Saturday, February 21, 2009

Trade partners miserable with buy American

Trade partners unhappy with new provision for 'Buy American'
President Obama heard a lot of concern about the "Buy American" provision of his stimulus package during his trip to Canada on Thursday. Our trading partner to the north is not alone. Here's Donald Tong, Hong Kong Commissioner for Economic and Trade Affairs USA: "Our office will respect (the provision)," he said during a visit to San Francisco this week. "But what we are concerned about is this sort of tendency. The last thing we want to see are trade barriers being erected by trading partners. At first they may look good. But they're going to backfire."

The "Buy American" provisions in the 787-billion-U.S. dollar economic stimulus bill that U.S. President Barack Obama signed into law Tuesday, will deal a hard blow to world endeavors in saving the economy.

According to the legislation, the "Buy American" provision prohibits the purchase of foreign iron, steel and manufactured goods for any stimulus-funded infrastructure project.

The provisions, contradicting the principles of fair trade and posing potential hurt to developing economies, run against the general trend of intensified coordination and cooperation across the world community in efforts to tide over the economic crisis.

Most economists believe it is a better choice for world economies to simultaneously adopt expansive fiscal policies, enlarge government spending and save the global market via free trade, which they said would stimulate increasing returns to scale and result in a virtuous cycle for the global economy.

On the contrary, resorting to trade protectionism will only trigger a vicious cycle worldwide, they said.

However, for the ideal scenario of collective increasing returns to scale to be realized, the world's economies should enhance dialogue and cooperation on the basis of complete mutual trust.

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