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Trade Wars Brewing in Economic Malaise

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Other pending measures would require the federal government to buy 100,000 U.S.-made plug-in hybrid cars, mandate that the president's airplanes be made in the country by an U.S. company, and force several federal agencies, including the Pentagon and Department of Transportation, to use only domestic iron and steel.

Last month, Senate Majority Whip Richard J. Durbin (D-Ill.) introduced a measure with Sen. Charles E. Grassley (R-Iowa) to tighten rules governing the H-1B visa program for guest workers. Among its provisions: Companies seeking to import specialized workers from abroad first must make a good-faith effort to recruit U.S. citizens.

"The H-1B program was never meant to replace qualified American workers. It was meant to complement them because of a shortage of workers in specialized fields," Grassley said. "In tough economic times like we're seeing, it's even more important that we do everything possible to see that Americans are given every consideration when applying for jobs."

Buy American provisions are not new. Federal transportation projects have been required to use domestic iron and steel since 1982, and some defense contracts are limited to U.S. bidders. But the stimulus package marks the first time a buy American mandate has been broadly applied to projects across an array of federal agencies.

No one appears to be more concerned than America's largest trading partner -- Canada.

Initial concern north of the border over the buy American provisions died down after a clause, supported by the administration, was inserted in the bill clearly stating that the measure would not supersede existing U.S. trade obligations. During his Feb. 19 trip to Ottawa, Obama additionally pledged to avoid protectionism.

Creeping Protectionism

As passed, the act keeps that pledge, White House spokeswoman Jennifer Psaki said. "The president is committed to creating jobs in America and committed to global engagement with our trading partners and does not see any contradiction between those two goals," she said.

But in recent weeks as federal authorities drafted broad guidelines for implementing the law and hundreds of states and towns have begun preparing for stimulus-related projects, Canadian companies have been surprised to discover that while some federal contracts are still open to Canadian materials and equipment because of trade treaties, most of those issued by state and local governments are not.

The Government Accountability Office estimates that state or local officials will administer about $280 billion in stimulus spending, including about $50 billion for transportation projects. But federal authorities have determined that construction projects even partially funded with stimulus dollars must also buy American, dramatically increasing the universe of affected contracts.

As a result, John Hayward, president of Hayward Gordon, a Canadian manufacturer of pumps used in water works projects, says U.S. towns, including Peru, Ind., have told him that they can no longer buy his Canadian-made products.

"We're not China. We're not even Mexico. We have the same relative cost of labor as you do," he said. "If we have a better price, you should buy from us. That's what competition is supposed to be about."

To stay in business, Hayward is considering moving some manufacturing operations to the United States, potentially creating jobs here. That, Peru Mayor Jim Walker notes, is what the stimulus was supposed to be about.

"You're trying to get America turned around, trying to put Americans back to work," Walker said. "And if American taxpayers are paying for this, well then, Americans deserve the benefits."


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