Protectionism as Stimulus

We need to trade more, not less.

Earlier this month we noted that the U.S. iron and steel industry was lobbying for a "Buy America" provision in the stimulus package. Now everybody's getting into the act.

On Tuesday the Senate Appropriations Committee added "manufactured goods" to the list of items that must be American-made in order to qualify for stimulus dollars under the American Recovery and Reinvestment Act. Congress is signaling to the rest of the world that U.S. protectionists are in charge. Forcing U.S. contractors to buy domestic goods instead of shopping for the best price available world-wide means that taxpayers risk overpaying for their roads and bridges. And that means capital will be misallocated, fewer projects will be built and the bill will go ever-higher.

There is also the little matter of retaliation by our trading partners. The European steel industry has said that it will urge the EU to challenge the provision at the World Trade Organization. That's the high road. Another course would be for other countries to lock American companies out of the bidding on their projects. China's stimulus is estimated at $600 billion. Caterpillar Tractor says that it has a "major initiative to compete in infrastructure projects around the world -- particularly in China -- and this would seriously undermine it." Congress must want more Caterpillar layoffs.

Increased protectionism didn't stimulate the American economy in 1930 and it won't now. In the post-bubble environment, Americans are likely to save more and countries like China are probably going to have to spend more. Washington should ask whether it wants to close down export markets just when those markets are offering the U.S. economy its best opportunity for recovery. One more thing: Is President Obama going to exert any restraint in this stimulus bill on the worst instincts of Congress?