The "Buy American" provisions in the 787-billion-US dollar economic stimulus bill, which US President Barack Obama signed into law Tuesday, will hurt developing world and trigger a global trade war.
According to the legislation, the "Buy American" provision, which prohibits the purchase of foreign iron, steel and manufactured goods for any stimulus-funded infrastructure project, will be "applied in a manner consistent with US obligations under the international agreement."
That is further explained in separate report language on the bill to clarify that it requires the US to comply with obligations under the WTO's government procurement agreement and under the North American FTA and other US free trade accords.
European nations, Canada and Mexico signed the trade deals that guarantee their ability to bid on US government contracts, with the exception of transportation, said David Phelps, executive director of the American Institute for International Steel.
However, goods from China, India, Brazil and over 100 developing economies, which are not members of the government procurement agreement or do not have free trade deals with the US, will be excluded from any stimulus-funded infrastructure projects.
"The thing we know about protectionism is in the end it protects nobody, least of all the poor," warned British Prime Minister Gordon Brown recently at the World Economic Forum in Davos, Switzerland when referring to the "Buy American" clause.
"It would be short-sighted at this time to renege on promises we've made to the poor," he noted.
Many leading U.S. business groups and economists also scolded the "Buy American" provision, warning it would delude the bill's impact and lead to a global trade war.
"The 'Buy American' provision ... will signal to our trading partners around the world that the US is returning to the bad old days of protectionism and economic nationalism," Gary Shapiro, president of the Consumer Electronics Association said in a statement released last week.
"The promise that the 'Buy American' provisions keep with the letter of WTO commitments is a meaningless gesture -- it contradicts recent statements by both President Obama and G-20 leaders to avoid protectionism, which exacerbate the global economic crisis," he warned.
"Rather than stimulate the American economy, these provisions will lead to retaliation from abroad and cost precious jobs in the United States," he added.
Burton G. Malkiel, a professor of economics at the Princeton University, charged that the "Buy American" momentum is "bad economics", and by threatening to destabilize trade and capital flows, "it risks turning a global recession into a 1930s-style depression."
