Monday, 2 February 2009

Irwin on buy american (updated x2)

I quoted trade economist Douglas Irwin in a previous posting on the dangers of protectionism. Now I see that Irwin has an article in the New York Times pointing out the obvious that: If We Buy American, No One Else Will. Let me add, exactly the same could be said about New Zealand, which is buy New Zealand campaigns are so stupid. Irwin writes
WORLD trade is collapsing. The United States trade deficit dropped sharply in November as imports from the rest of the world plummeted in response to the financial crisis and global recession. United States imports from China, Japan and elsewhere declined at double digit rates. The last thing the world economy needs is for governments to give a further downward shove to trade. Unfortunately, we may be doing just that.

Steel industry lobbyists seem to have persuaded the House to insert a “Buy American” provision in the stimulus bill it passed last week. This provision requires that preference be given to domestic steel producers in building contracts and other spending. The House bill also requires that the uniforms and other textiles used by the Transportation Security Administration be produced in the United States, and the Senate may broaden such provisions to include many other products.

That might sound reasonable, but history has shown that Buy American provisions can raise the cost and diminish the effect of a spending package.
Irwin ends his piece by reminding us that
When the United States imposed the Smoot-Hawley Tariff in 1930, it helped set off a worldwide movement toward higher tariffs. When everyone tried to restrict imports, the combined effect was a deeper global economic slump. It took decades to undo the accumulated trade restrictions of that period. Let’s not make the same mistake again.
Let's not. And not just the US but all countries, including New Zealand, have to make sure that protectionist moves are beaten back.

Update: On the world trade is collapsing front John Macilree's Weblog reports that
On 29 January 2009 the International Air Transport Association (IATA) reported that December 2008 saw a massive 22.6% drop in air cargo movement compared with the same period in 2007.

The regional numbers indicate that the sharp drop is global. Although the drop in the Middle East and Africa was smaller, the hardest hit region was Asia/Pacific with a 26% drop.
He also reports that the rate for shipping a container from Asia to Europe by sea has dropped to zero. This is in response to a massive decline in exports out of North-East Asia.

All this can't be a good sign.

Update 2: Nobel Prize wining economist Gary Becker writes on Buy American Once Again. Becker opens his piece by saying
Every recession, including those milder than the current recession, leads to pressure to reduce spending on foreign goods by raising tariffs and other import restrictions. The avowed goal is to help domestic workers and businesses that are going through difficult times. Hostility to imports when unemployment is high and rising is surely understandable. Nevertheless, it is unwise to engage in seriously restrictive international trade policies even during a serious recession.
and closes it by explaining
One major reason why trade restrictions and other government "stimulus" programs may be politically attractive during a recession is that identifiable groups benefit, such as the steel industry, or the recipients of the government stimulus spending. By contrast, the harm to workers in export industries who suffer because of the indirect effects of trade restrictions on exports, or the harm to workers in industries that are crowded out by government spending, is remote and not so apparent.
Too true.

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