US stimulus plans could usher in new era of protectionism

Fears are growing around the globe that the financial crisis could lead to a new era of protectionism which exacerbates any slowdown as countries look to kick start their own economies by focusing on home grown industries.

Concerns have been sparked by a debate brewing in the US over a clause in President Barack Obama's stimulus package, passed so far by the House of Representatives, which states only US made resources can be used on projects in the States.  

World leaders meeting at Davos to discuss the global economic crisis said protectionism could cause economies around the world more pain.

Speaking to Reuters, India's trade minister, Kamal Nath, said the global economic crisis could fuel protectionism to safeguard national industries and jobs, exacerbating the downturn.

He said: 'We do fear this because one must recognise that at the heart of globalisation lies global competitiveness, and if governments are going to protect their non-competitive production facilities it's not going to be fair trade.'

In the US at present, the debate is focused on a so called 'Buy American' provision in the $819 billion stimulus package. The clause would, if passed, ensure that only iron and steel produced in the US is used for construction.

The Senate, which is yet to vote on the bill, is rumoured to be willing to go even further by requiring that any products and equipment be American-made.

According to CNN Money, the European Commission has already indicated it may challenge such a move by the US if it were passed, while Davos participants have warned of the dangers of protectionism.

Other countries, chiefly Germany and China, announced late yesterday that they were keen to avoid protectionism and aimed to increase trading between the two countries going forward.

German Chancellor Angela Merkel said her country and China would avoid protectionism and would instead look to maintain last year's trade volumes in 2009.