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

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.

Comments

[sandyhh]

I thought we were already at war and were just not fighting back?

[WASanford]

When in the last 3 decades has America enjoyed a positive balance of trade? You're implying that the "buy American" clause in our stimulus package might cause a trade war. Well, we've been in one for the last 30 years and we're losing it. The vast majority of our world trade amounts to American companies exporting American jobs to low wage nations, laying off American workers, and pocketing the extra profits when they sell the products for the SAME price they would have got had they been made by American workers. Explain how we're supposed to benefit from that business plan!

Our current economic mess isn't hard to understand. This economy is being strangled by a huge deficit of currency and as a result our dollar is deflating. That means that prices are falling which might ordinarily be a good thing but it’s happening too quickly.

We need to make up for the jobs we've lost; increase wages (the minimum wage is about 4 x's too small); Print up some new money and put it into the bottom economic rungs (to get the full multiplier effect as the money percolates to the top); and monitor the results (with a careful eye out for inflation where we stop injecting new money and perhaps begin taxing it away). This is very much the program proposed by George Soros and it should work.

[KillTheMessenger]

That wasn't a trade war. It was a spending binge. You got drunk after being shown dirt cheap goods and you couldn't keep your fingers off them. Now you are asking the legislator to make the dirt cheap goods more expensive by taxing them, so you won't buy so many. I wonder why you never ask the feds to raise the gasoline tax that way. It would be exactly the same thing.

But I guess, logic does not make inroads here, does it?

:-)

[KillTheMessenger]

The reality is really simple. There will be no trade wars and there will be no tariffs and free trade will go on just fine. This whole thing is a political line item and the world will stop talking about it in three days when it turns out that there is no way we can actually put this into work. We simply do not manufacture enough stuff to make it work.

:-)

[LeftRight]

There is no free trade, there has never been free trade, and there never WILL be free trade between the USA and anyone else until such time as we are on an equal footing with that trading partner. When one has a minimum cost for labor of around 200 dollars per week, and another has a minimum cost for labor of 5 dollars per week (or less....) then "free trade" cannot exist between them!

[Social Construct]

"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."

Nice statistic. Now, tell us how many living wage jobs have been sold to the off-shore, lowest labor cost bidder? I am willing to bet that a great many of those 25 million jobs the US gained carry income stagnation, if not income lowering, statistical baggage.

[KillTheMessenger]

What is it that makes people want to keep sweat shop jobs in the US? Is it really better to work all your life in a sweat shop for minimum wage than to actually work harder in high school to get a diploma and maybe even go to college?

One wonders what all these sweat shoppers are thinking..­. is it along the lines of "Involuntary Servitude is Sweet!"?

[SusieQ]

Right question, really. What makes us buy sweatshop goods? It's because we don't know that's what they are a lot of the time and we think that there is nothing else available the rest of the time. Do we want to buy goods made by slaves? No, Do we want to buy goods made by little kids? No. Do we want to buy goods made by people who don't make enough to live on? No. We just want to be able to live ourselves. We want them to be able to live, too.
The other issue is that there are going to always be people who don't get a college degree because they're not smart enough. You can't expect someone with an IQ below 100 to get a 4-year degree. Those folks have to have jobs and it doesn't help our economy if all of them are working in fast food.

[soccer-balls]

There is need to stimulate the economy rather than going for protectionism, this will further derail the economy, no country can manufacture every thing in house, we need to address the root cause and that is short fall of capital and un controlled corporate sector, the difference between rich and poor is growing and if common man don't have money they won't spend and it will start a cycle of down turn.

[RoloTomassi]

Jeez, another Free market fundie who is tethered to globalization; you guys just cannot envision a global economy that isn't a Friedmanite orgy of greed, can you?

The world is changing, and US leadership in the area of finance isn't that high on the list of things that nations want to cling to....

[KillTheMessenger]

Sadly, US leadership in industrial production isn't either. Sure, everybody wants our bombs and delivery systems thereof. But how many want out ice cream makers and washing machines?

And that would be not that many.

[Tizhimslf]

If we start a trade war because we buy an American product, then so be it! The way Congress has set up these international trade organizations like NAFTA has given away the farm. We have imposed no meaninfufl restrictions on minimum pay or working conditions in other countries, so our companies are leaving in droves. Subsidized by the American taxpayers. It's time we start looking after our own PEOPLE and let the corporations fend for themselves. Make no mistake, that is what this article is really about, i.e., corporate power and money, which always is at the expense of the people and the people''s ability to live a good, healthy, prosperous life as opposed to mere survival. Survival is what they have now or some do. The "good life" has been taken from them by Reagan and Bush's massive transfer of wealth from the middle class to the already wealthy.

[SoutheastReview]

People in Gary Shapiro's position know very well the degree of integration in the world economy. Others, whose hearts are much closer to mine in their populism and commitment to social equity, are not nearly so clued.

Unfortunately, in the current context more than ever, Nationalism = Death; and in case anyone wonders, that means that protectionist policies today will yield a WWIII at least as much more destructive than WWII as WWII was more destructive than WWI. This is not hypothetical. It is inherent.

The only way out, and this is true no matter how much the haute bourgeois and the petty bourgeois hate it and would rather go on sniping at each other about protectionism versus globalization, is an international movement for social democracy that is rooted in national upsurges to demand the same at home.

The prospects for such an eventuality seem far fetched, to say the least. Then again, anything else is mass collective suicide. "I've seen the future, baby; it is murder," sings Leonard Cohen. I'll take a long shot at socialism any day.

[slarabee]

What I find most interesting about this argument is that it complains that the "Stimulus Bill" or the Economic Stimulus Act of 2008 contains language that makes it compulsory to buy American goods and use American labor wherever and whenever possible.
Now while this may anger some foreign interests, the fact that cannot be overlooked is that this bill is intended to stimulate our economy not theirs. Now if our economy rebounds and we can mange to somehow pull off the miracle of pulling ourselves back from the brink, then and only then can we start to worry about helping our neighbors.
The only analogy I can think of that begins to put it in perspective for me is we are trapped under an avalanche and we cannot even begin to see the surface yet. Now if it pisses people off that we should worry about digging ourselves out first and then we will see what we can do to help rescue them well...
Tough.

[TakeSake]

To start with, "Gary Shapiro is the president and CEO of the Consumer Electronics Association, which represents more than 2,200 U.S. technology companies.­" is misleading. While the CEA does represent 2,200 technology companies, the majority are definitely not U.S. companies - they only have a sales office here.

Here are some interesting things from their web site:
1) "Americans for Consumer Technology (ACT) is CEA's grassroots network devoted to promoting a positive regulatory environment at the state and federal level for the consumer electronics industry in the U.S."

Let's see if we can get past this cognitive dissonance. CEA, grassroots. CEA, grassroots. CEA, grassroots. Nope, can't do it.

2) "Influence - There truly is strength in numbers. Our united voice before Congress as well as federal and state agencies protects your company's business interests.­"

Interesting - nothing about protecting the interests of the United States.

[KillTheMessenger]

"While the CEA does represent 2,200 technology companies, the majority are definitely not U.S. companies - they only have a sales office here."

Actually, that's not the case as far as I can tell. I did take a cursory look at the list and it contains a lot of medium and small size US companies. You may have a point if you said that the center of revenue of these companies is outside the US, but even that is somewhat misleading because Best Buy is a member and they do make a lot of revenue with foreign products, too. And I am pretty sure that if Walmart and Target decided they want to pay the membership fee, they would be admitted in no time.

You can't sell consumer electronics any other way than through retail channels and that's where the big money is. It's not on the producer side.

"Interesting - nothing about protecting the interests of the United States."

Dear God... don't they teach in school that protecting the US is a function of the federal government and the federal government only? Why does suddenly EVERYONE have to protect the US, even if their goal is exclusively to protect their own business?

[WASanford]

What part of "We the people" are you having difficulty with?

[zizyphus]

Free trade didn't work, that is why we need protectionism again. No one was looking out for American workers.

[KillTheMessenger]

Free trade works extremely well. The computer you write on is a perfect proof for the positive influence of free trade. With stone age protectionism, IBM's chairman would probably still claim

"I think there is a world market for maybe five computers.­"
- Thomas Watson, chairman of IBM, 1943

And they would all have had to come from IBM... and weigh about a ton and a half each. And you could collect your results at the printer in the other building in about half an hour. Or whenever the little bell in your teletype makes "ding".

:-)

[WASanford]

I've actually programed computers using a keypunch/card reader system when I was taking IBM 360 assembler and JCL classes at my local community college. You haven't lived until you've had use a memory dump to troubleshoot the program you've just written. It's tough both mentally and physically (sleepless nights) but I was in hog heaven. It didn't hold a candle to the desktop I'm using to post this but it was far more interesting.

[meede]

Got a great idea with Buy American -- let's P*Off Canada too. Canada being our largest supplier of petroleum and natural gas. When gas prices go through the roof again, then those of us against the Buy American inclusion have free use of 'told you so'. Many people don't look outside of their own little box to see the ramifications.

[woody1291]

I do not see any need to halt or even curtailing trade with Canada as their wages and benefits are greater than ours. We need to slow the influx of cheap foreign steel and other things from the Far East. We have little or no problem with our trading with Canada. I think you are confusing things my friend.

[loudspeaker]

The "old days of protectionism and economic nationalism" were not "bad" but very good in fact. That was what made the U.S.A. become the most powerful nation on the planet.

With free trade we lay off American workers and depend on slave labor in poor countries. Not good for us and not good for them. That is ABC.

The ironic thing is that the free trade system, which is supposed to be good for the world economy, is actually what is destroying the world economy.

[KillTheMessenger]

You seem to remember the "good old days" really well. Which makes you how old, exactly?

:-)

[LeftRight]

Gary,

You obviously do not understand the way that the world is working. So called "free-trade" agreements have two major faults that you fail to mention:

1) There can be NO free trade between unequal partners. If it costs me $15/hr to manufacture something in the USA, and $0.25/hr to manufacture it in China, then I will move my manufacturing facilities to China. If there is a tariff to EQUAL those numbers, then it makes PLENTY of sense to manufacture in the USA.

2) The USA is the only country IN THE WORLD that has a "free trade" policy going on right now! The rest of the world (in addition to falling into number one!) are acting PROTECTIONIST against the USA!!! If we were to go back to our own roots as a protectionist country, then we could maybe actually get some jobs back here into the States!

Now I'm not suggesting that we simply implement a 50% tariff (or whatever the percentage­....) overnight, I'm suggesting that we start by creating a tariff now, which will make it easier for domestic industry to get back into place, and as that money percolates through the economy it will make it easier for people to purchase such goods, and then you can slowly increase it to the point where it belongs!

[KillTheMessenger]

If you put a tariff equal to $15 in place for your scenario, it means you are raising the cost of a product that takes one hour to manufacture by $14.75. Since something that has been manufactured in China for $0.25 is sold in the US for approx. $1, and something that has been manufactured in the US for $15 end up costing $30 in the store, your tariff would have increased the cost to the consumer in this particular example from $1 to $30 and thus 30 fold.

I can really see how well that will go over with the people who shop at Walmart.

:-)

[WASanford]

The cost of labor does NOT determine the price of the product. According to Adam Smith, a product's price is determined by the balance (or imbalance) of supply and demand for it. All that lower wages do is increase profits to the manufacturer. Tariffs would also reduce the extra profit of manufacturing products overseas but it is very unlikely to change the price of products sold in the USA.

This isn't rocket science Killer, perhaps you're too overqualified for this.

[OLDDOG65]

Gary:
We have been in and economic and trade War for the last 30 years. We capitulated in 1981 or so with the advent of Free Trade policies when there are no "Free Trade Markets" anywhere in the world, except here of course. What we do with trade is go to a tank battle with a slingshot. The results are predictable. Ask anyone who lives in Detroit or th