significant problem.”
Of course, he also said, “I believe in trade.” And his staff sent back-channel messages to Canadian leaders that his comments on NAFTA were little more than political posturing. During the campaign, Clinton also used NAFTA as a piñata, alternately praising its passage during her husband’s administration and then revealing, “I've long been a critic of the shortcomings of NAFTA.”
This isn’t a new phenomenon. A 2004 Fraser Institute survey of Canadian exporters reported that 95 per cent of respondents “believe protectionist sentiment is growing in the United States,” with 68 per cent saying that “protectionist sentiment in the United States has already negatively affected their ability to sell into the United States.”
That brings us to the American public. Whether it was during the back-and-forth of the campaign or in the fine print of the stimulus bill, American politicians are only responding to what their constituents are feeling: A 2008 CNN poll found that 51 per cent of respondents view foreign trade as a threat to the U.S. economy, up from 45 per cent a year earlier. Likewise, a Pew/Council on Foreign Relations poll indicates that only 35 per cent of Americans believe agreements like NAFTA are good for the United States. And a poll conducted by The Los Angeles Times/Bloomberg News reveals that 50 per cent of Americans believe international trade has hurt the economy, with only 26 per cent saying it has helped the economy.
The facts may say otherwise. After all, NAFTA has generated 26 million jobs in the U.S., and “more than 57 million Americans are employed by firms that engage in international trade,” as a recent Heritage Foundation study points out. However, the age-old impulse to turn inward when times get tough is a powerful force. Given the economic contraction and convulsion now underway—America’s unemployment rate is 7.6 per cent and rising, and the U.S. economy is expected to shrink by 1.5 per cent this year—it seems unlikely that this protectionist impulse will subside anytime soon.
Politicians are adept at tapping into these feelings of fear. Statesmen, on the other hand, resist them and remind the public about the benefits of trade and the dangers of protectionism in one country triggering protectionism in another.
The statesmen in Washington, Ottawa, and other capitals have their work cut out for them in the months and years ahead.