It begins….

My latest column for Newsweek International is now up, and focuses on the ways in which fiscal policy can lead to renewed protectionism across the globe:  What is truly worrisome, however, is that a lack of cooperation on trade could spill over into a lack of coordination on fiscal policy. Coordination on these two issues are linked. States running trade deficits worry that export engines like Germany and China will free ride off of their own fiscal expansions, boosting the growth prospects of these exporters without any serious fiscal expenditures on their part. Already, other Europeans are upset over Germany's inaction on the fiscal front. German Finance Minister Peer Steinbruck's warning against "crass Keynesianism" to NEWSWEEK's Stefan Theil has merely stoked these concerns even more. If this fear persists, there is a danger that any Keynesian boost will come attached with protectionist provisions to ensure that the benefits remain within national borders. Some reputable economists are already advocating this kind of action in the absence of global policy coordination. As the global downturn persists, these political pressures will become harder to ignore. What has been a mild backlash against trade liberalization could quickly turn into a tsunami. If trade wars break out in the wake of the global financial crisis, they will not take the form of Smoot-Hawley—but they will be equally dangerous. And, hey, on cue, the New York Times' Louis Uchitelle reports the following on the U.S. steel industry in the United States:  The industry itself is turning to government for orders that, until the September collapse, had come from manufacturers and builders. Its executives are waiting anxiously for details of President-elect Barack Obama’s stimulus plan, and adding their voices to pleas for a huge public investment program — up to $1 trillion over two years — intended to lift demand for steel to build highways, bridges, electric power grids, schools, hospitals, water treatment plants and rapid transit. “What we are asking,” said Daniel R. DiMicco, chairman and chief executive of the Nucor Corporation, a giant steel maker, “is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘buy America’ clause.” (emphasis added) What it truly disturbing about this request is that it contradicts the narrative about the U.S. steel sector in recent years, a narrative tat Uchitelle comments on later in his story:  Not since the 1980s has American steel production been as low as it is today. Those were the Rust Belt years when many steel companies were failing and imports of better quality, lower cost steel were rising. Foreign producers no longer have an advantage over the refurbished American companies. Indeed, imports, which represent about 30 percent of all steel sales in the United States, also are hurting as customers disappear. The political economy implications of this are pretty disturbing.  Steel, which can compete with the rest of the world, should be one of the last sectors to seek protection from foreign competition.  With its mini-mills, Nuxor is one of the most competitive firms within the U.S. steel sector.  If this is how Nuxor is behaving, however, how much protectionist lobbying will come from the less competitive sectors of the U.S. economy? Developing.....