Protectionism Ahead?

Last week Bank of America withdrew offers to MBA students on H1 B visas. As a recipient of TARP money from the federal government the bank had to comply with a clause that Congress had inserted into the TARP bill that prohibits TARP recipients from hiring foreign workers with work permits.

Elsewhere, Congress passed the Stimulus Bill after inserting a “Buy American” clause in it that compels the stimulus money to be spent on American steel.

SEC. 1110. USE OF AMERICAN IRON AND STEEL.

(a) IN GENERAL.—None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States.

Immediately after this paragraph there are exceptions which water it down substantially but it was still enough to get noticed.

Both these might indicate that protectionism is raising its head in the US. But I think it is unlikely that the US will do anything more than allow some politicians to grandstand on these kinds of legislative actions that have high bark content but very little bite. My confidence is not based upon the good sense of American legislators, which frankly if there is any will be quickly crushed by political calculations in this recession. No, its based upon self interest of the US.

Any serious attempts to curtail competition in goods or services will immediately result in retaliation from other countries. American companies in technology and manufacturing are huge exporters. From Cisco to Caterpillar to Boeing, not one of them will stand by and let Congress enact any legislation that could hurt their prospects outside the US.

And if a trade war wasn’t bad enough for the US economy, imagine what would happen if Asia (China, Japan) were to unload US Treasurys. Whose going to fund the trillion dollar US budget?

My money says that the US will not impose serious trade restrictions. At least not unilaterally. But if unemployment rises to something like 12%, all bets are off.

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2 Responses to Protectionism Ahead?

  1. Kelpie says:

    Somebody should bring up the the question(s): What if the world stopped buying arms from the Americans; What if the world stopped drinking Coke and Pepsi and made their own colas? What if local shampoos replaced H&S; What if the world stopped banking with American Banks (not sure what is in store now in any case:)). . . What is 'Made in America' today?. . . should not one stop and think of this before yelling about offshoring or outsoucing jobs? We are in the global economy, we give and we take, how can there be trade otherwise? TIme for folks to think about what can they do and how can they be productive? How can they be gainfully engaged in areas different from what they were doing for many years? Learn new skills?. . . .

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  2. Vivek says:

    My take on this that India ,China ,Japan etc that have U.S money in treasuary notes, will not be able to put much road blocks once the U.S start Protectionism. In order to save the debt they owe from U.S they have to dance like a tool on U.S moves.
    When a bank give a loan to somebody, now its the bank's responsibility to make sure the person with the money does not run away and s/he is doing good.
    –Vivek Puri

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