"Buy American and Buy China, what kind of impact they have is debatable," says Michael Pettis, a professor of finance at Peking University. "But they are so visible and easy for people to focus on. They become rallying cries." The real danger is that retaliatory steps such as Beijing's order for the government to buy Chinese goods "will spur protectionist sentiment and is at odds with worries about the country's export sector," wrote Ben Simpfendorfer, the Hong Kong-based chief China economist for the Royal Bank of Scotland, in a recent report. Economists say tariffs enacted by the U.S. government in 1930 and subsequent retaliation by Europe curtailed trade and helped prolong the Great Depression.
The financial crisis has deeply affected Chinese manufacturers. The country's exports were down 26% last month compared with the same period last year. But imports have fallen even faster, and China's already massive trade surplus grew to $13.4 billion in May. China has ratcheted up imports of some raw materials such as iron ore. But because prices have dropped so much since last year's highs, the effect on its overall trade surplus has been small.
While China's aggressive stimulus efforts have helped stabilize its economy, there is a risk that if China continues to export more abroad than it takes in, it will undermine weakened manufacturers overseas. That could further provoke protectionist sentiment in the U.S. and elsewhere. "We're going to see a significant rise in protectionism. There's no way around it," says Pettis. "In order to avoid it we need real statesmanship from the U.S., China, Europe and Japan. So of course I'm pessimistic."
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