President Obama's first big international-economy call is a blunt one, and a good one. Obama yesterday said Congress should not turn the stimulus bill into a vehicle for economic nationalism, and that a proposed "Buy American" clause is "a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe." This is not only the right call, but a courageous one that shows the new administration is willing to do the right thing, even when it isn't the easy thing.

The background is the administration's first major initiative, a fiscal stimulus bill meant to prevent an economic free fall and create jobs as the private sector contracts during this recession. The fiscal-stimulus concept is of course not new. When businesses do not invest and families stop shopping, the government needs to fill in temporarily so economic contraction does not become collapse. The Obama administration's proposal is roughly $825 billion in spending and tax cuts over two years. At nearly 5 percent of American GDP, this is a lot of money and should have the right macroeconomic effect.

The spending total is not, however, the only priority. The stimulus bill should do at least three more things. First, it should strengthen international cooperation in the face of a common threat. Second, it should create jobs, putting as many American men and women to work as possible as unemployment rises. And third, it should have lasting benefit. At a cost of $800 billion to $900 billion, it will leave the Americans of 2015 lots of new debt -- and it should also leave lots of repaired bridges, high-tech and traditional infrastructure, state-of-the-art schools, and other projects that make the economy more productive, efficient, and innovative.

On all three grounds -- international cooperation, job creation, and lasting benefit -- the "Buy American" requirement makes the bill less effective. It would require all the steel and iron (or in the Senate, an ambitious clause applying to all manufactured goods) used in stimulus projects to come from American factories, unless buying from these factories raises a project's cost 25 percent or more. The results are as follows:

• Threat to International Cooperation: The "Buy American" concept will pose a grave threat to this priority, as President Obama suggested and as threats of retaliation from Europe and Canada already show. Most foreign countries are suffering from downturns as well. In these circumstances, the International Monetary Fund recommends not only an American stimulus, but an aggregate worldwide stimulus of $2.3 trillion or more. This appears to be emerging as Germany, France, the United Kingdom, China, Japan, Canada, and other countries develop large stimulus programs.
  
  If all countries allow international participation, all will get the best result -- and so will American businesses and workers. Worldwide, more projects would be completed for the same cost and publics would see their money spent efficiently. At home, American businesses and workers would be bidding not only on the U.S.' $825 billion program, but the rest of the world's $1 trillion to $2 trillion in programs.
  
  In the extreme case, Congress can reserve an option of reciprocity. If foreign countries begin blocking access for American firms to their stimulus programs, it can hold concepts like "Buy American" in reserve as threatened retaliation that would exclude their firms from ours. But the United States should be the country that deters such a destructive cycle rather than the country which starts it. If we instead lead the world in locking international participation out of its stimulus -- especially if we do so in violation of WTO commitments -- others will do the same in retaliation. The result would then be fewer projects and fewer contracts for all businesses around the world, less effective stimulus programs, and an erosion of the hope for international cooperation against a great shared threat.



• Less Job Creation: With the "Buy American" requirement, the stimulus will create fewer jobs. It will give businesses which provide metal and other covered supplies more money and stimulus. They will be able to hire some more workers. Gary Hufbauer and Jeffrey Schott of the Peterson Institute estimate, for example, that metals industries might add 1,000 workers. But as they get more, other businesses providing transport, building personnel, food, and so on will necessarily get less, since the total $800 billion allocated for the stimulus remains the same. So the stimulus will create fewer transport, construction, communications, and similar jobs. Most of these losing industries are more labor-intensive, so the stimulus will end up creating fewer American jobs.



• Less Lasting Benefit: Finally, the requirement will mean the stimulus builds fewer projects. In an extreme hypothetical case, assume that it raises the cost of every project by the authorized 25 percent. Total spending, meanwhile, would remain $800 billion. In this case, the clause would force cancellation of one project in every five. (I.e., if each project costs $10 million, $1 billion in stimulus will buy 100 projects; but if each is inflated to $12.5 million, the stimulus will buy only 80 projects.) The actual loss of projects would be less than this hypothetical maximum, as manufacturing purchases usually make up only a fraction of a project's total cost. But 10 years after the stimulus, the "Buy American" clause would certainly mean fewer bridges, schools, and high-tech networks.

This prospect is one that no one should wish to see emerge. The president is right to warn of it, and Congress should listen.

Edward Gresser is director of the Trade & Global Markets Project at the Progressive Policy Institute.