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Experts: Stimulus bill could backfire on US

By Xin Zhiming (China Daily)
Updated: 2009-02-12 07:40

The US Senate has taken an important step in the fight against recession by passing the $838-billion economic stimulus bill, but the bill's protectionist clauses could backfire and hamper the country's recovery, Chinese economists said yesterday.

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The Senate approved the stimulus package on Tuesday after a long and fierce debate. But it is still bickering with the House of Representatives on tax cuts and details of government deficit as they try to hammer out a compromised version for US president Barack Obama to sign into law.

"It's a major step to save the US economy, though uncertainties about the US economic prospects persist," said Dong Yuping, an economist with the Institute of Finance and Banking of the Chinese Academy of Social Sciences.

"Such worries over the uncertainties cannot be dispersed in the short term," Dong said. What's worse, the US stimulus bill retains some protectionist clauses such as those on "buy American" products only and the one that restricts banks and other financial institutions that get taxpayers' money as bailout funds from hiring high-skilled immigrants on temporary work basis.

The "buy American" clause would give preference to domestic steel companies and possibly other US manufacturers.

The Senate bill makes it mandatory for all public works projects funded by the stimulus bill to only use US-made iron, steel and manufactured goods. And it bans US-made goods if they have some foreign component.

The House version of the "buy American" clause, however, does not include manufactured goods.

House Majority Leader Steny Hoyer, a Maryland Democrat, said the "Buy American" provision would "continue to be an item of discussion" as the House and Senate discuss a final version of the economic recovery plan.

"We do not want to see such a provision included in the final version of the bill," Dong said. "It will hurt global trade and should be condemned."

By doing so, the US would set a bad precedent, he said. "It would taint its image as a country that preaches and practices free trade". Such a clause would raise the cost of public works projects funded by the stimulus package and affect the efficiency of the US economy.

Trade frictions with US trade partners would become "inevitable," he said.

US steel companies have welcomed the bill, but major US exporters such as Caterpillar and Microsoft have lashed out at it.

General Electric Co Chief Executive Officer Jeffrey Immelt dismissed the "buy American" clause as a mistake, saying: "Something like 'buy American' just doesn't work You can't use this time of reform and technical innovation to be also a time of protectionism."

Analysts said China should reserve the right to make use of government procurement to safeguard its own interest.

"The US move does not directly go against WTO rules," said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. "But it would start a vicious cycle in the global trade regime."

China should make good use of its government procurement to promote development of its domestic industries, he said.

Agencies contributed to the story.