In the context of America’s $17-trillion economy, $12-trillion national debt and $4-trillion federal budget, a few billion dollars worth of international trade doesn’t sound like much. Yet Americans and foreigners concerned about free trade have every reason to get worked up about the proposed “Buy America” mandate in Washington’s massive stimulus plan. Although modest in its likely economic consequences, a Buy America mandate represents the exact opposite of what the new president promised in his campaign — it’s a triumph of fear over hope.
Even if they survive into the finished legislation (which now appears doubtful), the Buy America provisions won’t have much impact on America’s economy, or any other. The proposals contain king-size loopholes that let purchasers ignore the mandates for everything except iron and steel. Only a fraction of the total stimulus spending will even go for the infrastructure projects that might use these materials. Nearly all construction projects, in any case, rely on materials that are expensive or impossible to transport over long distances.
For all its genuine ills, furthermore, America’s economy remains the world’s largest and — according to the World Economic Forum — competitive. American companies would generally win on merit anyway when it comes to selling whatever Congress decides it wants to buy. For all the whining from the European Union, and quieter protests from the Canadian embassy, a Buy America requirement seems unlikely to make a very big difference by itself.
But trade matters as a symbol, too: Each decision represents a move toward or away from the principle of protectionism.
The inclusion of a Buy America mandate in a stimulus package would move the United States away from open markets. Whatever pain trade has caused to Americans, it’s also brought great benefits. NAFTA alone increased household incomes by as much as $900. But trade, of course, represents a case of concentrated costs (closed factories) and diffuse benefits (small, yearly income gains for almost everyone). Thus, opinion polls show that most Americans tend to support trade restrictions.
America has prospered when it has allowed goods and materials to move across its borders. GDP has grown most quickly when the country has run a large capital account surplus — also known as a trade deficit — thereby attracting lots of foreign investment.
America, in short, has succeeded when it has allowed its economy to roll with the punches and change in response to new realities.
A Buy America requirement, more than anything else, would represent a clear public statement that the economy should not change — that it’s better to preserve uncompetitive industries than suffer dislocations. That would be a mistake: Looking inward has never helped America — and a president who ran under the banner of “change” should know better.
– Eli Lehrer is a senior fellow at the Competitive Enterprise Institute in Washington, D.C.
Original text can be found here: http://network.nationalpost.com/np/blogs/fullcomment/archive/2009/02/06/…