'Buy American products' call raises global hackles

10 Feb '09

3 min read

Being afflicted by an unprecedented economic crisis that is driving, almost out of control, the US is at its wits end and has not been able to find permanent solution to solve the crisis, but has now opened a Pandora's Box by propagating the 'Buy American Products' debate in a bid to save the economy contained in the draft proposal, for the still to be announced stimulation package.

Since, it is not able to find a solution to the ever growing crisis; the US is now looking for a scapegoat, with imports becoming the best excuse. As the crisis deepens, protectionist sentiment in the country is rising and some officials have even informally proposed a 'Buy American goods' theory and layoff foreigners first when reducing employees.

In fact, it is trade protection that caused deterioration of 67 percent of world trade during the great depression at the beginning of last century, with trade volumes in the initiator of the recessionary trends; the United States dropping by 75 percent. The stock market collapse in 1929 only triggered a financial crisis, while the real depression began from the second half of 1930.

The initiator was a trade protectionist measure called the Smoot-Hawley Tariff Act, which imposed high tariffs on more than 20,000 imported products and resulted in a global trade war resulting in bringing international trade to a standstill. Every country tried to make protect and isolate itself from the crisis, which in turn exacerbated, spreading the global scope of the crisis.

Many economic historians consider that the world economy, which plunged into ten years of depression, had a direct bearing on the measures adopted by the US in those days. Since then, the international community has spent several decades to gradually dismantle a variety of high level trade barriers built up during this period and paved the way for a freer economic world.

The vast majority of economists think that if the world has learned something from the depression of the 1930's, then most profound lessons that it threw was that trade protectionism does not help solve recessionary trends, but rather aggravates the economic situation across the world.

The new US $825 billion, stimulus package proposed by the new Obama administration, has triggered considerable controversy because of the contents regarding trade protectionism. The provision of “Buy American” policy has been unanimously opposed by neighboring countries like Canada and Mexico, as well as commercial businesses in the US and its trade partners.

In a meeting with WTO Director-General Pascal Lamy on January 28, China's Premier Wen Jiabao said,” It is essential to oppose and curb trade protectionism in the face of current international financial crisis. Trade protectionism appears to protect a country's economy, but will actually create a drag on the recovery of world economy and will have adverse global effects.”

Lamy also said thatopposition to trade protectionism was the key to successfully responding and solving the international financial crisis. Lamy also called on the United States Senate to make informed decisions, so as to ensure that the US fulfills its international obligations. According to WTO, total global trade this year may decline more than 2.1 percent, following a 6.2 percent growth in 2008.

Experts opine that once the US implements the “Buy American products” policy, it will create a tirade against US products globally and which will eventually impact the interests of many US based multi-national companies in other parts of the world. It also has the potential to start a trade war reminiscent of the 1930's and will eventually deteriorate the international trade environment and have long term disastrous effects.

Fibre2fashion News Desk - China

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