Obama’s Trade Dilemma

In less than two weeks in office, Barack Obama has managed to antagonize most of our allies with the “buy American” provisions of the Democrats’ pork bill. The Canadian government, as well as the EU, has protested strongly and warned of a trade war if Obama’s protectionist plan is adopted. This is how the issue is being covered in Toronto’s Globe and Mail:

The Canadian government expressed optimism Saturday that the U.S. might climb down from a so-called “Buy American” trade policy that several countries have warned could start a trade war. …

As currently written, the Obama administration’s massive stimulus bill would require major public works projects to favour U.S. steel, iron and manufactured goods over imported ones.

Canada and other U.S. trade partners have warned that that’s precisely the type of protectionist tit-for-tat that turned the stock market crashes of 1929 into the Great Depression.

The Obama administration is now talking out of both sides of its mouth, trying to assure our trading partners that “something” will be done to avert a trade war, while not actually standing up to protectionist Democrats in Congress:

“I’m cautiously optimistic that something can be worked out,” [International Trade Minister Stockwell] Day said in a conference call.

“In no uncertain terms they’re telling us, ‘We hear you, we recognize you’ve got concerns with this, we’re doing some work. Keep talking to us, and stay tuned,’ is sort of the message I’m getting from the U.S. trade representative.” …

The current controversy has placed the new Obama administration in a political quandary.

On the one hand, the U.S. risks angering its allies and triggering a trade war at the worst possible moment, in the midst of a global economic downturn.

On the other hand, any administration retreat could infuriate two powerful constituencies: the unions who helped get Barack Obama elected, and the protectionist members of Congress whose votes the White House will need to pass any future legislation.

Obama’s press secretary, Robert Gibbs, says the administration is trying to come up with a solution:

“I’m going to say this for, like, the fourth time: The administration is reviewing that provision,” Mr. Gibbs said.

“It understands all of the concerns that have been heard not only in this room but in newspapers produced both up north and down south.”

If the wording of the legislation can’t be changed before the U.S. Senate votes on the stimulus bill, Mr. Day suggested Canada or other countries could still be exempted afterward.

Obama is going to have to learn, and soon, that governing is very different from campaigning. Vague and contradictory promises no longer cut it once you’re in office. Is it possible that Obama failed to foresee how our trade partners would react to the “buy American” provisions in his pork bill? Is he really unaware of the history of the Great Depression? (Possibly; we know that history is not his strong suit.) If Obama did understand that he would be unable to get away with one-way-street protectionism and therefore would be forced into an embarrassing “climb-down,” why did he allow those provisions to be included in his pork bill in the first place?

With luck not much permanent damage will be done, but the Obama administration is off to a very rough start.

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