A Declaration for Trade Interdependence
Jul 02, 2009
As members of Congress prepare to celebrate the Fourth of July, they ought to perform an act of patriotism and embrace free trade--just as the Founding Fathers did in 1776.
The Declaration of Independence lists a series of reasons for breaking ties to the English crown. One of them is “for cutting off our trade with all parts of the world.”
Unfortunately, that’s precisely what the United States is now doing to itself, in the form of the “Buy American” rules Congress inserted into the $787-billion economic-stimulus bill earlier this year. Cutting off our trade with all parts of the world is a very bad idea--and it hurts ordinary citizens the most.
On the face of it, “Buy American” requirements are motivated by a love of country. During a time of economic crisis and high unemployment, lawmakers ought to make special efforts to save and create jobs. The “Buy American” provision purports to do this by forbidding the use of stimulus money on foreign-made iron, steel, and factory products.
Yet what sounds good in theory often fails in practice. “Buy American” requirements are destroying jobs, costing consumers, and undermining America’s position of global leadership.
Consider the case of Duferco Farrell, a steel company near Pittsburgh. It employs about 600 workers. Their jobs are now in jeopardy because the coils they make require imported steel slabs that aren’t readily available in the United States. As a result, the products these workers manufacture aren’t purely made-in-the-USA. Recipients of stimulus money can’t do business with them. This includes a huge client who is literally just down the road.
“You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs,” said Bob Miller, Duferco Farrell’s executive vice president, in the Washington Post. “I’ve got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?”
Many other jobs are at stake as well. The Peterson Institute for International Economics has estimated the “Buy American” law may create a few jobs--perhaps 1,000 for U.S. steelworkers, at companies other than Duferco Farrell. But there will be even greater costs. If “Buy American” rules provoke foreign governments into restricting their own purchases of American products, jobs that depend on exports will suffer. The Peterson report says these job losses could approach 65,000, depending on the extent of the retaliation.
This is already happening. China just approved its own economic-stimulus plan, worth $586 billion. It contains a “Buy Chinese” provision. In announcing this rule, the government in Beijing said it wanted to favor domestic suppliers over foreign ones. China’s foreign suppliers, of course, include Americans.
Canada has enacted its own preferential policies, involving municipal purchases. Because Canada is America’s largest trading partner, these new prohibitions really could hurt over time. Moreover, they were implemented explicitly in response to the “Buy American” law, which has forced many American companies to quit doing business with Canadians.
Even people whose jobs aren’t tied to trade with Canada will feel a pinch, in the form of rising consumer prices. Because protectionism reduces competition, it will make infrastructure projects sponsored by the stimulus bill more expensive. Taxpayer dollars won’t go as far as they should. Our public money will be wasted.
When the financial crisis set in last fall, world political leaders issued joint statements on the importance of international trade. Judging from what they said, they are committed to the idea that although protectionism holds a superficial allure, it delivers unintended consequences that do far more harm than good.
Who will hold them accountable to their own words? It won’t be the United States. As soon as President Obama signed the stimulus bill, our country lost its ability to lead by example.
Or maybe not. We can still admit our mistake and repeal the “Buy American” law. This would represent a feat of global political leadership--something sure to make the Founding Fathers smile on this Independence Day.