Obama facing dilemma over protectionism in bill

[January 31, 2009]  WASHINGTON (AP) -- Less than two weeks into office, President Barack Obama faces a dilemma over protectionist provisions in a massive economic stimulus bill: Backing the measures could set off a trade war, while opposing them could trigger a backlash from his supporters.

The choice involves "buy American" provisions attached to White House-backed stimulus legislation moving through Congress. They would require major public works projects to favor U.S. steel, iron and manufacturing over imports.

Some Democratic lawmakers and interest groups allied to the president support the measures, but international allies and trading partners are warning that favoring U.S. companies would breach U.S. trade commitments and could set off tit-for-tat countermeasures around the world.

The two largest U.S. trading partners already have spoken out against the measures. On Thursday, Canadian Prime Minister Stephen Harper expressed concern and the European Union warned that it would not "stand idly by" if such measures were passed. On Friday, Brazil's president Luiz Inacio Lula da Silva also criticized the measures.

In November, world leaders, who gathered in Washington for the G-20 summit to consider how to right the global economy, pledged to avoid protectionism. But since taking office Jan. 20, Obama has said little on trade and has yet to nominate a trade representative. While campaigning, he argued that the Bush administration's strong support of free trade agreements should be moderated by including environmental and labor protections.

"The jury is out on how this administration is going on trade policy," said Steven Schrage, an international business analyst at the Center for Strategic and International Studies. "This will be a key test."

Asked about the protective provisions Friday, White House press secretary Robert Gibbs would say only that the administration was reviewing them.

The provisions are likely to find support among Americans outraged that money from a stimulus package likely to top $800 billion could go to foreign competitors of U.S. firms.

"I believe that when taxpayer dollars are used, they should support the things produced here at home," Democratic Sen. Byron Dorgan, author of one of the provisions, said in a statement.

Many analysts say the measures reflect the interests of small sectors over the larger economy, which could suffer from reduced trade and higher steel prices.

"The result, according to my calculations, is that the U.S. will lose more jobs than it will gain," said Gary Hufbauer, an economist with the Peterson Institute for International Economics, a Washington think tank. "We are going to poison the wells of world commerce if we do this."

The provisions are in a bill already approved by the House and a different version under consideration in the Senate. The Senate version states that none of the funds from the stimulus may be used for a project "unless all of the iron, steel and manufactured goods used in the projects are produced in the United States." The House version leaves out manufactured goods.

Obama, who has argued that stimulus measures are urgent, is unlikely to block passage of any bill approved by the Congress. But he could press lawmakers to remove the protectionist measures before it is passed.

"The problem is that Obama has not said anything yet," said Dan Ikenson of the libertarian Cato Institute.

Both versions of the bill include language that would allow the president to waive the protectionist measures if he decides that would be in the economic interests of the United States. But passage of the measures could in itself unnerve trading partners and encourage other countries to take similar protective action.

[Associated Press; By DESMOND BUTLER]

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