Reams of newsprint, and considerable air-time on television news programs, have been devoted recently to the controversial Buy American stipulations that require the use of only American-made steel in federal infrastructure spending — highways, ports, airports, railways, and so forth — that Congress inserted in President Obama’s $787 billion economic stimulus package. But as often happens when hot political issues meet the usual flurries of press attention in 24-hour news cycles, the basic economic point as to whether Buy American makes sense, or doesn’t, has tended to be obscured. But it’s really pretty simple.
Richard Fisher got right to the nub of the matter in just two lines. “Protectionism is the crack cocaine of economics,” observed the witty president of the Federal Reserve Bank of Dallas in a recent speech. “It provides a temporary high but is instantly addictive and leads to certain economic death.”
For sure, that prospect of certain economic death extends even to the advocates of Buy American laws themselves. This is perhaps the strangest thing about the whole controversy: the most ardent Buy American proponents would quickly see their own businesses ruined, if those laws were applied to their own business practices.
President Obama, to his credit, has tried to limit the damage that has been done to America’s international economic prestige by saying that these are no times for Beggar Thy Neighbor policies. But Obama is the man who shares much of the blame for creating the confusion in the public’s mind in the first place, en route to the Oval Office as the candidate of economic nationalism. At one point during last year’s presidential campaign, Obama took the position that the government should be required to buy only American-made motorcycles, referring to that American icon, Harley-Davidson. Obama made fun of Republican rival John McCain for not going along with that idea. Nobody — especially McCain, an instinctive free trader who apparently didn’t know enough about basic global economic realities to respond effectively in terms that ordinary voters could easily understand — pointed out that if Obama’s economic prescription for Harley were to be taken, the dose of protectionism would kill the corporate patient.
Last week, on his first foreign trip as president, Obama had to back peddle the Buy American cause when he flew across the Canadian border to visit Ottawa, marking Obama’s first trip on foreign soil in his presidency. And he was subjected to a little lecture by his Canadian host, who (smartly) used terms that American presidents are not used to hearing from their trading partners.
It’s not hard to see why the Buy American subject has become an embarrassment in respected international economic circles. Let’s begin with a quick look at the estimable members of the American Iron and Steel Institute, whose lobbying with the congressional steel caucus drove the Buy American provisions in the stimulus bill. Try to imagine a world where the domestic steel manufacturers would themselves have to Buy American.
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