Risk of protectionism in recession policies

Concerns about protectionism ending free trade agreements, as countries take measures to get their own economies out of recession and back to growth are now taking centre stage – today the EU has expressed concern about Barack Obama’s recovery package because it includes a ‘Buy American’ clause, which seeks to ensure that only US iron, steel and manufactured goods are used in projects funded by the bill. The US Congress is surely likely to feel that the $800bn it is being asked to spend should all be for the benefit of the US economy. The EU Ambassador has expressed concern that, if passed, the measure could erode the US’s global leadership on free trade. Canada’s International Trade Minister Stockwell Day went further: “These protectionist measures, in a time of recession, only make things worse,” he told broadcaster CBC. “It can only trigger retaliatory action and we don’t want to go there.”

Should the US Senate see this as a threat?