Is ‘Buy American’ a Slogan Worth Preserving?



Is ‘Buy American’ a Slogan Worth Preserving?

NEWSWEEK

Published Sep 25, 2009

From the magazine issue dated Oct 5, 2009

Call it the Rubber-Chicken War—the looming trade dispute between the
United States (which has announced punitive tariffs on imports of
Chinese tires) and China (which is threatening retaliation against
American poultry exports). Against the background of the G20 trade
talks in Pittsburgh, that contretemps made this an auspicious time to
examine the age-old question of protectionism. Last week, beginning
the fourth season of public debates sponsored by Intelligence Squared
US, six panelists discussed the proposition that "Buy American/Hire
American policies will backfire."

Those arguing for the motion were Columbia professor Jagdish Bhagwati,
former U.S. trade representative Susan Schwab, and Dartmouth economist
Douglas Irwin.

Disputing the premise were United Steelworkers chief Leo Gerard,
Harper's magazine publisher John R. MacArthur, and Jeff Madrick, a
fellow at the Schwartz Center for Economic Policy Analysis at the New
School. Excerpts:

IRWIN: In the economic-stimulus bill, one section requires the use of
American--made steel in all stimulus-related construction projects
unless it costs more than 25 percent above foreign suppliers. Now,
this is a good deal for the American steel industry, but it's a bad
deal for the rest of us. By raising the cost of construction projects,
our nation can afford fewer of those projects. That means fewer jobs
will be created with the limited amount of money we have to spend.

Picture the Bay Bridge in San Francisco. California had to repair the
bridge a few years ago, and the domestic steel bid came in at—guess
what?—23 percent above the foreign bid. Why it wasn't 24 percent
above, I don't know. But that added $400 million to the cost to repair
the bridge. Steel is very capital-intensive; when we increase
production we don't hire a lot of workers. Construction is very labor-
intensive. There are about 150,000 steelworkers in the United States,
and 7 million construction workers, 1.5 million of them unemployed. So
why do we give U.S. steel producers a 25 percent [advantage]? They
were the only industry powerful enough to get it into law. It's
corporate welfare, pure and simple.

GERARD: The fact of the matter is that China did win the bid for the
Bay Bridge, and the Bay Bridge is almost eight months behind schedule,
and the steel that came from China won't hold the weld. And they're
not sure if they're going to have to rip it all down and rebuild it,
so if we talk about lost dollars and productivity, it's way more than
the number that Doug used.

Think of the auto industry. For some reason, we're prepared as a
society to tolerate a deficit in automobiles between South Korea and
Japan of $45 billion a year. A billion dollars equals 13,000 family--
supporting jobs, just in the auto sector. We can't get into their
market; they have a view that buying a Japanese car in Japan is a good
thing.

China has recently announced that it intends to dominate the world in
renewable-energy products. A company called Suntech Power Holdings
said in an interview that to build market share, it's selling solar
panels on the American market for less than the cost of materials,
assembly, and shipping. And we're saying that we want to be the leader
in renewable energy, but we don't have a program to stimulate demand
or to buy renewable-energy products that are made in America.

BHAGWATI: THE problem with the opposing side is you think protecting
steel will create jobs in the steel industry. But you are opening up a
whole series of additional effects. One, of course, is that downstream
industries typically become more uncompetitive. When President Bush
put on steel tariffs, the effect was to price out a whole lot of steel-
using industries, including autos. There was a famous study that about
200,000 jobs may have been lost.

MACARTHUR: If you go back to the great theorists of free trade like
David Ricardo and Richard Cobden, in the early 19th century they could
not imagine a world in which anyone with money and power could make
virtually anything anywhere in the world. These theorists, to whom
Professor Bhagwati, Professor Irwin, and their colleagues cling with
religious fervor, distort the debate. Since we're talking about
protectionism versus free trade, essentially, we can cite some
spectacularly successful protectionist schemes. Mexico—poor,
beleaguered, exploited Mexico—in the '50s, '60s, and '70s had a
program called import substitution, a nice way of saying "Buy
Mexican." And Mexico enjoyed the highest growth rates in its history:
roughly, I think, about 7 percent.

SCHWAB: Buy American sounds like motherhood and apple pie, [but]
unfortunately, Buy American policies hurt America and hurt Americans.
In the Smoot-Hawley Tariff Act [of 1930] we raised our tariffs. It was
perfectly legal under the international trading system at the time. It
prolonged and deepened the Great Depression. No country has ever
reached or sustained a level of prosperity with buy-national policies.
The countries that grew the fastest in the 1990s were countries that
opened their markets. They grew three times faster than the countries
that did not open their markets. Ninety-five percent of the world's
population, meaning the world's consumers, live outside our borders.
Those are our customers, and if anyone thinks we've got enough money
to buy our way to recovery and to future competitiveness without
exports, they have another think coming.

Globally, $3.5 trillion will be spent in the next several years on
stimulus. China is going to be spending the vast majority of the $550
billion it's putting into stimulus on infrastructure. India is going
to be spending anywhere from $20 billion to $70 billion on road
construction. We need a piece of that. If you are a Caterpillar worker
in Illinois, if you work for GE, if you work for any of the major
manufacturers in the United States that sell to these countries, you
want a part of that action.

The idea that we don't manufacture anything is utterly absurd. The
United States remains the single biggest manufacturer in the world,
bar none: $1.7 trillion in manufacturing outputs. China is a distant
second at $1.3 trillion. [And] if you look at a company like UPS, they
tell us that for every 40 new packages that are shipped overseas, they
hire a new American worker.

MADRICK: The fact of the matter is that despite what Professor
Bhagwati said, and despite his own studies, most studies find a direct
negative impact from free trade on wages, and on the creation of jobs.
Not by wide-eyed progressives from the New School, but by mainstream
economists.

I believed in Ricardian economics; I still do. Exchange is the key to
economic growth. [But] fiscal policy becomes necessarily ineffective
when 20 to 30 to 40 percent of every dollar we spend to pump up our
economy in a recessionary emergency leaks overseas. Will there be a
trade war? Darn it, I am tired of these scare tactics, tired of
[claims] that there will be a repeat of the 1930s. Is China up in arms
against this policy? I suspect China is now willing to talk a little
bit, because they see maybe President Obama is ever so slightly
serious about imposing rights he was given in international treaties
to which China agreed. Is China not pushing its tires here? Of course
they are. Let's stop isolating this economic theory from the real
world. Don't think [the other] side is fighting an uphill battle. They
won. They've won for decades. Tariffs have come down significantly.
And where does America stand in terms of wages? The median male worker
in America today makes less than the median male worker did, after
inflation, in the 1970s.

Audience members were polled before and after the debate. The first
vote was 57 percent against Buy American policies to 20 percent in
favor. The final vote was even more dramatic: 72 percent to 14
percent. It was the most lopsided margin in the history of the
debates.

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