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Monday, February 2, 2009

Buy Amurican

People are freaking out over provisions in the stimulus bill that require tax monies to be spent only on things from US companies. Paul Krugman argues that while there is an economic argument for protectionism of this sort under certain conditions, that its still a dumb idea from a purely political-economy perspective. I can't vouch for any of the former argument because it uses math-like things that hurt my brain, but the latter is certainly correct.

To refresh, there is a thing called the World Trade Organization, which we are a member. Personally, I enjoy organizations where Antigua can sue the United States over anything and win. More specifically, we have signed the WTO rules on government procurement which bars most forms of procurement discrimination against other WTO members. This means the US can be sued if it violates them. If violators don't comply the way the WTO enforcement works is to allow the aggrieved to violate trade rules of their own at the expense of the violator. Like an authorized trade war. Exciting.

Secondly, and perhaps more importantly, retaliation is certain to come whether through the WTO or not. Cases already take forever to work their way through the dispute settlement panels and there is much time for fiddling with trade rules in the interim.

So why even bother with this? It only works if everyone else doesn't do it too. And by doing it we've given everyone else a huge incentive to do it. Yea, dumb. But it seems the Senate has actually strengthened the "Buy American" provisions to an extent that clearly violates the WTO rules, which the House bill did not.

Pascal Lamy is certain to get balder.

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