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Now that the House of Representatives has passed and the U.S. Senate is considering an economic stimulus bill which includes a “Buy American” provision to prohibit purchasing foreign iron and steel for projects involving rebuilding America’s infrastructure, foreign countries are complaining as if to suggest our U.S. Constitution has its own clause that guarantees their right to sell goods in the U.S.
But the U.S. Constitution specifically states that Congress has the duty to “regulate trade with foreign nations.” That means we can choose to allow any percentage of imports in any industry into our country, including zero percent.
Some may call such a policy “isolationist,” which considering the damages that free trade and globalization have inflicted upon our manufacturing industries doesn’t sound like such a bad idea. Consider what has happened to what some humbly suggest is still the sock capital of the world. Fort Payne, Ala., has held that distinction for a number of years, but many now say that Fort Payne’s claim to fame may only be rooted in the past.
Sock imports from China skyrocketed from under 12 million pairs in 2001 to 264 million pairs in 2003 alone, putting downward pressure on domestic prices, to which free traders and free marketers shout “Hallelujah!” Cheaper prices are better for consumers, they say, and help them to save money they can then use on other goods.
But the free trade/free market types fail to consider the wisdom of our founding fathers and other former statesmen held in high regard among the majority of the American people. Alexander Hamilton, for example, believed in a strong, protectionist U.S. economy where American workers were protected from cheap, foreign competition. Hamilton didn’t worry about whether we had the lowest prices in the world – he worried about having enough manufacturing jobs to employ Americans. After all, people who don’t have jobs don’t necessarily care if the store down the street is having a 70 percent-off sale because people without jobs can’t buy anything.
Given a choice, Hamilton believed, Americans would choose secure, higher paying jobs even if prices were a little higher over scarce, insecure jobs with lower pay and lower prices. If prices happen to go higher due to higher-cost domestic manufacturing, workers who are secure in their jobs can cut back on spending just like most Americans are doing now during the current economic crisis.
Alabama (the state whose senators who wanted Detroit to drop dead so they could continue subsidizing their foreign competition) has become the poster-boy state for opting to allow their textile manufacturers to die and replace them with foreign automakers that are heavily subsidized by local, state and national taxpayers. Few point out, however, states would have much less pressure to create so many jobs if they didn’t allow so many to be destroyed in the first place.
And now Tennessee is following Alabama’s lead as it watches the closing of R.L. Stowe Mills, a 108-year-old company that is shutting down textile mills across the country. But like Alabama, Tennessee officials think they have already begun implementing the answer: allow American companies to die and give away public tax dollars to foreign companies so they will relocate to their state to replace the bankrupt American ones.
Tennessee recently broke a national record for giving away the most taxpayer dollars in American history to attract German-owned Volkswagen to their state. VW decided it would build the first company factory in America for a second time in Chattanooga (they closed their once-only factory in Pennsylvania in 1989) and secured over $500 million in tax breaks by pitting Tennessee against several other competing states.
Canada wants us to buy its steel since 40 percent of the steel sold in the United States currently comes from there. China wants us to buy its steel. Italy warns us of an impending trade war (wouldn’t an increase from 12 million pairs of imported socks to 264 million in two years mean we’re already in a trade war?).
But Congress fails to realize we have the most to win in any trade war because we still have the most lucrative market and everyone still wants first and foremost to sell to us. Perhaps George Meany, the first president of the AFL-CIO after the American Federation of Labor merged with the Congress of Industrial Organizations, said it best, “Practically every country in the world … has some type of restriction, some type of barrier, some type of subsidization for their own people, that gives their own manufacturers and workers an unfair advantage over the American worker. … When have we ever retaliated against the unfair barriers put up by these countries which go back many, many years? And if we are to have a trade war, if that’s the only answer, I imagine if we had an all-out trade war we would do quite well for one simple fact: We have the market. We have the greatest market in the world right in this country.”
Thomas J. Donahue, president and CEO of the U.S. Chamber of Commerce, calls his opposition to the Buy American provisions in the economic stimulus bill “economic patriotism.” As the tired old refrain goes, Donahue claims such a provision would invite retaliation from trading partners (as if competitors in a trade war or any other kind of war can be called “partners”) causing us to be hurt more than our “partners.”
This type of speculation is the worst kind of defeatist attitude since it basically indicates those who support it believe there is absolutely no way America can ever enjoy a trade surplus. If we have free and open trade, three decades of recent history show we will suffer increasing and seemingly endless trade deficits. But we can’t restrict trade either because we’ll come out the loser because apparently the trade deficits will only get worse. So America is perpetually stuck, according to free traders like Donahue, with trade deficits and there seems to be no escape from this pre-destined fate because free trade obviously causes them and protectionism only makes them worse.
I wonder then, how does any nation (like protectionist China and protectionist Japan) manage to squeeze out trade surpluses? Why is it that China’s Gross Domestic Product (GDP) increases annually at double digits while ours languishes between 2 and 4 percent? How did America manage to have trade surpluses after World War II up until 1975?
If we do as China wishes and buy its imported steel to fix and build America’s roads and bridges, (keep in mind China is upset because President Barack Obama recently had the gall to call them on their currency manipulation) we’ll be paying them back the money we borrowed from them to pay for the economic stimulus without actually getting credit for paying them back. After buying all that Chinese steel and sending much of the money we borrowed back to China for the payment of imported steel, we’ll still be in debt for the money we borrowed.
What we need to do is buy American steel from American steelworkers and American iron from American ironworkers. That way, workers in America will pay taxes to the U.S. Treasury and from the coffers of the U.S. Treasury, we will pay China back the money we borrowed, settling our debt and ending with a balance of payments.
Securing the American market for the American producer is not protectionism or isolationism; it is simply common sense and financially-sound economic policy.