'Buy American,' buy Canadian, too

by Rebecca Cole

As President Barack Obama landed in Canada today for his first official trip outside the country, he addressed concerns about a protectionist "Buy American" clause in the $787-billion stimulus act and how it could affect the two nations' critical trading relationship.

Signed into law earlier this week, the American Recovery and Reinvestment Act contains a watered-down version of a clause restricting federally-funded stimulus projects to using American-made steel, iron and manufactured goods. The U.S.-Canadian trading relationship is the largest in the world, with total trade in 2008 topping $596 billion.

Canada accounts for $7.6 billion in iron and steel exports to the U.S., and for 80 percent of American steel and iron imports.

After a quick airport meeting with Governor General Michaelle Jean, Obama met with Canadian Prime Minister Stephen Harper at Parliament Hill, where both expressed a firm commitment to the continuation of trade between the two countries.

In contrast to remarks made during his presidential campaign, when Obama hinted at renegotiating the North American Free Trade Agreement, the president reiterated his commitment to boosting trade with Canada and not retracting it.

"Now is the time where we've got to be very careful about any signals of protectionism," Obama said. "As the economy of the world contracts, I think there's going to be a strong impulse, on the part of constituencies in all countries, to see if they can engage in beggar-thy-neighbor policies."

After Obama warned senators two weeks ago that engaging in protectionist tactics would only prolong and intensify a global economic crisis, the final Buy American provision was amended to uphold international trade agreements such as NAFTA and those under the World Trade Organization. Leaders of the United Steelworkers' Union also pleaded their case, asking for an exemption for Canadian-produced goods.

"I think it was very important to make sure that any provisions that were there were consonant with our obligations under WTO and NAFTA," Obama said. "And I don't think that there was anything in the recovery package that is adverse to that goal.''

Yet there are loopholes. NAFTA does not apply to federal highway or mass transit projects, so any that are using the $111 billion allotted in the stimulus package for roads and transit systems would be required to follow the Buy American rules.

The Buy American provision is widely viewed as being aimed at those countries which do not have pre-existing agreements -- China, Brazil, India and Russia - and not at the neighbor to the North. But some are still worried that a protectionist fervor will end up costing the U.S. jobs rather than saving them if other nations retaliate.

Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics in Washington, estimated in a recent report that only about 1,000 jobs would be gained in the steel industry by the Buy America provision. With a U.S. labor force of roughly 140 million, Peterson suggests the potential impact is just a drop in the bucket.

But to the steel economies of Indiana and Michigan, where unemployment is now at 8.1 percent and10.4 percent respectively, 1,000 jobs could mean much more.