Buy American Is Politics as Usual

Posted by Daniel Ikenson

As I wrote in an earlier post today, the Buy American provisions in the just-passed House and currently-worded Senate spending bills will encourage similar measures abroad, threatening yet more tit-for-tat protectionism, as respect for international trade rules disintegrates.

It’s not too difficult to discern who’s behind the Buy American provision, which reads:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel [my emphasis] used in the project is produced in the United States.

Evidently, the once-and-for-always politically savvy U.S. steel industry has not lost its touch. Like profit-maximizing firms in any industry, America’s steel producers have devoted large chunks of their profits (which have been enormous and record-setting over the past five years, up until 4Q08) to their highest yielding input. For Big Steel, that input isn’t human capital or physical capital, but the far more productive enterprise of lobbying for taxpayer largesse. And this will be a pretty big payday for these modern-day robber barons.

But, it is absolutely stunning—even to those who have watched this industry impose its will over U.S. trade policy at great expense to other industries time and time again—that nobody in Congress has blown a whistle on this outrageous scheme. The incredibly profitable U.S. steel industry (which has fallen on harder times in the past several months like everyone else), consists of fewer than 100,000 workers. It is the ONLY beneficiary of this hair-brained provision that will undermine any incentive the industry has to remain efficient, and promises to spark reprisals and crush export sales for industries that employ millions of workers. That doesn’t strike me as a recipe for U.S. job growth.

That is not to say that Buy American coverage should therefore be expanded. It should be stripped entirely. All that those rules do is guarantee that a good portion of the billions of dollars the government is borrowing – on our children’s tab – will be wasted on unnecessary mark-ups. Think $300 light bulbs at the Penatagon? Each project will cost more than it should and do much less for the economy and for job growth than they would if those project dollars were in the hands of the private sector – where there is natural incentive for cost management.

The U.S. steel industry has already burdened taxpayers, consumers, and it’s much more economically significant customers (who support 50 jobs for every 1 in the steel industry and account for 10-times the steel industry’s share of GDP) over the decades. Just this decade, the steel industry dumped $13 billion of legacy costs on the taxpayer-funded Pension Benefit Guarantee Corporation and convinced the Bush administration to impose sweeping tariffs on imports for nearly two years. Not a dime of that was repaid during the industry’s subsequent boom years (which just ended a few months back).

These Buy American provisions are an outrage and someone in the Senate, or the White House, should speak up.