Over the course of 2009 and into early 2010, I followed coverage on a trade dispute between Canada and the US over certain “buy American” clauses that were designed to stimulate the American economy. Today, I came across an article in the Economic Times about a recent two percent tax on foreign procurement that is not sitting well in New Delhi. While no two cases of protectionist policies are the same, this situation bears some striking resemblances to the Canadian trade spat that started nearly two years ago.

While the words “foreign procurement” often conjure ideas of mass amounts of raw materials from China, or intermediary goods from Taiwan and Pakistan, the issue India faces concerns their thriving IT industry. According to the article, over 60% of business in India’s 60 billion dollar IT industry comes from the United States. This tax, which is a provision of the James Zadroga 9/11 Health and Compensation Act, could severely hamper Indian IT industry’s ability to sustain profitability and growth.

The spirit of this tax is based on two rather reasonable assumptions. The first is that the US government will benefit from the tax revenue generated by any foreign purchases it makes. The second, more consequential, assumption is that this provision will increase US-based companies’ ability to compete. This in turn, will lead to increased domestic profits and job growth. Some may also argue, however, that this is isolationist behavior. These individuals would assert that these policies are short-sighted and will hamper America’s long-term ability to compete in an increasingly “flat” world.

The article also brings attention to the fact that this tax comes in the wake of a visit Obama made to Indian in which both countries expressed a commitment to “reduce trade barriers and abjure protectionist measures for facilitating greater movement of professionals and investors”. India is an important economic partner, and their stake in the world economy is likely to grow. These mixed signals have the potential to damage Indian-US trade relations.

Protectionist policies are often multifaceted topics on which scholars, politicians, and business professionals commonly debate. On one hand there is the argument for the protection of American jobs. On the other there is the argument for the need to leverage, rather than hide from, the degree of globalization that has occurred in recent history. While each of these stances can be supported by facts and logic, one thing is certain. Globalization is here to stay, and these are issues with which we must all become adept at dealing.
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