Allies Worry Protectionist Measures in Stimulus Bill May Spark Trade War

The $789 billion stimulus bill nearing passage by the U.S. Congress includes protectionist measures that, despite being watered down, have drawn the ire of trading partners.

Major partners, including the European Union and Canada, worry that the legislation favoring U.S. steel, iron and manufactured goods for government projects included in the bill could spark a trade war and further damage the global economy. The EU's top official in Washington said Thursday that the bill is raising concerns in Europe about the economic policies of the Obama administration, which has helped move the stimulus bill through Congress.

"In the previous administration we had the experience of American unilateralism in the military sphere," said John Bruton, the European Commission's ambassador in Washington. "The risk now is that we might be experiencing American unilateralism in the economic sphere."

Requirements known as "Buy American," originally written into the bill by the House of Representatives, were softened in the Senate after strong criticism from abroad. Senate and House negotiators agreed to a version that would require the government not to violate trade agreements when implementing the law.

Bruton said the legislation would undermine pledges by major economic powers to avoid protectionism in the global downturn even with that stipulation. He said that international trade law is not the right measure of protectionism, because only minimal rules exist that regulate government spending decisions.

"The conclusion of any `Buy American' provision is a setback for the effort to find a global solution to the global economic problem," Bruton said.

The EU wanted the United States to include a provision opening government contracts to trading partners who reciprocate.

The dispute has put President Barack Obama in a difficult position. While campaigning, he raised questions whether U.S. trade agreements contain sufficient protection for labor and environmental standards. He has warned recently, however, about antagonizing trading partners. He also has made clear that passage of the overall stimulus bill is needed urgently to mend the U.S. economy.

In several television interviews last week he said the stimulus package should not include protectionist language that could trigger a trade war. But now that it does, he is likely to sign it. The measures appear, however, to give the administration discretion about how to implement spending decisions, given the requirement of meeting trade obligations.

U.S. labor groups that pushed hard for inclusion of the measure have argued that its main purpose is to ensure that U.S. Treasury dollars are used to the fullest extent to support domestic job creation.

"Buy America is good news for laid-off workers in construction and manufacturing, and good news for the global economy by helping to spur U.S. growth," said Scott Paul, executive director of Alliance for American Manufacturing, a partnership of manufacturing companies and the United Steelworkers union.

Supporters also stressed that the provision applies only to spending under the stimulus bill, and that highway, transit and airport projects already are covered by almost identical Buy American requirements that have been in place for years.

But industry groups see the provision in a different light. One hundred business groups and companies, including major construction, defense and high-tech companies, wrote Senate leaders last week with the dire warning that the provision "will harm American workers and companies across the entire U.S. economy, undermine U.S. global engagement and result in mirror-image trade restrictions abroad that would put at risk huge amounts of American exports."