American Made

I thought the most hollow rhetoric of the Presidential campaign was President Obama's vow to "stop tax breaks for companies that ship jobs overseas." It was a direct appropriation of a John Kerry line from 2004, and it had no oomph to it, no flourish, nothing beyond the boilerplate. In fact, this was symptomatic of all of Obama's rhetoric on trade. I always thought he believed at least nominally in the Washington consensus, that neoliberal trade was part of the globalized world and there was no way out of it. The fight over the "buy American" provisions in the stimulus plan are starting to confirm this belief.

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

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.

And today the Telegraph of London reports that Obama will work to gut the proposal.

The White House has promised to review the protectionist proposals, passed last week by Democratic allies in the House of Representatives, which would ban the use of non-American steel in the $800 billion of construction projects.

Privately, diplomats are withering about the "excitable" US rhetoric in support of the Buy America proposals...Europe is being helped by lobbyists on behalf of American companies like Caterpillar and General Electric...

They are hoping that free trade sympathisers in the Senate commerce committee will strike out clauses that would violate America's obligations to EU nations under World Trade Organisation rules. America has similar obligations to Canada and Mexico as part of Nafta, the North American Free Trade Area.

This is nothing more than American industry and foreign suppliers conspiring to maintain the status quo that has destroyed American manufacturing for 50 years. It's a legitimate concern that stimulus money, designed to spur American economic activity, would "leak out" of the US economy without benefiting US workers and taxpayers. The Buy America Act of 1982 already stipulates that recipients of federal money would use domestic suppliers in a variety of contracts, so this provision would simply extend existing law to the stimulus, and would not be subject to trade agreements. As David Sirota explains, Obama campaigned on this, and now he's looking to the Senate Commerce Committee to bail him out of his lukewarm commitments.

Further the Economic Policy Institute shows the crucial nature of this provision.

Multinational companies such as General Electric and Caterpillar, and their allies in the Chamber of Commerce, are attacking “Buy American” provisions included in the economic recovery bill passed by the House on January 28th. They claim that these provisions will provoke a “trade war” with foreign governments, but foreign governments have long histories of supporting their own domestic companies. These companies are self-interested, simply wanting unlimited access to imports, many of which are illegally subsidized and unfairly traded. U.S. and foreign multinational companies (MNCs) were responsible for nearly two-thirds of all U.S. imports in 2006, as shown in the chart below. U.S. firms led the way with $678 billion in imports, 36.4% of all U.S. goods imports.

Companies like Caterpillar, which will benefit from billions of dollars of infrastructure spending in the stimulus package, want unfettered access to cheap steel from countries like China, which poured more than $15 billion into energy subsidies into that sector in 2007 alone. Chinese steel imports more than doubled between January and November, while U.S. steel production fell nearly 40%. The Chamber of Commerce, which also opposes further “Buy American” provisions, represents the interests of U.S. companies like Caterpillar and IBM as well as foreign multinationals like Toyota and Siemens, all represented on its board of directors. Congress has finally realized that what’s good for big business is not always good for America, and that new rules are needed to rein in runaway corporations. That’s real progress.

Simply put, domestic suppliers exist on an unlevel playing field. Toyota wouldn't exist without generous subsidies from the Japanese government. Our multinationals that are allegedly based in the United States make up for that by racing to the very bottom for their materials and undercutting American workers. It ought to stop.