Repeating History: Trade War

What America doesn't need right now is a "trade war" reminiscent of the one that helped shut down the economy in the 1930s, but it may be developing.

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.

At fault are the provisions of the Stimulus, formally known as the American Recovery Act of 2009. Its "Buy American" mandates are so overly broad that they can actually shut down firms employing real Americans in favor of other plants located just a mile down the road!

Take, for instance, 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.

"You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs," said Bob Miller, Duferco Farrell's executive vice president. "I've got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?"

President Obama thinks so. He's proposing new legislation that would "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."

That populist rhetoric might win him points in the opinion polls, but it is unnerving businesses and irritating leaders in other nations who are considering preemptive retaliation.

You can tell your grandkids, as they pound the cornmeal to make the day's ration of mush, that you watched history repeat itself, as a progressive do-gooder president repeated all of the mistakes of Hoover and FDR, and then added a few new wrinkles himself.