If you listen to most of the media’s misguided free market cheerleaders, the “Buy American” provision in the American Recovery and Reinvestment Act of 2009 will prevent our economy from experiencing any kind of recovery or reinvestment.
Sen. John McCain says “shortsighted protectionist measures like Buy American risk greatly exacerbating our current economic woes.”
Really? Exactly how do we remain true to the spirit of the stimulus bill’s target of “recovery and reinvestment” of the U.S. economy by buying steel, iron, and other manufactured products from foreign countries? Isn’t the goal here to reinvest in and recover the American economy? Please tell me if I stop making common sense.
Then there’s the tired old refrain that says “if we don’t buy stuff from other countries then they won’t buy our stuff!” Isn’t the 2008 U.S. trade deficit of $720 billion evidence enough that foreign countries already aren’t buying our stuff?
At best, the “Buy American” provision of the stimulus bill would balance world trade, but even that is terribly unlikely. And who could argue with striving to achieve a balance in trade? Don’t we normally seek a balance in virtually every other aspect of our lives? We strive to balance our work life and our family life. We strive to balance our commitments to our community and our commitments at home. So what’s so wrong with at least a balance of trade if restricting imports makes it possible? As Sen. Sherrod Brown of Ohio put it, “how can you have an $800 billion trade deficit and call us protectionist?”
Apparently less than a third of U.S. senators disagreed with Sen. Brown as an amendment to strip the “Buy American” provision from the Senate version of the bill, proposed by none other than McCain, went down in defeat 31-65.
Here’s what the proposed House Resolution 1 as amended in the Senate (TITLE XVI General Provisions) said as of February 6:
None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.
Buying exclusively U.S. steel with the money made available (mainly from China) will not only help our economy recover through reinvestment, but it will also help America become more competitive. If we refuse to mandate using American steel and iron for the maintenance, repair and construction of America’s roads and bridges, the United States will be little more than a currency transshipment hub. To buy the steel we need, we’ll simply borrow money from China, route it through the U.S., distribute it to Canada, Japan, the European Union, and of course some of it will go back to China. The problem is that for every $100 we borrow from China, if we use, say, $25 of it to buy Chinese steel, we’ll still owe China $100 even though we sent $25 of it back. A sweetheart deal for the Chinese for sure. On a consumer level, it’s kind of like making payments on your credit card and the balance never goes down.
The average operating capacity for U.S. manufacturing was 78.6 percent for 2008. The closer we can boost that figure to 100 percent, the more we can take advantage of economies of scale and lower our cost per unit of output. The more we can bring the cost down for each ton of steel we produce, the more attractively-priced it will be to potential foreign purchasers, and the more competitive we will be. Then there would be less pressure for protectionism and fewer accusations that American industry isn’t competitive enough. If we want to promote trade abroad, we must first promote growth at home. And that won’t happen if we have all our needs supplied by foreign countries.
The 31 senators who clearly are more interested in legislating for a “more perfect global economy” or a “more perfect European Union” instead of the constitutionally mandated “more perfect Union,” can take comfort that the Buy American provision won’t override any existing trade agreements.
The anti-buy American senators would have you believe that if we purchase the products of our own manufacture, other countries will likely retaliate.
Really? That sure hasn’t been the American record of late. We have been virtually locked out of the Japanese market for decades to the point where if Chevrolet sells 500 cars in one month to Japan, it’s a good month. Have we retaliated against Japan? No. So why would we think other nations would do what we have avoided doing ourselves?
According to the U.S. Census Bureau, our trade deficit with China for 2008 was over $246 billion. This is not only because of China’s cheaper labor rates and lack of standard-of-living-raising regulations, but it’s also because Chinese tariffs on U.S. exports are substantially more than U.S. tariffs on Chinese exports.
In fact, the 2008 trade deficit with China was actually lower than the 2007 trade deficit by about $10 billion. The reason is likely because of the recent economic crisis, world trade is declining and that has pushed the U.S. trade deficit down to its lowest level in 12 years, according to the “Wall Street Journal.” PNC Financial senior economist Robert Dye says the shrinking trade deficit resulted in more support for fourth quarter Gross Domestic Product (GDP) than expected. So less trade means a more favorable GDP and a lower trade deficit. Maybe that’s why Abraham Lincoln said we should only “trade where it is necessary and avoid it where it is not.”
Anti-buy American Republicans should revisit the wisdom of one of their party’s former presidents. President William McKinley once said, “We deny to those foreign nations free trade with us upon equal terms with our own producers. The foreign producer has no right or claim to equality with our own. He is not amenable to our laws. There are resting upon him none of the obligations of citizenship. He pays no taxes. He performs no civil duties; he is subject to no demands for military service. He is exempt from state, county and municipal obligations. He contributes nothing to the support, the progress and glory of the nation. Why should he enjoy unrestrained equal privileges and profits in our markets with our producers, our labor and our taxpayers?”
Buy America provision would create jobs and swell the American tax coffers so we actually can start paying our debts and stop living beyond our means as a country. A December 2008 U.S. Government Accountability Office (GAO) report highlighted the benefits of Buy American provisions. Citing literature from the Department of Transportation, the GAO report said that “the types of potential benefits related to this program … include protecting domestic employment through national infrastructure improvements that can stimulate economic activity and create jobs; protecting against unfair competition from foreign firms as a result of foreign government subsidies; and maintaining national security interests through the continued use and development of certain industries within the U.S. economy, like the iron and steel industries.”
Buying American is a no-brainer. That’s a good thing, because we have a lot of influential policy makers who are talking as if they have no brains.