Posted by spaul on 07/21/2009
Our nation faces rising unemployment, staggering debts, shrinking trade, and no sense of when (and if) a real recovery -- one that reaches Main Street and working families -- will take hold.
As the federal government responds to these concerns, and especially since President Obama was sworn in, shrill warnings against protectionist measures have been issued by editorial pages and foreign officials. The specter of widening and deepening the current recession, or returning to 1930s Smoot-Hawley trade policies, has been repeatedly invoked.
But American protectionism is a myth. If one wishes to point fingers, they should be directed toward Beijing, Tokyo, Brussels, and Seoul, where mercantilism and subsidies still reign supreme.
This is the untold story of protectionism: the barriers that other governments erect to block American goods and the mercantilist measures they utilize to gain market share in the U.S. These practices range from China's currency misalignment and massive industrial subsidies to non-tariff barriers in Korea and Japan. All these impediments have been well documented by U.S. trade officials, but the mere act of identifying these practices is now viewed as protectionism, even though taking action to eliminate them would expand world trade, reduce global imbalances and preserve the free market.
The obsession with American protectionism is nothing more than a diversion from the real questions that need to be answered. How do we end global imbalances and achieve a balance between our exports and imports? How do we revitalize our nation's manufacturing sector, which is responsible for a large share of America's innovation and production? How do we begin growing jobs again in this difficult business environment?
Congress took a very small step forward in the stimulus package passed in February by requiring some materials used in infrastructure projects to be sourced domestically to the extent permitted by U.S. trade obligations. The value of the materials affected is only a small fraction of the $4 trillion in two-way trade that crosses the U.S. border annually, but it is providing a much-needed boost to the American manufacturing sector. Contrary to widely held perceptions, this Buy America rule is not a new requirement, nor does it make America a renegade nation.
Buy America has served as an effective jobs generator and a smart economic policy for decades. It applied to materials used in the construction of the interstate highway system in the 1950s. In the midst of a recession during the early 1980s, President Reagan signed legislation that strengthened Buy America requirements. Some sort of domestic sourcing requirement has applied to most major infrastructure expenditures passed by Congress since World War II, so it would have been a surprise if a requirement had not been attached to the stimulus spending.
And Buy America can create good jobs. A study prepared earlier this year by economists at the University of Massachusetts at Amherst estimates that strong domestic sourcing requirements create about one-third more manufacturing jobs than otherwise would be the case.
In fact, Buy America won't just help the United States. For example, because of integration, the provision works to the benefit of the entire North American steel and auto industry, including in Canada.
Buy America policies also reward other nations with reciprocal government procurement agreements by exempting them from certain types of restrictions. Current procurement rules allow states and some localities to opt out of reciprocal obligations, leaving decision-making in the hands of local officials, who know far better than bureaucrats in Geneva or Washington what is best for their local economies.
There will never be a repeat of the Smoot-Hawley tariffs, at least not in America. We have not asked for sky-high tariffs. We have not asked for domestic procurement measures that violate our trade obligations. But we will continue to insist that countries like China honor the commitments they made to gain access to our market and stop their cheating, and we will work with Congress to ensure that tax dollars devoted to infrastructure spending are reinvested in the American economy.
The success of American manufacturing depends on a fair application of international trade rules. Buy America is fully consistent. But the market-distorting practices emanating from places like China are not. Let's stop protectionism where it really festers.
This blog is cross-posted on The Huffington Post.