|THE “BUY AMERICAN” CONTROVERSY
by Rosaliene Bacchus
Guyana Journal, March 2009
On 17 February 2009, U.S. President Barack Obama signed the American Recovery and Reinvestment Act 2009. This Act aims to preserve and create jobs and promote economic recovery; assist those most impacted by the recession; provide investments in science and health for increased economic efficiency; invest in infrastructure for long-term economic benefits; and stabilize State and local government budgets.1
The “Buy American” clause in this Stimulus Bill causes concern for leaders of countries worldwide including Canada, the European Union, China, and Brazil. This controversial clause of Sec. 1605 states: “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, steel, and manufactured goods used in the project are produced in the United States.” To allay fears of U.S. protectionism, Subsection (d) states: “This section shall be applied in a manner consistent with United States obligations under international agreements.”2
The majority of Americans welcome the “Buy American” clause as it purports to create more manufacturing jobs for Americans. However, government suppliers envisage delays and impediments as government agencies determine the origin of products of various components. Unlike American steel companies, well-versed in compliance regulations effective since 1982, contractors bidding to set up an online system for the government's medical records face an enormous challenge as every electronic product has components from countries worldwide. Gary Shapiro, president of the Consumer Electronics Association, believes that the clause will protract projects for years.3
In a letter dated 6 February 2009 to House Speaker Nancy Pelosi, the president of the Los Angeles Area Chamber of Commerce expressed concern that the “Buy American” clause would incite other countries to follow the U.S. lead by restricting access to their markets. “At a time when American exports are one of the few bright spots of the U.S. economy and markets are weakening overseas, the U.S. Congress should not be taking any actions that will hinder U.S. exports.”4
CEO Scott Davis of the United Parcel Service (UPS) considers global trade “the number one antidote to the current financial crisis.”5 In his address to the U.S. Chamber of Commerce on 26 February 2009, he warned legislators against implementing trade protectionist measures.
Others argue that, without foreign competition, American manufacturers will have little incentive to innovate and lower prices. Infrastructure projects, designed to fuel economic growth, would become more expensive.
Ha-Joon Chang, an economist at the University of Cambridge, considers some degree of protectionism essential when countries face a big shock like the present economic crisis. Under these conditions, protectionism provides “the breathing space for the producers to restructure.”6 Contrary to economists who fear that a 1930-style global trade war could ensue, he is confident that current international trade regulations and regional trade agreements will limit protectionism.
With U.S. exports of goods in continual decline since August 2008, the challenge ahead is to persuade other countries to continue buying American goods and services.
1 The full text of the American Recovery and Reinvestment Act 2009 is available online at Recovery.gov.
2 American Recovery and Reinvestment Act 2009, Government of the United States, p. 189.
3 Mark Drajem, “Buy American Rules May 'Stymie' Obama's Stimulus,” Bloomberg, February 13, 2009.
4 Letter published in the Inside Global Trade Newsletter, Los Angeles Area Chamber of Commerce, February 11, 2009.
5 Darrell A. Hughes, “UPS Executive Warns Congress against Free-Trade Restrictions,” Dow Jones Newswires, February 26, 2009.
Los Angeles, CA