The Washington Post reports that the trade-war issue, which flared up briefly after “Buy American” clauses made it into the stimulus bill, is heating up below the surface.
It’s smart to find that the battles are forming in areas not subject to international law. After the initial hubbub over the “Buy American” stuff, after Obama helped push wording in the legislation that the rule wouldn’t overturn existing treaties.
Here’s the good nut graph:
Rather than merely raising taxes on imported goods — acts that are subject to international treaties — nations including the United States are finding creative ways to engage in protectionism through domestic policy decisions that are largely not governed by international law. Unlike a classic trade war, there is little chance of containment through, for example, arbitration at the World Trade Organization in Geneva. Additionally, such moves are more likely to have unintended consequences or even backfire on the stated desire to create domestic jobs.
This is a nice lede, too:
Is this what the first trade war of the global economic crisis looks like?
Ordered by Congress to “buy American” when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.
Outrage spread in Canada, with the Toronto Star last week bemoaning “a plague of protectionist measures in the U.S.” and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.
But the WaPo falls down by not noting that Canada has much more to lose from a trade war than the U.S. does. Exports account for about 35 percent of its gross domestic product, or more than three times that of the U.S. It exported about $70 billion more to us last year than we did to it. That’s a huge part of its economy.
Which would mean it has more to lose from a trade dispute with the U.S. than we do with it. That’s critical information that should have found its way into the Post’s story.
The Post also has bought into the Church of Free Trade too much here, focusing almost entirely on the negative effects on Americans of such disputes without spelling out that those are at least somewhat offset by gains. For instance:
Take, for instance, Duferco Farrell Corp., a Swiss-Russian partnership that took over a previously bankrupt U.S. steel plant near Pittsburgh in the 1990s and employed 600 people there.
The new buy American provisions, the company said, are being so broadly interpreted that Duferco Farrell is on the verge of shutting down. Part of an increasingly global supply chain that seeks efficiencies by spreading production among multiple nations, it manufactures coils at its Pennsylvania plant using imported steel slabs that are generally not sold commercially in the United States. The partially foreign production process means the company’s coils do not fit the current definition of made in the USA — a designation that the stimulus law requires for thousands of public works projects across the nation.
In recent weeks, its largest client — a steel pipemaker located one mile down the road — notified Duferco Farrell that it would be canceling orders. Instead, the client is buying from companies with 100 percent U.S. production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.
Presumably, job losses at Duferco mean job gains at other steel plants in the U.S., no? The Post doesn’t mention it.
Actually, the paper does report that there may be some positive benefits for the U.S. from this, but it buries it in the last two paragraphs. This referring to a Canadian company getting hit by stimulus provisions:
To stay in business, Hayward is considering moving some manufacturing operations to the United States, potentially creating jobs here. That, Peru Mayor Jim Walker notes, is what the stimulus was supposed to be about.
“You’re trying to get America turned around, trying to put Americans back to work,” Walker said. “And if American taxpayers are paying for this, well then, Americans deserve the benefits.”
But it’s an interesting story and good for the Post for digging it up.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.