Is “Buy American” a Domestic Growth Tool or Hindrance?

Al Bredenberg

Many feel that having U.S. consumers and businesses and especially the government buy exclusively American-made products would support domestic jobs and bolster the U.S. economy. But many others argue that “Buy American” policies are restrictive and could do more harm than good.

Critics of “Buy American” often refer to such policies as protectionist efforts that seek to give preference to domestic manufacturers, as opposed to “free trade” policies that support unrestricted trade internationally and allow procurers to seek out the lowest-cost suppliers for goods.

The Buy American issue recently reheated due to Texas House Bill 558, which is now in committee in the state’s legislature. It would require the purchase of iron, steel, and manufactured goods made in the United States for certain state, state-aided, and governmental entity construction projects.

Lobbyist Perry Fowler, who represents construction companies working on water and wastewater plants, says it’s a bad idea. “Well-intentioned ‘Buy American’ measures have unintended costs, consequences, and liabilities,” he told the Dallas Business Journal. “This won’t level the playing field for U.S. companies who stand to benefit more from selling their goods across the U.S. and abroad.”

Fowler explained that construction companies’ costs would go up if they were required to source materials only from domestic manufacturers. The way engineering specifications are written makes these restrictions unfeasible, he claimed.

State Representative Yvonne Davis (D-Dallas), who filed the bill, argued, “Is it protectionism when Texans want to promote and support Texas businesses? Over the past few years, we have witnessed a number of Texas manufacturing companies close, and some companies have even moved overseas.” Spending Texas tax money on U.S.- and Texas-made products supports domestic business, she asserted.

In exploring the long history of Buy American laws, it’s important to keep in mind that there are two primary laws that apply: the Buy American Act of 1933 and the Buy American provision of the Surface Transportation Assistance Act of 1982. These laws limit some federal-funded purchases of certain materials to domestic sources or create a price preference for domestic products. The American Recovery and Reinvestment Act of 2009 (ARRA) also contains Buy American provisions.

The Alliance for American Manufacturing (AAM) claims that domestic sourcing requirements, such as those in the ARRA, are “the most effective way to ensure taxpayer dollars are used to create and maintain jobs and manufacturing capacity to the maximum extent possible, thereby vastly improving the stimulative effect of government spending.” The group calls Buy American “a proven job creation tool that is broadly supported by Congress, the American people, and hundreds of local governments throughout the United States.”

The AAM cites a number of examples of U.S. companies that gained from Buy American provisions. Pennsylvania steel manufacturer ArcelorMittal benefited from public rail transportation projects funded in part by ARRA. AAM makes the point that “ArcelorMittal’s Steelton plant is one of three rail-producing plants in the U.S. that compete with imported products.” Because of the Buy American provisions of the 1982 legislation, United Streetcar of Clackamas, Ore., won a contract to build streetcars for new public transit projects in Oregon and Arizona.

The U.S. Chamber of Commerce says Buy American rules are counterproductive and expensive. In fact, the Chamber maintains that such rules “invite foreign retaliation and threaten U.S. access to export markets and the American jobs they support.” The organization says that Chinese officials frequently cite Buy American rules “as a justification for their own discriminatory policies.”

Fox Business commentator John Stossel bluntly said that “’Buy American’ is a dumb idea.” In a column on Reason.com, he quoted Hoover Institution economist David R. Henderson, who told him that “almost all economists say it’s nonsense, and the reason is: We should buy things where they’re cheapest. That frees up more of our resources to buy other things, and other Americans get jobs producing those things.”

Buy American advocate Todd Lipscomb, of MadeinUSAForever.com, presents some additional arguments for purchasing American-made products. He points out that many other countries do not have the worker-safety, minimum-wage, and environmental-protection laws in the U.S. that make manufacturing costlier. Lipscomb argues that “no Western nation can ultimately compete on price with a country willing to massively exploit and pollute its own people. When you buy only American-made products, you insist on a higher standard.”

Henderson counters this point, saying that while working conditions might be difficult for people in developing nations, they’re still better off taking those jobs: “The mistake Americans make is they think they would never work in a sweatshop and therefore say these people shouldn’t. They’re choosing their best of a bunch of bad options. And when you take away someone’s best of a bad option, they’re worse off.”

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SOURCE:  Industrial Market Trends