Posted by spaul on 02/13/2009
To hear the critics of Buy America, you would think those misguided souls advocating it, like 84% of the American public, are either out to start a global trade war, responsible for the creation of a second Great Depression, ignorant of economics, or guaranteeing pink slips for even more workers.
Commentators like Clive Crook, who holds no Nobel Prize in economics by the way, has slapped down Nobel Prize Laureate Paul Krugman for even suggesting that there might be some theoretical rationale for Buy America (though Krugman made it clear he did not personally favor such an approach). Other economists, like former Labor Secretary Robert Reich and BusinessWeek's Michael Mandel, do support the rationale for Buy America.
Crook's intolerance reminds me of the Spanish Inquisition, not in its violence or scope of course, but rather in its complete and total prejudice and vindictiveness against points of view that differ with the orthodoxy-- as if free trade was the founding basis for a theocracy. Perhaps Crook is so defensive because there is a growing consensus that while writing about free trade may be lucrative, the workers who actually produce tradeable goods do not seem to be sharing in its benefits. There's also a real concern that the gargantuan U.S. trade deficit -- $677 billion last year alone -- helped to create a trade bubble that has a direct relation to the housing bubble and our current economic crisis. And then there's our trade policy, which closely resembles a Madoff scheme. We buy far more from China than we sell thanks to China's misaligned currency, massive industrial subsidies, and barriers to U.S. exports. China uses that surplus to buy the debt we've accumulated through our trade, credit, and public deficits. What do we get? Cheaper goods, some laced with lead. We also have a shrinking manufacturing base, with nearly one in four manufacturing jobs shed since 2000 (when trade with China started to grow), and more piles of debt. But we've preserved the idea of free trade, which seems to be the most important goal in Crook's mind.
Here's a quick primer on Buy America for Clive Crook, since he gets nearly everything wrong in his criticism:
-Buy America is nothing new. The Buy American Act of 1933 established domestic sourcing requirements; these rules have been enforced ever since.
-The Trade Agreements Act of 1979 ensures that Buy America laws are applied in a manner consistent with our international trade obligations. The Senate clarified that language.
-President Ronald Reagan signed into law expanded Buy America requirements in 1982 in the midst of a recession. It neither extended the recession nor sparked a trade war.
-Buy America rules have never been successfully challenged at the World Trade Organization (WTO). There will be no retaliation if the stimulus package emerges with Buy America because there is no basis for retaliation.
-Foreign leaders doth protest too much. Major industrialized countries like Russia, China, and India do not currently grant reciprocal access to U.S. materials for government procurement. The EU and Canada have far more restrictive procurement regimes than the U.S. They want to the U.S. to give up its rights while they preserve their own protections. Only a sucker would take that deal.
-Buy America means more jobs, not less. A PERI-UMass/Amherst study estimates that 33% more manufacturing jobs will be created with exclusively domestic sourcing of manufactured materials.
Crook is right about one thing: Trade is shrinking now. But collapsing economies, not new trade barriers, are the reason. Eliminating Buy America requirements won't make a dent in trade flows, while jumpstarting the U.S. economy certainly will.
It's time to end the intolerant theocracy of free trade and usher in a responsible dialogue about what works and what doesn't work, which is the responsible thing to do in a democracy. Treating critics of flawed policies, who advocate reasonable approaches, as ignorant or dangerous, especially when you don't even understand the underlying issue, will only dig your hole deeper.
This blog is cross-posted on The Huffington Post.