Canada's reaction to Obama's Stimulus package

[Justforfun000]

I don't particularly care for Harper, but I have no clue if he's just bleating or actually has something to say this time....Is this a valid point? Is Obama not realizing how integrated our economies are and how essentially 'buying American' would be too drastically simple?

http://www.canada.com/topics/news/story.html?id=1232625

'Buy American' clause concerns Harper
Andrew Mayeda and Sheldon Alberts, Canwest News Service
Published: Thursday, January 29, 2009

OTTAWA - Prime Minister Stephen Harper expressed "serious concern" on Thursday over a provision of the U.S. stimulus bill that would require infrastructure projects to use American steel, putting Canada on the edge of its first trade dispute with the United States since Barack Obama was inaugurated.

The "Buy American" clause would ban the use of most foreign iron and steel from infrastructure projects funded under the US$819-billion stimulus bill, which passed the U.S. House of Representatives on Wednesday.
Prime Minister Stephen Harper said, "I know that countries around the world are expressing grave concern about some of these measures, that go against not just the obligations of the United States, but frankly, the spirit of our G20 discussions."
Prime Minister Stephen Harper said, "I know that countries around the world are expressing grave concern about some of these measures, that go against not just the obligations of the United States, but frankly, the spirit of our G20 discussions."

On Thursday, Harper added Canada's name to the growing list of U.S. trade partners, from the European Union to Australia, who are seeking to overturn the provision.

"This is obviously serious matter and a serious concern to us," Harper told the House of Commons, adding that he had spoken about the matter with Canada's ambassador to the U.S., Michael Wilson.

"I know that countries around the world are expressing grave concern about some of these measures, that go against not just the obligations of the United States, but frankly, the spirit of our G20 discussions," the prime minister added.

"We will be having these discussions with our friends in the United States, and we expect the United States to respect its international obligations."

Harper's comments came a day after he confirmed that the U.S. president will visit Canada on Feb. 19. The prime minister is now expected to raise the Buy American provision during their first meeting.

But given the rush in Washington to pass the stimulus bill - House Speaker Nancy Pelosi has said she would like Congress to pass the bill early next month - Canadian diplomats have already begun a concerted lobbying effort to convince U.S. politicians to change their minds.

Trade Minister Stockwell Day, on his way to Davos, Switzerland, on Thursday for the World Economic Forum, said he would raise the matter with senior U.S. trade officials, as well as Pascal Lamy, head of the World Trade Organization.

Day said the clause appeared to violate the free-trade principles of the WTO, of which the United States is a member, as well as the North American Free Trade Agreement. But he said it is too early to say if Canada will launch any formal complaint.

"We respect every country's autonomy when it comes to passing legislation," Day said in an interview. "At this time we're using all the diplomatic channels that are available."

The steel provision is reminiscent of the Buy American Act passed by Congress amid the depths of the Great Depression. Passed in 1933, it required the U.S. government to favour made-in-America products when making purchases.

Day warned the U.S. against falling back on trade barriers as a means of protecting itself against the recession.

"History shows clearly that you can't fall back into protectionist measures. That happened in the 1930s and what could have been a bad one or two-year recession turned into, as we know, the Great Depression."

The stimulus package has also triggered a wave of anxiety among Canadian and U.S. companies that do extensive cross-border business.

"We've very concerned," said Scotty Greenwood, executive director of the Canadian-American Business Council, which lobbies on behalf of companies with interests in both countries.

The economic stimulus bill passed by the House of Representatives is "not well thought out" because it does not recognize how integrated the Canadian and U.S. economies have become.

"It's a big mistake with Canada because it doesn't fundamentally recognize the way we do business," Greenwood said.

The provisions banning foreign steel and iron from being used in any infrastructure project could deal a serious blow to the $13 billion Canadian steel industry, which exports about 40 per cent of its product to the U.S.

But of potentially more concern is the Senate version of the bill -which is still being debated and currently includes language to require only American-made equipment and goods be used on projects created by the stimulus.

"U.S. policy-makers need to be better educated," said Greenwood, whose group is now focusing its efforts on getting the Senate to amend its legislation. "For the purposes of the domestic market in the U.S., it's useful for Canada to be considered domestic."

The Senate is expected to vote next week on its version of the stimulus bill. At that point, the Senate and House would meet in "conference" negotiations to reconcile the two pieces of legislation, which could be Canada's last chance to have the bill altered.

Obama technically has the authority to veto the bill, but is under intense pressure to get his recovery package through Congress as soon as possible.


© Canwest News Service 2009

[Dominus Atheos]

The point of the stimulus is it's supposed to be applied Keynesian economics, so buying foreign would defeat the purpose.

[Gerald Tarrant]

A WaPo article I'd seen earlier had a spokes-person for Caterpillar asking Congress to remove that provision

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

The provisions also confront President Obama with his first test on trade policy. He must weigh the potential consequences of U.S. protectionism against the appealing slogan of "Buy American" and the jobs argument.

The administration has not addressed the issue publicly, and sources close to the issue said it appears that a response is still being formulated.

"We're reviewing the Buy American plan proposal, and we are committed to a plan that will save or create at least 3 million jobs including jobs in manufacturing," White House spokeswoman Jen Psaki said.

The proposals are meant to regenerate heavy manufacturing jobs in the United States by forcing government contractors to use domestic materials and equipment, even if they are more expensive. Yet U.S. industrial giants including Caterpillar, General Electric and the domestic aerospace industry are emerging as strong opponents.

The measures, they argue, could violate trade deals the United States has signed in recent years, including an agreement on expanding access to government procurements reached through the World Trade Organization. But most damaging, critics say, would be the "protectionist message" attached to imposing such barriers on foreign companies.
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Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.

"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.

"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."

There are early signs that nations are putting up trade barriers to protect domestic companies as the global downturn worsens. Despite promises offered during a major economic summit in November to refrain from taking such measures, countries from France to Indonesia have done so.

That, some argue, may be reason enough for the United States to follow suit. But in recent decades, the United States has stood out as the global champion of free trade; some analysts fear a move by Congress to restrict foreign companies from stimulus spending would mark an important shift away from that philosophy.

Supporters say expanded Buy American provisions could help ensure that the treasure trove of government contracts for new highways, schools, bridges and energy grids creates jobs at home instead of abroad. They note that much of the tax rebate checks that went out last year to stimulate the economy went to Chinese-made televisions and Korean-made refrigerators.

Until the global economy turned critical in the second half of last year, the domestic steel industry, for instance, was operating at near capacity and steel prices were climbing sky-high. Now, U.S. unemployment is soaring.

Factories in some top steel-producing states -- including Indiana, Ohio, Pennsylvania and Alabama -- are running at 45 percent capacity, with 40 percent of their workforce on furlough, or about 25,000 people, according to United Steelworkers union. Ensuring that U.S. steel and iron do not have to compete with, say, Chinese steel, for stimulus projects, industry officials say, could help get those workers back on the assembly line.

"What we're already seeing is that demand is going down, but imports of Chinese finished steel is going up because they are subsidizing it," said Thomas Gibson, president of the industry-funded American Iron and Steel Institute. "What we're saying is that this is a stimulus package to promote American jobs. We ought to maximize every dollar in that bill toward that end. If you were building a bridge in West Virginia, you wouldn't bring in German workers to do it. Materials should be no different."
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Congress enacted the Buy American Act in 1933, establishing preferences for U.S.-made products in government contracts. In 1982, those preferences were made more strict for transportation and highway projects, although waivers have been granted.

The plans being considered by Congress, however, would greatly amplify and expand existing preferences for U.S. companies. The provision passed last night was introduced by Rep. Peter J. Visclosky (D-Ind.) and had won unanimous bipartisan support in committee. Among the few exceptions, use of U.S. steel or iron would need to drive up the cost of a project by 25 percent in order to allow a foreign substitute -- far more rigorous than current regulations. The House bill also contained a stipulation that the uniforms and other textiles used by the Transportation Security Administration be 100 percent American-made.

In the Senate, Byron L. Dorgan (D-N.D.), is proposing a far broader measure that would exclude most foreign-made manufactured goods, again, with a few exceptions. In an interview Visclosky said he would be inclined to accept the broader Senate proposal as the two houses seek to compromise on the final language of the bill.

It's not protectionism, Dorgan said. Citing the massive U.S. trade deficit, he added, "and it's pretty hard for anyone to look at our trade situation and suggest that we are being unfair."

The Caterpillar situation highlights some of the risks of protectionism, by prohibiting foreign goods in the stimulus projects, the US provides an excuse for countries that might otherwise buy American products to go with their own domestic version. That would decrease Net Exports, offsetting some of the "buy American" gains, and squandering foreign good will to little real economic effect.

[Phantasee]

And Komatsu is a very popular alternative to Caterpillar already. Cat might make the best dozers, but Komatsu's aren't that bad, and if you need a bulldozer, you're just as likely to go for what's cheaply available as what's the best in terms of quality. Cat might get fucked by this, and hard.

[Jalinth]

I don't particularly care for Harper, but I have no clue if he's just bleating or actually has something to say this time....Is this a valid point? Is Obama not realizing how integrated our economies are and how essentially 'buying American' would be too drastically simple?

The problem isn't that Obama doesn't understand, the problem is can he politically afford to veto the stimulus bill if it comes to him with a buy American clause? Harper and other countries (European countries are also going after this measure for the same reason) are trying to get the measure yanked out in the early stages because once it gets to Obama, he takes it all or rejects it all.

[Ekiqa]

There's also the fact that this violates NAFTA and the WTO. This goes through, and there will be lawsuits filed against the US government. Protectionism doesn't work in such an interlinked economy as North America's.

[Enigma]

Won't this just create reprisals? Other nations either setup tariffs on American goods or anything that the U.S. wants\needs to import or outright reduce\stop trade with them?

[Admiral Valdemar]

Won't this just create reprisals? Other nations either setup tariffs on American goods or anything that the U.S. wants\needs to import or outright reduce\stop trade with them?

Yes, which is what put the Great Depression into a whole new gear. The idea that we should force nationals to buy their own brands, even if shit and more expensive than rivals from abroad, is contrary to free market business and only means everyone else will go "fuck you too" and do the exact same thing. Voila, you've just killed globalisation and with it your economy.

[Gerald Tarrant]

Rahm Emanuel was occasionally mentioned as the kind of chief of staff who could keep Congress in line. Was that just hype? Or did President Obama not care about the "Buy American" thing? I mean in a conflict between the White House and whatever putz added the rider, the White House would come out on top. All president Obama would have to do is use his bully pulpit to highlight how terrible an idea this is.

[Justforfun000]

Admiral Valdemar Wrote:

Yes, which is what put the Great Depression into a whole new gear. The idea that we should force nationals to buy their own brands, even if shit and more expensive than rivals from abroad, is contrary to free market business and only means everyone else will go "fuck you too" and do the exact same thing. Voila, you've just killed globalisation and with it your economy.

Obviously Obama is aware of this. Is it possible that this is something he figured would be acceptable for just a short period of time in order to pull them out of crisis? How long is this bill in effect for btw?

Also based on some other responses in this thread...is this not a bill directly drawn up and coordinated by Obama himself or is this a huge cooperation effort that is put forth by a group of democrats that Obama gives a cursory stamp of approval on?

Quote Tag's Fixed-Bean