By: Brian Sikma
A British economic analyst and writer has made dire predictions for the global economy if the “Buy American” provision that was heavily backed by Rep. Pete Visclosky (D-IN 1) stays in the stimulus bill and is signed into law by President Obama. Comparing the provision to the “protectionism” of the 1930s (more specifically the Smoot-Hawley Tariff of the 1930s, which raised tariffs on over 20,000 different products) Financial Times writer Willem Buiter declared “if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world.”
What one of Indiana’s own Congressmen has failed to learn from history and economics is nevertheless being picked up on by economists both here at home and abroad. Engaging in populist economic protectionism is risky when times are good and catastrophic when times are bad, as they are now. Even though in percentage terms the American economy, and thus most if not all of the global economy, is still stronger than it was during the Great Depression or even some of the bleak economic times of the 1970s and the start of the 1980s, it certainly will not be able to survive the shock of a massive limitation on trade policy.
There were many factors that contributed to the implosion of the housing market and the financial markets that relied so heavily on the easy lending and loose monetary policies that made the housing market expand like a California wildfire. But the single impact of suddenly clamping down on the global market and attempting to halt trade by limiting government purchasing contracts to only those products made here at home will be perhaps the single most important factor in taking us into a full blown depression.
It is true that the “Buy American” provision does not raise tariffs on any imports and that it is confined to only government spending as part of contracts provided for in the $825 billion stimulus bill-spending that I believe is not the best way to stimulate the economy-but when that government spending accounts for a significant portion of a nation’s GDP (the newly added debt would push the total amount of government debt obligations to 95% of GDP by 2010), it has reverberations throughout the non-government sectors of the trade markets.
As Mr. Buiter said in concluding his article “Yes we can. I hope we don’t.” America does not need to travel the road to serfdom to reach economic prosperity. Good intentions will not change the fact that the current path our government is on will have deeply unfortunate, and frustratingly avoidable, consequences.