No Quick Fix
“Buy American” sounds
patriotic, but it would only plunge our economy deeper into the
At the risk of sounding un-American, I have serious
reservations about the protectionism fervor that is sweeping
the country under the guise of “Buy American.” Buy
American sounds good—like motherhood and apple pie.
Buy American products and save American jobs—the
equation sounds simple. But in today’s globalized world,
the answer is anything but simple, a lesson governments are
learning as they struggle to deal with the financial crisis and
get their economies back on track.
It’s not surprising that “Buy American”
fever has reared its head at this point. In tough times,
it’s only natural to hunker down and circle the wagons.
Americans are fearful for their futures, and who can blame
them? Millions are losing their jobs, facing foreclosure on
their homes and watching their retirement accounts plummet in
the worst economic crisis since the Great Depression. And to
make matters worse, there is no end in sight.
In the meantime, Americans are desperate. They want jobs and
futures for their children, and they are looking for someone to
do something about it.
The recently passed $787 billion economic stimulus package
contained a “Buy American” provision that
threatened to touch off a global trade war if cooler heads
hadn’t prevailed in the debate in Congress. The
provisions were aimed at increasing jobs in the iron and steel
industry by requiring the U.S. government to use American
products in public works projects. That sounds reasonable. If
the government is spending trillions in taxpayer money to right
the economy, then it darn better include jobs for American
One problem is the U.S. has trade agreements with Canada,
Mexico, the European Union and other countries that allow them
to compete for American procurement projects and vice versa. If
Congress had approved the initial “Buy American”
plan, it could have violated some of our trade agreements with
our best trading partners.
But after President Obama wisely warned that the provisions
could spark a trade war, the Senate pulled back and approved an
amendment to the bill requiring the “Buy American”
provisions to be “applied in a manner consistent with
U.S. obligations under international agreements.” The
move was to reassure trading partners that the U.S.
wasn’t backing away from its trade agreements or its
support for world trade.
Even American business opposed the provisions. The Emergency
Committee for American Trade, a coalition of U.S.-based
corporations and more than 125 business and trade associations,
said the “Buy American” plan could trigger trade
restriction measures from other countries.
During a February trip to Canada, Obama tried to further
reassure trading partners saying, “Now is a time where we
have to be very careful about any signals of
protectionism.” He added, “I’m quite
confident that the United States will respect those obligations
and continue to be a leader on the need for globalized
But the issue goes far beyond fear over a trade war. History
shows us that retaliation is painful for the economy. Former
presidential candidate Sen. John McCain, R-Ariz., warned that
the provisions smacked of “the disastrous Smoot-Hawley
tariff act,” a reference to a law passed by Congress in
1930 in an effort to protect American jobs during another world
economic crisis. Under that misguided effort, the U.S. raised
tariffs on more than 20,000 imported goods. Foreign governments
retaliated in kind, and the volume of American exports
plummeted nearly 50% between 1929 and 1930. American exports to
Europe plunged from $2.3 billion in 1929 to $784 million in
1932, according to the U.S. State Department. The economic
impact was disastrous and helped prolong the Great
As economic conditions worsen worldwide, pressure on
governments to protect jobs and industry at home is building.
The Washington Post reports
that Japan is facing the worst decline in 35 years, Britain the
worst in nearly 30 years. Germany’s economy is in the
worse slump of almost 20 years. While China’s economy is
still growing at 6.8% annually, unemployment and fears of
unrest are rising. More than 30 nations have erected new trade
barriers since last November when the G-20 met in Washington to
discuss the financial crisis and world trade.
Looking for a way out, countries will try to export their
problems to other countries.
President Obama makes a good point on that subject. “I
think that if you look at history, one of the most important
things during a worldwide recession of the sort that
we’re seeing now is that each country does not resort to
‘beggar they neighbor’ policies, protectionist
policies, that can end up further contracting world
The debate over protectionism is far from over and will only
grow more contentious as the economic crisis deepens. We all
want to find ways to create jobs and get people back to work.
It will take courage to stand against the current of
protectionism and not trade off short-term fixes for long-term
Kemper is The Council’s vice president of Industry