February 3, 2009

Smoot Hawley II -- The Stimulus Boogaloo

The stimulus bill recently passed by the House, and its counterpart under consideration in the Senate, both contain "buy American" provisions -- meaning that when purchases of materiel are made with money appropriated under that law, the materiel must come from American manufacturers rather than being imported from overseas.

Certainly, I understand the impulse. The idea is to stimulate the American economy, so keeping the money at home will be an effective way of doing that. It's also politically popular.

Thing is, it may well be illegal. Under our system of government, the highest law of our land is the Constitution. The second-highest laws are treaties we have made with foreign nations. Like, say, GATT, the General Agreement on Trades and Tariffs.

This fact has not escaped the notice of our allies and trading partners overseas. They are politely indicating that they are "concerned" that we are violating our free trade agreements. And they may take us to task for it if these provisions remain in the law. Just another example of how rushing a bill through Congress with little or no debate and little or no time in place to think about it can sometimes have bad consequences.

While it's easy to see how "buy American" might be a fine idea in the short run, alienating our trading partners and shutting off foreign trade will hurt us a lot more in the long run than the temporary benefit we gain from keeping our deficit-spent stimulus money purely at home. The economic crisis is global, not just local, and it will ultimately require a global restructuring of banking practices and a period of time for the global economy to recover from the shock it sustained last year.

I have no objecting to our considering our own advantage when contemplating the full scale of the issue. But I do think that we are now sufficiently interdependent with other nations that their economic well-being is in our own interest, and we should act accordingly. And we should also consider that protectionism in trade has ripple effects in diplomacy; one of the big reasons we elected Barack Obama was to regain political capital with other nations, and this is kind of squandering that goodwill right out of the starting gate.

Smoot-Hawley didn't work during the Hoover Administration. It won't work now, either.

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