US-Canada trade war is bad news for NZ

It sounded like the stuff for celebration, especially in farm communities keen to have American trade barriers knocked down.

Barack Obama and Alf’s boss chatted on the phone for 15 minutes on Thursday, and the American President is reported to have been sympathetic to free trade with New Zealand.

Or rather, seemed sympathetic. You miss out on the body language, in a phone call.

“I raised with him the issues of free trade and pointed out to him that it was very important to New Zealand,” Mr Key said. “He seemed sympathetic to that, I thought, and made it clear it was something that was on the agenda for us …”

The Herald reminded us the Obama Administration has yet to decide whether it will continue with talks in the Trans Pacific Partnership, a trade deal that began with New Zealand and Singapore, then Brunei and Chile.

The United States, Australia, Peru, and Vietnam said last year they wanted to join.

Trade Minister Tim Groser was in the US at the time, addressing the United States Chamber of Commerce and expressing the hope the US would join the trade partnership.

And as was reported on Stuff, he says it will take patience and diplomacy to get the United States back to the table on trade talks.

The Obama administration effectively froze the trade talks when it announced a review on trade policy, and…

When it came to the review “there was limit” to how much change their could be in the US position, as it would make no sense to throw out all of the seven years of work that had gone into the WTO Doha round of talks.

But here’s the thing about the US, its attitude to free trade and its – let’s not mince words – brazen bullying.

It already has a free trade agreement with Canada and Mexico.

Trouble is, the agreement – Nafta – doesn’t count for much as the recession drives Americans (and American policy) into increasing protectionism.

The Washington Post features a splendid article on a looming trade war with Canada.

‘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 US 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 US” and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements.

So the Canadians- bless ‘em – are retaliating.

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 US companies out of billions of dollars worth of Canadian projects.

Fair enough, you might think.

But this is ominous stuff, for New Zealand’s free-trade expectations – and not only for our trade relations with the US. Other countries are pursuing their own protectionist policies.

This is not your father’s trade war, a tit-for-tat over champagne or cheese.

With countries worldwide desperately trying to keep and create jobs in the midst of a global recession, the spat between the United States and its normally friendly northern neighbor underscores what is emerging as the biggest threat to open commerce during the economic crisis.

Rather than merely raising taxes on imported goods — acts that are subject to international treaties — nations including the United States are finding creative ways to engage in protectionism through domestic policy decisions that are largely not governed by international law.

Unlike a classic trade war, there is little chance of containment through, for example, arbitration
at the World Trade Organization in Geneva. Additionally, such moves are more likely to have unintended consequences or even backfire on the stated desire to create domestic jobs.

The Washington Post cites Duferco Farrell Corp., a Swiss-Russian partnership that took over a previously bankrupt US 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 cancelling orders.

Instead, the client is buying from companies with 100 percent US production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.

The United States is not alone in promoting protectionist policies.

Britain and the Netherlands, for instance, are forcing banks receiving taxpayer bailouts to jump-start lending at home at the expense of overseas clients. French

But foreign governments, trade policy experts and news media are becoming increasingly alarmed by the number of measures, already taken or still on the planning board, from the Obama administration and Congress in recent months.

The buy American provisions in the stimulus package, signed into law in February, were just the beginning. Last week, Obama unveiled a series of proposals aimed at increasing taxes by nearly $200 billion over the next decade on US companies doing business abroad.

At a White House event, Obama said the measures were designed to “close corporate loopholes” that permit companies to “pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.”

A slew of legislative proposals is also aimed at keeping jobs at home. In recent weeks, the House attached additional buy American provisions to a $14
billion clean-water fund that provides loans to local communities and a $6 billion program to finance environmentally friendly school construction
projects.

Other pending measures would require the federal government to buy 100,000 US-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.

The Washington Post points out that “Buy American” provisions are not new. Federal transportation projects have been required to use domestic iron and steel since 1982, and some defence contracts are limited to American 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.

Most important, the buy American mandate gives expression to a sentiment that is far from conducive to New Zealand’s trade ambitions.