Saturday, January 31, 2009

Government Failure: Starting a New Trade War?

Mankiw sounds the alarm on the risks of new populist and protectionist measures that are about to be enacted by the Congress, as explained in this article in the Washington Post. According to the Wall Street Journal:

In Washington, President Barack Obama faces an early test as international concern mounts over moves in Congress to bar foreign suppliers from winning business on most projects funded by a new economic-stimulus package. ...

Some world leaders, as well as U.S. business groups including the U.S. Chamber of Commerce, have begun to cry foul over the proposed "Buy America" provisions in the new U.S. stimulus legislation, saying they could violate international trade rules and trigger a protectionist backlash. Officials within the European Union, as well as in Canada and Australia, have warned Congress and the administration against approving the provisions.

If the new administration doesn't act fast to firmly stop this trend, it will repeat the same mistakes that led to the Smoot-Hawley Tariff Act economic disaster. According to Mankiw:
I hope President Obama and his economists strongly oppose these first shots in a new trade war of protectionism.

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