As government stimulus packages to revive sagging economies become a norm around the world, they are opening new windows of opportunity for suppliers to bid for lucrative contracts in infrastructure projects.
The two largest stimuli that have been announced with an emphasis on infrastructure to generate employment are from the governments of the US and China. The Obama administration?s plan is worth some $900 billion, of which $274 billion is allocated to transportation, repair of buildings, water and sewer systems, rail and mass transit, and other modernisation projects. The Chinese plan of $586 billion will target ten areas from rural infrastructure and railroads to low-cost housing. Smaller packages of this sort have been unveiled in Germany, France, Spain, Canada, et al.
A slew of brick-and-mortar-type projects are up for grabs for the global construction industry, and it is from sectors like cement and steel that the howls erupted last week about the ?Buy American? provisions in Obama?s stimulus. The directly aggrieved parties were European, Canadian and Chinese steel producers, who would all be competitive against domestic American steel manufacturers if there was a level playing field.
The indirectly worried parties were American businesses lining to bag slices of the stimuli of other countries. The US Chamber of Commerce warned that protecting some domestic American steel producers would invite retaliatory ?Buy German? or ?Buy Chinese? protectionism and hamper US exports. Since reciprocity is the golden word of trade relations, rules of domestic-origin procurement in the US would launch a spiral of non-tariff barriers and deepen the crisis in world trade.
Economist Douglas Irwin has already sounded the death rattle with the point blank assertion that ?world trade is collapsing.? The ?Buy American? provisions would deal a coup de grace to this process, because they threaten to wreck the four most important bilateral relationships that make up the bulk of world trade, viz. US-EU27, Canada-US, EU27-China and US-China. A retaliatory battening of hatches would have a devastating impact because of the interdependence of economies.
In an age of demand scarcity and real estate debacles, state stimuli are potential lifelines for heavy industries, which will not go down without a fight against protectionist measures. One sign that the lobbying efforts are paying off comes from Obama?s latest decision to water down the origin-based procurement rules in the American package. There is also a more political reason why Washington is bowing to demands to avoid protectionism. America needs the EU?s partnership to save the capitalist system as a whole. Disunity in the trans-Atlantic relationship will spell not only the doom of limping world trade but also of the edifice of capitalism itself. Intra-capitalist US-EU competition does exist, but so does a larger ideological agreement among American and European business elites that the system must be saved from being overthrown by the current crisis.
Yet, the economic fiasco has reached a stage where more non-tariff barriers are unavoidable. Bailouts of ailing industries can be read by competitors abroad as subsidies that harm free trade. Should GM, Ford and Chrysler be bailed out when their main structural weakness is failure to compete with the Germans and the Japanese? The line between saving auto workers? jobs and distorting world trade is wafer thin.
A new worry doing the rounds in rich countries is ?financial protectionism?, wherein governments are now so dominant over banks that they are barring them from lending to institutions outside their home countries. As cryptic nationalisation of sectors of Western economies is underway, the fundamental liberal axiom of free movement of capital has gone under a cloud. So, however much chambers of commerce rally against different forms of protectionism, it seems that they may not fully succeed against creeping state control.
The author is a researcher on international affairs at the Maxwell School of Citizenship & Public Affairs in Syracuse, New York