War is Heck!

The leaders of the 20 most powerful economic nations on earth – the G-20 – met in early April to reassure the world that they were committed to quashing the ugly specter of “protectionism” demanded by the constituents of these economically beleaguered states. In attendance, President Obama dutifully echoed the chorus of keeping our borders opens to normal trade. The economic powers continued to support the World Trade Organization and its numerous international treaties and restrictions against trade barriers, unfair internal governmental subsidies and protectionist tariffs. Simply “we” weren’t going “there.”

But chants of “buy American!” echoed across the land, finding particular resonance in our rust belt, slammed with unemployment. Even our President suggested that “buying American” was somehow patriotic. But the government also knew that if this “patriotic” move were interpreted as “protectionism,” a pretty natural interpretation of some provisions of the American Reinvestment and Recovery Act (the “stimulus” bill), American businesses trying to operate overseas would face some stiff retaliation if not outright exclusion; our exports could be toast and international branches of American business could find themselves marginalized if not boycotted. The net cost to the U.S. of such trade wars could in effect hurt us far more than any seeming benefits from buying American.

Local populism continued to rise. Companies were threatening to fire employees who drove “foreign” cars to work, even if those cars were actually made by American works in U.S. plants. While foreign policy matters and international economic policies are relegated to the federal government, corporate practices and the policies and procedures of states and municipalities are harder to regulate through the arbitration proceedings under the WTO. And Americans are finding ways to get around those restrictions, but they are also seeing “retaliation” and outrageous at an intensely personal level.

The May 15^th Washington Post provides this stunning example: “Ordered by Congress to ‘buy American’ when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.

“Outrage spread in Canada, with the Toronto Star last week bemoaning ‘a plague of protectionist measures in the U.S.’ and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts -- the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.”

If that doesn’t floor you, try this further example from the Post, and ask yourself how the Americans who thought their jobs were being rescued by a foreign investor have to feel: “Duferco Farrell Corp., a Swiss-Russian partnership that took over a previously bankrupt U.S. steel plant near Pittsburgh in the 1990s and employed 600 people there… The new buy American provisions, the company said, are being so broadly interpreted that Duferco Farrell is on the verge of shutting down. Part of an increasingly global supply chain that seeks efficiencies by spreading production among multiple nations, it manufactures coils at its Pennsylvania plant using imported steel slabs that are generally not sold commercially in the United States. The partially foreign production process means the company's coils do not fit the current definition of made in the USA -- a designation that the stimulus law requires for thousands of public works projects across the nation.

“In recent weeks, its largest client -- a steel pipemaker located one mile down the road -- notified Duferco Farrell that it would be canceling orders. Instead, the client is buying from companies with 100 percent U.S. production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.”

In all of this, there is a huge missing component: common sense. Maybe tinged with a failure to understand the immediate consequences of such actions coupled with a complete misunderstanding of the long-term realities that such trade wars inevitably spawn. Individual companies and sets of workers often cannot visualize how their “micro” action could actually have devastating “macro” consequences for the entire country.

Our government leaders, bound by international treaty, equally must be cognizant of both their obligations under law and their need to show leadership, explain consequences and create laws and regulations consistent with that mandate. And we need this effort NOW, before the retaliation creates massive blowback against our workers and businesses. Knee jerk reaction to populist sentiments will allow circumstances that future populist sentiments will rail against – a threat of ever escalating trade wars. Leadership means exactly that – lead, explain and generate followers. It doesn’t mean “follow the follower.”

I’m Peter Dekom, and I approve this message.