“Buy American”: A Very Bad Move in the Stimulus Package

In addition to being bad economics, demonstrating in his first month that the Obama Administration’s word is not good–that it will keep treaties only when it feels like doing so–would be a very bad start for the foreign policy of the Obama administration. *Pacta sunt servanda.*John Ibbitson:>Global trade wars or voter revolt? Let Obama’s difficult decisions begin: he toxic “buy American” provisions in the economic stimulus package currently before the Senate pose a crucial test for Barack Obama’s young administration. To prevent a cascade of tariff protection that would ultimately hurt his own workers and his own country’s economy, Mr. Obama must find some way to strip the protectionist clauses that infect the American Recovery and Reinvestment Act. Yet, politically, that might be impossible….>”Buy American” violates the North American free-trade agreement, but Mr. Obama has vowed to renegotiate or, failing that, rip up NAFTA, so has little stake in coming to its defence. And he would be overriding protectionist provisions put in the bill by his own Democratic Party.>The President has said the time has come to make “difficult decisions.” This is one of them. Even economists who strongly support the stimulus package are dismayed by the protectionist measures contained within it. “It looks like a very bad thing in the bill,” said economist Brad DeLong, who worked on trade issues in the Clinton administration and teaches at University of California, Berkeley. “Pressure from the Canadian government saying, ‘Do you really want to do this?’ is important.” Canadian officials have, in fact, been working behind the scenes to keep protectionist measures out of the economic stimulus package. But they failed to stop the House version of the bill from including a provision banning the use of anything other than American-made iron and steel in projects funded by the stimulus package…If there’s little excess capacity in the U.S. steel industry–so that the price of steel is high enough to induce people to look outside for suppliers–then a stimulus won’t be much needed. If there’s a lot of excess capacity so that a stimulus is needed, then steel customers should be able to bargain prices down to marginal cost–in which case foreign producers will have an extremely difficult time competing on price given that steel is heavy and distances are great. “Buy American” seems mostly designed to allow the steel producers to collude and push their profits up–at the expense of American taxpayers.Could Obama add a signing statement to the stimulus bill stating that the “Buy American” provisions conflict with our NAFTA and WTO treaty obligations and hence are void? I am not a trade lawyer, but my suspicion is no: neither NAFTA nor the WTO are self-executing, so any actions they call for or block are supposed to be implemented through duly passed acts of congress. Of course, NAFTA and the WTO are also treaties that are supposed to be kept.If Obama did declare the “Buy America” provisions null and void in a signing statement, people could sue in U.S. courts to carry them out–and IMHO likely win. Then foreign governments could take the case to the NAFTA and WTO dispute-resolution forums–and IMHO certainly win. Better to strip the provisions from the bill now, or in conference.

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