Is ‘buy American’ good for U.S. economy? Two views

Yes: To grow, America must recapture market share lost to imports

By ALAN TONELSON

Washington — Greatly broadening the “buy American” requirement of the stimulus bill isn’t only desirable, it’s the nation’s only real hope for economic recovery.

Without at least imposing these requirements on all U.S. government procurement at the state and local as well as federal levels, President Barack Obama’s stimulus efforts will fail for the same reasons that President Bush’s crisis responses failed — an almost exclusive focus on maintaining and reviving the nation’s levels of lending and spending.

Lending and spending can translate into genuine domestic growth, greater domestic employment and a return to true national economic health only if they stimulate the production of goods and the provision of services by private business inside the United States.

Spending and lending that finance goods and services purchased only from abroad wind up stimulating growth, employment and economic health abroad. And when government does the spending, as with the stimulus’ infrastructure provisions, American taxpayers subsidize the resulting transfer of wealth and other economic benefits.

Moreover, unless enough private-sector activity is sparked, the jobs created by government programs are merely stopgaps. The consumption encouraged is illusory, too. It’s sustainable only as long as foreign lenders permit Washington to keep borrowing — the last thing a debt-strapped nation needs.

If American business supplied the vast majority of the goods and services it consumes, simple pump-priming could be the nation’s salvation without “buy American” programs.

In fact, today’s crisis wouldn’t have broken out to begin with. This production would have created many more durable opportunities for everyday Americans to earn much higher incomes, and freed them of the need to rely so heavily on debt to maintain first-world lifestyles.

But the American economy nowadays is shot through with imports. In theory, major economic growth and durable private-sector income-earning opportunities could result by greatly increasing U.S. exports relative to these imports. But the gap has been so big for so long — $677 billion last year alone, or $100 billion less than the stimulus bill — that the export boost America needs to save the day is unrealistic.

America’s only possible source of significant growth is the share of its own enormous market that has been captured by imports. Adjusted for inflation, imports made up nearly 17 percent of total U.S. consumption in 2008, up from 13.2 percent 10 years ago. And these figures include services, which not only comprise some 75 percent of the private-sector economy, but which still face relatively little foreign competition.

The import share has been much higher and rising much faster for the manufacturing industries that historically have created the best income-earning opportunities for the typical American worker, with the markets for even many advanced manufacturers featuring 50-80 percent import penetration.

Today, the U.S. economy desperately needs this growth and the income-earning opportunities it creates. That’s why buying American — substituting domestic for imported goods, and rebuilding U.S. capabilities where they have been offshored or decimated by predatory foreign trade practices — must become not only government’s strategy. It must become the rest of the economy’s strategy as well.

• Alan Tonelson is a research fellow at the U.S. Business and Industry Council Educational Foundation in Washington.

No: If we don’t buy from other countries, they won’t buy from us

By JOHN MURPHY

Washington — In February, the Senate agreed to revise a controversial “buy American” provision in the stimulus bill. The change ensured that the United States won’t violate trade rules that we not only pledged to uphold, but helped write. Such violations could have triggered a tit-for-tat trade war with our allies around the world.

The debate showed how easy it is to demagogue the “buy American” issue. In the end, if we refuse to buy foreign-made goods, our trading partners will refuse to buy from us. Since the United States is the world’s largest exporter, we have more to lose from a trade war than anyone.

This is why the U.S. Chamber of Commerce has long advocated a “buy American, sell American” strategy. We believe many “Made-in-USA” goods and services are the best in the world. We just want the 95 percent of the world’s consumers who live outside the United States to buy them, too.

Reneging on our promises would have been the equivalent of hanging a “closed for business” sign on the country’s front door. It would say we don’t welcome the foreign firms who employ more than 5 million Americans at good wages, for a total payroll of more than $350 billion.

The U.S. Chamber helped lead the opposition to “buy American” mandates in the stimulus, and we caught a lot of flak for it. So we were especially pleased when President Barack Obama also warned of the danger posed by “buy American” rules.

In the end, the Senate unanimously approved an amendment to ensure any “buy American” mandates respect our commitments under international agreements. This may have helped avert a trade war.

But the final bill did include some “buy American” requirements. Even as amended, they threaten to drive up the cost of government projects.

For instance, “buy American” rules similar to those in the stimulus added $400 million to the cost of reconstructing the Bay Bridge in the 1990s. Who foots the bill? American taxpayers do.

Another part of a “buy American, sell American” strategy is to encourage other countries to join the same international agreements Obama urged the Congress to respect. The most important is the World Trade Organization’s Government Procurement Agreement.

Countries such as China, India and Brazil have not signed the GPA, so U.S. businesses are often excluded from procurement opportunities. China, for instance, has a strategy to promote “indigenous innovation,” and U.S. companies are often not allowed to bid on government contracts.

This is why protests about creeping U.S. protectionism from some foreign capitals ring hollow. Many countries have adopted domestic preferences for state-owned companies, investment restrictions and import substitution polices that inhibit U.S. exports. By contrast, the U.S. has rejected such protectionism and leads by example.

“Buy American” is part of larger debate about economic isolationism and the U.S. economy. Too few Americans are aware that U.S. exports reached nearly $2 trillion last year. Too many politicians prefer to ignore the facts and demagogue an issue like “buy American.” We’re pleased Obama and many members of Congress agreed that erecting barriers to trade and implementing protectionist measures will only hurt our economy and standing in the world. The U.S. Chamber agrees with them that it’s patriotic to buy American — and ensure that we continue to sell American, too.

• John Murphy is VP for international affairs at the U.S. Chamber of Commerce.