Both the House and Senate stimulus bills contain some pleasant-sounding 'Buy America' provisions, which require that all the steel used for construction funded in the bill be American-made. Rules like 'Buy American' may sound nice, but they are inherently unhelpful. In a global economy, what does 'American-made' mean? And how much of a premium should taxpayers cover to purchase 'American-made' products instead of others? Why does American-made steel get a preference, but not cars, or food, or health care, or any other commodity? And why should taxpayers pay extra to support less-efficient firms in the first place? Rules like this amount to an attempt to protect an inefficient economy hamstrung by big government, and they're no substitute for cutting taxes, reducing regulation, and getting government out of the way.
And apart from ineffective, it also has the potential to spark a very costly trade war:
"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.
"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."
You might think that Congress couldn't really be serious about this -- that they recognize the threat here, and only included these measures in early versions of the bill as a sop to union backers, later to be removed. You'd be wrong. In fact, Senator Byron Dorgan thinks we ought to do it because it's working so swimmingly for the French:
"The Washington Post, as is their usual trademark, suggested this is protectionist," said North Dakota's Dorgan. "We're a country with a 700 billion dollar trade deficit. It's absurd for somebody to suggest we're protectionist. It's absolutely absurd. They must not have understood that we've got about a $2 billion dollar a day deficit in trade. That's hardly protectionist."
The Post warned that the provision -- which is strongly opposed by the Chamber of Commerce and other organizations that represent multinational corporations -- could start a trade war.
"The United States started one such trade war in 1930, when it enacted a tariff increase that prompted European retaliation -- thus helping turn a bad recession into the Great Depression. Better to learn from this history than to repeat it," offered the editors.
"You mean like the French wanting to make sure that their stimulus promotes jobs in France? Well, that's what the French are doing," responded Dorgan....
Dorgan predicted that the 'Buy American' provision, which requires companies to use American materials when possible, would remain in the stimulus bill.
So early into the Obama administration, and we already have brewing conflict between the dim bulbs in Congress and the 'brilliant minds' of the Obama administration. Of course, that's assuming that Geithner, Summers, et al recognize just how damaging it would be to set off a round of market-closing measures by the world's leading economies. Again I find myself saying that we need to hope that the President makes clear that he will not bend to the will of Reid, Pelosi, et al.
They told that if voted for John McCain, we'd have a unilateral administration that burned bridges with key allies -- and with France. And they were right!