Buy America and the Knee-Jerk "Free Trade" Crowd

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Dean Baker
TPM Café (Talking Points Memo), February 5, 2009

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After ignoring the growth of an $8 trillion housing bubble, fueled by junk loans issued by over-leveraged banks, the "free-trade" crew is worried that a "buy America" provision in the stimulus bill will give us a trade war leading to another Great Depression. This complaint should be put in perspective so we can all get a good laugh at their expense.

The free trade crew tells us that this Buy America provision will start a trade war. Why would our trading partners start a trade war over a bill that increases demand for their exports?

That's right, the stimulus bill will increase demand for imports, including for imported steel. The bill will lead to more growth, which will increase demand for all products, including imported steel. That will be the case even if we have barriers that limit the use of imported steel for a small part of the stimulus. So, will our trading partners start a trade war because we are buying more of their products?

It is also worth comparing the protection that the "free traders" see compared to the protection that they don't see. The government has already provided $350 billion in subsidized loans to our banks through the Troubled Asset Relief Program (TARP). The Fed has provided hundreds of billions more.

For some reason, these massive government subsidies, which hugely advantage U.S. banks relative to their foreign counterparts, have gotten no attention whatsoever from the so-called "free traders." Every bad thing that they say about protection for steel can be said for protection for banks, but for some reason we haven't heard any complaints about the bank bailouts.

The obvious answer in this seeming riddle is that the "free traders" could not care less about free trade. They don't like policies that favor ordinary workers, like those in the steel industry. On the other hand, they are very happy when the government intervenes to help the rich, as was the case with the Wall Street bailout.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.