Re: Buy America?

On Sun, 01 Feb 2009 20:44:31 -0800, Islander <nospam@xxxxxxxxxxx>
wrote:

El Castor wrote:
On Sun, 01 Feb 2009 10:54:28 -0800, Islander <nospam@xxxxxxxxxxx>
wrote:

In a piece of legislation in the House intended to require more control
over how TARP funds are spent, Rep. Sue Myrick (R-NC) proposed an
amendment that would prevent any financial organization receiving TARP
funds from outsourcing customer-service or call-center jobs to a foreign
company. It was passed unanimously. In the Senate, Sen. Byron Dorgan
(D-ND) wants the final economic stimulus bill to include a "Buy
American" provision giving "preference to American-produced materials
and products." The U.S. Business and Industry Council is supporting a
"Buy American" amendment to the stimulus bill.

Opponents of this cite the Smoot-Hawley Tariff Act of the Hoover
administration which resulted in retaliatory tariff acts by
international trading partners and damaged the US export industries.

Good idea or bad idea?

First of all, at the time of the Smoot-Hawley Tariff Act, America was
enjoying a net positive trade balance. We were on the profitable side
of international trade. The situation is different today since we are
suffering a net negative trade balance. Will we enjoy a net benefit or
a net loss if we impose a penalty on imports?

Second, a "Buy America" policy is not a tariff. Tariffs impose a
penalty on all imports in a sector, not just products and services
funded by the TARP or the stimulus bill. The free market is free to
continue to operate as before.

Third, money that is invested locally enjoys an economic multiplier
effect. Even if we pay a premium for local services or production, that
premium resurfaces in the spending of the companies and their employees
in the local economy. If the objective is to stimulate our economy,
there is an increased "bang for the buck" if we spend locally.

Will a "Buy American" policy produce retaliatory acts by foreign
countries?

Of course it will. Isn't that the way you would respond to restraints
directed at us? I might add that "Buy American" is a violation of our
GATT obligations. Do treaties mean nothing anymore? A unilateral
rejection of GATT would simply empower equally ill informed enemies of
free trade around the world. Every US export industry would suffer,
and for what? So we could once again have great jobs sewing shirts and
soldering circuit boards -- jobs and factories that would evaporate
overnight when we finally came to our senses. If Obama signs such an
abortion it will be a stain on his presidency he will never live down.

Perhaps, but I think it would be a mistake to dismiss it
solely on the basis of the Smoot-Hawley experience.

I wouldn't dismiss it "solely" on the basis of Smoot Hawley, simply
because Smoot Hawley was just one example of an extremely bad idea.
It's that extremely bad idea that we must guard against. To say that
restraints on trade are ill advised because of our experience with
Smoot Hawley is like saying burglary should be illegal because we were
burglarized once.

The situation is different.

The situation is not different, but it wouldn't make any difference if
it were.

What industries are likely to suffer if there is
retaliation, what is the risk, and are we better off despite the risk?

Once the genie is out of the bottle, any export industry is fair game.
No! We are NOT better off. Virtually any economist will tell you that
we would be cutting our own throats. This is an idea being promoted by
jingoists who are ignorant of the issues involved. If tariffs, quotas,
and restraints on trade like "Buy American" are such a great idea, why
not let every state design it's own trade policy? That would allow us
to revitalize manufacturing across America. Right?

Actually states' rights regarding policies to buy local are an open issue.

But, to the point, you have broad brushed the questions without
providing any specific answers. Our balance of payments situation has
been negative since the Reagan years. Friedman attempted to explain it
away through an exchange of capital argument, but that appears to have
now been refuted.

So, not every economist is opposed to a "Buy America" policy on federal
expenditures or even to tariffs.

Not "every" economist -- only 87.5%.

"Economists are, overwhelmingly, free traders. A 2006 poll of Ph.D.
members of the American Economic Association found that 87.5 percent
agreed that ?the U.S. should eliminate remaining tariffs and other
barriers to trade.?
http://www.nytimes.com/2008/03/16/business/16view.html?_r=1

It seems pretty clear that the GATT agreements are so full of loopholes
that they are honored only when convenient. For example, our subsidies
to Texas cotton growers allows them a competitive advantage in the world
market, but it is technically also outlawed by GATT.

Would you like to try answering my questions?

What industries are likely to suffer if there is retaliation, what is
the risk, and are we better off despite the risk?

Q. What industries are likely to suffer if there is retaliation?
A. "Once the genie is out of the bottle, any export industry is fair
game." Let me amplify on that. There are isolationists like yourself
in every country, and they are clamoring for protectionism. To quote
the French Finance minister:

"The Irish Times also reports that Europe faces greater social unrest
unless co-ordinated measures are quickly taken to solve the global
economic crisis and to stop countries resorting to protectionism,
France?s finance minister has warned. Speaking at the Davos economic
forum on Saturday, Christine Lagarde said that government leaders
needed to send a clear signal to ordinary people about how governments
intended to act. ?We?re facing two major risks: one is social unrest
and the second is protectionism,?she said. ?We need to restore
confidence in the systems and confidence at large.?"
http://www.finfacts.ie/irishfinancenews/article_1015832.shtml

Q. What is the risk?
A. If the United States is so irresponsible as to unilaterally violate
GATT and head down the road of isolationism it would almost certainly
trigger the same kind of tit for tat response produced by Smoot
Hawley, leading to a downward spiral of economic activity all over the
world. If there was ever a time for the United States to honor it's
commitments and act responsibly, this is it.

Q. Are we better off, despite the risk?
A. Of course not! The United States was the world's first modern free
trade zone, and our economic success is largely a result of that
decision. If protectionism is the golden goose of prosperity, then why
not let each of the fifty states erect it's own trade barriers and we
could protect jobs from coast to coast? Hint: That would result in an
economic disaster of epic proportions.

Here is the abstract from a remarkably prescient 2008 paper produced
by the Bank of Canada, Canada's central bank. Please read it -- all
the way to the end. The last couple of sentences are very informative.

"In light of the U.S. current account deficit, pressure is high on
Asian countries to revalue their currencies. The calls from some U.S.
policymakers for tariffs on imports from China has sparked fears that
this could trigger a world-wide surge in protectionism. This study
evaluates the risk of protectionism, considering two dimensions:
first, the economic effects of tariffs; second, the incentives for
policymakers to adopt tariffs. Following the political economy
literature, we distinguish benevolent policymakers who care about
long-term GDP and myopic policymakers, for whom short-term
considerations are important. An analysis of the economic effects
using the Bank of Canadas Global Economy Model shows that the gains
from import tariffs are small: in the short-term, tariffs raise the
price of imports and shift consumption toward domestically-produced
goods; but they also lead to a real appreciation. This improves the
terms of trade, but falling export volumes lead to a reduction in GDP
in the long-run. As regards the political dimension, we conclude that
a benevolent policymaker would not adopt tariffs, because of negative
long-term economic consequences, but myopic policymakers might be
tempted to exploit short-term political gains. Given the potentially
high costs of protectionist trade policies, protectionism is therefore
rightly viewed as an important risk."
http://www.bankofcanada.ca/en/res/wp/2008/wp08-2.pdf

Here are some of the benefits and problems with protecting the US
steel industry.

1. Jobs working for US steel companies will be preserved, and profits
of US steel companies will be enhanced.
2. The cost of US produced steel will be higher than it's imported
counterpart.
3. The higher cost of steel will influence manufacturing decisions in
every industry that uses the more expensive steel. Some construction
projects will never happen because the increased cost of steel will
render them un-economic. This will cost jobs in construction, as well
as in the manufacture of all the non-steel materials will not be used
by that construction.
4. Automobiles use steel. They will inevitably be more costly to
manufacture, so the price of US manufactured cars and trucks will go
up, resulting in fewer sales and a loss of jobs in the domestic
automobile industry. The same will be true of every other product that
uses US manufactured steel. And those industries will in turn be
tempted to demand tariffs to "protect" their jobs from increasingly
competitive imports.
5. Foreign countries will retaliate with their own restraints of trade
on US imports. This will cost jobs in US export industries unrelated
to steel.
6. US industries that are adversely effected by retaliatory trade
restrictions will demand that we raise barriers to the import of
foreign products
7. Foreign steel manufacturers, unable to export to the United States,
will reduce production and some of their workers will lose jobs. The
same will be true of other industries impacted by tit for tat trade
barriers. This will enhance foregn poverty and further reduce our
export markets, lead to more civil unrest, and so forth and so on.
8. The higher cost of domestically manufactured products will act like
a pay decrease for US workers, effectively lowering their standard of
living.
9. etc.

Naturally you disagree, etc., etc,. etc. Given the choice of lining up
with ignorant jingoism or 87.5% of PhD economists, please forgive me
if I stick with the economists. (-8
.

Relevant Pages

  • Re: Buy America?
    ... "Buy American" amendment to the stimulus bill. ... enjoying a net positive trade balance. ... If the objective is to stimulate our economy, ... If tariffs, quotas, ...
    (soc.retirement)
  • Re: Buy America?
    ... enjoying a net positive trade balance. ... If the objective is to stimulate our economy, ... If tariffs, quotas, ... Jobs working for US steel companies will be preserved, ...
    (soc.retirement)
  • Re: Buy America?
    ... The U.S. Business and Industry Council is supporting a "Buy American" amendment to the stimulus bill. ... First of all, at the time of the Smoot-Hawley Tariff Act, America was enjoying a net positive trade balance. ... Tariffs impose a penalty on all imports in a sector, not just products and services funded by the TARP or the stimulus bill. ... Even if we pay a premium for local services or production, that premium resurfaces in the spending of the companies and their employees in the local economy. ...
    (soc.retirement)
  • Re: Buy America?
    ... First of all, at the time of the Smoot-Hawley Tariff Act, America was enjoying a net positive trade balance. ... Tariffs impose a penalty on all imports in a sector, not just products and services funded by the TARP or the stimulus bill. ... Even if we pay a premium for local services or production, that premium resurfaces in the spending of the companies and their employees in the local economy. ... Jobs working for US steel companies will be preserved, ...
    (soc.retirement)
  • Re: Who are the richest men in world history?
    ... > all be wealthy beyond our dreams because we would not be paying 35% ... Hitler Jr. ... > reproductive immigrants to shore up its economy of mandated charity - ... private economy and destroyed free trade. ...
    (sci.econ)