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February 17, 2009
Exclusive: Moving Ahead with Buy America
The House-Senate conference on the stimulus package trimmed billions in spending that was not related to boosting macroeconomic activity, but kept in one provision that is vital to any success the plan can offer. The final bill contained the Senate version of the “Buy America” language, which was broader than the House version because it specified U.S.-made “manufactured goods” as well as steel be used in government-funded projects. Analysts can debate how much of the $787 billion in the package will actually create new jobs and production in the United States, but it is absolutely clear that any money that “leaks” out of the program by being sent overseas to buy goods or services elsewhere will not help the domestic economy recover.
The language in the stimulus bill in founded on existing law. The 1982 Surface Transportation Assistance Act, signed by President Ronald Reagan, included a Buy America requirement for procurement valued at more than $100,000. Buy America provisions are already a condition of U.S. federal government grants to state, municipal or other organizations including transit authorities. Buy America requires 100% U.S. content for iron/steel and manufactured products, although "manufactured" products have been narrowly defined. Rolling stock (trains, buses, ferries, trolley cars, etc.) components must have 60% U.S. content, with final assembly occurring in the United States. Similar conditions are required for contracts for airport projects that receive funds from the Federal Aviation Administration.
Extending domestic purchasing preferences beyond iron and steel to categories of goods and services covered by the stimulus bill is arguably not in conflict with U.S. trade-agreement obligations, and it is the duty of the Obama Administration to make the argument in defense of American law. The 1982 rules were part of the reservations that the U.S. included when it signed the 1994 Government Procurement Agreement, reservations which also exempt state governments from GPA jurisdiction. Only 39 countries have signed the GPA (27 of which are members of the European Union). China, India, Brazil and other developing states that have been primary outsourcing partners for the transnational corporations that oppose Buy America have not signed the GPA because they have no intention of subjecting their sovereign decisions to foreign judges.
A national Harris poll conducted January 29th-February1st found that 84% of the public favor “Buy America” requirements (66% strongly, 18% somewhat). Only 4% strongly oppose the requirement and 7% somewhat oppose it. The overwhelming support was consistent regardless of gender, age, income level, education, or region. The strong support of the public carried the day over the self-serving lobbying of corporate interests who want government money, but don’t want to fulfill government policy. An amendment to remove the Buy America language was defeated in the Senate on a vote of 65-31. This action on the record gave the Senators the leverage they needed to keep their language in the final conference bill.
Besides self-absorbed corporations, the other sources of opposition to Buy America requirements are foreign governments. China’s state-owned media has been very critical. The overseas edition of the People's Daily, the newspaper of the ruling Communist Party, said Buy America was “dangerous protectionism” and warned that more such steps may come. “It can be asserted that this tide of trade protectionism will continue for some time, especially in the United States,” said the paper. China must seek a bigger say in setting the rules of trade, it said – in its own interest, of course. China's official Xinhua news agency slammed Buy American as “poison” for the developing countries. The U.S. ran a trade deficit with China of $266.3 billion last year, bringing the total amount of money sent out of the American economy to generate growth in China since 2000 to $1.5 trillion. Last year, U.S. imports from China outpaced exports from the U.S. by a 5-1 margin. Chinese protectionism thrives on this lop-sided trading relationship, from formal and informal barriers to imports, to a variety of government subsidies, to the setting of its international currency value by fiat to gain a competitive advantage for its home industry.
China may be the lead beneficiary of lax American trade policy, but the Europeans are not far behind. The recent G7 finance ministers conference in Rome, attended by Treasury Secretary Timothy Geithner, issued a final statement opposing protectionism. This was less a statement of principle than of self-interest by the other six G7 countries. Japan, Germany, Britain, France, Italy and Canada all ran a trade surplus with the United States in 2008, to the tune of $283.9 billion in total. For those who think the trade deficit is mainly about oil imports, it should be noted that Americans imported twice as much in value from Germany last year than from Saudi Arabia. And while America lacks the ability to supply its demand for oil, there is no natural reason it cannot manufacture all the industrial products it needs.
Peter Morici, a former Chief Economist for the U.S. International Trade Commission and now a professor at the Robert H. Smith School of Business at the University of Maryland, has recently written that “every dollar that U.S. imports exceed exports negates at least one dollar of federal stimulus spending. Overall, the trade deficit overwhelms the positive effects of the Obama stimulus package on demand for U.S. goods and services, GDP and employment. Along with the banking crisis, the trade deficit is a primary cause of the U.S. recession.” Writing for the Kiplinger Business Resource Center, Morici argues, “Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into trade-competing industries would increase GDP. Were the trade deficit cut in half, GDP would increase by at least $400 billion, or about $2750 for every working American. Workers' wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.”
It will take stronger action than merely keeping things from getting worse by mandating Buy America language in the stimulus to remove the negative impact of the trade deficit from the economy. The public has been shocked by the size of the government stimulus plans, with a $700 billion Troubled Asset Relief Program (TARP) for the banks and $787 billion for the new stimulus plan. The public– and their representatives in Washington, need to he just as concerned about trade deficits that have averaged $706 billion annually over the 2005-2008 period, draining energy from the domestic “real economy” and making it more vulnerable to the shock that came from the debacle in the financial sector.
On February 12th, Admiral Dennis Blair, the new Director of National Intelligence, gave in open session the intelligence community’s annual threat assessment to the Senate Select Committee on Intelligence. He opened his prepared statement by proclaiming that “The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications.” He returned to this topic in his conclusion, saying “Whether we can succeed will depend on actions we take here at home – restoring strong economic growth and maintaining our scientific and technological edge.” America cannot solve its economic crisis nor maintain its geopolitical preeminence if it continues to hemorrhage so much wealth and productive capacity overseas via a massive trade deficit.
Too many conservatives who are sensitive to every other threat to national security and social stability are doggedly resistant to doing anything to shore up the country’s material foundations. Seduced by notions of a benign “free market” they are willing to surrender all the strategic decision-making to foreign corporations and governments, none of whom have the best interests of the United States at heart. If Americans do not watch out from themselves, they cannot expect anyone else to do if for them. The world economy operates on the basis of competition. Countries either play to win, or they lose by default. Buy America is but the first step for get the United States back into the game.
FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. E-mail him at HawkinsUSA@aol.com.
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