This article in the Independent (UK) illustrates the fallacy with "buy local" schemes that some governments are proposing as a solution to the economic crisis.  By attempting to shift demand away from foreign products to domestic producers, new trade barriers might stimulate temporary short-term growth, but they also cause significant problems.

Jonathan Owen cites a UK Department for Environment, Food and Rural Affairs report that illustrates how buying Spanish strawberries in the UK winds up being cheaper for the UK consumer and less costly on the environment: British farmers who grow and pick strawberries emit more greenhouse gases then their Spanish counterparts, even if you factor in the transport.  But, more to the point, Spanish strawberries are cheaper and at least as good.

Thanks to a more favourable environment, Spanish farmers are able to harvest strawberries at relatively little cost - compared to British farmers who have to use greenhouses and other highly energy-intensive growing techniques.  The ensuing trade that takes place between these farmers and UK consumers benefits both parties and many other people along the way: farmers are guaranteed revenue for their product; UK consumers get more bang for their buck, and enjoy a slightly longer Spanish strawberry season; and transporters earn revenue by bringing delicious Spanish strawberries to markets in the UK and elsewhere.  There are many other indirect benefits: perhaps the most significant is that UK producers are freed to invest in activities that are better suited to their comparative advantages, and these more productive activities is what leads to economic growth.

Maybe consumption of locally-grown strawberries would go up if and when consumers are compelled to only "buy local", but this "local stimulus" ignores all the other parties who benefitted from a free trade scenario who now lose out: the consumer who is forced to buy more expensive strawberries, and the Spanish farmers and transporters who have just been put out of a job.  Moreover, this "stimulus" entrenches producers in the UK who are restricted to growing and picking strawberries instead of doing something more productive, which represents yet another drag on growth.  And, of course, there is a chance that the Spanish government could retaliate, demanding that Spanish consumers buy locally-produced versions of products that are made relatively more efficiently in the UK.

The current government procurement proposals to "Buy American", "Buy Chinese", or even "Buy New South Wales" aren't (yet)seriously proposing that consumers be compelled to buy locally-growth strawberries.  (Some of the more extreme anti-trade groups, along with a smattering of farmers associations who might benefit in the short-term, are.)  But the same logic that applies to the many benefits caused by a global trade in strawberries applies equally to all other products and services.  Why, then, are governments proposing the purchase of locally-produced steel, or iron-ore as a solution to a recession?

A simple point deserves to be constantly re-iterated amidst the hysteria of government-sponsored protectionism: trade enriches all participants in any transaction, and trade leads to many other desirable outcomes too. 

By restricting trade, governments constrain growth and make us all worse off.