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Argument: Buy American provision will cause protectionism and further harm

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Clive Crook. "Protectionism And The Stimulus". National Journal. February 7, 2009 - The spirit of Smoot-Hawley lives on in stimulus bills' 'Buy American' language. [...] During the past few months, as the severity of the recession has become clearer, drawing parallels with the Depression of the 1930s has been a staple of economic commentary. Rightly so: This may yet turn out to be the worst economic setback for 70 years, and the Great Depression says something about how bad things can get if governments fail to respond quickly and about the need to learn from history.

Speaking of that, remember Smoot-Hawley? One can overstate its role, no doubt--it did not actually cause the Depression--but most economists, I think it fair to say, believe that the effort in the 1930s to boost domestic output by restricting imports made things worse. The collapse of world trade, and hence global output, was helped along by deliberate policies in the United States and abroad, as governments tried to keep employment high at home by shifting unemployment overseas. In the end, everybody was worse off.

"How to cause a depression". The Washington Times. February 8, 2009 - "Tucked within the economic stimulus bill the House passed last week was a clause requiring state and local public works agencies to buy American iron and steel for their reconstruction projects, and the Senate expanded it to all manufactured goods. It was modified slightly on Thursday as Senators had a second thought. If the nation is going to spend $43 billion to $100 billion on infrastructure revitalizing the civil engineering, architecture and construction industries, it sounded reasonable that the spending should also be used as a catalyst for other American products like U.S. Steel's steel, DuPont's plastics, 3M's chemicals and so on. But a brief history lesson will show them the folly of their ways.

In 1929, in an effort to stimulate the American economy after the stock market crashed, Sen. Reed Smoot and Rep. Willis Hawley, both Republicans, used similar logic to create the Smoot-Hawley Tariff Act, raising tariffs on foreign goods to record levels. President Herbert Hoover signed the bill against the opposition of more than 1,000 economists and numerous business executives. The result was a trade war with Europe, which increased its tariffs on U.S. products. Ultimately, U.S. exports and imports decreased by more than 50 percent in a single year, transforming the recession into the Great Depression (yes, the Mississippi Valley drought of 1930 helped, too). But at least Smoot-Hawley left open the freedom to import, whereas what the leadership of the 111th Congress originally wanted to eliminate imports outright."

"Sell America". Chicago Times. February 8, 2009 - When the U.S. House passed its economic stimulus package, it slipped in a "Buy American" requirement that would force all the public works projects funded by the bill to use U.S.-made steel and iron.

That sounds like a good idea, but it would inflate the costs of many of those projects and invite protectionist responses by other countries. (Buy Mexican! Buy Canadian!) It would violate international trade agreements.

"Getting Tough in Washington". New York Times (editorial). February 5, 2009 - In the House, Ms. Pelosi will have to help Mr. Obama overcome protectionist Democrats who have already voted a provision that would require stimulus-financed projects to use only American-made iron and steel. Senate Democrats inserted an even worse provision — requiring that all manufactured goods bought with stimulus money be made in this country. That has been somewhat diluted, but not nearly enough.

The “Buy America” plan could touch off a trade war, which would be disastrous for the American economy and American workers. It’s astonishing that any national leader could have forgotten what happened when Congress tried this before. Remember Smoot-Hawley?

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