Gangster Government

The new wave of radical Democrats sweeping into Capitol Hill are insisting on a "Buy American" clause in the $750bn (£503bn) fiscal package being prepared by President-Elect Barack Obama.

The $17bn bail-out of General Motors and Chrysler last month was already a step across the Rubicon towards a protectionist industrial policy, even if that was not the motive. The EU is exploring a World Trade Organisation complaint over "illegal state aid." But the latest Buy American move is much more explicit.

"This is quite dangerous," said Peter Sutherland, chairman of Goldman Sachs International and a former director-general of the General Agreement on Tariffs and Trade (GATT). "The US is the key to keeping a one-world trading system, but there is always the tendency to go for protectionism in a recession, and this is the worst one I've ever seen."

Hans Redeker, currency chief at BNP Paribas, says the US risks setting off a collapse in discipline across the world. "The US has a leading role so this could set off a huge response in other countries," he said. "There is already talk of a €100bn (£91bn) fund in Germany to save its industry from being sold off cheap."

French president Nicolas Sarkozy has proposed a "strategic investment fund" to fend off "predators" – a euphemism for sovereign wealth funds from Asia and Russia – hoping to snap up France's crown jewels. "We will intervene massively whenever a strategic enterprise needs our money," he said.

Nationalist measures are becoming ever more brazen in emerging markets. Indonesia is resorting to special "licences" to choke off imports.

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