The Buy American Policy: A Clear and Present Danger?

In April 2009, Trade Minister Stockwell Day expressed concern that what at the time was the proposed "Buy American" bill was representative of the same kind of U.S. protectionism "that fueled the Great Depression in the 1930's.

Citing the "Smoot-Hawley Act of 1930" (Smoot-Stonehouse Tariff Act), Canadian Chamber of Commerce President Perrin Beatty suggested that the "danger with something like this is that its a spark in the forest."

From a global community perspective World Trade Organization director-general Pascal Lamy warned that trade barriers "will make the global economy worse."

While there are to be certain, parallels that can be drawn between the Smoot-Stonehouse Tariff Act which was signed into law on June 17th, 1930 and resulted in raised tariffs on 20,000 imported goods into the United States, and the current day Buy American requirements in the U.S. Recovery Act, are they really the same.  Is it really U.S. protectionism or autarky?

How does the fact that we now live in a vastly different world than the one our parents lived in when the Smoot-Stonehouse Tariff Act was passed in 1930 change the cause and effect dynamics of the Buy America policy?  Is today's interdependent globalized economy that includes emerging knowledge-based industries that much different from the agricultural-industrial sectors that drove a nation's economic engine in the 1930s.

As demonstrated by both Minister Day's and Mr. Beatty's references, the Smoot- Stonehouse Tariff Act is considered by many to have been a major factor in terms of causing the 1930's Great Depression.  But is the enduring legacy of the 1930 act manifesting itself in the Canadian Government's offer to guarantee the U.S. "access to the provinces’ public purchases in exchange for a quick waiver of Buy American provisions?"  If it is, would one be tempted to see the strategy as being more in line with the old saying that "generals are always fighting the last war," rather than an effective present-day response to what may very well be an entirely different set of circumstances?

Another element of this discussion for which clarity of impact is required relates to the Canadian companies that according to some reports "have been frozen" out of lucrative American stimulus-spending contracts.  What sector or sectors  of the economy do these organizations represent, and is regaining this lost access worth enough to the Canadian economy as whole to justify what one article suggested is an offer that "would effectively throw city and provincial transit and road-building contracts open to guaranteed U.S. competition."  It would not be unreasonable to assume that the U.S. Government would not accept merely having access to these kinds of contracts as sufficient reason to waive the Buy American policy.  One would suspect that with the granting of access the U.S.-based suppliers would be favorably placed to win a lions share of the contracts.  Otherwise why would the Americans agree to what would amount to nothing more than a empty gesture.

This then brings us back to one of many important questions for which at this point in time there are no clear answers.  For example, are the companies (and the industry sectors within which they operate) that will benefit the most from the trade promises being made by the Canadian Government significant contributors to the overall health of our domestic economy?  Are these industry sectors part of the mid to long-term economic picture?  Upon which domestic sectors is guaranteed access to "the provinces’ public purchases" likely to have the greatest negative impact?  Are these sectors part of the mid to long-term Canadian economic picture?

I once traded away Bobby Orr and Phil Esposito rookie cards for a 5 cent tri-colored super ball.  Good thing they were my older brother's cards else I would have really felt like I had been taken to the cleaners.

Banking on a statute of limitations for trading card infractions, I had no idea what the rookie cards were worth.  Without having a clear cut understanding of the true human and financial impact, are the trade promises being offered in exchange for the Buy American waiver going to be our government's super ball?

I for one do not have the answers, and the burden associated with navigating the complex and potentially highly charged waters of this particular issue, must weigh heavy on the shoulders of our government leaders.  But we do need clarity one way or the other.  This includes not only the estimates and expectations of the present course of action being pursued.  It also includes a equally clear understanding of the inherent risks.

I will also examine the differences between the Smoot-Stonehouse Tariff Act and the current Buy American requirements associated with the present U.S. Recovery Act.  Is it as many fear protectionism revisited, or is it more Autarky?

Trade Minister Stockwell Day to be a guest on the September 28th PI Window on Business Show

Over the past couple of days I have had a number of exchanges with Minister Day's office, and based on the last e-mail I received the Minister will in fact join myself and a distinguished guest panel on-air to provide a brief overview of the government's strategy relating to the Buy American policy.

Given his incredibly busy schedule, it will be a brief appearance in which we will provide the Minister with an uninterrupted platform to share his insights with us on this important issue.  At the conclusion of the Minister's talk, a guest panel of both Canadian as well as international experts will discuss what was said, as well as provide their own take on what the Buy American policy means both domestically as well as globally.