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'Buy American' provision in stimulus bill makes no economic sense

A requirement that most stimulus-funded projects use only U.S.-made gear and goods is shortsighted, knee-jerk protectionism.

February 01, 2009|DAVID LAZARUS

When the going gets tough, the tough buy local.

That's the crux of the more than $800-billion economic stimulus bill under consideration in the Senate. It contains a "buy American" provision requiring that most stimulus-funded projects use only American-made gear and goods.

The House passed its own version of the legislation last week. It stipulates that we not buy any iron and steel from pesky foreigners seeking a slice of stimulus pie.

I'm thinking that it's all well and good to wave the flag when our national economy's on the line. But aren't we being just a tad shortsighted with all this knee-jerk protectionism?

Andrew Rose, a professor of international trade at UC Berkeley's Haas School of Business, said you could practically set your watch by how quickly protectionist sentiment ratcheted up whenever the economy turned sour.

And in almost all cases, he said, "buy American" provisions are a bad idea.

"It's certainly a bad idea for the rest of the world, and it's a bad idea for us as well," Rose said. "If we only buy American, we'll probably pay more for inferior goods."

You don't have to be a Nobel Prize-winning economist to see how this will play out. Take steel, for example.

Nearly a third of all steel purchased in the United States -- primarily for construction and cars -- comes from overseas. That is, U.S. steel mills are meeting only about 70% of domestic demand.

If those mills suddenly had the market to themselves, at least for big, fat government infrastructure projects, what do you think would happen? Is it possible that, I don't know, their prices would suddenly go up as they realized Uncle Sam had nowhere else to shop?

"The single issue that unites all economists is that the freer the trade, the better," Rose said.

Our friends abroad certainly think so as well. A spokesman for the European Commission said a "buy American" provision "is not something we will stand idly by and ignore" -- meaning that they will be looking closely to see if it violates trade accords.

Similar concerns were voiced by Canada, Australia and others that look to the United States for free-market leadership. The White House said Friday that President Obama hadn't yet decided where he stood on the issue.

We've been down this road before. Buy American ruled the day during the Great Depression. All it did was prolong the global downturn.

So why do our lawmakers persist in throwing good economic sense out the window? That's easy: Because politics and good economic sense seldom go hand in hand.

When the chips are down, what politician doesn't want to appear in his hometown newspaper saying he's doing his share to keep taxpayers' hard-earned money from ending up in the hands of the Chinese or the Indians?

A survey conducted last week by the industry-backed American Iron and Steel Institute found that 86% of poll respondents favor using American iron and steel for stimulus-funded transportation and infrastructure projects.

"This survey shows that Americans support a common-sense approach to rebuilding the economy," institute President Thomas Gibson said.

"Americans want to see American taxpayer funds supporting a stimulus package that will generate American jobs using high-quality, American-made products," he added.

They also really like it when people say "American" four times in a single sentence.

The U.S. Business and Industry Council, a manufacturing-industry organization, tipped its hat as well to the "buy American" provision in the Senate bill.

"A stimulus bill lacking strict 'buy American' provisions will only encourage ever more consumption of foreign goods with borrowed foreign money -- which helped produce today's economic crisis in the first place," council President Kevin Kearns said.

"Any attempts to remove the amendment by multinational, outsourcing special interests should be defeated," he declared.

Look, I'm rooting for the home team as much as anyone -- I don't want American businesses to fail or more jobs to be lost. But as a consumer, I also appreciate the importance of shopping around.

We're going to be using a whole lot of steel over the next few years as hundreds of billions of dollars in taxpayer funds get pumped into everything from new bridges to new energy systems.

If the Chinese, say, are selling steel for 10% or even 20% less than U.S. producers, are we really doing ourselves a favor by saying thanks but no thanks?

Put another way, I enjoy the experience of shopping at Whole Foods. But I still buy my toilet paper and other staples at Costco. Why? Because I'm not stupid. I want to stretch my money as far as it'll go, especially during times like these.

I don't blame U.S. business for looking after their own interests. If I was Halliburton and Uncle Sam offered me multimillion-dollar, no-bid contracts for services in Iraq, I'd probably have taken full advantage of the situation too.

That's why one lesson we learned from that particular fiasco was not to hand out goodies to businesses without first playing the field. The same applies now.

It seems perfectly reasonable to expect that all jobs created by the stimulus package will be in America and filled by Americans. U.S. taxpayers have a long and noble tradition of putting their own to work when times are bad.

But let's not abandon our economic principles for the sake of petty patriotism. Buying American should be a goal of any stimulus plan, but it shouldn't be a requirement.

And I say that as a proud American, not as a multinational, outsourcing special interest.

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David Lazarus' column runs Wednesdays and Sundays. Send your tips or feedback to david.lazarus@latimes.com.

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