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February 5, 2009

The Buy American Clause

by at 5:06 pm.

A few days ago, I wrote about the EU response to the “Buy American” clause of the stimulus. And though I understand the impulse (”we’re spending American taxpayer money so it ought to be on American goods”) I’m not sure we’re ready for the consequences. A friend of mine in Canada sent these thoughts to me (via email). And yes, Canadians don’t put z’s in ize’d words. :)

I don’t think people realise the extent to which economies are intertwined today.

Take Plug Power for example … a company in upstate NY that supplies clean power solutions. They are the one bright light in a fairly depressed area of the state. They could play a huge rule in the various investments … particularly in mobile power sources. But if the Buy American clause passes they will be excluded from it and probably go bankrupt as a result. Why the exclusion? Although the delivery systems are built and assembled in NYC, the actual power pack is a hydrogen fuel cell designed and manufactured in BC by Ballard Power.

If you want to know the disastrous potential impacts look at the Smoot Hawley Tariff bill of 1930. It was brought into force to try and protect American jobs. Other nations slammed their own tariff barriers into place in retaliation and the value of world trade dropped by two thirds … that’s right … two thirds in the space of two years.

This whole buy American thing is a knee jerk reaction that doesn’t address the real problem of productivity. I mean the reason so many of your South East wood mills are unproductive is because they were protected by punitive tariffs on Canadian wood for so long that they didn’t need to upgrade … we had to upgrade just to compete … and the longer the tariff stayed in place the worse it got.

Anyway … instead of looking at the job losses I would like every American who works in an export related field to get a little note on their paycheck that shows just what portion of that comes from exports.

This is too simple a reaction to too complex a problem.

Now, my friend’s viewpoints are what are considered relatively conservative, at least in the pro-business sense, for Canada and British Columbia, specifically. But he knows a lot about these trade issues and he makes a very compelling point. It appears the Buy American clause did not get taken out of the Senate version of the stimulus in the latest round, so this is a very relevant discussion.

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