Monday, February 02, 2009

Should Obama 'buy American?'

There are many critics of the 'bailout bill' President Obama is promoting, but one aspect in particular is proving to be very controversial.

Obama's 'bailout' consists of tax cuts and public spending. Much of this spending will be in the form of development projects, intended to bulk up America's infrastructure and create jobs by building roads, bridges and other 'public works.'

In an effort to promote American industry, this initiative is tempered by a commandment to 'buy American.' If bridges, roadworks or buildings require steel or other resources, the bill demands that these materials are sourced from the United States itself - inspiring the rest of the world to cry 'protectionism' in protest.

It's an interesting situation. With the federal government pledging to buy American steel, it could give the American steel industry a huge boost - helping secure jobs and profit in an industry that's particularly beleaguered by undercuts from foreign imports.

However, the pledge to 'buy American' means the federal government will be deliberately purchasing more expensive materials, offering less value for taxpayers and shamelessly flouting the 'free market' system that's meant to be at the heart of American society.

The international community is understandably upset. The United States has free trade agreements with dozens of countries, agreeing not to put up tariffs on imported goods even if it puts more pressure on their own domestic industries to remain competitive.

With the American economy often driving the world economy, it's understandable that steel-producing countries hungrily eyed up the boost Obama's spending plans would have made to their own besieged economies and are now disappointed by the news.

That being said, Obama indicated that the purpose of his spending plan was to boost employment and secure jobs in America. Is it so wrong to give an important domestic industry (important enough that the Pittsburgh Steelers were named after that city's steelworkers) a much needed boost during this economic downturn?

Subjectively, I support Obama's decision to promote American industry and encourage the government to spend on American products. I'm reassured that there's a 'safety clause' which liberates any project from using domestic materials if the price of those goods would increase the overall project cost by 25% or more.

Objectively, however, I know that this form of patriotic protectionism never works. Successful business evolves through a form of economic Darwinism. Companies that remain competitive remain in business. If Obama gives a temporary boost to a beleaguered American industry, it will merely postpone their inevitable decline.

I'm just about old enough to remember the end of the coal industry in Great Britain during the 1980s - a tragic period in which a subsidised industry finally accepted that it could no longer afford to support the thousands of employees who relied on it. Do we want to see a repeat of that?

A look at America's experiments with protectionism in the past reveal that government mandated 'buying American' is a self-defeating solution. Despite the apparent logic of boosting the economy by encouraging domestic industry, protectionism almost always winds up hurting the economy, not helping it.

It's also ripe for graft and corruption. If the American steel industry knows it has a captive market, there's nothing to stop the price of American steel elevating overnight. Without foreign competition to drive the prices down, it's a seller's market.

It all ends up with the taxpayer paying more. Considering the ambitious nature of the bailout bill -and how much it will cost us, our children and our children's children to repay - that's not something any politician should allow to happen.

Republicans often tout America's 'free market' system of Capitalism, but the sad truth is that the system already fails to stand up to scrutiny. With powerful unions in many of America's industries, plus subsidies for farmers and tariffs on many imports, the American economic system is already twisted and manipulated by politicians to profit a canny few.

While things like petrol are dirt cheap compared to Europe, other commodities (most obviously milk and cheese) are vastly inflated compared to prices abroad. If Obama pledges to 'buy American,' surely this situation is just going to get worse.

6 comments:

ck said...

I actually support the 'buy American' on most all government contracts.

sxychikadee said...

Excellent points on both sides Roland.

In my mind, buying American would also increase an overall needed patriotism in American society - especially if only Americans are hired for the jobs.

Oh my goodness.... I just agreed with CK. The plane air I breathed today must be getting to me. ;)

Two Dogs said...

Only one problem on your take of the "buy American." On steel, it says buy US steel, UNLESS it is cheaper from another place or the supplier in the US cannot meet the deadline. Asian steel is always cheaper because it is 16k steel. The buy American language in this SPENDING bill is useless.

And there are zero tax cuts in the bill at all. There ARE tax credits for people. These tax credits shall never be passed because CBO will not let that pass muster.

The actual name for this bill should be The Welfare for Welfare Bill, because that is exactly what it is. In case you have not read it, try stimuluswatch.org, this site breaks down each individual spending proposal, along with the number of jobs that it would supposedly create. Check out the Heritage Trail in Natchez, MS with a 600 million dollar price tag for 65 jobs.

Infidel753 said...

The reason protectionism is normally considered harmful is that it limits the number of, and therefore limits competition among, sellers -- which is bad if you are only concerned with what is best for the buyer because you are the buyer.

In the case of ecomonic-stimulus spending, however, part of the express purpose is to benefit sellers, because of the jobs those sellers will create or at least preserve.

That being the case, it is perfectly legitimate to target the spending to benefit those sellers which create or preserve the jobs we are most concerned about -- that is, those in our own country.

The risk of weakening American companies by shielding them from competition is a long-term risk. It isn't an issue with the stimulus plan unless its protectionist components become permanent. Temporary rules to limit the benefits to limit the benefits to US companies shouldn't pose that problem.

As for lack of competition driving prices up, don't we have more than one steel producer in the US? They will compete with each other.

It's absurd for other countries to expect us to tailor our policies to help them. No one is talking about the EU or Russia or Japan making sacrifices to help bail out the United States. Each country has to concentrate on its own problems. In the long run, a strong US economy helps everybody.

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