Canada Increasingly Hopeful Of U.S. Climbdown From Protectionism: Day

The Canadian government expressed optimism Saturday that the U.S. might climb down from a so-called “Buy American” trade policy that several countries have warned could start a trade war.

Conciliatory signals from the White House and from American officials at the World Economic Forum in Davos, Switzerland, have fuelled those hopes.

Canada says a range of possible solutions is being discussed – including an exemption for Canadian products.

As currently written, the Obama administration’s massive stimulus bill would require major public works projects to favour U.S. steel, iron and manufactured goods over imported ones.

Canada and other U.S. trade partners have warned that that’s precisely the type of protectionist tit-for-tat that turned the stock market crashes of 1929 into the Great Depression.

But a Canadian cabinet minister in Davos sounded hopeful that such a retaliatory trade war might be averted.

International Trade Minister Stockwell Day said he’s hearing supportive messages from American officials in Davos, including from the acting U.S. trade representative, Peter Allegeier.

“I’m cautiously optimistic that something can be worked out,” Day said in a conference call.

“In no uncertain terms they’re telling us, ‘We hear you, we recognize you’ve got concerns with this, we’re doing some work. Keep talking to us, and stay tuned,’ is sort of the message I’m getting from the U.S. trade representative.”

The controversy has placed the new Obama administration in a political quandary.

On the one hand, the U.S. risks angering its allies and triggering a trade war at the worst possible moment, in the midst of a global economic downturn.

On the other hand, any administration backtracking could infuriate two powerful constituencies: the unions who helped get Barack Obama elected, and the protectionist members of Congress whose votes the White House will need to pass any future legislation.

The controversy has begun generating news coverage in the U.S. and an Obama spokesman was grilled over the issue at a press briefing on Friday. White House press secretary Robert Gibbs suggested changes could be made.

“I’m going to say this for, like, the fourth time: The administration is reviewing that provision,” Gibbs said.

“It understands all of the concerns that have been heard not only in this room but in newspapers produced both up north and down south.”

If the wording of the legislation can’t be changed before the U.S. Senate votes on the stimulus bill, Day suggested Canada or other countries could still be exempted afterward.

Day also said the president has the power to overturn legislation that violates America’s international agreements.

“I want to be clear: I’m not saying (Obama) is going to do that. But that is within their legal framework, for him to do that, if he makes that determination,” Day said.

He said he believed the White House was acting in good faith.

“Their awareness of our concern, and wanting to do something, appears genuine at this point. And we’ll just keep working closely with them,” Day said.

“The last thing we need now is a retaliatory trade war.”

Federal Finance Minister Jim Flaherty, also at Davos, called protectionism a short-sighted response to economic problems.

Day (L) chats with Honk-Kong Chinese under secretary for commerce and economic development Gregory So on the sideline of the World Economic Forum (WEF) annual Meeting on January 31, 2008 in Davos. Photo credit Fabrice Coffrini/AFP/Getty Images.