Note: The Institute for Policy Innovation will be highlighting trade issues this week in recognition of World Trade Week.
While Iraq may have been “Bush’s War,” it increasingly seems that “Obama’s War” will be a trade war.
The $787 billion stimulus package included a “Buy American” provision requiring companies, governments and agencies receiving stimulus funds to buy products that are “made in America.”
While such provisions are being touted as a way to reduce unemployment, they’re simply back-door protectionism, which allows the president to maintain he both supports global trade while simultaneously undermining it. As a White House spokesperson said recently, “The president is committed to creating jobs in America and committed to global engagement with our trading partners and does not see any contradiction between those two goals,” according to a recent story in The Washington Post.
But just because you can’t see a contradiction doesn’t mean it’s not there.
In a global economy, products may be designed or made or assembled in one or several places, only to be sold and shipped to other destinations where they may go through the process again, or be sold to consumers. Lots of hands—and minds—may touch a product. And that has created all kinds of confusion.
Is it a Buy American violation if a Canadian, even one living in the U.S., weighs in on a product design, without ever having actually touched the product? Who knows?
As companies and government agencies try to protect their taxpayer subsidies by ensuring product purity, they are disrupting economic efficiency around the country—and the globe. It’s angering some of our closest trading partners and allies, and they’re starting to retaliate in ways that can only raise prices and gum up economic efficiency even more.
And there’s more to come. According to the Post article:
- The House has attached a $14 billion Buy American provision to a clean-water fund that will make loans to local governments.
- The House also attached a $6 billion Buy American provision to finance environmentally friendly school-construction projects.
- There’s a new requirement to force federal agencies to use only domestically made iron and steel.
A Buy American policy is the equivalent of declaring war on free trade. And like a military war, economies will be hammered and innocent people will be harmed. By trying to protect America, the president’s policy is only hurting it.