“Buy American” Could Buy Trouble

The $825 billion stimulus bill making its way through Congress includes certain “Buy American” requirements that may jeopardize the stated purpose of the legislation by exposing the United States to retaliatory trade actions that could further aggravate our economic malaise.

Provisions of the House bill (the “American Recovery and Reinvestment Tax Act of 2009”), which passed 244-188 on Wednesday, obligate public works infrastructure projects funded by the stimulus legislation to use only American-made iron and steel. The House Buy American measures specifically include projects involving airports, bridges, canals, dams, dikes, pipelines, railroads, multiline mass transit systems, roads, tunnels, harbors, and piers. A Senate version reportedly goes further, requiring most stimulus-funded projects include only American-made equipment and goods.

At first glance, the concept seems attractive. All things being equal, why wouldn’t one naturally choose U.S.-sourced goods and inputs? Wouldn’t such an attitude also present an attractive means of helping along our faltering economy? After all, government procurement represents a very significant portion of the economy, often 10-15 percent of GDP.

Government procurement is a significant aspect of international trade. Open, transparent and non-discriminatory procurement is generally considered the most economically efficient model for government procurement since it bolsters competition among potential suppliers, regardless of their location. However, it seems that little consideration is given to the potential free market efficiencies that will be lost through the proposed legislation.

More importantly, legislators have included the Buy American language despite the objections of the U.S. Chamber of Commerce and other business groups which rightly note it would set a bad example for other countries considering their own economic stimulus plans. In other words, the proposed Buy American legislation in the stimulus bill could spark a global trade war with consequences not unlike the give-and-take protectionism that prevailed in the 1930s, and which had a cascading effect that crushed global trade and turned a one-year recession into the Great Depression. As the Chamber notes, “Since 95% of the world’s consumers live outside the United States, American workers would be the first to suffer as “Buy American” provisions trigger retaliation by other countries (that is, “Buy German,” “Buy Chinese,” and so on).”

The Buy American requirements may also be inconsistent with respect to U.S. commitments on government procurement within the World Trade Organization (WTO). European Union officials have already signaled a likely challenge of the provisions if they ever become law. The WTO dispute settlement system includes provisions for compensation and retaliatory measures to counter market access restrictions like the proposed Buy American provisions that would only intensify the protectionist tendencies underscoring them.

Congress should reconsider its options before committing itself to a course of action that previously sparked a global trade war that devastated our economy for a decade or more. Congress must eliminate the Buy American requirements from the stimulus bill.

Submitted by ASO member: John Kalitka