Some commentators and trade experts have expressed concern that the "Buy American" provisions in the stimulus are not only wasteful, but potentially harmful in that they could be a prelude to greater protectionism, both here and abroad. For instance, last Saturday in the NYT, Douglas Irwin wrote:
Steel industry lobbyists seem to have persuaded the House to insert a “Buy American” provision in the stimulus bill it passed last week. This provision requires that preference be given to domestic steel producers in building contracts and other spending. The House bill also requires that the uniforms and other textiles used by the Transportation Security Administration be produced in the United States, and the Senate may broaden such provisions to include many other products.
That might sound reasonable, but history has shown that Buy American provisions can raise the cost and diminish the effect of a spending package. . . . 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.
American manufacturers have ample capacity to fill the new orders that will come as a result of the fiscal stimulus. In addition, other countries are watching closely to see if the crisis becomes a general excuse for the United States to block imports and favor domestic firms. General Electric and Caterpillar have opposed the Buy American provision because they fear it will hurt their ability to win contracts abroad.
They’re right to be concerned. Once we get through the current economic mess, China, India and other countries are likely to continue their large investments in building projects. If such countries also adopt our preferences for domestic producers, then America will be at a competitive disadvantage in bidding for those contracts.
The Senate's "Buy American" provisions are even worse, and could have significant trade implications while providing minimal offsetting employment benefits, noted trade economists warn. Pascal Lamy, head of the World Trade Organization, has also expressed concern.
Buy local” measures by governments will jeopardise export sector jobs and risk setting the world on a damaging downward spiral of beggar-thy-neighbour protectionism, the head of the World Trade Organisation has warned.
Speaking to the Financial Times, Pascal Lamy, WTO director-general, said pressures for economic nationalism were an inevitable response to the global crisis, but in an integrated world economy such measures were much more dangerous than in the past.
“If you start killing imports, you will kill exports,” Mr Lamy said. And since a high proportion of global output depended on international supply chains, shrinking trade flows would have a huge multiplier impact on world production and jobs.
Mr Lamy would not comment directly on the Buy American provisions in the US economic stimulus bill, which potentially could be the subject of WTO litigation, but said that Washington, like other governments, had to abide by its international commitments.
Should we be worried? Daniel Drezner tries to inject a dose of optimism. I hope he's right.
Related Posts (on one page):
- Debating the "Buy America" Provisions:
- Could the Stimulus Start a Trade War?
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So not only will the United States eliminate its trade deficit, but all those outsourced jobs will come back here too!
Every other industrialized nation is drafting a stimulus bill right now. If the US waves a big stick in the air, what are the odds that France, or Germany, or Japan might not take it the wrong way?
What's the American trade balance again?
How many infrastructure jobs should we set aside for illegal aliens?
It seems to me that it is in the interests of free-trade advocates to avoid illuminating these distinctions so that people will believe these "Buy American" provisions are wholly novel innovations that will blow up our trade relations, but I would be very interested in seeing a fact-based analysis of what is actually at issue here.
World War II was fought with conventional weapons until the very end. The war that repeating the Smoot-Hawley mistake will cause will be a lot worse.
Those who do not know the past. . .
I think the difference is that the current provisions would be extended into non-federal government purchases in violation of treaty obligations and common sense.
Why should we taxpayers have to pay more for steel, for example, if we could get it cheaper from an off-shore supplier? Because some lobbyists for "Big Steel" persuaded Congress to require it?
The Bush II adminstration tried mightily in the Doha Round of trade talks to address this, did it not?
I'm a proponent both of fighting the Jihadis (What you dismissively call the "GWOT") and free trade; I suspect there are lots and lots of others.
There is a broad exception for defense contracting, so if our procurement policies have required American goods then those policies have fallen within that exception.
The article said that the "stimulus package" has been amended to stipulate that nothing in it shall be deemed to violate WTO requirements or other treaty obligations, but the "Buy American" provision was left in the bill.
A former-Soviet escapee told me the other day, when we were talking about this, "most people can't learn from history they haven't experienced," and it saddens me to agree. The TV tells me, "all this has happened before, and all this will happen again."
I hesitate to declare that people I disagree with "must be either stupid or evil" - a common tactic of the left - but I'm beginning to think that the Democrats in Congress either really don't know about Smoot-Hawley, or are deliberately seeking short term political gain at the expense of expected long term economic disaster for the US.
I mean really, is there any legitimate reason that "this time will be different" from the last time they tried it?
Any takers on how long until the Kos kids start editing the Smoot-Hawley Wikipedia page to claim it was a good thing?
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A common misunderstanding. America's protectionist tariffs were in place until the 1960s.
I have a project scheduled to go out for bids on Monday. This project was ready to build last summer, but because the project includes federal funding, we've had to wait 6 months for a waiver to the Buy America requirements in order to use a foreign steel expansion joint.
(As to concerns with groupthink in general but otherwise OT, developments relevant to Unfairness Doctrine initiatives are worth heeding. Groupthink and statism go hand in glove.)
Not only that, this country was built on protectionist tariffs, as was Britain in it's glory days. For the first hundred years of its existence the US federal government was funded by excise taxes and tariffs.
Exporting all of Americas jobs does not make a lot of sense either, but that's the path we're taking at present.
When a contractor is engaged to build something, he cuts purchase orders to the suppliers under his own name. Then he bills the project owner and adds a fee. So almost all infrastructure repair purchases are done by private contractors. The contracts can be written to restrict the contractors to using only certain suppliers. The contactor takes this into consideration when bidding the job. They are funded by the government, but executed by the private contractor. This is where it can get very messy.
While we can say some jobs are exported, many more never were here, and others are eliminated by technlogy.
For example, a labor intensive plant may be built in Thailand, and it exports its products all over the world. If the owner is an American company, it cannot compete in the world market if it built the plant in the US. So these are jobs that never were in the US, never could be, and always existed outside the US.
Other plants in the US are old and use outdated technology. A plant may employ 500, but after upgrade it might employ only 50. If it were upgraded in the US 450 jobs would be lost. If it is moved to Thailand, then 500 jobs are lost. Activists then claim 500 jobs are exported when the true figure is 50.
But, an owner looks at all the government regulations he has in the US... OSHA, labor law, equal opportunity, envirnmental impact statements, Sarbanes-Oxley, lawsuits of every type, and decides it's not worth it to stay in the US. And now the Democrats are promising card check. Why bother? The American worker tells himself he is the best in the world, but he's the only one who still believes it.
These other countries try to make it easier for companies to do business. Many people in the US oppose commerce and try to make it more difficult to do business. Remember the 2000 campaign where Al Gore campaigned against corporations? Kerry did a modified version in 2004. Why?
Groupthink and statism go hand in glove."
They don't call themselves dittoheads for nothing.
Therefore, the premise, that a "buy American" amendment would restrict free trades is not something to worry much about.
I'm no expert either, but I think at least some US companies are competitive - I toured a Nucor steel mill a couple of years ago, and at that time they were exporting rebar to China. It was a very efficient plant. They may be, to borrow from another thread :-), the exception that proves the rule.
BTW: someone asked if they were a union shop (they are), and if they had the 'yup, the line is down but we can't change the fuse and restart until an electrician gets here' type problems. The reply was 'our average worker has a high school diploma and makes $90K a year. Two thirds of that is production bonuses. When rebar is coming off the line, we're making $45/hr; when the line stops, we're making $15/hr. Everyone cooperates to keep the line running'. And it was a plant where everyone seemed upbeat, with an enviable safety and environmental record (heck, it's almost in downtown Seattle).
If we're going to have a 'Car Czar', it's a doggone shame Ken Iverson isn't available.
It will be an ironic treat to see the Kos kiddies making a case for Pat Buchanan's position.
Trade wars! Great Depression II!
So, I link to roughly 15 mintues of Krugman. I additionally link to two comments at Unfair Doctrine, one on Dem. Sen. Stabenow's interest in resurrecting the Orwellian "fairness" doctrine.
And RPT's response, his commentary, his insight? A big, bad, vapid sneer.
My understanding is that evading those US regulations in the US is only possible under a Free Trade model. Under a Fair Trade model, couldn't (and possibly, shouldn't) the U.S. government impose an import tariff on all goods manufactured under less-costly-than-American regulations to bring the cost up to what it would be had they been made under the U.S. regulations?
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