NEWS BRIEF
Commentary: Veering Toward Protectionism
June 26, 2009
Christopher Bjorke

The United States and China, facing an immediate need to spur demand in the face of a recession, both adopted stimulus plans amounting to hundreds of billions of dollars.

Along the way, they adopted another tactic as well: protectionism.

Last winter, the U.S. stimulus plan was criticized for including a “Buy American” provision favoring U.S. products in the plan’s spending.

“History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships,” read a February editorial by Xinhua, China’s official news agency.

Now China is on the receiving end of the criticism for its own “Buy China” initiative stipulating that stimulus spending should go toward Chinese products and services whenever possible, an unabashed reversal of its earlier denunciation of protectionism.

“Given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now,” said Credit Suisse economist Dong Tao, quoted in the Financial Times.

That may be true, but China likely is more concerned about its economy rather than the world’s opinion about its ideological consistency. It is also pragmatic enough to preach one thing while doing the opposite, as long as it produces the right result, and right now it seems to be achieving that.

Multiple disputes

In recent weeks China has become the target of a number of trade complaints. In addition to the Buy China policy, the U.S. and the European Union have launched a case with the World Trade Organization over China’s export barriers on certain raw materials, making prices cheap for Chinese industry and driving them up on the international market.

U.S. officials have also criticized China this week for requiring Internet filtering software on imports of personal computers, raising concerns about censorship in addition to the implications for trade.

Indian small and medium enterprises have recently accused China of predatory trade practices in dumping cheap goods there to drive domestic competition out of the market, the Financial Times reported last week.

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