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10.09

Buy American – Good, Bad or a Wash for America?
By George W. Zobrist

“Buy American” is making a comeback in response to the nation's foundering economy, and in light of "Buy American" provisions within the current administration’s stimulus program aimed at rousing the economy from its stupor.  This type of effort has a long history in the United States and in other countries, as well. Numerous “Buy American” laws have been enacted since the 1930s. However, while they may help save American jobs in the short run, protectionist trade provisions have also proven to be detrimental to the nation's foreign affairs (e.g., restrictive trade policies likely contributed to the start of WWII, and also the War of 1812).  There are also arguments that the Smoot-Hawley Act of the 1930s deepened the Depression through trade restrictions.

The Senate softened the "Buy American" provisions in final version of the recent economic stimulus bill to comply with World Trade Organization rules. The final section of the bill reads as follows:

"SEC. 1605. USE OF AMERICAN IRON, STEEL, AND MANUFACTURED GOODS. 

(a) 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.

 (b) Subsection (a) shall not apply in any case or any category of cases in which the head of the Federal department or agency involved finds that applying subsection (a) would be inconsistent with the public interest;

(2) iron, steel, and the relevant manufactured goods are not produced in the United States if sufficient and reasonably available quantities and of a satisfactory quality; or

(3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.

(c) If the head of a Federal department or agency determines that it is necessary to waive the application of subsection (a) based on a finding under subsection (b) the head of the department or agency shall publish in the Federal Register a detailed written jurisdiction as to why the provision is being waived.

(d) This section shall be applied in a manner consistent with United States obligations under international agreements.

International reaction to the "Buy American" provisions have been less than enthusiastic. Canada, for one, has been angered by the “Buy American” portion of the stimulus program. And the European Union recently warned the United States against plunging the world into depression by adopting a “Buy American” policy, intensifying fears of a trade war, according to a February 2009 Times Online article.

One recent dispute centers around domestic vs. foreign tire production.  Unions claim that importing tires produced outside of the United States (e.g., Chinese tires) will cost U.S. manufacturing jobs.  The U.S. International Trade Commission backed the unions' complaint and recommended tariffs on imported tires, and President Obama imposed a 35 percent tariff on Chinese-made tires. The Tire Industry Association says that if imported tires are reduced through “heavy” tariffs, layoffs will result within their membership, and higher prices for tires will be passed on to the consumer.  Also, punishing China won’t help, since many tires are made by global firms, such as Goodyear, which can just shift production to other countries.  According to Gary Hufbauer, of the Peterson Institute for International Economics, such sanctions would probably result in a “wash” with regard to net employment.

Government subsidies are also an important aspect of “Buy American,” since the government wants to keep jobs in America.  When the WTO rules on a five-year-old complaint that European governments unfairly subsidized their airplane manufacturers, this could signal how much other nations should be allowed to subsidize their domestic industries. Especially China, which is already being accused of subsidizing their steel producers. Both Boeing and Airbus have accused the other of receiving undue aid from their respective governments. 

President Obama campaigned heavily on “Buy American” to keep jobs in the United States, but the reality of tradeoffs in a global economy are setting in.

Some of the various arguments raised in the "Buy American" debate include:

• Unions and their suppliers lose “good” jobs if cheaper imports arrive

• Trade/Business associations' members lose jobs/business, if they are servicing the import trade

• There will be a movement from countries where restrictions apply, to countries  where there are no/or, minimal restrictions

• Many countries also have restrictions/or subsidization, so not a level playing field

• Businesses will not be able to bid on foreign jobs, if other countries adopt a “Buy American” equivalent

• Minimal items bought overseas with respect to the stimulus “Buy American” restriction, since most of these jobs are construction jobs done in the United States (possibly, cement, steel and some other raw materials purchased globally)

One “anecdotal” argument that “Buy American” can raise the cost of projects comes from the rebuilding the San Francisco-Oakland Bay Bridge in the 1990s.  California state rules mandated that domestic steel had to be used if the cost premium was no more than 25 percent higher than imported steel.  The domestic bid came in at 23 percent over the imported steel bid.  Therefore, California taxpayers had to pay roughly $400 million more for the project.  Of course, the domestic argument is that Steel jobs were protected, but this left less money that California could spend on other projects.  Not a zero-sum game; there will be winners and losers.

The State of Illinois recently enacted a “buy local” foods law, which requires state agencies and universities to purchase at least 20 percent of their food supplies from locally grown sources, by 2020.   According to R. W. Hafer, Professor, Southern Illinois University, “When you set quotas, you embed inefficiencies.”

One can find numerous articles on the Web (search on “Buy American” and various articles in financial newspapers/magazines). Excellent group of vignettes on the “Buy American “ provision at http://roomfordebate.blogs.nytimes.com/2009/02/11, this presents various sides on the subject.

Dr. George W. Zobrist is professor emeritus at the University of Missouri-Rolla, Department of Computer Science, IEEE-USA's Member Activities editor, and former editor of IEEE Potentials.

Comments may be submitted to todaysengineer@ieee.org.