The conventional wisdom is that the “Buy American” provision that the U.S. Congress passed Friday has been diluted enough to avoid a trade war like the one that led to the Great Depression. Well, I’m not that sure.
Granted, after strong protests by several foreign governments and President Barack Obama’s Feb. 3 statement that Congress should avoid passing a bill that could trigger a trade war, House and Senate negotiators substantially watered down the original “Buy American” clause in the $787 billion stimulus package.
Under the new version, the “Buy American” clause calls not only for ensuring that U.S. government infrastructure projects such as highways and bridges use exclusively U.S.-made steel, iron and manufactured goods, but also that this be done “consistent with U.S. obligations under international agreements.”
Supporters of the “Buy American” clause say this meets Democratic Party and labor unions’ demands that the stimulus package be used to create jobs in America — and not abroad — while ensuring that it won’t lead to U.S. protectionist measures that would drive other countries to retaliate, triggering a global trade war.
Even the U.S. Chamber of Commerce, which had led the fight against the “Buy American” clause in recent weeks, ended up supporting the final version of the provision.
“It’s an important win,” John Murphy, vice president of the U.S. Chamber of Commerce, told me in a telephone interview. “There was a huge uproar from the business community and foreign governments, and with President Obama showing leadership and taking the lead, the Congress unequivocally has stated that this provision will conform to our international agreements.”
Supporters of the “Buy American” provision note that its text, which refers mainly to U.S. government procurement bids, still leaves the United States with one of the world’s most open government bidding systems.
Under U.S. law, 42 other countries that are signatories to a World Trade Organization agreement on government procurement — the European Union, Japan and South Korea among them — can participate in most U.S. government bids for public works, with the exception of such projects as iron and steel.
But European laws contemplate many more exceptions, and other countries that are not signatories to the agreement — such as China, Brazil and India — have even more restrictive “Buy National” laws, they say. “You cannot ask the United States to be holier than the pope,” Murphy told me.
Peter Hakim, head of the Inter-American Dialogue, a centrist Washington-based think tank, told me that the law is not likely to hurt Latin American countries.
But many well-placed congressional sources and economists fear that the clause will do more harm than good.
Congressional trade experts note that while previous laws stated that a U.S. product can most often win a government bid if it is no more than 6 percent higher than the price of a foreign good, the new provision raises the bar to 25 percent.
This means that a U.S. product could be 25 percent more expensive than a foreign good and still win a bid, they say.
More important, the U.S. government will still have plenty of room to raise protectionist barriers without violating U.S. international obligations, critics say.
“Our international obligations don’t require us to keep the existing level of openness in the U.S. market,” says Gary Clyde Hufbauer, of the pro-free trade Peterson Institute for International Economics. “That’s the important point.”
Hufbauer’s point: Washington is likely to take measures that, while legal, will still restrict access of foreign goods to the U.S. market. This will drive others to respond in kind, and cause a reduction of world trade flows that will result in fewer jobs everywhere.
“It’s the me-tooism phenomenon,” he said. “There are plenty of protectionists in Brazil, Argentina, and other countries who will say, ‘Look, the Americans are doing it. We should do it as well.’”
My Opinion: The president deserves credit for having stood up to his party’s congressional leaders and for expressing concern over the possibility of sending a protectionist signal to the rest of the world.
But, even if the final version of the “Buy American” clause abides by international laws, I’m under no illusion that protection-eager industrialists around the world will not use it as an excuse to demand that their countries adopt tougher “Buy National” laws.
They will, and we may all get hurt.