Protection racket

Most observers tend to put some significant part of the blame for making the 1930's Depression Great on the spiraling rounds in the war of protectionism in nations around the globe. As each country fought to protect industry inside its own borders, international trade wilted and, along with it, intra-national economies.

VP Jumpin' Joe is not biding any time jumping into the same fray, notwithstanding history's lessons. This from an article in the Canadian Globe and Mail:

support remained strong, even within the administration, for a bill passed this week by the U.S. House of Representatives that bans the use of foreign iron and steel in projects funded by the package.

“I don't view that as some of the pure free traders view it, as a harbinger of protectionism. I don't buy that at all,” Vice-President Joe Biden told CNBC on Thursday. “So I think it's legitimate to have some portions of Buy American in it.”

A Senate version of the bill, which has yet to be voted on, goes even further, mandating that only U.S.-made goods and equipment be used in all federally funded stimulus projects – everything from computer software to hard hats.

Ottawa argues both the House and Senate bills are violations of World Trade Organization and North American free trade rules. Canadian diplomats, working alongside groups such as the U.S. Chamber of Commerce, have been lobbying Congress to remove or water down the measure.

The AP reports,

Some Democratic lawmakers and interest groups allied to the president support the measures, but international allies and trading partners are warning that favoring U.S. companies would breach U.S. trade commitments and could set off tit-for-tat countermeasures around the world.

In November, world leaders, who gathered in Washington for the G-20 summit to consider how to right the global economy, pledged to avoid protectionism.

"The jury is out on how this administration is going on trade policy," said Steven Schrage, an international business analyst at the Center for Strategic and International Studies. "This will be a key test."

And the Washington Post adds,

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."

PS: There's a carefully structured anecdotal story of the "ripple out" rather than "trickle down" theory of how one family's economic pinch becomes a community's in the WSJ, but not sure if you need a ticket to read. Try this link and see what happens. Point being, whenever an actor is removed from the economic scene, the whole plot changes. You can't just cut off a nation's economy from the rest of the world and expect ceteris paribus.