In 1930, just as the world economy was sinking, the US Congress passed the Smoot-Hawley Tariff Act, which essentially shut off imports into the US, he recalled.
"Our trading partners retaliated, and world trade plummeted," said Malkiel. "Most economic historians now conclude that the tariff contributed importantly to the severity of the world-wide Great Depression."
"Later, as one of his last acts, President Herbert Hoover made the situation even worse by signing a 'Buy America Act' requiring all federal government projects to use American materials," said the Princeton professor, the author of "A Random Walk Down Wall Street."
"We must avoid repeating the disastrous mistakes of the past," he warned.
Douglas A. Irwin, an economics professor at Dartmouth, agreed that the US should learn lessons from the past.
"That might sound reasonable, but history has shown that 'Buy American' provisions can raise the cost and diminish the effect of a spending package," said Irwin.
In an article published by The Wall Street Journal, Irwin stated that in rebuilding the San Francisco-Oakland Bay Bridge in the 1990s, the California transit authority complied with state rules mandating the use of domestic steel unless it was at least 25 percent more expensive than imported steel.
A domestic bid came in at 23 percent above the foreign bid, and so the more expensive American steel had to be used, he stated.
"Because of the large amount of steel used in the project, California taxpayers had to pay a whopping 400 million dollars more for the bridge," he said.
"While this is a windfall for a lucky steel company, steel production is capital intensive, and the rule makes less money available for other construction projects that can employ many more workers," he stressed.
The two professors' words were also echoed by former US Trade Representative Carla Hills.
"I am very disappointed by 'Buy American' provision ... because I think, actually, they diminish the number of jobs we can create if our states and counties have to pay more for the steel and other products and they will have less money to spend on creating jobs," she told Xinhua.
"I am very much against protectionist measures. Already too many countries raised tariffs ... and regulatory restrictions," said Hills. "This is just the wrong way to go."
(Xinhua News Agency February 18, 2009)
