Dangers of Protectionism

Smoot, Hawley, & Pelosi is a blog entry at Greg Mankiw's Blog which refers to a Washington Post source. The newspaper reported the fact that the House version of the stimulus bill includes a provision requiring that funds, used to purchase iron and steel for infrastructure projects, buy only from U.S. sources. I favor American products when spending my own money but requiring the government and its contractors to purchase only American products is a bad idea. Why? This quote from the Washington Post at Mankiw's blog provides the answer:

But most damaging, critics say, would be the "protectionist message" attached to imposing such barriers on foreign companies.Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.

I would add that the steel industry is not one of our strongest industrial sectors. This is the bailout mentality with strong sectors of the economy supporting the weaker sectors. We risk the very strength of our economy in an attempt to bolster underperforming industries. Retaliatory measures by foreign nations would adversely impact exporters from stable companies who employ more Americans than the steel industry. We've been down this road before. Smoot, Hawley may have done more to bring about a world wide depression than any other factor. American policy makers are ignoring the lessons of history; an unwise and inexcusable ommision.