The "Buy American" provisions in the 787-billion-dollar economic stimulus bill that US President Barack Obama signed into law Tuesday, will deal a hard blow to world endeavours in saving the economy.
According to the legislation, the "Buy American" provision prohibits the purchase of foreign iron, steel and manufactured goods for any stimulus-funded infrastructure project.
The provisions, contradicting the principles of fair trade and posing potential hurt to developing economies, run against the general trend of intensified coordination and cooperation across the world community in efforts to tide over the economic crisis.
Most economists believe it is a better choice for world economies to simultaneously adopt expansive fiscal policies, enlarge government spending and save the global market via free trade, which they said would stimulate increasing returns to scale and result in a virtuous cycle for the global economy.
On the contrary, resorting to trade protectionism will only trigger a vicious cycle worldwide, they said.
However, for the ideal scenario of collective increasing returns to scale to be realized, the world's economies should enhance dialogue and cooperation on the basis of complete mutual trust.
The "Buy American" provisions in the US package threaten to undermine the cooperation of trading partners based on mutual trust and will likely cause them to hesitate in implementing measures to save or open the market, or even force them to resort to trade barriers.
As a result, the effects of the ongoing crisis might linger longer or even expand in extreme cases.
Faced with the widespread global financial crisis, many countries have invested heavily in boosting their economies, or are at least preparing to do so. Enterprises in the United States also have their eyes focused on these stimulus packages, hoping to benefit from them.
However, the gigantic US economic recovery package has virtually shut the door on developing countries, raising the possibility of tit-for-tat treatment from those economies.
According to The Washington Post, the major economies in Europe and Asia have all released their stimulus plans, which might benefit US enterprises if they participate in them. However, the "Buy American" provisions in the plan are obviously geared toward protecting US enterprises, which will hurt the feelings of other economies and raise the risk of similar treatment from them.
Developing economies, including the emerging ones, have become an important engine for world economic development, and no revival plan can do without their cooperation and support. It is thus unrealistic to exclude the many developing economies from any stimulus plan.
In a recent article in the Wall Street Journal titled "(US) Congress wants a trade war," Princeton University economics professor Burton Malkiel pointed out that, "Buy American provisions invite retaliation by other nations, and the spread of "beggar thy neighbour" policies throughout the world."
The steady growth of developing economies would offer more opportunities for developed economies to recover. Justin Yifu Lin, the World Bank's chief economist, recently repeated his call for a coordinated global stimulus to get the world economy out of deep recession.
Developed economies mired in downturns should not close their doors for self-protection, urged Lin. Rather, they should try to help emerging economies expand their domestic demand to speed up world economic recovery.
From that perspective, the "Buy American" provisions in the US stimulus package are no doubt short-sighted.