GOP Rep. Dreier Says 'Buy American' Causes One Big 'Mess'
By Rep. David Dreier (R-CA)
When it comes to legislative PR, it doesn’t get much better than “Buy
American.” What could possibly be more patriotic than buying American-made
products? During tough economic times, mandating that government contractors use
only goods with the Made in the USA label doesn’t just sound like good policy,
it seems like plain old common sense. We all want to create American jobs and
promote American manufacturing.
So when a dramatic expansion of Buy American regulations was included in the
“stimulus” bill, it may have sounded like a great idea on its face. The
challenges with this policy only become apparent when we look beyond what sounds
good and examine how these provisions actually work in the real world.
While federal agencies are accustomed to and equipped to deal with the
substantial bureaucratic red tape that comes along with complying with the Buy
American Act, few states and no local governments have any experience with the
administrative and legal implications of these complicated regulations. The
resulting confusion and uncertainty have caused a number of state, county and
municipal projects to grind to a halt. In many cases, project managers have had
no choice but to shut down badly needed construction and infrastructure projects
while the lawyers work out the mess. Even those projects that have resumed work
have faced escalating costs.
Delays, cost increases, endless legal reviews – this is the antithesis of an
economic stimulus. What’s more, the unintended consequences of the onerous new
regulations are having a compounding effect because they apply to entire
projects, even if the stimulus funding only accounts for a tiny fraction of
total funding. As the ensuing delays drag on, job creation is held back.
Furthermore, many American companies are finding themselves shut out of the
competitive bidding process. If a U.S. producer with facilities here in the
U.S., run by American workers, relies on a global supply chain for just one
small part of its manufacturing process, the manufacturer can be prevented from
competing for government contracts under the expanded regulations. Even those
products and companies that technically qualify are often shut out of
consideration, simply because fear of litigation has led many local governments,
unaccustomed to these confusing new regulations, to exclude them out of an
abundance of caution. When “Buy American” punishes American companies, something
isn’t working.
The greatest harm to American workers could come down the road, as our
trading partners begin to retaliate against us for putting these regulations
into place. 95% of the world’s consumers are outside of the U.S. It’s no wonder
that American manufacturing depends upon exports to grow and create new jobs in
the U.S. If our manufacturers lose access to those export markets, the result
will be more lost American jobs.
“Buy American” sounds like a great idea. But the reality is that in practice,
the expansion of Buy American has had an anti-stimulus effect on our economy and
our job market, has hurt American companies, and threatens to damage our ability
to support job creation through exports. Rather than imposing substantial new
regulations that stymie job growth and invite a trade war, Congress should be
jumpstarting our trade agenda, opening new markets for American producers and
paving the way for export-led job creation. That would be true economic
stimulus.
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What is American? Is it based on where the corporate office is, where the company was founded, where their bank accounts are or where the manufacturing plant is?
As an example, there are Toyotas made in Kentucky and Chryslers made in Mexico.
...many of our goods come from outside US borders. Most of the toys we buy are made in China or India or some other country, and we don't know whether those who made them are craftspeople working their trade in freedom and honor, or virtual slaves paid slave wages for working endless hours in sweatshops. Several of my own musical instruments were made in Europe; I bought them because they were better than anything made here that I could have bought for a comparable price.
In this time of international trade and the Internet, "Buy America" makes no sense. The time that we can afford to think only of ourselves is long past. We who care about economic justice must, as the saying used to go, "Think Globally; Act Locally."
This was as succinct and forthright a message as I've even seen on the Buy American policy.
Dreier nails it!
Too much time was spent by lawmakers on the short view and not nearly enough on the big picture.
In many cases, Buy American boils down to 'Save one job -- Lose 5 others'.
i agree with your article.My company supplies equipment to protect electrical transformers and can save millions of $ and we have been selling in the USA and in 80 countries for over 15 years.With the Buy America provision , we are seeing more and more customers being confuse about their future purchases under the stimulus plan and unfortunately there is no equivalent products made in the USA.All other products are coming from Canada or Europe.Hopefully our governements will find an acceptable solution fast enough.
The purpose of the stimulus package is not to save money but to resuscitate a damaged economy. It is based on the theories of John Maynard Keynes and relies on creating a multiplier effect. Under this theory government can stimulate a sick economy by modest outlay if people who get the money spent most of it on consumption. This extra spending allows employers to hire more people. When those people spend further increases allow further spending. This is the so called multiplier effect. Money spent outside the country does not contribute to the multiplier and does not go to an American worker.
"Buy American" keeps all the spending inside the United States where the total impact of the Keynesian multiplier acts within the United States economy. Any part of the spending that is spent outside the United States results in the multiplier effect being applied to that country not ours. That is the primary reason that the Bush stimulus package did not work well. When the Bush stimulus money was spent to buy a made in China television set only a small part of the total dollars spent acted as a seed for the multiplier. That part associated with the salesman's commission, transportation from the port, etc were multiplied and helped our economy. The factory worker's wages, parts, etc stimulated China not us.
While delays are harmful spending the money outside the country is worse. Remember many of these projects would not have been done at all without the stimulus. Delayed spending is better than no spending.
A trade war is not realistic. "Buy American" will not result in a trade war other than some small face saving actions such as Mexico imposing a tariff on Christmas trees – in March. The reason is that our trading partners would loose far more than we would. The United States is a trade deficit nation. We import more than we export. Trade deficit nations are net winners of a trade war. Countries that bet their economies on exports to the United Sates may very well experience net hurt but not the citizens of the United States. Note I said citizens not our multinational companies.
Trying to keep all the money on American soil seems to me like a company trying to not buy materials from other companies. That may be a sound business practice on its face, but first the company must vertically integrate, i.e. produce its own raw materials.
As we stand America is too interdependent with the rest of the world to make this move. Most of the major companies must first vertically integrate so they can sustain the economy. That doesn't sound like a good idea in a recession . Even if we could do it, are we really better off that way? Are our land and labor used more efficiently?
Exporting wealth is fine so long as you have a way to bring it back in. In this case, I think exporting wealth is a much better idea than trying to become self-sufficient. Not to mention, I don't like Keynes - and I'm surprised that the Republicans would build a law based on him.
While self sufficiency may not sound like a good idea, it is at the heard of what it means to be American: independence. However, I agree that vertical integration at this time doesn't sound feasible. Also, don't be surprised; the " stimulus " was a Democrat bill.
Being "American" despite evidence that there's an objectively better way is foolish. I'm not an economist, so I can't write my own paper on this - but I'd love to read one.
merely observing.