A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.
Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.
Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.
The provisions also confront President Obama with his first test on trade policy. He must weigh the potential consequences of U.S. protectionism against the appealing slogan of "Buy American" and the jobs argument.
By the standards of Smoot-Hawley, this is paltry stuff. And by the standards of setting yourself on fire, sawing off your own leg with a nail file isn't so bad.
The proposals are meant to regenerate heavy manufacturing jobs in the United States by forcing government contractors to use domestic materials and equipment, even if they are more expensive. Yet U.S. industrial giants including Caterpillar, General Electric and the domestic aerospace industry are emerging as strong opponents.
The measures, they argue, could violate trade deals the United States has signed in recent years, including an agreement on expanding access to government procurements reached through the World Trade Organization. But most damaging, critics say, would be the "protectionist message" attached to imposing such barriers on foreign companies.
Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.
"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.
"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."
Most of Obama's economics advisors have been strenuously implying--nudge, nudge, wink, wink--that he didn't really mean it about free trade. We're about to find out.
I guess that means the government can't buy computers, because most of what's in them comes from China.
Most of Obama's economics advisors have been strenuously implying--nudge, nudge, wink, wink--that he didn't really mean it about free trade.
I strongly suspect the nudges and winks are correct: Obama personally supports the case for comparative advantage, free trade, etc. What I really think we're about to find out is how willing is he to face down the protectionists in his own party.
With unemployment so high, how about a priority for legal American workers at least? Infrastructure has some serious Mexican leakage.
Arnold Kling has been saying that one of the problems with the stimulus is that what the economy really needs is a sectoral redistribution of resources (from housing and finance to something more useful), not just a jolt of aggregate demand to smooth out an inventory cycle.
What we're seeing here is the government starting to get involved in imposing their own vision of what resource reallocation should look like, which should be terrifying to all. It was bad enough when they started pumping money to dying industries (the Big Three). It will be much worse if they insist on diverting resources to industries that are bleeding demised.
I can't stand the fact that government has fixed this economy thing...we should do a sympathy strike with the french.
http://www.voanews.com/english/2009-01-29-voa17.cfm
Coming from a government procurement bureaucrat, I wouldn't be too alarmed about this. If this is like current Buy American, there's no need to really freak out about this. Buy American is riddled with exceptions, and often if the domestic components/materials is 10-12% expensive in price then you can buy Foreign products. Whatever Congress enacts, Obama's OMB and OFPP (Procurement Policy entity), will be able to write their own rules to implement it. Rules that will likely maintain or expand existing exceptions and set price thresholds and policy. It's all there in Part 25 of the Federal Acquisition Regulation.
Bottom line is, this is far from the end of free trade. It's true that it usually creates a "price preference" for american goods, but it will not mandate american-ONLY goods. Even if that's what Congress is trying to do (which is how this article makes it sound), they won't succeed.
"Commercial" (meaning all) IT has been exempt from the Buy American Act for awhile now. Congress did that back in the Consolidated Appropriations Act of 2004 (though nobody noticed).
Well, sure, but that applies to, e.g., GWB. I strongly suspect that he personally supported free trade, comparative advantage, etc., but, you know, politics.
MrProliferation:
Instead of 10-12%, the price preference is 25% in the bill that passed the House. So still worse than normal.
That's in section 1110 of the bill, BTW. Page 16 or so of the PDF.
"The Empire Strikes Back" was Episode V, not IV.
Because of huge freight disadvantages, very large heavy bulky metal products are best produced near their end users. This is the reason that so many foreign car companies locate their plants in the U.S., and why so many European steel companies bought up U.S. assets in the late 1990s and early 2000s.
When the dollar was week in the summer of 2008, the American steel mills EXPORTED significant quantities of finished goods to Europe and Asia. Steel mills the world over rely on scrap steel from the developed world to fuel their production. In this sense, the imput costs are relatively equalized. The only way China, Brazil, or India can produce steel for import to the United States is by subsidizing the producers. That is not a level playing field.
Developing countries are cost competitive in the production of items that can be nested into shipping containers. Period. Putting a Buy American clause into an infrastructure spending bill is a token gesture. It is more cost competitive to buy steel and concrete from American producers for American projects.
I love you MrProliferation! It's so nice to read someone who knows exactly what they are talking about... It's why I love blogs.
Thanks for keeping it real Brandon.
A question. From another WaPo article on the package:
Advocates say that the measure, sponsored by Sens. Barbara Boxer (D-Calif.) and John Ensign (R-Nev.), would prompt companies to "repatriate" hundreds of billions of dollars, money that could be used to expand domestic operations and save jobs. Supporters estimate it could increase federal tax revenue by as much as $40 billion.
To what degree is this protectionism? Especially with Davos, etc, going on, I seem to read a lot about a lack of concerted effort to stem the financial/economic downturn. Could one define protectionism not simply as tariffs but as countries trying to bring all their business home?
Seems like the whole world is going to turn in on itself; a giant sucking sound as globalization meets a new reality.
Because of huge freight disadvantages, very large heavy bulky metal products are best produced near their end users.
That depends on what the comparative costs of labor and environmental regulations might be. A union shop, OSHA, and strict environmental regulations can offset a surprisingly large quantity of freight costs, especially now that fuel prices are back down and ports are under-utilized.
In the power industry, large equipment comprising thousands of tons of steel, copper, and aluminum are quite regularly purchased from places like Korea for industrial and power applications that do not fall under the jurisdiction of the Rural Utilities Service. And it isn't due to a shortage of US and Canadian manufacturers capable of providing such equipment, it's because the importers are often able to provide it faster and cheaper, even after accounting for freight costs.
Autos are a rather poor example of the trend because lower-cost, lower-volume brands like Mazda import a majority of their vehicles from overseas, while Toyota et al build in the US because it helps satisfy certain US trade restrictions AND polishes their image as a domestic operator. Cost savings fall somewhere in the middle once you account for the fact that the raw materials generally have to be shipped around regardless, and Japanese robots work at cheaper rates than Georgians and Texans while not drawing from active payroll during economic slowdowns.
A watershed moment for the Obama admin.
A lot of people on the left still hate Clinton for his pliability on free trade, but it was one of his better legacies.
Corporations tend to hold profits from overseas ops off shore to await an advantageous time to bring it home (and pay US income tax on it). Amnesties like the reduction have happened before, and do work to bring quite a bit of money back.
It's not really protectionism, since it doesn't really impede any countries ability to trade with us.
Americans aren't smart enough too protect their own livelyhood. We need a Goverment to remind people what it means to buy American. Buy American, produces american Jobs.
Advocates say that the measure, sponsored by Sens. Barbara Boxer (D-Calif.) and John Ensign (R-Nev.), would prompt companies to "repatriate" hundreds of billions of dollars, money that could be used to expand domestic operations and save jobs. Supporters estimate it could increase federal tax revenue by as much as $40 billion.
And we know this how? Companies have been sitting on cash for the last few years. I guess you, and the two Senators have forgotten about the jobs creation record under Bush. It was very pathetic in case you don't remember. And that was with a very corporate friendly President in the White House.
TallDave:
It was? How? I bet you'll change your tune when your job gets shipped overseas.
Also note that the 25% is only if it increases the overall cost of the entire project by 25% to use US steel. For many of these projects, if labor is a significant cost, US-made steel would have to be a lot more than 25% more expensive for the exception to get crated.
Keeping corporate taxes high, and raising taxes on overseas profits is a very good way to get more jobs shipped overseas. You might think that they'd bring the jobs home Mr. conscience-- why wouldn't they just move their corporate HQs and save on the taxes even more? Or else sell their foreign subsidiaries to foreign companies, and then not pay US taxes either?
Ensuring that US companies have no overseas jobs or subsidiaries won't keep jobs in the US. It'll just ensure that those foreign jobs belong to foreign companies.
For example, the lack of US car plants in Japan and Korea certainly didn't stop them from producing their own car industries.
The stimulus was actively *injected* into other countries when the Fed opened unsecured swap lines with Europe, South America, and Asia.
They currently stand at about $600,000B. IIRC they were closer to $1,000,000B when they were first opened.
The Obama/Krugman/NYTimes stimulus is $800B, three orders of magnitude smaller. Say 10% goes to imports. The stimulus "leakage" is 1000x smaller than the stimulus injection that went abroad.
Congress has no clue.
Mouse,
Thousands of tons of steel for power equipment? Wow! That is impressive. Right now U.S. mills are working at 43% capacity and producing approximately 1.02 Million tons PER WEEK. That is down from around 2.2m tons this August. I am taking about large volume, brother. Not one off. Don't get distracted by outliers.
The proposals are meant to regenerate heavy manufacturing jobs in the United States by forcing government contractors to use domestic materials and equipment, even if they are more expensive.
Yeah, THAT'LL help the economy: borrow a whole bunch of money and force people to spend it on overpriced labor and materials. Wouldn't it be simpler just to put the construction workers on Welfare and not pretend we're trying to improve the economy?
This is all just like living in a dream. We talk about it and for most of us it's so far removed from our lives.
But I just keep wondering when will all of this come due. And when it does there will be a lot of finger pointing and assigning blame to the wrong reasons and probably plenty of more proposals to do something that won't help or make things worse.
Actually that sounds like what is happening now. Maybe all the ridiculous actions of rulers and their cronies are now coming due and the people are too lulled to notice. So we just haggle over the details.
This is a joke.
Thousands of tons of steel for power equipment? Wow! That is impressive. Right now U.S. mills are working at 43% capacity and producing approximately 1.02 Million tons PER WEEK. That is down from around 2.2m tons this August. I am taking about large volume, brother. Not one off. Don't get distracted by outliers.
Don't get distracted by my typos! What I meant was thousands of pounds, per unit of equipment.
At any rate, it does nothing for you to point out what US mills are prdoucing unless you know how much steel is being compartively imported. Technically, we should be looking at all of raw steel as well as large manufactured goods whose shipping cost is largely finished steel weight, since both run against the thesis, but neglecting that, this link --
rusmet.com/news.php?id=15530
-- claims 1.99M tons were imported by the US in December, or roughly 0.497M tons per week. Compared against the 1.02M tons per week you cite, approximately 32.8% of US steel was imported. Is that really how statisticians define an "outlier" where you come from?
amouse,
Sure didn't you know an outlier need not have a statistical representation to be compared and disputed, but rather something that can be easily dismissed out of hand because it disagrees with your politics or scores you a quick "gotcha" point.
What really bothers me in all of this is how it reeks of someone else wanting to interfere and dictate the way others should work.
I actually sat through a seminar when an esteemed economist dismissed free market principles, because "they were based on the principle of individual freedoms and just because we believe in freedom in politics and in our lives doesn't mean we should believe in free markets."
It seemed so contradictory and confounding on its face, that I couldn't believe many people were nodding their heads....the same basic principle is at work here with the pork bill, which Republicans would be just as thrilled to pass if McCain was in charge, albeit Democratic cronies swapped for Repub ones.
Mouse,
Tons was correct. I was making a little joke. A single steel coil is normally around 45,000#. Thousands of tons is not a lot as a percentage of raw usage. As per your article about imports, Thank you for the information. I have been a in the steel industry my entire working life, 16 years at the former J&L steel and the last 20 as a trader (importer) for a number of different companies.
The number cited in this article refers largely to imported slab, which is rolled into coil at domestic mills. Remeber my first post about European mills buying domestic assets? That 1.02m ton number is deceptive, because it includes material rolled but not melted in the U.S.-- the 1.99m tons in your post is largely part of this number.
Tons was correct. I was making a little joke. A single steel coil is normally around 45,000#. Thousands of tons is not a lot as a percentage of raw usage. As per your article about imports, Thank you for the information. I have been a in the steel industry my entire working life, 16 years at the former J&L steel and the last 20 as a trader (importer) for a number of different companies.
The number cited in this article refers largely to imported slab, which is rolled into coil at domestic mills. Remeber my first post about European mills buying domestic assets? That 1.02m ton number is deceptive, because it includes material rolled but not melted in the U.S.-- the 1.99m tons in your post is largely part of this number.
Okay, that clears things up. Thanks.
Although, unlike many colleagues, McCain was against both farm bills, including the one Bush signed. And Bush's energy bill (which Obama voted for). And Bush's prescription drug benefit. Though your point about partisanship goes in general. But that's also because these sorts of stimulus bills become excuses to do things that maybe aren't that stimulative but what we wanted to do anyway.
I think the perception in the Midwestern states that swung them to the Democrats is that 'we the people' weren't being allowed into the cartel. Why otherwise would Obama have given all the observed lip service against 'free trade.' In typical projective (psychological) fashion, the issue was more about us than them. The old cartel of the UAW and other AFL-CIO was unable to control the market. So now we are to 'put away childish things' and go diss our enemies.
What I really think we're about to find out is how willing is he to face down the protectionists in his own party.
People are really looking at this from the wrong direction. Congress has the power here, not the president. Politically, Obama will have no choice but to sign whatever Congress gives him. There's no way he is going to take the chance of sending the bill back to Congress and having the economy crash while they're rewriting it.
These provisions are already making headlines in Europe.
Megan is sceptical of whether the stimulus program will expand employment. I reckoned that together with monetary policy stimulus ('quantitative easing')it could be relied on to make unemployment in Obama's first term significantly less bad than it would otherwise have been. Add any significant degree of US protectionism and foreign retaliation to it, and my reckoning is that such a program will make US unemploymnet at the end of Obama's first term even worse than it would have been with no stimulus.
So does that make Obama's election "Episode IV: A Blue Hope" ?
I have two questions about this. First, will this proposal regenerate heavy manufacturing jobs? By all accounts, the majority of heavy manufacturing job losses have been due to automation, rather than the outsourcing of our heavy manufacturing base. So given that automation multiplies the productivity of a given worker, its quite possible that even spending orders of magnitude above what is being proposed now won't bring back all the heavy manufacturing jobs that were lost over the past few decades.
Second, almost all members of Congress assume that the USA should have lots of heavy manufacturing. I'm not sure that's a good assumption to make. Yes, its beneficial to have some firms in this industry, so that we're not starting from scratch in case we really need their output. But, it seems to me that the US is still pretty massively overinvested in heavy manufacturing. Perhaps the most rational course of action is to recognize that these jobs aren't coming back and to facilitate an orderly transition to an economy with a different balance of jobs. I'm not sure how spending massively on infrastructure projects and the temporary boost in heavy manufacturing it creates will help with that.
Am I missing something?
Added steel demand raises prices.
Steel prices will rise.
American steel will be redirected to stimulus projects.
Non-stimulus projects will need steel, too.
Non-American steel will flow to those non-stimulus projects.
That non-American steel will sell at the now-higher price.
So long as neither the price nor flow of steel is limited by tariff or quota, one of the big beneficiaries of this provision will be foreign steel companies, who will actually be free riders (i.e., their higher price will be indirectly subsidized by the American taxpayer).
There's a lot of things the "Buy American" provision is. What it isn't is "protectionist."