Intervention by the state to protect citizens of Western countries from the devastations of the economic crisis is beginning to slip into a protectionist groove. If unchecked, that could sink the world into a 1930s-style “depression”. America’s “beggar thy neighbour” policies then, enshrined in the Smoot-Hawley Tariff Act, brought about economic ruin. The world has become so much more integrated since then and a new trade war would cause incalculable social unrest and political convulsions.

A foretaste of the political fallout to come has been apparent in Europe in recent weeks. Normally placid Icelanders pelted their prime minister with eggs and stones for failing to prevent the collapse of the country’s economy. Angry demonstrators in Bulgaria, Hungary, Latvia and Lithuania too threatened to bring down their governments. If that were to happen, the successor governments would likely be more inward-looking, focused on insulating themselves from further foreign contagions.

Since the global financial crisis began on Wall Street, the eye of the protectionist storm could well be hovering above Capitol Hill. With the ranks of laid-off workers swelling daily and businesses hanging “going out of business” signs in US towns, a rattled Congress has been feverishly drawing up legislation to save American jobs. Lawmakers from the hardest-hit states have attached “buy American” provisions to the stimulus package.

For instance, US$64 billion (RM230 billion) of the US$825 billion stimulus Bill is devoted to repairing US roads, bridges and waterways. Amendments offered by representatives of states where uncompetitive US steelmakers have had to shut their mills, would block the disbursement of allocated funds “unless all of the iron and steel used in the project is produced in the US”. Another amendment requires that any health information technology system acquired with taxpayer money must be produced by American programmers and engineers. As one sponsor of the amendment put it: “This is a US jobs Bill — let’s keep those tech and IT jobs here.”

In the current mood of deepening crisis, moves to bail out US car manufacturers have also been accompanied by calls to buy American cars, even to buy only American in shopping malls. This seemingly logical and patriotic call to “buy American”, however, runs up against two realities.

First, consumers will struggle to find any article of clothing, shoes, toys or electronics that are not made abroad or that do not contain foreign components. At a time when nearly all industrial products, certainly American cars, contain foreign parts, if not manufactured wholesale in low-wage countries, the line between American and “foreign” products has been entirely obscured. Would it be unpatriotic, for example, to buy a GM car if that car was made in Mexico?

Second, the call to exclude foreign goods and workers from US government-funded projects could violate World Trade Organisation rules. Under a Government Procurement Agreement signed by 28 countries, signatories are committed to procurement rules that do not discriminate against foreign products or suppliers.

The legal challenge aside, one unavoidable consequence of any “Buy American” provisions in the stimulus package would be retaliation from China, Europe and other countries now in the process of allocating government funds to boost their sagging economies. Concerned about the wider ramifications of this retaliation, US business groups — including major companies such as Boeing, Caterpillar and General Electric — have called on Congress to resist such protectionist measures.

Despite the lessons of history, the dangers posed by protectionism are often seen as a problem for tomorrow while saving jobs is a fiercely urgent task. The world now needs leaders who can stay calm in the face of the raging storm and work together to stimulate their own economies without triggering a new wave of protectionism.

“Buy American” provisions may temporarily provide job security for some Americans, but the contagion of protectionism will stunt global trade and bring misery to Americans and the rest of the world.