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“Buy American” unpopular on both sides of the border

The American government’s economic stimulus package has come under fire over provisions that would stimulate the domestic economy at the…

By Brandi Cowen , in Bridging the 49th Parallel , on February 1, 2009 Tags: , , , , ,

The American government’s economic stimulus package has come under fire over provisions that would stimulate the domestic economy at the expense of many of America’s foreign trading partners, including Canada.

Under the “buy American” rules, all equipment used in the US’s economic stimulus program would have to be American-made. Some exceptions would be allowed in cases where “buying American” would be “inconsistent with the public interest.”

In Canada, government officials and industry lobbyists aren’t waiting to see if the provisions are signed into law before voicing their concerns. Prime Minister Stephen Harper has made it clear that American protectionist impulses – and their consequences – will be on the agenda when President Barack Obama visits on February 19th.

In the meantime, media outlets rush to interview economists and trade experts. Anyone willing to sit down and talk about tit for tat trade policies that might be implemented in retaliation for American protectionism is in high demand.

But the truth is that if “buy American” is signed into law, Canada will be hard-pressed to retaliate in a way that really hurts the United States.

In 2006, the United States purchased 79% of Canadian exports (approximately $303.4 billion US), while Canada purchased only 22% of American exports (approximately $230.3 billion US).

In other words, Canada would have a hard time inflicting much retaliatory damage on the American economy.

Canada’s options aren’t limited to a messy, self-harming trade war. The Canadian government could choose to work through North American Free Trade Agreement (NAFTA) or World Trade Organization (WTO) frameworks to redress its trade grievances.

But resolving trade disputes through NAFTA and the WTO can be a long, drawn out process. Case in point: NAFTA took five years to resolve the most recent softwood lumber dispute.

With any luck, the situation won’t come to NAFTA-style dispute resolution because the “buy American” clauses won’t be signed into law.

Industry lobbyists south of the border are making noise about how protectionism would actually hurt them. With big names like General Electric taking a stand against “buy American” provisions, their passage into law is far from being a sure thing.

Domestic discontent, when coupled with criticism from abroad, will probably be sufficient to keep “buy American” from becoming official government policy. If it’s not, Obama might find that his approval ratings drop considerably around the country and around the world.