On February 17 this year, US President Barack Obama signed an economic stimulus package totaling 787 billion USD in Denver. Since the "Buy American" provision in the package has a strong flavor of trade protectionism, it has attracted wide spread attention from countries all over the world.

Why does the US, which has always advocated trade liberalization, put forward such a clause? Can the "Buy American" provision offer effective solutions to the US' economic problems? What impacts will the implementation of this economic plan produce?

Song Hong, Director of the Research Section of International Trade under the Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS), Li Quan, Deputy Director of the Department of International Economy and Trade at Peking University, Xiao Chen, a professor of the School of Economics at Peking University, and Ding Zhijie, a professor of the School of Banking and Finance at the University of International Business and Economics accepted an interview to share their unique views on this matter.

The US is distributing "pain relievers" to its people

Question: Why would the US choose a bill that noticeably leans toward trade protectionism to stimulate economic development? Why does the bill emphasize the steel and iron industry?

Song Hong: The US is a country that has a tradition of free trade. But the US Congress has tarnished its own reputation with narrow-minded and selfish acts that place US interests above global interests. During the 1930s, the Smoot-Hawley Tariff Act enacted by the US Congress greatly aggravated the global economic crisis. Today's situation seems to repeat that historic tragedy.

Xiao Chen: The contest amongst the US' domestic political powers is the most direct short-term cause for adopting the "Buy American" provision. The second one stems from the pressure of unemployment, social relief and the public psychology. The reason why the US government took this action is that it wanted to give Americans a "painkiller" in hope of more or less relieving their pains. In addition, due to the heavy and unprecedented impact of financial crisis on the US economy, anxious politicians rushed to redirect their normal strategic visions to swing trade.

Since the US has focused on developing a knowledge economy and providing financial services over the past years, it now faces much unemployment pressure due to global financial crisis and the massive corporate layoffs. At present, the US wants to revive its real economy by adopting these means, but unfortunately, the US' action is going against the current of future economic development trends. For this reason it will be difficult for the provision to realize its desired effect. After all, the US will inevitably follow a non-industrial path, and the knowledge economy will continue moving ahead.

Li Quan: The reason why the US emphasizes the protection of the steel industry is that its steel sector is a declining industry that does not have any international comparative advantage. At the same time the sector is of strategic importance to the US, as evidenced by the fact that Steel City Incorporated, based in Florida, has close relations with the US government. As a matter of fact, in 2002, following the September 11 attacks, the US openly raised the rate of import duties on iron and steel in order to protect its own steel sector. EU countries complained about US protectionism and submitted the case to relevant institutions of the WTO for judgment, eventually leading to the US' defeat.


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