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Will Democrats' Spending Package Cause a Trade War?

11:54 AM, Jan 29, 2009 • By BRIAN FAUGHNAN
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In a spending plan that will ultimately cost taxpayers more than $1 trillion, it's not surprising that significant details are only emerging now, while many more are unlikely to come to public attention for weeks or months. One such detail, which has received almost no attention, is that the bill contains a provision which is likely to spark a trade war with U.S. allies:

The House-approved plan's "Buy American" provision generally prohibits the purchase of foreign iron and steel for any infrastructure project in the bill.

The European Union's trade commissioner, Catherine Ashton, pre-emptively voiced concern about the US measure.

"We are looking into the situation. ... Before we have the final text ... it would be premature to take a stance on it," Ashton's spokesman, Peter Power, said in Brussels.

"However, the one thing we can be absolutely certain about, is if a bill is passed which prohibits the sale or purchase of European goods on American territory, that is something we will not stand idly by and ignore," he said.

Canada's government said it is concerned about US protectionism in the economic stimulus and its diplomats were lobbying US makers against the "Buy American" drive.

"We're always concerned when there are protectionist pressures in the United States," Industry Minister Tony Clement told public broadcaster CBC...

Italian Trade Minister Adolfo Urso warned Monday as the US legislation was being developed: "A dangerous new steel war is looming and we need to counter it with strong and decisive actions."

A European familiar with an EU trade commissioner dinner held the same day said that "one or two delegations signaled that the US recovery package contains seeds of a new steel dispute."

Beijing has already expressed concerns about Treasury Secretary Geithner's charge that China is manipulating the value of its currency, potentially setting the stage for a trade war with the country that's likely to finance much of the deficit the Democrats plan to run over the next few years. Now many other trading partners are worried that the United States is preparing to restrict access to its market, setting off a conflict with Europe and Canada.

The Obama administration needs to send a signal to Congress that the 'Buy America' provision needs to be removed from this legislation before it is sent to Obama for signature. The last thing the economy needs right now is a replay of the trade war that followed passage of the Smoot-Hawley tariff.

Ed Morrissey has more.