THE BLOG

"Buy American" Sounds Patriotic, But The Protectionist Policy Could Start A Trade War

03/19/2009 05:12 am ET | Updated May 25, 2011

The world cheered when President Barack Obama took the oath of office - many hopeful that this young leader would emerge as a guiding light for the global economic crisis and restore America's reputation as a wise and generous neighbor. President Obama warned that we are in the greatest financial crisis since the Great Depression and offered up a nearly $800 billion economic stimulus package to create jobs, support states and protect the country's future. At the same time, President Obama urged lawmakers combing through proposed investments that "we can't send a protectionist message."

What happened?

Tucked inside the nearly 700-page stimulus text is a short clause that sounds at face value as cheerful as vanilla ice cream on warm apple pie. It's called "Buy American" and it provides that all iron, steel and manufactured goods used in stimulus-funded projects be produced in America. As Senator Sherrod Brown, a Democrat from Ohio, put it to the New York Times: "Who could be against it? Well, some Ivy League economists don't like it - something about Smoot-Hawley and the Great Depression."

Perhaps too much time has passed since the financial crisis of the 1930s or our lawmakers are not reading their history books. The "Buy American" provisions are dangerous protectionist policies thinly guised as feel-good patriotism. Politicians know that with American jobs being lost they must be seen as doing something to put people back to work. But history teaches us that policies designed to prop up a country's economy and its industries tends to backfire. Countries rush to save themselves, stop trading with one another, and endanger the global system.

The "Buy American" provisions will signal to our trading partners around the world that the United States is returning to the bad old days of protectionism and economic nationalism. Rather than stimulate the American economy, these provisions will lead to retaliation from abroad and cost precious jobs in the United States.

The Peterson Institute for International Economics, a nonpartisan think tank, estimated that a few thousand jobs would be created by "Buy American" whereas as many as 65,000 jobs could be lost if other countries put similar laws in place.

The United States' global economic leadership is not a guaranteed thing. It is something we build and maintain every day with our ideas, our products and our longstanding policy of international engagement. That leadership has paid huge dividends for Americans, contributing to an increase of 25 million jobs in the United States between 1993 and 2006 - a period that coincided with an unprecedented expansion of U.S. trade policy.

"Buy American" is poised to unravel much of that trade policy, putting at risk previous trade agreements and violating other concessions made to our trading partners. That lawmakers say that the provisions are consistent with the letter of World Trade Organization rules is meaningless if the effect of "Buy American" is to turn our country inward and halt trading opportunities.

If we reverse ourselves on trade now, the negative impact will be felt across the globe. We don't have to speculate about this. We know what happens when the United States makes a conscious step toward protectionism, ratcheting up tariffs and closing its borders to the outside world.

The Smoot-Hawley Tariff Act of 1930 helped precipitate a decade-long economic downturn. In our increasingly global economy, the effects of such a move today may well be even more disastrous. Both established markets like ours and fragile emerging markets in the developing world now depend on the free flow of goods and services. If we shut off that flow, we'll hurt ourselves, abandon the developing world and irreparably damage the global leadership we've fought so hard to establish.

Trade is not to blame for our economic crisis. Indeed, continuing our global leadership on trade may pave the clearest path back to prosperity, not just for our nation but for the world at large. Our new leaders in Congress in the White House must reject the inevitable protectionist propaganda and do what they know to be right for our country.

Gary Shapiro is the president and CEO of the Consumer Electronics Association, which represents more than 2,200 U.S. technology companies.