Although there is no doubt that in the current system of integrated economies that has come to exist through globalization has had many benefits for all of those who choose to participate, often in times of crisis people look to protectionist measures. First and foremost we must consider that politicians are subject to the approval of their constituencies. During times of economic growth and stable domestic employment, politicians generally have carte blanc to conduct what matters they see fit, provided it does not result in the embarrassment of their constituencies or erupt into a nation wide scandal. During times of chaos, finical turbulence or high unemployment coupled with inflation such as those during the 70’s 80’ and today, many constituents often feeling the pressure of finical woes call their elected officials to come to their rescue through domestic initiatives that will lessens the amount of capital leaving the countries and thus stimulate domestic investment to provide economy growth in the local economy.
The question of whether or not protectionist clauses like the buy America provision of the US Recovery act of 2009 or the similar Buy China Act currently floating around Beijing may have more to do with the political make up of the country and the balance of trade rather than a direct effect of the spending initiatives themselves.
According to the US Census Bureau, between January and May 2009, the US trade deficit with China was about $85 billion. The deficit may suggest that because US companies and manufacturing have all but left the greater United States for lower cost labor and resources, we many not even currently have the manufacturing infrastructure to meet the demands of all the capital need to move the projects forward towards their construction. In addition, Americans have become so use to relying on the relatively cheap cost of good coming from China, that in the event of a buy America clause, US project holders may not be able to make enough profit as the cost of the project will skyrocket do to paying full price for domestic products that were not kept artificially low by dumping on the market or other government subsidies.
In addition, because of the US trade imbalance, in order for the American economy to stay afloat, money will need to continue to pour out of America is people from other countries are to be able to buy the expensive good that are left in the American market, such as car and software.
The US political system also plays an important role on the speed of recovery, unlike China and its centralized government; the US is a democracy and as such is often burdened tedious amounts of red tape and bid contract in order to achieve anything, something that is particularly noticeable when you consider that only 10% of the US Recovery Act funds have been used as of this date. Precisely because of the amount of bureaucracy and infighting among members of congress and their pet projects that a Buy America provision would never work, as nobody would agree on a vendor of choice.
China unlike the US with a strong central government would and is not at a disadvantage because of its protectionist policies found in the Buy China portion of their recovery act. Because much of China’s FID has resulted in a build up in manufacturing heavy and other wise, the country is readily able to produce the product it needs locally increasing the side of its workforce and getting its materials for the cheapest possible price, maximizing its cost – efficiency ratio while simultaneously decreasing unemployment, creating more spending and increased productivity. Due to the large holding of foreign reserve currencies, especially US Dollars, any durable goods and services that are not readily available in China can simply be purchased form its other trading partners, whether here in the west or of a more centrally located producer such as Japan or Korea.
China's ability to move out of a recession thought protections means may be directly influenced by the model the government runs on. Unlike the west, China has a strong central government, as such there is little in the way of fulfilling its commands. That is not to say that there is no infighting nor pet projects in China, however, since the government is in control of the construction efforts, projects can be made shovel ready with little to no administrative time waste. Evidence of this can be seen in China’s continued GDP growth, although it is less rapid than in the past could of years, statistical data suggests the economy is still growing upwards of 6% while that of the US stays relatively flat even after the capital infusion into the market by congress.
Whether or not protectionist moves by local governments are a bad thing perhaps can be directly tied the method in which your political system is built on. Clearly in this day in age, a fully global integrated market economy like that of the US is unable to sustain itself without strong international trade. On the other hand China with its strong central government seems to be doing quite well for itself, perhaps the question isn’t whether protections is bad or not, but rather how far are you willing to leverage your growth and economy on the backs of your trading partners and as a government what responsibility does the government have in regards to regulation to prevent further financial crises form starting?
US Census Bureau. "Trade in Goods (Imports, Exports and Trade Balance) with China." http://www.census.gov/foreign-trade/balance/c5700.html#2009 (July 27, 2009).
