Buy American, or: The stimulus bill and US trade obligations

Renowned US trade economists Clyde Hufbauer and Jeffrey Schott warn against US protectionism under President Obama's huge stimulus package: US Free Trade Promises Must Be Honored. Excerpt:

In the stimulus bill, Congress insisted that federal funds could be applied only to projects that used US-made goods, unless that condition violated US trade obligations. But funds for many of the projects funded by the stimulus are funneled to state officials, many of whom ignore or don't know the details of US trade agreements and insist on US content for fear of losing federal windfalls. The federal government designed the stimulus program and provided the funds to pay for it. In our view, simply because a state official tenders the contract doesn't void the international obligation. The WTO and NAFTA judges would surely agree. more...

Protectionism within Europe

... is rearing its ugly head and the EU Commission is getting increasingly concerned about it, as financial24.org reports:

The European Commission, increasingly concerned about protectionist tendencies in member states, has asked France, Spain and, on Friday, Italy to justify their auto sector aid packages.

The EU's executive arm has some concerns over Italy's plan to aid its ailing auto sector and was writing to Rome Friday to seek more details, a spokesman said Friday. The commission will write to the Italian authorities today asking them to provide precise details on the measures within five working days, he added. One particular area of concern is that the government help seems to be available only to businesses that sign a protocol with the government, he said. Such aid could be discriminatory against companies who do not want to sign and in that case it would be state aid because it would be selective and threaten the free circulation of goods, he added. more...

In a nutshell

Subprime bubble --> Financial crisis --> Credit crunch --> Recession --> Stimulus package --> Buy American!

And what's next?

Update on 30. January: Now it's almost official -- Buy American stimulus ...

Should we fear a trade backlash?

... is what Barry Eichengreen asks in the Guardian. And his answer seems to be: yes, we should. Reasons are the protectionist rhetoric of the US president-elect and the de facto protectionist measures already in place or at least envisaged, such as government guarantees for the financial industry and bail-out packages for the auto industry.

PS: Arvind Subramanian (Peterson Institute) weighs in: From Financial Folly to Trade Troubles?