“Buy America” = Protectionism

If you are looking for one subject that will tilt an already precarious world economy toward a very bleak future, it is the "Buy America" provision of the stimulus bill currently under negotiation. For nothing in the stimulus bill – not the ill-advised earmark pork of the power starved liberal Democrats, not certain suspect components of the business tax cuts favored by Republicans, not the not-shovel-ready infrastructure spending – is more threatening to the global economy than the “Buy America” provision.

But don’t just take my word for it. Consider the warning from the EU today. Or British Prime Minister Brown when he “warned gravely against "deglobalisation" and denounced trade and financial protectionism.”

* What signal does “Buy America” send?
* How are other countries faced with economically-derived internal strife likely to respond?
* What are other countries that provide capital to the US likely to do?

While not exactly Smoot-Hawley, it is a big step toward closing the door on the prosperity that trade and globalization facilitates. Moreover, it generates more issues and problems precisely at a time when cooperation and communication matter most. And, in the process, how Mr. Obama handles this issue will speak volumes as to his governing style.

Investment Strategy Implications

At my first five Market Forecast events conducted thus far this year and on these pages*, I have raised the larger economic question, “What will be the economic philosophy that follows the death of laissez-faire, American-style cowboy capitalism?” Heaven help us if the answer includes protectionistic measures like “Buy America.”

*see Jan. 13 & 17 postings