'Buy American will do more harm'

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By Cai Hong (China Daily)
Updated: 2009-02-19 07:47

Economists and scholars have warned that the a clause in a sweeping economic stimulus package can undermine the country's foreign policy and harm relations, especially with China.

The 'Buy American' clause in a bill that President Barack Obama made law on Tuesday, aims to release $787 billion to revive the US economy. The stimulus law says US iron and steel be used for government projects.

It also states that the 'Buy American' provision be applied in a manner consistent with US obligations under international agreements. This will not help US' trade with BRIC countries - Brazil, Russia, India and China. The US and 38 other countries have signed World Trade Organization pacts that prohibit 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."

According to Burt Folsom, a professor of History at Hillsdale College, Michigan, such protectionism could mean the US will spend more and get less.

"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," Folsom told China Daily.

California's Bay Area perhaps has the most reason to fear the measure's affect on overall trade. With huge technological exports, Bay Area manufacturers earn 60 percent of their revenue from overseas.

"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."

Jim Wunderman, president of Bay Area Council worried about the clause's effect on relations with other countries.

"The Bay Area Council is extremely concerned about this provision and its potential effects on trade, competitiveness and our most important relations with China," said Wunderman.

Trade between the US and China recorded its slowest growth rate in 7 years last year when it totaled $ 333.74 billion, according to the General Administration of Customs (GRC) of the PRC.

At the same time, the share of Chinese products in the US market shrank with Canada 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 spur the economy or create any real jobs considering highway, transit and airport projects are already covered by similar Buy American requirements that have been in place for years.

Gary Hufbauer and Jeffrey Schott, both senior fellows at the Peterson Institute for International Economics, estimate that the additional US steel production fostered by the provision will amount to around 0.5 million metric tons.

This translates to roughly 1,000 new jobs in the steel industry. The job impact is small because steel is a capital intensive industry. In the giant US economy, with a labor force of roughly 140 million people, 1,000 jobs is a rounding error. On the other hand, the 'Buy American' provision could well cost jobs if other countries emulate US policies or retaliate against them.

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